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-Source,Date,Text,Token_count
-fomc-corpus,1984,"No, I don't either.",6
-fomc-corpus,1984,Do you propose just to leave that whole sentence out?,11
-fomc-corpus,1984,"No, I just didn't repeat it here.",9
-fomc-corpus,1984,"But I think ""improved"" would be a good change.",13
-fomc-corpus,1984,"Why don't we put in ""an improved pattern."" I just assumed that that sentence would [stand], but that sounds a little less--. At least it recognizes that it isn't very good now.",39
-fomc-corpus,1984,It's going to get worse.,6
-fomc-corpus,1984,"This [draft that you now have before you] is designed to follow that first sentence. For the ranges we would say 6 to 9 percent, 6 to 9 percent, and 4 to 8 percent. It's only the first two paragraphs. In this second part, I just went on and added the short-run language, which we'll get to later.",75
-fomc-corpus,1984,"What if we left off the phrase after the comma ""aggregates, which for the time being would continue to receive more substantial weight""? Doesn't the first part of that sentence give us the flexibility we need?",41
-fomc-corpus,1984,"I would make the opposite suggestion: Delete ""for the time being.""",14
-fomc-corpus,1984,I think Si has a good point.,8
-fomc-corpus,1984,"Well, I would go with Si's suggestion, too, but I think we're quite split on this question. Did you count half [unintelligible]?",32
-fomc-corpus,1984,"Well, another way is to take out the word ""more."" But I would not protest taking out that whole phrase.",24
-fomc-corpus,1984,I think the first phrase does capture it.,9
-fomc-corpus,1984,That's a good sentence.,5
-fomc-corpus,1984,"Well, I guess we're pretty evenly split, but for those of us who would like M1 to be kept as a monitoring range rather than a target, this makes it a target with caveats and it seems to me that that phrase is important. But the markets tend to overreact--we all know that--in terms of the importance it attaches to M1. It's in that context that we have to look at how our language will be received.",91
-fomc-corpus,1984,"Now, just to point out: Technically, it is true that if M1 were in the bottom part of that range--at the midpoint or below--and the economic forecast is correct, velocity growth would not be less than in past periods of expansion. It is [M1 growth in] the upper part of the range that would make [velocity grow] less than in the past.",79
-fomc-corpus,1984,"It would be more, would it not? It would be something around the neighborhood of 4 to 5 percent.",24
-fomc-corpus,1984,"Well, I don't know what the average is of past expansions--3 to 4 percent, I guess.",22
-fomc-corpus,1984,It has been between 2-1/2--,11
-fomc-corpus,1984,"If we get 9 percent nominal GNP, that puts the rate at 2-1/2 percent.",23
-fomc-corpus,1984,"Yes, but not for the first quarter; we start out higher than that. What's our first-quarter nominal [GNP estimate]?",26
-fomc-corpus,1984,10 percent.,3
-fomc-corpus,1984,"It's 10 percent, so it's about 3 percent velocity in the first quarter.",17
-fomc-corpus,1984,"With 10 percent in the first quarter, you could get 5 and 5.",18
-fomc-corpus,1984,[Unintelligible] 7 percent money growth for the first quarter.,16
-fomc-corpus,1984,We have 10 percent on GNP.,9
-fomc-corpus,1984,"But the Chairman's hypothesis was: Suppose money growth is below the 6 percent [midpoint], at 5 or 4 percent.",28
-fomc-corpus,1984,"I see, yes.",5
-fomc-corpus,1984,"If it's below the 6 percent, I don't think one can say that velocity would be less than it has been historically.",25
-fomc-corpus,1984,It's probably more.,4
-fomc-corpus,1984,"Well, I'm not sure. It might be more, say, 5 or 4 percent.",20
-fomc-corpus,1984,"Well, if the staff is forecasting--",8
-fomc-corpus,1984,"Actually, it seems to me that we are assuming putting normative velocity in the range.",17
-fomc-corpus,1984,"Instead of saying ""likely"" and really meaning that it might be less, why don't we say it might be different because we don't know where it's going to go?",33
-fomc-corpus,1984,About 3 percent.,5
-fomc-corpus,1984,How about unpredictable?,4
-fomc-corpus,1984,"""Its velocity as [well as that] for M2 and M3 would remain unpredictable.""",19
-fomc-corpus,1984,"That's the problem that I have with this language about velocity. The same argument that we're making about the velocity of M1 could easily be applied to M2 as well. I agree with the need to hedge M1 more, for the same reasons I think Tony is suggesting that. But I think logically we have a little problem here in that the hedge that we're creating could easily be said to apply to M2. As a matter of fact, if interest rates are rising, it might apply more to M2.",103
-fomc-corpus,1984,"Well, the second paragraph--",6
-fomc-corpus,1984,"The second paragraph hedges it all, I'd say.",11
-fomc-corpus,1984,"Would you rather say something about ""in light of the changing composition of M1, its erratic behavior""? That's a little too strong, right?",30
-fomc-corpus,1984,Volatility.,3
-fomc-corpus,1984,"Use ""volatility of M1"" rather than talk about velocity.",14
-fomc-corpus,1984,"Well, we might have little velocity growth without volatility. And why should we denigrate a good aggregate?",21
-fomc-corpus,1984,"Why don't we say ""Its relationship to gross national product may be different than in past periods of expansion."" That gets away from the technicalities of velocity; it says what we're really talking about.",39
-fomc-corpus,1984,But we still have the problem that it applies to M2.,13
-fomc-corpus,1984,"I know, but if we just say ""different"" it is not leaving us open to whether it is going to be less or greater.",28
-fomc-corpus,1984,"To some degree, however, the problems with M1 tend to get cancelled out in M2. That is, the staff argues that if interest rates go up, because of the higher interest elasticity demand for M1 now we might get a sharp slowdown of M1. That would not apply to M2 because the nontransaction components will probably continue to grow. So, there would be a less marked movement.",82
-fomc-corpus,1984,"There's a wild card in that, though, Lyle, as to how banks would respond.",19
-fomc-corpus,1984,True.,2
-fomc-corpus,1984,"My hunch is that in [an environment of] climbing and rising interest rates banks are going to price Super NOWs and MMDAs very, very aggressively. And if they do that, heck, we could have a positive interest elasticity of M2.",52
-fomc-corpus,1984,"What happens to interest elasticity, Steve, if the Congress removes the prohibition of paying interest on demand deposits?",21
-fomc-corpus,1984,"We are assuming that that's not going to happen, and I think we ought to say that. You have now brought it up, and we ought to put in the policy record that this is all based upon an assumption that that's not going to happen during the course of this year.",56
-fomc-corpus,1984,That will certainly change things.,6
-fomc-corpus,1984,"When that happens, we believe after some time that it would reduce the interest elasticity of M1 with respect to market rates.",25
-fomc-corpus,1984,"I have a little problem with the sentence about ""taking account of emerging evidence that in the light of the changed composition of M1 its velocity growth over time...."" I think we believe that on the basis of theoretical considerations. That is, we think the more elements that bear interest in M1, the higher the income elasticity of demand will be and the less tendency there will be--the more we have Super NOW accounts--for M1 velocity not to slow down as interest rates rise. But that's primarily a theoretical proposition. We really don't have much evidence of that yet.",115
-fomc-corpus,1984,"We can make it a little more neutral by saying ""taking account of the possibility that in the light of the changed composition of M1, its relationship to growth in GNP over time might be shifting.""",41
-fomc-corpus,1984,"Yes, that's better.",5
-fomc-corpus,1984,"We can only shift it in one direction, I'm sorry--",12
-fomc-corpus,1984,Do you want to read that again--the possibility part?,12
-fomc-corpus,1984,"""The possibility that in the light of the changed composition of M1 its relationship to growth in GNP over time might be shifting.""",26
-fomc-corpus,1984,That's good.,3
-fomc-corpus,1984,"We're putting in the nonfinancial debt range here, by the way, of about 8 to 11 percent. Well, the remaining question is: What we do with that part after the comma? Three alternatives: leave it, drop it, or take out the word ""more.""",57
-fomc-corpus,1984,"In terms of this discussion, I think the wording that you have there is perfectly appropriate. If you recall the amount of time we've spent on M1 and its velocity, its future configuration, and its components, that expresses the sense of the group.",50
-fomc-corpus,1984,"A question may arise as to what a reader would interpret ""more substantial weight"" to mean--more substantial weight than M1 or more substantial weight than they had previously. One could get around that problem, if it is a real one, by simply putting principal weight instead of more substantial weight.",59
-fomc-corpus,1984,"Well, it says ""continue to receive,"" which implies the same weight as in the past.",19
-fomc-corpus,1984,Perhaps there's not a problem.,6
-fomc-corpus,1984,"I don't think there's too much danger, Lyle, for misinterpretation of that.",18
-fomc-corpus,1984,Maybe not.,3
-fomc-corpus,1984,"I think maybe the word ""more"" should be taken out.",13
-fomc-corpus,1984,It's more weight than what?,6
-fomc-corpus,1984,"The ""more"" is the problem.",8
-fomc-corpus,1984,Substantial weight.,4
-fomc-corpus,1984,All right.,3
-fomc-corpus,1984,"By showing M1 below M2 and M3 and by having a sentence in there which deals with the uncertainty of its velocity, it seems to me we are setting the reader up for what is the [unintelligible] fact if we drop the whole phrase. The additional phrase is not necessary.",61
-fomc-corpus,1984,"That would make sense if we added ""in the light of the growth in the other monetary aggregates and economic conditions"" or something like that. Then we could have a period.",35
-fomc-corpus,1984,"Well, that's true. In that case, then, in the next paragraph I guess we'd have to drop--",22
-fomc-corpus,1984,"Oh, I see.",5
-fomc-corpus,1984,We've already captured part of the next paragraph in the phrase that Paul put in there about interpreting M1. But I think that would be a sensible way of doing it.,34
-fomc-corpus,1984,"Not incidentally, in the third paragraph when we're dealing with the short-term ranges we use M1, M2, and M3 in that order.",31
-fomc-corpus,1984,M2 and M3 and M1.,9
-fomc-corpus,1984,"M1, M2, and M3.",10
-fomc-corpus,1984,"I wish you hadn't brought that up, Si; they may want to change that now!",18
-fomc-corpus,1984,"Yes, I think they will.",7
-fomc-corpus,1984,Change [unintelligible] in there.,10
-fomc-corpus,1984,"And leave out the last few words at the end of the paragraph ""as tentatively agreed"" and go down on all the others.",27
-fomc-corpus,1984,10 to [unintelligible]?,8
-fomc-corpus,1984,"In the reference to growth in debt, rather than ""financial debt"" don't you mean ""nonfinancial debt""?",22
-fomc-corpus,1984,Where?,2
-fomc-corpus,1984,"In the last paragraph it says ""Growth in financial debt is expected to be within the range established for the year.""",23
-fomc-corpus,1984,"Yes, ""growth in nonfinancial debt."" I'm inclined just to take out the word ""more."" These things are all very narrow.",27
-fomc-corpus,1984,"Well, that's just suggesting that if M1 returns to some historical relationship, we would not place as much weight on M2 and M3.",29
-fomc-corpus,1984,"Relatively, yes. It says ""for the time being.""",13
-fomc-corpus,1984,"I would prefer to leave ""more"" in.",10
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,Take it out.,4
-fomc-corpus,1984,More than M1 or more than in the past?,11
-fomc-corpus,1984,That's not clear.,4
-fomc-corpus,1984,"It's lost in here, Mr. Chairman. The language the Committee had adopted before didn't have the word in. It said ""In implementing policy, the Committee agreed that substantial weight would continue to be placed on the broader aggregates.""",45
-fomc-corpus,1984,That's when M1 was described as being only a monitoring range.,13
-fomc-corpus,1984,"You know, we are not going to get it perfect. We cite the other two ranges first--period. Then we say we have a range for M1 and we have to interpret that in the light of these other things, which receive substantial weight. It seems to me that fairly well captures what we're talking about.",64
-fomc-corpus,1984,"What about ""principal weight""? Is that any better? It says it more succinctly.",18
-fomc-corpus,1984,"I think it's putting ""more"" back in.",10
-fomc-corpus,1984,"Right. It's putting it in but in a different way. But we do say ""for the time being.""",22
-fomc-corpus,1984,"Well, it says ""for the time being."" It clearly leaves open the possibility that our next step might be--",23
-fomc-corpus,1984,It says M1 would receive more substantial weight.,10
-fomc-corpus,1984,That's right. I think the reading of this has to be that we're more tentative about M1 than we are about the other ranges.,27
-fomc-corpus,1984,"Sure, it's hedged all over.",8
-fomc-corpus,1984,"I think that is the way it is whether or not the ""more"" is in there.",19
-fomc-corpus,1984,"If we understand what we're doing, whether that word ""more"" is in there or not isn't going to make a lot of difference. If we agree that what we're doing is putting principal weight on M2 and M3 and that we will continue basically as we have in the past with a bit more weight to M1, I don't think the inclusion or exclusion of the word ""more"" is going to rock markets.",84
-fomc-corpus,1984,"I think not. I am sure it's not going to rock markets. But let me restate that what I think we're saying is that we moved M1 out of a purely monitoring status but we are more tentative about it than we are the other ones. We'd be more prepared to change that range if evidence showed it [should be changed]. Or if these other things were in line and M1 were moving peculiarly, we would in that sense put less weight on it. But it has more [weight] than it did before.",108
-fomc-corpus,1984,That's just what it says.,6
-fomc-corpus,1984,"In this phrase about interpreting M1 in the light of growth in the other [aggregates] do we want to say ""monetary and credit aggregates""?",32
-fomc-corpus,1984,"I think not. I would argue that the credit aggregate is there but it doesn't have the weight the others have. It has less weight than M1, I guess.",34
-fomc-corpus,1984,The reason I raise this is because in the next paragraph we talk about continuing appraisal of the relationships among the various measures of money and credit.,28
-fomc-corpus,1984,"Right. This next paragraph is general and refers to them all. But the hierarchy here as I see it is still M2 and M3 together, M1 coming up, but with some uncertainty and--",41
-fomc-corpus,1984,With the jockey holding them in!,7
-fomc-corpus,1984,"That's right. And the credit range is an associated range rather than a [principal one]. If no one has any further brilliant suggestions, we're talking basically about the first two paragraphs of this [draft]. But I just anticipated here when I wrote this up that, in contrast to last month's approach which was unbalanced on the restraining side, we would lean a bit to the easing side--that we would be quicker to ease than to tighten.",89
-fomc-corpus,1984,"I thought it was pretty evenhanded. What do you mean? Did you do that by putting in ""somewhat greater restraint""?",27
-fomc-corpus,1984,"No. One says we only have somewhat greater restraint if both the aggregates and business expansion were strong. The other says we would ease if the aggregates were weak. I think it is fairly evenhanded, but we don't have to debate that now. Just look at the first two paragraphs. Are we ready to vote?",64
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin Yes President Morris No Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters Yes Governor Wallich Yes,46
-fomc-corpus,1984,"We can have the other [staff] people come in. I don't know what we'll do in the future, but we have a little lapse before announcing [this decision on the long-run ranges] and I think people can know this on a need-to-know basis. I am going to be testifying and we probably will release it either Sunday or Monday.",72
-fomc-corpus,1984,You're testifying on Monday?,6
-fomc-corpus,1984,Tuesday.,2
-fomc-corpus,1984,"No, I am testifying on Tuesday, but we will send the material up by Monday. We'll send it up late on Monday and that's probably the latest we will release it in order to avoid--",40
-fomc-corpus,1984,We'll release it before you actually present it?,9
-fomc-corpus,1984,Just a thought: I might do it on Sunday and everybody would get it together on the weekend.,20
-fomc-corpus,1984,That's a considerable change in the [Congressional] committee's procedures; usually they want to have it released at the time that the committee meeting is held.,31
-fomc-corpus,1984,"Well, I got a letter from Mr. St Germain yesterday, an irritating letter, saying ""I direct you to release it immediately."" I sent him back a letter telling him it's not his decision to direct us [unintelligible] release. And the Senate committee isn't very happy about--",60
-fomc-corpus,1984,Which is first this time. Senate or House?,10
-fomc-corpus,1984,House. It's the Senate's turn but I think it's the House first.,15
-fomc-corpus,1984,"Paul, I'd like to suggest that in order to avoid the kind of problems we had last July--or at least as far as my Bank is concerned, I'd just as soon not have a copy of the directive that is sent to New York. In fact, I've already told my economic adviser I do not expect to notify him of what went on here in this meeting today. And I think the rest of you might abide [by that] and do the same thing. If we just kept the directive--",101
-fomc-corpus,1984,"I think that's fair unless somebody has a need to know, and I don't think anybody does except presumably the people in New York who are already here. This is just an excess of caution, but it gives us a defense if something happens between now and--",51
-fomc-corpus,1984,"Because this time if there's a leak, it's squarely going to be on us.",17
-fomc-corpus,1984,That is correct.,4
-fomc-corpus,1984,I might add to what John Balles said: I wouldn't want to see a copy of the testimony even 15 minutes before it's released to the public.,31
-fomc-corpus,1984,Agreed. Okay.,5
-fomc-corpus,1984,[Unintelligible] time?,8
-fomc-corpus,1984,"Well, I say 20 minutes before. But I'd rather see it 20 minutes after.",19
-fomc-corpus,1984,Do you mean that you wouldn't send the wire there?,11
-fomc-corpus,1984,"Well, we can send it to New York.",10
-fomc-corpus,1984,It's a procedural requirements thing.,6
-fomc-corpus,1984,"Well, I don't know what the procedural requirements are.",11
-fomc-corpus,1984,"What really blew it last time was the fact that the copy of the directive that went to New York was sent to all Reserve Banks. And then all sorts of people, including clerks and secretaries, handled it.",44
-fomc-corpus,1984,That opens it up.,5
-fomc-corpus,1984,"And when the GAO came around, we had to have all those people interviewed. I strongly [recommend] that the directive not be sent until after you testify.",33
-fomc-corpus,1984,"Well, I think the only question is New York.",11
-fomc-corpus,1984,"Well, the [New York staff who need to know] are sitting here. They know what the directive is. It's up to them, of course, whether they need it in writing.",38
-fomc-corpus,1984,We'll make an arrangement that's basically in accord with what you're saying.,13
-fomc-corpus,1984,"Yes, but we're overlooking the main point, which is that everybody at this table has heard the decision. And you can count--",26
-fomc-corpus,1984,We're not overlooking that.,5
-fomc-corpus,1984,"You are supposed to forget, Tony!",8
-fomc-corpus,1984,The question of whether they come to New York or not is only one aspect of it. I don't want everybody to assume that because it comes to the New York Reserve Bank [that any leak is from] the House committee or New York.,48
-fomc-corpus,1984,I think we can proceed to the short run. Mr. Axilrod.,16
-fomc-corpus,1984,"Well, Mr. Chairman, I really have very little to add to the discussion in the Bluebook. Alternative B essentially continues the path that was adopted at the last meeting of the Committee, which had 8 percent growth in M2 and M3 from November to March and 6 percent growth in M1. [We have projected a very strong] M1 increase in January, which is still subject to doubt because we don't have the figures for the last week of January yet and we are assuming that that is a very high figure. If that is a high figure, then we would expect M1 growth in January to be quite strong and to help sustain growth over the four months at the rate suggested there--around 6-3/4 percent. So, we would have suggested that a somewhat higher growth than 6 percent would be consistent with the 8 percent [growth in M2 and M3]. However, I think there's enough doubt about that to suggest that there is no particularly strong technical need to change the Committee's specifications from the 6 percent that is now in there for alternative C.",223
-fomc-corpus,1984,"What did we have last time: 8 percent, 8 percent, and 6 percent?",20
-fomc-corpus,1984,"[Yes.] But I don't think there's any strong technical need to change that 6 percent even though [6-3/4 percent] is our best estimate, based on an uncertain January. The other two alternatives, Mr. Chairman, are simply: alternative A, which is for more rapid growth in the aggregates; and alternative C, which is for less rapid growth in the aggregates. We believe that alternative B, continuing on the same path, would be about consistent with the same constellation of restraint on reserve conditions. But, of course, there is some uncertainty given the introduction of CRR and what that might mean specifically. In particular, there is the possibility that in a transition period we might place excess reserves even higher than we've had in recent months recognizing, though, that there is a 3 percent carryover in two weeks. So it's not clear that excess reserves would stay higher for very long periods. Our exploration with banks as to how they are situated would suggest that possibility, at least in the transition period.",205
-fomc-corpus,1984,"Steve, did this exploration include exploration of small banks?",11
-fomc-corpus,1984,"Well, they in particular were the ones that said they thought their excess reserves would be higher. The big banks mostly said they would be a little conservative to begin with, but believe they will be close to where they were fairly shortly after CRR is initiated. So, over a sustained period it might be mainly the smaller banks. The borrowing relationships--",70
-fomc-corpus,1984,"I might say I have a little suspicion from what people have said that we're not going to have the weekly money supply figures for a week or two, or at least with long lags. I don't know how prepared you are out there to produce these numbers in a timely fashion.",56
-fomc-corpus,1984,"Our information is that the Reserve Banks are in varying states of preparedness, but we expect everyone to be on the starting line tomorrow or the day after.",30
-fomc-corpus,1984,"Yes, but even if the Reserve Banks are prepared, the problems with the commercial banks are a great unknown. There are very, very, conflicting views and opinions. I must say I am a lot more concerned than I think you are or Steve is.",51
-fomc-corpus,1984,"That may very well be, President Corrigan. The reports that we get from the banks indicate that they are as ready as they're ever going to be. And, of course, they have a strong incentive to be able to monitor their deposit flows. There may be problems as there always are in a switch-over in the reporting systems. I would assume that there will be and that we will miss maybe the first Thursday publication or the second and have to delay them a bit. And I would not doubt, Mr. Chairman, that in the first two weeks the money supply figures will be subject to much more revision than normal. But our information is that the banks are reasonably well prepared and the Reserve Banks are reasonably well prepared. I have no doubt, however, that there will be some glitches in the first two or three weeks.",166
-fomc-corpus,1984,I wonder if it would be well when the money supply figures are released for the next several weeks to make the point that these are subject to greater revision than normal because of the switch over to CRR.,41
-fomc-corpus,1984,We've already said that.,5
-fomc-corpus,1984,"Well, I'd say it again.",7
-fomc-corpus,1984,"Well, it will be part of the release.",10
-fomc-corpus,1984,"Mr. Chairman, the only other technical point I wish to make is that we assumed that alternative B was consistent with continuing a borrowing level of $650 million. There are uncertainties about excess reserves. There probably also are some uncertainties about borrowings because we can't really be sure exactly how banks are going to decide to manage their positions. If they make mistakes, they may be forced into more borrowing than they are otherwise thinking about; or they may have an excess of caution and so much in excess reserves that they're not going to have much borrowing; or the level of excess reserves will show more variation because of the switch-over. But I think a degree of uncertainty can be attached to both excess reserves and borrowing in thinking about reserve positions.",146
-fomc-corpus,1984,"They are not unrelated. [Unintelligible] supplies of reserves. If they borrowed less, the excess reserves would be less; if they borrowed more, the excess reserves would be more.",39
-fomc-corpus,1984,That is true.,4
-fomc-corpus,1984,Are you building additional excess reserves into the reserve paths?,11
-fomc-corpus,1984,"We will do so in the first two weeks. But then there's a 3 percent carryover and after that I'm not sure how we will end up. But certainly in the first two weeks we'll put in more excess reserves than normal, not merely because of this but because there is a reserve requirement reduction of $2 billion in the phase-down for member institutions. That in itself ought to add $100 million or so to excess reserves.",87
-fomc-corpus,1984,"Steve, have you been hearing from the banks about the free ride in both the vault cash and other categories?",22
-fomc-corpus,1984,"Yes, but that's built into the transition.",9
-fomc-corpus,1984,I know the larger banks are anticipating [unintelligible] capitalize them.,16
-fomc-corpus,1984,"We have not seen much of an increase in vault cash related to that in the aggregate numbers. We've looked at it, and it doesn't seem that the banks are behaving very differently.",36
-fomc-corpus,1984,The free ride is over in the vault cash. And in that period I think it was exercised in just a modest degree. I didn't hear very much about the free ride on the deposits side. The fact that there are 10 to 12 days that never get reserved didn't get much attention.,59
-fomc-corpus,1984,How was there a free ride? I don't understand this at all.,14
-fomc-corpus,1984,There was a period of a couple of weeks when vault cash in effect counted double. It counted with the normal lag that has been going on--,29
-fomc-corpus,1984,Now I see.,4
-fomc-corpus,1984,--but also banks get more on their [vault cash] schedules in the first couple of weeks of February.,22
-fomc-corpus,1984,So we ought to have more vault cash for two weeks?,12
-fomc-corpus,1984,For two weeks.,4
-fomc-corpus,1984,"Well, we've paid them to hold more. But they didn't do as large [unintelligible]; they did it to only a minor degree.",30
-fomc-corpus,1984,It's nice to know that the entrepreneurial spirit is alive and well in some places!,16
-fomc-corpus,1984,"Apparently, it's too well!",6
-fomc-corpus,1984,"May I ask a technical question of another kind? The selection of November to March as the period to focus on is explained essentially by the fact that that is the same period we used at the December meeting. Why does that take precedence over a December-to-March calculation, given the fact that we have fairly solid figures for December?",66
-fomc-corpus,1984,What is the December-to-March equivalent of what you have here for November to March?,18
-fomc-corpus,1984,For M1--I have to make a few [calculations]--it's 7.3 percent.,22
-fomc-corpus,1984,For M2 and M3 it's about 7.7 percent.,14
-fomc-corpus,1984,7.7 percent.,5
-fomc-corpus,1984,You're saying that's the same as alternative B?,9
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,That means that if we made it December to March the numbers would probably be around 8 percent [for M2 and M3] and around 7 percent [for M1].,37
-fomc-corpus,1984,"I think December to March is 7.7, 7.7, and 7.3 percent.",23
-fomc-corpus,1984,Right. But rounding them we would probably come up with a 1 point rise in M1 then.,21
-fomc-corpus,1984,I'm not quite sure why you want to round up.,11
-fomc-corpus,1984,"There are two comments I could make, Governor Gramley. One, it was just simpler in presenting the alternatives not to have to present a lot of numbers--the November-to-March numbers and the equivalent December-to-March numbers. That is one minor factor. The other is that the November base happens to be pretty close to the fourth-quarter average. So at 6 percent, M1 is at the midpoint of the 4 to 8 percent range. But that's happenstance to this period.",101
-fomc-corpus,1984,"Well, we have discussed a lot of technicalities. What do you want to do in substance? Do you want to maintain the existing degree of pressure on reserve conditions or don't you? If you do, then that means alternative B.",47
-fomc-corpus,1984,"There's another point, which we began to discuss: We were expecting last time that there would be a strengthening in the aggregates and in the economy, and we were probably right on the edge of tightening up. The question is: Should that stance be more neutral now because, after all, we didn't get that strengthening?",63
-fomc-corpus,1984,"Well, it is more neutral now; we're simply saying ""maintain."" If I remember correctly, last time we said ""at least maintain.""",29
-fomc-corpus,1984,It all dropped off one side of the--,9
-fomc-corpus,1984,Right. But it ought to be an evenhanded directive indicating we would tighten or loosen depending on incoming developments. The [previous directive] was asymmetrical.,32
-fomc-corpus,1984,"I would argue that, although some individual monthly and quarterly numbers have come in perhaps not quite as strong as we expected, Lyle's general point about the risks in the economy next year being non-symmetrical on the strong side for a variety of reasons should make us want to be at least evenhanded in this directive.",66
-fomc-corpus,1984,When does the leading indicator [index] come out?,11
-fomc-corpus,1984,"Oh, that's a point.",6
-fomc-corpus,1984,It was up 0.6.,8
-fomc-corpus,1984,Did the housing number come out?,7
-fomc-corpus,1984,The housing starts?,4
-fomc-corpus,1984,"No, not starts; did the housing sales come out today?",13
-fomc-corpus,1984,That I don't know.,5
-fomc-corpus,1984,The leading indicator was up 0.6? And was the previous month revised?,17
-fomc-corpus,1984,Yes. They are strong in any event.,9
-fomc-corpus,1984,It is up 0.2 now; it had been slightly down.,15
-fomc-corpus,1984,"I had come into this meeting prepared to argue that the weight of the evidence, as I see it, leans if anything in the direction of suggesting that we ought to be just a bit tighter. I still interpret the fourth quarter as a very strong quarter with very strong private domestic final purchases. We have money numbers now which fortunately--I mean fortunately for my argument--look stronger in the fourth quarter and continue to be strong into the first quarter. We're talking about a December-to-March increase in M1 of about 7-1/2 percent. The M2 and M3 figures are much more tranquil. At a minimum we ought to be evenhanded, I think, in the statement of the alternatives.",145
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,That's about where I am. But I could use--,11
-fomc-corpus,1984,"Excuse me, but are these figures on page 10 [of the Bluebook] all revised figures? Is that why I don't recognize them?",30
-fomc-corpus,1984,"Yes, they are all based on the revised series.",11
-fomc-corpus,1984,And to get that 12 percent in January we have to have a big increase in the last week in January?,23
-fomc-corpus,1984,"Yes, close to $4 billion.",8
-fomc-corpus,1984,Boy! What makes you think we're going to get that?,12
-fomc-corpus,1984,Our projector is often right!,6
-fomc-corpus,1984,"Unfortunately, you could also make the statement that he's often wrong.",13
-fomc-corpus,1984,"I would take some issue with Lyle's thesis. I think there were several areas in which the data were disappointing or surprising. Some series came out for December and for the fourth quarter that indicate that there are risks and vulnerabilities in several areas. The leading indicators, of course, may now have been reversed. But the international situation is certainly not encouraging. Housing has vulnerabilities that I think have not been adequately analyzed by anybody--no reflection on our staff. And the fact that a lot of equipment has been purchased by industries is not the whole answer; a lot has been purchased from foreign sources. It wasn't all just imports to the consumer; there were imports to business. And we have not had the kind of investment revival that has been typical in recoveries. This has been kind of a defensive retrofitting. That's not a gross private domestic investment surge. It's a defensive [approach]: How can we stay in there with the prospect of a diminishing market share? I think there are a great many vulnerabilities in several areas here. It isn't all on the positive side. I would go for an evenhanded language format, but I don't think we can ignore the downside risks in this situation.",240
-fomc-corpus,1984,"I agree with Pres. I think the weight of the evidence in the last month is that the growth rate in the economy is decelerating. And the fact that the leading indicator series index was up 0.6 confirms that because that's a standardized index where the normal month's change is 1 percent. So, the 0.6 increase suggests a slowing in the rate of growth.",78
-fomc-corpus,1984,What do you mean the normal increase is 1 percent?,12
-fomc-corpus,1984,"There is a built-in increase, a trend.",10
-fomc-corpus,1984,"The trend norm for that index, Paul, would be a 1 percent growth rate.",18
-fomc-corpus,1984,"And the GNP isn't back at a 1973-to-1980 trend line. If you put any kind of trend line in there, we're still below.",33
-fomc-corpus,1984,I don't know. That's news to me. How is that index constructed so its normal increase is 1 percent a month? That means the average of all the components has to go up 1 percent a month? The work-week has to go up 12 percent a year and the stock market has to go up 12 percent a year?,69
-fomc-corpus,1984,"No, the index--",5
-fomc-corpus,1984,And the money supply has to go up 12 percent a year?,14
-fomc-corpus,1984,Maybe we ought to get a paper out on how we--,12
-fomc-corpus,1984,"Well, you have stimulated me to look into it. But it seems very strange.",17
-fomc-corpus,1984,I'm quite sure I'm right that anything less than a 1 percent rise would suggest some modest deceleration in the growth rate of the economy.,28
-fomc-corpus,1984,"Well, forgetting these more abstract issues that [unintelligible] in the GNP, the production index is up less and the employment is up less than it was before. I would point out that the stock market has declined significantly. And, therefore, although Lyle could be right, I think we have to wait for evidence to confirm that there will be more strength than the 4 to 4-1/2 percent kind of normative number that people have in mind.",97
-fomc-corpus,1984,"Well, if the world turns out the way the staff has projected, it is pretty obvious what policy should be. I don't think we are going to get this smooth, even, deceleration of the rate of growth. We're going to get a good quarter and a bad quarter and a good quarter and a bad quarter. And if we don't look through that, we're going to make mistakes. We have to take into account the average of where we think we're going, and the trend seems to be that the economy is calming down. So, it seems to me that we should wait and see whether that has really happened or not before we tighten up.",130
-fomc-corpus,1984,"Well, I don't know whether we're close to a conclusion. Is it clearly the consensus that--forgetting about what we do in the future--right now we ""maintain."" Is that the right word to put in there?",46
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,Nobody wants to ease up and nobody wants to tighten now?,12
-fomc-corpus,1984,Which draft are you working from?,7
-fomc-corpus,1984,"Well, it doesn't make any difference for this purpose, but I'm now working off of mine. Do we just put the word ""maintain"" in there?",32
-fomc-corpus,1984,That is [unintelligible].,8
-fomc-corpus,1984,"Yes, I know that. The [housing sales numbers] are out?",15
-fomc-corpus,1984,They came out at 10:00 am.,10
-fomc-corpus,1984,We had some strange figures for new house sales. They went way up--28 percent--and it's all in the South; everyplace else they went down. It's the highest figure since I don't know when. [Unintelligible.] The [press release] says you have got to go back years before you find a month this high.,69
-fomc-corpus,1984,Existing home sales are the bulk of the buying.,10
-fomc-corpus,1984,This is new house sales or existing house sales?,10
-fomc-corpus,1984,New.,2
-fomc-corpus,1984,"Existing house sales came out earlier. They too were up, but not--",15
-fomc-corpus,1984,They were up 8 percent.,7
-fomc-corpus,1984,"You have to go back--I forget, but I think it's 10 years or so to get a new home sales figure this high. Or maybe it was 1978. I think it was.",41
-fomc-corpus,1984,There are sold signs everywhere in Dallas.,8
-fomc-corpus,1984,Is it all over the South or is it restricted to--?,13
-fomc-corpus,1984,"I didn't look at the data. I was told it was in the South and that the West is down, the Central region is even, and the Northeast is going no place. It's all in the South. Very strange. It's all in Dallas, [Bob]?",53
-fomc-corpus,1984,Everybody's going to move to Dallas!,8
-fomc-corpus,1984,"Well, if ""maintain"" is the right word, let's look at this draft I gave you.",21
-fomc-corpus,1984,"You've dropped ""at least.""",6
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Oh yes, I think that's desirable.",8
-fomc-corpus,1984,I do also.,4
-fomc-corpus,1984,It ought to be more evenhanded.,9
-fomc-corpus,1984,Why don't we just take the sentence out of the last operational paragraph and use it?,17
-fomc-corpus,1984,What's the sentence out of the last operational paragraph?,10
-fomc-corpus,1984,You're going to add that reference to CRR. Is that it?,14
-fomc-corpus,1984,"I just stuck the CRR reference in the last sentence. But before we get to the CRR issue, this was deliberately changed from what it was last time, rightly or wrongly. I put the possibility of lesser restraint first and said we're not going to tighten unless we have in effect both more rapid growth in the aggregates, within some limit, and good business news.",74
-fomc-corpus,1984,"I don't think that's the thing to do. I much prefer an evenhanded treatment, and I think evenhandedness in this case would mean staying with the existing language. The existing language lets the qualifying comment about the strength of the recovery affect both.",52
-fomc-corpus,1984,Where's he reading from?,6
-fomc-corpus,1984,"Where are you reading from, Lyle?",9
-fomc-corpus,1984,I don't know where you're reading from either.,9
-fomc-corpus,1984,I'm reading from the draft domestic policy directive that the staff passed out.,14
-fomc-corpus,1984,Page 6?,4
-fomc-corpus,1984,"On page 4, line 77. The old language is ""depending on evidence about the continuing strength of the recovery"" and so on.",29
-fomc-corpus,1984,"Well, before you get there, let me just note that the first thing my draft does is list M1, M2, and M3 all together. And that immediately follows this other language about the relative weights.",44
-fomc-corpus,1984,I think that's all right.,6
-fomc-corpus,1984,I object to that. We didn't put M1 back into the primary position again.,17
-fomc-corpus,1984,"Well, I think it is to be read in the light of what is in the previous paragraph.",20
-fomc-corpus,1984,I don't think so. I don't think the markets are going to interpret it that way.,18
-fomc-corpus,1984,"I don't think so either. I think we should have an M2, M3 sentence and then an M1 sentence. And I would put it back in a monitoring range because that's where it still is as far as I'm concerned.",47
-fomc-corpus,1984,Shouldn't we have a show of hands on who wants to put M1 back in and give it more equal weight? I don't have a count on that; maybe you do.,36
-fomc-corpus,1984,"Well, we disposed of that for the long-term ranges.",12
-fomc-corpus,1984,"Yes, and it comes up every time we have any kind of discussion.",15
-fomc-corpus,1984,It's easier to do [unintelligible] short term.,13
-fomc-corpus,1984,Everyone is quite predictable as to what they will say.,11
-fomc-corpus,1984,"I think your position has changed, Chuck, hasn't it?",12
-fomc-corpus,1984,I've been putting it back in for quite a while.,11
-fomc-corpus,1984,"Well, one way we can do it is to say M2, M3, and M1. I don't think it's read in the light of what the previous paragraph says.",36
-fomc-corpus,1984,Let sleeping dogs lie.,5
-fomc-corpus,1984,"Well, we could do M2, M3, and M1. We could say ""M2 and M3 at annual rates of about blank percent and blank percent respectively, and M1 at about blank percent.""",44
-fomc-corpus,1984,Right. It's a little more consistent.,8
-fomc-corpus,1984,"I have been given the following figures for alternative B if we use December to March: 7.8, 7.8, and 7.3 percent. I suppose what we would put in there is 8, 8, and 7 percent if we cite December-to-March figures. We have 8, 8, and 6 percent for November to March, if you want to be essentially where we were last time.",91
-fomc-corpus,1984,"You're talking about putting 8, 8, and 7 percent in with Governor Partee's language?",22
-fomc-corpus,1984,"Yes. ""...with growth of M2 and M3 at annual rates of about 8 percent and M1 at 7 percent respectively from December to March.""",32
-fomc-corpus,1984,I think that makes more sense.,7
-fomc-corpus,1984,"Doesn't the ""respectively"" go before the Ml?",12
-fomc-corpus,1984,"We don't need the ""respectively.""",8
-fomc-corpus,1984,"We don't need it at all, I guess, because it's the same number [for M2 and M3].",23
-fomc-corpus,1984,I'm sorry. How would it read again?,9
-fomc-corpus,1984,"""In the short run the Committee seeks to maintain the existing degree of pressure on bank reserve positions, anticipating that approach will be consistent with growth of M2 and M3 at annual rates of about 8 percent and M1 at an annual rate of about 7 percent during the period from December to March.""",61
-fomc-corpus,1984,"Maybe we ought to say ""M2 and M3 each at annual rates of about 8 percent.""",21
-fomc-corpus,1984,To make sure we're not adding up the two!,10
-fomc-corpus,1984,"Well, I sort of miss the ""respectively,"" too. But ""each"" becomes a substitute for ""respectively."" Then the next sentence is nonfinancial debt.",34
-fomc-corpus,1984,Then the growth of nonfinancial debt sentence is the language we've used before. Is that acceptable?,19
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Now we get down to what we might do and how, going back to what Lyle was talking about. Let me look at this again and decide.",31
-fomc-corpus,1984,"There seem to be four elements that are weighted in favor of lesser restraint. One is the phrase ""lesser restraint would"" whereas the other says ""greater restraint might."" Also--",36
-fomc-corpus,1984,"That should be ""would.""",6
-fomc-corpus,1984,We had nothing in the last directive about lesser restraint.,11
-fomc-corpus,1984,That's right.,3
-fomc-corpus,1984,That's correct. It was asymmetrical.,8
-fomc-corpus,1984,"But the language as it is put here was on page 4 [of the draft directive]. If we changed that lesser restraint from ""might"" to ""would,"" that would make it perfectly symmetrical or almost perfectly symmetrical. Maybe we'd have to put the ""somewhat"" in there before ""lesser"" to make it perfectly [symmetrical].",69
-fomc-corpus,1984,"Well, the sentences become almost identical except that the order is reversed by putting ""lesser restraint"" first. In the ""lesser restraint"" sentence the difference is ""might"" and ""would,"" as you noted; otherwise, I think it's the same. The language of the other draft has ""somewhat"" too. It's very close, but I myself think it's a little better showing [we need more evidence] to tighten than to ease at this point.",93
-fomc-corpus,1984,"I don't care about the order and whether the lesser goes first or not, but the asymmetry in the words does strike me as meaningful. I would rather not have it.",35
-fomc-corpus,1984,"Now, what asymmetry in the words do you mean?",12
-fomc-corpus,1984,"Well, either ""would"" in both cases or ""might,"" but I prefer ""would."" And I'd eliminate the ""somewhat.""",27
-fomc-corpus,1984,"Well, it's going to be a moderated response in any event in either direction.",16
-fomc-corpus,1984,"Then we could add ""somewhat"" on the easing side.",13
-fomc-corpus,1984,That's his fallback position!,5
-fomc-corpus,1984,"But the asymmetry goes even beyond that because we would be saying less restraint subject only to the condition of a shortfall in money and credit growth. Whereas on the other side, it's not just the ""might,"" it's more rapid growth of money and stronger business and--",54
-fomc-corpus,1984,"I don't read it that way. I read that whole first phrase as applying to both parts, the lesser or greater restraint. We're taking into account the economy.",32
-fomc-corpus,1984,"No, Jerry's right, I think. The ""evidence of stronger business expansion, inflationary pressures"" and so forth modifies the ""greater restraint"" whereas nothing--",34
-fomc-corpus,1984,"You think that modifies ""greater restraint""?",8
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Yes, that's what it was meant to do.",10
-fomc-corpus,1984,The way to be evenhanded is to go back to the language on page 4 of the draft directive and put that sentence on the front end that refers to depending on evidence about the continuing strength of economic recovery and other factors bearing on the inflation outlook.,52
-fomc-corpus,1984,That's what I was reading.,6
-fomc-corpus,1984,But Paul is not.,5
-fomc-corpus,1984,"Oh, I see. Okay.",7
-fomc-corpus,1984,I think we ought to decide which sheet we're going to read from. It's close.,17
-fomc-corpus,1984,That's why I said it seemed to apply equally on either side.,13
-fomc-corpus,1984,We've come to agreement too easily. It's not time yet!,12
-fomc-corpus,1984,We could have a long coffee break.,8
-fomc-corpus,1984,I think that Steve's proposed operational paragraph on page 18 is quite evenhanded.,18
-fomc-corpus,1984,Page 18?,4
-fomc-corpus,1984,In the Bluebook.,5
-fomc-corpus,1984,"It's the same wording, isn't it? I think that's the same as what you're looking at on page 4 [of the draft directive].",28
-fomc-corpus,1984,It takes care of Lyle's point.,9
-fomc-corpus,1984,"Yes, but it's the same language he is looking at, isn't it? Exactly.",17
-fomc-corpus,1984,"Yes, Governor Gramley is reading from page 4 of the draft directive, which is the same as page 18 of the Bluebook.",29
-fomc-corpus,1984,"It's the same language, isn't it?",8
-fomc-corpus,1984,"Well, the language you're talking about--that particular sentence--is exactly the same.",17
-fomc-corpus,1984,"If we do that, in the phrase ""significant shortfall"" do we want to take out the ""significant""?",25
-fomc-corpus,1984,"That is a small difference; nonetheless, that's the only difference of significance, I guess, here. My own feeling is that I'd want a little more evidence before tightening than I would before easing at this point.",42
-fomc-corpus,1984,I'm on the opposite side of that.,8
-fomc-corpus,1984,I would support the need for a little more evidence to tighten.,13
-fomc-corpus,1984,I think we ought to be pretty evenhanded.,11
-fomc-corpus,1984,In face of the evil [unintelligible] at all times.,15
-fomc-corpus,1984,"I certainly want to be at least evenhanded. The problem I have is that if events work in a direction where we want to ease between now and the next meeting--which is an unusually long time--it's a pretty easy thing to do, but the opposite is not easy to do. To me, that in itself argues for trying to keep it symmetrical. I don't know what is going to happen, but I personally don't think an asymmetrical approach is the prudent thing to do. I still think that the risks are on the other side.",110
-fomc-corpus,1984,I'll buy the evenhanded directive with the understanding that the Chairman would just think a little longer.,20
-fomc-corpus,1984,That is certainly the Chairman's mood.,8
-fomc-corpus,1984,This directive isn't adopted for that purpose. It's for the public.,13
-fomc-corpus,1984,I don't have any problems with Mr. Boehne's suggestion at all. It's the written word we have to worry about.,26
-fomc-corpus,1984,That's correct.,3
-fomc-corpus,1984,"Well, I understand the nuance, but if we had all those things together--if we had more rapid expansion of the aggregates, stronger business, and inflationary pressures--the Chairman probably would take the action and we wouldn't be worried about those things.",50
-fomc-corpus,1984,"The point is: Suppose the business news comes in strong, which I expect it will, and the aggregates tend to fall short. Then what do we do? Do we ease or not? And I don't want to ease in those circumstances. I don't want to ease because I think the risks for the year as a whole lie predominantly on the side of more growth than the staff is forecasting and stronger inflationary pressures. If I'm right--and, of course, I may not be--then easing now in response to those [monetary aggregates] signals would be the wrong thing to do.",119
-fomc-corpus,1984,"What if the opposite should occur? What if the aggregates come in strong--and, after all, for January they are projected to be strong--and the economic news were to continue to be soft? What would you do then?",46
-fomc-corpus,1984,"If it were soft enough to really question the continuation of recovery along the lines that the staff is forecasting, then I would plan to ease.",28
-fomc-corpus,1984,So it's the economic indicators that are moving you rather than the aggregates?,14
-fomc-corpus,1984,"Why don't we move the phrase ""in the context of the business expansion and inflationary pressures"" to the front of the sentence? Then it will modify both.",32
-fomc-corpus,1984,"Well, then it becomes more neutral. That's the way Steve had it, but it depends upon whether you want to be that neutral.",27
-fomc-corpus,1984,I would favor that. The lesser restraint without some business signal seems to be an almost purely monetaristic reaction.,23
-fomc-corpus,1984,I think we've had some business signals.,8
-fomc-corpus,1984,We can write that in if we have business news.,11
-fomc-corpus,1984,"The question is whether it takes more, I guess.",11
-fomc-corpus,1984,I think it takes more to tighten.,8
-fomc-corpus,1984,"We could leave it at the end, Paul, but put in another comma and, using your draft, say ""both viewed in the context of continued strength in business expansion...""",35
-fomc-corpus,1984,I vote for neutrality in relation to Lyle's scenario. I see no reason why we should signal that lesser restraint is more easily triggered than tighter restraint.,31
-fomc-corpus,1984,"If we are going to take Chuck's suggestion, we could say ""both viewed in the context of economic and inflationary developments.""",26
-fomc-corpus,1984,"After all, we would always do that anyway, wouldn't we? We wouldn't set policy without looking at the economy.",23
-fomc-corpus,1984,I hope. We've done it.,7
-fomc-corpus,1984,In 1982.,5
-fomc-corpus,1984,Would it be too revolutionary to take the whole thing out?,12
-fomc-corpus,1984,"Yes, because we're not going to adjust policy on the basis of the aggregates, I hope. They have been much too erratic to base a decision on them [just] because they're going up or down relative to the rest of the world.",49
-fomc-corpus,1984,"Well, it seems to me we would do what this says anyway. It's part of our normal operating procedure. And if we take the whole thing out, we're going to operate in the way that we normally would.",43
-fomc-corpus,1984,Do you mean take out the whole works--the references to more restraint and lesser restraint?,18
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,That takes away some of the lack of evenhandedness.,13
-fomc-corpus,1984,"Let them guess! Right, that builds character.",10
-fomc-corpus,1984,"So, if things don't work out this way, the Committee will decide what to do about it.",20
-fomc-corpus,1984,"Well, my problem is very simple. I don't feel evenhanded about this.",17
-fomc-corpus,1984,I agree. I don't think it should be evenhanded.,13
-fomc-corpus,1984,But is it important to put that in the directive--that you just described as evenhanded the understanding that I think is fairly consistent [with the views expressed] around the table that we would operate in such a way that it would take somewhat more evidence to tighten up?,55
-fomc-corpus,1984,It hardly meets the criticism that we fail to communicate the nuances of our policies to the public.,19
-fomc-corpus,1984,"Well, I think it is more important that we be fairly consistent with what we've done in the past. And there is a nuance, if you will, by simply making it evenhanded now as opposed to the greater inclination for restraint that was in the immediately preceding directive. So I think there is a nuance that can be read in it if we use evenhanded language.",76
-fomc-corpus,1984,Why don't you ask for a preliminary show of hands between evenhanded and--,16
-fomc-corpus,1984,I know where my hand is.,7
-fomc-corpus,1984,He doesn't particularly want to see the other hands!,10
-fomc-corpus,1984,"I would like to be clear that I am a lot more concerned about policy than I am about words. And what I would like to have some indication of is whether everybody is leaning in the direction that you're indicating--that they would rather ease than tighten. To operate erring on that side is one thing; I want to go in the opposite direction, if anything. I will live with evenhandedness but I care a lot more about the policy than I do about the words.",98
-fomc-corpus,1984,"Well, for clarification: Why wouldn't you have greater restraint if the aggregates were growing faster and if there were strong evidence of stronger business and inflationary pressures?",31
-fomc-corpus,1984,I would. I want all those things.,9
-fomc-corpus,1984,"Why do you need to say ""might"" then? I understand you want to be careful but if all those things applied, it would seem to me that it isn't necessary to be that careful about it.",41
-fomc-corpus,1984,"Well, not spoken here is the point that we have to keep an eye on what is happening on the international scene too.",25
-fomc-corpus,1984,That is part of my problem.,7
-fomc-corpus,1984,"That's a point, sure.",6
-fomc-corpus,1984,"Well, that has been a continuing problem all along. But it is true that there is a clear expectation of inflationary pressures later this year.",29
-fomc-corpus,1984,"No, I don't think so.",7
-fomc-corpus,1984,Commodity prices don't show it.,6
-fomc-corpus,1984,It certainly is a market [expectation].,9
-fomc-corpus,1984,"It's a very good possibility, but I don't think there's clear evidence.",14
-fomc-corpus,1984,A quarter of a point is probably the maximum we're talking about and I don't think that is going to change the international situation in terms of LDCs and the debt problem.,35
-fomc-corpus,1984,"Again, the way I look at this is that part of the problem is that the better we are in the short run, the worse we are in the long run. I wouldn't mind necessarily if we had a first quarter and a second quarter that were even a shade lower than the staff projection because I think the possibility of being able to keep the expansion going throughout the balance of the year into 1985 actually is enhanced by that. From my vantage point that is the primary reason why I would favor being evenhanded. If we ended up with a really robust first quarter and robust money growth in the first quarter, that just complicates the heck out of the task in the second quarter.",139
-fomc-corpus,1984,"But the premise is that if we have a weak first quarter, we would have very little sign of inflation. We would have the Argentineans messing up their restructuring. Those would be the circumstances.",39
-fomc-corpus,1984,I don't think there is anything we are going to do here that's going to influence the Argentineans.,20
-fomc-corpus,1984,Amen.,2
-fomc-corpus,1984,"If we have to ease, that's easy to do. I don't have any problem with that side of it at all. It's the other side that I worry about.",33
-fomc-corpus,1984,Economic recovery in the other industrialized countries is picking up faster than we expected. The very minor changes that might result out of this policy in terms of interest rate levels are not going to be a significant factor.,42
-fomc-corpus,1984,Unless you're talking about--,5
-fomc-corpus,1984,"Unless we have a move of a whole point. But if we're talking about what I assume you are talking about--say, a quarter of a point--",31
-fomc-corpus,1984,"What I'm talking about depends on how far things are off. Well, I'm not going to die with this language here. I am just picking this up: ""Lesser restraint would be acceptable... [etc.] while somewhat greater restraint might be acceptable given more rapid expansion of the aggregates, both viewed in the context of the strength of the business expansion and inflationary pressures."" I feel a little biased at the moment as I look at the situation. But this is all in the context of not doing anything at the moment. Is that language acceptable? SEVERAL. Yes.",115
-fomc-corpus,1984,When do we meet here again?,7
-fomc-corpus,1984,March 27. That's eight weeks from now.,10
-fomc-corpus,1984,"Well, if anything happens, we'll have a consultation anyway before we decide to move. That's for sure. And with that understanding, I think we can just leave it. What that next sentence says is that we aim at a little higher excess reserve levels at least during the first couple of weeks and play it a bit by ear as to whether we pull it down thereafter. We could get a good deal more volatility in the federal funds rate during this period. I don't think we ought to be too sensitive to that but at some point I suppose that would be a measure of how much excess reserves were needed. But if it bounced up to 10 percent or so for a while or went down to 9 percent or below, I don't think we have to be jumpy about it. Just to take a guess, do we add about $200 million in excess reserves in this first two weeks?",179
-fomc-corpus,1984,"Well, $200 or $300 million perhaps, in light not only of CRR but also the phase-down in reserve requirements.",26
-fomc-corpus,1984,"You've been putting in around $400 million, haven't you?",12
-fomc-corpus,1984,"It has been $400 to $450 million, although the average in the last several weeks would probably be more like $500 to $600 million.",30
-fomc-corpus,1984,You're talking about $200 or $300 million more than that?,13
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"If we were ordinarily putting in about $400 million, at least $600 to $700 million.",20
-fomc-corpus,1984,"So, it's about even on the marginal reserve measure with borrowing of $650 million and excess reserves of $600 to $700 million?",27
-fomc-corpus,1984,It may run higher and then borrowing may run a bit higher. We just don't know what the pattern of borrowing is going to be over the course of the two weeks. If they borrow an enormous amount early--,42
-fomc-corpus,1984,I think the implication is that you'll probably be aiming at small positive free reserves for these first two weeks.,21
-fomc-corpus,1984,What's the advantage in this transitional period of allowing the funds rate to bounce all around rather than containing it some?,22
-fomc-corpus,1984,"We have to allow a certain amount of bouncing around, I think, even if it shows up in the last two days; otherwise people are going to feel that we're really pegging the rate.",39
-fomc-corpus,1984,"I think that's the only problem here. We could just peg the federal funds rate during this period, but I don't know that we want to create that--",31
-fomc-corpus,1984,I'm not advocating that. I'm just curious as to how you--,13
-fomc-corpus,1984,"Well, there is a danger that we might over-supply reserves too if we did that, and then we would have the problem of withdrawing them later on.",32
-fomc-corpus,1984,We could under-supply them too.,8
-fomc-corpus,1984,Didn't we have a pattern of very low borrowing until Wednesday and then borrowing shot up the last day?,20
-fomc-corpus,1984,"Recently, that's what we've had.",7
-fomc-corpus,1984,Every day is going to be Wednesday now.,9
-fomc-corpus,1984,I don't contemplate that going on for 13 days.,11
-fomc-corpus,1984,"As long as the funds rate bounces around over this week or several weeks that would be okay. But if it tended to settle in at 10 percent or 9 percent, that might be telling us something.",43
-fomc-corpus,1984,"Well, I think it might. I don't disagree with that. I'm a little reluctant to say we want the fed funds rate at 9-1/2 percent or something, so let's use [unintelligible]. On the other hand, if we're not using it and, as you say, it settles in at some high or low level, I think that's evidence of the level of excess reserves they want.",84
-fomc-corpus,1984,May I ask a technical question? At the end of the two week maintenance period will there be a carryover available? Will a 3 percent carryover for the first two weeks really amount to 6 percent on a weekly basis?,47
-fomc-corpus,1984,"Well, it's twice as much, in effect, on the last day. That's right.",18
-fomc-corpus,1984,"So, you could come to the end of the period and apply a 6 percent carryover factor the first two weeks and you could have very high excess reserves.",33
-fomc-corpus,1984,"No, it's 3 percent. It would be 6 percent if it was one week but they will have a two-week settlement period.",28
-fomc-corpus,1984,"In the first two weeks if you're in deficiency or surplus, you can carry over 3 percent into the next two weeks.",25
-fomc-corpus,1984,"Yes, I understand that. But is there any carryover that applies to the first two weeks?",20
-fomc-corpus,1984,Oh. You mean from now.,7
-fomc-corpus,1984,Is there a 3 percent carryover?,9
-fomc-corpus,1984,No.,2
-fomc-corpus,1984,It's still the 2 percent?,7
-fomc-corpus,1984,"Yes. I'm not quite sure how we worded that transition, now that you mention it.",19
-fomc-corpus,1984,It's 2 percent or--,6
-fomc-corpus,1984,"You'll have fights with all your banks as to whether they had a carryover, if we're not clear about it.",23
-fomc-corpus,1984,"If they have a carryover, it would be the 2 percent of the [unintelligible]. Last week they carried over 2 percent.",31
-fomc-corpus,1984,But for the second week in the two-week period what's the carryover?,15
-fomc-corpus,1984,I think they would carry it over into the two-week period. I don't think it would be carried over into the first week. I would think the proper interpretation is that they carry it over to a two-week period.,44
-fomc-corpus,1984,Just think of it as an elongated carry-over.,10
-fomc-corpus,1984,"If we don't understand it, they won't understand it.",11
-fomc-corpus,1984,"Well, things may not vary very much because they won't know what to do either so they'll continue to trade federal funds just at the level they are now. That is quite a possibility. We just have to evaluate this as time passes and assume that we could have lower excess reserves in the second two-week period, particularly if there are signs of persistent ease during the first two weeks.",76
-fomc-corpus,1984,It may move up when we get into settlement.,10
-fomc-corpus,1984,"That may be correct. Well, are we prepared to vote? I guess so. What we say is ""seeks to maintain the existing degree of pressure...M2 and M3 each at annual rates of about 8 percent and M1 at an annual rate of about 7 percent from December to March. Growth in nonfinancial debt is expected to be within the range....Lesser restraint would be acceptable in the context of a shortfall in money and credit growth from current expectations, while somewhat greater restraint might be acceptable with more rapid expansion in the aggregates, both viewed in the context of the strength of the business expansion and inflationary pressures."" And then we have this sentence on contemporaneous reserve requirements and the usual sentence on the federal funds rate range, which I presume we're keeping at 6 to 10 percent, which is now hallowed by tradition.",173
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes Governor Gramley Yes President Guffey Yes President Keehn Yes Governor Martin Yes President Morris Yes Governor Partee Yes Governor Rice Yes President Roberts Yes Governor Teeters Yes Governor Wallich Yes,46
-fomc-corpus,1984,We're finished already?,4
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,Coffee break time.,4
-fomc-corpus,1984,"Without objection, Mr. Solomon will be elected. We have a list of [proposed] officers, which is virtually identical with that of last year, with a couple of additions from the Board's staff. Do you want to read the list, Mr. Bernard?",54
-fomc-corpus,1984,"Okay. Staff Director and Secretary, Stephen Axilrod Assistant Secretary, Normand Bernard Deputy Assistant Secretary, Nancy Steele General Counsel, Michael Bradfield Deputy General Counsel, James Oltman Economist, James Kichline Economist (International), Edwin Truman. Associate Economists from the Board: Donald Kohn; David Lindsey;",64
-fomc-corpus,1984,"Those are the two additions, I think.",9
-fomc-corpus,1984,Michael Prell; Charles Siegman; and Joseph Zeisel. Associate Economists from the Reserve Banks: Joseph Burns; John M. Davis; Richard Davis; Richard Lang; and Gary Stern.,39
-fomc-corpus,1984,"As usual, the associate economists from the Reserve Banks reflect the nominations of the Bank presidents serving [as members of the FOMC]. We have two more, I think.",35
-fomc-corpus,1984,They come later.,4
-fomc-corpus,1984,So move.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,"Without objection, those will be approved. Now we have the selection of a Reserve Bank to operate the System Account.",23
-fomc-corpus,1984,"Time to move that around, isn't it?",9
-fomc-corpus,1984,Let's bid!,3
-fomc-corpus,1984,New York has already got a Vice Chairman!,9
-fomc-corpus,1984,Do you want to propose New York?,8
-fomc-corpus,1984,I propose New York.,5
-fomc-corpus,1984,Do we have a second?,6
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,Without objection. We have the selection of the two Managers. I assume the present incumbents have been approved by their Board.,25
-fomc-corpus,1984,They have been.,4
-fomc-corpus,1984,Do we have a nomination for Mr. Sternlight and Mr. Cross?,15
-fomc-corpus,1984,So move.,3
-fomc-corpus,1984,Mr. Cross is not here today. Second?,10
-fomc-corpus,1984,So move.,3
-fomc-corpus,1984,"Without objection. No changes are proposed in the foreign policy--""foreign policy"" sounds a little too grandiose to me.",25
-fomc-corpus,1984,The Authorization for Foreign Currency Operations and the Foreign Currency Directive.,12
-fomc-corpus,1984,"In the various directives related to our purchases and sales of foreign currency there are no changes proposed. Are there objections? If there are no objections, they will continue in force. We have a $4 billion intermeeting limit on changes in System holdings; that's the routine limit. I'll ask whether there are any objections to retaining that. If there are no objections, we will retain it. That doesn't mean we can't change it temporarily from time to time as we go ahead, but that's the basic authorization. I hear no objection. There is an agreement with the Treasury to warehouse foreign currencies. No change is proposed.",122
-fomc-corpus,1984,That isn't being used currently. Isn't that right?,10
-fomc-corpus,1984,It is not. But it's thought to be a good idea to keep the authority active even if the implementation is not currently active.,26
-fomc-corpus,1984,Right. Does that need a formal motion?,9
-fomc-corpus,1984,"We need at least a ""no objection."" Again, there is no change [proposed]. I don't hear any objections, so it is approved. The next item is security of our procedures and related materials. Mr. Solomon was the chairman of that subcommittee and we will turn to Mr. Solomon.",61
-fomc-corpus,1984,"You all have copies of the report that we sent around containing our recommendation. I might summarize the key points. Before I do that, I should say that none of us on the subcommittee assumed that the leak that the GAO investigated came from the Federal Reserve System. But we felt that the GAO report did have some basis for saying that our procedures were somewhat lax, or could be tightened up, and that there was a very large number of people with access [to FOMC materials]. So, we looked at many alternative ways of handling the access problem. Basically, our recommendations were in four major areas: first, updated security classifications, with an addition of one new category to the two old ones; secondly, refinements in the procedures for distribution and handling of classified documents; thirdly, stronger procedures for making sure that people are familiar with the rules; and finally, a reduction in the number of people authorized to see the more sensitive documents. Briefly, the new procedures call for use of double-sealed envelopes and distinctive cover sheets and for restrictions on copying. Also, the rules will be circulated annually to each person on the access list who would sign off on them. In regard to the number of people who have access to documents, our proposal calls for certain numbers. At the Board and at the New York Reserve Bank, there is a reduction of five each in the Class I list and of six each in the Class II list. At the other Banks there is a reduction of one each in the Class I list and a limit of seven for access to Class II material. The most important switch we made in the classification of documents was classifying part I of the Greenbook as Class II. The systemwide results of these restrictions and reductions in access work out as follows: The Class I list is reduced from 86 to 67 people other than the members of the FOMC themselves; and the Class II list is reduced from 348 to 183. Even though we think these are reasonable, we did provide for ad hoc exceptions by the Chairman and exceptions for ad hoc assignments, which could be granted by governors and presidents. I should also point out that the limitations in each category--for example, seven for Class II documents at Reserve Banks other than New York--apply separately to each type of document. Those having access to Part I of the Greenbook, for example, may be different from those with access to the Managers' reports. I think that summarizes the main recommendations. We would recommend that, after discussion and questions, the FOMC adopt this.",519
-fomc-corpus,1984,Are there questions?,4
-fomc-corpus,1984,"I'd like to raise an issue that was not addressed, which is the continuation of an existing policy, and that is providing the Greenbook to the Secretary of the Treasury and four or five other people at the Treasury, the Chairman of the Council of Economic Advisers, and the Director of OMB. We have never been able to trace the leaks, but it seems to me that there is a potential there for leaks coming from outside of the System regardless of how much we tighten our own procedures.",99
-fomc-corpus,1984,"Well, what we did do for the first time was recognize the de facto practice by including it in the formal proposals. But we did not feel that it was up to us--and frankly, I'm not sure it's very practical without raising more dust than it's worth--to restrict access to people in the Administration.",62
-fomc-corpus,1984,"Well, there seems to be a lot of access at the Treasury and we don't have any idea what their security provisions are for these documents.",28
-fomc-corpus,1984,"But they don't get the Bluebook or the Open Market directives or the policy records. What they do have are the two Managers' reports, and I think they're entitled to have them because those are needed both in the managing of the public debt and, of course, in the foreign exchange market where the Secretary of the Treasury [has responsibility].",68
-fomc-corpus,1984,Do you mean the Managers' weekly reports?,9
-fomc-corpus,1984,I think it's the weekly they get.,8
-fomc-corpus,1984,Just the weekly report goes to the Treasury.,9
-fomc-corpus,1984,"And, of course, the Greenbook.",9
-fomc-corpus,1984,"What specifically would you propose to restrict, Nancy?",10
-fomc-corpus,1984,I would restrict them from the Greenbook because in the past we have had some distinct and fairly specific leaks of the contents of the Greenbook.,29
-fomc-corpus,1984,"My memory may not be perfect on this, but my overall impression is that the record has been very good in terms of identifiable leaks from them. I can recall one or two occasions where a newspaper reported that the Federal Reserve staff was thinking in a certain range or reported a certain number that sounded to me as if it may well have come from the Administration. It wasn't particularly damaging or timely; it wasn't that we sent it to them and it appeared before an Open Market Committee meeting. I can recall one or two instances that made me suspicious, but generally I think the record has been pretty good. I don't know if anybody else has a different recollection.",131
-fomc-corpus,1984,When does the Greenbook go to the Treasury?,10
-fomc-corpus,1984,"Within a day or so of the time it's issued, I guess.",14
-fomc-corpus,1984,I believe it goes out on Thursday morning.,9
-fomc-corpus,1984,"We have been sending the Greenbook to those three places for at least 20 years, I think. And in the interest of maintaining an exchange of views with people in the Administration there are times, regularly, when the Chairman is provided access to information well ahead of time--about the same time the President gets it--and is one of the very few people who gets that kind of information. There are times when we are made privy to what is going on in the budgetary process, even at the staff level. I think we would be jeopardizing that free interchange of information if we didn't send the Greenbook over there.",127
-fomc-corpus,1984,"The only thing I could suggest would be to advise them that we have reclassified Part I of the Greenbook into a Class II document and that the Chairman and the FOMC would appreciate it if the three principals who get it--the Secretary of the Treasury, the Chairman of the Council, and the Director of OMB--would take comparable measures to restrict access at their own agencies.",78
-fomc-corpus,1984,We can. The point has been made to them but obviously it can be made again and probably would be useful to do so.,26
-fomc-corpus,1984,Now that we're moving [up its classification].,9
-fomc-corpus,1984,"In connection with the reclassification it would be a convenient thing to do. I do believe that there [has been no] difficulty, Nancy, except for a few times when the Secretary said something. We can hardly stop that. There have been occasions when it looked as if it had been circulated pretty widely on the staff. But with a redoubling of emphasis on security of the document we might be able to take care of that problem, though not the problem of the Secretary saying something.",99
-fomc-corpus,1984,I would agree very much with what Lyle said about ongoing relationships unless there is an apparent real problem.,21
-fomc-corpus,1984,I simply wanted to raise the issue. It was something that has never been changed and is a potential [for leaks] that we can't control.,29
-fomc-corpus,1984,"It recognizes something that we have been doing since the middle '60s, I think, or certainly since the late '60s.",27
-fomc-corpus,1984,"Certainly, in my own mind this latest leak came from the Hill. And we have a continuing problem of maintaining security if we release confidential material to someone outside of the System.",35
-fomc-corpus,1984,"I don't think anybody has proposed that we release the Bluebook to them. I don't know whether it makes any difference whether we send it to them a few days before an Open Market Committee meeting, which is the usual practice, or a day after. I don't think we've ever had a leak just before the Open Market Committee meeting. Nothing in the document is all that sensitive to issues of timing, I guess. But I don't think the particular day we send it to them is sensitive in terms of our relationship with them.",104
-fomc-corpus,1984,"It probably is generally sent out on Thursday now isn't it, Jim?",14
-fomc-corpus,1984,Thursday morning.,3
-fomc-corpus,1984,"That's right away, so they get it very early. Then the following Monday--",16
-fomc-corpus,1984,The Bluebook is--,5
-fomc-corpus,1984,"No, not the Bluebook.",7
-fomc-corpus,1984,They don't get the Bluebook at all.,9
-fomc-corpus,1984,It might be better to send the Greenbook to them the following Monday or something like that.,19
-fomc-corpus,1984,"These totals of four and seven [with access at the Reserve Banks]: Does that include members of the Committee, too?",24
-fomc-corpus,1984,"Yes, it does. We did a spot check at about a half dozen of the Banks and talked with the staff here. There was one Bank that had five [on its access list] although most of them had four. As we analyzed who had a need to know--I don't mean in the formal sense of Class III, but in the sense of how the operations went at the different Reserve Banks--seven seemed a reasonable number. And then Chuck Partee, Bob Black, and I discussed that. Originally we were talking about restricting it to three but some of the presidents felt that would be excessively restrictive and that four would be a reasonable number.",130
-fomc-corpus,1984,"Tony, in that connection--this is a technical question--on page 5 you talk about limiting the Class I [materials] to the president and three other officers. Do you really intend it to be members of the official staff? I think that presents a problem in some Banks. It would in my Bank, for example, where we have some people on the research staff who are not officers who are cleared at the moment for FOMC Class I.",92
-fomc-corpus,1984,"Well, that was our intention. Now, we made some recommendations on systematizing the downgrading of a document's classification. The Bluebook would be downgraded from Class I to the new Class II at the time of the release of the policy record and directive. And then it would be downgraded to Class III four months later, roughly; in other words, after a six-month period old Class II is downgraded to Class III.",93
-fomc-corpus,1984,It's still Class I prior to the meeting.,9
-fomc-corpus,1984,"It's still Class I prior to the meeting, right.",11
-fomc-corpus,1984,"Bob, I don't think we addressed the issue of whether they had to be officers or not; it just ended up as officers.",26
-fomc-corpus,1984,"Well, I think that's something you really ought to clarify because, as I said, in my particular case I have two people who are now cleared for access to FOMC documents--and they do review the Bluebook--and they are not officials. So, that would put me in an awkward position. On a broader question, I must say that I certainly understand why you are trying to reduce the number of people cleared for access, but I really think clearing only four people is unduly restrictive for the Reserve Banks, particularly if one of those people is the first vice president. With the president and the first vice president, that leaves us with only two people.",134
-fomc-corpus,1984,We were not thinking of the first vice president.,10
-fomc-corpus,1984,"You were not? Well, that's the question, I guess. That makes it a little better if you don't include--",24
-fomc-corpus,1984,"You can, of course, if he's going to substitute for you at a meeting. You can clear him for that purpose.",25
-fomc-corpus,1984,It seems there may be some miscommunication here. You were thinking the first vice president would not get it?,22
-fomc-corpus,1984,That's right.,3
-fomc-corpus,1984,He's an addition to the pot.,7
-fomc-corpus,1984,"That puts a little different light on it. But again, if the first vice president is going to substitute from time to time, it seems to me he ought to be getting the material on a fairly regular basis.",43
-fomc-corpus,1984,"Bob, in our case, since we had to give up one, we decided that the first vice president would not be one of the four unless he was substituting. He can give it up more easily. But if you were out of the Bank, you could made an ad hoc exception for him. That was the way we were planning to do it. I'm sure that will differ from Bank to Bank. It seems rather bad to have to deny access to your first vice president, but I don't think we have any alternative.",106
-fomc-corpus,1984,"My druthers would be to leave it at five, Tony.",14
-fomc-corpus,1984,"On this ad hoc clearance, do you view that as being a big deal or is that just something that's handled in each Reserve Bank as it comes?",30
-fomc-corpus,1984,Each Reserve Bank would handle it but there would not be a standing ad hoc.,16
-fomc-corpus,1984,I understand.,3
-fomc-corpus,1984,And under our new procedures it would require that the Secretary of the FOMC be notified immediately.,20
-fomc-corpus,1984,"Bob Forrestal has raised a question that's troublesome to me also and that is restricting the number to four, which would mean I'd have to cut out the first vice president. Under the by-laws, on all other things he operates in my stead when I'm gone, which is reasonably frequently. To go through the process of sending a wire to add him on an ad hoc basis for some indeterminate time while I'm gone seems to me unreasonably burdensome. I'd like to suggest that this be amended to permit four as designated and to permit the first vice president to have access without this special authorization at the time the president is not there. As I say, he has all the powers that I have when I'm not present.",144
-fomc-corpus,1984,He doesn't have any powers with respect to the Open Market Committee.,13
-fomc-corpus,1984,"Yes, that is true. But the fact of the matter is that he stands in my stead and ought to be able to have the kinds of information that I would have if I were there. That seems quite reasonable to me. The only thing I'm suggesting is that there be a built-in ad hoc exception without the notification process for the first vice president at the time the president is not in the Bank.",81
-fomc-corpus,1984,"Well, I don't understand. Given the fact that we all have such good attendance records here, I gather that you're not talking about the very rare case when your first vice president would be attending [an FOMC meeting] in your absence, Roger?",51
-fomc-corpus,1984,"No, I'm not. I'm talking otherwise.",9
-fomc-corpus,1984,He cannot participate on the morning call.,8
-fomc-corpus,1984,That's correct.,3
-fomc-corpus,1984,"So, I don't understand. What does the first vice president do in your Bank in regard to the FOMC directives if he's not in on the call?",32
-fomc-corpus,1984,"Among other things, he has handled my board of directors for a discount rate action when I'm not there. He certainly ought to have available to him what the Committee has done and what it is thinking about preceding that kind of action.",46
-fomc-corpus,1984,"In effect, it really becomes five, doesn't it then?",12
-fomc-corpus,1984,"Well, I'm suggesting that it remain four but that we have an ad hoc exemption without the clearance procedure.",21
-fomc-corpus,1984,A permanent ad hoc?,5
-fomc-corpus,1984,"Yes, but only when I'm out of the Bank.",11
-fomc-corpus,1984,I see.,3
-fomc-corpus,1984,Only when the president is not available. It would seem to me to be a fairly simple matter.,20
-fomc-corpus,1984,The most likely occasion would be when the first vice president would sit in for the president in a conference call. And that has been very rare.,29
-fomc-corpus,1984,That's not all that rare.,6
-fomc-corpus,1984,I have no objection to that if that is the consensus view of the Committee and if it's clearly understood that it would only be in the president's absence.,31
-fomc-corpus,1984,"I think it's a good improvement, Tony. I would go along with that. In fact, I was planning to send Norm a telegram saying I'd like an ad hoc exception for just that purpose when I am out of the Bank.",46
-fomc-corpus,1984,"I'd like to support that, Tony, because I found myself in the same position as Roger. We have three people in the research department who are actively engaged in research and analysis of policy and I would not want to take any one of those off. My first vice president is on the list to receive the Bluebook now under the [current] authorization, although he never in practice gets it. The only time he would look at it would be an overt occasion when he substitutes for me at this meeting or, alternatively, when he would participate in a conference call when I was out of town or otherwise unavailable, or on occasion when I'm out of town and he has to handle a telephone conference on the discount rate, as Roger mentioned. So, if we could somehow get that exception you're talking about carefully controlled but built-in to avoid the necessity of formally notifying the Secretary every time I'm out of town, it would surely help. We would treat it as a true exception, not just a routine everyday access to the FOMC Class I materials.",209
-fomc-corpus,1984,"Yes, that's also true with regard to the upgraded [classification] of the wire from the Desk. There is information there that would be helpful if there were going--",33
-fomc-corpus,1984,Is there consensus on this point?,7
-fomc-corpus,1984,It sounds good to me.,6
-fomc-corpus,1984,"I interpret this, Mr. Solomon, as not limiting the prerogative of the Chairman to have more limited executive sessions for whatever purpose.",28
-fomc-corpus,1984,And you have even more ad hoc exceptions than anybody else.,12
-fomc-corpus,1984,"This would be on a strict need-to-know basis. You would keep a record of when you let the first vice president have access, I take it. So, if we had to follow down a leak, he would be caught up in it. But it wouldn't be a continuous matter; it would just be for specific occasions.",67
-fomc-corpus,1984,"Special occasions. Did we settle the question I raised earlier, Mr. Chairman? Does anybody have an objection to amending this part A to indicate that Class I is limited to the president and I would suggest language such as ""three other individuals designated by the president.""",53
-fomc-corpus,1984,Where is this?,4
-fomc-corpus,1984,"Otherwise, I'm going to make some new officers.",10
-fomc-corpus,1984,"Well, I think we'd want them to be on the payroll of the Federal Reserve Banks!",18
-fomc-corpus,1984,"Oh yes, of course.",6
-fomc-corpus,1984,"You said ""three other individuals."" That could be anybody. Let's see, Jack Anderson and--",19
-fomc-corpus,1984,"""Three other officers and employees."" Is that the language?",12
-fomc-corpus,1984,"""Staff members."" And they would, of course, be research staff.",15
-fomc-corpus,1984,"What's the magic word? Employees, staff members?",10
-fomc-corpus,1984,"Staff members, I think.",6
-fomc-corpus,1984,"You use ""persons"" on Class II.",9
-fomc-corpus,1984,"Use ""Federal Reserve personnel.""",6
-fomc-corpus,1984,Federal Reserve personnel. There seems to be a consensus on that point. Any other comments?,18
-fomc-corpus,1984,"Tony, it's not part of what you've taken a look at, I'm sure, but did you also consider the way in which we distribute the Bluebooks? The point I would make is that they are distributed at a time at which our security is at its very lowest level I would think--namely, over the weekend. And each time we have to develop a procedure by which we're going to handle them. I wonder if there's a way we can distribute them to the Banks at a time when our procedures are best geared to handle them.",108
-fomc-corpus,1984,"How, in fact, do they get to the Banks now?",13
-fomc-corpus,1984,They don't get there all the time.,8
-fomc-corpus,1984,They come in via something called Cannonball Express. And Cannonball Express delivers at a variety of times; it could be either Saturday afternoon or anytime on Sunday.,32
-fomc-corpus,1984,Cannonball Express is a private delivery service?,10
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,I hope it is. And we have to go through a procedure to deal with that.,18
-fomc-corpus,1984,"The alternative, though--to do what you have suggested--is giving out the Bluebooks on Monday morning. We checked around and there were objections to that because presidents and members of the Committee would not have a chance to consult with their three other people. So, I don't know what the alternative is.",61
-fomc-corpus,1984,"I suggest it as a possible alternative because we have some problems. If they were distributed Thursday night by pouch, I think that would eliminate all the problems and deal with the concern we were suggesting.",39
-fomc-corpus,1984,They're not ready on Thursday night.,7
-fomc-corpus,1984,"It is a problem. For example, I didn't get mine this time. Usually I have it delivered late Sunday, so I don't have any time for consultation except while flying on the airplane.",38
-fomc-corpus,1984,I looked at mine a half hour ago.,9
-fomc-corpus,1984,"Don't your people work on weekends, Ted?",9
-fomc-corpus,1984,Up until Sunday at about midnight!,7
-fomc-corpus,1984,"Of course, if it's the consensus view here, I'd go along with that. But there is one disadvantage to sending it out Thursday night and to all the Banks having it Friday morning: We'd be adding one critical weekend of possible leaks. And that two- to three-day period before we have a meeting is when the media is the most focused. On the other hand, with the general view--",79
-fomc-corpus,1984,"Just looking at it from the production side, what is the problem in getting it out a day earlier?",21
-fomc-corpus,1984,"It would have been impossible before the money supply started coming out on Thursday night. It's more possible now to do it Thursday night, but I would say it runs the somewhat needless risk of errors. But it's certainly possible now, whereas it wasn't possible before.",51
-fomc-corpus,1984,I don't know whether we should someday review the magic day upon which we hold Open Market Committee meetings. We wouldn't get into this weekend problem if it--,30
-fomc-corpus,1984,If it were on Wednesday instead of Tuesday or instead of Monday and Tuesday.,15
-fomc-corpus,1984,We've discussed that too at other times.,8
-fomc-corpus,1984,"There's one other problem associated with this. The way the Bluebook is sent, two copies come to our Bank that are put together in one package and we have to designate somebody in the Bank either Saturday night or Sunday to open that material and repackage it, with one going to Tom Davis and one to me. If each were packaged separately with our name on it, we'd eliminate that.",78
-fomc-corpus,1984,"Normand knows better than I do, but my impression is that distribution of the Bluebook is a continuing, miserable problem. And I think Cannonball Express is probably only the latest in the efforts to find a reliable delivery service.",46
-fomc-corpus,1984,"That's primarily because the main delivery services just don't deliver on weekends. Given that it's ready only on Friday evenings, we have to rely on--",28
-fomc-corpus,1984,"Well, that's exactly--",5
-fomc-corpus,1984,"In view of all this stepped-up security, Tony, maybe the [additional] day is not that much exposure.",23
-fomc-corpus,1984,"We were very close, Mr. Chairman, to having it ready this Thursday night. With a little more experience and if we don't have last minute data that would involve [revisions], it may prove possible. But I would--",46
-fomc-corpus,1984,"Let me just give you a reaction to it. It has the problem of another day, which means the weekend, which I think is a problem. We have an existing problem of relying upon these carriers, which doesn't make me feel all that happy on the other side. In terms of substance, let me just raise a question with you: What is the point of getting it so early? You are supposed to be making up your own minds before Mr. Axilrod prejudices your view. Maybe it's a good idea to get it late!",109
-fomc-corpus,1984,"I'll speak to that. I think it's a good idea to get it early because we do have people at the Reserve Banks--whether it's one, two, or three--who spend a good deal of their time on analysis of policy options and so forth. As things now stand, if the Bluebook doesn't come in until Sunday, they never do get a chance to read it or provide input or advice to the principal who comes to the meeting, at least in my case.",95
-fomc-corpus,1984,Why can't they give you that advice without the Bluebook?,12
-fomc-corpus,1984,"Well, they can; it's just better if they know all the nuances and the considerations that are in the Bluebook. I think they would benefit from knowing those before they render advice. And on the other point, Mr. Chairman, Norm knows we have had some real horror stories in terms of security in getting this material to the West Coast. It wasn't just a matter of it not arriving but a matter of it getting lost in the mail. It was out there floating around and we didn't know where it was and Norm didn't know where it was. We finally retrieved it after extra copies were sent out to us. He and I were both very, very much concerned about the security problem of it just getting lost in the mail because of this unreliable weekend delivery service. I'm very nervous about that.",159
-fomc-corpus,1984,"How does the ordinary pouch go, whatever the pouch is? I keep hearing about it. What does it consist of?",24
-fomc-corpus,1984,We would get it Monday morning that way.,9
-fomc-corpus,1984,Who delivers it?,4
-fomc-corpus,1984,"Well, I'm not sure.",6
-fomc-corpus,1984,It's our check couriers.,6
-fomc-corpus,1984,"It goes in the afternoon, right? It [can't] come out Thursday night.",17
-fomc-corpus,1984,The problem with the pouch is that we would have to have the Bluebook ready by about 5:00 p.m. or it's just too late to make it into the pouch.,37
-fomc-corpus,1984,"On what day, Friday or Thursday?",8
-fomc-corpus,1984,Thursday to get it to us on Friday.,9
-fomc-corpus,1984,"Well, we'd never make the Thursday night pouch. We could make the Friday night pouch if that would get it delivered any better. But I doubt that it would.",33
-fomc-corpus,1984,I don't believe that delivers until Monday.,8
-fomc-corpus,1984,"Yes, I know. As I said, I don't think that will help one bit. But if we tried for Thursday, we'd be through about midnight. As it is we could get it out in the course of the day on Friday earlier than we used to get it out.",56
-fomc-corpus,1984,Whom does the pouch go with--our check couriers?,13
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,How do they get to Washington?,7
-fomc-corpus,1984,It goes out of Richmond; it doesn't go out of or come in to Washington. Everything that goes by pouch in and out of Washington goes through Richmond.,31
-fomc-corpus,1984,"What you're saying is that if we were to try and get the Bluebook out to the Reserve Banks on Friday and you don't finish preparing it until midnight on Thursday, then you are not talking about the pouch but some kind of special express service that will get it to us by Friday afternoon. I don't think we'd all get it by Friday.",68
-fomc-corpus,1984,"Well, that's what we do now. We have an express service special that goes out whenever it's ready on Friday.",23
-fomc-corpus,1984,"I know, but it comes in over the weekend. What I'm saying, though, is that if it doesn't go out until sometime after midnight on Thursday, I don't think everybody would get it on Friday in time to--",44
-fomc-corpus,1984,"There may be a better solution to this. Last Saturday we tested for the first time this new high speed facsimile transmission among all 13 of us, the Federal Reserve Board and the 12 Federal Reserve offices. This thing really works fast and produces a very good copy, and it may be that we can use that. That would eliminate the carrier and it would also eliminate the security problem upon receiving it at the Reserve Banks.",87
-fomc-corpus,1984,How do you control the number of copies?,9
-fomc-corpus,1984,"I don't know where the machines are in most other Fed offices, but at least in my Bank--and for precisely that reason--it's right next to my office and it's very tightly controlled.",38
-fomc-corpus,1984,There's a really good suggestion. We could say at 2:00 p.m. Friday afternoon or something like that.,24
-fomc-corpus,1984,"It's fairly easy to deal with. All Mr. Bernard would have to do is call that number and say ""We're about to transmit"" and some designated person would just stand there and physically take it off the machine.",43
-fomc-corpus,1984,Is that in operation now?,6
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,Can it take charts?,5
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,It really makes good copies.,6
-fomc-corpus,1984,"We could try that, Mr. Chairman.",9
-fomc-corpus,1984,Is it secure?,4
-fomc-corpus,1984,It's more secure than Cannonball!,7
-fomc-corpus,1984,"We have gone through that, Mr. Chairman, with the Federal Reserve Bank of New York in getting comments from Mr. Sternlight. The transmission has been terrible.",33
-fomc-corpus,1984,Not with this new one.,6
-fomc-corpus,1984,I don't know. The new one may work. It's the old one that doesn't work so well.,20
-fomc-corpus,1984,It really is good.,5
-fomc-corpus,1984,Will it print a blue cover? [Laughter.],11
-fomc-corpus,1984,It could be transmitted that way and then we could pick up the regular report when we come down here.,21
-fomc-corpus,1984,"Mr. [Vice] Chairman, would you speak just a minute to the security [unintelligible]?",22
-fomc-corpus,1984,"Our report doesn't get into this question. It seems to me that if the Chairman wants, he can authorize a trial run on it next time.",29
-fomc-corpus,1984,"Yes, let me look at it and we'll see whether we can make some alteration next time. This doesn't enter into this report. Are there any other issues? Should we reconsider when we meet? I won't do it now, but--.",48
-fomc-corpus,1984,It seems to me that we once went through all the days of the week and it turned out that Tuesday was the only possible day.,27
-fomc-corpus,1984,I don't know.,4
-fomc-corpus,1984,"Yes, but that had to do with the day of the directors' meetings and the last day of the settlement week.",24
-fomc-corpus,1984,"Actually, I thought that Tuesday was a particularly awkward day in terms of the data flow.",18
-fomc-corpus,1984,"Yes, it had to do with directors' meetings.",11
-fomc-corpus,1984,Do all Banks have their directors' meetings on Thursday?,11
-fomc-corpus,1984,Thursday.,2
-fomc-corpus,1984,We have a lot of ours on Friday.,9
-fomc-corpus,1984,"So, it's either Thursday or Friday. No Bank has a day different from that for directors' meetings?",21
-fomc-corpus,1984,"I thought one Bank had them on Monday or Wednesday, but that could have changed. Well, we'll look into these things. Meanwhile, I guess we can approve the report with the two amendments that were made. Do I have a motion?",48
-fomc-corpus,1984,Move to approve.,4
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,Without objection.,3
-fomc-corpus,1984,"Mr. Chairman, did we take up item 7 on the agenda?",15
-fomc-corpus,1984,Not yet. You skipped it.,7
-fomc-corpus,1984,I don't know where we are [on the agenda]. MR. GRAMLEY and,17
-fomc-corpus,1984,Bankers acceptances.,5
-fomc-corpus,1984,"Yes. There was a Manager's recommendation very different from [the recommendation in the memo], and I thought we ought to have some discussion of that.",30
-fomc-corpus,1984,Where am I? I'm following--,7
-fomc-corpus,1984,You were on number 8. Somehow item 7 got lost.,14
-fomc-corpus,1984,"Let's go back to bankers acceptances. I skipped it because it's not on this [summary] memorandum. Anyway, let's consider bankers acceptances.",29
-fomc-corpus,1984,RPs on bankers acceptances.,7
-fomc-corpus,1984,"Mr. Sternlight, you have a memorandum.",10
-fomc-corpus,1984,"As noted in my memo to the Committee, Mr. Chairman, I felt the decision on whether or not to continue doing repurchase agreements in BAs was a very close one. In fact, I had initially written a summary for my own staff summarizing the pros and cons, which came out marginally for staying with the operations. We kicked it around for a while and were persuaded, with varying degrees of enthusiasm, to come out on the negative side. But again, for some of us anyway, quite narrowly. That was our evaluation of, on the one side, the modest usefulness of continuing the operations and, on the other side, a small but nonnegligible risk of continuing those operations.",142
-fomc-corpus,1984,What is the modest usefulness?,6
-fomc-corpus,1984,"Well, that we do part of our operations in them when we do repurchase agreements. For the System Account it has worked out in the last year that about 7 percent was in BAs. When this issue was reviewed a year ago the average had been more like 10 to 15 percent. When Mr. Axilrod and I presented a memo just a year ago on this subject we also thought the decision was close and came out narrowly for continuing the operations. One factor that weighed in that narrow balance was that our withdrawal might add to general market anxieties about the banking system, which we regarded then as less acute than in the previous summer and fall--that is the summer and fall of 1982--but still present in some measure. We are now another year past that relatively sensitive period of 1982, so that reason for not withdrawing seems to carry a bit less weight. In the meantime the use of BAs in our repurchase agreements has diminished somewhat further. So, in my view, those factors tip the scale from narrowly in favor of continuing to narrowly for withdrawing. But as our recommendation stated: If the decision is to withdraw, it should be with several months' notice to the market.",246
-fomc-corpus,1984,"Peter, am I right in thinking that if you knew some very, very compellingly bad information about a large bank that you wouldn't want to make RPs on their bankers acceptances?",37
-fomc-corpus,1984,"We would try to duck it. If it were known in the market, then I think the market would not present us with such a name because that just wouldn't be a good name circulating in the market. But if we had some information and the market in general didn't, then we would hate to make the waves that would be made by rejecting it, so we probably would take it.",77
-fomc-corpus,1984,And that would also include a foreign agency or branch?,11
-fomc-corpus,1984,"It could, yes; and that tends to be a fairly sizable proportion of what we do.",19
-fomc-corpus,1984,Are you typically offered more of these than you accept?,11
-fomc-corpus,1984,"Yes, but Governor, we don't really have that choice. When we are doing RPs, we will make agreements with the different firms to do an even $5 million or $10 million and so on. It's only late in the day that we find out what actual acceptances are being presented. They don't present us with a million at such and such a rate in a particular bank that is named then; the names usually come up later.",89
-fomc-corpus,1984,What rationale would you give in your public announcement that gives a few months' notice?,17
-fomc-corpus,1984,"Well, that we have found this of limited usefulness and that the market is mature and certainly doesn't need our participation for support purposes, but so as not to be precipitate we are making the change as of 3 months hence or 6 months hence or whatever. I'd say something like that.",59
-fomc-corpus,1984,"My reaction to this is that the issue doesn't turn at all on its usefulness to open market operations, which seems to me close to nil one way or the other. We were in there historically because of some idea that this market ought to be nurtured and supported and for a kind of regulatory coloration--that we determine what is an eligible acceptance and all that business. And there may be some usefulness there yet. I don't know what it is but maybe there is. But against that, and given what I know or have found out about the bankers acceptance market recently--that it is operating in a high, wide, and handsome way--it strikes me that I don't particularly want to endorse that. And we get into the messy regulatory question as well--this question you described: If something goes wrong, do we do it or not do it or what kind of signals are we sending? We may be well advised to get out. My only reservation is: Are we really losing something on surveillance on the regulatory side?",203
-fomc-corpus,1984,"Well, of course, we got out of buying and selling them some time ago. Isn't that right, Peter?",23
-fomc-corpus,1984,"The outright [purchases and sales], yes.",10
-fomc-corpus,1984,We don't examine them anymore.,6
-fomc-corpus,1984,"There are some people, I think, who misinterpret the Federal Reserve eligibility as a good housekeeping seal. We learned more about bankers acceptances when we looked into the Mexican line than we did at any other time.",43
-fomc-corpus,1984,"Well, that's what worries me: that we give this implicit blessing and we don't really use it to see whether the market is behaving within certain parameters yet there's this assumption that we do. If we don't use it, get rid of it.",48
-fomc-corpus,1984,But can we really have an announcement that we will be discontinuing this within a few months without raising questions that we think some banks are shaky or without the market wondering what lies behind our doing this?,40
-fomc-corpus,1984,Deregulation. And we're relieving the reporting burden on financial institutions.,14
-fomc-corpus,1984,"Well, we say we have plenty of government securities and no probability of any shortage any time soon. We say we don't need it for open market operations and we say the market is strong on its own and therefore--",43
-fomc-corpus,1984,The market has matured.,5
-fomc-corpus,1984,We don't use this now for any surveillance purposes or any that I can understand.,16
-fomc-corpus,1984,It's not used in a significant way.,8
-fomc-corpus,1984,"If we stop using it for repurchase agreements, could we drop that distinction between eligible and ineligible now?",22
-fomc-corpus,1984,"I think that's a distinction that still applies for re-discount at the discount window, and relief from reserve requirements would still hinge on that aspect. I don't think that would be affected.",37
-fomc-corpus,1984,"You haven't made that distinction in your operations, have you?",12
-fomc-corpus,1984,No. We have a requirement for what is eligible for our purchase but that goes to the market acceptability or tradability of the name.,28
-fomc-corpus,1984,"The more I hear, the more I think we ought to get rid of it.",17
-fomc-corpus,1984,I do too.,4
-fomc-corpus,1984,"As far as the regulatory aspect, the New York Reserve Bank could still exercise some surveillance over the market even though we were not operating in acceptances as RPs. Is that dependent upon--",38
-fomc-corpus,1984,"Well, I don't think it is absolutely dependent but I may be wrong. Historically when we used to buy them outright--maybe not in recent years but going back to the '20s, '30s and '40s--somebody would sit there and say: Is this a good acceptance? Has it got the document attached? Does it meet the criteria of eligibility? That has faded away through the years. I think that was part of the purpose of our being in there: That we would only buy the good stuff and the idea was that the market would then gravitate toward the good stuff because that's the only thing we would buy.",129
-fomc-corpus,1984,"Wasn't there a time, though, in the recent past when we used bankers acceptances when collateral was otherwise short?",24
-fomc-corpus,1984,"Going back some years, yes. When government securities were in short supply it was helpful but it hasn't been that critical.",24
-fomc-corpus,1984,But that's no longer present. The market is mature; I don't see why we don't get out of it.,22
-fomc-corpus,1984,We could have a line in the announcement that says that if the budgetary deficit--,17
-fomc-corpus,1984,It is conceivable that we might have some embarrassments looking ahead. We don't have any now. We can get out gracefully now. And it won't present a possible issue later on.,37
-fomc-corpus,1984,"To me, the marginal reasons for being in this have gotten weaker and weaker over the last few years and there aren't any good reasons that I can see.",31
-fomc-corpus,1984,Is there any point in putting this out for comment? What do our lawyers say?,17
-fomc-corpus,1984,You don't need to.,5
-fomc-corpus,1984,We've said that about some other things.,8
-fomc-corpus,1984,You're asking for a legal opinion.,7
-fomc-corpus,1984,It might make it a tad easier to resist buying something else if we are going to get any pressure to buy something we don't want--some favored security somewhere.,32
-fomc-corpus,1984,"You are recommending, though, that you continue to have the authority just as you have the authority, although you haven't used it, to buy them outright?",31
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,Does this require a formal vote? Or what does it require?,13
-fomc-corpus,1984,What are we doing? We would still have the authority to buy but we're not going to exercise it? I didn't understand that.,26
-fomc-corpus,1984,That's what was done when we withdrew from the outright [market]. There was no formal change in the authorization.,22
-fomc-corpus,1984,Did we announce it when we withdrew from that?,10
-fomc-corpus,1984,I think we did.,5
-fomc-corpus,1984,"I think all it takes is Committee acceptance of the manager's recommendation, which is to stop in practice doing RPs on bankers acceptances over the next several months in a graceful way.",37
-fomc-corpus,1984,I really have no problem with that but it raises the question of why we have the authorization. But we can face that down the road.,28
-fomc-corpus,1984,"Well, one could conceive of a situation in which we would want to use the authority and we might want to use the authority without waiting for the next FOMC meeting. Presumably the Executive Committee could authorize that if there were some reason.",49
-fomc-corpus,1984,Executive Committee on what?,5
-fomc-corpus,1984,There is an Executive Committee on foreign currency.,9
-fomc-corpus,1984,"No, I think it would have to be a wire by the Chairman or a notification vote.",19
-fomc-corpus,1984,"For the time being we don't have to face that. If there is no objection, we'll leave the authorization for the time being and review it later.",30
-fomc-corpus,1984,Are we going to have an announcement?,8
-fomc-corpus,1984,"Yes. Well, I guess we're up to [agenda item 9], the minutes.",18
-fomc-corpus,1984,"Mr. Chairman, do you want to decide whether there should be a length of time between indicating to the market that we're not going to be in and actually not being in?",35
-fomc-corpus,1984,That is the presumption isn't it?,8
-fomc-corpus,1984,Yes. But I don't know whether agreement was reached on what that time interval should be. I would suggest about 3 months.,26
-fomc-corpus,1984,"You can delegate that to the Chairman and the Manager if there is no objection. We have to get to the minutes in a minute. The thought occurred to me in our discussion of confidentiality that we have a request--I guess from Mr. Fauntroy, but I'm not sure how hard it is being pressed by Mr. Fauntroy--that we give his staff rather than the whole subcommittee on the House Banking Currency Committee Part II of the Greenbook modified to redact those very few sentences that have some confidential projection or policy implication. There is very little of that in Part II. It is mostly a pretty straightforward rendition of the business picture and the financial picture and so forth. There is an obvious problem with it at least in the sense that we did it recently for the Redbook and it becomes a question of whether conceding some of these things to them is helpful in terms of harmonious Congressional relationships, assuming it's harmless, or whether it only encourages the next request. The fact is that it is a little hard to make a big intellectual case about this because there isn't much in [Part II of] the Greenbook that is not in the public domain anyway.",234
-fomc-corpus,1984,"But it's our analysis of the statistics, of course, which may differ from other analyses from time to time.",22
-fomc-corpus,1984,"It's a pretty straightforward analysis, I think, for the most part.",14
-fomc-corpus,1984,When is that released--if ever?,8
-fomc-corpus,1984,After five years.,4
-fomc-corpus,1984,Except for the parts discussing foreign banks.,8
-fomc-corpus,1984,What about the parts from the international division?,9
-fomc-corpus,1984,That is one place where some deletions would have to be made.,14
-fomc-corpus,1984,"If we do this, it might be wise to put a different cover on it and stop calling it an FOMC document.",26
-fomc-corpus,1984,Stop calling it a Greenbook. That's how they identify these things. They hear there's--,18
-fomc-corpus,1984,That's what we did with Redbook.,8
-fomc-corpus,1984,Make this one beige too!,6
-fomc-corpus,1984,"But Lyle, if we do that, then it is not being limited to Fauntroy and his staff. It becomes almost a public document and not an FOMC document.",37
-fomc-corpus,1984,I think one would have to assume this is virtually a public document anyway whether they promise not to reproduce it. Copies go to every member [of Mr. Fauntroy's subcommittee] of the House Banking Committee.,44
-fomc-corpus,1984,Why not give them a Blackbook?,8
-fomc-corpus,1984,They already think it is accompanied by a black file.,11
-fomc-corpus,1984,"If I were sitting down in Mr. Kichline's chair, I would object strenuously because I think it would affect the way it is written. I think the Redbook has been greatly affected by becoming the Beigebook and I think the Greenbook would be affected by becoming a public document. One is just much more careful--much more stylistic and formalistic--in the way things are said. For example, the staff wouldn't point out that there's something wrong with the GNP figures because of the treatment of PIK or they would say it in such a subtle way that no one could understand what they were saying. And I think there would be a loss of capability to communicate with the Committee.",144
-fomc-corpus,1984,Couldn't all that be brought over to Part I?,10
-fomc-corpus,1984,"Well, I suppose so. You remember, there didn't used to be a Part I; there was just a Part II. Part I came about because we thought we would do those projections and that they ought to be more confidential than Part II.",49
-fomc-corpus,1984,It didn't used to have any projections at all?,10
-fomc-corpus,1984,"It had no projections at all when I came here. But I must say, I think it is a way of communicating. What you'll probably have to do is develop a Part I supplement or something that has more of the material that used to be in Part II.",53
-fomc-corpus,1984,"Well, I think you're right in worrying about some inhibition on the way the document is written. I don't know how great that is and I don't know whether there is any general impression that the Redbook has diminished since it is written to be distributed or whether in fact that has led to any difference in the way people write it. Is that a common appreciation? We do delete these sections--they are distributed separately.",83
-fomc-corpus,1984,I have the perception from reading the Beigebook that apart from some certain stylistic changes--taking out comments such as one director said something and taking out the view of panelists--that the content of the Beigebook is not materially different from what the Redbook was before.,57
-fomc-corpus,1984,Another way to approach this is to ask: What will be the next request and is it easier to say no at that point than to say no at this point?,33
-fomc-corpus,1984,"Well, we took a very strong line that Part I was verboten and that has not been pressed at this point. Now, what they will do six months from now or a year from now--.",40
-fomc-corpus,1984,"Just looking at the current Greenbook, I think the very first sentences of Part II would have to be totally rewritten. That reads: ""The pace of activity picked up vigorously early this year. Housing activity surged, auto purchases and other retail sales rose strongly, and industrial production advanced rapidly in both January and February."" There's no question about where the Federal Reserve staff views the first quarter as a result of that. Practically every one of those adjectives would disappear.",92
-fomc-corpus,1984,We didn't try to leave any doubts in that document.,11
-fomc-corpus,1984,That goes to Chuck's point about communication.,9
-fomc-corpus,1984,You wrote 4 headlines.,6
-fomc-corpus,1984,"That would become: ""The economy grew in the first quarter on several fronts.""",16
-fomc-corpus,1984,"I think there is some concern. When you go through these with a little time lag, it's pretty difficult to spot a whole series of things that are a potential problem. They come up in Ted's area particularly. On the domestic side, in the past there have been occasions when the monetary data we had were not for the full month and we put in rates of growth for the full month. Or we have put in our corporate bond and stock markets forecasts of various things going out several months. With time, I think the sensitivity declines. I do remember for many years I was assigned the unpleasant chore of writing the Quarterly Report for Mr. Proxmire's Joint Economic Committee and that report was very different from the Greenbook. It supposedly said the same thing--it was on current financial conditions--but it was quite a different animal. When you write something you have in mind the nature of the audience and it makes you more sensitive.",188
-fomc-corpus,1984,"I think there is something to that. But of course you are risking that if they really press, we'll tell them we will reinstate the Proxmire-type reports.",34
-fomc-corpus,1984,"Well, I'm not adverse to that. And if I have to do this, I would like to get some double mileage out of it. For example, we can get some bulletin articles out of doing that and save some staff time to do something else. If we put a public document out but beef up Part I in a selected way to cover other things, it's conceivable that the Committee might be better off with a different Part I and a Part II that we use [as a public document].",99
-fomc-corpus,1984,"Well, I don't want to probe all your minds, but how many people read Part II?",19
-fomc-corpus,1984,Now you have to ask how many people read it some of the time.,15
-fomc-corpus,1984,Once a year.,4
-fomc-corpus,1984,[The Governors] don't have the personal staffs that the Presidents have to give us all that information. We have to read Part II.,27
-fomc-corpus,1984,I don't think we have to linger on this any more. We won't do anything immediately but I think we ought to review the whole issue. I don't have any particular feeling that Part I should be longer. But we'll get the answers to Part I when we discuss Part II. We won't do anything for the moment. Now I'll go to the minutes. Do we have a motion?,76
-fomc-corpus,1984,So move.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,"Without objection, the minutes are approved. Foreign currency operations, Miss Greene.",15
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Questions or comments?,4
-fomc-corpus,1984,"I have two questions in two quite different areas. The first question: When the chart show was given in January, as I recall there was a chart that forecast some decline of the dollar this year. I don't think it was given with a great deal of confidence but as I recall the chart the dollar was down. The Greenbook forecast is a good bit stronger and I gather that whatever your interest rate forecast was two months ago it is probably higher now. How would you draw the chart on the dollar now, if you had to do it, compared to two months ago?",115
-fomc-corpus,1984,"Fortunately, since we do the forecasting for that purpose on the basis of quarterly averaging, it allows us to smooth out some factors. The chart show forecast was based on projections from the fourth quarter of 1983 through the end of the projection period and we had particular numbers for the intervening quarters just because we do that for the convenience of it. In fact, we had felt that the dollar was going to stay up longer than we have in this forecast although we have left the projection mostly the same for the balance of the period--going out after the third quarter of this year. So it is the same for the fourth quarter of 1984 and the fourth quarter of 1985. For the first and second quarters we moved it down just slightly, from 131 to 130 on average for the first quarter and 129 or something like that to 126 or so for the second quarter, because it looked like interest rates, if anything, could have firmed a bit--and also because we have been burned so badly, if I may put it that way, as you alluded to President Boehne. We had felt that it might be some time before the cumulative effects of the current account would begin to show through; in fact, they have come in somewhat sooner and stronger than we had implicitly projected at that time.",269
-fomc-corpus,1984,My other question has to do with the debt situation. Is there anything that can be said about that at this point?,24
-fomc-corpus,1984,"You're looking at me rather than at the people at the other end of the table. Well, I think the answer to that is ""Yes."" Most of the attention right now is focused on Argentina where, as you know, they have a new government and a very difficult external problem. The amount of indebtedness is large; it's half the size of Brazil's or Mexico's, but it is still fairly large. The new government has had a lot on its mind to say the least internally as well as externally and they were not moving very rapidly toward an external--or internal for that matter--economic adjustment program. In a sense they lost a quarter or so while they were pursuing other priorities. As a result, there are possibilities at least of more substantial problems. I suppose it's fair to say that the possibility of getting a letter of intent this week before the end of the quarter is at the vanishing point. It seems very unlikely under those conditions that interest [arrears] will be brought up to date through the fourth quarter of last year, which means those loans will become nonperforming early in April and will affect earnings statements early in April. But more important than that: This is the first time, I think, that this has happened to any of these major borrowers. And what psychological reaction it will have on the banks' attitudes or on the market, and indeed on Argentina, remains to be seen. That would be amplified further if it is followed by a classification of the loans, which isn't automatic and which seems to be natural unless activity picks up pretty rapidly with the [International Monetary] Fund. There are some indications that it is picking up now and there has been a reasonably straightforward effort going on to reach agreement with the Fund just in the last week--in terms of actual discussions with the Fund even in the latter part of last week, to be more precise. There are indications that the government wants to reach an agreement. Certainly, the Fund wants to reach an agreement. There are discordant voices within Argentina and some very real difficulties on such little matters as how far they can reduce the budget deficit, to take one example. Wage policy traditionally enters into these negotiations. They have been following an ad hoc policy from month-to-month of increasing real wages. Inflation is accelerating; monetary policy is lax; and the [peso] is probably a little overvalued. And two-thirds of their exports would'be eaten up by the need to pay interest. Otherwise there wouldn't be any problem! I might say in just looking at the Argentina problem that they have a big trade surplus, very largely based on agricultural exports. The country is reasonably self-sufficient. Part of their big debt reflects some recent current account deficits, but not half of it and maybe not more than two-thirds of it. In rough numbers they have had proportionally an exceptionally large amount of capital outflow, and like some of these other countries they finance private capital outflow by the government borrowing the money back. But the assets have flown. They don't generate any income for Argentina because the income stays abroad as well as the assets, and it puts a very large burden on their current account to manage their external debt. We have a problem within Argentina and, of course, we have the contrary problem that whatever happens to Argentina--which in and of itself might be a manageable situation--how can you expect a situation to remain manageable or what are the risks that it will spread to other borrowers and we will have a much bigger problem on our laps? So, that is the focus of concern. Now, there are continuing concerns with other countries. Peru lost a finance minister recently. Mexico continues to look good from the external side but it still has sluggish growth. However, it does look as if they may be approaching a situation where they will not have to rely much, if at all, on net new external expansion. Brazil, on the other hand, is just in the middle of what has finally become, I think--there are still some questions about it--a pretty forceful internal adjustment program, tightening their monetary policy. But the success of that is still not clear.",833
-fomc-corpus,1984,Do you think there will be interest rate concessions forthcoming from the banks?,14
-fomc-corpus,1984,"Well, I don't know what you mean by concessions. It's a very foggy word. The idea of giving what one might term a subsidy, which Argentina no doubt would like, would be an extremely difficult one for the banks and in itself would raise a lot of questions of precedent for the other countries. Certainly, the Argentines will at the very minimum go for whatever concession--more narrowly defined as a low spread--they can get. That would give banks some heartburn too on the theory that the Argentine payments are not as large as the payments of other countries and why do they deserve as narrow a spread as Mexico has gotten. The Argentines probably won't be very happy with the Mexican spread. That poses a problem.",145
-fomc-corpus,1984,"On those 22 reschedulings that have been held up, one went through; it was controversial. The new government came in and they basically want better terms. On those, what the banks have offered them is to reconsider the maturities but not the spreads, and so far there has been no movement because everything is held up in Argentina. It's not only the IMF thing, which of course is the key. There is also still that billion dollars of money that they could make available to Argentina that would be coming back to them as interest. Then there are the 22 reschedulings on which there is no movement. So, there is an impasse.",135
-fomc-corpus,1984,One can say increases in interest rates in the United States don't help any of these problems.,18
-fomc-corpus,1984,It's close to a six month give-up of interest for them. I think the last payment was October 12th.,24
-fomc-corpus,1984,It was October 3rd or something.,9
-fomc-corpus,1984,It was the 13th.,7
-fomc-corpus,1984,"However, some banks have told me that they have gotten scattered payments since then.",16
-fomc-corpus,1984,"They are [not] paying the interest. They have been paying some of their trade arrears, which in some cases involves payments to banks.",29
-fomc-corpus,1984,I see.,3
-fomc-corpus,1984,"In these renegotiations, Tony, are the rates being offered these countries a spread over LIBOR or prime and then the rate moves as those rates move? Is that the way they transmit the change in rates in the United States?",47
-fomc-corpus,1984,Or in the Eurodollar market.,8
-fomc-corpus,1984,How much of that Argentina debt resides in U.S. banks and how much in non-U.S. banks?,22
-fomc-corpus,1984,It's $9 billion dollars or something like that for U.S. banks.,15
-fomc-corpus,1984,It's something like $9-1/2 billion for U.S. banks out of the $25 billion.,22
-fomc-corpus,1984,"I looked at the hit that the New York banks would take if the loans become nonperforming on March 31. It doesn't add up to a lot. is the most vulnerable but the numbers still are not terribly large yet, although it has a definite impact.",53
-fomc-corpus,1984,"When the loans go nonperforming, what percentage do the banks have to charge off?",18
-fomc-corpus,1984,They don't have to charge off anything automatically just because a loan is nonperforming.,17
-fomc-corpus,1984,"They have to take out what they put in, I guess. Don't they?",16
-fomc-corpus,1984,They would have to not record the accrued interest for the first quarter and also subtract out from the first quarter earnings what they already had accrued from the fourth quarter. So they get a double hit in the first quarter.,43
-fomc-corpus,1984,Do they have to put up reserves?,8
-fomc-corpus,1984,"No, not at this point. They don't have to but the process is beginning that leads to classification and then to further classification and at that point they would have to.",34
-fomc-corpus,1984,"Our investigation, Mr. Chairman, suggests that not all banks would automatically in all cases back out the fourth quarter [accrued interest] under those circumstances. It's not explicitly required by the instructions. It's an acceptable practice.",45
-fomc-corpus,1984,"They would deduct it from their reserve for bad debts, wouldn't they?",14
-fomc-corpus,1984,They don't always. That's the form in which they often would take out the fourth-quarter [accrued interest] if they were doing the fourth quarter. But at least my information suggests that they don't always do that in all cases. They do stop accruing after 90 days but the previous period in some cases--,64
-fomc-corpus,1984,The previous period is usually a reserve adjustment and the current period is a reversal.,16
-fomc-corpus,1984,That's the way they are supposed to do it according to the Call Report.,15
-fomc-corpus,1984,"That's right. That's the so-called acceptable way of doing it: to deduct it against loan loss reserves and then replenish the loan loss reserves to that extent. That, in effect, takes the income hit in the first quarter. But in some cases, I understand, banks have declined to do that--or their internal accounting people have chosen not to do that.",72
-fomc-corpus,1984,If you had an adequate reserve you wouldn't have to replenish it?,13
-fomc-corpus,1984,Yes. You might have to later on.,9
-fomc-corpus,1984,Adequacy is in the eye of the beholder.,12
-fomc-corpus,1984,That's right. The bank is the beholder.,10
-fomc-corpus,1984,Banks are supposed to have some outside accountants that tell them.,12
-fomc-corpus,1984,"Mr. Chairman, I have a request that may be too delicate for you to comment on--I'm not sure--but I'm going to read it anyway. I'm scheduled in early April to give a talk to a banking association for foreign trade, as Chuck knows. They tried to get him and had to settle for me. In any event, the point may come up at that meeting in terms of comments that have been made in the press that you have had a role, and maybe a leading role, in urging the banks to reduce the interest rate that they are charging these troubled Latin American countries. If that question comes up, is it true or not? What should I say? No comment? I don't know? Maybe?",145
-fomc-corpus,1984,"I don't think you want to get drawn deeply into that subject, but I haven't made any great secret of the fact that in the situations where there has been clear improvement I think that ought to be taken into account in setting terms--whether interest rate terms or maturity terms or the size of the package or whatever. But we haven't gone around on a case-by-case basis [unintelligible] drawing out interest rate spreads. A clear case of improvement is Mexico.",93
-fomc-corpus,1984,I think it was stated quite a bit more broadly than that in the article in The Wall Street Journal that you probably are referring to.,27
-fomc-corpus,1984,It was. That's the article I was referring to.,11
-fomc-corpus,1984,"I don't know. As a matter of fact, I called to find out if anybody knew whether you had been doing this or not after I read that article and I couldn't find anybody who did. I think it was more broadly stated in terms of a considerable interest rate give-up. It reminded me of the days when they used to say that the Fed told the banks they ought to continue with those REIT loans. We never said it, but that was what all the bankers said we said.",99
-fomc-corpus,1984,"Well, if interest rates keep going up, the question is going to arise as to whether the [unintelligible] banks are capable of devising some kind of new relationship in regard to the increase or whether the financing put together by the IMF is going to have to be revised in the middle of the year, although that could create consequences. In other words, there has been some talk, but it has only been in general terms, about the banks and a cap on payment of interest rates; and any rise in interest rates would be capitalized so that it wouldn't disturb the cash flow projections and the financing that has been arranged for the year. So far there is nothing very concrete, even though there has been a good deal of talk.",150
-fomc-corpus,1984,"I detect an interesting phenomenon in this area. When you talk to the banking statesmen, if there are such people--or to those who would like to think they are banking statesmen at large banks or small banks or American banks or foreign banks--they talk very freely about reducing interest rates and the need for concessions, for caps, or whatever. When their delegates arrive at the banks' advisory committee meetings that atmosphere seems to be noticeably absent. I think it's fair to say that we can have formal conversations that probably encourage larger thinking but it doesn't get transmitted very much in their--",116
-fomc-corpus,1984,"That's surprising, because I know that at least at two of our big banks on the West Coast those at the top level have stated that they feel concessions ought to be made on interest rates. I wasn't aware that the people who show up at these meetings are taking a different view.",56
-fomc-corpus,1984,"by and large does not show up at these meetings. does. In some cases where banks were not at these meetings, I could only report an impression. I don't try to track all these down. Bankers who have talked in rather sweeping terms are also reported to be with banks that don't want to participate or want to raise the interest rate when the telegrams go out. They think the terms are too narrow. I don't think I'm completely misreading this situation: There's a difference between the guy [whose] bonus is being determined by the performance of these loans and the interest rates on them and the executives who are somewhat above those levels.",128
-fomc-corpus,1984,"Some of the regional bankers in my territory have said that they won't kick another dime into these but they would talk about interest rate concessions. Apparently what you are saying is that they will talk about it, but that's about as far as it goes.",49
-fomc-corpus,1984,"Well, a lot of very tricky problems arise in interest rate concessions or roll-ups or whatever in maintaining any sense that these loans are then currently performing and [unintelligible]. That raises a whole range of other problems about how many reserves and so forth and it changes the whole nature of the negotiation with foreign countries. There's a legitimate fear that once they began making concessions, where does it stop?",80
-fomc-corpus,1984,Right. I was told by the regional bankers in my territory that regional banks around the country were getting together to come up with a uniform approach to the next round when they would be asked to kick in more. But I never did actually hear the result of that get-together. Have you heard anything about that?,63
-fomc-corpus,1984,"No, and I don't think it's very likely, or practical either, for them to organize and talk that way because among the banks that aren't coming along there is a mixture. There are very few of the important regional banks that don't come along eventually, although there may be 30 or 40 of the smaller banks.",64
-fomc-corpus,1984,I think the next time you try to get them to come along it's going to be a heck of a lot tougher than the last time.,28
-fomc-corpus,1984,"It gets a lot tougher not just for them; it gets tougher for the bigger banks and for the European banks. The whole process is getting tougher. But if you want to look at the other side of it and hold this thing together a while longer, it is quite feasible, as I suggested earlier, that Mexico will come back next year and we can forget about all those regional banks and smaller banks. And maybe the bigger banks wouldn't have to provide anything either. That doesn't say there isn't a lot of refunding to be done. But I think it's easier if we can make a distinction between restructuring or refunding and new money. Mexico might be getting close to becoming a country that in some sense has made the adjustment and isn't totally dependent upon these greatly ginned up programs. And then people will begin saying yes, conceivably they are beginning to see the end of the process--""end"" is stretching a little, but at least an end of the process of a mass draft of new money for one country--and we can begin looking more hopefully at other countries. But we have to hold it together for a little while longer before that can happen.",233
-fomc-corpus,1984,"There was some talk in my District, Mr. Chairman, about the banks getting together in connection with the Brazilian situation to resist any kind of new money going in but that never did materialize either. I was going to ask some--",47
-fomc-corpus,1984,"The basic arithmetic here, of course, is still very strong. They can sit there and talk about not getting any new money. The fact is that they're getting more interest out of all these countries and they're putting in new money. It may be nice to say the choice is no new money, but the response of the [debtor] country is no interest.",73
-fomc-corpus,1984,"In that connection, if the Argentineans don't make an accommodation with the IMF and these loans are put into a nonperforming status, does that automatically trigger a technical default on the part of Argentina?",40
-fomc-corpus,1984,"Well, it could. In some sense they're in technical default now. They're in a position where a lot of banks could say Argentina is in default if they wanted to take action.",36
-fomc-corpus,1984,"Are the Europeans likely to do that, for example? That's what I was thinking about.",18
-fomc-corpus,1984,"It just takes one, doesn't it?",8
-fomc-corpus,1984,"There is a mixture of opinion in Europe and a mixture of opinion in the United States. So far they've held ranks, but I think the nonperforming status will give some of them that idea. It will be an event. We will see what happens.",52
-fomc-corpus,1984,Is there any significance to the fire in your ashtray?,12
-fomc-corpus,1984,He's an arsonist!,6
-fomc-corpus,1984,No.,2
-fomc-corpus,1984,"Mr. Chairman, just a point. When these loans are renegotiated and when regional banks do express reluctance on various grounds, is it sometimes appropriate when that happens for presidents to make calls and just state the Federal Reserve's position?",48
-fomc-corpus,1984,We were trying to avoid that.,7
-fomc-corpus,1984,"Yes, and so am I. Sometimes we get calls from staff members from various places and it's a little hard--at least speaking for myself--to read the seriousness of the problem and whether it really does warrant a Fed president stepping in or whether to tell these staff members that they really ought to try the regular channels [through] the correspondent banks. It's a little hard to read the calls we're getting from the System to the banks.",87
-fomc-corpus,1984,From the System?,4
-fomc-corpus,1984,"From the Federal Reserve System to the banks. Sometimes I get calls from staff members either in Washington or New York suggesting that I call this, that, and the other bank.",35
-fomc-corpus,1984,Recently?,2
-fomc-corpus,1984,"No, during these negotiations.",6
-fomc-corpus,1984,"But even then, wasn't it couched in terms of asking the banks what their view was on this matter and whether they were going to go along or weren't going to go along? [Unintelligible] stating the Board's policy as we saw it but saying that, of course, they have to make up their own mind.",67
-fomc-corpus,1984,You are raising the specter in my mind that there are more such calls than I was aware of. And I hope that's not the case.,29
-fomc-corpus,1984,Always a disturbing thought.,5
-fomc-corpus,1984,I have not been encouraging such calls.,8
-fomc-corpus,1984,Unless we are prepared to guarantee the loans.,9
-fomc-corpus,1984,"Well, we did those about a year ago.",10
-fomc-corpus,1984,"In the case of Mexico I can recall that there were a few calls of inquiry. I'm not aware of any since then, but maybe I'm--",29
-fomc-corpus,1984,"Yes, Brazil.",4
-fomc-corpus,1984,"Yes, in the case of Brazil there were a few but not very many.",16
-fomc-corpus,1984,I didn't think there were any on this recent Brazilian exercise. I'd be interested in knowing where that came from. Any other questions in this area?,29
-fomc-corpus,1984,"What did happen with the dollar this morning, Gretchen? You seemed to allude to a decline.",21
-fomc-corpus,1984,It eased somewhat from Friday.,6
-fomc-corpus,1984,Just somewhat?,3
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,A four-pfenig drop.,7
-fomc-corpus,1984,"Just to revert to the other issue: I have told the banks when they have asked that it's their job to round up all these things. I've made some statements about general support for the program, which they can use in public, but not in terms of contacting individual banks. [Let's turn to] domestic open market operations.",65
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"Peter, do you anticipate a situation like we had in September when we had all that money just pouring into our--",23
-fomc-corpus,1984,It looks very much as though it could be that large or even a little larger.,17
-fomc-corpus,1984,Do you expect the total balance to go up into the $30 to $40 billion area?,19
-fomc-corpus,1984,"Our figures have it up to about $40 or $42 billion, something like that. I think the Board staff's projections are not quite that high, but not far from it.",37
-fomc-corpus,1984,And there's no indication on the part of the Treasury to cut back on their borrowing to compensate?,19
-fomc-corpus,1984,They cut back a little on Treasury bills a couple of weeks ago. I've been having conversations suggesting a review of that. But I don't think we'll get very much help there.,35
-fomc-corpus,1984,Does it seem likely that these funds will stay with you as long as they did last year?,19
-fomc-corpus,1984,"[The Treasury balance] comes down again in early May, fairly fast. I don't have a very clear time profile, Governor Rice.",27
-fomc-corpus,1984,There could be a debt limit problem couldn't there?,10
-fomc-corpus,1984,"In early May I think there could be debt limit problem, yes.",14
-fomc-corpus,1984,I move it.,4
-fomc-corpus,1984,I second.,3
-fomc-corpus,1984,"If there is no objection, we will approve [the recommended leeway increase] with a note in the commentary that this is in reaction to a very large increase in the Treasury balance and not monetary policy. We have to ratify the transactions since the last meeting.",53
-fomc-corpus,1984,"We didn't ratify the foreign currency ones, did we?",12
-fomc-corpus,1984,There were none.,4
-fomc-corpus,1984,Do I have a motion?,6
-fomc-corpus,1984,Motion. MS. TEETERS and,7
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,Without objection. Mr. Kichline.,9
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,The [next] item on my agenda says: Committee discussion of economic situation and policy implications. Mr. Boykin.,24
-fomc-corpus,1984,"Mr. Chairman, the Eleventh District economy is growing, although somewhat unevenly. The weakness in the energy sector has caused manufacturing to be sluggish, but most economic reports indicate that both residential and nonresidential construction have continued their strong growth. In the District, the S&L situation, which has been in the national news, is a matter of concern. In Texas the S&Ls had a 32 percent increase in assets in 1983 and the federally insured S&Ls from Texas closed about $20 billion in loans in 1983 as compared to $9 billion in 1982. Of course, we had the closing of Empire Savings in Mesquite, Texas, which is out where I had mentioned earlier the land switching that was going on.",154
-fomc-corpus,1984,You never said it was Mesquite.,8
-fomc-corpus,1984,"Well, it's right out there next to the cowboys. It's the largest S&L closure in the history of the corporation. My notes say that it was caused by funding questionable real estate development loans with a deposit base that consisted of 90 percent jumbo CDs and 10 percent core deposits and that about $9-1/2 million, or roughly 3 percent, is uninsured. Office construction continues strong. Just to cite Dallas as an example: In January we had 15 million square feet of office space under construction compared to a 3-year average rate of about 8 million square feet. Vacancy rates in Dallas are around 22 to 23 percent and in Houston are 26 percent. Most people we talk to seem quite concerned about the whole real estate picture, particularly that there has been so much built in the multifamily area; but a lot of that concern is now beginning to shift to single-family construction, although the pace of activity doesn't seem to slow down. There are anecdotal comments such as that the Mesquite situation was the tip of the iceberg and that there are some real problems in the making out there. Land prices continue to jump--and jump daily. wanted to buy a little piece of land in downtown Dallas for a parking lot. The owner was asking $40 a square foot. He offered $38 and the seller didn't take it and two weeks later he bought it for $52. So, it's moving pretty fast. On the agriculture side--and on the call the other day some question was raised about agriculture--our feeling is that credit conditions at our District agricultural banks are characterized by mostly improved cash flows for District farmers who are cotton farmers and ranchers who are livestock producers; both now enjoy profitable price levels for their products. The feed, grain, and wheat farmers are probably faced with over-production. The rate of loan repayment seems to have quickened and farmers are requesting fewer renewals and extensions right now, although the longer-term outlook still causes us a little concern, Mr. Chairman.",407
-fomc-corpus,1984,"Your comments raise a number of questions in my mind. Let me just cite some of them and other people can comment on them. On this last issue, the agricultural situation, your comments are not what I am getting from some people in the Midwest. They say the banks are liquid enough but the ability to repay after a few years is getting less. Land appraised values have declined and land price [declines] if anything are accelerating and a lot of farmers are getting increasingly stuck. On this energy situation that you started out with, my impression is that in recent months it has been getting a little worse or going downhill instead of uphill for some reason.",131
-fomc-corpus,1984,"Well, Mr. Chairman, we did get an improvement in the rig count; it has backed off a little but it seems to be coming back slightly. It's still a difficult situation but what I see at least is that whatever movement there is seems to be a little on the positive side. I'd say that there is not further deterioration.",67
-fomc-corpus,1984,Prices of unused rigs went up a little from a very low level and have begun receding again.,20
-fomc-corpus,1984,"Well, I would think that reflects the demand. We had a little uptick in drilling and that has slackened off a bit. I don't have any specific knowledge of the price but I know there is an abundant supply stacked up in the yards. So, if the price is trending down, people might not be able to hold those things forever.",70
-fomc-corpus,1984,I guess I just don't comprehend what is going on down there with all this land speculation and the S&Ls and all of that. I'm confused [unintelligible] exposed.,37
-fomc-corpus,1984,"It's difficult for me, as I say, to get a feel for this. The banks tell us that they don't feel exposed--that what they are doing is good and that it will be all right. The S&Ls, I think, have fully anticipated that there will be fallout from Mesquite and that there are a number of other S&Ls--",72
-fomc-corpus,1984,There are almost 50 S&Ls down there that have grown by more than 100% in the last year.,24
-fomc-corpus,1984,Right. And the largest increase was a thousand and some odd percent.,14
-fomc-corpus,1984,Are these brokered deposits?,6
-fomc-corpus,1984,"Mostly it seems to be brokered deposits, and about half of the money is going into construction loans as opposed to just the mortgages at the end. They are taking equity positions. They are--well, like Mesquite. They were building up the value daily, two or three transactions a day, and getting it up to the price where they wanted it and then packaging it and selling it out to less sophisticated small S&Ls out in the country.",91
-fomc-corpus,1984,And in many cases apparently making no attempt to sell the houses.,13
-fomc-corpus,1984,Less sophisticated!,3
-fomc-corpus,1984,The most recent housing starts figures showed a very large increase in multifamilies in the Southern and Southwestern areas. And you seem to have an increase in commercial building also.,34
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,What is your vacancy rate?,6
-fomc-corpus,1984,"The vacancy rate is about 22 percent in office buildings; I was told by a broker that the warehouse construction seems to be doing a little better. Prices had been going for about $2.00 a square foot right before the first of the year and now those prices are up to $2.35 to $2.50 a square foot. I'm trying to remember what the absorption rate percentage is and I really can't, but the feeling is that the absorption is picking up.",96
-fomc-corpus,1984,How do you explain this record or near-record volume of office building in a city that has a 25 percent vacancy rate?,25
-fomc-corpus,1984,"A lot of optimism and the fact, first of all, Mr. Chairman, that the funds are available. Take the big build-up in funds in S&Ls, for example. We know they are going to have to do something with that money and they are trying to shove it out as fast as they can. On the office building side, there seems to be enough activity to continue to encourage developers and builders.",84
-fomc-corpus,1984,What is happening to the price on all these existing buildings that have all these vacancies?,17
-fomc-corpus,1984,"Well, there have been a lot of concessions made. If you want a year's free rent, that's not too hard to get on a five-year lease. There has been some shaving of prices but I would say the price is pretty well holding at around the $20 a square foot level but with incentives such as paying moving costs or maybe a year's free rent or something like that. That is the way they have been doing it. I heard fairly reliably that a small insurance company went out to the Los Galenos area close to Dallas-Fort Worth and took a very long-term lease and got the first 5 years free.",125
-fomc-corpus,1984,I don't think you can build a new building any place at these interest rates and expect to rent it at $20 a square foot.,27
-fomc-corpus,1984,"No. We just started a hole for the first of two of our Twin Towers. The excavation is underway. There is a bank that's going to be the lead tenant of that. A 55 story building was just topped off for [unintelligible]. Mercantile Bank has announced their 60 story building. The InterFirst building is a 70 story building; the steel is about half way up. There continue to be new announcements about an area we call the ""crescent development."" They just dug the biggest hole that has ever been dug in Dallas and it's on the north side outside the loop. It's going to have a really first class hotel and three office buildings of over 20 stories, another hotel, shops, and an underground parking garage for about 2600 cars. And that [project] is underway.",167
-fomc-corpus,1984,Are there vacancies in the residential area or are the sales of new houses--?,16
-fomc-corpus,1984,New houses are selling. Used houses are turning over now. Three of four sold in my neighborhood that had been on the market three or four days.,30
-fomc-corpus,1984,You don't have the same evidence of excess capacity in the residential sector?,14
-fomc-corpus,1984,"No, but now in the multifamily area it does seem to me that we really are overbuilt. The condos built at Faulkner point, which the Mesquite Empire Savings & Loan was behind, consist of over 6,000 units, which is estimated to be about a 7- to 12-year supply. They have over 6,000 vacant and they are selling them at a rate of about 20 a month.",89
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"I thought I might amplify a bit on the comments that I made on the phone last week about the agricultural sector. In our area there are some parts of the District where the agricultural problems are getting somewhat on the serious side but there are some contradictions that are developing on the positive side. Commodity prices have improved from what were very low levels. The opportunity for exports seems improved, particularly to the Soviet Union and to Africa, and certainly that picture ought to be improving rather than deteriorating. And we expect that the participation in the 1984 grain program will be higher than we might have thought several weeks ago. So, in the short term, the situation seems to be better and would provide for an improved situation. But having said that, there are some serious longer-term problems. I think it is fair to say that some parts of the area are going through a significant transition. In Iowa, for example, 50 percent of the farm land is debt free and for 35 percent [more] the debt level is reasonable. Then you get down to the 15 percent where the troubles really are developing. There the debt levels are high and the debt was created as a result of purchasing land at values that were exceptionally high. The land values had gotten out of the economic production scheme and were really pretty much relating to inflation. As inflation has backed off, farm values have gone down and the debt has built up. That, as a consequence, is causing the problems that you see [reported] so much in the press, which are not necessarily reflective of the agricultural sector as a whole. There are also a couple of timing considerations. First, this is line renewal time for most of the agricultural banks and I think the banks put a pretty special focus on their credit exposures. Also, it's a time when farm auctions are typically taking place so that the whole problem and the emotionalism that is involved with that comes back into focus. And then, frankly, it's a slow time of the year. It is February or March before things begin to pick up and as a consequence that gives people an opportunity to talk about it. I don't in any way suggest that the problems aren't serious. They are. But I think they are not necessarily reflective of the conditions throughout our District as a whole.",458
-fomc-corpus,1984,If you look at the aggregate figures--I don't remember them offhand but somebody here collects data and makes an estimate--there are a lot more than 15 percent that have these heavy debt burdens. It's a minority but it's very sizable.,48
-fomc-corpus,1984,"Well, I'm really referring to Iowa particularly.",9
-fomc-corpus,1984,"Iowa is probably better off. The calculation of average farm income relative to assets is 2 percent. If a farmer has 25 percent of his farm mortgage at 13 percent, the 2 percent is gone. I don't know what the correct number is, but it doesn't take very much.",60
-fomc-corpus,1984,"You're talking about 2 percent gross, before servicing debt?",12
-fomc-corpus,1984,Yes. All expenses before interest--,7
-fomc-corpus,1984,Your investment sector has done quite a bit better?,10
-fomc-corpus,1984,"Yes, Chuck. I think it's a fair comment with regard to the industrial sector that those parts that are susceptible to a cyclical improvement are indeed experiencing it. Many of them, particularly those that are consumer-related, are doing very well. In fact, many are right up to the top on capacity. The sectors that are having a problem are those that are dealing with some pretty secular problems; they are doing better this year than they were last year but nowhere near as well as some of the other parts. But I think they are beyond the scope of monetary policy. They have some special problems all their own. I must say I've been very impressed with the continued progress on the wage side. People I talk to are still settling contracts in the 4 to 5 percent area but nearer 4 than 5. And they expect to have a pretty good year this year, although they are all very, very apprehensive about the auto negotiations. They can do well now but if the auto negotiations go badly, that would create a different environment. On the price side, though, those sectors that are doing well and are up toward the top of their capacity are beginning to move through price increases with some success. They feel growingly encouraged that they are going to be able to put the price increases in and make them stick. So, particularly in those sectors that are doing well, the price pressures are beginning to grow; and with the passage of time that could be a significant risk. Broadly, I think the answer to your question is that the industrial outlook in the Middle West is far better than it has been.",325
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"Well, Si said some of what I was going to say. My District, particularly the Pennsylvania part of it, has been one of the slowest in the whole country. Every time we have looked at it, the District as a whole has only been 10th, 11th, or 12th [among the Federal Reserve Districts]. And yet as we look over what has been happening, there really is a broad base to our recovery. In manufacturing, it looks to us as though we have been having the most significant growth period since 1977-1978. Manufacturing has been expanding now for about a year and a quarter. We are also noticing the same kinds of things that Si reported. We do an informal survey among the biggest manufacturers in our District. About a year ago, for example, only about 5 percent were reporting any kind of price pressure. What we find now is that about 40 percent of them are reporting higher input prices. We see it particularly in the fabricated metals area and some in printing. So, it really is a recovery that is hitting our manufacturing area. We've tended to come up last in these areas, yet it's clearly the strongest in a half dozen years. Outside manufacturing I have just some anecdotal evidence. I've gone to a couple of shopping centers over the last several weekends and I couldn't find a parking place. Sales volumes are very high; they are running something like 20 percent over a year ago. Real estate [activity] is quite brisk. It's about average with the rest of the country and that's really quite good for our area traditionally. The banks are reporting rather substantially higher increases in consumer loans, in particular, and to some extent in business loans. On the agriculture side--Pennsylvania is a big agriculture state, although most people tend to think of the Midwest--the big problem in recent months has been the Avian flu problem with poultry. That has turned around. What we hear about weakness is in the export business. Again, just to add on to what Si said, unemployment is still high in some of the industries that have more than cyclical problems--those with secular problems. However, I did find as I talked to a lot of people around the District, that they are much happier than they were, obviously, with this pretty good increase over the last year but they almost plead ""Don't end the party so soon."" They say it has been a half dozen years of pretty rough times and it has been especially rough from about 1980. It has just been a very long dry spell and they are beginning to feel better about it. Most of them see a relationship between their own business and interest rates. There is much more awareness of [the effect of] interest rates on their business than I have seen. They talk a lot about the deficit. But even though business is much better, they continue to think it's not going to last very long because they see interest rates going up.",597
-fomc-corpus,1984,What did you hear about wages when you talked to them?,12
-fomc-corpus,1984,"The same as Si. I think the wage increases generally have been fairly modest. We're seeing that in the public sector. Philadelphia, with its new mayor, has taken a pretty hard line this year with the public area. There is concern that the auto [negotiations] might set a new pattern, but so far wage increases have not shown any material increase. As I indicated a moment ago, there are some inflationary pressures on the price side, especially in those industries that have had some cyclical upturn.",104
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. The Tenth District has enjoyed some of the strength that has been evident in the economy elsewhere. There are two or three areas to mention, and I'll focus largely upon your question with respect to the agricultural sector. As you know, we do a rather extensive quarterly agricultural survey of bank lending and the most recent one indicates that there is some stability felt among the bankers--stability in the sense that things are not getting worse and that they are manageable. But there's a very long period of adjustment [ahead] for the agricultural sector. In terms of specificity, they look to the projections for net farm income in 1984 that are now running some 50 percent greater than net farm income in 1983. Part of that is the PIK program that has come early in 1984 in which the sales have taken place of grain that has been shipped to the producers themselves. So, some of that income has already taken place. They have serviced the current debt and as a result the banks are feeling somewhat comfortable about the upcoming period. But the point that I think should not be lost is that there is nothing on the horizon that they can see, absent a Russian grain deal or some other magnificent event, by which the agricultural situation is going to improve from this rather low stable level--in particular in the debt service area. Farm liquidations were a very small percentage of farm holdings; that has gone up modestly. There has been some voluntary liquidation--that is, encouragement by the lender to liquidate in order to service debt--but that again has stabilized. I think you have to understand when you're talking about the agricultural community that, as Si indicated, January, February and March are times that they sit around the hot stove and talk about problems. It's only when the sun begins to warm things up and the sap begins to rise that optimism comes back into that area. There has been a pickup on Main Street of small ticket farm equipment sales but the large machinery sales are still very weak. But there is some encouragement on the agricultural input side--I'm talking particularly of [sales of] chemicals and fertilizers, which have been very brisk. In other words, the producers are anticipating large plantings this year and have the money to put into fertilizers and chemicals. Energy and mining are still very weak, particularly energy. Just to give you a benchmark: The last report that I have is that the number of oil rigs working in the Tenth District is 716; that's up from a low level of 574 a year ago contrasted with 1981 levels of about 1600. So, there is some modest exploration and production going on but it is indeed modest. With respect to the general aviation sector, there is a good deal of optimism. They are not producing but they think and still hope that production is going to increase in the latter part of the year. In the commercial construction field, Denver is beginning to have an absorption rate of their overbuilt situation that looks very favorable. Kansas City and Omaha have what might be characterized as a commercial construction boom. In Kansas City there have been seven major downtown office buildings announced within the last 90 days and two or three of them have holes in the ground and are ready to come out. That is in contrast to Tulsa and Oklahoma City, which essentially are overbuilt in the commercial area. We have seen no real evidence of pressures in the area of wage increases.",692
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"We are approaching capacity in a number of our industries. In autos, given the current mix of demand, we're at capacity for the larger types of cars. Those steel products related to eventual consumer products are going at capacity. Aluminum is very much using its capacity. Alcoa is talking now about doing a lot of ingot importing because they are so backed up. They are at capacity relative to the current plants and construction. Of course, all these companies have plants that they closed down during the last recession. They are at this point deciding not to reopen them. Heavy trucks are going full out--light trucks a little less--as are [the companies that produce] the equipment that goes into these heavy trucks. The tire industry is at more than capacity, working every shift their unions will let them. Of course, we have our weak points. One is electrical machinery. Foundries--the ones that are still open, which are very few--still haven't gotten their first order, so to speak. Machine tool orders are up, though that is not yet really reflected in terms of their production strengthening a great deal. The reaction to all this strength seems to be, as I mentioned earlier, not reopening the old capacity but concentrating on more efficiency within the current capacity and not bringing back workers but doing a lot of overtime or sub-contracting. All of these reactions I think come from a couple of causes. Number one is a skepticism about the future--fear of high interest rates and so forth. Another reason for these reactions is one that I view as very healthy. I think we are seeing some reaction to the intensity of foreign competition and people are now beginning to manage their businesses a little differently. We really hear about inventory control, about schemes to change the way of manufacturing from having huge plants and more people than they can manage efficiently to having smaller plants. They are working on set-up times and on the quality of the final product and so forth. We're hearing a lot about those adjustments and the new manufacturing techniques, if you will. And, of course, these techniques are used in service industries as well in order to meet competitive pressures. So, while I don't believe in discontinuities and in sudden and drastic changes in productivity and quality, I do think we really are seeing some significant differences in this recovery that I think represent a beginning of a trend. What all this has to do with prices is less clear. I certainly agree with a comment that was made that these people want more time in the recovery. Of course, these folks that I'm talking about particularly may have waited a long time to take part in the recovery as their industries are being affected at this stage in the recovery. They will talk about concern about future inflation but there is less support when you say this may be the point in the recovery when we need to do something about it. They say ""But give us a little more time."" So the public opinion out there is that, yes, there is a problem of future inflation but don't do anything too soon about it. Now, when we ask these people what effect this is having on their prices right now and what effect it will have in the future, I'm not sure the story is completely believable. What is happening now, of course, they are honest about. We see so far some little increase in prices in these industries. There is a dissatisfaction with profit margins and they don't expect too much cost pressure on that side in the future. And then they say they are not going to increase prices--that they aren't going to be able to. And I think that's just a current pessimism. They are dissatisfied with their margins and I think they are just waiting for the moment. We've seen a little narrowing of the discounts in steel but that isn't very broad yet. In autos we've seen some shifting between models and some restoration of dealer margins and so forth. I might just make a comment looking to the auto contract. The one piece of information I can add to the discussion is on the industry side. Of course, with the new union leader, the union is making the expected strong sounds. I have from a private source in the industry--however, a source that I think wouldn't involve too much posturing by the company--that, in fact, the company is ready to stand for a very long strike and that this management is making quite derogatory comments about previous managements giving the shop away, which might lend credence to the company's willingness to stand strong. Finally, in machine tools there is no price movement but that's an industry where we don't have capacity pressures. Real estate prices have firmed and maybe increased a little. So, we haven't really seen the price movement yet but the dissatisfaction that is expressed by a lot of these people and the closeness to capacity makes me think that their comments--pessimism from their point of view about future price increases--may not reflect what will come to pass and that we may get those price increases sooner rather than later.",1000
-fomc-corpus,1984,"I'm sure that they are never satisfied with their profit margins but if you can believe the figures that we have this morning, profit margins in corporate business are higher now than at any time in the last decade.",41
-fomc-corpus,1984,We have a lot of industries in the Fourth District that I would think are on the bottom side of that average.,23
-fomc-corpus,1984,There must be quite a few of them elsewhere.,10
-fomc-corpus,1984,They are all in Dallas!,6
-fomc-corpus,1984,It was also a pretty lousy decade for corporate profits.,11
-fomc-corpus,1984,That's right--not much beyond the first year of recovery. Mr. Morris.,16
-fomc-corpus,1984,"Well, Mr. Chairman, I have a question for Mr. Kichline. I've been going around New England giving speeches against the deficit and I argue that the problem with a deficit that doesn't decline as the economy expands is that at some point in 1985 we are likely to see a capital goods boom--which is clearly showing signs of developing great momentum now and by a year from now ought to have enough momentum so that the corporate sector will have to come into the credit markets to take a substantial amount of the total credit flows. And at that point in time interest rates are going to have to go up enough so as to squeeze back the interest sensitive sectors of the economy--namely housing and automobiles--sufficiently to make room for the increased corporate demand for credit. Now, I look at your projection through '85 and I don't see any squeeze on the interest sensitive sectors. Sure, housing starts come down a bit from what we have now but throughout '85 they are running at about the same level as in '83. And the automobile industry is projected to show a substantial continued rise throughout the period to a level substantially above the '83 level. Paul Craig Roberts might look at this and say ""Gee, that's not too bad. What are you guys worried about the deficit for?"" My questions is: Should I revise my speech?",271
-fomc-corpus,1984,"Well, maybe you should leave out '85 and let the time horizon be a bit fuzzier. I think it's very hard in an environment where rates are not regulated to pinpoint the time at which it all will explode. But I think our forecast really has in it those sorts of pressures building. In part, the impact of the deficit is showing up even now in our view, and it has been for some time, in terms of the current level of interest rates. And it shows up in the export sector where in a sense exports are being crowded out via the foreign exchange value of the dollar. You are right that this forecast still has growth sustained in '85. In part, you're really looking at continuing fiscal stimulus pushing up incomes. We do have housing as rather the weak sector. As you mentioned, it doesn't collapse but it doesn't grow. Autos we have growing. Business fixed investment, which we have growing quite a lot in '84, slows a bit in '85; but it certainly doesn't go downhill. I guess my concern with the deficit is not so much the crowding out argument in a given period of time but that we are looking at a structure that over time is not desirable. As a part of this process, business fixed investment is going to be a smaller part of GNP over the longer run than it otherwise would have been and interest rates are going to be higher and the interest sensitive sectors are going to get squeezed. Pinpointing it, I think, is a problem. I might note too that in '85 we do have built into this forecast a very small cut in the deficit; it's about a $20 billion dollar package. But if you envision that as part of something that would be going on in '86 and '87, presumably you would have beneficial effects in '85.",365
-fomc-corpus,1984,But the question is: When do we reach a level of total demand for credit that will require a substantial contraction in housing? That's what I would like to know.,33
-fomc-corpus,1984,We have demand for credit well above our target already.,11
-fomc-corpus,1984,I know. That's right.,6
-fomc-corpus,1984,"Well, I have difficulty answering that question. I really have difficulty answering the housing question because I think there are some very funny things going on. Dallas may be one part of it but the funny things are more widespread, with adjustable rate mortgages and institutions quite willing today to offer discounts. I have a concern that as interest rates rise we may indeed find that housing will change more than we have forecast. In part, as we get into '85 all these neat things such as discounted mortgages for the first year will be at an end. That first year will have ended and, depending on rate levels, we may find lots of pressures in '85 that we have not been able to readily define. But I suspect the housing number, if anything, is on the high side rather than the low side.",160
-fomc-corpus,1984,"Frank, I would join Jim in that hypothesis of the [likely] scenario. What is going to happen to housing will be a credit loss not an interest rate replay of the old disintermediation process, because the thrift institutions can pay the market rate. They can go buy the money.",59
-fomc-corpus,1984,"The issue is that if rates go high enough, they won't be able to find enough customers who are eligible to borrow.",24
-fomc-corpus,1984,"Oh, yes. Look at the builders that they are working with. The Pulte homes people have now issued $4 billion worth of builder bonds so far and it's on a stairstep going up. The builders and the developers they are working with will simply put up the points on the front and raise the price of the house. They can set the loan payment in accordance with whatever it takes to move the merchandise. But I think we will have severe credit problems, maybe in '85 or '86 or whenever, and substantial thrift institution loss problems. And that's what will cut off the housing--not the availability of funds.",126
-fomc-corpus,1984,We've reached this advanced stage of economic development--and I'm serious about this--where you don't even need a buyer for the houses in order to build them. You see that going on in Dallas. It's a process of self levitation.,47
-fomc-corpus,1984,"May I suggest that Dallas is not the United States? Certainly, I don't see a lot of speculative building in housing going on in New England.",29
-fomc-corpus,1984,I hope Dallas is the exception.,7
-fomc-corpus,1984,"I just have a hard time reconciling myself to this picture of another year and three quarters with no serious problem in either housing or automobiles. I hope it works out that way, but it just seems to me too good to be true.",49
-fomc-corpus,1984,"Let me just add a few comments on this agricultural situation. I too am a recipient of a lot of war stories flowing in from directors and other people with whom I come in contact. But it's very, very hard to pin down whether this is just what Mr. Keehn has called a ""hot stove league"" or something more than that. My conclusion is that it is more than that, but I can't be certain how much more. To give you a couple of insights into the crosscurrents of information one gets: We too have a quarterly survey of agricultural credit conditions. In the fourth quarter of 1982, 74 percent of the survey respondents indicated that collections were much slower than normal. In the fourth quarter of 1983, 37 percent said collections were slower than normal, which makes it sound like things are getting better. If you look at the year-end Call Report data--and we did this just for state member banks for the December 31, 1983 report--only 13 percent of the loans listed as past due 30 days or more are agricultural loans whereas in that same population of banks about 24 percent of the total loans were agricultural loans. Again, that doesn't sound all that bad. We then looked at 76 state member banks that we examined in 1983, and roughly 50 percent of those showed particular problems with agricultural credits but the other 50 percent showed no particular problems with agricultural credits. We talked to a dozen or so former directors and other people we know who are presidents of agricultural banks, and 50 percent of them said things were soft but not serious. The other 50 percent said it was very serious. I got some data having to do with national agricultural lenders, mainly insurance companies. Ironically, it's almost exactly the same story: about 50 percent of them reported improvement in delinquency rates and 50 percent reported serious deterioration. I got hold of some data from the Farmers Home Administration covering case loads of 422,000 agricultural loans of which 236,000 are delinquent, which of course is a very substantial percentage. Two-thirds of the delinquent total and two-thirds of the dollars are in emergency disaster loans of one kind or another essentially growing out of some kind of weather-related phenomenon during 1983. So, it looks as though it's a situation where it's either pretty good or it's very bad. In our District we tried to look at it in terms of geographic pockets, classes of farms, and particular types of businesses, and we could find no patterns whatsoever geographically or by particular crops or products. We do see more of a credit problem with Main Street businesses than we see with farms, if that is possible. We do see that land prices on average are probably still falling, although at a slower rate. Somewhat consistent with the hot stove league philosophy: The glow of the PIK program has come off, and as the realization of that has sunk in it has made people feel worse. Certainly, the widespread expectation of a year ago or six months ago of generalized strengthening in agricultural prices--grains in particular--has not materialized. So, while people thought things were going to get better they are not getting better. If there is a common denominator, I think it's the one that Mr. Keehn indirectly referred to earlier. These problems, if they are concentrated in any one area, do seem to be concentrated in situations where there was a lot of debt taken out in the late '70s and early '80s either in connection with acquisitions of land or substantial acquisitions of very, very expensive capital machinery associated with farm operations. I have just a couple of other anecdotal comments from the District. While the Ninth District is certainly not a major energy operation, there is a belt of oil and gas activity in North Dakota and Montana which is about one fourth the size that Mr. Guffey spoke of in the Kansas City District. But in that Williston Basin area drilling activity is now about 80 percent back to where it was at the peaks of 1980 and 1981, although it does appear that a fair amount of that resurgence is being undertaken simply because rigs are available at such favorable prices. People are going out and seeing what they can find. If they find something, they cap it and move on down the road and stick another hole in the ground. But, certainly, the pace of activity has picked up very significantly from a year ago. On the office space situation, I don't pretend to understand this at all but in Minneapolis as well there is a tremendous amount of commercial office construction going on. I don't have the foggiest idea who is going to fill all these buildings, particularly when Northwest Bank and Oxford Development start this massive project that they are going to build in place of the building that burned down a year ago or so. But certainly, given the size of the Twin Cities, there is a tremendous amount of commercial construction activity going on in the area. I continue to get some reports of delivery stretch outs, particularly in the high-tech industries. On the retail side, the encouraging thing that I hear from and others is that despite the fact that sales have been very, very strong they say they are going to stick with the very rigorous types of inventory control policies they put in place over the last couple of years. In terms of the overall national business situation, I still look at the [unintelligible] situation as being strong to very strong even if consumer spending does recede a bit in the second quarter, as it seems to me it must simply because the car sales and the car capacity situation is going to produce that result. But even allowing for that, I still think that in the next quarter or two anyway the risks are that the economy will be stronger than projected. And unfortunately--and Frank this may help your speech--I personally think the implications of that are that the following quarter may well be weaker than projected. It is interesting to note that both the unemployment rate and the capacity utilization rate in manufacturing are now at the points where we began to see the building of price pressures in the 1976-77 recovery period. The big difference between now and then is that we've had some rise in interest rates earlier in this cycle than we had then and certainly the wage situation, as has been pointed out, looks better now than it did then. Unfortunately, the other side of that coin is that at least to date the productivity side is weaker this time than it was in that earlier episode. I think this wage situation is very, very important. I don't know what is going to happen in autos but I think that's key, as is the dollar, as it pertains to domestic price level pressures. It's also unfortunate but true that we now have a situation in which there is some anticipatory buying taking place in the expectation of either higher prices or higher interest rates or both, and I think that makes our problem a little more difficult. I am very troubled at the prospect in Jim's forecast of an inflation rate of 6 percent in the second half of 1985. Once it gets into that range it's going to be very difficult to hold the inflation rate anywhere near that level. I would just conclude by saying that, at least as I view it, money and credit are growing pretty rapidly and velocity is growing. I'm not sure what the policy implications are right now because I'm not sure where policy is. Mr. Axilrod will tell us that later.",1508
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"Mr. Chairman, I'd like to comment on the thrift industry and housing and very briefly on this situation with regard to commercial property development and the syndication process, the limited partnership process. Accepting the staff projection of interest rates, we have a situation in the thrift industry in which the losses could run between $700 million and $2-1/2 billion, depending on certain aspects of the sale of assets by these institutions. As we all know, the sale of assets has been one way in which they have kept their profitability and avoided losses. Of course, what is happening is that the interest rate increase that has already occurred is affecting the turnover of the 30-month obligations, many of which are coming due now. And the weaker institutions may have 40 or 50 percent of their nonbrokered--I say that carefully--funds in and around that maturity category. So, we are seeing the beginning of a conversion of 30 or 40 percent of the liabilities at a time when that conversion of assets can run perhaps 10 percent of the assets. These interest rate increases, of course, are likely to continue at least in the near term. The nonoperating income of these institutions, which one could look at as 15 basis points or 20 basis points against the asset, is becoming increasingly difficult for them to accomplish. As there is more discussion of the credit risks and the overbuilding and the question of values, it is going to be more difficult for them to attain that 15 or 20 basis points. That could push them toward the upper end of that range of losses. And here I'm talking about 1984. Before, at lower levels of interest rates, there was an expectation of turning over the 30-month paper at lower rates than face rates. Of course, the outlook for that industry was one of reasonable profitability for this year. That, of course, tends to push these savings banks into very deep operating losses. It tends to produce some reliance upon the Federal Home Loan Bank System. Perhaps not unduly, it tends to force even more frantic efforts to attain fee income by originating loans without, let's say, complete or careful credit analysis and risk analysis. That means, of course, that the housing numbers that are in the Greenbook could be supported with an increasing exposure of risk for these institutions, with what that means down the road. We've already seen the Mortgage Bankers Association delinquency figures. The foreclosure losses continue. That is almost never talked about in the financial press, but the rate of foreclosure is substantial as the rate of bankruptcy continues to be on a very high plateau; [so], in another segment of the private economy the foreclosure losses are very substantial. With regard to the comments on commercial development, of course, the new element in housing is the builder bonds. As I've indicated, in one case that is a rather large number. The newer element in commercial development is, of course, the limited partnership syndicate that the Congress has been trying to address in some of the so-called ""loophole closing"" proposals. Those syndicates continue to flourish; the limited partnership sales are substantial. Down the road that is going to mean that these heavy vacancies are going to cause those partnership interests to be of little or no value, with a resulting impact on the commercial development process. My only point is that as we witness the interest rates unfolding as given in this scenario here, we're building up a future problem in housing, in development companies, and in the commercial real estate sector of the economy. All those things inevitably will produce losses and close thrift institutions and commercial banks and other kinds of enterprises down the road.",737
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Mr. Chairman, I'd like to comment briefly about developments in the Atlanta District and then turn to the national picture and the projections of the staff and the implications as I see them for policy. The situation in the Sixth District is not entirely dissimilar from what you've heard from other Districts. The expansion seems to be pretty broadly based at this point. There are some areas of the District that are still experiencing difficulties but everywhere I go, notwithstanding difficulties in certain areas and certain sectors of the economy, there's a good deal of confidence and a good deal of bullishness on the part of business people generally. In a broader sense, almost all the indicators are quite good. Employment in most parts of the District is up and unemployment is down; even in those places where we still have rather high unemployment rates, they are down from their earlier double-digit rates. That's particularly true in Alabama. The industries that are doing very well in our District are pulp and paper, carpet, and textiles generally. Interestingly, phosphate and farm chemical industries are doing quite well, notwithstanding the weakness in the agricultural sector. And that seems to be because of anticipation of increased farm acreage in 1984. Phosphate mining in Florida is also doing very well. Consumer spending is very, very good in most parts of the District, particularly in the major cities, and that includes auto sales, which have been extremely robust. As a matter of fact, some of the General Motors and the Ford assembly plants in and around Atlanta are planning to recall a little over 4,000 workers. Prices, on the other hand, are moving up a bit more in most of our cities than the national average, and that seems to be primarily in the areas of food and beverage costs and transportation. Construction also has been very, very strong in the Atlanta District generally. In the residential area, we've seen substantial increases in permits and in sales of existing houses. In fact in the Atlanta area, prices are escalating tremendously. As in the Dallas area--and I've seen this personally in my own area--house prices are escalating very, very fast and the houses don't remain on the market more than two or three days. In some cases I've seen bidding wars going on where somebody will put a house on the market, for example, at $170,000 and before the day is over people are offering more than the contract price. And it's not unusual for a single house to have five or six contracts on it within the space of 48 hours. So, that's a very unusual situation it seems to me. Multifamily building, on the other hand, seems to be moving in the other direction. Multifamily permits are down and the explanation that I get from people in the real estate business is that more and more first-home buyers are taking advantage of being able to buy a house and are moving out of the multifamily areas. Office construction is also an anomaly in some of our cities, particularly Atlanta. They are building office buildings or office condominiums at record rates. I, too, don't know where all the people are going to come from to fill them up. So far they are doing it, but some concern is beginning to develop in the Atlanta business community about overbuilding and the vacancy rate that could develop later this year. The other cities in the District don't seem to be experiencing that kind of overbuilding. The financial services industry, particularly the S&Ls, are doing very well and I suppose that's a reflection of the strength in the housing market. Mortgage commitments around the District rose 66 percent at S&Ls as of December 1983, which is the latest information I have. Commercial bank deposits are going up and loan demand is going up as well. One of the weak sectors is tourism, and it's weak because of unusually cold weather in Florida and reports of cold weather, which perhaps were exaggerated. Interestingly, travel agents tell me that some of the weakness in tourism in south Florida and indeed around the District is due to the fact that people are taking advantage of the exchange rate and going to Europe instead. The agricultural sector that other people have mentioned is a source of pretty deep concern in our District as well. It seems to be concentrated in the Florida and Georgia areas, although some other states such as Mississippi and Alabama also are affected. Just looking at the Farmers Home Administration delinquency rate, we find that in Georgia and Florida it's running in excess of 50 percent and that's among the highest in the nation. In Florida those delinquencies represent about 4 percent of the state's farmers and in Georgia about 10 percent of the farmers. The conventional wisdom that I'm hearing from so-called experts in the agricultural area--and that includes some Congressmen who represent agricultural areas--is that the highly leveraged marginal operations are not going to make it through 1984. The other people who are better operators--usually the larger operations even though they are heavily in debt--are probably going to make it. There seems to be a feeling that if they can get through the next 12 to 18 months, the situation will improve radically. There are two major areas of concern that I hear voiced over and over again in the District among people I talk to. First of all is inflation. They are seeing inflation demonstrated in higher prices and in backlogs and capacity constraints in their particular industries. They, unlike some other people's comments that I heard, wish that something could be done about this sooner than later. They all feel that their businesses are very good and they would like more of the same but they are fearful of inflation down the road and they do hope that something is done about that. The other thing that is getting the attention of people in my District--and I hope around the country, Mr. Chairman--is the deficit situation. There is more and more talk about it in all of the functions and activities that I attend. My personal view is that the message is getting out to the people and, in turn, is getting back to the Congressmen. I don't know what that means in terms of action this year, but I think the message that the people want something done is being heard by Congressional delegations. One concern that I have personally--this is just a hunch and I keep asking people about this--is foreclosure rates and delinquencies on loans generally, especially in the installment area. Bankers and S&L people tell me that they're not particularly concerned and that their statistics don't indicate any particular problem. But I look at the number of adjustable rate mortgages that are being put out in my part of the country, and I think around the country, and with interest rates tending to back up I think we're looking at an explosive and dangerous situation down the road as some of these ARMs begin to move toward the time of the balloon payments. Let me turn just very quickly to the staff projection in the Greenbook. I have a slightly different view than the Greenbook in three areas: economic growth, inflation, and unemployment. Outside of those areas, I'm entirely in agreement or don't have much problem! But I've changed my tune a little. At the last meeting I was saying that I thought the economy was going to move ahead at a faster clip than had been predicted. But this time I don't see the economy moving, especially in the first quarter, at quite the level that the Greenbook does--namely, 8 percent. I realize that the Greenbook is probably put together with the benefit of the Commerce flash report, and the private forecasts that I looked at didn't have that advantage. Nevertheless, it seems to me that we're not going to get the kind of growth even in the first half that the Greenbook is projecting. One of the reasons I say that is that I think there might have been some distortions reflected in the January and February numbers. We did have some pretty adverse weather in November and December, which might account for the rapid growth in January and February. And we had some changes in the PIK program, and so on. The other area where I would differ, again based on what I'm hearing around my District and some of the national figures, is that I think inflation is apt to be higher in 1984 than the Greenbook indicates. Some of the indicators I looked at to support that view include: commodity prices, which are moving up and have been trending up for some time; the price of gold, which is moving up; and the value of the dollar, which is coming off. We are at an 80-81 percent capacity utilization number and monetary growth has been fairly strong. I hope I'm wrong, but it looks to me as if inflation might be higher than the staff is predicting. And because of my view about the lack of robust strength in the economy as compared to the Greenbook forecast, I would think that unemployment will not be as low as in the Greenbook. Summarizing all that in terms of policy implications--and I guess we can talk about this more tomorrow--it all adds up to me to one word and that is caution. I think we have to be very careful and very cautious as we formulate policy tomorrow for the next period.",1843
-fomc-corpus,1984,"I don't know how much time we're going to have tomorrow. As you know, I have to testify in the morning and I don't know when I will get back. We may have to go to or after lunch. I'd like to get a little more done tonight, but I also am conscious of time passing and I would ask those remaining to concentrate on points that have not been made before. Mr. Roberts.",82
-fomc-corpus,1984,"I think most points have been covered. I'll make a very brief statement. In the Eighth Federal Reserve District there's a very broad general feeling of optimism, confirmed by surveys that we've done, meetings with our board and branch boards, and sessions I've had with large and small companies, commercial construction people, and business economists. I find no real exception to that general pattern, whereas maybe a fourth of those people three months earlier would have had some remaining pessimism. There are rising expectations of price increases to come later this year on the heavier industry side. We hear talk in the chemical industry in particular about major price increases to come later on. On the consumer side, all the evidence we've picked up is of continuing confidence in spending. [Representatives of] three very large nationally-based department stores indicated to me that sales slowed down a little in February but since then, in 10-day sales reports, each has indicated that sales have picked up again and that they think the earlier slowdown was weather-related. Housing is very strong in our District. In all the major cities we're seeing some increases in prices in the 7 to 10 percent range after stability for quite a while. Autos are very strong. Added capacity is being planned in the large-car category and in special areas. Chrysler just announced an expected $350 million expenditure to produce more mini-vans, which is a red hot product in their line that they are producing in the St. Louis area. Business loan demand, according to bankers that I've talked to, is beginning to pick up now in the major cities of the District after having picked up some earlier in the outlying areas. None of this is related to merger activity. In the wage area, the only indication of change that I've seen is at TWA and Ozark where concessions have been made by employees. I don't think that relates to the general economy; it is a reflection of the pattern of deregulation in that industry. I would certainly concur with the view that Governor Martin expressed about the shift of risk in the mortgage area from the savings and loans to the borrowers. This is a rising concern on the part of the major savings and loans in my District. Even though they're shifting a lot of the risk away from themselves, they are worried about the impact generally from rising interest rates on the variable rate loans. If there are any problems in my District, they seem to be a residual from the past and they would be in areas of excess real estate financing, coal mining, agriculture, and the foreign area.",506
-fomc-corpus,1984,"Mr. Balles, what do you have to say that will add to our sum of knowledge.",20
-fomc-corpus,1984,"I will try to make this very brief. The business statistics in the West are quite good. The aerospace industry, which I don't think anybody has commented on, is very strong. Boeing is adding workers back after cutting back for two years in a row. Electronics demand is strong in Silicon Valley. One curious thing I've noted is that business statistics are better than the business attitudes, at least among some of our directors. And that requires a word of explanation. Housing and lumber, of course, are so important in the Pacific Northwest that I think some of the pessimism of the people in that industry is based on their lack of faith in the sustainability of the uptick we've had. They see interest rates about to rise even more and they fear that will just cut off the resumed demand that we've seen in recent months in housing. So, they really are not holding their breath waiting for a sustained uptrend in that area. On the matter of what is going on in the mortgage area, in the West we find that almost half of the mortgages made last year in California, Nevada, and Arizona, which is the area of the Federal Home Loan Bank of San Francisco, were based on adjustable rates. That, of course, leads right back to where the risk has shifted. That may be the salvation of the housing industry if it keeps up and borrowers can continue to be encouraged to go along with adjustable rate mortgages. You asked about agriculture and that's awfully difficult to say anything about now.",297
-fomc-corpus,1984,We've heard a lot about it since then.,9
-fomc-corpus,1984,In that case I won't add to the pessimism that has been [related]: that there is the overhang of previous debt and that some agricultural borrowers are having real trouble. I think I'll stop at that point.,43
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"Well, Mr. Chairman, I don't know anything about what is happening in the agricultural sector but I do share Jerry Corrigan's concerns about where the economy is going. I think the dangers are very great that the economy may grow faster than the staff is forecasting for this year. The two areas where that is most likely to happen are business fixed investment and the change in inventories. The staff projection for business fixed investment essentially says that, after slightly faster growth than had been anticipated earlier, the growth rate continues from the second half on through all of 1985 just where we thought it was a month ago. And indeed, it's a markedly lower rate than we're seeing currently. Business fixed investment was growing at a 23 percent annual rate in real terms in the later half of 1983 and that tools right down to 5 percent by the latter half of 1985. I think we probably are going to see a major revision in capital spending plans develop over the first half of this year as a consequence of the fact that the economy is growing so much more strongly than had been widely anticipated. And I think we're going to see, even in the Cleveland District, the beginnings of some desire to increase capacity. On the inventory side, the Board staff briefed us this morning and showed us a chart on the ratio of inventories to sales, which is as low now as it was in early 1973. Of course, part of that is a consequence of better techniques of managing inventories. But it's also true that the number of companies reporting slower deliveries is back to where it was in late 1972. And my guess would be that during the course of this year we'll see some efforts to build up inventories relative to sales, so we'll see a bigger kick from inventory investment. On the price side, the thing that stands out most is the staff forecast for prices relative to unit labor costs. There is only a 0.2 difference there, with 5 percent projected for the fixed-weight deflator for gross business product as opposed to 4.8 percent for unit labor costs. That isn't even enough to take into account the effects that depreciation would bring. And the ratio of corporate profits to GNP declines during the course of 1984 from the peak in the first quarter despite very active markets and relatively stable unit labor costs. I just don't think that's the way businesses are going to price this year. I think they're going to have the opportunity to improve their profit margins and will do so. The big sleeper, however, in the price area is one that I've talked about before. I don't know whether it's going to happen, but the labor force projection that the staff has included in its forecast is for growth of 2.4 million from the fourth quarter to the fourth quarter. That compares with a 1.2 million increase during 1983. Now, last year's increase was very, very small. We did not see the kind of cyclical increase in the participation rate that we usually get. The staff forecast has one thing going for it now: namely, that in February we did get a big increase in the labor force and an upward movement in the participation rate. If this proves to be the beginning of a trend, then that forecast may be right. If it's a one-month phenomenon and we were to see the continuation of the slow growth in the labor force that we had last year, we'd be down to an unemployment rate below 6 percent by the fourth quarter and then we'd have a big problem. The word that Bob Forrestal put out is ""caution."" I certainly would agree with that and I may even be going toward a red light.",738
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"I just wanted to comment on one aspect of the Greenbook projections. As we look at the very high first-quarter real growth and the tapering off very rapidly for the rest of the two-year period, one gets the impression that perhaps not too much has happened. But there is a distinction here between the level at which the economy operates and the rate of growth at which it operates. And we have now raised the level very substantially. If we have 8 percent instead of, let's say, 4 percent for the [first] quarter, I think that [produces] 1 percent more GNP at an annual rate. And if the 6 percent [projected] for the second quarter were to materialize, that would be another 1/2 percent of GNP over a 4 percent growth rate. That means there's $50 billion or so more GNP in the economy. The capacity data seem to bear that out from the fourth quarter to the second quarter; in the forecast we're chewing up almost 4 percentage points out of capacity and we're really getting into the range where pressures become strong. The same is true of the unemployment rate. We're now moving close to what is technically known as the equilibrium rate of unemployment. And at the same time we're encountering a very substantial speed effect in the sense that unemployment is coming down very rapidly. So that factor adds to inflationary pressures. It seems clear, finally, that inflation expectations have increased over the last few months. That means that real interest rates, despite the rise in nominal interest rates, may not have increased. They may indeed have come down, if one could make so precise a calculation. So on net the economy is operating at a higher level with greater pressures, perhaps less interest rate constraint and, in a sense, more momentum even though we see that the projected rates of growth from the summer on are now lower than they were in the previous forecast.",387
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"Well, the question, of course, is whether in the future [those growth rates] are going to be that low. I agree with your concerns and I agree with Lyle's. Clearly, the economy has been too darn strong for several months now and if it continues very much longer, we will have used up any slack we have and will be backed into a period of a substantial inflationary pressure. We're at 81 percent capacity utilization, I think Bob said. Even using the staff projection, we get up to 85 percent in a not very long time. The only time that level exceeded 85 percent in recent years was around the end of 1977 and early 1978. And, of course, that was a period when high inflation conditions were developing. So, we have used a lot of our capacity and unless we do get this slowing growth in the economy that the staff has forecast, before we know it we will be into a period of growing inflationary pressures. And that's the thing we haven't faced. Now, certainly, fiscal stimulus has been a problem with the economy. But I have some feeling that another problem has been that there is too much credit. If you look at the credit ratios, they are high compared with earlier cycles. For consumer credit and even for business credit they are showing sharp increases and are getting up to the upper end of previous ranges. Somebody who is well positioned in the home building industry said to me not long ago that he hated to tell me this but the difficulty in the home building industry was that the lenders were throwing money at the builders. They were calling them up and saying ""Come on, why don't you use my money? Why not have some more starts?"" And that wasn't in Dallas either, Bob. It's an indication, I think, of conditions that are just too accommodative--given the backlog of demand that we perhaps have developed for houses and durables and things like that and certainly given the optimism of consumers, which is just too strong to have that kind of money availability around. So, I see the danger much more clearly than I have at previous Committee meetings over the last year as being the danger of expansion over the staff projection rather than below the staff projection. And I think the danger of that is much greater than before because of having used up the unused resources that we previously had available.",476
-fomc-corpus,1984,"If nobody else wants to pronounce the benediction, we will quit for the evening.",18
-fomc-corpus,1984,Mr. Axilrod.,6
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Are there any more or less technical questions for Mr. Axilrod?,15
-fomc-corpus,1984,"Steve, the Bluebook says that the alternative B proposal is consistent with the staff forecast of GNP. Does that mean that alternative B takes into account the rise in interest rates that has already occurred? Or does it mean that it will result in an additional rise in interest rates over and above what has occurred?",62
-fomc-corpus,1984,"It assumes a funds rate--well, it says 10-1/2 percent, but I'd say on the order of 10-1/4 to 10-1/2 percent. We had a 10-1/4 percent funds rate for a few days. We don't have that today and we didn't have it yesterday, so I think that really assumes a further rise in interest rates. Today funds are--",86
-fomc-corpus,1984,You mean a further rise from today but not from--,11
-fomc-corpus,1984,I would say from the average of the last two weeks.,12
-fomc-corpus,1984,I don't think we should over-estimate Mr. Kichline's ability to predict the economy and even more Mr. Axilrod's ability to project interest rates!,34
-fomc-corpus,1984,But it's helpful to know what they have in mind.,11
-fomc-corpus,1984,Are there any other questions?,6
-fomc-corpus,1984,"Steve, I'm surprised at the very small estimate that you came up with on M2 with respect to the IRA accounts. We are talking about an awful lot of money here.",35
-fomc-corpus,1984,That was a small estimate of the distorting effect on the seasonal. We might have gotten some of the seasonal but it could be more; I really don't know. But that was an estimate of how much we thought the seasonal might be off in some reasonable way.,53
-fomc-corpus,1984,What is the estimate?,5
-fomc-corpus,1984,"Well, a quarter to a half [percentage point], but I would take all of that--",19
-fomc-corpus,1984,Is that an annual rate?,6
-fomc-corpus,1984,"Yes. We don't think it is very large, but that's just another way of saying we don't think we made a big error in the seasonal.",29
-fomc-corpus,1984,Do we have very good data on the IRA accounts?,11
-fomc-corpus,1984,"We have IRA accounts at banks; unfortunately, we don't have them outside banks. No, we don't have very good data and that's a big problem.",30
-fomc-corpus,1984,Are there any other questions?,6
-fomc-corpus,1984,Do the data you have indicate that they are going up faster this year than last year?,18
-fomc-corpus,1984,Don may have [numbers on that].,8
-fomc-corpus,1984,"I don't have the numbers, Governor Partee, but they are growing faster this year than last year. The big jump was from the year before that.",31
-fomc-corpus,1984,"Our problem was not only the IRA and Keogh accounts but we had to make an estimate of how much the MMDA shifts early last year in January should be allowed for in calculating the seasonals so as not to distort the seasonals. That, as much as the IRA/Keogh accounts, was a problem to us in estimating the seasonals. We tried to make some sense of how far we could be off if we made different assumptions and we came up with this rather minimal number. But that doesn't say that the IRA/Keogh accounts didn't have big effects in and of themselves.",119
-fomc-corpus,1984,"You also have this big [unintelligible] in these old, maturing 30-month certificates.",22
-fomc-corpus,1984,"Yes, that's right.",5
-fomc-corpus,1984,"On this large increase in reserves in February to accommodate the build-up in excess reserves: I notice that you say excess reserves are subsiding and that pretty much takes care of itself. But if loan demand is rising and the excess reserves go into loans, what is the effect of that prospectively?",59
-fomc-corpus,1984,"As a matter of fact, the excess reserves seem to be running high in this two-week period in the latter part of March as well. But we think the excess reserve build-up has been accompanied by a high funds rate, so it isn't as if people are taking excess reserves and have gotten rid of them aggressively into market instruments or things like that. I don't think that the build-up of excess reserves is pushing loans out or pushing money out. I think it is really rather transitory.",98
-fomc-corpus,1984,Do you have an estimate for reserves and the monetary base for March handy?,15
-fomc-corpus,1984,Yes. Our estimates indicate a relatively low [or slightly negative growth] and assume excess reserves a little lower than I think is going to be the case at the end of this month. For March we would have a drop in total reserves but I think it is best to assume that reserves are about unchanged following the 19 percent increase. And the monetary base is falling to only a small increase of 2 to 3 percent.,86
-fomc-corpus,1984,What do you have for nonborrowed reserves?,10
-fomc-corpus,1984,"Well, we have a drop there also, and it may even have dropped a little more than [our estimate]. We have a drop of around 7 percent, but I think a lot of that is the distortions of the excess and required reserves in March. It looks as if they are increasing about the same as they increased in February--at about an 8 percent annual rate. So this variation is largely the variation in excess reserves and some variation in borrowing. It's a sort of sustained expansion in the reserves that is providing the base for the deposit expansion.",113
-fomc-corpus,1984,"Any other questions? Well, let me sum up what I think is a difficult situation in terms of arriving at our policy judgment. Drawing upon what you people were saying yesterday, on the surface we certainly have a strong expansion. We haven't had much change in the inflation picture. The wage picture to date--I make no statement other than to date--looks surprisingly good. There really is no evidence, looking backward, of a real change there. Attitudes seem to be carrying over. Obviously, the issue is how to sustain progress, not just where we stand now. I think we have some very large distortions in the economy that are becoming more apparent --they may not be apparent in quite the way many predicted--arising out of the deficit. We have this enormous foreign trade deficit. I don't know how big the housing industry is these days--maybe you know, Governor Martin--but I don't think it is much bigger than our foreign trade deficit.",192
-fomc-corpus,1984,$100 billion.,4
-fomc-corpus,1984,It's more or less that.,6
-fomc-corpus,1984,"Just to illustrate the problem: We have this decline, by whatever it has declined, and it is equivalent to losing half or more than half of the housing industry in terms of GNP. Another way to look at it is that domestic demand has been expanding considerably faster than GNP.",57
-fomc-corpus,1984,What is the estimate of domestic demand--at least 1 percent more than GNP?,18
-fomc-corpus,1984,"It's more than 2 percent if you take domestic private demand. Do you have that figure handy, Mr. Zeisel? You computed it for me the other day.",34
-fomc-corpus,1984,I'm sorry I just came walking back in.,9
-fomc-corpus,1984,For the first quarter it is 10 percent.,10
-fomc-corpus,1984,"That figure you gave me excludes government, doesn't it?",11
-fomc-corpus,1984,It excludes government but it includes inventory investment and it allows for an adjustment of this PIK distortion.,20
-fomc-corpus,1984,And it would be less if you included government?,10
-fomc-corpus,1984,Right.,2
-fomc-corpus,1984,"This agricultural problem is obviously mixed. If you don't have any debt, you haven't any problem. But quite a few farmers have debts and the problem gets bigger. This housing market could be living on borrowed time. There are very funny things going on in Texas and I suspect a few other places. One of the disturbing things to me for the future is that I think there is a reluctance to add to capacity for several reasons. As you mentioned yesterday, [manufacturers] have been through a sluggish period and they have had a lot of instability. And interest rates bite when you're talking about a new factory or something. I don't know whether to be encouraged or discouraged about the future of the country. I was in Winston-Salem last weekend and there's a huge new factory down there for cigarettes. It's the only big factory of that sort that I've seen for a while, and it is big. But all these distortions seem to be interrelated with interest rates. The economy [unintelligible] when demand moves very rapidly; I don't think that's so surprising in view of the deficit. But I also think interest rates are not in the short run--I don't know about the long run--a very effective brake on many sectors in this deregulated world that we live in. People go ahead for a while anyway, except in some areas like new plant, without responding. And I think it raises a question of how the shape of the economy will look in the future. I would add to Mr. Kichline's view that he gave yesterday in response to Mr. Morris as to what may happen. He has a good traditional, and I think fair, view of what one ordinarily might expect: low investment, low housing, and foreign trade problems. But on top of that we have lots of vulnerability. This thrift situation can rapidly turn negative and is turning negative. We were talking about their throwing money at builders and I think they are going to continue to throw money at builders whatever the interest rates are. They will pay whatever they have to pay and raise the interest rates, but they probably will continue to throw money at them or engage in speculative investments. It's a sign of weakness not strength. We have this LDC problem. There is an interesting article in The Washington Post this morning which is not new news but indicates the kind of psychological treatment this problem may get. We have the foreign exchange rate problem. If the dollar declines and the foreign trade picture improves, it pushes all these pressures--bottles them up in the economy--and we will see more results there. I observed that a lot of you reported that businessmen don't want us to take away the punch bowl; they don't want us to tighten now. I think there is some real fear about interest rates and the question is, in part, whether these little changes in interest rates necessarily do all that much. I don't think they do. Maybe it's just not very visible but if you scare people enough, there is a risk of a discontinuity [in their response] here. They may suddenly say ""Oh my gosh, we are going back to 1980 or 1982."" And people could draw in their horns quickly. I say that because when I talk to people about interest rates they don't seem to be worried about a small increase. What they are worried about is that it is the first step toward a big increase that they consider very serious; they have that pattern in their minds. We are operating in an atmosphere where interest rates are considered the problem and we are considered interest rates. Whatever we say about the budget, [unintelligible] doesn't reflect the budget or the economy. It's a very simplified view--that we can control interest rates. So, we're dealing with that kind of atmosphere and I think we're living to some degree with all these distortions on borrowed time. Broadly, I guess we have three options. I don't know whether my comments exactly conform to the statistics of Mr. Axilrod, but I think one can take the view that the economy is going to slow down by itself and inflation will remain under control and we don't have to do much--we can luck out and avoid adding strains in the short run. I don't know what you think about the reliability of that [scenario]. I think it is possible but how reliable it is is a question. The middle option, in a sense, is that we can help nature along by making sure we resist any excessive money and credit growth. Under the circumstances we have at the moment that's a middle course but it raises the question of whether it's enough. Or one can take a more aggressive and what might be considered therapeutic approach that certainly is going to be reflected in short-term changes in interest rates and we will be face to face with some of these risks--the international negotiations and the psychological risks that I referred to, of course. If things don't go well, we are going to face those sooner or later anyway. Those are the options that I see. We can proceed.",1011
-fomc-corpus,1984,"It seems to me that it's very difficult to have as useful a discussion, and ultimately a decision on whether and how much to tighten open market operations, if we don't factor in what the Board of Governors may do on the discount rate. Let's say we tightened along the lines of alternative B and presumably got a fed funds rate in the neighborhood of 10-1/2 percent. If then the Board were to move the discount rate a half point, we might not get a full 50 basis points out of that move coming on top of this because there is some expectational component. But I think we would get very close to that. So, we really would end up with something virtually close to alternative C. It seems to me that we have this problem that doesn't usually arise. This time we have a combination of circumstances where the markets are expecting a discount rate move. There are some good arguments for that. There are some arguments against it, I'm aware. If we want to be in the posture of not sending a strong signal that we're taking the initiative--that we are simply not resisting the market's tendency to drive up interest rates--there is an argument against a discount rate move. If we want to indicate a more forceful view, then there is an argument for it. All I'm saying, though, is that I don't see how we can know whether to talk in terms of the objective as alternative B or alternative C unless we have some sense as to whether there is going to be a discount rate change. I realize that you would be reluctant to talk about that in a large group but I don't know quite how to address this question.",331
-fomc-corpus,1984,"You're talking about the rates, not the aggregates?",10
-fomc-corpus,1984,I'm talking about rates.,5
-fomc-corpus,1984,I don't see how this changes the aggregates.,9
-fomc-corpus,1984,I am certain that we are not going to arrive at a discount rate decision at this meeting. In making your comments you may want to make whatever observations you want from your particular perspective about the discount rate and how it might affect your judgment as to what should be done on monetary policy.,57
-fomc-corpus,1984,"To join Tony, I have the same dilemma with respect to which of the alternatives to select if indeed a discount rate action may be forthcoming. But the more important part as far as I am concerned is how the Desk would react to a discount rate increase and whether it would use the post-1979 operating regime or the post-1982 regime. In other words, the latter approach would involve adjusting the borrowing level in some measure to moderate the increase, if I understand [that regime]. If we go with the post-1979 regime then we're going to get a one-for-one result--a half point discount rate increase produces a half point rise in the federal funds rate. If we use the post-1982 practice, we moderate it by adjusting the borrowing level. I think Steve appropriately raised this issue of whether it will be incorporated in some measure in the directive. But some expression from the Desk or the Chairman as to how they would react to a discount rate increase is important to deciding whether to go with alternative A, B, or C.",211
-fomc-corpus,1984,"Well, I'm not so sure it is so important if one looks at it in terms of the monetary growth, which is the initial focus here. But I will accept any comments anyone wants to make here as to how one manages one's affairs in the interim.",51
-fomc-corpus,1984,"But a considerable number of people on this Committee have an interest in interest rates not just in the monetary growth. And I cannot see that this isn't an extremely relevant factor. Now, we can always give two votes, I suppose: one on one assumption and one on the other assumption.",57
-fomc-corpus,1984,Let us proceed.,4
-fomc-corpus,1984,"If I look at ""B,"" for example, it may be attractive to me at least in terms of a 10-1/4 percent or maybe 10-1/2 percent funds rate. But if we get a discount rate increase on top of that and use the post-1979 procedures, that would get it up to 11 percent.",72
-fomc-corpus,1984,"In the first instance, I will repeat: If you are talking about ""B,"" I don't see an interest rate there and I don't see a borrowing assumption there. So, I think we can do a certain amount of talking. And I would suggest that we proceed. Mr. Black.",58
-fomc-corpus,1984,"Mr. Chairman, I agree with those yesterday who indicated that they think the economy is currently very strong and that we will be lucky if we hold inflation down to the level that the Greenbook is forecasting. Accordingly, it seems to me that our main objective ought to be to deal with the aggregates. I would focus, of course, mainly on M1 and try to get that to the midpoint of our 4 to 8 percent range and hold it there in order to reduce the risk that inflation would really be a problem in 1985. I like the M1 path of ""C"" because that would get M1 to the midpoint by midyear. But the Bluebook associates that with a federal funds rate of 11 percent or more and I would feel a little more comfortable--and here I am assuming no change in the discount rate--if we let the federal funds rate move up to the neighborhood of 10-1/2 percent and hold it there until we have some additional information on the behavior of the aggregates. I like the ""B"" specifications for the federal funds rate and the borrowing. I have to say, though, that I have no confidence in my ability to tell you what kind of growth in the aggregates we're going to get under current procedures if we push the federal funds rate to that level or indeed to any other level. I just don't think that there is really any way for us to know under our current operating procedures. But we've now had 2 months of experience, roughly, under contemporaneous reserve accounting and I was happy to hear Steve suggest that he thought there might be some merit in looking at the idea of introducing some automaticity into that. I would strongly endorse that and would express the hope that somewhere along the way we get as close as we can to something approaching total reserves. If we do get to that point, we ought to think about the discount rate as a penalty rate at all times. I think that kind of procedure would greatly enhance our chances of controlling the aggregates and inflation and help us maintain this hard-won credibility that we have finally gotten.",423
-fomc-corpus,1984,Do you mean a penalty rate above the funds rate?,11
-fomc-corpus,1984,Yes. That's right--in order to control total reserves more closely.,14
-fomc-corpus,1984,"Mr. Chairman, I would support alternative B. I don't have the confidence in the behavior of M1 that Steve suggests he has--that, after not having served as a very useful target in '82 and '83, it is somehow going to revert to its old historic norm in '84. But I think the rate of growth of debt is quite clearly excessive. That growth plus the extraordinarily strong economic numbers that have come in tell me that we have to move now to moderate the rate of advance in the economy. I think moving to ""C"" and having a funds rate possibly as high as 12-1/2 percent is a little overkill. It seems to me that we need more feedback from the effect of interest rates than would be implied in alternative C, and the idea of returning to the old automaticity sends a chill up my spine. I certainly would like to restrain the funds rate range to no higher than the ""B"" level.",194
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"Several people commented yesterday to the effect that the potential for inflation accelerating down the road is now increasing, unfortunately. Certainly, the work that we've done in our Bank strongly supports the same conclusion: that inflation begins to accelerate as we approach the unemployment range of 6 to 7 percent or the operating capacity range of 80 to 83 percent. And I fear that may be down the road. So, for that reason I also would come out in support of alternative B and would suggest a borrowing assumption--since it isn't listed in the Bluebook table though it is listed in the text of the Bluebook--of about a billion dollars. That would seem reasonable to me. I think we should not shrink from letting the funds rate creep up to 10-1/2 percent in the near future for starters, and I would hope that it wouldn't have to go much above that. But I think we are going to have to do something more than we've done recently to slow down the generally rapid thrust of all these aggregates, especially M1. I was glad to hear Steve's remarks--and perhaps I'm reading more into them than he meant--but it almost sounded, Steve, as if you're ready to take M1 off probation, which I would welcome.",252
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"This is a real predicament, to put it mildly. I guess I would come out supporting alternative B, with the borrowing number and so on that go with it in the Bluebook, even though I must confess that I like the aggregate profile in ""C"" better than that in ""B."" But at this point ""C"" scares me a little in that it could actually make things worse in the short run. That is what I see as the great dilemma. If we went with ""B"" and that meant that the federal federal funds rate had to get up to 10-1/2 percent or so, like John, I would say ""So be it."" But in the context of ""B,"" I would favor the directive variant 2 that Steve has in the Bluebook. Personally, I would favor an asymmetrical directive that would say that we would strongly resist money and credit growth above the specifications of ""B"" and be tolerant of shortfalls in the growth of money and credit below ""B.""",204
-fomc-corpus,1984,"Did you say ""strongly resist""?",8
-fomc-corpus,1984,"I think I said ""strongly."" I'm not sure what that means, though, Chuck. I won't try and define that. I am very troubled by this credit growth, in particular. Those numbers are really very, very strong. I certainly would favor an asymmetrical directive, one that would--",60
-fomc-corpus,1984,"On those credit growth numbers, I don't know if the number was touched upon yesterday but that shouldn't change the general comment: February growth was swelled by these mergers and is accompanied by a decrease in equity, which isn't a very healthy thing. The equity is not in the number whereas the debt is, and that makes a difference of 2 percentage points or so for one month, if I remember correctly. It's still strong, however you look at it. But it doesn't show an acceleration; it just shows strength.",103
-fomc-corpus,1984,"I don't know the right adjustment for the mergers, but if you look at bank credit or total credit--",21
-fomc-corpus,1984,"It's strong, no question. There's just that extra bulge.",13
-fomc-corpus,1984,"And it's partly for that reason. Also, when we set these targets for 1984 we seemed to say that if velocity was growing, the Committee was thinking in terms of M1 in particular being about at the middle of the range. So, I certainly would not resist any shortfall in the growth of money and credit during the second quarter relative to the specifications of alternative B.",77
-fomc-corpus,1984,Mr. Rice.,4
-fomc-corpus,1984,"Mr. Chairman, when [we face] an economy [that] is expanding as rapidly as it is and the outlook is that it probably will slow down because of its own internal dynamics and, on the other hand, the economy may continue to expand rapidly and slow only a little, I think it's a good time to rely on what we consider to be acceptable rates of growth in the money supply. I would do that and let the dynamics of the economy--the rate of expansion--determine pretty much what interest rates will be. In other words, if we set the course of growth for money at rates of expansion within target ranges that we believe to be appropriate, then we should stick with that. And if money and credit demands in the economy intensify and force interest rates up, then we should accept that. On the other hand, if the [growth in the] economy moderates as we hope and expect, that leaves scope for interest rates either to stay at current levels or perhaps even fall somewhat. I think alternative B is the alternative that is most consistent with that way of looking at things. So, I would accept the rates of growth for the aggregates set in alternative B and would accept the federal funds rate fallout from that.",249
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"I agreed with Emmett all the way up to where he said that alternative B was his choice. I start with the view that the staff forecast is not an unreasonable one but that if it is wrong it's likely to be that growth will tend to exceed the 5.3 percent rate the staff has forecast for the fourth quarter to the fourth quarter and that we will have somewhat more price pressures. I would be happy with the kind of growth the staff was forecasting a month or two ago--4 to 4-1/2 percent or somewhere in that neighborhood. But 5 to 5-1/2 percent and possibly more in the second year of a recovery when we're moving rapidly toward much higher rates of resource utilization for both capacity and labor is something that I find disturbing. Now, ""B"" is essentially the alternative that is consistent with the staff forecast. And that means, I presume, that in the second half of the year if we stayed with ""B"" and extended it with the same interest rates that we are talking about as consistent with ""B,"" we would find that money growth would slow with the slowdown in the pace of the economic expansion that is forecast. And this is a policy that I would call leaning with the wind. It's providing enough money in the first half to keep interest rates from going up too much and then letting the money growth come down a little as the economy begins to slow down of its own natural processes. If we are in the second year of a recovery and are willing to supply the kinds of increases in the Ms that are involved in ""B"" and to permit credit to grow by more than 11 percent, when are we going to get back to a policy that is designed to bring inflation down over a long period? So, I just don't think ""B"" is the right alternative. I share your worries and concerns about the economy, but I think we've got to go further than that. Now, ""C"" is a bit of a shock perhaps, but I think we ought to move in that direction; something between ""B"" and ""C"" is where I would come out.",430
-fomc-corpus,1984,"Let me ask a question inspired by your comments. It really wasn't developed yesterday, and I will direct it to Mr. Kichline. We face various probability distributions of the outlook. I saw in the paper this morning that somebody is projecting 2 percent growth in the second quarter. I guess a lot of people are still projecting 4 or 5 percent. Can you explain to me the probabilities and the kind of profile of that kind of slowdown?",91
-fomc-corpus,1984,I saw the 2 percent number but--,9
-fomc-corpus,1984,"You don't have to explain the 2 percent figure necessarily, but what are the chances of that and what is the evolution of events that would produce it? In your view how probable is it that we will see what you have projected? Did you project 6 percent or so?",56
-fomc-corpus,1984,We have 6 percent for Q2. Are you talking about the second quarter?,17
-fomc-corpus,1984,Yes. Suppose it were in the neighborhood of 4-1/2 percent. How likely or how unusual would that be and what would have to happen to get that?,35
-fomc-corpus,1984,"Well, I don't view that as inconceivable at all. We struggled with this whole issue. There are some technical reasons that the number could readily come out below 6 percent and there are some rather substantive reasons that it could come out below 6 percent. My personal view is that 6 percent is a good number. If it's wrong--and I'm assuming that interest rates don't decline in this environment but perhaps are where they are now or rise a bit--I think the odds favor a smaller number than 6 percent. One example is in the auto area where we have production levels that we think are sensible. But GM is closing several plants. At the moment the way the Commerce Department is going to measure the numbers, they are not inclined to change the seasonals; and if they don't do that, we're going to find auto production declining substantially. That's a technical reason but it shows up in the numbers. There are a number of cases where some of the retail sales may well have come early in the year due to weather effects and we may be facing a situation where the economy is not that strong. So, I feel very comfortable with the 6 percent number; but if I were to bet that it's not 6 percent for the second quarter alone, I would bet on a little lower number.",263
-fomc-corpus,1984,"The major vulnerability, if that is the right word, is that retail sales may develop less buoyantly than you have forecast?",25
-fomc-corpus,1984,"Well, I think housing is the other area. Those housing numbers may well be in the process of change as well. We have seen a half point increase in the VA rate with the general, even mild, rise in interest rates. It seems to me that some of the attitudes in the housing industry may change and take a little of the edge off what was really an extraordinary increase in residential expenditures in the first quarter. I do feel comfortable looking for a very strong number for the full year, but your question was really on Q2 and my assessment of what the odds would be.",117
-fomc-corpus,1984,"If retail sales fell below your projection in the second quarter--I'm talking right ahead--wouldn't the result be just a larger increase in inventories? It would seem to me, especially with the inventory/sales ratio so low, that it wouldn't affect production.",51
-fomc-corpus,1984,"Perhaps some, but we do have inventory increases in this forecast.",13
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"In answer to your question: In the second year of the recovery from the mid-1970s recession, the quarterly pattern was a boom and bust pattern, essentially. It averaged out to a good year. I haven't looked to see whether they have revised that particular pattern out, but there was a good quarter followed by a bad quarter followed by a good quarter and it was [primarily] in the automobile sector of the economy.",87
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"I would like to join those who indicated yesterday that there are number of signposts leading us to something like an 85 percent capacity figure as in 1978 and 6 percent unemployment--putting us at or even below the natural rate of unemployment. But I think there may be some merit in qualifying those trends. In talking about 80 or 85 percent capacity in this second year of recovery I think probably all of us are keeping in mind that the importance of imports both to the business sector and to the consumer sector is different this time. Capacity of 81 or 82 percent in the United States doesn't mean 81 or 82 percent capacity in Germany or the United Kingdom or Japan or for the steel producers in Brazil or for the exporters to the United States in Mexico and so forth. In terms of our stress on industrial production, I think it is appropriate. These are rather spectacular increases but the context is that manufacturing--I'm varying my element here a bit--accounts for something like 25 percent of the labor force. In the short run, it isn't so much a matter of industrial production as it is perhaps production of value in services and employment in the services industry. I recognize that that has shown a strong increase also, but I don't think we are talking about 81 percent of capacity of offices or of computers or telephones or the other tools in the services area. So, I think it needs to be qualified a little. Secondly, the vulnerability of some sectors has been mentioned. I have some difficulties going from the staff forecast to the alternatives on page 6. My difficulties are--let me characterize it unfairly--the gaps between the rates of growth in alternatives A, B, and C. I have a little difficulty moving from a 6-1/2 percent growth in M1 to an 8 percent growth. That's a rather heroic jump to me. My druthers are for an ""A prime"" where we look at the 7 percent that we've just been told is the [projected] rate for M1 in March. We might wind up at 7-1/4 percent or somewhere in between [the 6-1/2 and 8 percent rates of Alternatives B and A]. I don't have any marvelous econometric approach here to give you. I'm just going in the middle [of the Bluebook ranges]--for the M2 figures and the M3 figures and a federal funds rate that perhaps would stop at 11 percent and not at 11-1/2 percent. I'm impressed by the hints of the lagged effect of the interest rate increases we've already had. One mentioned yesterday was of 125 basis points on CDs and 100 points in this maturity and 80 points in that maturity. We haven't seen the effects of the lag response to those numbers. So, I would vote for an ""A prime,"" if you will, with borrowings around $800 million, not a billion, and a 10-1/4 to 10-3/4 or even 11 percent range on fed funds. I agree with Governor Rice that we ought to be a bit flexible with regard to fed funds. The market is moving and we should to some degree validate the moving. But I think too much of a slowing now might indeed be a shock, considering the vulnerabilities and the potential softness that we face, as noted by the Chairman in his usual, very good summary statement. So, I vote for an ""A prime.""",705
-fomc-corpus,1984,"""A minus.""",3
-fomc-corpus,1984,"""A minus."" Thank you.",6
-fomc-corpus,1984,Governor Teeters.,4
-fomc-corpus,1984,"Well, I would like to point out one thing that is remarkably different in this expansion: We don't have any pressure on oil prices. During the 1970s we always had upward pressure on oil prices and the threat of very large increases in prices, and in my mind that takes a great deal of the inflationary pressures out of the situation. As regards the aggregates versus interest rates: Having sat here, I don't believe in the aggregates except in a very broad sense as an indicator that is as good as some of the others that are around. But to run monetary policy with highly volatile interest rates in order to obtain a rate of growth in the money supply which we don't really control directly seems to me really bad. So, I come to the conclusion that what is important is the interest rate. That doesn't mean that it's an interest rate on fed funds which we say is 10 to 10-1/2 percent and it comes in at 10-1/4 percent. I think some variation in that interest rate is good. I think we also can follow the market with it. I have a great deal of sympathy for Tony's and Roger's point of view that what we decide today is not independent of the discount rate. I don't want to get [unintelligible] because I have to vote on both of those decisions. I want to come out with a policy that somehow puts those two together. If we vote as a Committee to go for alternative B and then as a Board to raise the discount rate, we're going to end up with 11 percent on the fed funds rate. On the other hand, if the Board decides to raise the discount rate, then we get trapped. If we raise the fed funds rate to 10-1/2 percent, the staff may come back and say the fed funds rate is 10-1/2 percent and as a result the borrowings are going to be a billion and half dollars because [banks] are going to utilize the discount [window]; we may then have to raise the discount rate to keep the borrowings at a certain point. There is a certain amount of circularity going on here. We have raised interest rates already; the [funds rate] average of the last two weeks is 10.36 percent. I think it was probably the proper move. I would go with a fed funds rate of about 10-1/2 percent.",491
-fomc-corpus,1984,I object a little. You say we raised--,10
-fomc-corpus,1984,"Well, we didn't resist it.",7
-fomc-corpus,1984,That's a little different.,5
-fomc-corpus,1984,I am assuming that we are going to raise the discount rate to 10 percent if we decide on alternative B.,23
-fomc-corpus,1984,Raise the discount rate to 10 percent?,9
-fomc-corpus,1984,It's at 9-1/2 percent isn't it?,12
-fomc-corpus,1984,8-1/2 percent.,7
-fomc-corpus,1984,Raise it to 9 percent.,7
-fomc-corpus,1984,All right.,3
-fomc-corpus,1984,"If we raise the discount rate by a half percentage point, then it seems to me that the specifications should be the federal funds rate at 10-1/2 percent and the borrowings at $800 million. If we raise the discount rate, we want to offset the impact of that to some extent because if we don't we're going to get 11 percent on the fed funds rate. If we don't raise the discount rate, then it seems to me that we can go with ""B"" and have borrowings of $1 billion and have the fed funds rate fluctuating in the neighborhood of 10-1/2 percent. But I don't think one can disconnect those two decisions at this point.",141
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"Well, I think we are in a critical phase. There is some danger of the economy getting away from us on the up side in the mid-passage. If this is a long expansion, this is the middle of it and the economy is accelerating when it ought to be moderating. I think the market sees that and expects some kind of action. And unless we do something, we're going to lag behind rather than be with it. I'm not arguing that we ought to lead the parade but we shouldn't be hanging back. Moreover, if we do less now, we have to anticipate the possibility that this economy will continue very strong and we may have to do more later on. So, we would be saving ourselves some agony later if we take action now. I realize all this isn't targeting on the aggregates; it's targeting on the economy. I do think the aggregates should be our focal point. I would not want to go back to automaticity of M1. The idea of having to chase after some blip, as we did at one time, is just too alarming. But then one has to be a little firmer on the other means by which we steer. We've already allowed some tightening and if we now move up a second step, I don't think the second step needs to be a very big one. We would be taking two steps in succession. We could at least afford for a while to see if this doesn't work. Like Lyle, I feel that's somewhere between B and C. I would say M1 at 6 percent, M2 at 7-1/2 percent, M3 at 8 percent, and the funds rate range at 8 to 12 percent. I don't want to discuss the discount rate but it's like the word ""hippopotamus"" in that once it is dropped into your mind it's very hard not to think of it. So, I do make my borrowing assumption with some thought about that; if we go to $1 billion on the borrowing, that probably would produce the right effect overall.",413
-fomc-corpus,1984,I think we can go to lunch. [Lunch break],12
-fomc-corpus,1984,"If we are reassembled, we ought to proceed. What I would like to do is complete this general go-around. Then I think it might be appropriate to go into a more limited session of the kind we have had before. After we finish the comments by people generally, I would appreciate the staff leaving and we will go into that kind of session. We will proceed with Mrs. Horn.",79
-fomc-corpus,1984,"For many of the reasons that have been stated, I would like to see the monetary aggregates closer to the middle of the ranges. And I'd like to see that happen sooner than alternative B would bring it about, in part because I do have real concerns about the strength of the economy. But I also think there are significant risks in the future on the down side and that moves me more toward ""B."" While the other reason moves me away from ""B"" toward ""C,"" that moves me back toward ""B."" I must say I like the Chairman's words on his second option ""help nature along."" In my view a ""B-"" path does that. By a ""B-"" path I'm talking about a borrowing assumption of about $1.2 billion but I'd not quibble on decimal points there. And then just one comment on Henry's hippopotamus: When I say ""B-"" I am assuming no change in the discount rate; I'm assuming that we'd be moving with open market operations rather than with the discount rate. So, I would be for a ""B-"" path.",219
-fomc-corpus,1984,"Does that imply, as a matter of curiosity, that you think that's better than changing the discount rate?",21
-fomc-corpus,1984,"Yes, it does.",5
-fomc-corpus,1984,[Your Bank] having proposed one.,8
-fomc-corpus,1984,"It does. I feel, as someone who doesn't take part in that decision, that there are several reasons why one might want to change the discount rate. It could be done to make a statement or drive home a point or because of real difficulties at the window with too much of a gap between the fed funds rate and the discount rate. I would not be in favor of changing it to make a strong statement at this time. The political situation is such that I'd like to see the move made on the open market side, presuming that the gap doesn't become too big between the fed funds and discount rates and that maybe we could just live with leaning on the open market side.",136
-fomc-corpus,1984,"May I make a comment at this time? There's a danger in a discount rate rise in the sense that the political critics in the developing countries in Latin America may be able to get somewhat more ammunition from the Federal Reserve actively raising interest rates than from a posture of it being the market [raising rates]. But I think that's very marginal. From a purely domestic point of view, I would say that it would be better to raise the discount rate--if you're talking about alternatives. I'm giving my personal view in response to your hypothetical question to Karen.",109
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Mr. Chairman, I said yesterday that I thought the risk to the economy was on the down side and I expressed some disagreement with the staff's forecast for growth for the first and second quarters. Nevertheless, it seems to me that we definitely are looking at a pretty strong year, and associated with that are the inflation dangers and the inflationary expectations that many of us talked about yesterday. For that reason, I think we need to have some movement even to validate what the market has been doing, but I don't think it ought to be very much at this time. I don't think we ought to be overreacting to a few months' economic figures. So, my preference would be something between alternative B and alternative A, and I'd call it ""B+"" or ""A-."" It seems to me that the specifications for that would be an M1 figure of around 7 percent with an associated federal funds rate of [around 10] percent and a borrowing number of $800 million. I think that kind of movement would give us enough restraint in the economy, along with what has happened in the short term, until we get additional data or some other indications of what is actually going to happen in the economy. At the same time I'd keep the monetary aggregates about where they are; they should be within our targets but moving a little more toward the center of the range. Just a quick comment on the discount rate: I really don't get very hung up on that, and in this particular meeting it seems to me that the Committee ought to be making its judgment based on the aggregates and so on. I'd leave the decision on the discount rate to the Board. In other words, if you think that enough has been done, you don't move the discount rate. But if you don't think enough has been done, then you can do something with the discount rate. So, I'm not particularly concerned about that relationship.",383
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"I agree that the economy is quite strong at the moment, although I wouldn't be surprised to see some moderation in its growth by midyear. And I think that will be a function of these capacity constraints that have been mentioned, a slowdown in some of these high growth rates that are predicted on seasonals like housing, and the lagged effect [on economic activity] of the reduced money growth the last half of last year. On the other hand--and I think we should deal with these lags--the lagged effect of the very large growth in money in late '82 and the first half of '83 should be showing up in higher prices by later this year, which fits into our other discussion about the economy. So, it's important not to aggravate this higher inflation that I expect by raising the growth of the aggregates beyond the trend line. Therefore, I think our original objective of staying in the center of the 4 to 8 percent range, or about 6 percent, is an appropriate policy at this time. I don't see why we should be concerned about the natural consequences of increased credit demand relating to a good and adequate supply of money. It's normal that if activity is strong, interest rates will rise. And that's not something that is likely to kill the economy; it's simply an evidence of the strength of the economy. I would prefer to see us operate on alternative B, with perhaps a small minus on that, in order to accomplish those objectives.",295
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Mr. Chairman, I basically agree with Governor Gramley's description of the economy and what he thinks is likely to happen. I agree that if the staff forecast is wrong, it's probably on the conservative side. It seems to me that the increase in interest rates that has occurred recently is really a reflection of economic strength rather than any policy actions. I remain quite concerned about the long-run implications for inflation; I sense that inflationary expectations are building. I think timing in terms of a policy move is very critical. Intuitively, I would go to alternative C. But I also agree that it would be quite a shock at this time and would probably be a bit strong, so I would come out between ""B"" and ""C."" Mention has been made of the discount rate, so I'll go ahead and put in my two cents' worth. Frankly, I think there should be a discount rate change. I could be persuaded to accept alternative B if there were some feeling that there would be a discount rate change, but I'd leave the alternative B specifications as specified, which effectively--as you said, Nancy--would take the fed funds rate probably to 11 percent.",236
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"I think the risks in the economy have shifted toward too much growth. But that long list of vulnerabilities--which you started with, Mr. Chairman, and others have added to--is an impressive list as well. It is the time in the cycle, I think, for some restraint. How I would do it at this point is to accept the greater restraint that has become apparent in recent weeks but keep an open mind about whether additional restraint is needed in the coming weeks, depending on how economic activity comes in. I don't think I would load the dice or load the directive to tilt it more toward overt [restraint]. I would accept what we've done but not much more. It seems to me that a move toward alternative C really would be too much too soon. On the question of automaticity and additional reliance on M1, I'm not in favor of that. It seems to me that the crosscurrents that we're dealing with are just too complex to return to some automaticity or to rely on a rule. Whether we like it or not, I think we're just stuck with using a lot of judgment. On the discount rate, I'm lukewarm at best on raising the discount rate. One argument, if I were making one, would be that as we go through a cycle the longer we wait and don't move the discount rate the more we can't move it later on. So, there is some argument for doing it, if only to keep the option open in the future. If the Board in its wisdom should decide to raise the discount rate, I would be in the camp that says the borrowing figure ought to be reduced so as to offset pressure on the funds rate. And since I only have one vote and not two as Nancy does, in order to get a little better coordination here and a little firmer grip on what we're voting for and its implications, I would feel more comfortable with an 11 percent ceiling on the funds rate. That would seem to me to keep it more in the spirit of alternative B, given the uncertainty as to what the Board might do with the discount rate.",422
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"For all the reasons that have been stated, I certainly think it's an appropriate time to be taking some action. Inflationary pressures are clearly building, and I think it would be very, very unfortunate to see these pressures and not do something about them. So, it seems to me that the timing is appropriate despite the risks--and there are many, and they are serious. I think we'd be better off taking some action now rather than waiting and perhaps having to react a bit more vigorously. I certainly think that we should be aiming toward alternative C over a period of time but, like others, I would find that a pretty abrupt step to be taking today. As I was thinking about this earlier, I frankly wrote down the numbers that Henry Wallich has suggested as a course between ""B"" and ""C,"" with M1 at about 6 percent, M2 something under 8 percent, M3 under 8-1/2 percent, borrowing about $1 billion or a little over and the fed funds rate between 8 and 12 percent.",213
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"As I said yesterday, I think that there is now a danger of an overheating of the economy in the foreseeable future. And that, of course, will materialize rather quickly if the staff projection of a moderation in economic growth does not come about. It may well come about, but it's a risky business. I also am impressed by the extent to which debt expansion has played a role in this more rapid growth in activity. When we had to use a variant of Frank's favorite number--private domestic nonfinancial debt--at the meeting of this Committee on January 26 we were estimating for the fourth quarter that it would increase at a 9.2 percent annual rate. The quarter was already over by 26 days. The revised estimate that we have this time is 10.9 percent--an increase of 1.7 percentage points for the fourth quarter. For the first quarter, the estimate we were looking at last time was 8.4 percent. Now we are looking at 11.1 percent--an increase of 2.7 percentage points from the [previous estimate], some of which is due to these oil company takeovers but not more than a point, I think. Clearly, it seems to me, there is an excessive rate of expansion in domestic debt that can't be attributed in a first effect sense at least to the deficit but to private borrowing. I have the sense--and I only look at the Washington papers and maybe to some extent New York--of a tremendous amount of momentum in the drive to extend consumer credit to the public on the part of the banks and of the drive to put out mortgage credit. There are radio ads and all kinds of ads--a lot of them deceptive--about the terms and conditions of borrowing, and people are responding to those ads. Businesses are too. They have variable rate loans and whether people know what that means I have no idea. But there has been too much debt expansion, I think. I wouldn't be as aggressive as Lyle in saying that it's time not only to pull the punch bowl a little distance away but to turn it partly over because I'm not that certain of the future. And I do think there are some structural weaknesses of the kind that the Chairman mentioned. I'm worried about the thrifts. The thrifts are going into a deficit situation very shortly now with this level of rates. And the higher the rates, the greater the deficit. It may turn out, as I told some of them, that 1980-81 was just a dress rehearsal to what is going to happen to them in future, in which case we have a whole industry that will be very, very shaky in the economy. I'm worried about housing. Those are housing starts, not housing sales, and it's not customary for builders to line up their buyers before they start a house. I'm worried about the change in psychology in the consumer market that would turn people off housing so that the housing inventories would be sitting on the market as unsalable items the way they are in Dallas. And I'm worried about the LDCs who I think will react quite adversely to a major increase in interest rates in the United States economy and will be very, very sorely impacted. So, I just don't have the courage to move as aggressively as an aggressive fellow like Lyle Gramley would at this stage. Therefore, I come down to alternative B as not being unreasonable. If we take that in terms of the aggregates, that's not a modest ambition for the second quarter. The reason that M1 is as low as it is in alternative B for the second quarter is that there's one relatively low month, and that may or may not materialize. It's not a slow rate of expansion as you look over the quarter as a whole; it's going to be a rather hard thing to accomplish. I'm particularly impressed by Steve's comment, which I happen to believe, that after a quarter where velocity increases sharply it's more likely that in the next quarter velocity won't increase so sharply because the money supply increases a lot more than it did before. I think the danger is going to be that whatever of these alternatives we set, money is going to run higher. That's why I questioned Jerry on ""strongly resist"" because to resist strongly, if we really mean that, could mean very high interest rates by the end of the second quarter. I think we need to lean and lean pretty hard and look at the aggregates more seriously than we have before, but I don't want to lean all that hard. In sum, I would buy alternative B; I certainly wouldn't buy anything tighter than alternative B for the period to come. Considering what I think may happen, 11 percent on the funds rate seems to me too much of a near-term constraint that will require a telephone call and I would use the full funds rate range. On borrowings, $1 billion seems okay to me; $1.2 billion seems awfully high. We're starting to move up toward the levels of borrowing that are associated with fairly tight money periods as we get well above $1 billion. And, what's that rate, Henry? I don't know what to do about the hippopotamus rate!",1042
-fomc-corpus,1984,50 basis points for $200 million on borrowing.,10
-fomc-corpus,1984,"That's not a decision that can be made here or that can be made readily. There are lots of strategy questions involved in [the discount rate decision], so we shouldn't really talk about it.",38
-fomc-corpus,1984,"There are a couple of outliers or people not heard from yet, anyway.",16
-fomc-corpus,1984,"Well, in order not to be repetitious, my bottom line is alternative B. I would strongly oppose recasting the directive in the direction of automaticity. And I would assume that the Board of Governors in its wisdom, if it did decide on a discount rate hike, would lower the borrowing assumption somewhat. I have no problems with alternative B.",70
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"I would select a ""B+"", which would be something with the following specifications: 7 percent growth for M1; 8-1/2 percent for both M2 and M3; and a borrowing level of about $900 million. And if there were a discount rate increase, I would suggest a drop in the borrowing level to about $700 million to accommodate some of that upward pressure on the funds rate.",84
-fomc-corpus,1984,"I think we can go into [an executive] session now. I have some wording that Steve or Mr. Bernard might distribute. This is no great attempt to be radically different but it seemed a little more coherent to me than some of the others. It accepts the notion of putting the aggregates first. That may be ducking a bit, but it reflects the comments made by a number of people that this is probably a time when we don't want to be too precise about knowing where we want interest rates, within limits. I don't want to prejudge where the limits are put. I'd start off with that foot rather than the other. It's fairly symmetrical. I put in a mention that we would want to take some account of the rate of credit growth, which I think is of concern. A number of people have mentioned it. So far as the numerology and assumptions are concerned, clearly the center of gravity and indeed the majority is toward ""B"" whether one takes the limited group or a wider group. But there are feelings on both sides of that in varying degrees. I rather share many of the feelings that Governor Partee just expressed, including the possibility that if the economy is as strong or stronger than Mr. Kichline has suggested, there may be considerable difficulty whether we take ""A,"" ""B,"" or ""C."" We could run into a deviation in the real aggregates from the assumed aggregates that will overshadow any fine-tuning of whatever precise numbers we put down. And presumably we would have to respond to it if the economy were all that strong and the aggregates were all that high. But, based on past patterns, we could get a high month or two. I have no projection of that sort but I just know that that could happen. Even if the economy goes toward the lower side of Mr. Kichline's projection, which I think is less likely, I still think it's possible that we could have a rather high money figure--or rather that we're much more likely to be faced with that contingency than the opposite. But that remains for the future. As I say, I suspect that to a degree that will overshadow any half point or one point differences in the numbers we put down here.",445
-fomc-corpus,1984,"Mr. Chairman, one comment: There might be some [complication] in April. It looks as if there might be a seasonable adjustment problem on M1; that came in so weak last year and that was more than made up--",49
-fomc-corpus,1984,"I think we have a seasonal adjustment [problem] in M1 every month. I don't think you have to worry about April. I trust that number about as much as--I was going to say my grandmother, but I would trust her if she were alive.",53
-fomc-corpus,1984,That's precisely my point. I think we're going to see a number we really can't trust in April--maybe even more so than in most months.,29
-fomc-corpus,1984,I don't trust them much in any month.,9
-fomc-corpus,1984,"If you don't trust M1, why are you putting it up front?",15
-fomc-corpus,1984,We're not only putting it up front but also we have gone back to a monetary aggregates directive.,19
-fomc-corpus,1984,It's not just M1; it's M2 and M3 as well.,15
-fomc-corpus,1984,"I have no particular feeling about where M1 is put in this list. We can put it the way it was before. I put it there because I think that's basically what we are concerned about. I'm talking about not trusting it in narrow one percents. I trust it if it shows a big increase or a big decrease. And it gives us the best excuse in a real sense and in an excuse sense. But I think in this particular situation if these aggregates continue to run high, we should in substance react to them. I just don't think my judgment is so fine as to know what we should do when it gets down to the + or -one percent area [of differences in growth rates].",141
-fomc-corpus,1984,But the bigger problem is the real economy; that's what we're concerned about. It's not so much where the monetary aggregates stand that we are all concerned about in the end. I think you're leading us right back in the direction of automaticity in this directive.,51
-fomc-corpus,1984,I'm not talking about automaticity in the sense that I take it Mr. Black was talking about.,20
-fomc-corpus,1984,This is really reserve restraint. It isn't an algorithm of the amount of overage.,17
-fomc-corpus,1984,"Yes, I understand. You know, the market tends to over-interpret, and I think the changes in the wording of the directive are reinforced by putting M1 in front. Okay, we put M1 further back. But I think this will tend to awaken expectations that we may once again be on that roller coaster. Nobody is going to believe necessarily that this is the last ride, particularly if the economic data continue relatively strong. And then there would be expectations of [rates] going to very high levels. I just think it's disturbing to move back in that direction. I realize we haven't moved back 100 percent in terms of the way the short run feeds back with the nonborrowed reserve paths.",142
-fomc-corpus,1984,Where is the old directive?,6
-fomc-corpus,1984,The old directive also put the aggregates up front.,10
-fomc-corpus,1984,"No, it didn't. It's the same as variant II on page 13.",16
-fomc-corpus,1984,Right.,2
-fomc-corpus,1984,"I have a little technical problem, but it's a very great problem, in starting out with reserve pressures, which is partly what convinced me [to start with the aggregates]. I don't know how we'd describe the current degree of reserve pressures. It's a meaningless concept. Well, the concept isn't meaningless but if you look at borrowings or if you look at net borrowed reserves or free reserves, you're going to get entirely different answers for the month of March. You get borrowings up to what--$1 billion?--with net borrowed reserves probably a minus. What does maintaining the existing degree of reserve pressure or increasing it or decreasing it mean in that circumstance?",131
-fomc-corpus,1984,"Well, what does it mean then to have your second sentence?",13
-fomc-corpus,1984,That's precisely why I put the second sentence in brackets. Maybe we can drop the whole thing.,19
-fomc-corpus,1984,"No, I mean the third sentence where you have ""greater reserve restraint."" What does that mean then?",21
-fomc-corpus,1984,Greater from wherever we start; we don't have to describe where we start. The problem exists. But at least one avoids it in the directive by dropping the second sentence.,34
-fomc-corpus,1984,"Well, I don't think that is a strong enough reason to convey such a strong [unintelligible] impression, which is what I think will be conveyed by recasting it.",37
-fomc-corpus,1984,"Well, because of this problem of not knowing how to interpret borrowing numbers, I'd like to hear--when we get to the point of getting down to specifics--what we're going to mean with this directive or any other in terms of how far we're willing to let interest rates go up. I would not be shocked to contemplate a federal funds rate of 11 percent. I take it that others would be. But if the idea is to run a monetary policy which in effect says that what we've done so far is let the federal funds rate and associated rates of interest go up in recent weeks and we will just hold them there, I'm not going to be happy with that. I just don't think that's the way we ought to go. But I'd like to have a translation.",154
-fomc-corpus,1984,"Well, I'm just looking over what people said here. I don't think anybody, except maybe Governor Teeters, has said that they wanted a lower upper limit--for whatever that means, since we waive it when the rate gets there--than 11 percent. I don't know about Governor Teeters. Nobody else who spoke to that point directly--and there were some who did not--[said less than 11 percent].",85
-fomc-corpus,1984,I spoke to it.,5
-fomc-corpus,1984,"Yes, I didn't want to--",7
-fomc-corpus,1984,"I don't think I spoke to it, but I--",11
-fomc-corpus,1984,I have you marked down as saying an 11 percent ceiling.,13
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,That's what I just said. Nobody was below an 11 percent ceiling.,15
-fomc-corpus,1984,"Oh, below. Okay.",6
-fomc-corpus,1984,"I didn't speak to it, but I would accept an 11 percent ceiling.",16
-fomc-corpus,1984,"There is disagreement above that point, but nobody said less than 11 percent. Well, if it's nothing, we can get to the wording of the directive. Maybe we have the cart before the horse and people are going to want different emphases, which are going to have to be blended in the directive. That's the fact of life. But in terms of the specifications, I'll take them up backwards starting with the funds rate. Apparently we have established that nobody wants to put the upper limit below 11 percent. Some people want to put it above that. Well, the limit is irrelevant, I guess. What we had before was 6 to 10 percent. If we keep the 4 point range, 7 to 11 percent would be the minimum that anybody is talking about. And a lot of people are talking about [a higher range], but I don't know if those are outliers. Is that generally acceptable or not?",189
-fomc-corpus,1984,Keep the 4 points.,6
-fomc-corpus,1984,I think it ought to be higher.,8
-fomc-corpus,1984,I do too.,4
-fomc-corpus,1984,So do I.,4
-fomc-corpus,1984,"Well, quite a few people have expressed the opinion that it ought to be higher and the question is whether--",22
-fomc-corpus,1984,I don't feel strongly whether it's 7 to 11 percent or 7-1/2 to 11-1/2 percent. I'm always bothered by 1/2 points.,38
-fomc-corpus,1984,8 to 12 percent.,6
-fomc-corpus,1984,The markets may overread what that new ceiling is going to mean.,14
-fomc-corpus,1984,"I myself would think 8 to 12 percent is too high in the directive. We may be under pressure to release this directive early. You might have that in mind. I don't intend to do so, but--.",45
-fomc-corpus,1984,What do you mean? What kind of pressure?,10
-fomc-corpus,1984,"Congressional pressure. I intend to resist that but I can't guarantee it. My own feeling is that putting down 8 to 12 percent and having this come out will be interpreted as a much stronger step than we would want it interpreted. Knowing that if we use something less and get to that point and think the situation justifies going higher, our record has been 100 percent, I'd say that we've never felt constrained when it came to that point.",91
-fomc-corpus,1984,"What is the guide? What is the needle on the compass here? I think Lyle has put his finger on a good point. I don't think anybody--well, some people may--would put a lot of faith in M1 or M2 for any given month if we don't know what reserve restraint or ease means.",65
-fomc-corpus,1984,"Maybe we can define what it means for us, but it's a little hard to describe to the market simply [in terms] of putting out the directive.",31
-fomc-corpus,1984,"What is the meaning of this? It seems to me that we have more or less been using the real economy with some sense of what reserve restraint means. That's pretty messy, but from my point of view at least I have some sense of what it means and what causes changes. But I don't really know what using M1, M2, and M3 means. Is it a different ball game than we've been playing over the last few months?",90
-fomc-corpus,1984,"I don't know what ball game you think we've been playing in the last few months, but I don't see much difference here, frankly. It says we're going to set a restraint level and we're going to stick to it depending upon how these aggregates go, but we are going to look at what is going on in the economy before we change it. I think that's what we've been saying.",77
-fomc-corpus,1984,Except that you have promoted M1.,8
-fomc-corpus,1984,"Well, that's a separate decision.",7
-fomc-corpus,1984,"I think there is a difference between starting off the way the Chairman has been talking about on the degree of reserve restraint and then saying the Committee believes these to be consistent with intermeeting monetary targets of X and Y or whatever, and putting it this way. The substance of what we do may not be different, but I think it will be the impression in the markets that we are returning toward much more emphasis on the monetary aggregates, and more volatility in interest rates then becomes a possibility. And I don't think that's a helpful thing at this time.",109
-fomc-corpus,1984,I think you're back at the wording of the directive. Let me see whether we can sort this out.,21
-fomc-corpus,1984,"Well, in substance I said I could live with either 7 or 11--",17
-fomc-corpus,1984,I understand. I'm just trying to sort this out. Let me try 8 to 12 percent. I sense that there's a lot of resistance to that. Is that true?,36
-fomc-corpus,1984,I would not go along with 8 to 12.,12
-fomc-corpus,1984,I would not go along with 8 to 12.,12
-fomc-corpus,1984,I wouldn't either. VICE CHAIRMAN SOLOMON &,12
-fomc-corpus,1984,Do you want a show of hands?,8
-fomc-corpus,1984,I don't think we need a show of hands. I think as a practical matter we are between 7 to 11 percent and 7-1/2 to 11-1/2 percent.,41
-fomc-corpus,1984,"The way this directive is written, Mr. Chairman--",11
-fomc-corpus,1984,Let's resolve the numbers.,5
-fomc-corpus,1984,I think [we should use] 7-1/2 to 11-1/2 percent. Somehow 12 percent does sound awfully rich--doesn't it?--although it may not be. It's just a culture shock.,49
-fomc-corpus,1984,It's called rate shock!,5
-fomc-corpus,1984,We were at 9-1/2 percent a long time. There is a little arithmetic one can do vis-a-vis 11-1/2 percent.,33
-fomc-corpus,1984,I would go back to the comment the Chairman made earlier. We are living in a world in which interest rates have become the cutting edge of monetary policy.,31
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"In a world of deregulation, they have to move a lot more. I know that causes potential damage here, there and elsewhere in terms of the LDCs, the thrifts, and so on. But the point is that if we want to get any restraint on the economy we have to let interest rates go up. And in this kind of world we have to let them go up more than we used to. If we sit here and let these interest rates creep up by 1/4 percentage point per FOMC meeting, we are never going to get the job done.",119
-fomc-corpus,1984,"A rate of 11-1/2 percent, though, Lyle, is a reasonable amount above where we are at about 10-1/4 percent. And as the Chairman points out, we never have let that stop us if in fact something were going on that called for more restraint.",61
-fomc-corpus,1984,I don't think we're letting it go up 1/4 of a point. Three weeks ago the funds rate was around 9-3/4 percent.,32
-fomc-corpus,1984,It wasn't very long ago that it was 9-1/4 percent.,16
-fomc-corpus,1984,It's not as if we're just moving along here at 1/4 point [per FOMC meeting].,22
-fomc-corpus,1984,"My point, Ed, was that the rate has been close to 10-1/2 percent in recent days and if we have a ceiling of 11 percent, that tends to leave no room to operate unless we say the ceiling doesn't have any meaning. And if it doesn't have any meaning, then I don't know why we'd want to put that kind of ceiling on it. It just leaves almost no room to maneuver at all starting from where we are now, if we have a federal funds range with an upper limit of 11 percent. If it's going to mean anything at all, then it's very, very restraining in terms of the amount of interest rate movement we will contemplate. If it doesn't have any meaning, then it's just purely for publicity purposes, so then let's decide among ourselves what we really think it ought to be and keep that a secret.",173
-fomc-corpus,1984,I wouldn't consider 50 to 75 basis points a meaningless move.,14
-fomc-corpus,1984,"I think Lyle is right that we probably need a little more movement and, therefore, even though I could live with either I would have a slight preference for 7-1/2 to 11-1/2 percent myself.",48
-fomc-corpus,1984,I could live with that.,6
-fomc-corpus,1984,I'd join that.,4
-fomc-corpus,1984,"We'll go on to the next numbers. Assuming we are somewhere in the neighborhood of ""B,"" does anyone have a more felicitous series of numbers than ""B"" pure and simple? And one that they also think will command wide support?",48
-fomc-corpus,1984,"I was going to offer a series of numbers, but now with that stipulation--.",18
-fomc-corpus,1984,I think they look pretty good.,7
-fomc-corpus,1984,"If we don't take them too seriously, I think they're fine.",13
-fomc-corpus,1984,"If we could actually come out there, I'd be pretty happy.",13
-fomc-corpus,1984,"Are there people who can't live with ""B"" as put down in the Bluebook?",18
-fomc-corpus,1984,"I would prefer 6, 7-1/2, and 8 percent, Mr. Chairman.",22
-fomc-corpus,1984,I would go with Bob.,6
-fomc-corpus,1984,I'll go with that.,5
-fomc-corpus,1984,Those in combination are awfully low numbers.,9
-fomc-corpus,1984,"Lead off with 7-1/2 and 8 percent, not 6 percent.",19
-fomc-corpus,1984,"In terms of the numbers, could I ask my question now? Do you interpret the third sentence as a symmetrical or asymmetrical sentence?",27
-fomc-corpus,1984,It's symmetrical.,3
-fomc-corpus,1984,"I interpret it as a symmetrical sentence. The reality I don't consider very symmetrical, but I consider that sentence symmetrical. MR. BLACK &",27
-fomc-corpus,1984,Somewhat.,3
-fomc-corpus,1984,"Well, I guess it's slightly asymmetrical as written.",11
-fomc-corpus,1984,Somewhat.,3
-fomc-corpus,1984,"This is the area where I have the greatest worry. Whether we use Mr. Boykin's numbers or those in alternative B doesn't matter all that much to me because I don't have the same problems with the numbers that everybody else has. But I must say that I would really get scared if the outcome for money and credit growth in the second quarter were in any material way above the alternative B numbers. In other words, I really think of those ""B"" numbers as a ceiling. And if we got too far beyond them, I think we'd have a very, very difficult problem on our hands--more difficult than the problem we have on our hands today.",132
-fomc-corpus,1984,"What sort of velocity assumption are you making, Jerry? That's vital here to what you think the GNP is going to be.",26
-fomc-corpus,1984,"Well, as I've said many times, Nancy, I think the economy is likely to be stronger rather than weaker in the very near term. Unfortunately, I also think if that's true, that the longer-run implication is that the economy is going to be softer because we're going to get more interest rate pressure coming from the demand side of the economy. So, by implication I am suggesting that I think the velocity factor in the second quarter could be larger than what is implicitly built in here.",97
-fomc-corpus,1984,"But if you rigidly take these numbers, you begin to get all sorts of volatility in interest rates. It's not worth the price.",27
-fomc-corpus,1984,"I don't want to do that, Governor Teeters.",11
-fomc-corpus,1984,"When you say you want asymmetrical wording, what you are really saying is that you want a stronger interest rate response if there is continuing excessive strength in the economy and the monetary aggregates.",37
-fomc-corpus,1984,That's correct.,3
-fomc-corpus,1984,"In just a presentational sense, Jerry, if you accepted the numbers that I'm suggesting, the asymmetry is less important. You could get it more the way it is worded if you just reduced the numbers.",43
-fomc-corpus,1984,"Again, I'm such an agnostic about these numbers that I don't get visibly moved by 1/2 point differences in the numbers. The question that I'm concerned about, regardless of whether we use your numbers or the ""B"" numbers, is: What happens if we get into the quarter and we're running ahead of them?",65
-fomc-corpus,1984,"Oh, you're talking substance now!",7
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"It seems to me that the gut issue here is how much you load the dice in terms of higher rates. When you start moving the numbers toward ""C"" and when you have an asymmetrical presentation and an 11-1/2 percent funds rate limit, you might as well vote for moving the funds rate up to 11 percent.",69
-fomc-corpus,1984,"It wouldn't load it, though, toward a higher rate. I understood Jerry to say he was more concerned about getting indications of a significant overshoot of these targets than he is about a significant undershoot. And I think I agree with him on that.",51
-fomc-corpus,1984,"Yes, but even if you're more concerned as I think we all are--that's where the risks are--why does that argue necessarily for an asymmetrical articulation in the directive?",35
-fomc-corpus,1984,We've often used it before. I don't know why we would throw it out now.,17
-fomc-corpus,1984,"There's good reason for asymmetry if the risks are stacked on the side of stronger growth and more inflation. That way we don't expose ourselves to a circumstance in which, even though the economy is going along fairly strongly, we for some reason have a downward shift in money demand and overreact and let too much ease take place. An asymmetrical arrangement makes very good sense under present circumstances.",77
-fomc-corpus,1984,"I would agree with you if we were simply going to react mechanically to an easing of money growth. But I'm interpreting that there's not going to be a substantive change in our policy [approach]--that we're still going to be looking at money in the context of the business expansion and inflationary pressures. But I would agree: If we were going to be reacting more to money growth in the future, then we have to word it asymmetrically for the reasons that you just indicated, Lyle.",101
-fomc-corpus,1984,"I think there is a subtle difference in how we phrase this. We can be quicker on the trigger on the up side or we can be slower on the trigger on the down side. Where I come out is that I can't imagine a situation in the next month where one would want to lower rates. Well, I guess I could imagine it. But at the same time, I don't want to build in some automatic forces that are going to push rates up.",92
-fomc-corpus,1984,I agree with that.,5
-fomc-corpus,1984,"I don't want the automaticity either. But I don't want to be sitting here in June looking at a second quarter in which money, the economy, and everything else are stronger than we think they are going to be--stronger than we know they should be.",53
-fomc-corpus,1984,You may well have to do that. We can't really--,12
-fomc-corpus,1984,I think we can try to minimize the risk of it. We would really be in the soup then.,21
-fomc-corpus,1984,"If that were the case, then I think we should have moved. But you could have a stronger money quarter, a stronger GNP quarter, and everything, but--",34
-fomc-corpus,1984,"Well, let's get back to these numbers. I would feel a bit reluctant, to say the least, to lower the M2 and M3 numbers any further. We have said all along that we expected to be in the top part of those ranges. I think on M1 we can horse around between 6-1/2 and 6 percent, but it makes little difference. I think it will make no practical difference in the way we operate, but this gets to be a visual point.",101
-fomc-corpus,1984,"What if for M1 we said something like ""around 6 to 7 percent""? That [includes] the 6 and the 6-1/2 but it doesn't make it sound quite as precise as 6-1/2 percent.",51
-fomc-corpus,1984,Do we mean 6-1/2 percent by that? Would we accept up to 7 percent before we would react? Then what do we do with--,33
-fomc-corpus,1984,"That doesn't worry me terribly, but I don't know whether other people like it.",16
-fomc-corpus,1984,I wouldn't.,3
-fomc-corpus,1984,Just as a point of information: Have we ever hit a target?,14
-fomc-corpus,1984,We came pretty close this time.,7
-fomc-corpus,1984,Have we ever hit a target on a short-term basis?,12
-fomc-corpus,1984,Within 1/2 of a percent?,9
-fomc-corpus,1984,On M1 do you mean?,7
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Well, it's about 8 percent over the 3 months as against [a projection of about] 7 percent.",24
-fomc-corpus,1984,"Well, the fourth quarter M3 has been--",10
-fomc-corpus,1984,I think there probably is a majority for these numbers. Maybe you ought to get an informal showing.,20
-fomc-corpus,1984,I was going to suggest that. It seems very close to that. Let's assume that for the moment.,21
-fomc-corpus,1984,"Mr. Chairman, maybe I answered Governor Teeters wrong. We are within the long-run cone. The weekly figures we're going to publish will be below the weekly figure consistent with the [target]. If the number that we're not publishing--the one we have a tentative estimate for at the end of March--holds up, it will be above the long-run cone. But month-to-month, on average it's just below.",84
-fomc-corpus,1984,The 7 percent that you're estimating would take us above?,12
-fomc-corpus,1984,"No, it's all right on the month; the end of the month is ticking up, if that number holds up. It's just another way of saying that it's very near the top.",37
-fomc-corpus,1984,"Let me move to the borrowing level where I think there is, in fact, a bigger range of opinion. I suspect that reflects in part that we don't know whether where we are is because of contemporaneous reserve requirements or other expectational factors. We have a classic case in this two-week period of the way one would think things might happen frequently with a two-week reserve adjustment period. Everybody thought that perhaps [markets] were getting tighter earlier in the period and they borrowed a lot. They built up excess reserves and now they end up the period with big excess reserves and the market is getting easy. In previous weeks, I guess the opposite happened. This used to happen with the weekly reserve pattern and now it can happen with considerably more amplitude because [banks] have a two-week period before they get caught up short. So, those who would like to calibrate the federal funds rate in their thinking down to a gnat's eyelash have a bit of a problem. I don't know what this means for the level of borrowings this week and for the federal funds rate, particularly during a period when it might be higher [initially] and then turn out to be lower at the end or vice versa, depending upon the pattern during the period.",251
-fomc-corpus,1984,Isn't what we're seeking a borrowing level that will be compatible with a 10-1/2 percent funds rate?,24
-fomc-corpus,1984,"Well, I'm not sure. Let's assume that's the case just to get an analytic [framework].",19
-fomc-corpus,1984,"Could we just expand the range of estimation? What is the borrowing level for 11 percent, too, so I know where another option might be.",30
-fomc-corpus,1984,These are educated guesses of the staff?,8
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,That's what I'm about to ask. I'm not sure I have a great deal of faith in them.,20
-fomc-corpus,1984,"We think a billion and a half will get a funds rate close to 11 percent, with all the uncertainty.",23
-fomc-corpus,1984,Without any change in the discount rate?,8
-fomc-corpus,1984,"Without a change in the discount rate. In the Bluebook, we said borrowings of $1 billion or a little more get a funds rate of 10-1/2 percent. If you look at the experience in the last couple of days, with the funds rate dropping off fairly substantially, that will change market attitudes a little and I would be inclined to say--Peter may disagree--that it might take a little over $1 billion to get 10-1/2 percent. And if you used $1 billion in borrowings, I would feel safe in thinking of a wider range in the funds rate--10-1/8 to 10-1/2 percent or something like that.",143
-fomc-corpus,1984,"I agree with a little over $1 billion--say, $1.1 billion--for 10-1/2 percent. I think borrowings of $1-1/2 billion would produce more than 11 percent [on the funds rate].",52
-fomc-corpus,1984,"Yes, that's what we said: 11 percent or over.",13
-fomc-corpus,1984,"Well, I would take just the opposite point of view. The federal funds rate, with a billion dollars of excess reserves--though not during the early part of the period and I don't know what it will average--averaged well over 10 percent. And we will have a billion dollars or slightly more borrowings and we happen to have a billion dollars worth of excess reserves. If we have $650 million of excess reserves, I don't know what we will get.",94
-fomc-corpus,1984,What role do we see excess reserves playing? Are they precautionary? Or are they an accident because of CRR?,24
-fomc-corpus,1984,"In this two-week period I think the market created them on its own, not knowing they were doing it in effect. That is, they borrowed. We were somewhat behind the NBR path much of the time. Now we're actually slightly over it and the market borrowed and generated excess reserves in addition to the nonborrowed reserves; and now if they end up with excess reserves they don't want, those reserves have to come out. Before, the level of excess reserves of around $600 to $650 million was probably fairly close to what they wanted, given the prevailing market conditions.",116
-fomc-corpus,1984,During the introductory period of CRR--we can go back before that because we had a little change in reserve requirements there--the average level of excess reserves was around $400 million.,37
-fomc-corpus,1984,I think it was a little higher than that.,10
-fomc-corpus,1984,It was $600 million in January and $500 million in November and December.,16
-fomc-corpus,1984,So we could see a low funds rate tomorrow?,10
-fomc-corpus,1984,"Oh, I think it will be lower.",9
-fomc-corpus,1984,"But won't they be influenced by the carryover? If they see that they have run very large excess reserves, won't they be inclined to avoid such high excess reserves the following period because of the carryover?",41
-fomc-corpus,1984,"That's the idea, but we haven't seen much effect.",11
-fomc-corpus,1984,We don't have experience with that.,7
-fomc-corpus,1984,"Well, excess reserves ever since October of 1979 have been trending upward and I interpret that as security against erratic Federal Reserve behavior.",28
-fomc-corpus,1984,"No. It seem to have more to do, Governor Teeters, with the fact that country banks now don't have with us the required reserves that they need to hold. They leave their reserve balances in there for a while for whatever reason. Some even hold excess clearing balances, which get into our excess. All that is a little irrational, but we can account for $50 to $100 million dollars of those sorts of things.",86
-fomc-corpus,1984,Weren't they also influenced by widespread expectations that rates would rise or the possibility of a discount rate rise?,22
-fomc-corpus,1984,That probably induced some of the borrowing.,8
-fomc-corpus,1984,"And I think that influenced the level of excess reserves. I don't think we should assume, Paul, that it's going to continue at these levels.",29
-fomc-corpus,1984,I don't assume that it is going to continue at these levels; I don't know all the reasons that contributed to it but I certainly would not assume that it will continue.,34
-fomc-corpus,1984,"I should be clear, Mr. Chairman, when we said a billion dollars or more borrowing gets you a 10-1/2 percent funds rate that we were, of course, assuming excess reserves on the order of $550 to $600 million. That was the assumption within that. We were assuming net borrowed reserves of $400 to $500 million.",72
-fomc-corpus,1984,And that's consistent with the last two-week period?,10
-fomc-corpus,1984,"Yes. Actually, I'm assuming it could even be lower.",12
-fomc-corpus,1984,"I would guess that as well as people can understand this--and I don't think any of us can be very sure--that what many people are talking about as a center point is a billion dollar level of borrowing with that much lower excess reserve assumption. I'll say $500 million just to put a round number down, which [unintelligible] for this past week in a total reserve position sense is tighter than anything we have had by a considerable margin. Let me take out the adjective: tighter than what we've had. You can interpret the adjective yourself. I assume that's more or less what people are talking about but I don't have any great judgment as to whether that means a 10-1/4 percent funds rate or 10-1/2 percent or 10-3/4 percent. To some degree I care, but if it meant a greatly easier federal funds rate, I don't think it is consistent with the substance of what we're talking about and it would be inappropriate.",199
-fomc-corpus,1984,"As a technical point, I should mention that quarter-end and mid-April we could get some fairly high rates relative to even this average. That's just in passing.",33
-fomc-corpus,1984,"Let me just try this: With all the uncertainties associated with it and subject to the risk that we may find out we're crazy but within limits, we're talking a billion dollars worth of borrowing and assuming something like $500 million in excess reserves, which is less than we've had at any time since contemporaneous reserves. That number may be too low. [Unintelligible] Mr. Axilrod?",81
-fomc-corpus,1984,It is less than we've had in quite a while. That's a shade below the October-to-December average.,22
-fomc-corpus,1984,"Let me say $1 billion of borrowing, and $600 million of excess reserves and see how that goes.",22
-fomc-corpus,1984,Isn't the federal funds rate under 11 percent then? You quoted 10-3/4 and 10-1/2 percent.,29
-fomc-corpus,1984,"Well, I assume. But it's nothing more than an assumption. I'll accept the notion just hypothetically that if one had to guess, it means a federal funds rate in the 10-1/4 to 10-1/2 percent area.",51
-fomc-corpus,1984,And this would be revised to reflect any discount rate changes?,12
-fomc-corpus,1984,"I'll get to that question. Let's assume just for purposes of discussion that it's in the absence of that. Well, let me get to that. I'll just raise a question: If the discount rate went to 9 percent, is that assumption still good?",51
-fomc-corpus,1984,Not if you've mentioned borrowing at $1 billion.,10
-fomc-corpus,1984,Different people may have different opinions about things.,9
-fomc-corpus,1984,Only on the condition it seems to me that one billion dollars borrowing is right. For that reason I like your paragraph.,24
-fomc-corpus,1984,"You were asking a technical question, weren't you? I don't know. The funds rate has gone up a bit relative to the discount rate. Technically, there would be room for it to move a half point and not have a much different funds rate, I should think. But of course, there is the expectational [element]. We have an 8-1/2 percent discount rate as against a 10-1/4 to 10-1/2 percent funds rate. I would submit that a 9 percent discount rate would not--",112
-fomc-corpus,1984,It's not going to change the fed funds rate?,10
-fomc-corpus,1984,"It would not have to, except the expectational--",11
-fomc-corpus,1984,"Well, I think it will. Peter?",9
-fomc-corpus,1984,Let's get some views.,5
-fomc-corpus,1984,I think that the funds rate did have some of that expectational element. But I still think that much of the discount rate would be translated into a higher funds rate unless you did something to borrowing.,40
-fomc-corpus,1984,"Do you agree with that, Steve?",8
-fomc-corpus,1984,"Given the gap we now have [between the two rates], I would think it might have less effect than maybe Peter is inclined to believe, but we will find out if the change occurs.",38
-fomc-corpus,1984,I think the answer is: We don't know how much of that expectational influence is in the funds rate already.,23
-fomc-corpus,1984,I think it got to 10-1/2 percent on the expectation of a 9 percent discount rate. So it may be that you will have 10-1/4 percent and it will move a little.,45
-fomc-corpus,1984,"I can't quantify this but I think it is fair to say that at the minimum everybody around this table is not talking about giving the market some false sense of easing at this stage and that, whatever this [borrowing] number is, it ought to work out that way. Maybe there will need to be a little flexibility to assure that result.",69
-fomc-corpus,1984,"I think you're right, Chairman. But isn't there some difference of view here as to how much tighter or less accommodative [we should be]?",29
-fomc-corpus,1984,"I made the minimum statement that I don't think anybody wants to misspecify here in the sense that it gives the market some notion that, in the newspaper parlance, there is an easing of policy.",41
-fomc-corpus,1984,That would be contrary to expectations and very confusing.,10
-fomc-corpus,1984,"Let me just say that whatever [borrowing] number we arrive at here, I think we need some flexibility to manage things so that at the minimum that impression is not created.",36
-fomc-corpus,1984,"On the other hand, with some exceptions, I don't think there's strong sentiment to ratchet the rate rapidly.",22
-fomc-corpus,1984,"That is an entirely different question. I don't want to disagree. But could I at least assume by my very modest statement that if by some development the borrowing turned out to be quite consistent with a 9-3/4 percent federal funds rate, that we haven't got enough borrowing?",57
-fomc-corpus,1984,"Well, I think the market is expecting more than this.",12
-fomc-corpus,1984,"Now, that's the other question--how much to go beyond.",13
-fomc-corpus,1984,"I think we're in very serious danger of losing credibility as an agency that is trying to hold down inflation. It seems to me that the numbers have been coming in very strong on the real economy. We have been looking at money and credit numbers that are very large in any kind of historical perspective. We are doing so in the second year of a recovery when expectations have been greatly exceeded. We are doing so in the context of a fiscal policy that is the most stimulative we've ever seen. I just don't know how we can talk about making sure we don't ease. The situation calls for more than that. It calls for more, in my judgment, than just confirming for the market the fact that interest rates have gone up in recent weeks.",148
-fomc-corpus,1984,"Also, Mr. Chairman, with a 2 percentage point spread between the discount rate and the funds rate, I think a discount rate increase of only a half point would be interpreted by the market as acting a little tentatively.",46
-fomc-corpus,1984,How about a quarter point?,6
-fomc-corpus,1984,I'm talking about 1 point. We have a 2 point spread.,15
-fomc-corpus,1984,I don't think so. A half point is what the market is going to--,16
-fomc-corpus,1984,I will tell you: In this particular city a half point will be an explosion. It will carry a certain message.,24
-fomc-corpus,1984,And in some foreign capitals.,6
-fomc-corpus,1984,"In fact, a quarter point move would carry an interesting message. If we went back to quarter point moves, it would be interpreted as meaning that we're not going to have a lot of volatility in the next year--that basically we are thinking in terms of more cautious moves and that that will be the likely pattern over the next year. I don't think we want that interpretation either, for the reasons that Lyle has pressed so strongly. I think a half point is--",94
-fomc-corpus,1984,"I think I have established a bare minimum on the substantive objective for the borrowing, but the question is whether we start with this. We certainly [can] raise it. This may well be consistent with a tightening. It is the strongest net borrowed reserve position we will have had.",56
-fomc-corpus,1984,And you do have the flexibility you're going to need in case we are wrong on the borrowing and for some reason the fed funds rate that falls out of the borrowing assumption is on the down side. I think that's pretty clear.,45
-fomc-corpus,1984,That is right. And [the Board] obviously has the flexibility to raise the discount rate.,19
-fomc-corpus,1984,"Some tightening I think has to come or [the funds rate will] fall below expectations. It doesn't have to be a very large one, and I could see that there would be another step some time in the future. But I don't think we can just stabilize things because the rates have gone up somewhat.",61
-fomc-corpus,1984,"I don't think anybody is arguing that we should do that, Henry. And that may be the bare minimum. I remind the group that the staff forecast is still geared around a statement that the risk of error is on the down side not on the up side, and there is considerable merit in my view in that position. So, we do need flexibility in both directions. I haven't any problem with a directive--either draft of the statement--that emphasizes the tightening side and not the more accommodative side, but I think both sides need to be in there.",112
-fomc-corpus,1984,"I would agree with Pres. I think this is tending to go too far. Who is it that we are trying to satisfy? The gnomes of Zurich? There are a lot of people who don't want to see a tightening. As a matter of fact if you went out and took a poll, you would find that a vast majority of the American public would be opposed to a tightening.",79
-fomc-corpus,1984,But they expect it.,5
-fomc-corpus,1984,"Chuck, I was telling Paul that my board of directors had indicated already that we should not tighten --not raise the discount rate--in their view until we actually see increased inflation. They argue that at this point it's too early to take away the punch bowl. They want us to wait until we actually see it; I say we may be too late then.",72
-fomc-corpus,1984,We heard a lot of expressions like that as we went around the table.,15
-fomc-corpus,1984,"Let me just suggest that there is going to be no formulation that is going to take care of all the contingencies that I see in the next two weeks much less in the period until we meet again in 8 weeks. In the interest of testing: The minimum sense that I have is that we don't want to convey any chance of easing. We start off with $1 billion on the borrowing assumption and something like $600 million more or less as the excess reserve number. That could bring some tightening in and of itself but I'm sure it doesn't bring any easing. We have the discount rate issue. I don't know what [the Board is] going to do but it is clearly an option and we don't make any automatic decision here that we will reduce the borrowing simply because we raise the discount rate. If things come in such that we want to reassess this in the next couple of weeks, we can.",182
-fomc-corpus,1984,"I think that makes eminent sense, Mr. Chairman.",11
-fomc-corpus,1984,"Presumably, there is some sense of an upward limit. If the Board raised the discount rate and we found out by not reducing the borrowing assumption that fed funds were trading in the neighborhood of 11 percent--.",43
-fomc-corpus,1984,I'd be a little concerned.,6
-fomc-corpus,1984,"Technically, Mr. Chairman, can the borrowing assumption be changed other than by the Committee?",19
-fomc-corpus,1984,We change it all the time.,7
-fomc-corpus,1984,All the time?,4
-fomc-corpus,1984,"I say we change it all the time. We don't fiddle around with it from week to week, but we get a sense of what the directive says. This time we would change it if the money supply were coming in stronger and business remained strong or whatever.",52
-fomc-corpus,1984,My point is that those of us who don't vote on the discount rate would have nothing to say about what was done with the borrowing assumption.,28
-fomc-corpus,1984,"Unless there were a consultation. If something drastic happened, presumably there would be.",16
-fomc-corpus,1984,"I think what you're saying is that you are going to look through the borrowings to the funds rate--not that you would be fixing the funds rate, but that with all this uncertainty one is not oblivious to what happens to it.",48
-fomc-corpus,1984,"Not oblivious, that's right. If I had a sense that we were getting a lot more tightness out of this than I judge we were really looking for, we would redo it. That I can assure you. You may certainly take it for granted that if there were a little easing out of it, we would adjust it.",67
-fomc-corpus,1984,"And that's starting from the benchmark of accepting ""B"" with borrowing of a billion dollars and $600 million in excess reserves and someplace between 10-1/4 and 10-1/2 percent on the funds rate, as indicated in the Bluebook?",53
-fomc-corpus,1984,"Well, excepting your last statement. I would accept the others.",14
-fomc-corpus,1984,It could easily be between 10-1/4 and 10-3/4 percent.,20
-fomc-corpus,1984,"No, I'm talking about [the funds rate] without a discount rate [increase].",17
-fomc-corpus,1984,No. Without a discount rate increase.,8
-fomc-corpus,1984,"If you accept the commentary in the Bluebook, it's 10-1/4 percent with $1 billion borrowing and some possibility of--",28
-fomc-corpus,1984,I'm not going to accept a federal funds target that narrow.,12
-fomc-corpus,1984,"Well, no. I'm just trying to get a benchmark, though.",14
-fomc-corpus,1984,"That's what we are told is the most likely outcome. If we get less than that, I think the discussion says something is the matter. If we have a sense of easing, something ought to be tightened up; if we get a little above that, I'm not sure I would have that sense.",60
-fomc-corpus,1984,"I agree on the easing, but I guess I'm concerned about approaching that 11 percent rate--whether with $1 billion borrowing without a discount rate increase or some other level with a discount rate increase. That 11 percent triggers some real concern.",49
-fomc-corpus,1984,"Let me see if I can restate it, Roger. The ""B"" specification with the $600 million excess reserves, in my mind, has a federal funds rate that fluctuates between 10 and 11 percent. And if it were persistently at 11 percent, you would adjust to bring it down. If it were persistently at 10 percent or below, you would adjust to bring it up.",84
-fomc-corpus,1984,"I would modify that. If I assess this discussion correctly, I would wait for it to be [persistent]. I'm not talking about [the funds rate on] a particular day but some judgment about the whole atmosphere. It wouldn't be below 10 percent and I don't think it would be down to 10 percent.",63
-fomc-corpus,1984,But I don't want to see it go above 11 percent and stay there.,16
-fomc-corpus,1984,"Well, I'm not talking about getting up above 11 percent either.",14
-fomc-corpus,1984,"I join Roger if Roger is still where Roger was after this discussion--no offense, Roger. To have 11 percent after the number of weeks we were at 9-1/4 to 9-1/2 percent and to have it hold any length of time at all I think would be an undue [increase].",66
-fomc-corpus,1984,"In the very short run if nothing else happens, I'm talking about misspecifying on the low side. I would interpret that in the very short run as misspecification on the high side.",39
-fomc-corpus,1984,"You said, Mr. Chairman, that in the case of a discount rate increase [there would be] no automatic change in borrowing.",27
-fomc-corpus,1984,Depending on where the fed funds rate is.,9
-fomc-corpus,1984,"Yes. Obviously, it's consistent with what was just said. If things were very tight, we would take that into account in changing the discount rate. We may want to change the discount rate but we might not want to do it without some offsetting adjustment, and we could consider that at the time if it appeared necessary. But I don't think there's any presumption that that's going to appear necessary. If it seemed to be a little too easy, in the wisdom of the Board we can raise the discount rate and that would be one factor bearing upon that decision. Let's come back to that funds rate question we left dangling--this 1/2 percentage point question. My own preference, knowing that this presumably isn't going to be published for a month or more, is to raise the funds rate range a full percentage point to [7 to] 11 percent in the comfort that if we wanted to go higher, we would. But I'm not sure I want the larger headline implied unnecessarily, on the order of [another] 1/2 percentage point on the range [by going to 7-1/2 to 11-1/2 percent]. I might well want to go there, but I can go there without the extra headline of saying we had that [in the directive but didn't implement it.] It's like that very asymmetrical directive that we had worked out all right in December. Nothing happened; it never was triggered. But it became a fact of life that the directive was written that way. If, contrary to expectations, the economy began levelling off and we never got to the 11-1/2 percent, I'd just as soon not have it in the record.",341
-fomc-corpus,1984,I would agree that 7 to 11 percent makes more sense. It has never constrained us in the past.,23
-fomc-corpus,1984,Are we back to talking about the funds rate? I thought we had decided that.,17
-fomc-corpus,1984,"No, we left [open] this 1/2 percentage point.",15
-fomc-corpus,1984,Things have a way of coming back to the front.,11
-fomc-corpus,1984,"And for those who feel there isn't room for action, there is some some distance between 11 percent and 7 percent.",25
-fomc-corpus,1984,"I have a preference. It's not an overwhelming one, but it is very relevant. My preference is purely how it plays in the press. If we exceed the 11 percent before the next meeting, it won't make any difference. We will have exceeded it by the time [the directive is published].",60
-fomc-corpus,1984,You are proposing alternative B with the fed funds rate range of 7 to 11 percent?,19
-fomc-corpus,1984,"Yes, but I could probably live with M1 at 6 percent as a round number. But that's visual, too; it's not going to affect operations.",32
-fomc-corpus,1984,"As I said earlier, I can live with either 7 to 11 percent or 7-1/2 to 11-1/2 percent. I don't feel that strongly about it. And I think you have a majority for the numbers on the three Ms as they are.",58
-fomc-corpus,1984,"I can live with any of them, but I am expressing this vague cosmetic preference.",17
-fomc-corpus,1984,And we have $1 billion on borrowing?,9
-fomc-corpus,1984,I'd be inclined to vote against this 7 to 11 percent. I just don't think there's enough room from where we are.,26
-fomc-corpus,1984,"Well, what you're trying to do is to hold the funds rate in the 10-1/4 to 10-3/4 percent range.",31
-fomc-corpus,1984,"Well, I understood all that conversation to be only the initial word.",14
-fomc-corpus,1984,That is correct.,4
-fomc-corpus,1984,And the question is: What do we do if the aggregates come in stronger? I think we have to have some room to move the rates and ought to have enough room to move the funds rate up above 11--in the 11-1/4 to 11-1/2 percent range.,62
-fomc-corpus,1984,"I don't care about the numbers, but I surely care about having a clear understanding--whether it's in the directive or not--of a willingness to move in that direction if we have to move.",39
-fomc-corpus,1984,"But arguing the other side, if we have a range of 7 to 11 percent and the funds rate persistently for a week or longer goes above the 11 percent, then we'll have a consultation. So, I don't know that we're really blocking any action, Jerry, if we use 7 to 11 percent. Do you think there would be a significant public relations impact of having 11-1/2 percent as the upper bound when it comes out?",95
-fomc-corpus,1984,It depends on what the rates are.,8
-fomc-corpus,1984,Only if we don't have to go that far.,10
-fomc-corpus,1984,"Significant, I don't know.",7
-fomc-corpus,1984,"The only problem I see, Tony, with staying with the 7 to 11 percent is that if we run into the [situation] where we have to move and operate above 11 percent persistently, then we're left with the decision of having to change it.",55
-fomc-corpus,1984,"Well, the last time the range was 6 to 10 percent and that didn't in any way interfere with going over the 10 percent.",29
-fomc-corpus,1984,"No, but we suspended it.",7
-fomc-corpus,1984,"In some sense, the only difference it makes is if we don't get up there.",17
-fomc-corpus,1984,Right.,2
-fomc-corpus,1984,Because when we get up there I assume we're going to exceed it.,14
-fomc-corpus,1984,"There has never been any press comment when we have exceeded the ceilings, at least as I [recall].",22
-fomc-corpus,1984,"No, there was this last time.",8
-fomc-corpus,1984,You may see some on Friday.,7
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Yes, They are going to see that we suspended the ceiling a week before. I had not noticed the market paying a lot of attention to these changes in the range.",34
-fomc-corpus,1984,"The only thing I am reacting to is that when they get the directive the press will say ""Federal Reserve tightens because they raised the federal funds rate range. And this says they would tighten a little more."" The only contingency I'm guarding against is that we never get there and some article says, ""Oh, they were all prepared to go up; what they wanted to go to was 11-1/2 percent""--or whatever interpretation they put on it. They don't know whether that's--",99
-fomc-corpus,1984,"There is the risk of the press reacting to that 11-1/2 percent if we don't get to it. If we have 7 to 11 percent, we still have the freedom within two weeks to have a consultation.",47
-fomc-corpus,1984,That's why my preference is not all that strong.,10
-fomc-corpus,1984,"To me, 7 to 11 percent really makes a lot of sense.",16
-fomc-corpus,1984,It really depends I suppose in substance--forgetting about my point--on whether the Committee wants to have a consultation if the rate gets there. That's what it mechanically does.,35
-fomc-corpus,1984,It's a long time between meetings.,7
-fomc-corpus,1984,"Well, this seems to me an entirely different matter than the December meeting vote, as I interpreted that. The market was surprised to read that we would have been prepared to tighten if business had been strong. And, of course, they were reading this at a time when business was strengthening. Therefore, it's not so unreasonable to assume that if we were prepared then, we must be prepared now. That's quite different from a technical top to a range before we have a consultation.",95
-fomc-corpus,1984,"Based upon all the experience, I don't interpret it as a barrier anyway. But it is a mechanical point that means we have a consultation. So, where do you want the consultation?",37
-fomc-corpus,1984,At 11 percent.,5
-fomc-corpus,1984,At 11 percent.,5
-fomc-corpus,1984,At 11 percent.,5
-fomc-corpus,1984,At 11-1/2 percent.,9
-fomc-corpus,1984,"I'd rather have the consultation now. I don't think we will see anything in the next two weeks that is going to be convincing on where the economy is going to go. And two weeks more on the money numbers is not going to tell us anything about longer-term trends of money, which is what really matters. I think we're pussy-footing. I think we've been sitting here for some months now looking at an economy that continues to exceed everybody's expectations. This is going to come back to haunt us if we don't decide to act. And we can't act by just confirming what happened in the market in the past couple of weeks.",126
-fomc-corpus,1984,Do you interpret alternative B as just validating that?,10
-fomc-corpus,1984,I do indeed. That's what we're saying.,9
-fomc-corpus,1984,"That was the question I wanted to ask: If we take ""B"" as specified and say 7 to 11 percent, have we done anything?",31
-fomc-corpus,1984,Not in my judgment.,5
-fomc-corpus,1984,That's the way I'm reading it.,7
-fomc-corpus,1984,That's a matter of opinion.,6
-fomc-corpus,1984,"We haven't done anything today, but the rates have gone up 3/4 of a point in the past two weeks.",25
-fomc-corpus,1984,"Yes, I know, but--",7
-fomc-corpus,1984,"Look, I think we've done something today--depending upon how one looks at it. You keep looking at the federal funds rate. We are now operating on a directive that says we are not that far over it; it says no free reserves and no net borrowed reserves, basically. And we just changed that. We now say we are operating on a net borrowed reserve directive. Whether the market really has anticipated that in its movement is the real question. But I don't think there's any question that we have tighter specifications than we are now operating under. MR. MARTIN &",114
-fomc-corpus,1984,That's right.,3
-fomc-corpus,1984,I just don't translate net borrowed reserves as restraint on the economy. I think the more relevant consideration is what happens to interest rates.,26
-fomc-corpus,1984,"Well, you can argue that interest rates have already anticipated that.",13
-fomc-corpus,1984,That's my view. What I want is a larger movement in interest rates.,15
-fomc-corpus,1984,I agree. We need some move and the only visible thing is interest rates.,16
-fomc-corpus,1984,But it has only been six weeks and rates have gone up 125 points. How fast do you want to move?,24
-fomc-corpus,1984,"I'm assuming that the direction we're moving, with alternative B, is going to give us at least a 25 basis point further move, in addition to what the market has done in interest rates. And I think the Chairman is going to make darn sure that it comes out that way. In other words, there is going to be an impression in the market that we have tightened if we come out with alternative B.",83
-fomc-corpus,1984,By no means would I say that it's not a valid view that we should be tightening and that one might just want to get interest rates up--period. But I don't think we can be in a conceptual position of saying that every time the markets anticipate a move we have to ratchet it up one step further.,63
-fomc-corpus,1984,"I agree with that, certainly.",7
-fomc-corpus,1984,"I would agree with Tony, but I don't think it's 25 basis points; it's more likely 50. I think we're talking [about going from] 10-1/4 percent to 10-3/4 percent.",47
-fomc-corpus,1984,"Okay, we can't pin it down that much. But I'm assuming that there will be some upward movement if we go in this direction. Are you saying that you don't believe that or are you saying that's too little?",43
-fomc-corpus,1984,"Well, if I interpret the Chairman's comments correctly, he doesn't want to see the fed funds rate get down toward 10 percent and he would be uncomfortable with it getting up to 11 percent. And he's thinking about playing the net borrowed reserve objective so that the federal funds rate stays in a 10-1/4 to 10-3/4 percent range. Now, that has a midpoint of 10-1/2 percent and we're not far from that now, which means that I don't see much change.",106
-fomc-corpus,1984,"If the federal funds rate stayed at 10-1/2 percent, just to put it there [unintelligible]. A perfectly good example: I don't think it would be long before the prime rate went up another half point.",48
-fomc-corpus,1984,"Mr. Chairman, the funds rate in this two-week period so far is averaging just over 10 percent. That's how it's going to come out tomorrow--say, 10-1/8 percent or somewhere around there. We only had a 10-1/2 percent rate in passing for a couple of days. I think if borrowing of $1 billion with normal excess reserves gets you a funds rate of 10-1/2 percent, that will be viewed as a significant tightening because it's sustained.",103
-fomc-corpus,1984,I think it will be too.,7
-fomc-corpus,1984,Of course it will.,5
-fomc-corpus,1984,"Just to reinforce that, last week the rate was just about at 10 percent; it was 10.04 percent. And it has gone up this week if it comes out to 10-1/8 percent. Now you're talking about 10-1/2 percent. That's where you're going to get some--",65
-fomc-corpus,1984,"Yes, I think Steve is absolutely right about this thing.",12
-fomc-corpus,1984,"It's just that I'm not trying to hide the move, you see. I think the economy needs to be told that monetary policy has tightened because the economy is growing much too fast for comfort. I think we need to do something that's rather obvious and decisive.",51
-fomc-corpus,1984,As recently as two weeks ago it was at 9-3/4 percent.,17
-fomc-corpus,1984,I think maybe you have the wrong instrument in mind.,11
-fomc-corpus,1984,"Oh no, I have both instruments in my mind. I just haven't got the right forum to talk [about the discount rate].",26
-fomc-corpus,1984,It's way too fast for one quarter.,8
-fomc-corpus,1984,"Well, why don't we presidents walk out of the room while you fellows--",15
-fomc-corpus,1984,"If we were to have a discussion, I don't think you'd get an immediate decision.",17
-fomc-corpus,1984,"Well, we used to time these matters in three or four weeks.",14
-fomc-corpus,1984,We're all going to be at the Wye Plantation.,11
-fomc-corpus,1984,"For these purposes, you are discussing the wrong instrument, I think. I would reinforce what Steve said; I don't have much question about it.",29
-fomc-corpus,1984,"I agree with Governor Gramley. I still think that when the decision of last week to suspend the federal funds rate range is publicized this Friday, that in itself is going to be seen by the market as--",43
-fomc-corpus,1984,As confirmation of what they suspect.,7
-fomc-corpus,1984,--symptomatic of the kind of thing they're looking for.,12
-fomc-corpus,1984,Why don't we leave it suspended?,7
-fomc-corpus,1984,"That makes sense to me, but I didn't want to say it again.",15
-fomc-corpus,1984,"Alternatively, we can take out the specifications for M1, M2, and M3.",19
-fomc-corpus,1984,Maybe.,2
-fomc-corpus,1984,"No, that would be very bad!",8
-fomc-corpus,1984,"Look, as I think you know, there is not much in this difference between 7 to 11 and 7-1/2 to 11-1/2 percent. Which way do you want to make it?",46
-fomc-corpus,1984,7 to 11.,5
-fomc-corpus,1984,7 to 11.,5
-fomc-corpus,1984,7 to 11.,5
-fomc-corpus,1984,7-1/2 to 11-1/2.,13
-fomc-corpus,1984,Just Committee members: How many want it 7 to 11 percent?,15
-fomc-corpus,1984,Five.,2
-fomc-corpus,1984,I currently get seven.,5
-fomc-corpus,1984,Hold up your hands again.,6
-fomc-corpus,1984,I'm going to vote for both sides.,8
-fomc-corpus,1984,"How many want it 7-1/2 to 11-1/2 percent? It can't be much closer. Can we live with 7-1/2 to 11-1/2? Let's hope we can. Now, we have this other number to worry about. I think the only one that's relevant to worry about there is M1. How many can live with or want it just the way it is: 6-1/2, 8, and 8-1/2 percent?",107
-fomc-corpus,1984,Five.,2
-fomc-corpus,1984,"You're only going to get two choices here. The other side is: How many want 6, 8, and 8-1/2 percent. I came out that it goes the other way--6-1/2 percent.",49
-fomc-corpus,1984,Let's try again.,4
-fomc-corpus,1984,"I think the 6-1/2, 8, and 8-1/2 percent had the majority. It's a perfect balance. Those who wanted the higher federal funds rate won, and those who wanted the higher M1 won. How can we get a better consensus than that? Now we can return to the language of the directive.",71
-fomc-corpus,1984,"The trouble with this whole process is that there's no quid-pro-quo bargain. I would trade my vote on some of those last votes for the wording of the directive you're saving. The way you're slicing us off, it's a salami tactic.",49
-fomc-corpus,1984,Paul's saying no salami goes with it!,10
-fomc-corpus,1984,"I don't know how to word this directive with reserve pressures [unintelligible]. I'm not opposed to it in principle; after listening to this other discussion, I just don't know how to do it.",41
-fomc-corpus,1984,I'd like to suggest that we use Variant II on page 4.,14
-fomc-corpus,1984,Variant II on page 4 of the draft directive?,11
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Well, that's misleading to begin with.",8
-fomc-corpus,1984,"I don't know what it means. I literally do not know what that means. If I had to explain that in public, I would be absolutely lost.",31
-fomc-corpus,1984,It's misleading.,3
-fomc-corpus,1984,My only problem with it is that I just don't understand it.,13
-fomc-corpus,1984,We've been using this language for quite some time.,10
-fomc-corpus,1984,"Yes, but I didn't have this problem when excess reserves were going up and borrowings were going up at the same time. That's why I say it's just a little technical problem.",36
-fomc-corpus,1984,But if you thought of it that we are under net borrowed reserves--.,15
-fomc-corpus,1984,"Well, we're not talking about that. We're saying there's a significant increase in net borrowed reserves.",19
-fomc-corpus,1984,"It goes from 0 to $400 million, so we have to say that we're going to tighten.",21
-fomc-corpus,1984,"We'd have to say Variant I, then. Would you have the same problem with not knowing what Variant I means?",24
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"""To increase.""",4
-fomc-corpus,1984,"""Increase somewhat.""",4
-fomc-corpus,1984,"Well, I think that's a little better, but I obviously interpreted it in terms of net borrowed reserves.",21
-fomc-corpus,1984,I think there's some merit in referring to the increase in reserve positions that has recently emerged. But it doesn't swear that we'd maintain that. I think it should be increased above that recently emerged level.,39
-fomc-corpus,1984,"Well, what has emerged recently in the net borrowed reserve sense is no different than what it was beforehand.",21
-fomc-corpus,1984,"""Emerged"" is the problem.",7
-fomc-corpus,1984,That's the problem.,4
-fomc-corpus,1984,"That is the problem, I think.",8
-fomc-corpus,1984,Because it moved from 0.,7
-fomc-corpus,1984,"Well, no. Actually, it has been fluctuating between plus and minus $200 million; it averages out to 0.",26
-fomc-corpus,1984,That's because we don't hit the--,7
-fomc-corpus,1984,I know.,3
-fomc-corpus,1984,"In a borrowing sense it's going up, if it is interpreted as borrowing.",15
-fomc-corpus,1984,In a net borrowed reserve sense it is going up.,11
-fomc-corpus,1984,"Since you can live with Variant I, then the real issue, it seems to me is: Do we stay with that kind of wording in the directive or do we go to the new wording? What I'm concerned about is that this new wording leads us in a direction of more automaticity in the monetary aggregates.",62
-fomc-corpus,1984,I would share that concern. I think we need to move up front the language with regard to the economy. That's what we've been discussing here--the economy.,32
-fomc-corpus,1984,"Well, we certainly ought not to keep M1 at the end of the list, as M2, M3, and then M1. I would buy your proposal that we can make it M1, M2, and M3 as just a more logical way to express it.",58
-fomc-corpus,1984,"This is to me almost a purely cosmetic point, but I think we're walking into difficulties. The whole attack on the Federal Reserve is that we're trying to manage a good growth situation and that leaves us extremely exposed.",42
-fomc-corpus,1984,"Because we've tightened. We say here ""to retain.""",11
-fomc-corpus,1984,We say we're tightening because the economy is growing too fast. I'm not talking substance now; I'm saying that we are walking into--.,27
-fomc-corpus,1984,"I'm very sensitive, Tony, to your concerns about--",11
-fomc-corpus,1984,"Well, he may have this great concern about the market; I have a very considerable concern that we are walking directly into the trap of our most vociferous critics.",34
-fomc-corpus,1984,"But there's also going to be a heck of a lot of concern if people think that we are going back to the kind of volatility we had in interest rates, which I think is damaging both substantively and perception-wise.",44
-fomc-corpus,1984,And may have interest rate effects itself.,8
-fomc-corpus,1984,"I think it's a very great leap to say we're going back to volatility. My impression of the market is that it would receive this favorably, Tony. In fact, the market has already discounted an increased emphasis on M1, which it monitors very, very closely, as you know. I think all these arcane issues of the placement of one thing somewhere else are viewed by the market as rather silly.",82
-fomc-corpus,1984,"If we follow the Chairman's suggestion on the directive as shown on the paper he passed out, we would be encouraging an increased emphasis on weekly volatility. Moreover, I think the impression that we are going to be more influenced than we have been by money growth is going to lead to expectations that maybe by the end of the year we won't have seen just a point or point and a half move, but something significantly larger than that.",86
-fomc-corpus,1984,"Of course, the real question is: Suppose we have 10 percent money growth--pick your own aggregate--for a while. What would we do except to let interest rates go up if the market was demanding that level of credit? Since that's all we can do, why is that such a concern?",61
-fomc-corpus,1984,"I feel that we did a lot of damage to the economy by the enormous swings [in interest rates] from 8 percent to 20 percent and then down again. I think if we had stayed longer at tighter levels, we wouldn't have had to go up to 20 percent. Now, I understand the rationale, but I think the notion that we don't influence interest rates--that all we are doing is targeting money growth--has gotten very thin in the country. We moved away from that and we used the excuse that the velocity of circulation was no longer in a typical traditional relationship. What would you say? You have to say that we're back again in a period where the velocity of circulation is a little more dependable. And this all fits in with the feeling that we would get in the market that we're returning to the pre-summer of 1982 [approach to policy].",178
-fomc-corpus,1984,"Well, in fact our language has been suggesting just that: that we have been assuming we would get a more normal pattern of velocity. It does appear to be emerging. We are charged legislatively with managing the aggregates. This takes us away from this accusation that we're trying to downplay the growth in the real economy. I think this is an excellent statement in the right direction.",76
-fomc-corpus,1984,"I think Tony is right that it is wearing thin in the country. I don't think the rationale that interest rates are going up because of the money supply cuts much ice anymore. It served a useful purpose in the late '70s and early '80s, but I don't think it will fly to try to go back to using that as a rationale.",71
-fomc-corpus,1984,"We don't in fact use it as a rationale. We say that is our policy--that what we control is the money supply and if demand rises, the effect of that is that interest rates move--instead of saying that we set an interest rate independent of its response on the aggregates. [The latter] doesn't seem to be very rational in a period when we all agree that the inflationary danger is rising.",82
-fomc-corpus,1984,"We were legislatively instructed not only to watch the aggregates but interest rates, real growth, inflation, and unemployment. And the sentiment on the Hill is toward managing the real economy, not the monetary aggregates, at the present time. I agree with Tony. If we go back to emphasis on M1 and put it up front and at the beginning of the road, we could create very unstable conditions in the economy. And interest rates will be transferred into the economy.",93
-fomc-corpus,1984,I don't think anybody's--,6
-fomc-corpus,1984,I think our theology is in full swing on both sides.,12
-fomc-corpus,1984,Everybody so far has taken a predictable point of view--100 percent predictable. I was wondering whether we could fuzz this up a little.,27
-fomc-corpus,1984,Let's fuzz.,3
-fomc-corpus,1984,"In the first place, we could make it ""broadly consistent"" as a way to fuzz the annual rates of growth in M1, M2, and M3. That's what has to be done--make it broadly consistent--because we don't know what those multiplier changes are or what excess reserves are going to be and all that.",69
-fomc-corpus,1984,We could take the radical step of putting a range around all the aggregates.,15
-fomc-corpus,1984,"I was thinking we could say annual rates of ""around."" That would be one other way.",19
-fomc-corpus,1984,We could actually use ranges.,6
-fomc-corpus,1984,The trouble with that is that it makes the edge points of the ranges pretty sensitive.,17
-fomc-corpus,1984,"You know, we're really exaggerating the difference between these two languages. The first says ""maintain/ increase somewhat/ decrease"" and that gets into this problem of what it is now. It is possible to say in variant I ""anticipating that this approach will be consistent."" This says ""consistent"".",61
-fomc-corpus,1984,"Mr. Chairman, apart from the possibility that you may for some reason I didn't understand release this prior to the normal time, I don't understand what all the fuss is about. By the time the directive comes out at the normal time it is all history. The next meeting has already been held. The May meeting would have been over by a week. Am I missing something?",75
-fomc-corpus,1984,The argument is what people will read into that for the next meeting. But there must be some language that doesn't raise the sharpness of the concerns on both sides.,33
-fomc-corpus,1984,"Well, putting a range around these short-term money aggregates I think would make sense. I'm not very happy with going back to M1 in first place.",31
-fomc-corpus,1984,I have no feeling about that one way or the other.,12
-fomc-corpus,1984,"I don't know, Henry. I think the range makes it somewhat more difficult.",16
-fomc-corpus,1984,Because we might miss it?,6
-fomc-corpus,1984,"Yes. There's a pretty fair chance that M1 is going to be at 10 percent or something like that. And if we set a range of 5 to 7 percent, 10 percent is way above the range.",46
-fomc-corpus,1984,"It's going to be above 6-1/2 too, if it's 10.",18
-fomc-corpus,1984,"I know, but the range makes it--",9
-fomc-corpus,1984,"Does it help anybody to say ""In the short run the Committee seeks a degree of pressure on bank reserve positions consistent with...""?",26
-fomc-corpus,1984,"I was just hunting for something like that too: ""The Committee seeks to maintain pressures on reserve positions consistent with...""",23
-fomc-corpus,1984,"Well, I think that has a lot of merit toward fuzziness!",14
-fomc-corpus,1984,"It even has the great word ""maintain"" in it.",13
-fomc-corpus,1984,"""Maintain"" suggests that there was no change.",10
-fomc-corpus,1984,"[Unintelligible] the plural: ""maintains.""",13
-fomc-corpus,1984,"I really think ""seeks a degree of"" is better than ""maintain.""",17
-fomc-corpus,1984,"""Seeks a degree of pressure""?",8
-fomc-corpus,1984,"Yes, because we have to test, to probe.",11
-fomc-corpus,1984,"And then if we put in ""broadly consistent""--",12
-fomc-corpus,1984,"And ""over time.""",5
-fomc-corpus,1984,"""As may be modified.""",5
-fomc-corpus,1984,"""Over time"" sounds a little funny when we talk about--",13
-fomc-corpus,1984,"""Broadly consistent.""",5
-fomc-corpus,1984,"""Broadly consistent"" is all right but that makes it [a change]. Last month we were consistent. This month we will be broadly consistent.",30
-fomc-corpus,1984,"""At annual rates of around...""",7
-fomc-corpus,1984,"Or we could go even so far as to say ""during the period from March to June."" We don't hit it from June to July.",28
-fomc-corpus,1984,"We have to leave out the ""broadly"" and put in the ""around 6-1/2, 8, and 8-1/2 percent."" Is that what we have? In the next sentence, though, do we want to clarify precisely what we're doing initially on borrowings?",63
-fomc-corpus,1984,The sentence in parenthesis?,6
-fomc-corpus,1984,Yes. I think it reads all right without that.,11
-fomc-corpus,1984,I have trouble understanding just what that means when I read it.,13
-fomc-corpus,1984,"Well, I don't have any trouble understanding it in view of our discussion. I think it is going to look a little strange because, after all, it's not unusual for there to be fluctuations of borrowing in one direction somewhat unexpectedly. And yet I don't think we have noted that before in directives, have we?",62
-fomc-corpus,1984,"Well, I think we have used reserve pressure or reserve restraint as a synonym for borrowing. This just says borrowings because of the confusion about what the heck we mean. It raises questions, I suppose, but it depends upon how fully we want to describe what we decided. It reads perfectly well without it.",62
-fomc-corpus,1984,I'd just as soon take it out.,8
-fomc-corpus,1984,So would I.,4
-fomc-corpus,1984,It gives us more flexibility without it.,8
-fomc-corpus,1984,We can leave it out and point out all these problems in the text [of the policy record]. That's one way of handling it.,27
-fomc-corpus,1984,Yes. It's just that when we say we're seeking the degree that allows for changing that pressure--,19
-fomc-corpus,1984,"Yes, but it's kind of funny when you look at it. Maybe it will have to be changed. We say ""The Committee seeks a degree of pressure."" That's a perfectly general statement. Then it says ""greater reserve restraint."" Well, that's implied already. There is something logically lacking when you leave out the second sentence. I have no great desire to leave the second sentence in, but it raises a question about the next sentence.",87
-fomc-corpus,1984,"Could we change the parenthetical statement to read ""should take account of"" rather than ""be consistent with""? It says ""initially the reserve path and the associated ranges should be consistent with."" Instead of that say ""would take account of.""",49
-fomc-corpus,1984,I don't know what that means.,7
-fomc-corpus,1984,I don't know either.,5
-fomc-corpus,1984,"Well, I'm concerned with the way the sentence reads now. It's subject to the interpretation, indeed the meaning, that all we are doing and are prepared to do is ratify what has already happened. And I understand this discussion to say something more than that.",52
-fomc-corpus,1984,What it's saying is that all these people have raised questions. I think what we understand it to mean is quite clear: a billion dollar borrowing assumption.,30
-fomc-corpus,1984,I think it's a little more than that. It's a billion dollar borrowing assumption in which we go to $400 to $500 million of net borrowed reserves.,31
-fomc-corpus,1984,That's right.,3
-fomc-corpus,1984,I think there is going to be a variety of reactions in the market as to what that sentence means--,21
-fomc-corpus,1984,I think that is true too.,7
-fomc-corpus,1984,"--because they haven't seen it before. Therefore, they are going to have a field day with it.",21
-fomc-corpus,1984,"I just have a small logical point. Where are we starting from when we say ""greater restraint or lesser restraint""?",23
-fomc-corpus,1984,We know what we're starting from; we haven't told them before anything about whether the initial borrowing assumption is--,21
-fomc-corpus,1984,"Well, what is the meaning of the next sentence: Greater reserve restraint than the degree of pressure on bank reserve positions consistent with? We're not saying that.",31
-fomc-corpus,1984,"Well, you could leave out the word ""reserve."" We could just say ""greater restraint would be acceptable in the event"" and so on.",29
-fomc-corpus,1984,"I think we are better off to make the sentences hang together. Let's go back to Lyle's language: In the short run the Committee seeks to maintain pressure on bank reserves consistent. ..""",39
-fomc-corpus,1984,"But use ""anticipate will be consistent.""",9
-fomc-corpus,1984,"That's right--""anticipate will be consistent with.""",11
-fomc-corpus,1984,That's just an alteration of variant I.,8
-fomc-corpus,1984,"So that's what we're ending up with. Would you put M1 last in the order? Do you want M2, M3, and Ml?",30
-fomc-corpus,1984,"I would prefer that, although it's very small symbolism. To put M1 first has some meaning.",20
-fomc-corpus,1984,Every little bit of symbolism counts.,7
-fomc-corpus,1984,"Should we start with M3 and say M3, M2, and M1? Is that what you're saying? SEVERAL. No. M2, M3, and Ml.",39
-fomc-corpus,1984,"That just looks so peculiar. We could leave it as separate sentences, I guess.",17
-fomc-corpus,1984,That's the way we've been doing it.,8
-fomc-corpus,1984,Once we had it in there like that.,9
-fomc-corpus,1984,"I think we ought to leave it this way or say M3, M2, and Ml.",20
-fomc-corpus,1984,If you do it backwards--,6
-fomc-corpus,1984,Why don't we leave it this way.,8
-fomc-corpus,1984,You could say M1 from a range of 1 to N!,14
-fomc-corpus,1984,M1 from 1 to [unintelligible].,12
-fomc-corpus,1984,Just say consistent with the various Ms.,8
-fomc-corpus,1984,"Let me ask this: Are you saying that if you were asked by a Congressional committee whether we are giving equal weight to M1 these days with M2 and M3, you would say yes?",40
-fomc-corpus,1984,"I think I would say at this particular meeting ""Broadly, yes.""",15
-fomc-corpus,1984,That's the fact of the matter. That's the way we've been discussing it. We have been talking about M1 all the time; we haven't been talking about M3 much.,35
-fomc-corpus,1984,That's because the market gives 90 percent of its attention to M1; and I don't think it is going to change much.,26
-fomc-corpus,1984,Aren't you just encouraging that after-hours trading?,11
-fomc-corpus,1984,I don't think it makes the slightest bit of difference.,11
-fomc-corpus,1984,"They are now trading U.S. government securities in London on an increasingly large scale, so in New York offices are now opening at 4:00 in the morning, as soon as the London market opens. There is around-the-world trading in government securities.",52
-fomc-corpus,1984,They can take the time they gain on Fridays!,10
-fomc-corpus,1984,"I now have ""In the short run the Committee seeks to maintain pressures on bank reserve positions judged to be consistent with growth in M1, M2, and M3 at annual rates around 6-1/2, 8, and 8-1/2 percent respectively during the period from March to June."" Skip the next sentence. Now we go to the next sentence. There is a slight bias in this thing.",87
-fomc-corpus,1984,"You could make it a little more by making the second one ""might"" instead of ""would.""",20
-fomc-corpus,1984,"If you want to make it absolutely symmetrical take out the word ""significant.""",16
-fomc-corpus,1984,I don't want it to be symmetrical.,8
-fomc-corpus,1984,It's already symmetrical the way it is.,8
-fomc-corpus,1984,"Put a comma after ""business expansion"" and take out the big substantive change.",16
-fomc-corpus,1984,"You really don't want this last sentence in here, do you?",13
-fomc-corpus,1984,"I think we can take out the last sentence. We have a two sentence directive. Put in the word ""might.""",24
-fomc-corpus,1984,"Isn't the rate of credit growth the end of the parade here? We've been bringing it up in our consideration a good deal more, it seems to me, at this meeting.",36
-fomc-corpus,1984,"Well, I guess the question is whether to put a separate sentence in about it. I don't know whether that's good or bad. I don't know exactly what the sentence would be but I thought it might depend on whether we put another sentence in up above.",51
-fomc-corpus,1984,In our discussions we certainly have given it a good deal of consideration.,14
-fomc-corpus,1984,"If you don't think this gives it too much importance, we could simply say ""more substantial growth in the monetary aggregates and the rate of credit growth"" in that second sentence.",35
-fomc-corpus,1984,"If there is a difference, any more substantial credit growth from where we are now is different from even--",21
-fomc-corpus,1984,"We get in trouble if we put it in the first half of the sentence. It's logical in the first half of the sentence, but you have to put it in the second half too, I guess.",41
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,Monetary and credit aggregates.,7
-fomc-corpus,1984,"Shouldn't it be ""or credit aggregates""? Otherwise you're diluting it; everything has to go up if you say ""and.""",26
-fomc-corpus,1984,"I think it is fairly highlighted where it is. We could use the technical term for it, ""the rate of growth of domestic nonfinancial debt"" to show that we're really looking at that.",39
-fomc-corpus,1984,Somehow that makes it sound so technical. I think it would be the first time we've had that in the directive; it has some significance just putting it in.,33
-fomc-corpus,1984,"The market knows that we don't get data on the technical classification--total domestic nonfinancial debt--until after a considerable lag. We get some indications of various types of credit growth with less of a lag and, therefore, by leaving the rate of credit growth we are making it a little more general and a little more operative. Otherwise, they know it's not that operative since we don't get that particular data.",81
-fomc-corpus,1984,"I think it's better that way. If we want to highlight it more we could say ""the rate of credit growth, which has been excessive recently."" Are we ready to vote? We have a sentence here with the federal funds rate range of 7-1/2 to 11-1/2 percent, the standard sentence for that.",69
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley No President Horn Yes Governor Martin No Governor Partee Yes Governor Rice Yes Governor Teeters Yes Governor Wallich No,47
-fomc-corpus,1984,Okay.,2
-fomc-corpus,1984,You are going to let Lyle [unintelligible] your explanation and you are going to be set free.,24
-fomc-corpus,1984,May I ask one question just so we don't misunderstand the new ground rules here on access to this material? Do I understand now that we are not to inform even our economic advisors of the numbers in the directive? This is for the Presidents only?,49
-fomc-corpus,1984,"I think you can inform them and follow the rule. The numbers in the directive are all right, I think.",23
-fomc-corpus,1984,"The recommendations of our Committee said specifically a ""normal"" type of meeting. We didn't get into any recommendations on what is executive only [material]. The Chairman is saying handle it in the usual way.",40
-fomc-corpus,1984,It's all right to tell them? Your memo says only the Presidents receive the directive.,17
-fomc-corpus,1984,The directive. That's true.,6
-fomc-corpus,1984,The written directive.,4
-fomc-corpus,1984,Whatever the rule on that says.,7
-fomc-corpus,1984,"Mr. Chairman, the rule says that the directive should only go to the President, so the other people who would have been here won't know the specifications. Unless they see the directive, they will not know the specifications.",44
-fomc-corpus,1984,Unless the President tells them.,6
-fomc-corpus,1984,What I assume you're saying is to act--,9
-fomc-corpus,1984,Do you want to do that?,7
-fomc-corpus,1984,I'm not sure I would say that they have to have [this information].,15
-fomc-corpus,1984,You can reproduce the Bluebook.,7
-fomc-corpus,1984,"If we're finished with this, we can turn to the meeting [agenda] and maybe have the Managers' reports today. We need to approve the minutes of the last meeting.",35
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,Without objection. Mr. Cross.,7
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"Sam, what I hear about negotiations with Argentina isn't very positive right now. Is there any time limit in terms of the Treasury's arrangements on when they need to arrive at a letter of intent?",39
-fomc-corpus,1984,They formally have only extended their arrangements through the end of this month.,14
-fomc-corpus,1984,Through the end of May.,6
-fomc-corpus,1984,"But the Latin people who currently have their money involved indicated in public when they announced their own 30-day extension through the end of May that they would be inclined to permit a further extension. So, although the Treasury formally has a deadline and they might even want to keep to it, they are somewhat boxed in by the Latins.",67
-fomc-corpus,1984,"The original agreement said only 30 days. Then it was extended by the Latins and by the Treasury for another 30 days. And it may be extended further for another 30 days, according to the Latins, but the Treasury hasn't said anything.",52
-fomc-corpus,1984,The additional 30 days would put it right up to June 30 and the question of the treatment of the income arises again. And I suppose there's more of it by now.,36
-fomc-corpus,1984,"The Argentineans have put forward a proposal to the banks to deal with June 30. It involves the activation of the residual amount of their medium-term loan which was negotiated last year, use of a substantial amount of their own reserves, and repayment of the bridge loan done last year and this little $100 million piece that they have left over. Essentially, they would be using $350 million of their own reserves and $150 million left over from the arrangements that were done last year. So, they have offered to the banks already--I'm [oversimplifying] it now--arrangements which by June 30, if they had a letter of intent with the Fund and all the paperwork had been done, would bring things up to April again.",150
-fomc-corpus,1984,There are a few other things in there.,9
-fomc-corpus,1984,"There are a few things in there that make that package unattractive to the banks and for the moment they have turned it down. But I, at least, consider it a positive step that in terms of the general negotiations they are thinking ahead. They are 6 weeks ahead of where they were last quarter, if I may put it that way.",70
-fomc-corpus,1984,The encouraging part is that they are talking to the Fund and for the first time have begun to make proposals to the banks about how to deal with it. They are not home free.,37
-fomc-corpus,1984,"Sam, I'm surprised that the weakness of the dollar on the basis of the Continental Illinois situation wasn't greater than what we observed. I'd view that as saying that they were prepared to shift funds among U.S. banks--that is, they didn't regard U.S. banks as a group as questionable.",59
-fomc-corpus,1984,"We did not hear a great deal of concern expressed about a spillover into the whole system. Now, the dollar did come down a couple of percentage points during that period, mind you.",38
-fomc-corpus,1984,"But as you pointed out, that was to a large degree in response to the belief that U.S. monetary policy would be easier, whereas what you're talking about is a direct loss of confidence.",39
-fomc-corpus,1984,A movement back into some foreign banks.,8
-fomc-corpus,1984,At Bretton Woods over the weekend a couple of people asked me whether there would be a spillover effect in terms of foreign banks' reluctance to fund other U.S. banks.,37
-fomc-corpus,1984,You said no.,4
-fomc-corpus,1984,"Obviously, I said no. There is that view floating around a bit; that question is being asked in banking circles.",24
-fomc-corpus,1984,But the focus of the questions is not on one or more individual cases.,15
-fomc-corpus,1984,"I don't know whether it's in fact happening but, of course, they can move out of U.S. banks and stay in dollars. They can go into Treasury securities as well.",36
-fomc-corpus,1984,There has been some tendency for U.S. bank rates to go up in London as well as in the United States relative to other rates. It hasn't gone very far. There is a little selectivity in the bank stock market--at least about some banks--but there is talk about it.,59
-fomc-corpus,1984,"My feeling--my hope, I guess--is that the prompt action by the U.S. authorities on Continental Illinois would tend to prevent that kind of spillover [effect]. It's probably realistic to assume that there is a somewhat more alert, more skeptical, attitude abroad and that if there were another situation, we probably would see some more of that.",70
-fomc-corpus,1984,"At the Basle meeting there was considerable questioning, at least by some central bankers, as to the adequacy of our arrangements. There was a considerable lack of understanding about what the Federal Reserve does--providing liquidity on a secured basis--and about what the FDIC does--providing solvency support. And the question really was whether these arrangements were adequate.",73
-fomc-corpus,1984,I hope you assured them they were.,8
-fomc-corpus,1984,I surely did.,4
-fomc-corpus,1984,"If they are not adequate, I don't know what else we can do.",15
-fomc-corpus,1984,I don't either. It's a government guaranteed bank.,10
-fomc-corpus,1984,There may be some questions about it nonetheless.,9
-fomc-corpus,1984,There is some questioning by foreign banks--I've heard this in a couple of places--as to whether it is 100 percent risk-free at [every] stage of the process because they are not familiar with the way the FDIC would step in and what would happen. They wonder whether there is some point in time where they would be at risk.,70
-fomc-corpus,1984,That is intended to be answered in the press release by saying any arrangements--or whatever the exact wording was--,22
-fomc-corpus,1984,"[The guarantee] was so sweeping that they had difficulty believing it. Also, some of them say: Well, isn't the unlimited liquidity commitment of the Federal Reserve limited to the amount of collateral that Continental Illinois can put up?",45
-fomc-corpus,1984,It doesn't say that.,5
-fomc-corpus,1984,"I know. It doesn't say so because we got advice in the course of our discussion that that would be counterproductive. But on the other hand, there's a heck of a lot of collateral in Continental Illinois.",42
-fomc-corpus,1984,"$40 billion, if you take it all.",10
-fomc-corpus,1984,It has to be good and sound.,8
-fomc-corpus,1984,It's not worth quite that much.,7
-fomc-corpus,1984,A broader question on the LDCs: Has there been any progress with respect to the interest cap situation?,22
-fomc-corpus,1984,No. That has been greatly exaggerated in all the press reports. I don't think anybody is realistically talking about anything other than protecting against some further sizable increase in interest rates. It's all talk and no action at this point.,44
-fomc-corpus,1984,"There was an article in the paper, maybe today, saying that based on the most recent increase in the prime the four major countries are going to get together and try to form a user's group, if you will. Is that a serious threat or just more talk?",53
-fomc-corpus,1984,"I don't know anything about that, but I know they are very unhappy--understandably so.",20
-fomc-corpus,1984,"I made one contact on that subject. Our embassy--I'll leave you to judge the quality of the information--regards the statement put out by the Mexicans, Argentineans, Brazilians, and the Columbians saying that they plan to get together, initially on the level of finance ministers and foreign ministers and then subsequently perhaps at the head of state level, as a relatively moderate response under the circumstances. The text of some of that as picked up in the newspapers suggested that there was talk about protectionism and concerns like that rather than a confrontational framework. One never can tell once it gets to the politicians--if it is raised to the level of high politics--what will transpire. It reflects I think both the sense of frustration of these countries about recent events as well as a feeling--which we've been picking up since the conference last spring when we hosted the Latin Americans up in Boston--that the countries are being picked off one by one by the industrial countries and their banks. So they have a sense of wanting to exchange notes from time to time about what is being done to them.",220
-fomc-corpus,1984,"There's no question that the rise in interest rates has depressed the whole atmosphere surrounding these debt negotiations, which were already difficult. Certainly in Argentina and in the others as well, though perhaps to a lesser degree, they have a very great feeling of helplessness. The banks do as well. Mr. Sternlight.",62
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Questions?,2
-fomc-corpus,1984,"Mr. Chairman, if I may, I would like to ask Peter a question about this movement of interest rates. Peter, given the two factors that you cite for causing the rates to go up--that is, the collision course between private and public credit demands and the fading expectations of some closing of the deficit gap--do you see any particular reason why long rates should have gone up more than short rates since our last meeting? My own hunch is that, based on past performance, it would have been the other way around.",107
-fomc-corpus,1984,"Well, I think some of that collision is seen as taking place in the longer area. The Treasury has continued its program of issuing longer debt. So it was not only that current sense of what is pressing on the market but, with that sense of strong private credit demand, there was some uplifting of inflation expectations there too that I think had an impact at the longer end. I must say, though, that I share your view of surprise as to the extent to which the yield curve has steepened.",101
-fomc-corpus,1984,"But hasn't that happened throughout the recovery? Haven't long-term rates retraced maybe 70 or 75 percent of the decline, whereas short rates have moved substantially less than that? It is a little peculiar.",42
-fomc-corpus,1984,"Doesn't that seem to you an abnormality, contrary to the usual tendency of the rate structure to flatten out toward the end of an expansion? Doesn't it seem, therefore, that there is some doubt about what is going to happen to inflation?",49
-fomc-corpus,1984,"I happen to have, Governor Wallich, a rough measure of the yield curve 18 months into an expansion from the trough. I'm not exactly sure but I think it's from the trough of the recession, not the trough of the yields. The spread was about 1-1/8 percentage points and is now 3.2 points, so the yield curve has gotten [steeper]. Looked at on a ratio basis, which is relevant because a ratio takes account of the higher level of rates, it's not so marked. It goes from 122 to 132. Now, that's not very different from what occurred after the 1970 recession going out 18 months. In terms of the absolute spreads it's much different; but in terms of the ratio it's hardly different from the preceding troughs in the '70s. It is different from the experiences earlier; before the '70s the yield curve did flatten more noticeably after 18 months. But it was not so much the case in the 1970 recession, except that in absolute terms this is quite different.",217
-fomc-corpus,1984,"Peter, where do we stand on the process of mopping up the additional reserves injected through Continental's borrowing?",22
-fomc-corpus,1984,"When the borrowing first began we still had a fairly high funds rate. To have gone in then overtly to do substantial mopping up could have been seen as a very disruptive factor, I think, and we just let a pile of excess reserves build up. Increasingly in the last few days we've worked down that pile of excess. With the amount we took out of reserves today through some matched sales we have pretty much wiped away the impact of the special borrowing that has occurred thus far and we even made a small allowance for some anticipated continuing borrowing. We have been a little gingerly in anticipating how high this level of borrowing will be in the remaining days. In a numerical sense I think we have just about caught up with that mopping up process now. But in a psychological sense some of the ease that was created because of the earlier buildup in excess reserves is still in there.",177
-fomc-corpus,1984,Have we labeled it extended credit yet?,8
-fomc-corpus,1984,No. It has not been so labeled.,9
-fomc-corpus,1984,"Peter, have you been able to execute these operations while observing the markets performing more or less normally? I realize that's a matter of definition right now--with the 1-point changes over short periods of time.",42
-fomc-corpus,1984,"Well, I'm not sure. Are you asking about the whole range of operations or the particular mopping up of the excess reserves?",26
-fomc-corpus,1984,The particular mopping up.,6
-fomc-corpus,1984,"That part has gone very smoothly. Once the banking system came to realize they had all this excess, they have been very eager to show us propositions and have us pay them something for the excess reserves that they now see as unwanted. So, that has gone quite smoothly. The market, in general, had developed some greater volatility just because of that massive pessimistic feeling. I think it is calming down somewhat from that, but it's still fairly--",89
-fomc-corpus,1984,"Looking into the immediate future then, is there an implication in that behavior that you just described? Let us assume, or let us hope, that the Continental matter works its way through, that there is a merger partner, and that it's resolved in some reasonable way. Would you anticipate that the 1-point changes and the volatility that we observed in the market, particularly in the long end, will subside? Or is there a situation or an attitude that may resist improving?",95
-fomc-corpus,1984,I think that would remove one important contributing factor.,10
-fomc-corpus,1984,We still have the LDC problem.,8
-fomc-corpus,1984,"The budget deficit problem is there too, but I think there is hope that something will go through. And the market is also waiting for clearer evidence of a more reasonable pace in the economic expansion.",39
-fomc-corpus,1984,There are also a lot of shell-shocked investors sitting on big losses. They don't want to buy any more long bonds.,25
-fomc-corpus,1984,"Yes, it's taking increasingly high yields [to attract them]. Some have begun to come back in again, but still in a fairly modest way.",29
-fomc-corpus,1984,How much do the dealers have left of that financing?,11
-fomc-corpus,1984,"I would say they do not have anything very significant left. It is very hard to measure their positions because so much is hedged against futures positions. Even though they in a sense took down big chunks from the Treasury, they had already made arrangements to sell some of it. I would say their positions now are no more than a few hundred million that could be attributed directly to the financing.",78
-fomc-corpus,1984,Yet the futures market has functioned okay?,9
-fomc-corpus,1984,"It has, yes. It has also had the volatility.",12
-fomc-corpus,1984,"There must have been some realized losses taken that haven't shown up, as yet anyhow. [Do you know of] any particular situation?",27
-fomc-corpus,1984,No. There was one day of extremely volatile price movements when the price limit situation was reached and they had to discontinue functioning for a couple of hours. But even that--,34
-fomc-corpus,1984,That was the only time the limit was reached in that period?,13
-fomc-corpus,1984,That's the only instance that I recall.,8
-fomc-corpus,1984,The great majority of dealers have been losing a lot of money for quite a few months; they don't seem to be able to hedge well enough. Most of them are in some kind of net long position and I don't quite know why. I don't know enough about the futures market to know why they can't seem to hedge better. This is what I've heard from half a dozen of them.,77
-fomc-corpus,1984,I was thinking of the nondealers.,9
-fomc-corpus,1984,"Well, I'm not sure that that was the reason. They argue that as underwriters they were not able to hedge.",24
-fomc-corpus,1984,But many hedging programs are incomplete. Isn't it unusual that a dealer would hedge completely? Usually hedging means an 80 percent hedge or a 70 percent hedge.,34
-fomc-corpus,1984,"Well, some of them try to get very fully hedged. At some point they live with a certain element of uncertainty because they take down securities from the Treasury. They don't know whether their bid is going to win securities or not, so they probably hedge some of it in expectation that they will win some securities but they may be preparing to have some net long position in the hopes of moving some of it out profitably.",85
-fomc-corpus,1984,"My thought, Tony, has been that the dealers were losing on spot transactions and gaining on the futures, which means that somebody other than the dealers was losing on the futures.",35
-fomc-corpus,1984,But the overall profit situation of the dealers has been very bad.,13
-fomc-corpus,1984,But the relationship they put on the short or the future can determine whether it's profitable to them. They can hedge it but at a loss initially.,29
-fomc-corpus,1984,"Well, when the markets see these spot and futures spreads are not necessarily holding--. You can be completely hedged and if the spreads change, you may lose. There is no such thing as a perfect hedge.",43
-fomc-corpus,1984,Any other questions?,4
-fomc-corpus,1984,Where do we stand on the debt limit legislation? Is that posing great problems for you?,18
-fomc-corpus,1984,"Well, it poses great problems for the Treasury and the functioning of the government. I think they have to begin something in the course of this week because the Congress is due to recess.",37
-fomc-corpus,1984,Are they out of money?,6
-fomc-corpus,1984,They will be out. I think they probably have enough to last beyond when the Congress goes home but not until the Congress comes back. They have to get action by the 23rd or 24th.,42
-fomc-corpus,1984,Any questions? We need to ratify the transactions. I heard a motion and second. Without objection. We will continue at 9:15 a.m. tomorrow.,34
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Any comments?,3
-fomc-corpus,1984,"Well, I'll lead off. I sense that the recovery is maturing in my District. Several months ago there was unabashed optimism and report after report of rapid increases in sales and orders. But what I sense in the last month or so is that the optimism is more tempered; the sales forecasts are more moderate. Some of the big firms are thinking that there might be a recession toward the end of 1985 and they don't want to get caught again as they got caught last time. I don't mean to imply that people are pessimistic. I just sense some tempering in the optimism, which would suggest to me that the normal cyclical pattern of fast growth earlier in the recovery and slower growth later may be consistent with this kind of anecdotal evidence that I'm picking up. Also, just looking at the numbers, it seems to me that the recovery is not all that unusual, with fast growth in the earlier quarters and some slowing in later quarters. The inventory boost in the first quarter certainly shoved up the figure, but I suspect that if there hadn't been so much leftover caution from the previous recession, we might have gotten some of that inventory buildup earlier in the recovery rather than later. So, just in a subjective sense, there is some anecdotal evidence, at least in my part of the country, that we are seeing some slowing. The price side seems to be holding up really rather well. There are some cyclical upward pressures in some industries that one would expect. From the reports I get, wages continue to be moderate, although a lot of business people I talk to think that the auto negotiations in the fall will be the key. If we get through that, they see moderation continuing; if that comes out badly, it will be harder for them to hold the line in their own areas.",362
-fomc-corpus,1984,"Mr. Chairman, I also would talk about attitudes, but attitudes mainly in financial markets. Attitudes are indicating different kinds of strains in financial markets than we talked about yesterday--the international situation, the Continental situation and so on--and are what I call attitudes of excesses in financial markets. They start with some of the kinds of financial contracts we see being invented and being written, such as leveraged buyouts and that whole list of things. It continues in the talk about how banks are running their businesses; I keep hearing more and more that banks around the country are shoving money out the door, if you will. We hear about it from real estate developers; and when you start hearing real estate developers in the Fourth District talk about these things, you know that it's much broader based in the country. Real estate developers are telling us that they can't put any equity in a shopping center these days--that banks are giving 100 percent financing--and that even if they wanted to put equity in, because that's the way they would like to run their business, they can't do it because their competition isn't doing it. And worse than just the leverage problem alone is that the 100 percent financing is short term. They are getting 5- to 7-year terms from a bank at variable interest rates and at the end of the development they are not going to the insurance companies and are not getting the long-term money. So, the specter arises: If you have a lot of unoccupied office buildings that are on 5- to 7-year term loans, what happens when those loans came due? We only have one such building in Cleveland because we haven't had the building boom that other cities have had. But if this is the situation around the country, then this very short-term financing of long-term assets could build to be a real problem. Another Fourth District story about banks but about banks around the country that I found very interesting was in connection with this recent takeover bid by the fellow who controls that, needed--I don't remember the exact number--in excess of a billion dollars to make the bid. And for reasons of confidentiality, he didn't want to have a bank form a syndicate to get the loan for him. So, he did what he was advised couldn't be done. He went to thirty-two banks and asked them for lines of credit for a takeover for an acquisition and he wouldn't tell them the acquisition target, and out of the thirty-two very large banks he approached only one refused to give him a line of credit because they wanted to know the name of who was being taken over. Then, on a Friday afternoon, within several hours he pulled down all the lines and made the offer. It is, I think, an indication of how business is being done these days. The thrift stories, of course, continue and we increasingly hear concerns about the lack of matched maturities--that thrifts aren't being run in a conservative way. In the Fourth District we're beginning to get anecdotal evidence about some of our thrifts that are in very poor condition suggesting that things are so bad for them that there is nothing to keep them from trying to take a big bet and trying to hit a home run in real estate development kinds of projects. Because if they fail to hit the home run, have they really worsened their condition? I guess it has always been true that there is a certain number of portfolio managers who have a very short-term view on investment and manage their portfolios by saying: Let's pick the next takeover prospect. But it seems that one hears about these people prospering now, and I suppose that would be another thing I would add to my list of concerns. Just to complete an incomplete list, one more subject would be the auto negotiations. We're beginning to hear a minority view, expressed by people in the transportation equipment industry in the Fourth District who are really in a position to have very good information, that GM will not be willing to take a strike. They are talking about and hope that they will be able to get a settlement that will tie wage increases to profitability. But the talk that they are hearing is that GM may be unwilling to take a strike. I guess one could build a very pessimistic case from this list of attitude excesses, if you will, and we could say that the financial contracts of today might be the international debt problem of several years from now. That may be overstated, but I've just been getting so much anecdotal evidence across the board that I do believe we are beginning to see in attitudes a situation that is not inconsistent with rising inflationary expectations. Those are my comments.",931
-fomc-corpus,1984,Welcome to the world of American banking! Governor Martin.,11
-fomc-corpus,1984,"Mr. Chairman, I would like to pick up on the comments that have been made already by my two colleagues with regard to the labor situation. We had the benefit on May 11 of the economic consultants being in our midst and of the work in that area by Arnie Weber of Colorado, Bob Gordon, and others, coupled with work that has been forthcoming from Kendrick and Dennison and others in the productivity field. That work points toward a rather different labor/ management situation, or at least some degrees of difference. We are all focusing on the upcoming auto settlements. position on that, as perhaps everybody in the room knows, is that the auto settlement will not be a leading indicator this time--that there is a special situation there that won't affect steel that much and won't affect construction and won't affect the other major settlements coming along. position stems in part, I think, from a rather more optimistic look at the cost push from unit labor costs. He is a bit more optimistic than our colleagues here at the Board, for example. He cites the restructuring of bargaining--a company-by-company approach--and even the changes in the preparatory stages for these settlements. So, his conclusion was that it is unlikely that the average settlements will exceed the 5 percent range in the next three years. There again he's talking about the inertia in settlements and the fact that these arrangements have a way of holding for quite some time as a precedent. On the productivity side, I would be the first to concede that none of the people that I've cited, including my [unintelligible] has given any reason to be wildly optimistic. On the other hand, there are scattered indications that productivity may come back closer to the trend line of the '50s and '60s [than] the negative or flat trend of the '70s or the staff projection, if I remember it correctly, of something like 1 to 1-1/4 percent. You can find quite a bit of evidence that productivity is going to more in the area of 1-1/2 to 2 percent. If you recall the work that was presented at a previous FOMC meeting on the subject of inflation, productivity, and labor costs, and the relationship in a leading sense between the changes in unit labor costs and inflation, if indeed the slightly more optimistic numbers are true and if and his people are somewhat correct, then you have a different cost/ push coming from labor this time and one that is more conducive to disinflation or less inflation. There is one other area I would like to mention since I don't dare talk about the thrift institutions and how much they're losing today because all of you are quite sick of my attempt to measure that industry. Besides, I think everybody in the room is aware that the three big savings banks in New York City are very much under water, that the thrift industry is now operating in the red, and that they are beginning to run out of the funny accounting practices that they have been participating in. They are quite ingenious; they may invent whole new areas in which they can distort their reporting of loss. But turning to agriculture, I simply want to mention--and I do this with great humility considering that those of you who come from the regional Banks in agricultural areas undoubtedly are aware from your own Districts of the continued plight in agriculture--the proportion of farmers operating in the red. There was a bank survey showing something like 40 percent of the ag borrowers are operating at zero or in the red. The foreclosure or impending foreclosure numbers out of that ABA survey were 2-1/2 percent of the agricultural borrowers; and 8 or 9 percent were in the so-called distressed category as far as their credit outlook is concerned. So, I would join my Cleveland colleague--I refuse to use these darn District numbers--in talking about the vulnerabilities in the bond market, the LDCs, the thrifts, and agriculture. It's a different recovery in that sense, in my not so humble opinion.",809
-fomc-corpus,1984,You follow the thrifts closely.,7
-fomc-corpus,1984,Can't get away from them!,6
-fomc-corpus,1984,"Would you expect the Congress next year, if the thrifts are in the same difficulty, to extend the capital fusion program or whatever that's called?",29
-fomc-corpus,1984,"Yes. I think it will be extended for both the savings banks, which need it more, and the other thrift institutions.",25
-fomc-corpus,1984,"Well, I don't know whether those New York savings banks can continue their present situation as late as that. I would assume they'd need a resolution of that.",31
-fomc-corpus,1984,"For the most sensitive ones, the ones that are most on the line, I think that is probably right. But after that there will be another batch behind them.",33
-fomc-corpus,1984,"Well, the thrift holding company types, such as Financial Corporation of America, are tremendously leveraged and are betting on lower--much lower--interest rates. It's simply a rotten barrel.",36
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, I share Mr. Boehne's qualitative view that the economy is probably moving into a more mature phase where we will see some slowing. But if you search the evidence, it's pretty hard to find anything in the statistics other than an apparent plateauing of housing that really suggests that that's taking place. So it looks to me as if the Greenbook is probably about right in its forecast for real economic growth in the last three quarters of 1984. I fear, however, that they may be underestimating inflation for the last half of '84 and for '85. Pres just cited some interesting developments in productivity that I think will ameliorate that to some extent, and I would add to that the increasing foreign competition and domestic competition. I have now reached the point that I don't ever pay list price on anything. I think almost everybody has that same mentality and that's bound to have an effect that had not been there before. Nevertheless, with the tremendous--I would say tremendous, although one could argue--amount of monetary stimulus put out in late '82 and '83 and the pickup now taking place in velocity, it seems to me that we're probably going to have more inflation than in the Greenbook forecast. I think the market behavior, which Karen has reinforced with some interesting anecdotes, suggests that the expectations are just that. As I read the market, we have a little way to go before we get rid of those inflationary expectations. I have one other point. It's the main one. I think it is important that we monitor current economic developments very carefully. But at the same time, I think it is important that we avoid giving too much weight to the short-term economic data that we see in trying to set short-term monetary policy. Undue emphasis, for example, upon the strong first quarter of this year could lead to our aborting the recovery if we were to take action related to that. But perhaps more realistically, the economy is going to slow down somewhere before very much longer, I think. And when the data begin to show this weakening, if there is a perception on the part of the public that we are trying to fine-tune the economy to any great extent, that is going to intensify the pressure that we have to ease significantly at a time when such a degree of easing may well not be compatible with our longer-term objective of working down the rate of inflation and getting back to a completely healthy economy. So, my bottom line is that I would not let the latest bit of economic information influence what our policy decision should be today.",521
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"Conditions in the Eighth District are really favorable. I tried to find some weak spots recently and, with the exception of agriculture which I will comment on, there don't seem to be any. There is a general optimism and the underlying momentum of business activity seems to be quite decidedly upward. We took a survey recently of 257 businesses in the District and 73 percent anticipate that their volume of activity is going to be expanding in the next three months. Department stores sales, including those of some national companies, are very strong; they are running about 13 percent ahead. And most of that is real; they don't see a significant amount of price inflation in that. Automobile sales are very strong. We're seeing year-over-year increases as high as 40 percent and in one of my branch cites they are breaking new records. Industrial activity is robust. Anecdotally, we're hearing that the mid-South furniture industry in northern Mississippi is headed for its strongest year in a decade after a long period of tough times. Housing and construction remain strong. People mention their concern about the recent rise in interest rates but [the effect] hasn't shown itself yet. In terms of prices, there is surprising stability. I had a group of chief financial officers of major companies in recently. They all seem to be concerned about the possibility of price increases but they say in terms of what they buy and in terms of what they get that the price front is very quiet and nothing is really bothersome at the moment. So, there is no acceleration of prices. Demand for loans in the banks in the District is vigorous now after a slow start. I think there are two problem areas, potentially. One is the saving and loan business. Our largest savings and loans are very thin on capital position and are not making any money; and with rising interest rates those that are narrowly making money are going to start losing money. In agriculture we have another troublesome situation, with rain delaying planting. For example, 21 percent of the corn is planted now versus the normal 54 percent, and that affects production. I was in northern Mississippi recently and I would say that the agricultural situation down there could best be assessed as grim. The bankers tell me that farmers who inherited their land, who didn't have debt on the land and who have been good managers, are having a very, very difficult time and can't handle their credits, and they are very concerned. I had occasion to talk to four major national retailers recently and asked them what their sense of the consumer's attitude was. Uniformly they said that business is still okay but that the froth is off. The March/April experience has shaken out and in the latest two ten-day intervals they have had good but slowing business.",549
-fomc-corpus,1984,"My comments would very largely parallel Ed Boehne's. There is a growing feeling from the people I talked with that we are in fact reaching a plateau and that from this point further growth will be tougher and tougher to achieve. Nonetheless, I think virtually all the sectors that I am familiar with are doing better this year than was the case, say, last year. But a lot of them have not yet had an opportunity to recover fully and those are the people who are very worried that the economy may be in an area where perhaps the sustainability of the recovery is getting increasingly fragile. On the price side, there are some price changes going on that may not be reflected in the figures but that could be rather significant for those industries that are operating at pretty high levels. I will cite two examples of this: Liner board for boxes was selling at $300 per ton in 1979, went down to $240 last year, and is now back to $320; oil well casing was $1400 per ton two years ago, $800 last year, and is now back to $1200 to $1300. And during this whole period the list prices were unchanged. It's a way of saying that price increases--in some cases significant increases--are being accomplished but without any changes in the list prices, so these increases may not be reflected in our standard indicators.",276
-fomc-corpus,1984,What is the list price of something that goes up and down that much but has been unchanged?,19
-fomc-corpus,1984,I don't know the list price of those particular products but it hasn't changed during this whole period.,19
-fomc-corpus,1984,"They give a special discount. I guess that's what happens. They have a list price and say: If you buy, we'll give you a discount.",30
-fomc-corpus,1984,"They have a list price. But in 1982 no one was selling at list and in 1983 people were selling a little under list. In 1984 they are now selling at [unintelligible] list. Despite this, nobody that I talked to suggests that we have any risks of runaway inflation. Everybody expects that prices will be higher as the year unfolds, but not by a very significant amount. On the wage side, I continue to be impressed by how well people are able to renegotiate their contracts. The industries that are soft are renegotiating contracts of 1 to 3 or 4 percent on a three-year basis. The industries that are a bit tighter are in the area of 3 to 5 percent annually, and again those are on a three-year basis. So, the wage side continues to be favorable and, with productivity increases, all of this I think looks pretty good. On the agricultural side, I don't know what I can add to the comments I made at the last meeting. Iowa continues to go through a very rugged adjustment phase. Land values there are continuing to go down, interest rates are going up, and for those farmers who are indebted it is a very tough environment. Having said that, there has been some legislation that may ease these problems to some extent. But, net, I would agree with the staff forecast in the Greenbook. I think the [prospect for] sustainability this year continues to be pretty good but I have this feeling that we have reached or are reaching a plateau from which it will be tougher to achieve gains from this point forward.",327
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Mr. Chairman, I think that the staff forecast is right on target. We find nothing in the Greenbook that we would quarrel with. There is a general confirmation of that outlook in the forecast for the Sixth District. Everyone we talked to also agrees that we are bound to see a slowing in the economy during the rest of this year, although the hard evidence really isn't there in our District except perhaps in housing-related industries where there are some definite plans to cut back in investment in inventories and plant and equipment. Labor markets, on the other hand, continue to strengthen, largely because of continuing expansion in the industrial sector. So, while conditions still are looking very, very good and people continue to be optimistic and bullish, I think there is a growing recognition that things are going to slow down. I suppose that is based more on a sense of inevitability rather than on any firm evidence. The trouble spots in our District are pretty much the same as those in the other parts of the country: The thrifts are in bad shape and the agricultural situation I can only describe as disastrous in most parts of the District. Just as a sideline, I had the great fortune to meet with about ten farmers who had just undergone foreclosure of their properties and I wasn't sure whether I was going to be lynched when I walked into the room or not. Interestingly, their complaint was not about interest rates or about Federal Reserve policy. They were much more concerned about the treatment they were getting from the production credit agents. I understand there is a very definite move on the part of the bank cooperatives and [others], because of funding problems, to be much more selective in the granting of financing, particularly refinancing. But that was the main part of their complaint: that they simply aren't getting the financing and the help they had gotten in the past. People we talked to, particularly our directors, are very very concerned about inflation. This is more of a gut feeling, I suppose, that inflation is going to pop up again probably by the end of the year; they don't have any hard evidence except in some isolated industries where they are seeing some price increases. On the wage side, the automobile people I talked to--and I talked to them as recently as last week--are indicating that they think the auto settlement could well be a leading indicator and they are concerned about what might happen during those negotiations. Just one final point: I was a little surprised that the marketplace in Atlanta and elsewhere didn't seem to be very concerned about the Continental situation. There was very little discussion about that in the marketplace. In summary, Mr. Chairman, in terms of policy decisions, I think the staff is right that we're going to see some moderation in the economy and that inflation seems to be pretty well under control. All the indicators that we look at--commodity prices and the price of gold and the exchange value of the dollar and so on--seem to confirm that inflation is not at the moment a very large problem.",600
-fomc-corpus,1984,"If those banks down in Atlanta aren't worried about Continental, I assume they are fully funded.",18
-fomc-corpus,1984,"Oh, I didn't say they weren't worried about it. I'm sure they are worried. I think they are more worried about their own fate when regional banking comes along. But there was just very little discussion. I had expected people to call and ask about it and there wasn't any of that.",58
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"First, I would like to support what Bob Black said about not worrying too much about small temporary changes. As I look at our directive and policy record, we've really been through a mini-cycle since the last FOMC meeting. At that time we had not seen fully the weakening of March. It was March 27th or thereabouts when we met. Had we known the March data we might have said: ""Aha, things are slowing down."" However, in April they picked up again. So meeting now in May we've had the weak March and the strong April and we can just take off from there. The same applies to the aggregates. Had we known the weakness of the aggregates for April, we might have worried about that but now we see that for May there probably is an expansion ahead. So, again, the interim fluctuations don't mean very much. As I listen to the discussion around the table of the tapering off, I ask myself: What is it that businessmen really pay attention to when they evaluate conditions? Is it the rate of expansion of their sales and activity or is it the level at which they proceed? Now, the rate of expansion may be tapering off somewhat but the level that they have reached must be taxing their capacity or be giving them a sense of very high activity at least generally. I think this slowing that seems to be taking over ought to be regarded as a success of our policy--a success in avoiding overheating, to the extent that we've done that. It certainly is not a reason to resume some kind of stimulative policy. In thinking about what we should do now, we are financially very much constrained. If we wanted to restrain more, we have the situation in developing countries. We have the situation of Continental. I find these things very hard to weigh. The wise advice is to say that financial fragility should be handled by structural devices. And perhaps that is not quite as foolish as it sounds because this is the time to fix the roof--it's not raining. That's the time when one should fix the roof and not wait until it rains again. So, that would mean strengthening the capital of banks, doing something about LDC loans along the lines of our conference for finding ways of limiting the effect of interest rate increases, [imposing] penalties for poor banking. That again is more possible in the domestic area than in the international area where we're dependent on the same banks that made mistakes to continue making loans. So, this disciplinary supervisory action is somewhat stymied. I think this is the principal choice we have to make right now: In terms of economic activity, it seems to me that further restraint is still desirable; in terms of the fragility of the environment, there are obvious fears and inhibitions. How to weigh this, I find very difficult. But I continue to lean in the direction, if I have a choice, of a little more restraint.",588
-fomc-corpus,1984,"I think I agree that it's not raining; there may be a heavy mist, though.",18
-fomc-corpus,1984,"Also, if you have to rebuild the whole roof you worry about how long it's going to be before it rains again.",24
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"I'm less certain now about where the economy is going in the near future than I have been at any time since very early in 1983. These recent numbers are to me very, very puzzling. If we really had an almost 9 percent increase in real GNP in the first quarter, the fifth quarter of recovery, there ought to be a sense of euphoria around the nation. Boy, we sure don't hear that here this morning! I can't figure out why the increase in nonfarm inventories in real terms was so very, very large in the first quarter. Clearly, it wasn't undesired. It was not a case of an unexpected slowdown in final sales, yet I have a hard time arguing that businesses are so desperately concerned with shortages or so desperately worried about price increases that they are scrambling to get inventories. I just can't understand it. This number on new orders this morning is very weak. It's a volatile series, as Mr. Kichline said, but there are negatives all down the line. It is just very, very puzzling. A second uncertainty has been added by recent developments in financial markets. I don't have any doubt in my mind that these developments on balance are a significant negative, but I don't know how much. We have had a big increase in interest rates since the last meeting--bigger than I think any of the more hawkish members of this Committee would have wanted at that time. We also have had a drop in stock prices and we don't know precisely what effects those changes are going to have. It may well be that confidence, at least among banks if not nonbanking institutions, has been affected a bit by what has happened with Continental. I think a slowdown is ahead and if I were forced to write down numbers, I probably would write something down very close to what the staff has. If it works out that way, I don't think we should be concerned. We need that kind of slowdown. But, frankly, it could be a little more or a little less, it seems to me. I would like to make a couple of comments on the price side. One of the things that has happened in the past several months that to me is very comforting is that the increase in the civilian labor force, as a consequence of increases in the participation rate, is finally developing along the lines the staff had forecast earlier. It looks much less likely now that we're going to get down below the natural rate of unemployment in the very near future, as I was worried about earlier. Still in all, I do expect to see some larger price increases relative to wages because in the kind of markets that the staff is forecasting, with the increase in the capacity utilization rate, I think businesses are going to take the opportunity to try to widen profit margins. I would just like to say in closing that developments in credit markets are to me still very, very worrisome. We had an enormous increase in the debt of the nonfinancial sector in the first quarter. The forecast now for the second quarter is even worse. And when I listen to comments around the table, particularly by Karen, about the lack of discipline, I have to conclude that up until very recently at least we have not had much financial restraint. Whether we'll see that as a consequence of developments in the past few weeks I think is still problematic.",672
-fomc-corpus,1984,"Looking at prices, one of the irritating things is that we changed to this new consumer price index about 18 months ago--the beginning of 1983, I guess. The old measure has been running about 1 percent less at an annual rate than the one we now use. If we hadn't changed that index we'd be looking here and saying: My goodness, consumer prices were only up 3-1/2 percent recently. And, of course, that is what social security and wages are indexed to.",103
-fomc-corpus,1984,Is that mostly the rental equivalency?,8
-fomc-corpus,1984,It has to be. That's the only thing they changed.,12
-fomc-corpus,1984,"Yes. The CPIW went up 0.2 percent in April and, as I mentioned, the all urban went up 0.5 percent. Virtually all of that difference is indeed attributable to the different treatment of housing.",47
-fomc-corpus,1984,"It's about a 1 percentage point difference as I remember so far this year, or maybe over the past 12 months.",25
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"In the right context, that's worth making public because I haven't seen that anywhere.",16
-fomc-corpus,1984,It's right there in the second paragraph of the release but nobody ever looks at it.,17
-fomc-corpus,1984,"Actually, in the last 3 months the compounded annual rate on the old basis is 1.3 percent and on the new basis it's 4.3 percent.",34
-fomc-corpus,1984,[Unintelligible] we publish those figures --they say a 1.3 percent rate of price increase!,24
-fomc-corpus,1984,"On this question of prices, what I find strange is that people are expecting somewhat higher inflation levels--you hear a lot of worries about it and explanations about what is happening and why we don't see much investor demand--but at the same time those same people would admit that they don't expect inflation to hit higher than half of what it was in the previous two recoveries. I'm talking about the great majority of them; there are a few [exceptions]. We hit rates of 12 to 14 percent in the two previous recoveries and you don't hear people in the financial markets or industrialists I speak with expecting it to go to more than roughly half of that. But that seems to get lost. It's a perspective that I think is a terribly important development. It holds out some promise that during the next recession it will dip and in the next recovery we'll be able to hold inflation at lower levels than this. So, I don't know why there is so much fear of inflation. I have the sense that it is almost a rationalization of the reluctance on the part of investors to buy. They are more agnostic. They don't have any sense of confidence but [say] that their reluctance to buy is so significantly motivated by fear of inflation.",251
-fomc-corpus,1984,"Don't you think, Tony, it's that pervasive fear of the deficit, right or wrong, that makes people think that?",24
-fomc-corpus,1984,Don't they relate the deficit to future inflation?,9
-fomc-corpus,1984,"Yes, that's my point. I don't necessarily agree with that, but that's what everyone says to me--that the big deficits mean big inflation ahead.",30
-fomc-corpus,1984,It's hard to imagine what could be influencing long-term investment now if it's not inflation. Maybe they just--,21
-fomc-corpus,1984,"Institutions don't hold securities the way they used to; even longer-term investors don't think in the same terms that they used to. Therefore, they just don't want to sit with big paper losses because it looks very bad and it reflects on them and hurts their position in these various institutions where they work. So, even if they are fairly confident that inflation is not going to go up to anywhere near the previous levels, they don't want to be seen sitting with substantial paper losses in their portfolio.",98
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"I have just a couple of comments, Mr. Chairman. I share the view--it's just a hunch--that the edge may be coming off the speed of the recovery at this point. I'm compelled to that conclusion even though I'm not sure that it can be backed up by statistics as yet. On the farm sector that has been mentioned, obviously, in a substantive way the situation is a mess. The only point I would add is that I think it is at or near the point where the political implications of it, broadly defined, could get very testy. For example, I hear, as I'm sure others do, stories of people saying: Well, if you're going to cap foreign loans, you better cap farm loans. Certainly, in my District we have had a couple of situations involving the closing of small banks because of bum agricultural loans in the context in which the treatment of depositors is different than in the case of Continental. And I think that is just another manifestation of how this problem could really start to close in on us. I continue to get very frequent reports of sharply different--or what is perceived to be sharply different--treatment of farm credits by various regulators, which reinforces the view that the process is in some sense discriminatory toward that particular class of credits or that particular class of banking organizations.",265
-fomc-corpus,1984,What reports are you getting?,6
-fomc-corpus,1984,"I hear this directly. The feeling is that right now the FDIC examiners in particular are really playing hardball on these [agricultural] credits, and in a way that comes back to you as being unreasonable. I'm not sure whether it's true or not, but certainly that attitude is there.",61
-fomc-corpus,1984,But is it clearly designated by agency? Does anybody else sense that?,14
-fomc-corpus,1984,Yes. The FDIC is the SOB on the block right now in my District as far as a regulator--for these kinds of reasons and for what the banks regard as nitty gritty kinds of stuff.,41
-fomc-corpus,1984,It always has been in our District.,8
-fomc-corpus,1984,"In the Kansas City District I think it is probably more the Comptroller, and that's perceived to be a fallout of the Penn Square situation, which the Comptroller's people are so skittish about.",41
-fomc-corpus,1984,On agricultural loans in particular?,6
-fomc-corpus,1984,"On agricultural loans as well as energy loans. But the perception, as I hear it, is that the Comptroller's staff is very, very tough.",31
-fomc-corpus,1984,Nobody is hearing that it's the Federal Reserve!,9
-fomc-corpus,1984,"When they talk to somebody else, they probably say the same about the Federal Reserve!",17
-fomc-corpus,1984,"Remember, we are reporting on our own Districts.",11
-fomc-corpus,1984,We just don't have that many state member banks out there.,12
-fomc-corpus,1984,"Well, we're going to have to take some further initiative in this area. I'm sure the concern is real, and I don't know what we can do other than forbearance. But I think we're going to have to make some more specific arrangements to make sure that we are forbearing appropriately.",59
-fomc-corpus,1984,Is the rate of foreclosure on farm land still the same as it was a few months ago?,19
-fomc-corpus,1984,It's much higher.,4
-fomc-corpus,1984,"It really has picked up. Mr. Forrestal made the point that the PCAs--the Production Credit Associations or whatever they are called--for whatever reasons clearly have a liquidity problem in their own right. I don't fully understand it, Bob, and maybe you do. And because of the rate of foreclosures growing out of that, one hears--and I've never heard this before--concerns that the PCAs and the banks will be forced to dump land on the marketplace to such an extent that the price of land could really be driven down sharply. It's awfully hard, particularly with farmers and agricultural bankers, to read through all the static they throw out. But my sense of it is, Tony, that once you cut through all the static it's quite real in terms of the degree of concern.",161
-fomc-corpus,1984,"Well, from a regulatory policy standpoint, what I'm hearing is that, as Jerry said, they have land on which they would take a big hit if they were to put it on the market. They are saying that the sensible thing is to live with that for a while, and they are asking for forbearance. Good bankers--",67
-fomc-corpus,1984,I don't think that would cure the problem.,9
-fomc-corpus,1984,"Well, the wheat picture looks a heck of a lot better. Contrary to expectations up until last week, it is now viewed that the Soviet Union is going to have a big crop failure again due to the dry weather. Wheat prices have moved up 3 percent in the last few days and they are going to go higher as that gets confirmed more and more. I don't know to what extent improvement of wheat [prospects] will make a significant change.",91
-fomc-corpus,1984,"Wheat prices have a long, long way to go before it could make any real difference in terms of profitability. It certainly will help cash flow. But the price has a long way to go before even middle-of-the-road operators reach the point where they can grow wheat profitability.",56
-fomc-corpus,1984,"We can inquire, of course, about PCAs. But I must say I've been hearing for years that the typical situation, say, out in Roger's area or in the middle West was that the banks kept the good loans and the PCA made the bad loans. If the banks are now complaining about their portfolios being poor, can you imagine what the PCA portfolios must be? They must be rotten.",80
-fomc-corpus,1984,We've had some PCA failures--big ones--up in the Northwest.,14
-fomc-corpus,1984,That is one of the reasons why the PCAs are taking the harder line. A lot of these agents in the past have been very close to the farmers and were really pushing the money out to them. And now that is being changed.,48
-fomc-corpus,1984,"Well, let me clarify my figures of 8.7 percent in distress and 2.5 percent in imminent foreclosure. That's an ABA survey published in January of '84, so it's ex post and is prior to some of the increases in rates. The lag effects of the most recent interest rate increases are not in those data.",67
-fomc-corpus,1984,"I want to make two other quick comments. On the wage side, I don't disagree with anything that has been said. But I would note that from an employer point of view in the Twin Cities in the first quarter of this year we have seen a very perceptible bidding up of salaries in the technical area for the first time in I guess three years. I don't know what to make of that at this point, but it certainly is there as a new development, at least in that very particular marketplace.",101
-fomc-corpus,1984,"I think that's going on, but also what is going on are changes in work rules and the ability to assign workers by shifts and the ability to redefine the job so that the job is not strictly defined by the unions.",44
-fomc-corpus,1984,"No, I'm not talking about union stuff yet, Pres. I'm talking about white-collar technical people--computer people and so forth. The only other point I want to make goes back to Karen Horn's observation about financial practices because I think anecdotally she put her finger right on what is at least a very, very pressing problem quite apart from stability and quite apart from the Continental situation. Implicit in what Karen was talking about is that these are practices that probably can only be validated by inflation. And in some ways that's the most troubling aspect of all about those practices. I would simply observe that quite apart from any particular situation, including Continental, what we are seeing in terms of practices and instruments--interest rate swaps and other things--is a situation in which the kinds of exposure and the kinds of contingent liabilities that are sitting out there in size may not be totally understood even by those who are playing in the markets. And worse than that, they may not even be fully understood by us. Needless to say, this is not a point in time when we can afford to be blindsided. I don't know what we do about it. But I certainly think that we have to sharpen our focus on these developments and make sure that we at least understand what is going on.",258
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. Over the last couple of weeks I've had an opportunity to meet with individuals involved in the energy sector--those in discovery and development as well as suppliers for that industry. The story, simply told, is that there is some modest activity in drilling beginning to come back. Just to cite some numbers: At the height two years ago, late '81 to '82, there were around 46,000 rotor rigs working in the United States. That dropped to 18,000 and is back up to about 22,000. The important part of it is that these were very, very large statistics in that industry. It is clear that the price of putting a well down and bringing petroleum products for sale is now low enough that the numbers are beginning to work and it's beginning to be attractive again to go out into the field to discover and bring in energy products. But the suppliers of that industry are still flat on their back. Those who have survived are barely surviving. They are concerned, of course, about higher interest rates because they have a very high carry of inventory to supply the industry. I also met with our Thrift Advisory Council. They have a concern about the increase in interest rates that they have seen. Most of them readily admit that they are on the margin of being profitable or nonprofitable, that the increase in interest rates quite likely will put them back in a nonprofitable position, and that they cannot survive for a very long period of time without help, merger, or something else unless interest rates come down a bit. Lastly, in the agricultural area, I have a couple of numbers that I'd like to cite because Pres has thrown a couple out. As of the end of April, for example, 4.2 percent of all farmers and ranchers have gone out of business in the last six months, and that's 2-1/2 times what would be considered the normal rate. That number is those who have gone out of business as a result of financial stress; the total who have gone out of business as a result of financial stress plus death and other normal things is about 6 percent of all ranchers and farmers. This is as a result of the developments, essentially, within the first quarter of 1984. Another 5.4 percent of all ranchers and farmers have experienced partial liquidation because of financial stress, which has come about among other reasons because the land values dropped in the first quarter of 1984. The best information we have is that land values have dropped an additional 6 percent. They are now on average about 22 percent below the peak of 1981. And that, of course, is the collateral by which much of the lending took place in the agricultural sector back in better times. The important point, it seems to me, is that the agricultural banks that we survey and work with are liquid. They just can't find creditworthy borrowers to take down that money. Although they have money, they are not prepared to extend more money to the agricultural sector. It seems clear to me in talking with people in that industry that lower interest rates are not a solution to the agricultural problem. That is, without an increase in commodity prices we're going to see the situation continue to deteriorate. The fact of the matter is that the average rate to the agricultural sector now is about 14 percent. That doesn't change greatly when rates go up or down in the financial markets. So, we could drop that rate 3 or 4 percentage points and on the margin it would help certain farmers and ranchers. But by and large it has to be an increase in commodity prices in the period ahead that will salvage this situation; interest rates are not the key to it. Turning to a couple of other industries: In the aircraft industry, we have a number of very large participants in the Tenth District and they have had an uptick in their business. As a matter of fact, Boeing and Buick both have announced plans to expand their facilities, largely in Wichita, Kansas. The auto industry, which employs a large percentage of workers in the Tenth District, is going full out with a second shift.",844
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"I have a slightly different view in the Dallas District than what I'm hearing this morning. Either I don't understand the situation or I'm talking to the wrong people! We seem to be maintaining our economic recovery and are showing steady improvement overall. Roger mentioned the energy sector. It is not increasing spectacularly, but nevertheless it has been increasing steadily. Our Texas manufacturing output is growing steadily; it's not as fast as the rest of the nation, but it is growing. Our housing permits in the first quarter were below a year earlier and this is primarily because of declines in multifamilies. I think that's healthy because our area has been very overbuilt. And our retail sales have been growing from a year earlier in most of the District. On the agricultural side, our information says that District farmers are better off this year than last year and that prices for both crops and livestock are generally higher than a year ago. Now, I would condition that statement by saying it's a little better in a very bad situation overall. We have not seen the kind of liquidations that others talk about in the Midwest. In talking with some of our people involved in that industry, they do fear that it is coming but it just hasn't come. In looking at agriculture, it's pretty hard to talk about it if you don't talk about the weather because that is awfully important. Our District is pretty well divided between places where it has rained and where it hasn't rained. The southwestern part is reminiscent of the dust bowl of the '30s. Sustained winds are greater than they have been in the last 37 years; whatever little grass there is coming up on the ranges is being blown away by the wind when it comes up. There are liquidations going on. We did have some good rain over the weekend; I don't know how widespread that was, but among those who got rain I'm sure the sentiments are better today than they were last week. Subjectively, my sense of the state of the economy on a broader basis is that it's possibly a little stronger even than the staff forecast. I know it's our job to worry and be concerned but that we may be coming into a slowdown is what we've been looking for, it seems to me. I think we would acknowledge that the rate of growth in GNP in the first quarter is not sustainable. I think what is happening is what I, at least, would like to see happen overall. The question, obviously, is whether the economy is really turning down or gradually tapering off. But I don't sense the same degree of concern in our area that I'm hearing [here]. Commercial real estate, which has been very strong, is down a bit but is still going along at a pretty fast pace. Projections are that vacancies in office buildings in Dallas that are either up or being constructed will be absorbed in a three-year period. In Houston it is much more difficult; they are projecting about an 8-year period to absorb what they have. But one still sees holes being dug and new announcements coming along.",608
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"Out in the West, the picture of strong spots and weak spots really hasn't changed at all since I reported on that at the last meeting. I continue to be mystified, I guess, by the fact that business confidence for some months has not been as good as the business statistics. The thing I wanted to call attention to this morning is that even prior to the Continental Illinois crisis, I had gotten some very strong protests and indications of concerns from small and medium size banks--particularly those represented on our five boards of directors--about the policies of the FDIC. The concern is what those policies will do to the availability of bank credit among the community banks or regional banks, given the modified purchase and assumption cases, which have meant less than full coverage for uninsured deposits in a number of small banks that have closed down in our District. The fear of these bankers is that they will begin to lose deposits to the large banks--that whatever customers they had with deposits of more than $100,000 will run to safety now. I'm afraid that fear has been considerably exacerbated by what is going on, for obvious reasons. They understand why it had to be done in the Continental Illinois case but they aren't much consoled by the thought of what it will do to them. As a result, their confidence in their ability to supply local credit needs in the future is considerably shaken.",276
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"I think the staff projection is quite appropriate to use for planning purposes by the FOMC. It does tend to make the future look a lot more favorable than the recent past, but maybe in fact that's how it will work out. I've been impressed in the last six weeks by the growing number of uncertainties, however, about what is occurring on the inflationary side. I would say my gravest concern, which, of course, we can't really evaluate, is the Persian Gulf. If oil shipments from there are closed out, as they might well be, that is going to have major repercussions that are very hard to see but that might well turn out to be of an inflationary character. Incidentally, Tony, I think the main reason that we're not getting these projections of double-digit inflation is that people aren't factoring in a big increase in oil prices such as occurred in 1979 and which had a major effect on the rate of inflation that most countries experienced in the 1980-81 period. If you were to add a 50 percent increase in oil prices, say, I think you might get a much higher inflationary expectation from the surveys. In any event, there's just no way of evaluating that except to recognize it as a problem and a problem on the inflationary side, if it occurs. I get a little worried when Bob starts to talk about dust bowls. Of course, the other thing that has given us some inflationary trouble in the past was a major crop failure. On the other hand, if it's only half of Texas, I think we're probably all right. It takes a much wider dust bowl than that to give us major difficulty. On the other side, I think the major negative--and it's awfully hard for me to evaluate--is the uncertainty of financial markets. Karen talks about the leveraged buyouts. Those leveraged buyouts, as I understand it, are usually leveraged 4 or 5 to 1. They depend on an interest rate assumption and are very sensitive to the interest rate assumption. If you put interest rates up 2 points on the 4 or 5 parts that are financed, it raises great questions about those leveraged buyouts. I noticed that Lyle mentioned the stock market has declined. I just looked it up in the Greenbook and the NASDAQ index is off 25 percent. Did you realize that? Those are the kinds of stocks that are in leveraged buyouts. And a major decline in that market has occurred since the late 1983 high. I'm inclined to agree with Jerry that for these deals to work out there has to be more inflation. And if there isn't more inflation, they're not going to work out. The question is: Which is going to occur? Will there be more inflation or will the deals begin to fail and the people begin to pull back? On that point I would make the observation that I don't know that we have had much restraint on the part of lenders for a long time. I don't know if that was true during the last cycle either. There was very little restraint on the part of lenders.",624
-fomc-corpus,1984,"Let me make a comment on that. I got worried about the amount of financing going into leveraged buyouts, so I sent a team of supervisors to all the leading New York banks to look at that. We came to the conclusion that there were 8 banks, and 4 particularly, that were being too aggressive and too optimistic in their assumptions on the amount of credit they are extending on leveraged buyouts, which we went over loan by loan. And we counselled them to be cautious. Whether it will do any good or not, I don't know, but we took that initiative. And we came to the conclusion that the biggest point of vulnerability was not so much on the interest rate assumptions but on the--in some cases--very optimistic assumptions on the cash value of those parts of the leveraged buyout companies that they were going to try to unload immediately if the deal went through. In some cases the banks were giving financing equivalent to 100 percent of relatively optimistic assumptions. And in that connection, although only slightly related, I've had reports that some of the European banks that participate in the lines of credit for financing big takeovers are beginning to pull back a little. Two of the European bankers told me that their medium sized banks that have been participating in these syndicates are beginning to get worried and are pulling back in the financing of some of these big American takeovers.",276
-fomc-corpus,1984,"I think there's a good chance, Tony, that that's what is going to happen--that they are going to pull back. I think they are counting on good value there; that's why I made the point about the 25 percent drop in NASDAQ prices on average. They are talking about selling and the value is dropping in the market for those [companies]. I think they may well pull back. In fact, I'm inclined to think that we're now reading the views of the recent past rather than the current period. I believe that the Columbus offer was withdrawn yesterday. I read in the paper this morning that that was cancelled. A lot of those deals are capable of being cancelled and certainly new ones may not be generated at the rate they were before, if people are quite uncertain about the future. That brings me to my second point about the financial markets and that is that although lenders may not be so conservative and restrictive, I think maybe borrowers could be more sensitive because everybody is on floating rate loans, including the farmers. We've had quite a rise in rates quickly and that reminds people that rates can go up pretty high. They have had experience with 20 percent rates in the past. So, there isn't any kind of limit that one mentally puts on how high rates could go. I think people are likely, in an effort of self-preservation, to be more conservative about the credits that they demand in the future. In summary, I would say that the negative here is the possibility that the financial market will be much less buoyant than it has been for credit and that that may give us less spending than we're anticipating. I'm not predicting a financial collapse or anything like that, but I just think that people will pull back because rates have gone up so much and so fast--not so much, really, as so fast. And we just haven't seen the effects of that on planning and on expectations where we have past data and past decisions. So, I think there's both an inflationary threat to the forecast mainly from the Persian Gulf and there is also a prospect that we could come in below the forecast mainly associated with the financial markets. For our own purposes, I think we can use the forecast.",441
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"We don't sense in New England the kind of change in attitudes that I've heard from Philadelphia and Cleveland and other places. I think the mood is still very buoyant and that may reflect the fact that we're primarily capital goods producers and the capital goods sector is doing extremely well. I've compared the rate of growth of capital goods orders in this expansion to the expansions that began in '71 and in '75 and it is very much stronger. We have a real capital goods boom underway, which ought to augur well for productivity in the future. We think the staff forecast is a pretty good forecast but if it's wrong, that it probably is going to be wrong on the low side in terms of the growth rate.",141
-fomc-corpus,1984,That big boom is all electronics.,7
-fomc-corpus,1984,Right.,2
-fomc-corpus,1984,I'm skeptical of the productivity improvement. Mr. Solomon.,11
-fomc-corpus,1984,"All I will say is that in my area I have a sense that on the one hand things are very, very strong and that at the same time there are enormous financial uncertainties and very poor profits in the financial markets, particularly compared to the last couple of years. It creates a very mixed feeling. I would assume that the staff forecast is most vulnerable to financial shocks --virtually the same thing you said, Chuck. The staff forecast seems very reasonable in the absence of financial shocks, but I think there is an increased possibility compared to previous cycles that it could be upset by something happening. For planning purposes I think one has to go with something that basically tracks the situation and previous experience in recoveries. And that seems to [be true of the staff forecast].",153
-fomc-corpus,1984,"If we have no other comments, we'll turn to Mr. Axilrod.",16
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"Let me say a few words before we have the coffee break. I don't like quite a lot of things I see these days. whether in the real economy or more particularly in the financial economy. I certainly think attitudes are very volatile and I wouldn't bet on the economy slowing down all that much. I have one hypothesis but it could change very rapidly. If you forgot about the financial side--and I'm not sure I'd propose it anyway--it might take somewhat more aggressive action than we've taken before to bring the economy to a suitable path. And I might argue that that's the best thing in the world for the S&Ls, for the farmers, and for others--to take it in the short run and have some hope that they are going to get out of this situation over a period of time. But, unfortunately, I don't think that course of action is open to us. I look at this financial market as being on a knife's edge. I don't believe all this business about policy at this point working at the margin with a nice little rise in interest rates slowing things down here and there. We have a financial market that for better or worse works by bankruptcy. And when the economy is getting strong, people are going to make leveraged buyouts and they're going to make construction loans without any takeouts and for full value and I don't see any sign of that stopping gradually. In some ways it seems to increase as the economy gets better, whatever happens to interest rates, until all of a sudden something happens and then it may go [whirling] in the other direction. The biggest sign we have of something not working at the margin right now, I think, is the LDC situation. They are all going to survive together or they are all going to go down together. If they go down together, we will have a reaction in our financial system and in our economy that I think at the very least is going to be very difficult to cope with. We have this strange situation. Karen starts off today by saying bankers are shoving money out the door; you hear that all over the place. I'm sure they are engaging in financial practices of a type that probably would send the fathers of some of these bankers whirling in their graves. There are things you never heard of in the banking system on the one side; and on the other side we have this other force coming on. If you want to see a group of ashen-faced bankers, sit down in a group and talk to them about the Continental situation and possible repercussions for the funding of their own banks against the background of this LDC situation and what that might mean in terms of their own behavior and policies. I don't think it is occurring at the moment, unfortunately--I don't know, maybe some of this is going on--but what it could mean is a sudden change in attitudes. I hope it's working gradually at the margin, to some extent, and maybe it is. I don't see any evidence yet but this is very recent. My bottom line is that we've run out of room for the time being for any tightening, given this situation. I don't know for how long. I don't know what is going to happen in the weeks or months down the road, either to the economy or to the aggregates or these other things. I don't have any sense here that we should be easing. But I do think we have to be concerned about a very potentially volatile and actually volatile set of attitudes here and elsewhere. This Continental situation is rather enlightening in the sense that we have a government guaranteed institution at the moment which nobody much wants to fund anyway. There is no doubt that it has caused a lot of looking at other banks and we don't see that strongly evident in the market now. When we see it strongly evident in the market it will be too late, in my opinion, to keep it under reasonable control. We're pretty close to the edge of that now. So, I'll leave you with those thoughts and go have some coffee and orange juice.",805
-fomc-corpus,1984,"Well, we can proceed. Governor Rice.",9
-fomc-corpus,1984,"Well, Mr. Chairman, you said much of what I was thinking and I agree with everything you said.",22
-fomc-corpus,1984,End of the story?,5
-fomc-corpus,1984,"Not quite. No [unintelligible], however, just ""but in addition."" I agree that the state of financial markets right now is such that it practically precludes any significant tightening. But apart from that I think the appropriate policy stance at the present time is especially sensitive to what the economy is doing and what it is likely to do in the short run. Now, I certainly agree with Bob Black and Henry that we have to keep the long run constantly in mind. But I think Lyle is right: There is a good deal of uncertainty as to what the economy is actually doing right now. If the staff is right that it is slowing down at a very significant rate--and I think the probability is on their side--that, of course, would suggest not moving in the direction of further restraint. But it could well be that the economy will not decelerate as rapidly as we expect, in which case it may actually need some further encouragement in that direction by increased pressure on bank reserves. But I don't think so. I think that the recent run-up in interest rates has been sharp and is almost certain to have a significant slowing effect on the economy and that any further tightening at this time would run the risk of overkill. So, I would think that the prudent posture for policy right now is as you suggest, Mr. Chairman, to hold steady--to have no significant easing or tightening but to maintain the degree of restraint that the Committee called for at its last meeting.",301
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"I can ditto that. I think we ought to stay where we are. The financial side alone justifies that but even if the financial side were less fragile, I would still advocate no change because we've had a substantial run-up in rates and I would want for real sector reasons to hold where we are and see if, indeed, the economy is slowing. I agree with what has been said by you and Governor Rice.",85
-fomc-corpus,1984,Mr. Solomon.,4
-fomc-corpus,1984,I agree. I think we ought to go for alternative B and $1 billion of borrowing and leave the fed funds range as it is. I think that is a prudent position to take.,38
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"I would agree with what Tony has just stated; it is precisely what I had in mind. I do have one question, however. I know the federal funds rate isn't under our total control but I would have expected after the discount rate increase, when the fed funds rate was running about 10-1/4 percent, that the one half point increase [in the discount rate] would have put the funds rate at about 10-3/4 percent. It has been running less, about 10-1/2 percent. I would not object to seeing that rate around 10-3/4 percent at the present time. I think that is consistent with what alternative B and a billion dollars of borrowing would imply. I would ask the question of Peter or Steve if that is a correct perception.",163
-fomc-corpus,1984,"Well, we've said time and time again that that's a rather loose relationship. I would think the funds rate would run around 10-1/2 percent but I couldn't dispute strongly that it could turn out often at 10-3/4 percent. As to why after the discount rate the central tendency was an increase of only a quarter of a point, I think that could well be because the discount rate move was fairly well anticipated about that time and in part already had been built into expectations. [Unintelligible] what you are looking for as a response.",115
-fomc-corpus,1984,"Peter, my question about the $1 billion in borrowing is: Now that contemporaneous reserve requirements have been more understood and more adjusted to, what implication for excess reserves does $1 billion in borrowing have?",41
-fomc-corpus,1984,"I'm not sure I'd place it any differently. Clearly at the beginning of CRR we were getting a particularly heavy demand for excess reserves. That seems to have settled down a bit. We seem to be getting excess reserves reasonably close to the $600 million level that we're putting in the path now. As to the significance in the restraining impact of different levels of borrowing, I'm not sure I'm able to discern enough yet to give a better answer.",89
-fomc-corpus,1984,"We talked about $1 billion and $600 million in borrowings and excess reserves, respectively, last time in the face of the adjustments. Do you feel there would be no difference in the federal funds rate at around 10-3/4 percent. Is that fair?",55
-fomc-corpus,1984,"Well, 10-1/2 percent.",10
-fomc-corpus,1984,10-1/2.,6
-fomc-corpus,1984,I think it's a loose relationship.,7
-fomc-corpus,1984,"There's another point to add. I don't think we know what is going to happen in the banking system in the next several weeks, in the wake of this Continental business. It may be quiet and it may not. If it isn't quiet, I think there is some possibility that banks will become more conservative in the management of their own reserve positions, conserving access to the window and maybe holding a few more excess reserves. We could find holding [excess] at $600 million and [borrowing at] $1 billion gets us even higher funds rates because the banks' general attitudes have shifted, in which case I think some allowance ought to be in there for that.",134
-fomc-corpus,1984,I think that's possible.,5
-fomc-corpus,1984,We have language that would handle that or we could compose some language--,14
-fomc-corpus,1984,--that would handle that situation.,7
-fomc-corpus,1984,"I'm assuming what Peter has told me: that we have been catching up with the lag in the last week through our matched sales operations for the borrowings at the Chicago Fed. So, once the psychological situation changes--barring that reaction from the banks that Steve is talking about--I'm assuming that within 4 or 5 days more, maybe a week, we probably will be back up to the more normal levels that our policy and our nonborrowed reserve path indicate--namely the 10-1/2 percent area.",107
-fomc-corpus,1984,"Well, I think the catch-up occurred even more rapidly. I should fill the Committee in, Mr. Solomon. Late yesterday afternoon the funds rate moved up to the 12 percent area or even higher and it has been at 10-1/2 to 11 percent this morning. In fact, we're having to put back a small amount of reserves today; we had some revisions in the path. I think we accomplished that catch-up and maybe slightly more than accomplished it in what we did yesterday. So I think it is back to--",109
-fomc-corpus,1984,Why did it catch up so quickly?,8
-fomc-corpus,1984,"Well, we did get this change in the path that reflected a number of revisions in required reserves for this whole period totalling some $260 million; I think that was figure. And in the matched sales we did yesterday we got a lot of offerings and we did about $5 billion out of $8 billion offered thinking that we would just be taking away some of the unwanted excess. But I think when all the shouting was over the banks suddenly realized that they were not as flush as they had thought when they were making aggressive offerings to us in the morning, and they saw themselves as still having some need. Also, apart from Continental, one has to think of the borrowing during this period, which has been averaging about $750 to $760 million. So I think it was to be expected, if we're going to be on path as we go toward the end of the period, that some greater firmness would work itself into the market as this period winds up. I wouldn't have guessed that that would happen late Monday afternoon; I would have thought it would occur maybe Tuesday afternoon or Wednesday. But it seems to be happening a day earlier than I had estimated.",232
-fomc-corpus,1984,"It looks like we'll get a decline in Continental's borrowing and it might actually disappear tomorrow, but it doesn't reflect any better position. They are getting prepaid for this credit card [sale] and drawing more on this backup line. If we want to get them out tomorrow, maybe we could. It doesn't reflect any basic improvement in their position.",68
-fomc-corpus,1984,It does reflect a slight improvement from 6 days ago.,12
-fomc-corpus,1984,It means they have stopped losing deposits.,8
-fomc-corpus,1984,Not much. Compared to 6 days ago they got $2 billion from the FDIC; they are getting a large amount of federal funds from one semi-governmental institution; they are getting paid $750 million today by Chemical for the credit card business. Add all those up together and I don't think you get much [improvement]. Plus they got more from the line banks.,76
-fomc-corpus,1984,"But after that initial run-off of the overnight money, they were expecting to lose about $900 million to $1 billion a week. And I don't see that deterioration. Do the numbers add up to that?",42
-fomc-corpus,1984,"Well, we don't get the numbers that closely. I think there has been some further deterioration; it's not basically better.",24
-fomc-corpus,1984,Did the Federal Reserve Bank of Chicago end up funding the FDIC?,14
-fomc-corpus,1984,No. [The FDIC] put cash in.,11
-fomc-corpus,1984,"It's holding. I don't know that one can be very precise about it. There were no very marked reflows. I don't want to interrupt the conversation but they were losing their correspondent funding among other things; they pretty much lost it. Any encouragement in that avenue might be helpful, but it comes from a lot of small banks and they just lost it. They were very heavily dependent upon foreign funding and they still get a little, but they don't get anything like they were getting before.",97
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"I would certainly agree that the circumstances are such that it would be very appropriate to continue the present course and I agree that alternative B is the appropriate alternative. If we were going to go to one side or the other, I would tend to lean a little toward ""C"" but primarily on ""B"" with a borrowing level of $1 billion. The question in my mind is whether we ought to attribute this to any extent to the financial situation. On the one hand I would say that might be a mistake because that calls undue attention to the problem. But having said that, I think perhaps by doing that we preserve an alternative--that with the passage of time if this thing unwinds, we can withdraw that caveat and keep an option open to ourselves. I think for right now alternative B would be the appropriate alternative.",166
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"I too, Mr. Chairman, think that the appropriate course for policy at the moment is steady as you go, the status quo. I would have reached that conclusion even in the absence of the Continental situation or the other financial market conditions. I think we need a little time to digest both the actions in the marketplace and our own actions. It's probable, as the staff has indicated, that we will get a slowing in the next quarter or two, and with the aggregates behaving reasonably well I don't think we have any particular reason to tighten at this point. There certainly is no case to be made, in my judgment, for any loosening. So, I would opt for alternative B with borrowing of a billion dollars. I think we might have a little more flexibility if we were to opt for a federal funds rate range more in line with alternative C, 8 to 12 percent. But basically alternative B is the one I would opt for.",190
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"I too am in favor of alternative B as is. My preference is not to have language in the directive that talks about ""while taking account of [un]usual financial strains."" We do that anyway, and my personal feeling is that having that explicitly in the directive would perhaps elevate even further the concerns that Tony and someone else spoke of before--that the basic course of monetary policy is going to be undone by these developments. The only other point I would make is that we have eight weeks until the next Committee meeting and we are at a point where it seems to me that over that eight week period something of consequence [might occur].",127
-fomc-corpus,1984,"Excuse me, Jerry. Don't we meet on July 10-11?",16
-fomc-corpus,1984,Yes. I think it's eight weeks.,8
-fomc-corpus,1984,It's seven.,3
-fomc-corpus,1984,One thing we ought to be sure of!,9
-fomc-corpus,1984,"In any event, whether it's seven or eight, my hunch is that we're at a point where something of consequence is likely to happen in the intermeeting period. I don't know whether it will be on the up side, down side, back side, or front side, but it seems to me that something is going to happen here and that without altering the directive in any way we may have to be more sensitive to the need for consultation between now and the 10th of July.",98
-fomc-corpus,1984,We are not ever front-sided; it's always back-sided.,12
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"I'm not far from where everybody else is. But one of the things I would like to point out is that both the Bluebook and Steve's comments indicate that we might well find, if we vote for ""B,"" that long-term interest rates have overreacted and in fact will come back down again to where they were roughly speaking, say, three or four weeks ago. That, I think, would be unfortunate. I'm not at all sure that the current level of interest rates in long-term markets is not the right level for where we want the economy to go in the future. If I'm wrong and the economy starts to slow, that drop in interest rates will be welcomed and everybody will love us. If on the other hand, a higher level of rates--the present level or somewhat higher--is needed and we let interest rates go back down to where they were four weeks ago, we are going to get blamed the second time around for pushing them back up and that would be unfortunate. So, what I would like is ""B"" with a tiny minus on it. I think we're going to have to give the Chairman a lot of discretion as to how he runs policy in any event between now and the next meeting. But I would be inclined to talk about a borrowing range of $1 to $1.2 billion with the idea in mind of using the upper end of that range as needed, probably in the latter part of the period if interest rates on long-term securities begin to come down significantly. I like Roger's idea of thinking of a federal funds rate that might go up as high as 10-3/4 percent to achieve that objective. I do think it is a good idea to take out that language about unusual strains. There is concern developing that we are going to throw [away] everything that we've gained so far. I don't think that's true and I don't think it has to be true. And I think that language would give people ideas that they shouldn't have.",401
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Mr. Chairman, I would be more inclined to go closer to ""C"" myself in trying to look through the immediate problem to the longer term, which I recognize is difficult to do. But I do think there are even broader considerations than Continental, and my view of the strength of the economy and so forth would lead me toward ""C."" I would go ahead and take that step now and make whatever adjustment might be necessary as future events unfold. But I think the risk to the economy is greater than the risk to one or two financial institutions.",110
-fomc-corpus,1984,Those risks are not exactly separable in my mind.,11
-fomc-corpus,1984,"Well, I would say that what happened to the economy and what we went through in trying to bring down inflation was considerably more difficult; it represented dislocations of a much larger segment of this economy than what we're looking at right now. Therefore, I would guard against what I perceive to be the [risks in the] broader picture.",68
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Well, Mr. Chairman, in the absence of the Continental situation I would have supported alternative C because I think the economy is still very strong. Since it is a long time until the next meeting, I still don't have a high degree of confidence that we can get through with an 11-1/2 percent cap on the funds rate. But I would assume that if the situation arose, we would have a telephone conference call anyway, so I would support ""B.""",95
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, we are all worried about a lot of things, and more people seem to be worried about the state of the financial markets than about anything else. I don't think we ought to overlook that. A lot of this seems to stem from some doubts on the part of the market that we're going to be able to deal successfully with inflation over the months ahead, and we obviously have to pay some attention to these transient factors that are present right now. But my caveat would be that we not let this deter us unduly from our basic longer-term mission. I lean a little toward ""C"" but the difference between ""C"" and ""B"" is not as great as usual and I would be perfectly comfortable with ""B."" But the most important thing we should do is to try to get some agreement if we can as to what kind of action the Desk will take or as to when you would call a conference by telephone in the event that these aggregates behave in a way that is way outside what is now projected. That's a more important part to me than the ""B"" or ""C"" part.",225
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"I think the indications of future inflation are weak. I think the relationships among and between many of the aggregates this time are somewhat different and alternative B has the logic of giving us time to observe the lagged effects of the very substantial changes in interest rates we've already had. And, in order to add an element to the discussion that we have all been a little too polite to enunciate, I will say that we are in such an intense political environment at the moment, with so much scrutiny from the Hill and elsewhere about what we are alleged to be doing, that holding to the course--if that's what alternative B with $1 billion in borrowing and $600 million in excess reserves means--is called for both for economic and political considerations. So, I would vote for ""B."" Obviously, the Chairman and our associates on the Desk need some flexibility. It seems to me that excess reserves possibly ought to be $500 to $700 million because of our uncertainties as to how the Continental situation and other developments will affect borrowing levels. I would not quite go along with Lyle on this, but I think the borrowing range ought to be $900 million to $1.1 billion for the same reason.",242
-fomc-corpus,1984,The political environment is going to get even tenser later in the year.,15
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"It seems that we're sliding somewhat inadvertently into net borrowed reserves [targeting] from what I understood to be a gross borrowing posture. I think there is a substantial difference. If at any given time the Desk sees borrowing moving one way and excess not changing, they have to make up their minds whether they are going with borrowing or are going with net [borrowed reserves]. So, I hope we're going to differentiate between gross borrowings, which is what I think we've done so far, and net free reserves as the conversation seems to be going. As far as the levels are concerned, I think we ought to raise the gross borrowing level a little precisely to avoid a relapse in the markets, which would give a false signal. In a sense the markets have done our work. I don't think one could have anticipated these increases at the time of the last FOMC meeting. So there is justification, I think, for a wait-and-see attitude but not for an attitude of appeasing, which could be misinterpreted in many ways today. Also, I think one ought to hesitate a little before one takes for granted that financial fragility is necessarily a cause for relenting. The rule about the lender of last resort operation is to lend freely but at a high rate. In the case of the thrifts and the LDCs and the farmers, I see that the nature of the fragility is related to the level of the interest rates. In the case of Continental it isn't quite clear to me whether they would be in a more fragile state if interest rates were a little higher than now.",320
-fomc-corpus,1984,"I don't think they would be. Let me dispose of that. I think the Continental problem is independent of the level of interest rates. I do not think the LDC problem is and, therefore, I don't think the concern about the banks or the banking system is.",54
-fomc-corpus,1984,"I would interpret you as saying that it's worthwhile to make that differentiation as to where the fragility lies. The Continental situation is not so sensitive to it, but other aspects are. As far as the funds rate is concerned, it would seem to me that this is a good opportunity to make the range a little more symmetrical around where we expect it to be, so I'd raise it to 8 to 12 percent. Hopefully, it [would] move to 10-3/4 percent rather than 10-1/2 percent or below. This puts me at ""B minus,"" as it were, as far as the alternatives are concerned.",131
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"Since I come from earthquake country, I'm used to aftershocks, and I think we may well see some aftershocks from the big increase in interest rates we've had since the last meeting. We may see some aftershocks from widening concerns about LDCs and about the posture of thrift institutions, not to mention Continental. So, while basically I would start with alternative B, I would be hopeful that we could have the flexibility that Jerry Corrigan recommended and be able to move. If we had to move away from ""B,"" I would think it would be in the direction of ""B plus."" I think this is a time when we should err temporarily on the side of more liquidity than our long-term game plan would call for in view of all these financial fragilities.",157
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"I'm for alternative B in part because it is consistent with a long-term strategy to bring the aggregates, particularly M1, to the midpoint of their ranges by the end of the year. I would like to see us end up the year with M1 at the midpoint of the long-run range given how strong the economy is and how velocity is going. I think it is important to end up there because inflationary expectations are heating up and are a very serious matter in future inflation as well. I'm for ""B"" now. I have a nagging feeling that it may take more than that in the future to end up where I would like to end up at year-end. But for the moment I view it as consistent with where I'd like to be.",151
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"I think ""B"" is all right. I would point out that ""B"" has specifications for a number of aggregates and that if the aggregates run stronger--which they might well do in the case of M1 particularly and are already doing in the case of M3--then the question arises as to what to do if they are strong or well above the path. There is language in the directive left over from last time that deals with that and speaks of greater reserve restraint if there is more substantial growth in the monetary aggregates. Now, I think we are all talking about financial market conditions in one way or another as a paramount feature of our discussion this time. I wouldn't support the prominent and extreme billing given to any unusual financial strains in the very first part of the operating paragraph in the directive. On the other hand, I think we could put in a more general phrase about financial market conditions late in the paragraph. That is, it could go down where we are saying that in either case--if we decide to ease or to move higher in terms of rates because of the behavior of the aggregates--such a change would be considered in the context of appraisals of the continuing strength of the expansion, inflationary pressures, financial market conditions, and the rate of credit growth. That also has a desirable attribute in that it includes things other than the Continental problem. We have had a very bad couple of months in financial markets and, indeed, a repetition of that could well give us trouble in an unknown way. It could be a futures market that breaks or something like that. And financial market conditions is a term that could encompass all of that. I don't think we ought to bias the borrowing number toward tightening, as Lyle suggests. I would buy Pres's $900 to $1100 million. I guess I would have assumed that $1 billion means $900 to $1100 million and that there's not much difference from what we now have. I also wouldn't want to prejudge long rates. Lyle made the point that long rates shouldn't be permitted to come down. Well, I think they have gone up quite a bit more than one would have expected as a result of a run toward short instruments in a time of great uncertainty. Should the uncertainty unwind in the weeks to come--which is a possibility, I think, as Steve pointed out--that could mean that people who ordinarily would be in the longer market would commit themselves and we could get a decline in long rates. And I wouldn't resist that. I think it would be a natural market process that ought to be accommodated.",520
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"I prefer alternative B and I would hope that we could widen the band on fed funds to 8 to 12 percent in order to be able to focus on the monetary aggregates if what Chuck is talking about should develop. I hope, even though we have flexibility to deal with financial crises--which certainly ought to be the case--that if we use that, we continue to [neutralize] the excess reserves that are created.",86
-fomc-corpus,1984,"I didn't speak on the topic of the funds rate. If we were in a normal situation, I think the top ought to go up too. But I think it would be taken as a bad signal. And, in fact, [the range] doesn't restrain us. If the aggregates run strong, all it does is suggest that we have a telephone conference call. So, I don't think it's worth the risk to raise the funds rate range at this time.",93
-fomc-corpus,1984,"Well, there is a broad area of consensus here, and we can turn to the wording. But let me make one comment about the financial uncertainties or whatever we want to call it. I think it's extremely unlikely that they are going to go away in the time period we're talking about. Continental may or may not be handled; that's going to be difficult in itself. But what I don't think is going to go away is the background of concern about the other banks against the fact that we are entering a crucial period on this debt problem in Latin America. Argentina does not look good from any external signs. We have a funding to do with Mexico which should go well objectively, but in this atmosphere I'm not so sure. One of the problems is the interest rate problem. Brazil--depending upon whom you believe--doesn't look too bad. But the Argentine situation is very much in jeopardy. Venezuela is fooling around. Maybe I'll be wrong, but I don't see that the undertone--it's more than an undertone--of concern is likely to evaporate in two or three weeks. I think the sense of knife's edge or fragility is going to be with us for a while. We [are not likely to] get Continental settled and some of these other debt problems behind us, at least in people's opinion, for some months. Getting Mexico more or less semi-permanently taken care of would change the atmosphere. But I think that's some ways down the road at this point. So far as the language is concerned, we have exactly the same numbers that we had before if we take ""B"" for M1 and M2, which is nice; I guess we're forced to raise the M3 number to be reasonable and I suggest 10 percent. I feel rather strongly that we should make some mention of reality out there--that we are affected by financial market conditions and the conditions of the banking system are part of that. It's appropriate to say that we do [take that into account]. Having no mention of it in the directive seems to me misleading, in fact. The minimum we can do is what Governor Partee suggested. I personally would probably do more than that, but I think that's the absolute minimum--the recognition of the problem. In a close reading of what we had last time, the directive is slightly biased in that we're more apt to tighten than to ease. I would make that symmetrical and put ""mights"" in both parts of that sentence. I think ""might"" is probably more appropriate than ""would,"" given the other caveats.",517
-fomc-corpus,1984,"The asymmetry derives just as much from having ""somewhat"" lesser restraint, whereas we don't have ""somewhat"" in the--",27
-fomc-corpus,1984,"Yes, I didn't even notice that. Should we put ""somewhat"" in both places?",19
-fomc-corpus,1984,That's probably the practical thing.,6
-fomc-corpus,1984,"Our Secretary is a little bothered by the English in the first sentence. What we can do is make two sentences. Before we just said ""seeks to maintain pressures on bank reserve positions judged to be consistent...."" When we say ""maintain existing pressures,"" which is I assume what we're talking about here--I'll get back to that precise numerology in a minute--it might just be a little better to make two sentences: ""The Committee seeks to maintain existing pressures on bank reserve positions. This is expected to be consistent with...."" Let's put a ""somewhat"" in front of ""greater reserve restraint might"" and in front of ""lesser restraint might."" I would just emphasize the qualifying clause a little more; [instead of a semicolon] I would put a period there. ""In either case such a change would be considered only in the context of appraisals of the strength of the business expansion, inflationary pressures...."" If we adopt the Partee suggestion we would put in there ""financial market conditions, and the rate of credit growth."" I would be perfectly happy to write a separate sentence about that.",227
-fomc-corpus,1984,"I would go for Chuck's version because there is already a widespread feeling in the markets that we are giving enormous attention to the situation in financial markets. I don't think that we're misleading the markets if we do it in a more low-key way. Therefore, Chuck's approach strikes me as better. We are very vulnerable to the charge--and I don't think the charge is justified--that we're departing from anti-inflationary policy for a temporary reason like Continental. Maybe there are a couple of people who feel that alternative B represents primarily that consideration. But I think many of us here feel that we'd be going for alternative B anyway, without the Continental situation.",132
-fomc-corpus,1984,I agree with Chuck's suggestion as well.,9
-fomc-corpus,1984,"If you wanted to sharpen it just a little, you could say the sensitivity of financial market conditions.",20
-fomc-corpus,1984,I don't think so. I'd leave it the way you have it.,14
-fomc-corpus,1984,It says appraisals of--,7
-fomc-corpus,1984,"Well, I don't know that there are any more comments. It's not the way I would do it, but I think it's acceptable. I was playing around with a sentence such as ""The Committee recognizes the operational implementation of policy might need to be modified in the light of unusual financial strains should they develop."" I think that is the fact of the matter.",71
-fomc-corpus,1984,What do you mean--should they develop further? You're going to alarm the hell out of everybody!,20
-fomc-corpus,1984,I'm not so sure. We put out this press release which seems to me to indicate a very deep involvement in this whole thing. Now we come along with a statement to the Desk and we try to ignore it. I don't think that's really very prudent.,51
-fomc-corpus,1984,We're not ignoring it if we use Chuck's language.,11
-fomc-corpus,1984,Remember that the public is going to be seeing this after the whole period is over. And they will know what we have done. Hopefully we will be remembered by our deeds rather than our words. And they're perfectly aware of the fact that we have been involved in a heavy way.,56
-fomc-corpus,1984,"But they realize that; they read our words very carefully. And if they don't see any acknowledgment, they'll wonder what--",24
-fomc-corpus,1984,"Of course, the real Fed watchers will compare the two operational paragraphs and say: Aha! They added ""financial markets"".",25
-fomc-corpus,1984,"Not only that, they will say: Aha! They have a ""somewhat"" before ""greater restraint,"" and they used the word ""might"" instead of ""would.""",36
-fomc-corpus,1984,And somehow or other they have broken it into three sentences.,12
-fomc-corpus,1984,It's a living for those guys.,7
-fomc-corpus,1984,It's a good living.,5
-fomc-corpus,1984,"I would not change the federal funds range --just on the grounds that other people are going to [read it as a tightening]. I can never be sure whether these [directives] are going to be released on the regular [schedule], given the Congressional interest in them. I don't see any operational significance in that but it will be read subsequently as a tightening. I don't think that's what we mean to convey, so we shouldn't bother doing it.",90
-fomc-corpus,1984,I agree. I think it's a hazard to signal another 1/2 point after the outcry from [unintelligible] and other people for the last 1/2 point.,39
-fomc-corpus,1984,"Well, forget about this financial market conditions part for the moment. Is the rest of this all right? We break up the sentence and start a new one with ""This is expected to be consistent"" and we put in 6-1/2, 8, and 10 percent [for M1, M2, and M3]. We use ""somewhat greater reserve restraint might,"" which is of absolutely no policy significance. Make it a period after that. The sentence looks a little long; I mean nothing by that. I would put in the word ""only,"" if that's all right. I can live with this other suggestion. I think we have to make some acknowledgment of [financial market conditions] in there; it is unrealistically little to me, but so long as there's something--.",163
-fomc-corpus,1984,"Mr. Chairman, just for clarification, I assume that still somehow implicit in all of this is a sense that there is some leeway for carrying out operations under ""existing"" if something disorderly occurred or if financial strains developed. That's what was bothering us when we put this in.",57
-fomc-corpus,1984,"Yes, I see your point. Those are caveats having to do with a further tightening or an easing.",22
-fomc-corpus,1984,"So, I think we need some sense here that--",11
-fomc-corpus,1984,"That's what I would have done in my other sentence saying that the operational implementation might need to be modified. This is precisely what I was after. If we do it the other way, we're just leaving it understood, I think.",46
-fomc-corpus,1984,Which is fine.,4
-fomc-corpus,1984,It's clearly understood.,4
-fomc-corpus,1984,"Well, but that modifier says ""considered in the context."" I think it's better to drop that ""only"" and say ""considered in the context of appraisals of"" these three things. The ""financial market conditions"" gives you the caveat to lean in an operational sense in the direction of less restraint if that seems to be necessary because of unusual financial strains.",76
-fomc-corpus,1984,This sentence really refers to changing [the degree of restraint] in response to the movements in the aggregates.,21
-fomc-corpus,1984,I think that's correct.,5
-fomc-corpus,1984,"I think it stands on its own feet and that's fine so far as it goes, but it does not take care of Mr. Axilrod's problem. I guess we could leave it understood.",40
-fomc-corpus,1984,"We could also do something with that last sentence, Paul. ""The Chairman may call for Committee consultation if unusual strains develop or--""",27
-fomc-corpus,1984,"Well, we don't want to imply with the directive that he has to call for a telephone conference to deal with a developing problem that may require instant action. I'd make the point that we didn't have special language in the previous directive, which did not prevent the Desk and the Chairman and Steve from working on what was necessary. I don't think this language is going to hinder us in that respect either.",79
-fomc-corpus,1984,"I think we can also say if it really becomes necessary, we will have a consultation and we can have one. And we may well want one sometime during this interval.",34
-fomc-corpus,1984,"Well, over the last eight weeks we seemed to have had enough flexibility to deal with the problems and we didn't even mention financial conditions [in the previous directive], so--",34
-fomc-corpus,1984,"I think Steve is technically right but it should be understood. It would be a better or [more] complete directive to put something in there, but if it's understood and we can all live with it--. I think it ought to be understood.",50
-fomc-corpus,1984,"I'd like to leave it understood. As far as this consultation issue, under the circumstances it's not difficult to think of a dozen circumstances in which we might want to consult that have nothing to do with the federal funds rate band and that should be understood too.",51
-fomc-corpus,1984,"The question in my mind, which is not relevant to our decision here, is that we look like knee-jerk reactors in the sense that the first time we put in financial markets as a thing we consider to modify our behavior is after the Continental Illinois situation. Many of us, including the Chairman, certainly were worried about the financial market situation and vulnerability of the banking system before this month of May '84.",83
-fomc-corpus,1984,It became a little more operational.,7
-fomc-corpus,1984,"Okay. It does seem to me, though, that you and I are putting more emphasis even on the LDC debt situation as being a constraint on our operations rather than the Continental situation. I'm wondering just in the longer term, more as a philosophical speculation, whether maybe we ought to consider having that in there even if Continental settles down. I'm saying we should not take it out in the next directive.",81
-fomc-corpus,1984,We always have it in when a $40 billion institution fails!,13
-fomc-corpus,1984,That's another way of making my point. We look like we're reacting to something that caught us by surprise.,21
-fomc-corpus,1984,"Sometimes we've even said ""international and domestic credit market conditions."" I think it can last for a while. If we put it in as we've been talking about, it's a soft reference and so it can remain.",42
-fomc-corpus,1984,"Let me just clarify the so-called Continental problem, as it is in my mind. Continental is probably manageable with difficulty; $40 billion institutions are difficult to manage. Having two or three $40 billion institutions is a horse of a different color. If we have two or three, I don't think we're going to stop at two or three.",68
-fomc-corpus,1984,But that event would not be determined by interest rate levels necessarily.,13
-fomc-corpus,1984,"Well, it is in the sense that that's where the LDC problem comes in. I think that is the cloud overlying many other banks--not Continental, which happened to be largely a domestic problem. The underlying concern about the other banks wouldn't be there if we didn't have this international debt problem.",60
-fomc-corpus,1984,"Well, that's my point. The LDC problem is more directly affected by the interest rate movements.",20
-fomc-corpus,1984,That's correct.,3
-fomc-corpus,1984,More so than is the Continental situation or another $1 billion or $40 billion bank problem.,19
-fomc-corpus,1984,"Well, the other $40 billion bank problem is going to come because of the LDCs, if it comes. Again, 1 or 2 percentage points on interest rates in and of itself doesn't make or break that problem. Psychologically it may, given where we are in the negotiating scenario.",61
-fomc-corpus,1984,"The only point I wanted to make is that the LDC problem has been with us and has been recognizable over the past two or three meetings, so the language proposed to go in the directive on recognizing the financial market stress has to be tied essentially to the Continental situation.",54
-fomc-corpus,1984,I don't--,3
-fomc-corpus,1984,I think it's a very modest mention of a major problem and people would be very surprised if we don't pay some attention to it.,26
-fomc-corpus,1984,"Oh, nobody's saying we shouldn't. All I'm saying is that I don't think we should take it out if Continental settles down. And in a sense I'm sorry we didn't have it in earlier.",39
-fomc-corpus,1984,"I would agree with that, Tony, but the question of whether to put it in now just because of the events--",24
-fomc-corpus,1984,"If we had several Continentals, the operational reference here to maintaining existing pressures on bank reserves would be modified.",23
-fomc-corpus,1984,Mr. Axilrod has found a bit of time honored boilerplate. We can do what we feel like in the light of financial distress.,29
-fomc-corpus,1984,"The existing directive has had in it since February at least: ""The Committee understood that policy implementation would require continuing appraisal of the relationships not only among the various measures of money and credit but also between those aggregates and nominal GNP, including evaluation of conditions in domestic credit and foreign exchange markets."" All that modifies policy implementation.",64
-fomc-corpus,1984,All that's in there now?,6
-fomc-corpus,1984,Forever. It's only--,5
-fomc-corpus,1984,We have ample authority.,5
-fomc-corpus,1984,That's what is in the policy record?,8
-fomc-corpus,1984,"That's in the existing directive, in the long-run part of it.",14
-fomc-corpus,1984,"Right, we never look at that [except when we consider the long-run ranges].",17
-fomc-corpus,1984,"I think we have to put something in the boilerplate, which nobody reads anyway. I guess there's no mention of this whole range of problems. Steve is proposing a sentence. I don't know whether it has to be precisely this, but let me know if you agree in general. ""Recently, day-to-day market conditions have reflected considerable sensitivity to potential liquidity strains, as highlighted by the problem of one large bank, and to uncertainties about the financial and budgetary outlook generally."" That's an accurate statement. It is one of the versions.",107
-fomc-corpus,1984,That sounds right to me. It goes in the financial paragraph?,13
-fomc-corpus,1984,"Yes, it's proposed to follow the last sentence on the discount rate. We used the word ""recently"" to get away from the discount rate.",30
-fomc-corpus,1984,"Well, where we are, just to repeat: ... seeks to maintain existing.... This is expected to be consistent with etc., ""somewhat greater reserve restraint might....In either case such a change would be considered only""--I would prefer to leave that in. Then it says ""financial market conditions and the rate of credit growth."" We leave in the 7-1/2 to 11-1/2 percent [range for the funds rate]. All this is with an understanding that that bit of long-range directive language that has probably been with us forever covers the situation where if we need some flexibility in light of financial market conditions, [we have it] whether or not we are responding to different aggregates or growth or whatever.",147
-fomc-corpus,1984,"I'm not sure I understand why you want the word ""only.""",13
-fomc-corpus,1984,That depresses the--,5
-fomc-corpus,1984,Aggregates.,3
-fomc-corpus,1984,--the speed with which we react to the aggregates.,11
-fomc-corpus,1984,"So you're going to have ""a change would be considered only in the context of appraisals,"" right?",22
-fomc-corpus,1984,Right.,2
-fomc-corpus,1984,"That sounds to me that we're less quick to let the influence of the continuing strength of the business expansion, inflationary pressures, etc., etc. come through in terms of the monetary policy.",38
-fomc-corpus,1984,"I'm not sure I understand what you're saying. It says--let me take the optimistic side--if the aggregates look a little weaker than this and if the economy seems to be moving ahead and the inflationary pressures are strong, we wouldn't be very quick to react. If the aggregates are going up and the financial markets are in turmoil, we wouldn't necessarily be all that quick to tighten.",77
-fomc-corpus,1984,"I don't read it like that, because in either case it is referring to the change in the aggregates. Such a change--namely, a response to the aggregates--would be considered only--. So you're basically limiting it.",46
-fomc-corpus,1984,"Well, I think it supports what would be your position, Tony.",14
-fomc-corpus,1984,It seems to say that we wouldn't respond to the aggregates at all unless there were these other features and I don't think we want to preclude that completely; we just don't want to rush after them.,40
-fomc-corpus,1984,"I find the word ""only"" confusing. Do you see that differing interpretation? Is there any great advantage in putting in only, which the Fed watchers will look at and wonder what is happening?",39
-fomc-corpus,1984,It seems pretty clear to me.,7
-fomc-corpus,1984,"I think it's implied. We have a list of things we're going to look at before we let the aggregates move us. It already says that. To add the word ""only"" doesn't add much; on the other hand, it may not be necessary.",51
-fomc-corpus,1984,Do you mean if there were no change in the economic situation from now and the aggregates were going very fast suddenly--which they might do--that we wouldn't respond at all?,35
-fomc-corpus,1984,It doesn't quite say that. It says we would consider all these other things before we responded.,19
-fomc-corpus,1984,I think that is correct.,6
-fomc-corpus,1984,I certainly don't have any problem with the substance of what we're talking about because I think it's the only thing we can do. But again in the context of possible contingencies I certainly don't want to rule out the possibility--which we're not--that we might have to firm a bit sometime between now and July 10th.,65
-fomc-corpus,1984,It's not ruled out and it's not meant to be ruled out.,13
-fomc-corpus,1984,"I understand that. But the point I wanted to make was more that the basic purpose of this directive, as I see it, is that it's a framework for a continuity and a discipline in the policy process. I don't want to diminish all the current problems but I don't want to see that lost with an endless string of adjectives and qualifiers either.",69
-fomc-corpus,1984,So what are you saying?,6
-fomc-corpus,1984,"I'm saying [this is] fine, but let's not lose sight of what this really is.",19
-fomc-corpus,1984,"Okay. But I thought the practical implication of what you were saying was that you don't want the qualifier ""only"" inserted, which we didn't have in the previous directive.",34
-fomc-corpus,1984,I don't have a problem with it because I think I know exactly what it means.,17
-fomc-corpus,1984,But I think one can read it to include that alertness.,13
-fomc-corpus,1984,I don't think it adds anything to communication or flexibility. I happen to like the sound of it and I think we can keep it in.,28
-fomc-corpus,1984,"I don't want to make a big deal out of it; it's not. But if a Fed watcher sees ""only"" this time and not before, does this imply that earlier we were more responsive to the monetary aggregates and now we're less responsive?",49
-fomc-corpus,1984,I think that's the way they would interpret it.,10
-fomc-corpus,1984,That's what I say: It's not inconsistent with--,10
-fomc-corpus,1984,My long-term policy.,5
-fomc-corpus,1984,You ought to be delighted! Shall we vote?,10
-fomc-corpus,1984,"Is ""only"" in or out?",8
-fomc-corpus,1984,In.,2
-fomc-corpus,1984,"I don't have a vote, so it's all right.",11
-fomc-corpus,1984,Are we ready?,4
-fomc-corpus,1984,"I'm startled by the implication of this ""only"" now. This is a declaration in principle that we are changing our attitude toward the aggregates at this time.",31
-fomc-corpus,1984,It would be considered in the context--,8
-fomc-corpus,1984,We're going to be very careful in the context of all this stuff.,14
-fomc-corpus,1984,I think that really means something more than I had understood. That's very difficult.,16
-fomc-corpus,1984,I have a marginal preference for leaving it out.,10
-fomc-corpus,1984,I have a marginal preference for leaving it out.,10
-fomc-corpus,1984,So do I.,4
-fomc-corpus,1984,So do I.,4
-fomc-corpus,1984,Can we have a show of hands?,8
-fomc-corpus,1984,I think we're cheating if we leave it out.,10
-fomc-corpus,1984,Let's leave it in.,5
-fomc-corpus,1984,"Well, we can have it understood.",8
-fomc-corpus,1984,We have more things understood.,6
-fomc-corpus,1984,"If we said ""would continue to be considered"" in the context of all these things, then it would indicate that we're not changing anything.",28
-fomc-corpus,1984,"We weren't reacting that mechanistically to the aggregates before this and no one seemed to feel dishonest by not having the word ""only"" in at that point. I don't know; I wonder if people are going to overread.",45
-fomc-corpus,1984,I'd be delighted to have them read that we take a second look in terms of all these things.,20
-fomc-corpus,1984,So would I.,4
-fomc-corpus,1984,"Instead of saying ""only"" could we say ""such a change would naturally be considered""?",18
-fomc-corpus,1984,"Or ""such a change, of course, would be considered only in the context of""?",18
-fomc-corpus,1984,"""Would continue to be considered""--",7
-fomc-corpus,1984,"It's not going to influence my vote anyway, of course. It's a minor point. I don't want to make a big issue out of it.",29
-fomc-corpus,1984,Let's vote.,3
-fomc-corpus,1984,"I think it's a relatively minor point. All it is meant to convey is that before we move we should stop, look, and listen a little more strongly than before. That's the way I feel. It's a question of whether you feel that way or not.",52
-fomc-corpus,1984,I certainly do.,4
-fomc-corpus,1984,Let's vote.,3
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin No President Corrigan Yes Governor Gramley Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Wallich Yes,43
-fomc-corpus,1984,Okay.     The meeting is over.,8
-fomc-corpus,1984,"I don't know whether you've had a chance to meet all these people yet, Ms. Seger. We can make our introductions afterwards, but we welcome you to the meeting. We don't have a coffee break this afternoon, I guess.",47
-fomc-corpus,1984,There is coffee out there.,6
-fomc-corpus,1984,Don't tell them that! We will proceed. We need the minutes approved.,15
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,"Without objection, they are approved. We will turn to Mr. Kichline. MESSRS. KICHLINE, ZEISEL, TRUMAN, and PRELL. [Statements--see Appendix.]",43
-fomc-corpus,1984,"I have a sense that the inflation forecasts from people sitting around this table are considerably pessimistic relative to what has happened recently. Let me ask a question about this debt number. I don't know how you figure all this; I'm sure you don't have any very precise way of allowing for the mergers. Suppose you did this differently--or this may be what you did--and included the normal level of stock financing in the numbers, whatever it is. What would these ratios look like relative to [the normal] experience?",103
-fomc-corpus,1984,Ratios? Are you referring to the bottom panels?,11
-fomc-corpus,1984,"Well, I'm looking at the bottom panel but that doesn't give me the answer. Suppose this measure that we use were not net domestic credit or whatever we call it but net domestic fund raising.",38
-fomc-corpus,1984,"That is, of course, what I plotted in the bottom left panel. That is both debt and equity. So that is the total funds raised or the total external financing.",35
-fomc-corpus,1984,But would these lines go below zero? Shouldn't the red line have gone all the way to the bottom in some sense?,25
-fomc-corpus,1984,Are you looking at the first chart in Mike's presentation?,12
-fomc-corpus,1984,Are you referring to the nonfinancial corporations?,9
-fomc-corpus,1984,It doesn't make any difference what chart I'm referring to.,11
-fomc-corpus,1984,I think he has a point.,7
-fomc-corpus,1984,"The way we got the adjustment, in essence, was to make an estimate on the basis of all that we know about the equity flows and all the merger activities. And we came up with a net equity absorption number. There was a net decline in equities of something like $60 or $65 billion in each of the first two quarters. We then would hypothesize that, in the conditions that prevailed, that would be the relevant number. We know that new equity issuance is something slightly positive--say, on the order of $10 billion. So, the [gross retirement] is on the order of $70 or $75 billion.",128
-fomc-corpus,1984,That's what you subtracted?,6
-fomc-corpus,1984,That's right--a number of that magnitude. It would be a shade over a percentage point of the total debt flow.,24
-fomc-corpus,1984,How do you read the chart at the bottom on nonfinancial corporations when you have equity in the negative?,21
-fomc-corpus,1984,"Well, that shows that net equity liquidation is about $60 to $65 billion by our estimates. Then the borrowing is the total height of the red part.",32
-fomc-corpus,1984,The borrowing must be the total amount of the red part.,12
-fomc-corpus,1984,That's right. This [chart] is defective. I'm sorry. The total funds raised is the height and the borrowing really should be the entire length of that bar. That is not properly plotted.,39
-fomc-corpus,1984,"Now, all I asked was: If you took both of those together and had some base--I don't know if you used it correctly--what would the percentage increase there be?",36
-fomc-corpus,1984,"If you put them both together, it's 12 percent. The debt was--",16
-fomc-corpus,1984,It's 12 percent if you just apply it to a base of 10.,16
-fomc-corpus,1984,"If there had not been any mergers, the debt presumably would have grown by 12 percent. I guess the right answer to your question is that the number would not be far different from 13 percent to the extent that equities are not a gigantic sum of the total liabilities in the economy. They are a significant part but the debt is much larger, so that absent the mergers you would have a figure approaching 13 percent, I think. I stand open to corrections. I'm having a hard time--",100
-fomc-corpus,1984,Not absent the mergers per se. It's absent the stock [unintelligible] regardless of whether they came from mergers or something else. Then the number would have been 13 percent.,38
-fomc-corpus,1984,"If you put the market value of equities into it, you can't do that. You have to figure out what base to put in there; the amount of the base that's included is the critical issue.",40
-fomc-corpus,1984,That's the problem. That's one of the reasons we have not created a total financial aggregate. It's an arbitrary assumption.,23
-fomc-corpus,1984,But you also have a distortion when you do it this way if in fact there is a lot of retiring of equity.,24
-fomc-corpus,1984,"Well, that's what we've had this year.",9
-fomc-corpus,1984,"I have a question on the chart that has the wage increases, which is about in the middle of the package. I keep reading these figures in the Greenbook that show wage increases around 4 percent or a little under or a little above. Yet everywhere I go in my District, except for the really hard-pressed manufacturing areas, 6 percent is the most common number. There are very few under that and most are over that; yet the national figures keep showing these relatively low rates. My District could be different or there could be some wide discrepancies among industries. Do you have any sense of how firm these numbers are?",126
-fomc-corpus,1984,"Well, it's hard in any absolute sense to evaluate them. They have shown a reasonable pattern. There is no question that they have been remarkably optimistic in measuring the rate of [increase] and they have been somewhat lower than the employment cost index, which is another measure of wages and other changes for a broader group including supervisors and white collar workers. Those data have been showing something closer to the 6 percent rate. It's conceivable that this has a somewhat downward bias because it includes just production workers. Essentially, other than that, I don't have any basis for questioning them except that they look awfully good.",121
-fomc-corpus,1984,"Well, my personnel department keeps coming back with these surveys and my research staff keeps coming back with these numbers, and there's a gap.",27
-fomc-corpus,1984,"Yes, something of a credibility gap.",8
-fomc-corpus,1984,A difference in objectives.,5
-fomc-corpus,1984,"Let me raise a question about your comment with regard to long-term productivity growth. I'm going to give you the Kendrick argument--you know whom I'm referring to--and then you shoot it down. The demographics are favoring productivity with regard to the age brackets, the experience of the labor force--women in the labor force having been on the job a while--and deregulation. Labor and management have negotiated quite a few work rule changes. [Management can say]: Work on this machine, work on that line, work on this shift, work on that shift. There has been a good deal of investment in business equipment, including computers. The computers may be a negative, but at any rate a lot of money has been spent on them supposedly leading to some kind of [increased] output. There is less environmental investment these days; there is not quite so much worry about what the smokestack looks like but whether or not there is somebody working underneath the smokestack. Management attitudes are a little different; there is a younger breed in some cases. We have people who have experienced many years of slow growth and a couple of recessions that were close together. Supposedly there is some change in that. There is foreign competition. I could go on and on. But we have a whole number of factors that point toward getting back to the more historic trend in productivity--2 percent or whatever that is--and yet we seem to be gearing on the 1 percent. This makes a difference in unit labor cost, etc., etc. Can you help me?",316
-fomc-corpus,1984,"It's another one of those things that are very difficult to grab hold of. Kendrick, I think, would be one of the first to admit that in many areas we don't have any very hard [data] that address the issue of productivity growth. He has demographics and he has a couple of other things, but when you cumulate them they only make up a relatively small proportion of the forces that really determine productivity gains. As you point out, productivity in the early postwar years of the 1950s was in the 2-1/2 percent range and there has been a progressive deterioration through the postwar years. How do we evaluate what we have? Obviously, productivity has a tendency to swing very wildly during a cycle. With real GNP increases of 9 percent we're going to have a different productivity performance than when GNP growth is 4 percent. First-quarter productivity appears to be at about a 4 percent rate. We have a model--I say this with a certain temerity--which attempts to characterize the cyclical behavior of productivity consistent with the trend; and the numbers that we are getting at the moment still appear to be consistent with an underlying trend in productivity, when adjusted for cyclical performance, in the 1-1/4 percent range. There is certainly reason to argue that there is the prospect for an improved productivity trend. That sort of thing takes time, however. The introduction of new technology, for example, has a marginal [effect]. It doesn't overwhelmingly change the character of the production process overnight. The effect of the maturing of the labor force again is a slow accretion in productivity. We just don't see enough solid evidence yet to convince us that a significantly higher productivity trend than we have been able to measure is warranted. I think we will know a great deal more within a few quarters when, in a sense, we have a fully matured cycle to look at. Also, by the way, when we have some revised GNP numbers in a few days they may tell us a slightly different story about productivity.",417
-fomc-corpus,1984,"Isn't it true that up to now in this expansion, notwithstanding cost reduction stories and so on, productivity has gained less than in the average expansion in the postwar period?",35
-fomc-corpus,1984,"Yes--that is, to the extent that it's consistent with a very slow rate of productivity improvement. In previous expansions over the postwar years the underlying productivity trend was substantially higher and, therefore, the cyclical performance was overlaid with a higher--",50
-fomc-corpus,1984,"I would suggest to you that a part of that is a lag phenomenon. That is, the economy took on so many employees so quickly here that even if these other factors that I cited were working toward a 2 or 2-1/2 percent productivity increase, almost 7 million people were hired in this past 20 months or whatever and--",71
-fomc-corpus,1984,Do you mean that the percentage gain in the labor force has been higher in this cyclical expansion than in the past?,24
-fomc-corpus,1984,Right. It has.,5
-fomc-corpus,1984,"That's the converse of the argument that productivity hasn't gone up so much; those two are mirror images of one another. It's hard to use the one to justify the argument that productivity is going up faster than it really is. The reason productivity didn't go up so fast explains why we had such a big increase in employment given the rise in GNP. The rise in GNP in the first 6 quarters has been a little above average but not much. So, if you had that much larger increase in employment, it is precisely because the rise in productivity has not been so great.",116
-fomc-corpus,1984,Despite all the talk of cost reductions?,8
-fomc-corpus,1984,"I think the fact was that the recession phenomenon was one in which we had a better productivity performance than one could have anticipated, but there just wasn't any follow through, if the GNP statistics are right. Now, we may get a revision to the GNP statistics. But unless we get a marked upward revision, one has to hope for the future in productivity rather than pointing to something that's a fact now.",82
-fomc-corpus,1984,"The one piece of evidence we have that might lend some support to Pres's position--which I share, incidentally--is that we're seeing this enormous capital goods boom occur at a time when the cost of capital is extremely high. We discussed this who is the head of a capital goods producing company had this answer: that we have been storing up technology in this country for the past ten years or so that hasn't been applied, and now when companies have the money to invest they find the productivity of the new technology is so high that they can afford it--that it makes sense to go ahead--even though the cost of capital is so high. But the fact is that if our corporations are making rational decisions, they are expecting extraordinarily high productivity from the capital in which they are investing.",157
-fomc-corpus,1984,How much does your inflation projection come down if we don't get the 15 percent dollar decline?,19
-fomc-corpus,1984,It would be about 1 percentage point off the four quarters of 1985. It would make very little difference for 1984 at this point but about 1 percentage point for 1985.,41
-fomc-corpus,1984,If the dollar is held steady?,7
-fomc-corpus,1984,If we held it steady.,6
-fomc-corpus,1984,You have it coming down pretty quickly.,8
-fomc-corpus,1984,"Well, in '85 we have 15 percent [unintelligible] the first year.",20
-fomc-corpus,1984,"Ted, is this off the deflator you are talking about?",13
-fomc-corpus,1984,It's not the deflator [where the decline would be] a little less because of the offsetting effect [of rising import prices]. This would be the CPE [deflator] or the consumer price index.,43
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"That was the question I was going to ask, Mr. Chairman, but let me follow up on it. You are projecting a 15 percent decline in the value of the dollar. Are you expecting that to occur slowly over the next 18 months or are you expecting it to happen in mid-1985? What's your feel for that? Are we going to get a soft landing of the dollar?",81
-fomc-corpus,1984,"We're projecting it to happen slowly but it's likely to happen by fits and starts. If you look at the chart on the dollar's rise, you see that it proceeded by fits and starts; so if and when it should ever start to decline, we might well see something like that trend line but find some jagged moves going down as we have had some jagged moves going up. In fact, we started one just after the last chart show.",90
-fomc-corpus,1984,Could I just ask another question about the deficit? Your projection is for a deficit of $189 billion in 1985. Does that factor in any deficit reduction measures by the Congress?,37
-fomc-corpus,1984,"Not beyond the Deficit Reduction Act, which is on the President's desk and is estimated to be about $15 billion of actions for 1985. It is expected that he will sign that and we assume that an additional $10 billion will come out of further actions in the Congress, particularly in the area of the accommodation between the Administration and the Congress on defense expenditures. But our projection doesn't go beyond this $25 billion area that most folks currently are talking about. If we had something major occurring in 1985, that is not captured.",110
-fomc-corpus,1984,"If the indexing stays in the statute, how does that affect things?",14
-fomc-corpus,1984,"The personal income tax rates? That was not touched by this Deficit Reduction Act and is scheduled to take effect January 1, 1985. We estimate that to be worth about $5 billion. Assuming that our price forecast of about a 4 percent rise is right, that would translate into a revenue loss for 1985 of about $5 billion.",73
-fomc-corpus,1984,But don't those numbers get very much bigger as you go out a few years?,16
-fomc-corpus,1984,That's correct. They grow over time.,8
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,I have another question on the exchange value of the dollar. Some analysts believe that this recent action to eliminate the 30 percent withholding on foreign-owned U.S. securities is cause for a renewed surge of funding for the United States to take advantage of. Is that likely to change your forecast of a 15 percent decline?,64
-fomc-corpus,1984,"There may be some [effect], but I would not expect it to be substantial basically because most people could get into dollar-denominated assets on a tax-free basis already and there didn't have to be a withholding tax move in order to change that. My assumption would be that most major portfolios in the world already were into essentially tax-exempt dollar-denominated assets, so we would not get a move from nondollar- to dollar-denominated assets because of a change in the tax. There might be some marginal effect. Some people are pointing to Japanese pension funds as one area where the fact that there was withholding tax [was a factor] and they may have a preference for safer U.S. market-oriented instruments. Therefore, there might be a slight change in the portfolio between yen and dollars. But in general I think it would be unlikely.",168
-fomc-corpus,1984,We learn from experience--and I have great sympathy--that nothing changes that 15 percent decline.,20
-fomc-corpus,1984,We'll fool you next time!,6
-fomc-corpus,1984,"Well, I was going to ask how come 15 percent? Last time you told us that it needed to drop 45 percent.",27
-fomc-corpus,1984,First installment!,3
-fomc-corpus,1984,"No, they have always said 15 percent.",10
-fomc-corpus,1984,[Unintelligible.],6
-fomc-corpus,1984,Do we have any other comments?,7
-fomc-corpus,1984,May I ask another productivity question? I haven't seen your model but I've been very interested in the productivity issue and I too have seen a lot of people with fundamentally different ideas about what is happening to productivity. Did your model forecast the size of the improvement of productivity last year?,55
-fomc-corpus,1984,"Yes. Let me talk a little about this. I have been asking similar questions and probably have been living with these ""models"" more than Jerry. Essentially what we're talking about is, starting in 1980 and going forward, trying to explain or decompose actual productivity growth into a cyclical component and its long-term trend component. In the preceding period of the '70s, about 0.6 percent is the estimated trend growth of productivity. Now, a 1.1 percent--or with the revised data I think it's 1-1/4 percent--increase in trend productivity growth is very close [to the experience] quarter by quarter from 1980 through the second quarter of 1984. So, in a sense, that explains it; it does very well with that trend and a few other variables in decomposing the two components. So what we have to be looking for is [something] saying that this can't explain the total productivity growth, and we haven't really found that yet. I might say that the last four quarters changed a tenth from 1.1 to 1.2 percent, so it may well be that future observations will suggest that we're far off. But we're somewhat hesitant at the moment because in fact we've done very well for the last three years. If a change is coming, it's really in the future. It's not in our reading of the past. There are other folks--productivity experts on the outside--who in looking at the past would argue the same. But there are many issues that suggest productivity trends may be in the process of change; that has not yet shown through and we would be the first to admit that.",339
-fomc-corpus,1984,"If you took some other period prior to the first oil shock--I don't know what period, but suppose you took 1965 through 1974 or something like that--what kind of independent variables would you get and what kind of model would that produce?",52
-fomc-corpus,1984,"Well, you'd get the same sort of analysis, which comes up with trend productivity growth at 2-1/2 to 3 percent, depending upon the time period you pick. You mentioned the 3 percent number in the future. That really was [true], for example, for the period of the '50s and the first half of the '60s. Later on, and after the oil shock in particular, is when we found the dismal productivity growth. So, if we return to that--.",105
-fomc-corpus,1984,"Well, we didn't have the drop in the dollar in our model and yet we come out with an inflation projection the same as the staff's. I guess that's at the low end, though.",39
-fomc-corpus,1984,With no drop in the dollar?,7
-fomc-corpus,1984,With no drop in the dollar we came out about the same as the staff in our inflation [projection].,21
-fomc-corpus,1984,"One of the determining factors will be whether or not we get 2-3/4 percent real GNP growth fourth quarter to fourth quarter for 1985 or, let us say, 1/2 or 3/4 percentage point more. We're getting down into the range on the unemployment rate where that much additional growth, quite possibly, could trigger quite different responses in labor market conditions and wage rates than the staff has anticipated. Similarly, an additional half percentage point real GNP growth would result in maybe 1-1/2 to 2 percentage points [more] in manufacturing output and that gets the capacity utilization rate into a range in which we begin to have problems. So, while the staff's forecast might not be unbelievable in terms of internal consistency, a somewhat stronger economy can produce quite different results.",165
-fomc-corpus,1984,What weight do you put in these remarkably low wage trends from the fact that the index that goes into wages is also remarkably low so far? I think for the past year or so the consumer price index W or whatever it's called [unintelligible] is fully 1 percent lower than the one that everybody looks at. And [the difference is] more than that this year.,77
-fomc-corpus,1984,"Well, that's important. We do that exercise. I don't have the disaggregation in our [material here]. But it's very clear that the feedback effects from low rates of inflation and low COLAS do track into lower rates of wage increase. We do have that number, and maybe while I mumble here Jerry can find it.",66
-fomc-corpus,1984,"That index is going to reverse on us now, isn't it?",13
-fomc-corpus,1984,"Well, that's correct--in our forecast.",9
-fomc-corpus,1984,If mortgage rates rise.,5
-fomc-corpus,1984,That's right.,3
-fomc-corpus,1984,"It was going down while mortgage rates were rising because of this mix problem, I take it.",19
-fomc-corpus,1984,"We don't have the COLA separately. I apologize. But that is important and, in any event, it does reverse.",25
-fomc-corpus,1984,"Mr. Chairman, on the subject of differences in forecasts, in Cleveland we have forecast a very strong underlying economy--stronger than the staff's--through the third quarter of '85 because of the assumptions. We make essentially no assumption about exchange rate changes; we have a five percent [decline]. But we made an assumption about fiscal policy that there would be a second down payment, if you will, enacted in the fourth quarter of this year or the first quarter of next year. And that would bite in the fourth quarter of '85. So then our pattern is a strong economy, not a slowing one--surprising us. We have a strong economy in 1985, growing at about a 4 percent real rate until the fourth quarter. That gives us an inflation projection very close to the staff's projection, but it does have the significant risk that the exchange rate correction, when it occurs, could bring about even more inflation. And we haven't really dealt effectively with the wage rate issue in our set of assumptions, and we consider that the other major risk besides the exchange rate.",220
-fomc-corpus,1984,"In terms of the task of sitting down and doing one of these forecasts twice a year, as Mr. Kichline knows, it is never very easy. From my perspective right now it's harder than it has been because on the one hand we have an economy that on the surface--by most indicators, statistical and otherwise--looks absolutely terrific. But underneath that gloss we have some very serious problems that seem to me on balance to be getting worse rather than better, and that colors my thinking about a forecast. For example, as Jim indicated, the Federal budget deficit in a structural sense continues to deteriorate in a very significant way and with nothing in sight that I know of that is going to change that. And Jim's estimate of the structural budget deficit next year of $172 billion is literally off the scale of experience. Similarly, and again notwithstanding the spectacular performance of the aggregate economy, high interest rates are clearly placing very serious strains on selected classes of domestic and international debtors. The banking system, to put it mildly, is fragile. The conditions are affecting all sizes of banks and thrifts which, as Jim indicated, are now right back on the edge, if not worse. As for external trade, the financial position of the United States, which is helpful in some respects for us and for others, now leaves us highly vulnerable to the sudden and sharp fall of the dollar. Whether that will materialize, of course, is another question. From my perspective, looking at the first six months of this year, it seems to me that what we have on our hands is a good old fashioned credit binge--almost irrespective of which set of numbers we look at. They all say the same thing; and some of them relative to GNP or relative to inflation or relative to something are outside the spectrum of experience. Against that background, as I said, I find it very hard to make a forecast. For what it's worth the forecast that I've come up with is one that shows the real economy a little stronger, by 1/2 point or so, than the staff has. I have no real good reason for that other than my sense of the sheer momentum that the economy has right now, notwithstanding the high interest rates. In the inflation area, which I really think is the swing variable for 1985, I also found it very tough [to make a forecast]. In July of last year and February of this year, I had an inflation forecast that was very much at the bottom of the range of Committee members' forecasts. And I had it that way for two fundamental reasons. One was that I thought the economy was going to be stronger and at that phase of the cycle a stronger economy implied stronger productivity in a context in which wage restraint was still very much in evidence. Clearly, in retrospect, inflation was better than even I had thought and I attribute that almost exclusively to the dollar. Looking at 1985, unlike 1984, I have an inflation forecast of almost 6 percent on a fourth-quarter-to-fourth-quarter basis, which is on the high side of the Committee members' forecasts. I ended up there with considerable reluctance. But fundamentally the reason I ended up there was that I did have in mind an acceleration, however modest, in compensation, very much like the staff's. Strangely enough I had in mind stronger productivity growth than the staff, at around 1-1/2 percent. But the difference in my case is that my forecast basically assumes that we will continue to have a positive spread, on the order of 1-1/2 to 2 percent, between the deflator and the rise in unit labor costs in the economy. I arrived at that for three reasons. First, it is certainly not without a precedent at this stage of the recovery. Second, we are moving into ranges of capacity utilization and unemployment that seem to me to imply at least some further pressures in those areas. Last, but certainly not least and perhaps most importantly, I continue to think that the point will come when the dollar will have to come off; and if it does come off, my view is that the potential effects of that on domestic inflation coming from the direct effect on imported prices and also the indirect effect on the kind of restraint that these imports are producing could be even greater than the 1 percent that Mr. Truman spoke of. I am, of course, mindful of the fact that not only wage statistics but commodity prices and other things right now could very well lead to a different view on inflation. But even in terms of commodity prices, I assume at the moment that an awful lot of that also is a direct and indirect reflection of the international situation. I am not yet ready to conclude that its effects will be permanent over the forecast cycle.",965
-fomc-corpus,1984,"I think the one thing that throws off the historical relationship between labor costs and prices is the rather unique price constraint influence of imports. It is unique in this recovery to such a degree. I continue to run into businessmen who keep talking about the fact that even though volume has picked up they can't raise prices; they can't get the margin because of import competition. And unless you make an assumption that the exchange rates [are] going to come down significantly, it seems to me you come up with a fairly low projection of inflation.",105
-fomc-corpus,1984,"I would agree with that. As I said, there is no question in my own thinking that precisely those circumstances you have described are one of the reasons why I end up with a higher rate of inflation. I think at some point in the cycle the dollar will come off and the effect of that on domestic prices will be greater than the average effect one picks up by looking at models. The reverse is clearly true, in a context in which the dollar were to stay even within, say, 5 or 10 percent of where it is now over the whole forecast period. To me that would easily translate into a percentage point, if not more, of better price performance.",135
-fomc-corpus,1984,Not only are there firms that are reluctant to raise prices but some firms have raised prices and have had to back off.,24
-fomc-corpus,1984,They are busy getting legislation enacted.,7
-fomc-corpus,1984,"There are only two features, I think, to the dollar's role. Its rise has helped to hold down inflation, and even if it stops rising the rate of inflation has been suppressed because of the dollar's rise. Then if it should decline, as we believe it eventually will, we will pay back some of the dividends that we had collected. One of the problems--and it's been seen in other countries --is that you start assuming that the underlying rate of inflation is the rate of inflation that's associated with a continuously rising currency and then that leads to some distortion in and of itself in the way macro policy operates. Then once you get to the point--I'm thinking particularly of Germany--where you come down the other side of that mountain, that creates its own problems. Everybody has been amused at the constant 15 percent [dollar decline we have forecast]; it is obviously a somewhat notional figure--less precise than some of the other imprecise numbers in our forecast. But I think it is partly motivated by the view that eventually we will have not only a [cessation] of this benefit but a rolling back of some of it. And it's better, at least in terms of thinking about what the correct underlying rate of inflation might be and in trying to forecast the rate even though the short-run favorable developments on the inflation side might be continuing because of the dollar's value.",279
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"It's hard to pinpoint the precise reason why our staff forecast is a bit higher than the Board staff's on the inflation rate for next year. But I think it probably has to do with our estimate that as we get into 1985 we will be approaching or at the point, both in terms of the capacity utilization rising and the unemployment rate declining, where in the past we typically have seen an acceleration of inflation.",83
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Well, Mr. Chairman, I have a difficult question to ask. I don't know who to ask, but the staff is forecasting a $115 billion current account deficit in 1985 and a decline in the exchange rate of the dollar against foreign currencies of 15 percent. My question is: What levels of interest rates are going to be required to attract that amount of foreign capital to the United States in a regime in which the foreign investor may be contemplating further devaluation of the dollar, and what will be the implications for the economy of that level of interest rates?",114
-fomc-corpus,1984,"Well, we have only a small rise in interest rates in the forecast.",15
-fomc-corpus,1984,I know. That's what I don't understand.,9
-fomc-corpus,1984,It would be a lot higher if you don't want the dollar to go down.,16
-fomc-corpus,1984,"President Morris is saying that if the dollar goes down, somehow we need even higher interest rates in order to prevent it from going down faster.",28
-fomc-corpus,1984,"We think we have a mutually consistent set of relationships. It entails somewhat higher interest rates, the sharp drop in the dollar, and the projected rate of inflation. We would argue, I guess, that if you think the dollar isn't going to go down, you need a lot higher interest rates. I don't know quite how to answer the question otherwise. If you believe that people don't want to hold dollars to the extent that we implicitly are saying, you're forced to argue that you have to pay them a lot more to do it.",106
-fomc-corpus,1984,I think at this time we don't have the answer to your questions.,14
-fomc-corpus,1984,He said it was a difficult question.,8
-fomc-corpus,1984,"It seems to me that if there is something wrong with this forecast, it's in this area. Can we carry this off neatly without any significant change in interest rates?",33
-fomc-corpus,1984,But these are high real interest rates still--very high relative to the rest of the world.,19
-fomc-corpus,1984,But we're also asking the rest of the world after investing $100 billion in the United States this year to come up with another $115 billion.,29
-fomc-corpus,1984,But the point is that in the last 12 months they have over-invested in the United States or in dollar-denominated assets or the dollar wouldn't have appreciated by 15 percent or so. It's no more illogical that the dollar would go down slightly in this interest rate forecast than that the dollar would go up with a doubling of the current account deficit.,72
-fomc-corpus,1984,But the fact that that has happened means that at the end of this year foreign investors are going to be sitting with a big accumulation of dollars. And the question is whether we can finance this current account deficit without offering much greater inducements for them to hold more dollars.,54
-fomc-corpus,1984,Excellent question.,3
-fomc-corpus,1984,"But right now they are more than financing the current account deficit. That's why the dollar is rising, you see.",23
-fomc-corpus,1984,"Yes, I understand that.",6
-fomc-corpus,1984,"And the financial markets in New York--I don't know whether they are right or not--are placing enormous emphasis on the abolition of a 30 percent withholding tax. And even though there are very strongly mixed views about it, the possibility that the Treasury might consider bearer bonds is a separate issue. There are a lot of people who feel that there are going to be some substantial flows from that; and we're still getting some intrabank assistance as well. The dollar is being pulled back from the Eurodollar market, which is helping to finance the current account deficit. My sense is that even though, obviously, it's almost a tautology in the long run--neither we nor the world can accept that large current account deficit to finance indefinitely--I wouldn't assume it is going to be in 1985 necessarily that we're going to see that kind of change.",173
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, I have very little confidence in economic forecasts--my own in particular--but forecast we must, so I guess I will have to bare my soul. Like most everybody else, we ended up pretty close to the staff's forecast for 1984. But when we got to 1985 we differed in the same direction that Jerry Corrigan did, only more so. We came out with a little higher real growth, but the main difference was on the inflation side. We were on the high end of that and we would stress the factors that he stressed, but also would point out that we still have not yet paid the piper for the rather rapid growth--or what I view as rather rapid growth--in the money supply in the past. And even after allowing for the possibility of a rightward shift in the demand for money, I still think we're going to see more inflation probably than the staff is projecting. This, obviously, is one argument that I don't want to win.",202
-fomc-corpus,1984,We can all be encouraged to know that Milton Friedman has decided that with the downward shift in velocity of--I can't remember whether it's 8 percent or 11 percent--all bets are off in the future for inflationary implications of that rapid growth.,50
-fomc-corpus,1984,He has retracted that inflationary [unintelligible]?,13
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"Our forecast with regard to the GNP this year and next year is perhaps a touch higher than the staff's, and our inflation [forecast] is broadly consistent--a bit higher. But amongst all the good news, and I really do think we have a very powerful economic expansion in place, I continue to be distressed by the unevenness of it all. The people I talk to, particularly those people who run large capital intensive heavy industry companies, are continuing to experience very, very difficult times; by no means have they in any way really caught up with the euphoria that seems to be present in other areas. I tried to look at this a bit. We took the industrial production index and assumed that 1979 was 100 and then looked at the April physical output numbers in various parts of that index. A lot of these are the industries that are central to the Midwest. For example, in the primary metal category, consumer durable steel was 75 percent for April of 1984 versus 100 for 1979; equipment steel was 53 percent versus 100 for 1979; farm tractors were 35 percent; construction and equipment were 78 percent; the big tractors like the kind Caterpillar makes were 40 percent; railroad equipment, which I have commented on in the past, was 15 percent.",268
-fomc-corpus,1984,Fifteen?,4
-fomc-corpus,1984,"It was 15, but that's not quite fair because 1979 was, for some tax reasons, a uniquely high year. But as you go down these individual categories in the industrial production index, many of these big, heavy [machinery] companies are still operating at very, very low rates. Universally, the people I talk with say that the value of the dollar is of extreme concern. And we think that will be key to our forecast for next year. Caterpillar, for example, is a classic example of a company that just has been decimated, both domestically and in the export markets. Therefore, I look at the numbers and statistically they all seem to make great sense and I can find no overall reason to disagree. But I have this nagging feeling as I look around at many of these big companies that, with the continuation of the trends with regard to interest rates and the value of the dollar or both, something could come a little unglued here as we look to the forecast--not so much this year, but next year. It's this unevenness that I find in the industrial component that has me particularly worried.",232
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"I think we're at a stage in the business cycle in which the uncertainties of forecasting are a heck of a lot greater than they have been. If you look at a recovery in prospect, the first four to six quarters do differ from one cycle to the next but not all that much. But what happens after you get up to where we are now is much harder to foresee. It's certainly very logical to anticipate some slowdown in the pace of the economic expansion but whether we slow down to something like a 3 percent rate, let us say, or a 4 percent rate, makes a hell of a lot of difference to the rate of resource utilization when it is up this high and, therefore, to price behavior. The other big factor on the price side now that makes price forecasting very, very uncertain is the issue that Frank was pointing out about the accumulation of dollars abroad and what that means for interest rates. When we have dollars accumulating abroad on the scale that has been occurring, the willingness of foreigners to continue accumulation on anything like the scale that the staff is forecasting depends on what happens to prices here and what happens to their expectations of prices. If we get the beginnings of some upswing in wages and prices in the United States, it will then induce the kind of drop in the value of the dollar that Chuck is talking about, which in turn will reinforce this price cycle. And that's why it seems to me the outlook for prices is very, very uncertain.",293
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"In times like this when nobody knows what really is going to happen--more so than most other times--what we say about the economy tells more about the people [talking] than it does about the economy. Some people are just pessimists by nature and basically say: ""Well, things are good but that means they have to get bad."" And I think that's in most of us; it's our central banking blood. Others are optimists and believe things are good and they are going to continue. I think the truth probably is somewhere in between. That's not very profound, but I suppose things won't turn out as bad as we think nor as good as we think. My own hunch is that we may end up with less inflation than one might expect in this kind of business cycle, largely because of the dollar. I just hear everywhere about how much a constraint it is on prices. We've been hearing that the dollar is going to come down, down, down and maybe it will at some point. Like Tony, I think it will come down but further out there on the horizon; and I think this is going to have a positive effect on inflation. On the growth side, we have talked mostly about what is happening in the real sector, but the financial side of the economy really is in pretty fragile condition. Just what those linkages are and how they spill over to the real side are hard to define, largely because so much of it is psychological. But it does seem to me that over an 18-month time horizon the fragility on the financial side is bound to have some downward impact on the economy. So, my hunch is that we probably will end up with both less inflation and less growth in 1985 than one might normally expect.",355
-fomc-corpus,1984,"Mr. Chairman, I think there is an awful lot of uncertainty as we try to make a forecast at this particular time. Generally speaking, we agree with most of the staff forecast with the exception of the inflation and unemployment numbers. I do think that the staff's inflation numbers are low. We look more for a 6 percent inflation number, fourth quarter '85 over fourth quarter '84, based pretty much on reasons that have already been alluded to by other members--namely, the depreciation of the dollar and so on. But I also think it is very unrealistic to think that the wage concessions and wage moderation that we fortunately have had so far are going to continue. Nobody knows, of course, what is going to happen with the automobile negotiations but I'm fearful that they could turn out to be difficult. And there are other wage pressures that I think are going to develop in the economy. The other thing that I haven't heard mentioned, which we factored into our projection, is the monetary growth through about mid-1984. So, I think the factors of expansionary policy, wage pressures, depreciation of the dollar, and capacity constraints--which we certainly see in our District, incidentally--augur for a somewhat higher inflation rate than the staff projects. Also, as the unemployment rate goes through 7 percent, those wage pressures are going to increase as well. I also think unemployment is going to be a bit higher than the staff suggests, but otherwise I think their projection is pretty accurate.",303
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"I'm no more confident in my own forecast than others are [in theirs]. In terms of real growth, we're about where the Board staff is; we have a little higher nominal GNP and are higher on the deflator. When we are as uncertain as we are, maybe we can learn something from history just from the standpoint of where we are in the cycle. We are going into the third year of recovery; inflationary pressures tend to increase at that point. Looking at it today, it feels considerably different. But we've said that, [thus far] at least, this recovery is pretty well tracking a normal recovery. So, it makes one wonder if it really is going to be that different as we go forward. I have some real concerns about the exchange value of the dollar. If the drop-off does materialize, that will likely bring inflation pressures back on the domestic side. Given capacity utilization and the other things that we normally look at, it just seems to me that pressures are going to start building as we get into 1985. Therefore, I'm not as optimistic on inflation as the staff.",223
-fomc-corpus,1984,By a considerable margin. Governor Wallich.,9
-fomc-corpus,1984,"My numbers are on the high side of the forecasts, but not extraordinarily so. I ask myself: If these numbers come out approximately like this, what happens at the end of 1985? Do we then level off forever at a moderate rate of inflation and at a moderate rate of unemployment? Do we go on up toward higher rates of inflation? Do we encounter on the way--either before or after the end of 1985--a downturn? The answers, obviously, are unknowable. But if the numbers turn out pretty good through '85, as they are projected here, the chance is that it means we will be into a rather long and continued period of expansion that will carry us to a very low rate of unemployment and considerably higher rates of inflation. That seems to me the likely outcome of the present numbers being true. At most, the staff projections would get us to a growth rate below 3 percent, which would suggest that we are tapering off toward an even lower rate of expansion than potential that theoretically could be sustainable for a very long time. It's contrary to history. The economy either expands or contracts over time. And I'm concerned that the makings of a stronger and longer expansion are likely to leave us eventually out on a limb with high rates of inflation. Well, I guess I've expressed no more than my usual prejudice on the subject.",274
-fomc-corpus,1984,Would you be reassured if we all thought there would be a recession in '86?,18
-fomc-corpus,1984,"I would certainly be reassured, but I would prefer then to try to modulate that rather than run into it helter skelter.",29
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"Well, Mr. Chairman, we have discussed whether or not this expansion is typical of cycles, if we eliminate a couple of them. It seems to me that this expansion is significantly more vigorous than the typical cycle. That's certainly true of employment, as we have already touched upon. That always raises the question of whether we try to do too much in too short a period of time--in 20 months or whatever it has been. Is this expansion too fast in the sense of being inflationary? It seems to me that there already has been some slowing. We all have conceded the difficulties of forecasting and we know numbers are revised and revised and revised. But, just looking at the numbers, in terms of nominal GNP the range is 13.9 to 9.8 percent [unintelligible]. In the [remarks] of our twelve colleagues around the country, the comment that the rate of expansion is slowing is almost unanimously true of that group. Is a drop in nominal of 4.1 percentage points over some period of time enough? If we look at the calendar year 1985, using the staff forecast we get nominal GNP of 8.4 percent. Is that still too high a rate of growth? I think in terms of those absolutes, it's difficult to make a case. Is business fixed investment coming on stream too fast? The first estimate of the rate of growth in the second quarter was almost 21 percent. But it is equipping; it is retrofitting; it is productivity oriented; and it's pretty short term. Only now are we beginning to build a plant as distinct from equipment, and so the payback in terms of output should be reasonably short term. As for capacity utilization, it's difficult to factor in all that retrofitting of plant into the bare number of the domestic capacity utilization and, unfortunately, no one has figured a really good way to figure the capacity utilization of all those thousands of firms around the Pacific Basin and in Europe and the developing countries that are selling to us. I don't know how to measure it; maybe no one knows how to measure that capacity utilization. Are we expanding too fast? We're not back to any reasonable trend line using various recent periods of time and using GNP growth. It seems to me that the case for arguing that we're expanding too fast is a weak one. I've tried to reflect that and probably have failed in my numbers, which are somewhat at variance with those of the staff.",500
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"I've been reflecting on Jerry's comment about financial fragility, which contrasts so sharply with the strong economy. And I suppose that the link is what Henry is talking about: the next recession. There are probably many roads to recession. But one that seems quite certain to me is to get into an environment in which interest rates have to increase substantially, because I think a substantial increase in interest rates, in fact, would turn the financial system on its ear--certainly the thrifts, probably the LDCs, and very possibly some of these people who have signed up for variable rate mortgages and that kind of thing. And, of course, the thing that bothers me is that if you look at past recoveries, we've always gotten into a period in which interest rates went up substantially toward the end of the recovery. So, I suppose the best and safest insurance that we could buy would be to try to insure that the economy does not grow so rapidly as to bring the inflationary consequences that will lead to substantially higher interest rates and bring the next recession. Now, the reason I haven't commented along those lines is that the staff forecast, I think, does that. That is, the staff forecast gives us a [slowing of] real growth in time to keep off some of these touch points that Lyle was talking about. It gives us a 3 percent rate of real GNP growth, roughly, in the four quarters of 1985. I have to admit that I forecast the same thing, but I'm darned if I know why I did because, taking it right up to where we are today, everything is stronger--and quite a lot stronger--than that. Maybe it's just a hope that the real growth will recede to a point where we can live with it over an extended period rather than a true forecast that all of us are expressing here. As I said, there is nothing in the consumption figures or certainly in business and plant and equipment spending or even in housing so far that would give one the strong assurance that the 3 percent rate of growth would be established by the latter part of this year. And I think we need to try to guard against the possibility that for the quarters ahead, as in the quarters past, we will find real results to be substantially greater than what had been forecast beforehand. That is very important because, otherwise, I do think the financial system is going to tumble.",487
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"Well, I won't repeat the comments that others have made, many of which I would have stated. But I feel that the cyclical momentum of this expansion will probably carry us comfortably through 1985. I think growth is slowing now and that growth will continue as we approach capacity utilization as it always does. I think price pressures will increase from capacity utilization and probably from a leveling of the dollar rather than a decline and from the lagged effect of rapid monetary growth in the past. That leads me to the point that is critical: that we not provide excess money growth to fuel inflation in the future. I share Governor Wallich's view that we will have a critical problem at the end of 1985 if we do that. As to financial fragility, I'm aware of Continental's situation and the fact that the thrifts on an operating basis are breaking even or are slightly in the red. But to put that in perspective: We've been through a stiff recession. There is always a lagged effect of problem loans after one of those. If I'm not mistaken, the nonperforming assets in March were lower than they were at year-end. And we have some specialized problems, including the energy situation, which seems to be improving some. My own guess is that we could easily exaggerate this, including on the LDC front; it appears to me that major progress is being made. So, I'm not concerned that a moderate increase in interest rates, which would appear to be appropriate in terms of the direction of the economy, would in any way cause a major problem in the financial system.",320
-fomc-corpus,1984,"Well, we've had a long and I guess useful discussion. If nobody else wants to say anything--.",21
-fomc-corpus,1984,"Since my forecast is rather way out, I'd like to say a word. Ed Boehne pointed out that a lot of the forecasts reflect individual personalities and whether one is a pessimist or an optimist. When things are going poorly, I'm an optimist and I expect things to get better; when they are going very well, I'm a pessimist and I expect them to get worse.",79
-fomc-corpus,1984,You can make money on that!,7
-fomc-corpus,1984,"So, while my forecast was very close to the median for 1984, it's way out of line for 1985 and I'm going to revise it because I've been influenced by both the staff forecast and some of the comments I've heard. Basically, I forecast a growth recession starting in the latter part of 1985; I just thought somebody should reflect that possibility among our forecasts. Based on what I've heard and what I've looked at more recently, I don't really expect that to happen. But it seems to me to be a possibility--enough of a possibility to note. Having made my forecast before the latest figures on unemployment and employment and some of the more recent data reflecting more strength than I had assumed, I had real GNP falling off very substantially in the latter half of 1985. So, I came out on the low side for growth in 1985 and that's the basis for my way-out forecast. The reason is simply that real interest rates are rising very rapidly. The price forecast is very favorable but at the same time our forecast is for rising interest rates. And real interest rates now, and as projected, are going to be fairly close to where they were in the latter part of '81 and early '82, at which point the economy began to reflect this by turning down. I think it is distinctly possible, though not probable, that in the latter half of next year we will see such a severe slowing in real output that we could think of it as a growth recession.",303
-fomc-corpus,1984,"I think we ought to go on to Mr. Axilrod's presentation before we quit today. But before we do that, I just want to say a few things myself. I want to ask, because it has been on a lot of people's minds in this city, about a theory going around that we are on the verge of deflation--a theory that is widely publicized by one group morning, noon, and night. It has been an expanding group in political terms. I haven't detected it, but I just want to confirm that that theory that we're close to some deflationary movement is not shared by anybody around this table.",129
-fomc-corpus,1984,That's price deflation?,5
-fomc-corpus,1984,"Well, it's price deflation as I read these things--price deflation followed by severe recession down the road.",23
-fomc-corpus,1984,The only place I've seen anything about deflation is in these articles I read in The Wall Street Journal. I haven't heard anybody in the business community anywhere worried about deflation or giving any evidence that it's a risk that much weight needs to be put on.,51
-fomc-corpus,1984,"Actually, the only way I can see something like that in the time frame we're talking about here is if we really had some kind of financial blowout--not that we haven't had some already. I don't know how to define that, but there is very little question in my mind that if something of that nature happens in the near term on top of everything else that already has happened, that could precipitate a pretty nasty situation.",86
-fomc-corpus,1984,"But even in that situation, a drop in real output would come first and then the price deflation.",21
-fomc-corpus,1984,That's even worse; you're right.,7
-fomc-corpus,1984,"Prices of some sensitive industrial commodities --for example, the price of gold--have been moving down. They are probably the source of much of this, but it's hard for me to see how that could become general.",43
-fomc-corpus,1984,"Well, let me make a couple of comments that have occurred to me in listening to all this. I could have left these for later, but what jumps out at me is how atypical this cycle is. Just on the face of it, we have had more rapid growth than at any time during the postwar period--which I guess makes it atypical--though we started from a low level, to be sure. Take those domestic demand figures, which didn't include inventories, that were presented to us a little while ago. If you compared the domestic demand with earlier cycles, I think you would see nothing like what has been going on in the past 20 months. And, in fact, it doesn't show much sign of a slowdown. If you look behind it, we obviously have a budget deficit, as was mentioned, that is out of line with all our experience. It is in fact rising in the third year of expansion and the full employment deficit, however calculated I guess, is rising rather sharply. Of course, the mirror image of that is the trade deficit, and however one adds it up I cannot believe such a deficit is sustainable forever--however long forever is. I would like to think that there is something else atypical--but it remains to be seen--and that is that prices are moving up exceptionally slowly, given the strength of demand at this point. I'm sure the dollar has something to do with that. But how much we have ingrained in the wage situation from a succession of recessions or other factors remains to be seen. I share the feeling that a number of people have expressed that the reliability of any economic forecast in the 18 months ahead under these conditions is exceedingly limited, to say the most for it. I don't doubt that there's a lot of momentum in the economy right now; I wasn't so sure a month or so ago, but it surely looks that way now. And I don't doubt that we're getting a continuing thrust on fiscal policy. I must say that I don't see much effect from the rise in interest rates we've had and I'm not sure we're going to get it when we're in the midst of one of these periods of considerable momentum. I was--I don't know the right word--bemused, I guess, by the analysis of the last Michigan survey that says the public thinks interest rates are low and one of the reasons they are buying is that they think rates are going to be a lot higher later. That doesn't sound as if marginal changes in interest rates are going to affect purchasing very much. Of course, consumer interest rates in fact aren't doing anything, except maybe very recently, and I doubt that there is much there to change the behavior very strikingly. At the same time, all these interest rates produce a lot of income on the other side of the balance sheet--on the income statement--that we haven't had in past expansions. We certainly need some slowdown in my judgment, given all that's going on. In fact, I think we're having a test of monetary policy in deregulated markets and it doesn't look very sensitive in terms of responses out in the economy. I have to say that I think a lot of the difficulty we are facing is due to no great news on the budgetary situation. The only promise I can see in that area is that the budgetary situation wasn't absolutely written in heaven or wherever it was written, maybe the opposite place, and it conceivably could be changed--not in the next three months but looking beyond the next three months. I'm almost inclined to say it better be changed or we have an almost insoluble problem. I won't berate the fact that we now have a financial system under pressure in every direction. I don't for a moment want to underestimate that problem, which I think is a considerable risk on all sides in terms of looking ahead. We'll talk more about that tomorrow when we get to the short-run policy. So, with that much comment from here, why don't you give us your wisdom about the long run, Mr. Axilrod?",813
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"Well, thank you. I'm aware that it's 5:00 p.m. and somewhat warm. But maybe we at least ought to deal with any specific questions that people have or go on and say something about the ranges themselves. We can do so or wait until the morning.",56
-fomc-corpus,1984,I have one technical question on the history of the 4 to 8 percent range on M1. Wasn't it at one point 4 to 9 percent and then dropped to 4 to 8 percent? It seems to me that a year or two ago there was some special reason that it was dropped to 8 percent. Do you remember that?,73
-fomc-corpus,1984,I don't remember. Maybe Norm has the history in front of him to see if it was. I don't remember that.,24
-fomc-corpus,1984,"Well, at the beginning of 1983, the range for M1 was 4 to 8 percent. And then it was raised to 5 to 9 percent, but with the base shifted to the second quarter; so it applied only for the second half of last year.",58
-fomc-corpus,1984,And that was because of the velocity.,8
-fomc-corpus,1984,It was never 4 to 9 percent.,10
-fomc-corpus,1984,"We were way over the 4 to 8 percent range, I guess.",16
-fomc-corpus,1984,"Well, that's right. And then it was dropped back to 4 to 8 percent.",19
-fomc-corpus,1984,"Could I just ask the role that the midpoint of these ranges plays? To me, the upper end is generally the important one. But I realize that if the staff works with the midpoint as something to base projections on, for instance, then it makes a difference whether one also pulls down the lower end or not. That's a technical item that I've never found the answer to.",75
-fomc-corpus,1984,"Well, in the earlier part of this year, the staff generally had been working with something around the midpoint for M1 because that was what was indicated at the February meeting. As M1 began being much stronger, we interpreted ""around the midpoint"" as being 6-1/2 percent instead of being specifically 6 percent. But we would assume that it's somewhere around that midpoint at the moment unless the Committee were to say that it was expecting growth to be around 8 percent, in which case we'd change our assumption.",106
-fomc-corpus,1984,"So, in that sense, 3-1/2 to 7-1/2 percent is the same as 4 to 7 percent?",31
-fomc-corpus,1984,"Yes, in terms of the midpoint. But whether it's going to have the same effect on the markets and the policy or actual operations followed by the Committee is yet another question. At 4 to 7 percent, if M1 is running at 6-1/2 to 7 percent, I can't say in advance whether the Committee is going to feel that more work is needed to restrain it than if the range were 3-1/2 to 7-1/2 percent. That is the issue, it seems to me.",111
-fomc-corpus,1984,"It's going to try and get you, Henry; it's like Jello!",15
-fomc-corpus,1984,It means what the Committee says. Are there any other technical questions?,14
-fomc-corpus,1984,"This is a technical observation, I guess, Mr. Chairman. If I remember your most recent testimony correctly, you at least--and perhaps the Committee--are on record as saying that M1 is still on probation. I would think that before this meeting is over we ought to get that question settled as to whether it is or isn't. In terms of public understanding at least, the record should show whether we're still placing primary emphasis on M2 and M3 or whether, in fact, we're going to restore M1 to its prior position.",109
-fomc-corpus,1984,We ought to put them all on probation!,9
-fomc-corpus,1984,"Yes, put them all on probation.",8
-fomc-corpus,1984,"Certainly, M3 ought to be on probation.",10
-fomc-corpus,1984,Perhaps put credit on probation.,6
-fomc-corpus,1984,[Unintelligible] false signal.,9
-fomc-corpus,1984,"Any other questions or clarifications or whatever? I wonder if we can just do one other thing: get a preliminary view just on the 1984 ranges. Maybe it will be easy; if not, we won't carry it through to a conclusion. Why don't we present it with a relatively simple option here, which is a largely cosmetic ingredient. It may be more cosmetic than substantive, but I'll find that out. Mr. Axilrod is not suggesting any change in M1 or M2. Is that going to meet with general approval? SEVERAL. Yes.",115
-fomc-corpus,1984,Then the analysis says--whether it's right or not is another issue--that for M3 and debt we in all likelihood are going to end up above the present ranges. Is that a good reason for raising them or should we keep them the same?,50
-fomc-corpus,1984,Keep them.,3
-fomc-corpus,1984,"No, keep them and explain.",7
-fomc-corpus,1984,"I agree we should keep them the same. It seems to me that the fact that they are running over is not a good reason for changing the ranges unless we're prepared to say that we're going to tighten policy or ease policy as a result of changing. In other words, it's got to imply a policy change that would be meaningful rather than a statistical adjustment just to come in within the range.",78
-fomc-corpus,1984,It's a question of whether it's a forecast or a target. I think of it as a target.,20
-fomc-corpus,1984,"If it's a target, then that would argue for changing the range.",14
-fomc-corpus,1984,I think I would argue for raising it.,9
-fomc-corpus,1984,"If it's a forecast, I would say we made a bad forecast, but--",16
-fomc-corpus,1984,"Well, the target is the forecast.",8
-fomc-corpus,1984,A target is the desired number.,7
-fomc-corpus,1984,The problem with raising the upper limit for debt is that we would be saying implicitly that we think a 12 percent rate of growth for debt is acceptable.,31
-fomc-corpus,1984,"Given the acquisitions, mergers, and leveraged buyout situation, I would argue that it is acceptable.",20
-fomc-corpus,1984,So would I.,4
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. I would leave the Ml, M2, and M3 ranges the same, but I would argue for increasing the debt range at this time to 9 to 12 percent. It's not so much to make the argument for 1984, but I'd like to move on to 1983 and be able to reduce that in 1983 back to 8 to 11 percent.",85
-fomc-corpus,1984,You mean 1985.,6
-fomc-corpus,1984,"Pardon me, I mean 1985. I'd like to increase it in the last half of 1984 to 9 to 12 percent with the anticipation of showing a reduction for 1985 back to an 8 to 11 percent range. It's more consistent. It is only a monitoring aggregate at the moment, and we have had very little experience in this Committee with using the debt aggregate. It seems quite logical to me that the Chairman can present the picture that with the merger situation there are uncertainties as to what the debt aggregate really means. Because we're still monitoring it, one could make the case for increasing it now and dropping it in 1985--carrying through the idea of continuing to move down on all of the aggregates for 1985.",155
-fomc-corpus,1984,"Roger, wouldn't we have to raise M3 too?",11
-fomc-corpus,1984,"No, I think not.",6
-fomc-corpus,1984,Because that's how they finance the credit numbers.,9
-fomc-corpus,1984,"Yes, I understand that. But I would prefer, simply because we've had more experience with M3 and consistently have been over that targeted range in past years, to leave it as it is. Because if we raise both of them, it seems to suggest to me that we have indeed turned the reins loose a bit and I would not want to give that view.",73
-fomc-corpus,1984,"It's funny, but I come to the opposite conclusion. It seems to me that if we raise the target for credit, we are implying to the markets that we're going to be somewhat easier in our policy than if we don't raise the target. It seems to me that there has to be a policy implication to making a midyear adjustment. You don't read it that way, I guess.",77
-fomc-corpus,1984,"Tony, I would just rebut that by saying it's a monitoring range now that we've had very little experience with. We elevated M1 at the last meeting to a higher position, equal to M2 and M3. And we have not elevated the debt aggregate to that position. As a result, if we're still experimenting with it, let's experiment with it by raising it to be somewhat more consistent, with the thought of dropping it in the '85 presentment that the Chairman will make at the same time he talks about '84.",106
-fomc-corpus,1984,"I'd go one step further even than Tony. I'd be troubled by raising that credit range, particularly on the grounds of raising it because of mergers and leveraged buyouts. It seems to me that that's tantamount to sanctioning a pattern of financial behavior that is going to get us in trouble sooner or later. If we're going to raise it, raise it. But I would not say that we're going to raise it because we have all these damned leveraged buyouts. That seems to me to be just bad policy.",102
-fomc-corpus,1984,It's simply a recognition of what has happened over the first 6 months.,15
-fomc-corpus,1984,I agree with Jerry on this.,7
-fomc-corpus,1984,"Well, we may not want to debate this at this time of night. My own inclination is to keep them the same and say that we expect that we're going to come out above these ranges but we're not too happy about it and that's why we're not changing them.",53
-fomc-corpus,1984,We monitor it and see if it leads us to something we can do or control as against something we look at.,23
-fomc-corpus,1984,We think they're higher than they should be for the long run.,13
-fomc-corpus,1984,"That says it's desirable in this year to have something that's running above the range, it seems to me.",21
-fomc-corpus,1984,Why?,2
-fomc-corpus,1984,"I don't know what it means if we raise it. If we raise it a little, we're probably saying we better darn well get within it. I don't know how people will interpret that.",38
-fomc-corpus,1984,"A lot depends on the context and what we do for next year. It seems perfectly reasonable to me to say that we aren't going to tighten policy because of a lot of churning of funds relating to mergers. I would think we'd gain some credibility with that. It also would indicate that once these things are fixed they aren't fixed in cement and that we do adjust them to unfolding circumstances. If we then lowered the ranges for next year, that would minimize the risk of concerns that we're throwing away the discipline. To adjust would show more realism. Now, one can get at it the way you suggested, by saying: ""Here they are, but we're going to go over them."" It seems to me it's two ways to skin the same cat.",149
-fomc-corpus,1984,"Well, if I understand it, we're over them even without the leveraged buyouts, but not so much. And it seems to me that we might just say we are running over and to a considerable extent it is due to the leveraged buyouts and the mergers and so forth. We expect this damn fool nonsense to stop and, therefore, we haven't raised the ranges.",74
-fomc-corpus,1984,Particularly since Frank Morris has assured us that this is the one target that we did come in within the range up until the time we monitored--,29
-fomc-corpus,1984,"It still is. It's the only aggregate that predicted a 12 percent rate of growth in nominal GNP in the first half. Certainly, M1 didn't and M2 didn't.",36
-fomc-corpus,1984,May I talk a bit about what I think this credit variable is supposed to be?,17
-fomc-corpus,1984,Predicted or accompanied?,5
-fomc-corpus,1984,"Yes, what is this?",6
-fomc-corpus,1984,"In other words, if you were to have predicted a nominal GNP of 12 percent, you wouldn't be surprised to see a 13 percent rate of growth in total debt. That would be fairly in line with past experience.",46
-fomc-corpus,1984,"I would have thought the way we were supposed to use a variable like this--a monitoring variable that we're not targeting on--is as a variable that gives us some information about the adequacy of the monetary targets we set in the first place. M3 very much falls into that same category also. If we set ranges, say, of 4 to 8 percent for M1 and 6 to 9 for M2, and we think we're doing pretty well in those and get these gigantic increases in M3 and in credit, what we really ought to do is to lower our targets for M1 and M2. That's the logical thing to do. To go to the conclusion that what we should do is increase the target for the credit variable because we didn't anticipate it right is totally the wrong thing to do. If we're not gutsy enough to follow the logic to its conclusion, which is to pull the growth rates of M1 and M2 down--and I'm not going to suggest that we do that--at least let's hold to the targets for M3 and debt.",218
-fomc-corpus,1984,"It's getting time for cocktails, I think!",9
-fomc-corpus,1984,But it does tell us that the monetary policy in the first half of '84 has been much more expansionary than M1 or M2 would indicate.,31
-fomc-corpus,1984,"Yes, we provided a lot more credit than we should have.",13
-fomc-corpus,1984,Even though there are some distorting financial factors out there in merger actions?,15
-fomc-corpus,1984,"Well, but if you take out the 1 percent or so for mergers, we still end up well above the upper limit of the range for the first two quarters.",34
-fomc-corpus,1984,"But the 1 percent is a very feeble measure of the volume of leveraged buyouts, mergers, and acquisitions. It only measures the very biggest ones. And this phenomenon is happening throughout the industrial complex and the services [industry].",47
-fomc-corpus,1984,That's not how I understand it.,7
-fomc-corpus,1984,"If I understand the way they measure it, that is not the way they get the number. They say they get the number by the amount the stock was reduced. [Unintelligible] statistic.",41
-fomc-corpus,1984,It's not enough.,4
-fomc-corpus,1984,"Well, we tried to calculate every merger and make allowance for those that we can't itemize. So we really do think it is our best guess of the total. It could be short; that's clear because there's so much that is below the surface.",50
-fomc-corpus,1984,"Well, I won't pursue it any further. Let's dispose of this first thing in the morning. July 17--Morning Session",25
-fomc-corpus,1984,"I had a little research done overnight on a couple of factual points that arose yesterday. Let me just report the results of my research. Nonperforming loans of the big banks have been going up rather regularly--through March, anyway. They were 3.8 percent compared to 3.5 percent at the end of last year. From very incomplete reports that we have so far, my impression is that they have taken another jump in the second quarter. Mr. Boehne raised the question of impressions about wages--and I think we all have been surprised at the low level of the figures--and whether the figures are right. We went back and looked at wage settlements that have been reported so far this year and it's a rather interesting story. Let me read the list, which begins in January and goes more or less to date: Commercial builders in New York City in January--a big settlement, no cola, but 6-3/4 percent; Teamsters/Motor Express--minus 15 percent; Oil refineries, the first big settlement of the year--l-1/2 percent, no cola; Highway contractors in Pennsylvania--0 to 2-1/4 percent; Container industries, 17,000 production workers at the four largest companies--0; Fieldcrest Mills clothing--5.5 percent, no cola; Honeywell office machines--0, no cola; Minneapolis hospitals -- 4 percent, no cola; United Airlines flight attendants--6 percent increase over three years and they get it right away; Dow Jones & Co.--not, I think, terribly affected by business conditions--7-1/2 percent, a big one; Los Angeles hospitals--5 percent; Western Coal Mines, United Mine Workers, 10,000 people--2 percent, no cola; Hawaii hotels--4 percent, no cola; Southern California Gas--6 percent, no cola; Frontier Airlines--minus 11 percent; New Jersey building contractors, unlike New York--3 percent, no cola; Northwest Airlines flight attendants--6 percent, lower for new hires; Public Service Elec. & Gas, New Jersey--5-1/4 percent, but with lower pay for new hires; McDonnell Douglas Aircraft, 9,600 workers--0; Chain Food Stores, New York & New Jersey--5 percent, lower pay for new hires; Pipeline contracts nationwide agreement in June, 45,000 workers--0; Houston Power Co., a utility--3 percent, no cola in the first year; Cargo and Tanker operators, National Maritime Union, 20,000 workers--0, no cola; Chicago area contractors, 45,000 workers--0 to 2 percent, no cola; Niagara Power Corp., 8000 utility workers--5-1/4 percent, no cola; United Airlines, mechanics and ground crews--4-1/2 percent, lower pay for new hires, no cola. What is BNA? I don't know.",602
-fomc-corpus,1984,Bureau of National Affairs.,6
-fomc-corpus,1984,"A private outfit. I guess they update this and do some summary of wage agreements. For all industries the median first-year wage increase negotiated to date in 1984 is 2.8 percent, compared to 5 percent last year. From the report of the comparability survey of the government, average salaries among white collar workers increased between 3 and 6 percent over the year ending in March 1984, the lowest rate of increase in more than 10 years. That is the government's pay comparability survey. So, I think there is some comfort that what we see reported in average weekly earnings is not off the wall. We have some big agreements coming along and I only have the vaguest impression of them. The Post Office [workers] are in negotiation now and I understand there's some prospect of very little or no increase. As for mine workers, I don't know but I suspect they're far apart. There is another big one apart from the auto workers coming along. What am I forgetting about here, Jim?",206
-fomc-corpus,1984,Coal miners.,3
-fomc-corpus,1984,Coal miners I just mentioned.,6
-fomc-corpus,1984,Construction union?,3
-fomc-corpus,1984,"The automobile one is coming, and we know that's a big, dangerous one. I thought there was one other. The postal workers are very big as are the mine workers and [those negotiations] going on right now.",44
-fomc-corpus,1984,"You'd expect very little, if any, wage increase in the depressed industries. What explains the erratic pattern that in some nondepressed industries the increases are still extremely low, whereas in others--?",41
-fomc-corpus,1984,"Well, it's very clear that we're getting low settlements in some of the deregulated industries. There are two industries in particular: the airlines, which came up here again and again; and the construction workers, for which these aggregate figures show practically no increase in wages. The explanation I hear about that, despite very large increases in construction activity shown in these charts, is the threat of non-unionized workers.",82
-fomc-corpus,1984,"Not only the threat, but the utilization by developers of non-union workers.",16
-fomc-corpus,1984,"Well, in New York, they got [6-3/4] percent.",17
-fomc-corpus,1984,Did I understand that most of these are one-year contracts?,12
-fomc-corpus,1984,"Well, no. I think a lot of them are two-year contracts and this gives the first year. There was a variety, but I think these numbers were for the first year.",37
-fomc-corpus,1984,There seems to be a qualitative difference in the psychology in the country in that for the second year of a recovery people are being much more careful about wage increases. One can either attribute that to the greater intensity of the recession than some earlier recessions or to some feeling that they can't pass on these wages as easily in price increases. I don't know if there is any other explanation.,76
-fomc-corpus,1984,Or the competition that you mentioned yesterday.,8
-fomc-corpus,1984,Strike behavior has been very favorable.,7
-fomc-corpus,1984,"Let me raise another question while I think of it and we can return to it. These price estimates that everybody has given bother me a bit, partly because I'm not sure we should be in the public posture of saying our monetary policy is ineffective in keeping prices under control. It became very clear yesterday that you have a variety of assumptions about the dollar and I have no doubt that over a period of time--I don't know about next year--that can be a big influence, [particularly] if the dollar really fell out of bed. I wonder whether it would make some sense to have a standardized assumption on the dollar and do all these projections on the assumption that the dollar isn't going to be changed substantially, which would encompass a depreciation of 5 percent plus maybe, but not, I think, 15 to 20 percent. We could present the price forecast that way and say quite clearly in the material that these price forecasts are made on a standardized assumption that the dollar is not going to change very substantially and that if the dollar does decline substantially, everyone would be raising his inflation forecast appreciably. That would get us out of this business of evaluating different assumptions about the dollar, where I take it there is a good deal of uncertainty about the timing of any decline anyway, although there is a good deal of feeling that the dollar might decline, as I well understand.",274
-fomc-corpus,1984,"But there is still a difference. We did that, as I mentioned, and we still came up--",21
-fomc-corpus,1984,"Well, we're still going to have some differences; having differences doesn't particularly bother me. I think a certain dispersion of the estimates may even be helpful. I understand the overall level if one is assuming declines in the dollar. But I think that is a separable and an unknown factor.",57
-fomc-corpus,1984,"It concerns me that this injects a degree of optimism, not to say euphoria, into the approach that could mislead anyone who forgets the assumption. One really then always has to make another 1/2 or 1 percent adjustment to one's inflation expectation in order to be reasonably realistic.",60
-fomc-corpus,1984,If you assume the dollar is going down.,9
-fomc-corpus,1984,"Well, if it isn't, then one can say one deserves the dividend and bonus and perhaps one has missed a little bit of growth as a result of that.",32
-fomc-corpus,1984,"We missed by about 1 percent this year, it looks like.",14
-fomc-corpus,1984,A million jobs. The coal miners. Nothing significant!,11
-fomc-corpus,1984,[Unintelligible.],6
-fomc-corpus,1984,"Mr. Chairman, we had a little trouble with the [draft] wording of the continuation of the credit and policy stance, or whatever it was. I can't find it right now. But after we have voted on our long-run target ranges, I think this might bring us a little closer together.",60
-fomc-corpus,1984,"You all ought to have a chance to redo your forecast and I was planning that in the ordinary course of events. You may make any re-evaluation you want after the meeting and after any decisions we make. I'm raising the additional questions: Do we want to standardize the assumption on the dollar and, if we want to standardize that, how do we do it? I find it a little difficult to standardize it if [our report] says the Open Market Committee is unanimously expecting a big decline in the dollar. I just don't think that--",111
-fomc-corpus,1984,"Another aspect we have to think about is that if we have a standardized, very small decline in the dollar, that is going to touch not only the price forecast but also the real growth forecast. And it begins to look perhaps a bit artificial.",49
-fomc-corpus,1984,"Well, I don't know how much it would affect people's growth forecasts during this particular time period. I guess nobody is assuming any budgetary action next year. I'm not sure that's a good assumption.",39
-fomc-corpus,1984,We were.,3
-fomc-corpus,1984,Not enough to affect my numbers.,7
-fomc-corpus,1984,"Well, I don't exclude the possibility. I don't see any way out of the box. I wouldn't bet a lot on it, but there is a chance of their going after the budget after the election. I would not like to presume that that's impossible.",51
-fomc-corpus,1984,It may be politically very attractive to go after the budget after the election.,15
-fomc-corpus,1984,And come up with a mini-result.,8
-fomc-corpus,1984,"It's the going after it; it's the form, not the substance.",14
-fomc-corpus,1984,"They'll go after it, no question.",9
-fomc-corpus,1984,"Well, I mean an official program.",8
-fomc-corpus,1984,The Treasury is considering various tax proposals.,8
-fomc-corpus,1984,I don't think that is going to materialize in anything in 1985.,16
-fomc-corpus,1984,"With that same assumption we came up with a 2.9 percent real growth forecast for '85. That's not too different from the staff's, with their 15 percent [dollar] decline. I don't know why we come out so closely to the staff on both inflation and real growth when we don't have that dollar decline that they have. I haven't analyzed it. Dick [Davis], do you know the reason?",86
-fomc-corpus,1984,We are essentially [unintelligible] net exports.,12
-fomc-corpus,1984,Stronger somewhere else--,5
-fomc-corpus,1984,That's consistent with--,4
-fomc-corpus,1984,"Well, we can substantially overdo our ability to make any of these forecasts.",16
-fomc-corpus,1984,"That would be the reason I would support your suggestion of a standardized assumption, whatever the percentage is.",20
-fomc-corpus,1984,Let me return to that question later on.,9
-fomc-corpus,1984,"Let me mention something. This technique of no change in the exchange rates is one that the OECD has adopted [and followed] for many years as a result of a resolution. It is being questioned increasingly because it leads to conflicts with respect to projections made by the countries themselves, which contain all kinds of assumptions about their exchange rates. The same is true with respect to monetary policy. They are not allowed to make an assumption that their monetary policy--that is, budget policy--would be changed, whereas the countries that put in their projections have made whatever assumption they want to.",115
-fomc-corpus,1984,I don't know how I would interpret that.,9
-fomc-corpus,1984,"Well, I think we are moving in the direction that the OECD now is considering abandoning.",18
-fomc-corpus,1984,"But why did the OECD take the position in the first place, Henry, unless there had been some good and compelling reasons to get them to square one?",31
-fomc-corpus,1984,"It made countries angry to have their policies preempted, so to speak, by suggestion of the OECD Secretariat. It looked like implicit policy advice. So to do it that way was the neutral and simple thing to do. I'm not sure what the IMF does.",53
-fomc-corpus,1984,"They do the same thing, Henry. Of course, the Administration also does it, but for reasons on the political [side]. They do it for reasons of sensitivity--the same reason the Chairman cited, if I may put it that way.",49
-fomc-corpus,1984,"Doesn't it get a little embarrassing, Paul, if you're asked by the [Congressional] Committee about the reasons for the wide spectrum [of views] among the members of the FOMC? If you said that some of them assumed a 15 percent [dollar] decline and some of them didn't assume that, is that going to look a little strange up there?",76
-fomc-corpus,1984,"Well, it doesn't make me too happy. I'm not sure I've thought this all through, but I think I would rather say that it's based upon an assumption that may or may not be right that the dollar is unchanged or that if it does change, as everybody thinks [is likely], there is a substantial danger that one would have to add 1 percent or so to these figures.",77
-fomc-corpus,1984,"After all, what is the mental process by which we ourselves arrive at these numbers? I would say there is a fair chance that the dollar will decline. I don't know by how much and I don't know how great the probability is. I pushed my numbers a little in the direction that reflects this possibility. It's all a matter of probabilities and of having some ranges in mind, but I don't have a fixed assumption that the dollar will or will not depreciate.",92
-fomc-corpus,1984,"My main conclusion is that not too much weight should be put on these economic forecasts, but people look at them; they didn't look at them all that much in the past. I think the staff had an assumption of a big decline in the dollar a year ago; in fact, that may help explain why the inflation picture is better. It doesn't explain why the economy is doing a lot better than the staff projected a year ago.",86
-fomc-corpus,1984,"I was just doing some calculations this morning, Mr. Chairman, which indicate that the dollar in June was only 8 percent above its peak.",29
-fomc-corpus,1984,It's 8 percent above?,6
-fomc-corpus,1984,"It's 8 percent above where it was in November of 1982, which in the way these things go I'm not sure is much of an appreciation anyhow. It happens that November '82 was the peak; it was the trough of the recession. Recently it hit another peak but the peaks have not been that far apart. It has been more level, I think, over the period despite [unintelligible], in part buoyed by the rise in interest rates.",95
-fomc-corpus,1984,"The way the dollar bounces up and down, I think a decrease of 10 percent may be insignificant!",22
-fomc-corpus,1984,"One sees these things in hindsight. If we had waited 10 years, we wouldn't have had to float the dollar.",24
-fomc-corpus,1984,"Let me return to picking out these targets. On 1984, I'll make another attempt to see whether we can dispose of it relatively quickly. When I said no change yesterday, I thought I noted some oral acclamation. I may have been wrong about that because people began saying they disagreed. But let me just try something out to see whether we can [agree] without spending a lot of time on this. Suppose we keep them the same with a very clear caveat that we're keeping M3 and debt the same and expect to come in over the ranges for them but are not too happy about that. Is that the best way to present these? The alternative, obviously, is to increase the M3 and debt ranges. Among Committee members, is that the desirable course?",157
-fomc-corpus,1984,I would like that.,5
-fomc-corpus,1984,Apparently a couple of people think that's not the desirable course.,12
-fomc-corpus,1984,"Mr. Chairman, it is just a matter of emphasis. It would seem to me that in the presentation we shouldn't couple the importance of M3 and debt. We are learning something about what information the debt numbers will give us. My only footnote to that to join the raised hands would be that we differentiate between the two aggregates. M3 is more important.",73
-fomc-corpus,1984,"The debt range is awfully high. It seems to me inconsistent with any--. Mr. Prell gave me a figure after the meeting yesterday, but I don't know whether it made me feel better or not. If I understood it correctly, the trouble here is knowing what the base is. If you took net issuance of debt and equity this year and used as a base debt outstanding plus the market value of equity, which is a big question, the rate of growth would be about 9 percent.",101
-fomc-corpus,1984,"Well, my preference would be to do the alternative, but I can accept the approach that you suggest.",21
-fomc-corpus,1984,Is there anybody else who feels that way? My problem with the alternative--and I think we could do it either way--is that if we raise them we really have to say we're going to try to meet them. And then there's the question of how far to raise them. I think the worst of all worlds is raising them and then saying we're going to go over them anyway.,77
-fomc-corpus,1984,And we are so uncertain about the merger/ acquisition/LBO component of debt that I don't see how we could--,23
-fomc-corpus,1984,"Well, I think that is a good argument. It may be best to say ""Here they are"" and then say ""Hell, we don't know.""",31
-fomc-corpus,1984,Leave out the interjection in the testimony!,9
-fomc-corpus,1984,"Let's tentatively assume that's what we're going to do then, and return to the '85 targets.",20
-fomc-corpus,1984,"If you put a lot of emphasis on the mergers and the LBOs, you're going to be asked to send out a letter asking the bankers not to finance that activity.",35
-fomc-corpus,1984,We already sent out a caution on the LBOs.,12
-fomc-corpus,1984,"It may not be the worst thing in the world to send one out. For 1985 the proposals here, which we don't have to limit ourselves to, range from no change to partial change to reducing them by roughly a half point. I will entertain any comments.",54
-fomc-corpus,1984,"The whole thing boils down, of course, to the forecast on the velocity of circulation. I gather from this that Steve is projecting that in a year in which we don't have substantial price increases, the long-term average [growth rate of the] velocity of circulation for M1 is 2. Is that correct? And you are not talking about seeing relatively modest interest rate increases next year; you're talking about substantial--.",84
-fomc-corpus,1984,In the projection we have very modest interest rate increases.,11
-fomc-corpus,1984,"If he's really right that the long-term average [growth rate] is 2--and I don't have a view on that, I just assume that he's correct--then it seems to me that we probably should confine the M1 growth rate to 4 to 7 percent or else we might pump in too much money. On the other hand, my instinct is maybe to go down only a half point in this midyear preliminary proposal in order to preserve room in February of next year to go down all the way to 4 to 7 if that still looks [appropriate]. That's because it would be much harder to move up a half point if we go to 4 to 7 percent now; then it's going to look bad to retreat by that half point. So, even though I think there is an intellectual case at the moment for 4 to 7 percent, tactically I think we would be better off moving cautiously now and if the situation is still the same in February of next year, going all the way to 4 to 7 percent.",215
-fomc-corpus,1984,"Let me just observe, along the lines of your concerns about velocity, that something like 4 to 7 percent or whatever number you pick looks pretty good compared to the staff's nominal GNP forecast. Yesterday [we noted that] the staff's nominal GNP is below everybody else's except for one; quite a few of the nominal GNP forecasts are around 9 percent and some are as high as almost 11 percent, which raises the greater question of consistency.",94
-fomc-corpus,1984,"Well, the question is whether we want to have 11 percent.",14
-fomc-corpus,1984,"Not only that but if you had a stronger GNP forecast and more price inflation, then you probably would be talking about increases in nominal interest rates, in which case you're no longer confined to the projection of velocity that assumes that interest rates are unchanged.",50
-fomc-corpus,1984,It seems to me that we ought to be thinking of nominal GNP of 8 percent as about right next year. And we ought to have money numbers more consistent with GNP around 8 percent.,41
-fomc-corpus,1984,"Well, 8 to 8-1/2 percent.",13
-fomc-corpus,1984,Yes. Let's say 3 percent real and 5 percent on prices or 3-1/2 percent real and 4-1/2 percent prices.,33
-fomc-corpus,1984,"Well, that's fine with me. I just hope the forecast--",13
-fomc-corpus,1984,I hope we are right. That's an indicator of possible difficulty if the forecast is higher than that because it means higher rates and all that.,28
-fomc-corpus,1984,It means we would adjust the ranges.,8
-fomc-corpus,1984,Or let [interest] rates go up because we don't want that much GNP.,17
-fomc-corpus,1984,Or don't want that much inflation.,7
-fomc-corpus,1984,"But your point, Chuck, then also tends to work in the direction of concluding that a 4 to 7 percent range makes sense.",28
-fomc-corpus,1984,"I think I would agree with that. But I also agree with the other thing you said. I don't know if it's possible to preserve any freedom, but if we can preserve any freedom, we ought to try to do it for early next year.",50
-fomc-corpus,1984,"With velocity growth moving from 2-1/2 to 4-1/2 to a presumed 2 or [a little less than] 2, we better leave some degree of freedom, by going to 7-1/2 percent rather than 7 percent for a top.",60
-fomc-corpus,1984,"Well, historically, I think we have made these moves at midyear. That is, we have changed the ranges at midyear and then confirmed them in February. I could visualize the market watching us and saying ""Well, they've decided not to continue [to move the ranges] downward."" I think this could send a wrong message.",67
-fomc-corpus,1984,"Well, no. We still would be moving them downward; I'm talking about at least 1/2 point.",23
-fomc-corpus,1984,"Oh, you do want to go down?",9
-fomc-corpus,1984,"Oh, yes.",4
-fomc-corpus,1984,Instead of saying alternative II at this point.,9
-fomc-corpus,1984,"I would move down a half point now and then if the substantive case is still solid in February I'd move [down] another 1/2 point. After last year we made some significant revisions between the preliminary targets adopted in July and those adopted later, in February. It would be a little embarrassing, though, to move a full point now and then, if we felt we had to retreat, move up 1/2 point. That's why I'm suggesting this other sequence. You're shaking your head skeptically.",103
-fomc-corpus,1984,"Well, I'm just trying to imagine the circumstances. I don't think it's so hard moving [the ranges] up if the economy isn't doing well. It depends on all the circumstances. If inflation is doing well and we get no increase in velocity, we would say we're getting no increase in velocity and move up. That's a very favorable circumstance.",68
-fomc-corpus,1984,Suppose inflation isn't doing well but you can't be as tight in your monetary policy for international reasons or whatever. Then that's not so good.,28
-fomc-corpus,1984,Then you leave the targets where they are and [let growth] run over them.,17
-fomc-corpus,1984,I think that's the alternative--running over a little.,11
-fomc-corpus,1984,"I think we mainly have to ask ourselves what sort of message we want to convey now with the targets for 1985. In this connection, we ought to be thinking about what we're going to do with the others before we decide what we're going to do with M1. My guess would be that one would have a pretty hard time arguing for a reduction in the target ranges for any of the other aggregates. M3 and credit probably are going to end up way over the upper end of the range [this year]. If we can get back down into the range for 1985, we will be doing well. For M2, there's a case [to be made] that its current behavior will persist, but the current behavior is really very, very odd relative to historical trends. Normally speaking, we don't expect to see much velocity increase for M2 over time. So, I would argue that we'd be better off now to play it safe and leave the ranges for M2, M3 and domestic nonfinancial debt where they are. Then that would argue, if we want to do something that conveys a message, for dropping off a percentage point from the top of the M1 range and being ready to go back up if the circumstances strongly recommend that in February.",255
-fomc-corpus,1984,"I think the limitations on that kind of policy would be the emphasis we would then be putting on M1. If we single that aggregate out and reduce that one, that's the signal to watch M1 for a signal of our policy.",47
-fomc-corpus,1984,We could color that by noting that we've been looking at a range for M1 that was 1 percentage point wider than those for the other aggregates and now that the velocity of M1 is beginning to behave along a more normal cyclical pattern we changed the width of the range to 3 percentage points.,61
-fomc-corpus,1984,Is it beginning to behave or are we assuming that it may behave in a more normal cyclical pattern?,21
-fomc-corpus,1984,It's been all right for a couple of quarters.,10
-fomc-corpus,1984,"Oh, a couple of quarters!",7
-fomc-corpus,1984,"I think there's as solid an intellectual argument for 5 to 8 percent for M2 as there is for 4 to 7 percent for M1. Why would the assumption of roughly, let's say, 0 to 1 percent velocity of circulation for M2, be any different than a 2 percent assumption for velocity of circulation for M1? I don't think that's any shakier. We've been running about 1 percent, haven't we, for velocity of circulation for M2?",99
-fomc-corpus,1984,"It's a little higher than that recently, but it's very erratic.",14
-fomc-corpus,1984,What's surprising about M2 is how low it has been running.,13
-fomc-corpus,1984,What would the secular trend be on M2?,10
-fomc-corpus,1984,"Well, we keep saying it's zero, but I would take that with a grain of salt.",19
-fomc-corpus,1984,It depends on the model one is predicting from.,10
-fomc-corpus,1984,But wouldn't you say that M3 at any rate has a lower velocity than M2?,18
-fomc-corpus,1984,"If my memory's right, historically, the growth of M3 runs a little higher than that of M2 so its velocity growth would run a little lower, and that has been our very recent experience. It might be worth giving our point estimates for 1985, Mr. Chairman: On an assumption of M1 growth on the order of 5-1/2 to 6 percent, we would have M2 growth around 7 to 7-1/2 percent, M3 growth on the order of 8 percent, and debt [growth] declining to around 10 percent for 1985.",125
-fomc-corpus,1984,That's based on your economic forecast?,7
-fomc-corpus,1984,On 8 percent nominal GNP growth.,9
-fomc-corpus,1984,What did you say for Ml?,7
-fomc-corpus,1984,We've assumed 5-3/4 percent as a point estimate; 5-1/2 to 6 percent seems to me the area--,30
-fomc-corpus,1984,"But that's with only an 8 percent nominal GNP, which I remind you is lower than everybody's forecast except the staff's.",27
-fomc-corpus,1984,"Personally, an 8 percent nominal GNP as a goal--as distinct from a forecast--is very appealing to me because I think the optimum that one could reasonably think about for 1985 is something like 4 percent [real] and 4 percent [on prices]. In my mind, to the extent that nominal GNP grows faster than that, it would increase the likelihood that more of it would be prices and less of it would be real. So, primarily for that reason, if I think about '85 from a policy viewpoint and what we should be shooting for, I come out with around 8 percent nominal. In terms of the targets I am more than a little attracted to Tony's thought, but my initial thought had been 4 to 7 percent for M1. But as I said, Tony's point has some merit. Personally, I would go with 4 to 7 percent, 5-1/2 to 8-1/2 percent, leave M3 where it is, and use 8 to 10-1/2 percent on credit. The bottom of the credit range doesn't matter at all, but I do think that shaving a half point off the top of that has some value. As I've said before, I am really troubled by this explosion of credit that we are seeing. That consumer credit number yesterday is another indication of this. Gosh--a 30 percent annual rate of increase in consumer credit! That's where I would be.",302
-fomc-corpus,1984,"Jerry, you mentioned around 8 percent on nominal GNP for 1985; I'd be more in the 8-1/2 percent area or, optimistically, even 9 percent. I think we'll do better on the deflator again as we've done better on the deflator repeatedly in very recent history. I demur from the staff's productivity projections, as you know. And on that basis, I would leave the ranges for the aggregates where they are for now, as under alternative Roman numeral I. Then I'd be hopeful that in the review of 1985 a few months from now, we could either take the top of M1 down to 7 percent or, more importantly, take the top on M2 down to 8-1/2 or even 8 percent, as we see what happens to velocity. The velocity variability has been so substantial that I'd hate to have the Chairman saddled with those assumptions in his testimony.",192
-fomc-corpus,1984,"Let me ask a basic question. I don't understand Jerry's remark. If you're presenting the range of views of the FOMC and all of us are above the 8 percent that the staff has, are you going to come up with an 8 percent figure and ignore the FOMC members? Is it the staff who make that assumption? Don't you have to adjust to an 8-1/2 percent [assumption for GNP] or whatever it may be?",97
-fomc-corpus,1984,"I suppose theoretically we can say that everybody thinks it's going to be higher but, ideally, we want it lower. That's what we seem to be saying. MR. CORRIGAN(?). Tony, that's not what I--",46
-fomc-corpus,1984,The staff's views are of less value than the FOMC's! [Laughter.],19
-fomc-corpus,1984,"Those numbers are not very useful, if we agree to standardize an assumption on the value of the dollar. Certainly, our number would be lower on that assumption by 1 percentage point.",38
-fomc-corpus,1984,Mine too.,3
-fomc-corpus,1984,Because the deflator would be lower.,8
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Yes, but there are some other things you have to assume.",13
-fomc-corpus,1984,I think you've misunderstood what I was saying. I was not suggesting anything like what you just said; I was making a different point. A forecast is one thing. But part of the objective of policy isn't to accept the forecast; part of the objective of policy is to try to influence the way in which the economy behaves. I am simply saying that.,71
-fomc-corpus,1984,"Well, you have a bit of a problem, I think. At this stage that's right. But once you've set the policy, you should go back and look at the forecast, theoretically, I guess.",41
-fomc-corpus,1984,"You start off with the policy too, but in the latter context of trying to have policy influence the economy in the most constructive way--",27
-fomc-corpus,1984,"Yes, [but] 8-1/2 percent is still a pretty ambitious target.",19
-fomc-corpus,1984,In regard to this year?,6
-fomc-corpus,1984,He means in terms of cutting [inflation].,10
-fomc-corpus,1984,"I mean considering the price inflation--keeping that [moderate]. After all, this is the third and last year of a recovery! [Laughter.] In the two previous ones the inflation hit what--12 to 14 percent at the peak? If we can confine it to 5-1/2 percent, that's going to be quite a triumph, I think.",76
-fomc-corpus,1984,But my point is that the economy is going to function in such a way that it will be confined. It won't be exclusively [the result of] what we do.,34
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Well, Mr. Chairman, we forecast an 8-1/2 percent nominal GNP for 1985 and that includes some depreciation of the dollar. Now, that's a forecast. I also think that that would be a pretty good objective to try to reach as well. With that in mind, as I look at the specifications for the monetary aggregates, I'm inclined to go with alternative II. I think that M1 range of 4 to 7-1/2 percent is about right. It gives us a bit of maneuverability at the top end. I'd leave M3 and debt where they are. M2 gives me a little trouble. I would like to show some downward movement in that aggregate. On the other hand, it has been growing at a fairly slow pace, as we all know. The Bluebook mentions the fact that we're going to have some financial changes due to the [regulatory] decrease in the minimum level of various accounts and indicates that those changes probably will have a minimal effect. On the other hand, even a minimal effect might have an impact of moving M1 in the direction of more rapid growth than we've had. What I'm saying is that there's not much maneuverability if M2 moves a little faster than it has. So for that reason, I think one could make an argument to move the M2 range up to 6 to 9 percent.",281
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"I would feel most comfortable with alternative II. I think it does send out the signal of continuing this longer-term goal of reducing inflation. It still gives us some flexibility, and I think it's consistent with our general ignorance about next year.",47
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. I also would opt for alternative II. I'm puzzled, however, why there is a narrowing of the [M2] range to 2-1/2 points as opposed to 3 points and, as a result, I would alter alternative II to 5-1/2 to 8-1/2 percent [for M2]. We also came out with 8-1/2 percent nominal for 1985 and alternative II may or may not be consistent with that; but I am persuaded by Tony's strategy, if you will, to do 1/2 point now and if it looks as if in February some other change could be made on the down side, then I would opt to do it then. It leaves us some flexibility for movement in February.",165
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"To speak about M1 for a moment: When we revised the M1 targets because of the problems we were having with velocity and the NOW account assumptions and so forth, if my memory serves me right, we moved them up 1-1/2 percentage points on the bottom of the range and 2-1/2 percentage points on the upper end of the range. Now, with the threat of future inflation and the course of fiscal policy being slow [to adjust] in the future and, of course, with our increasing confidence in velocity of M1, I'd like to see the M1 range narrowed first and lowered second. I would narrow it because of the reduced uncertainty. That brings me to something like alternative III. I suppose between the two options [for M1] in alternative III, the 4 to 7 percent is more appealing to me because I think the upper end of the range has been particularly meaningful to us in the Committee as we've operated. But I'm a little uncomfortable even with 4 to 7 percent because I, like some other people around the table, like the idea of 8 percent nominal GNP as a policy objective. And I'm a little uncomfortable with assuming 2 percent velocity [growth]. I think we might get velocity coming in a bit higher than that. So, as I say, the two things I'd like to see are a narrowing of the M1 range and a lowering of the M1 range. And 4 to 7 percent doesn't quite make me comfortable at this stage.",309
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, Karen has pretty well made my talk except that I feel comfortable with a 4 to 7 percent range. I would go with all the ranges under alternative III. But I'd just like to emphasize a bit more perhaps than she did that I think equally important is our decision on the emphasis that we will put on Ml. With velocity picking up and the money market models tracking M1 much better than usual, that suggests to me that M1 may be reassuming its more traditional relationship with GNP. So, I would like to make another quick pitch to restore M1 to at least its former full position of equality. Of course, I'd like to push it a little more.",140
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"In my view, the options are between alternatives I and II. One could make a compelling argument for ""I"" on the theory that, given the forecasting uncertainties that we talked about yesterday as well as the now compounding velocity considerations, we could just simply leave the present ranges in place and suggest that when the year is over and we're setting the targets more firmly in February, we will take another look. But a bit more compelling is the message that would be conveyed. Therefore, I would come down on option II with the thought that it is a continuation of a program that we have been embarked on. I [support] Tony's argument that if, as we get into next February, the history is such that we could go down to 7 percent, that would be appropriate too. So, I think it's a close balance, but of the two I'd come down for option number II.",179
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"I agree with Tony that the intellectual argument is for 4 to 7 percent, with Lyle that the message is much more important than the tactics, and with Karen that narrowing is the critical thing at this point. I think we need to have a strong message. We have a very strong momentum going here and I'd much rather see us, if necessary, run over [the range] and say we're working toward something that we think is satisfactory in the long run, which is what we're talking about here. So, I would prefer to see us have a 4 to 7 percent band on M1 and that range should be very comfortable whether velocity growth is 2 or 3 percent.",140
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"In deciding between alternatives II and III, I'm influenced by our staff's forecast of velocity for the coming year. We expect it to continue to show a significant rise--certainly above the less than 2 percent that the Board's staff has forecast. After all, the first half of this year is up, with a 4-1/2 percent annual rate. We look at it on a quarter-by-quarter basis; we've had three significant rises in velocity and we expect that to go up further in 1985. Who is right, of course, remains to be determined. But based on that and based on our views of long standing here that we really need to restore M1 to at least its former position--I agree with Bob Black on that--I would come down in favor of alternative III, using the 4 to 7 percent option.",173
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"Well, I don't think we ought to reduce the lower end of any of the ranges. Regardless of whether or not they have been an issue, they would become an issue if there should be a flagging in the economy and [monetary growth] should drop down toward them. And it seems to me that at this stage of the recovery there's no reason we should want to have very low rates of increase in any of the aggregates. So, that leads me to alternative II. Leaving M3 and debt as they are this year is certainly reasonable and appropriate when one considers that growth is going to be over on both of them this year. So, I think that's right. I would cut the top on M2 to 8-1/2 percent as alternative II does. I'm sympathetic with Lyle's point. We don't really know what has been going on there, but my view is that we ought to show some progress and if, in fact, something has been odd about it, we'll just have to run over a bit. On M1, I'm sympathetic to the idea of narrowing the range and I would make it 4 to 7 percent--choosing from alternative III in that case--accepting not the midpoint as our target but someplace within the range, and very possibly toward the upper end of that 4 to 7 percent range.",274
-fomc-corpus,1984,Ms. Seger.,5
-fomc-corpus,1984,"Perhaps because I live in Si Keehn's District, I'm inclined to emphasize the uncertainties that we seem to face today and the lack of our ability to hit bull's eyes with forecasts. Therefore, I think it makes sense to go either with alternative I or possibly to pick up for M1 the 4 to 7-1/2 percent range, which would be simply a signal of narrowing the range a bit. This would leave us with the option in February to review the situation and at that point take off another half point from the upper end. It leaves us more latitude to move. My basic reason for going this way is that I'm impressed by the slowing that I see in the economy. Certainly, at least in the Detroit area, [economic activity] is way above where it was two years ago and yet the rate of increase is definitely slowing. And I'm also impressed by the chances for an auto strike this fall. No one knows for sure, certainly, but I think that definitely is a possibility; and if it does occur, chances are good that it would be [against] GM which would put a big dent in overall economic activity. So that's on my mind. Also, I think we have made some tremendous changes in the economy that are not showing up yet in the econometric models, etc. In terms of our basic inflationary problem, I think the capacity figures are underestimating what the capacity is in this country; therefore, I believe the capacity utilization rates show us operating much more closely to our ceilings than, in fact, is the case. Also, looking in a very microeconomic way industry-by-industry, it's hard for me to find one that's in a boil or is really bumping against or even close to its ceiling. So, that influences me. On the productivity question, I think there are changes going on in the business community that are really dramatic: a great commitment in manufacturing to modernize, to adopt the latest technology, and to gut existing factories and put in more modern kinds of equipment. I think management today realizes that they either have to do this or they are not going to survive very long; that commitment is really there. Also, with the improved profits, they are able to fund some of these improvements, which is very important. It probably doesn't show up in our productivity numbers right this minute, but I think it definitely will show up. In non-manufacturing industries also, I think management has a commitment to greater efficiency. The profits squeeze back in '81 and '82 and a little in '83 really punished them. There's a bottom line discipline in business that maybe people in government don't understand. And I think that also is going to show up more and more. Finally, in terms of wage settlements, there are obviously the union settlements that the Chairman referred to, but there are also a lot of nonunionized workers and a lot of small businesses that Mr. Boehne's personnel department doesn't bother to include in its survey. And many of these employers haven't given any wage increases for the last couple of years; a lot of people were just darn happy to hold onto their jobs which, again, is a big change in attitude. And the fact that we have had good inflation numbers in '82 and '83 and so far in '84 is convincing management that they can be tougher. Furthermore, they are doing more discriminating in the good sense of the word; that is, they're trying to reward the producers and the high achievers very well and the ""dud"" types can get zero or something less than zero. So, all of this to me suggests that the inflation outlook for next year is probably somewhat more optimistic than I've been hearing around this table. Thank you.",754
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"I'd say M1, 4 to 7 percent; M2, 5 to 8 percent; M3, 5-1/2 to 8-1/2 percent; and debt, 7-1/2 to 10-1/2 percent. When the chips are down, I think it's the upper end of the range and not the midpoint that really sticks in peoples' minds. Four to seven percent, therefore, means--if we're lucky on velocity--nine percent on the nominal GNP, or it could be ten percent. And I think that's too high. That does not give us a chance for a soft landing. As between M2 and M3, I would like to introduce the old differentiation there because I sense that there is a difference; but I don't have a very strong conviction. On debt, it troubles me very much to see this rapid expansion. The consumer credit numbers are not the results of any buyouts or mergers. So, I would be very reluctant to see that raised simply to adjust to what may be a reality. We ought to indicate that this is a target rather than a projection.",233
-fomc-corpus,1984,"It's kind of like a hippopotamus, Henry!",11
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Well, Mr. Chairman, being a bit of an outlier in terms of the forecast, I don't think it is overly surprising that alternative III has appeal to me. I'd take 4 to 7 percent for the M1 range and M2, M3 and --",55
-fomc-corpus,1984,Because it's so inconsistent with your forecast.,8
-fomc-corpus,1984,"I would take the [alternative III] M2, M3, and debt ranges as presented in the Bluebook. I will concede that Tony's argument, in terms of the presentation and the flexibility it would give us, has some appeal. If we were doing this in February, I would feel much stronger in that view than I do right now. But I lean toward ""III.""",78
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Mr. Chairman, I think it's much more logical for us to be setting targets for '85 in February than it is in July the preceding year. In the past we have typically--",37
-fomc-corpus,1984,We tried that once.,5
-fomc-corpus,1984,"Well, that is one reason that I like alternative I--that is, no change in the guidelines for the moment. That's not with any conviction that we wouldn't want to change them in February but, obviously, we'll have a lot more information in February in setting these ranges than we do now. That seems to me a good argument for staying with the present guidelines, with the understanding that we might, and probably would, want to change them in February. I think that would be a better procedure than doing what we've done in the past when we have changed the guidelines at midyear and then felt that we were more or less stuck with those guidelines in February when we really ought to be doing our basic thinking",141
-fomc-corpus,1984,"I really don't think that option is open to us. If you will recall, everybody was on the Committee when we tried precisely that one year and got sent back like bad boys to go do our work over again. We were told to come up with the guidelines for the following year in July--that that was what the law required.",67
-fomc-corpus,1984,"Well, I'm not saying that we don't present some numbers.",12
-fomc-corpus,1984,"Well, you're coming pretty close to saying that.",10
-fomc-corpus,1984,"We also would be operating for at least a month, or more than a month, before we really decided what our targets for that period were.",29
-fomc-corpus,1984,"Well, that's true, but the kinds of changes we're talking about here are not so dramatic that that is particularly operational.",24
-fomc-corpus,1984,"Does anybody else have anything to say? Well, let me try this in reverse order. After listening to this, I come out very close to where some other people came out, but without a complete sense of conviction. On debt, we are all conscious that we're running way above and I don't hear any great sentiment to reduce that very much. You put down 8 to 11 percent; that bothers me a bit. No, let me start differently. From what I hear people saying, in terms of policy--and this encompasses most people's, but not everybody's, forecast--we are talking about a nominal GNP of 8 to 9 percent. There aren't many at 8 percent--only the staff. There are a lot between 8-1/2 and 9 percent and some above 9 percent, to be sure. But in terms of a policy objective I sense that that's about where we are. If that's where we are, a debt range of 8 to 11 percent, which is unchanged and allows for a larger growth in debt than GNP for the third or fourth consecutive year, is not an entirely happy circumstance.",233
-fomc-corpus,1984,"Well, the midpoint of that range would be compatible with an 8-1/2 percent growth in nominal GNP.",25
-fomc-corpus,1984,"Well, it's 1 percent higher.",8
-fomc-corpus,1984,"Yes, but I think one would expect that in a third year of expansion.",16
-fomc-corpus,1984,"What I'm saying is that if I had any question about it, just as a normative proposition, I'd make it 8 to 10-1/2 percent or someplace in that neighborhood. For M3, 6 to 9 percent seems to reflect a lot of the thinking, I guess on the basis that the debt has been running high and it certainly allows us enough room on the down side. On M2, we get more questionable. If we're giving weight to running high on the others, we might give a little weight to running low on M2, and in the interest of showing some decline go with a range of 6 to 8-1/2 percent. I don't know; it may be psychological, but perhaps it doesn't look too bad. When we get to Ml--. What has nominal GNP been in the first half of this year?",176
-fomc-corpus,1984,12 percent.,3
-fomc-corpus,1984,"On M1, I get a little concerned. It has run about 7-1/2 percent so far this year--within the range--with the 12 percent nominal GNP. If we're aiming for an 8 to 9 percent nominal GNP, based upon recent experience it seems to me that the range ought to be lower or we will give a rather peculiar signal. Then it's a question of how much to lower it. If you allow a 2 to 3 percent velocity increase, 4 to 7 percent seems all right and gives the right signal. Then we get into this tactical question of whether to do a half point now and maybe do a half point later. Just sitting here, I don't have any absolute final conviction about this. It has been running 7-1/2 percent so far this year; announcing that we're satisfied with 7-1/2 percent next year but are looking toward a decline in the nominal GNP on the order of 3 to 4 percentage points strikes me as a bit peculiar. I'm assuming here that we don't put tremendous weight on the midpoint and that the most operative thing tends to be the upper limit. A number of people have said and a lot of people would interpret that as the same growth in the money supply next year as this year with a hope or stated objective of having substantially lower nominal GNP growth.",280
-fomc-corpus,1984,"Well, except that we expect the velocity of circulation to come down significantly from the 4-1/2 percent it has been running over the first half of this year.",35
-fomc-corpus,1984,That would be true even if it were cut in half; the 7 percent would allow for that.,21
-fomc-corpus,1984,I think there is an intellectual argument for 4 to 7 percent.,15
-fomc-corpus,1984,"What I just put down here is the same as a couple of people have suggested: 8 to 11 percent; 6 to 9 percent; 6 to 8-1/2 percent; and 4 to 7 percent. And I think implicitly we weight them all equally. There are a whole lot of caveats around all of them, as Mr. Axilrod suggested.",81
-fomc-corpus,1984,"The problem that I see with that is that if we use 4 to 7 percent, I can conceive of a situation next February where 7 percent might be too low. And it is difficult, I think, to raise it; it's easier to drop it. I'm not sure we convey any more of a message if we drop it by a whole point now and couch it in all these ""iffy"" terms. That's the main problem that I see with going all the way to 7 percent now. It does tend to foreclose on some of our flexibility.",114
-fomc-corpus,1984,"Well, what could happen next February? None of us knows. Let's suppose we're running above that [range] next February for good and understandable reasons; that must mean that we're worried about something--interest rates or something in the economy. In that kind of scenario we would go [to Congress] and say, ""Look, you haven't done anything about the budget. We can't hold it by monetary policy alone without running undue risks. We're going to have to raise this target and that is all the more reason [you] ought to be working on the budget deficit.""",113
-fomc-corpus,1984,"If we raise the target, then they are going to feel less pressure to work on the budgetary deficit.",22
-fomc-corpus,1984,"Well, we haven't made the decision. It's at least debatable. I don't know whether they will or won't.",23
-fomc-corpus,1984,You have more faith than I do.,8
-fomc-corpus,1984,"We would do that, I think, in a situation of considerable upward pressure on interest rates and then say, ""Well, we just can't hold the money.""",32
-fomc-corpus,1984,I think the circumstance in which we couldn't hold the money is when we're having significant upward pressures on interest rates.,22
-fomc-corpus,1984,A 7-1/2 percent top for M1 wouldn't be enough of a signal?,19
-fomc-corpus,1984,"Well, I think that's what we're debating here. I don't know whether it's enough or not, but it looks pretty mealy-mouthed. It depends on how one interprets it. If one interprets it as the midpoint, it's okay. If one interprets it more as the operative [number], what one really gets concerned about is breaking through the top, which I think is more the reality in this situation. And it looks like not much.",92
-fomc-corpus,1984,"But in the context of M1 running high in its range, it would signal more of a constraining message, I would think.",27
-fomc-corpus,1984,Not too bad an idea.,6
-fomc-corpus,1984,"I'm not saying it's a bad idea, but I'm saying if you're looking at how it is going to be interpreted--",23
-fomc-corpus,1984,"Well, we're using the present projection, which is for substantially slower growth in nominal GNP than we're now getting. The whole thing is based upon that assumption. It may be wrong. Who can tell all about it? But I think that is the assumption either as a forecast or as an objective that we're faced with.",64
-fomc-corpus,1984,"I think one ought to put this in a somewhat longer-run context also. That is, if the Federal Reserve is still setting as an objective a long-run return to price stability, we do have to contemplate a gradual reduction in growth in all the monetary aggregates over time. This is now the fifth year of this long-range program and we are talking about setting targets for the sixth year. And we begin to worry about an upper limit of 7 percent? That looks a little bizarre to me in the context of where we're supposed to be going. After all, if the long-run growth of velocity is 2 percent or thereabouts, with no rise in interest rates then we're going to have to get M1 down somewhere in the neighborhood of 2 to 3 percentage points--given what we think is potential growth--to get back to price stability.",171
-fomc-corpus,1984,"I don't know. There may be no long-range growth in velocity. I don't discard that hypothesis entirely in the present world, in which case this is going to be too low and we will just have to say that. We don't have the evidence to make that case right now.",56
-fomc-corpus,1984,"Well, assuming that you are right and that Lyle is right, don't we get more psychological impact if we reduce the upper limit twice--one-half point now and one-half point in February, if things still look promising--rather than going down one point now?",53
-fomc-corpus,1984,It might be pretty hard to make that second half-point reduction.,13
-fomc-corpus,1984,Why?,2
-fomc-corpus,1984,"Well, there would be a new Administration setting out on a new term and all that. I can see that there might be some political problems.",29
-fomc-corpus,1984,But the election would be over.,7
-fomc-corpus,1984,"I know it would be over. And whichever party wins, there would be the new plans for the next four years.",24
-fomc-corpus,1984,"Well, let me forget about M1 at the moment, just for the purpose of advancing the discussion. Do the other three look broadly acceptable or even narrowly acceptable? SEVERAL. Yes.",39
-fomc-corpus,1984,Are we just talking about Ml?,7
-fomc-corpus,1984,I would like to raise a question again about M2. Why narrow the range of M2? What's the impact and what's the purpose of that?,30
-fomc-corpus,1984,"Only, I guess, that nobody can envision its growth being below 6 percent.",17
-fomc-corpus,1984,"Well, neither can one envision it being below the other ranges. It is a change that doesn't seem to net anything to me. Why do it?",30
-fomc-corpus,1984,It's a really gutty move.,7
-fomc-corpus,1984,"Really gutty, yes.",6
-fomc-corpus,1984,"Well, what would you do then--5-1/2 to 8-1/2 percent?",22
-fomc-corpus,1984,"Sure. Keep the 3 percentage point range. We have narrowed the M1 range; however, we come out to a 3 point range. Why then would we take one additional step and narrow the M2 range? It makes no sense to me.",52
-fomc-corpus,1984,"Well, it just seems to me, Roger, that we wouldn't want 5-1/2 percent growth in M2.",26
-fomc-corpus,1984,"Nor, I should think, would we want perhaps the 4 percent of M1.",18
-fomc-corpus,1984,"No, I can live with four percent, but I couldn't live with a lower M1.",19
-fomc-corpus,1984,"I think Roger has a point. We wouldn't want M3 to come in at 6 percent. I don't know; I guess it depends on what you place more importance. I assume people are not going to be looking at the bottom of the range in this recovery period, although it might become important at the end of 1985. It's the scenario--",72
-fomc-corpus,1984,"As analysts look at it, they will detect that there is an area of the range that they won't have an explanation for. And we don't have an explanation for it, so why do it?",39
-fomc-corpus,1984,"One thing we ought to keep in mind is that the staff assumes that the reduction of the minimum on the Super NOWs and money market deposit accounts from $2,500 to $1,000 is going to have no effect or a minimal effect. Now, if that assumption is wrong, then we might need a larger M1 than we're currently contemplating.",71
-fomc-corpus,1984,"That's possible, Frank, but I think we would have to say that at the time. We're not even going to know that on the first of February or whenever it is we have to set the ranges; that [Super NOW change] takes effect, I believe, January 1. It might be that the way [the banks] would market this is to say that people could give up the MMDA and put all the funds in a Super NOW and the bank will pay the [MMDA] interest rate. But we've got to see that happen before [we change the range]. That's an institutional change and, therefore, we would say that there has been an institutional change.",136
-fomc-corpus,1984,We have a little knowledge of what--,8
-fomc-corpus,1984,"Well, to put a little meat on what I think was a very excellent statement by Lyle, we rebased last year and went to 5 to 9 percent on M1 and we came out at about the midpoint. If we're lucky enough this year to come out somewhere near the midpoint of 6 percent, that would be two years in a row that we are moving in the direction we want. And if we come out somewhere near 5-1/2 percent next year, that will add a lot to what I think is already a very high credibility of our anti-inflationary stance. But I do think it is vital that we continue to move in that way because, as Lyle said, we still have a long way to go to get where I think we all ultimately want to be.",165
-fomc-corpus,1984,I'm off M1 at the moment.,8
-fomc-corpus,1984,"Right. You're talking about the other three. I think Roger has a point. I think it helps send a message that we're going to be following a tough policy, and I don't see the reasoning for narrowing the spread. We certainly cannot answer that we have slightly more certainty about hitting the M2 range than the others, which would be the only justification for narrowing the spread.",75
-fomc-corpus,1984,"I think that's the justification. It may be completely wrong, but M2 in fact has been behaving much more stably for quite a while than the other two have. It has been a nice, even--and it may be a total illusion but--.",52
-fomc-corpus,1984,I thought Steve was saying that the velocity of circulation of M2 has been very erratic.,19
-fomc-corpus,1984,"Well, historically it has been. It is erratic this year, but the [average] number has been quite steady.",25
-fomc-corpus,1984,I averaged it out for the past 22 years. The average is close to zero. But there is hardly a number in any year near zero.,30
-fomc-corpus,1984,Velocity has been erratic because the [annual M2 growth] numbers have been so stable while the GNP [growth rate] has been changing.,30
-fomc-corpus,1984,What's your objection?,4
-fomc-corpus,1984,"Well, we're not talking about a big deal here; 5-1/2 percent just seems awful low to me.",25
-fomc-corpus,1984,"Jim, the ranges the Chairman has tentatively suggested would produce some upward pressures on interest rates according to your analysis here. I've been trying to re-read this and I can't quite put it all together.",40
-fomc-corpus,1984,I was talking to President Balles. I didn't hear you.,13
-fomc-corpus,1984,I was asking Jim.,5
-fomc-corpus,1984,"In the forecast we have assumed M1 at around 7-1/2 percent and for 1985 we have 5-1/2 to 6 percent for M1. We're talking about something close to the midpoints of these ranges, in any event. So, I don't see anything significantly different than in the staff forecast.",69
-fomc-corpus,1984,"There would be some upward pressure, you think?",10
-fomc-corpus,1984,"Yes, we had that in the forecast. That's right.",12
-fomc-corpus,1984,And that would remain?,5
-fomc-corpus,1984,Correct.,2
-fomc-corpus,1984,With these near the midpoint?,6
-fomc-corpus,1984,Correct.,2
-fomc-corpus,1984,Were there any other comments on anything but M1? This question has been raised about M2. Let me narrow it down to M2. Is there any feeling about 5-1/2 to 8-1/2 percent versus 6 to 8-1/2 percent?,60
-fomc-corpus,1984,I could go either way on that one.,9
-fomc-corpus,1984,I have a slight preference for the 6 to 8-1/2.,17
-fomc-corpus,1984,I do also.,4
-fomc-corpus,1984,So do I.,4
-fomc-corpus,1984,"Well, let me return to M1. I don't think that I'm going to press this to an absolute vote right at the moment. We can come back and pull everything together in light of [our decision on] the short run. But I think we're between 4 and 7 percent and 4 and 7-1/2 percent. That seems to be the general range of [views].",81
-fomc-corpus,1984,Only Karen wanted a lower range.,7
-fomc-corpus,1984,"Mr. Chairman, this is an observation about what we've done in the past. I've just been asking Steve what the record shows. My recollection has been that whatever targets we set at midyear, we very seldom--in fact, I thought never--changed them. He has come up with one exception, in recent years at least, and that was in February of 1983 when we apparently did depart from what we'd set in mid-1982. I don't recall [why]. In any event, for whatever reason, I never quite understood why we didn't allow ourselves the flexibility that at least in theory we ought to have. But the record shows that when we've adopted a set of targets in July, we apparently have felt compelled for some reason to go along with those again in January in almost every case.",163
-fomc-corpus,1984,"I think ""in almost every case"" is a correct statement.",13
-fomc-corpus,1984,"In terms of the M1 target, as I said before, I would prefer the 4 to 7 percent. That's what I keep coming back to in thinking about it. Again, I could probably live with something like Tony suggested. What really is at stake here is not just trying to have a policy that will produce a result that will look something like the staff forecast in 1985. It's beyond that. I don't think it's inevitable that 1985 has to be the last year of the recovery. But my view is rather strongly that if it's not going to be the last year of recovery, it has to be a year in which we have the kind of more moderate growth that we're all talking about. So, personally, I think policy should lean on the side of the result that not only enhances the possibility of growth and modest inflation in 1985, but being able to sustain it beyond that. And I think the risks are very clearly that the more we deviate from that on the up side, the more it increases the likelihood that it will be the last year of the recovery.",222
-fomc-corpus,1984,"Well, we're down to a very narrow issue. How many of the Committee members prefer the 4 to 7 percent? Six. Maybe some are indifferent. How many prefer the 4 to 7-1/2 percent? All right. Let's look at it in the light of our short-run decision. What do we have to do yet? We have to listen to Mr. Sternlight--[Mr. Meek, today]--and Mr. Cross first. Now is as good a time as any to get that in. Mr. Meek.",114
-fomc-corpus,1984,Did you call on me?,6
-fomc-corpus,1984,"Well, whoever goes first. I guess you go first.",12
-fomc-corpus,1984,I usually go first.,5
-fomc-corpus,1984,"Stay in there, Sam!",6
-fomc-corpus,1984,"Fight for your rights, Sam!",7
-fomc-corpus,1984,I think we ought to follow all the precedents.,11
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Questions or comments?,4
-fomc-corpus,1984,I have a question on this decoupling of foreign interest rates from U.S. interest rates. Some foreign central bankers take a great deal of pride in talking about that. Does anybody have any sense as to whether that indeed has been successful and what the outlook for its success is?,57
-fomc-corpus,1984,"Well, it's awfully hard to speak very generally. The conditions vary a great deal from country to country and situation to situation. Obviously, the Canadians found great difficulty in keeping their interest rates very far away from reflecting the rise in ours. The Germans have been seeking to avoid following the increases in U.S. interest rates but, as I said here, it has resulted in quite large amounts of intervention in the exchange market.",85
-fomc-corpus,1984,"Let me make a general comment on the subject. More generally, as I read the situation, economic developments abroad are quite unsatisfactory in terms even of earlier expectations, which weren't all that buoyant. I don't want to overdramatize this, but they are just not moving with any speed and alacrity. I don't think there's any doubt that our interest rates are complicating things. The two most marked examples, I think, are the Canadians and the British. The British talk proudly about decoupling; they don't think they're decoupled today. They've had problems domestically that have aggravated this situation, but they are very unhappy about having to see this very sharp increase in interest rates that they currently have when the economy is doing nothing and they have a 12 percent unemployment rate. In Canada, the unemployment rate is between 11 and 12 percent. It has sat there for a long time even though the economy is growing, mainly because of exports to the United States. On the continent of Europe and in Japan, the economies are not exceeding our earlier expectations, which weren't all that buoyant. If anything, they're falling a bit below. Is that true, Mr. Truman?",241
-fomc-corpus,1984,"Yes. Slightly above, if I may correct you, on Japan, but below elsewhere.",19
-fomc-corpus,1984,There is increasing concern there. I don't want to overemphasize it but the concern is there. I think our interest rate picture is not helping things in that connection. Governor Wallich.,39
-fomc-corpus,1984,"I wanted to ask Sam: How much support do you think there would be in the market for a projection that the dollar will drop 15 percent over the next year, ignoring the immediate short-term situation that causes people, of course, to take the positions they do take.",55
-fomc-corpus,1984,Do you mean do I think that there would be a view that the dollar might do this? I didn't quite [hear you].,26
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"I think that most of the people in the market have become quite jaundiced after having seen a number of very large balance of payments deficits and large trade deficits and hearing repeatedly that this was going to bring down the dollar but not having seen it happen. So the people in the market, as opposed to the people making the forecasts, do not really seem much impressed by this. They know, as everybody knows, that at some point the dollar is going to come down. But the matter of when is of extreme importance in the exchange market, and these people tend to take a fairly short time horizon anyhow. So, I don't think there is a widespread expectation of any very early decline in the dollar.",141
-fomc-corpus,1984,"And a lot of them have been losing money on foreign exchange operations. went from a $24 million profit in foreign exchange operations in the first quarter to a $12 million loss in the second quarter because most of them had been betting on some decline. I would agree with Sam that they are taking both a short-term view and a fairly jaundiced view about their earlier expectations of a dollar decline. So, they have retreated somewhat now to thinking that maybe the dollar isn't going to decline.",99
-fomc-corpus,1984,"I would think that most people would say intellectually that the dollar ought to decline, but they're not willing to bet on it right now.",27
-fomc-corpus,1984,That's right. Those who have are now in the hardware business!,13
-fomc-corpus,1984,Any other questions? We have to ratify some transactions.,12
-fomc-corpus,1984,Yes. We did $135 million.,8
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,Without objection. Mr. Meek.,8
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Comments?,2
-fomc-corpus,1984,"What is your evaluation of, let's say, the intermediate-term strength of the fears and the difficulties with regard to bank CDs, bank soundness, interbank market availability and so forth? Is it a passing phase associated with Continental, Argentina, and so forth? Or is something going on here that's likely to be a malaise going forward? What's your feel for it?",74
-fomc-corpus,1984,"I don't know what Mr. Meek's view is, but I'll tell you my opinion is that there's no chance that it's a passing phase that is going to evaporate in a matter of weeks or months.",42
-fomc-corpus,1984,"One should give some consideration to the fact that banks have been expanding CDs very rapidly in recent months, however. I don't think this entire widening of spreads would be as qualitative as you analyze it. Spreads always widen when they pump CDs up.",49
-fomc-corpus,1984,One significant indicator--and I feel it's going to be with us for a while--is that it's very hard now to get term money in the Eurodollar market.,34
-fomc-corpus,1984,Unless you're a Swiss bank.,6
-fomc-corpus,1984,"I'm talking about the U.S. banks. The maturities have shortened, and it's very significant.",20
-fomc-corpus,1984,"But in that context, the banks have expanded their loans tremendously, and have financed it with expansion of domestic CDs. That is my point. And you would expect that to result in a widening of spreads, notwithstanding the fact that, obviously, Continental and Manufacturers Hanover have been a qualitative factor in the market. The market really, I guess, has worked pretty well.",73
-fomc-corpus,1984,"Well, it seems that the banks have not only had to finance their domestic operations but apparently also their branches abroad, because those have no longer brought in money but apparently have needed money. That suggests that there are those funding problems.",46
-fomc-corpus,1984,"I don't want to have a prolonged discussion right now because we need to get on; we can discuss it a little later if you want. But just symptomatic of this, among other things, the Comptroller has developed a new plan for evaluating oil loans, which may not be overly conservative in some theoretical or abstract sense. But there is a certain fear--I don't know about this, but it needs some testing--that application of those standards to national oil credits will result in billions of dollars of loans being put in classified status because they won't pass the stiffer hurdle that's implied by the new evaluation. The only sense we have of that in a direct measurable sense is that they have done it to Continental and it has added $200 to $300 million to their classified items in a bank that already has had its oil portfolio examined and reexamined. At one point I heard a figure of $350 million. Maybe you know the figure as a result of the examination.",194
-fomc-corpus,1984,"No, I don't.",5
-fomc-corpus,1984,"It's in that magnitude. The loss category for Continental, including oil credits, is going to be $575 million. And that is largely the result of a different set of standards for credits.",38
-fomc-corpus,1984,"That's loss since the last examination, which was 6 months ago.",14
-fomc-corpus,1984,Right. That's as opposed to the deterioration of the assets themselves; it's a very significant amount.,19
-fomc-corpus,1984,"I think we can return to these questions, but I just don't want to interrupt the continuity of the market discussion entirely. Are there any other questions?",30
-fomc-corpus,1984,"It is true, isn't it, that we've had a couple of bad bank reports? certainly couldn't have been much worse than it was and looks like a continuing problem, and it doesn't seem to have shaken the market any more.",45
-fomc-corpus,1984,"The shareholders, who are very strong in both those cases, are putting up more capital and the markets know this. assures us that they bent over backwards to write off everything and reserve everything they possibly could. And they are going to show a substantial profit this quarter. And I think $80 million more capital was put up. Also, of course, we know that Midland is now offering to buy out the minority shareholders in Crocker and has a complete commitment to Crocker. So, that's why it didn't really get hurt.",105
-fomc-corpus,1984,My sense is that some of the anxiety that was present in the markets in late June has gone out of the market since then.,26
-fomc-corpus,1984,[Unintelligible] I think is right.,11
-fomc-corpus,1984,Temporarily.,4
-fomc-corpus,1984,"Paul, could I ask you a question? The last few weeks seem to have produced an example of the relative workings of a borrowed reserves target or assumption versus a net free reserves target or assumption. We seem to have stuck more or less with a borrowed reserves assumption. That has led to an increase in net free reserves. So, had we been on a net free reserves target, that would have led to higher borrowings and tighter policies. Is that the correct way of looking at this?",98
-fomc-corpus,1984,I think that's a fair statement.,7
-fomc-corpus,1984,"So there is a difference between the two policies and, in this particular case, it has meant an easier approach.",23
-fomc-corpus,1984,"Well, it has allowed us to accommodate somewhat the extraordinary demand for excess reserves by the major banks early in the period.",24
-fomc-corpus,1984,"If we hadn't accommodated the extraordinary demand for excess reserves, we would have gotten even more of a rise. The Committee last time assumed that a billion dollar borrowing assumption was going to give us [a funds rate] in the neighborhood of 10-3/4 percent. Instead, we ended up with 11 to 11-1/2 percent.",71
-fomc-corpus,1984,"That's what I say. It was an easier policy and, given that interest rates were rising anyway, was preferable to a policy that would have driven rates up more. I just want to bring out the analytical difference.",43
-fomc-corpus,1984,"If there are no other comments, we have some transactions to ratify.",15
-fomc-corpus,1984,Move the ratification.,5
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,We'll go to Mr. Axilrod and then to a coffee break.,15
-fomc-corpus,1984,"Mr. Chairman, I can be very brief. Alternative B is the alternative that assumes the continuation of a billion dollars of borrowing. We believe the general constellation of money market and other conditions that go with that reserve increase would be consistent with rather moderate M1 growth from June to September--on the order of around 5-1/2 percent. That growth rate would bring the growth in M1 from Q4 to September down to 7 percent and we believe that would be on a reasonable track, hopefully, if the Committee so wished, to end the year close to around 6-1/2 percent growth. We would expect, and of course it's only an expectation, that that particular constellation would involve about the current level of interest rates and that this level of interest rates has some restraint in it that would carry forward into the fourth quarter. Alternative A suggests dropping the level of borrowing initially, by about $250 million or so from the $1 billion, and borrowing under Alternative C is commensurately higher. If attitudes with respect to the federal funds market and bank markets in general stay as they are, we would expect Alternative B to involve a funds rate around 11 percent or a little higher; Alternative A would have funds moving down closer to 10-1/2 percent and Alternative C moving up closer to 12 percent. As Mr. Meek suggested, these attitudes could change. If they did ease off and banks were viewed more favorably, or if the money supply came in on what the market interprets as the reasonable side so that expectations of a monetary policy tightening edged off, or if the GNP data were weak, then the funds rate [pressures] could also probably subside some. In any event, Alternative B does have a funds rate range of 8 to 12 percent and Alternative A has a range of 7-1/2 to 11-1/2 percent. The present range is 7-1/2 to 11-1/2 percent. We've suggested that somewhat higher range in connection with the billion dollars of borrowing, simply to reflect the shifts in attitudes that have occurred in the past two or three weeks.",441
-fomc-corpus,1984,"Well, let's have a coffee break.",8
-fomc-corpus,1984,"[Unintelligible] about the perspective with which I, at least, approach this operational decision we have to make. This has somewhat more importance, I'm afraid, than worrying about the long-term ranges that we've been debating, anyway. I think we are at a critical point from a number of directions. I don't have any doubt about that; how much influence we can have is another matter. I am struck by the problems in the banking system. We touched upon that a few moments ago. As I understand the situation, I think the funding abilities of the multinational banks are virtually uniformly stretched. Psychologically, I think none of them has great confidence that they can do more funding than they are doing in any substantial amount. One evidence of that is the way [investors] all ran away from Continental even when they thought it was in better shape than, in fact, it was. Nobody was prepared, when they thought about it, to take on the funding risk that would be involved even for the biggest bank in the United States, even in considerably shrunken form. I think there is no doubt that they are all worried about their funding in varying degrees. In fact, it's probably not too much to say that a good many depositors would just as soon get out of bank paper if they knew where to go. If they don't know quite where to go, some of it hangs more than it otherwise would on customer relationships and all the rest.",293
-fomc-corpus,1984,They're going to have more of an opportunity now with the abolition of the withholding tax.,17
-fomc-corpus,1984,"Maybe. I do feel fairly confident that these problems aren't going to go away for a very simple reason. They reflect the fact that there are a lot of weak credits in the banking system. And they seem to be coming more into the open rather than the reverse--even discounting the LDC problem which, of course, sits there as the most looming threat. I might say, as a side point, that my impression is that they are adding to the weak credits in the banking system with new loans every day. I'm not full of pride about the supervisory performance of the United States in general or the Federal Reserve in particular. It's a very difficult area, but I think it's something that we have to concern ourselves with a lot more. One aspect of that is the holding company situation. When there is a condition of crisis, as with Continental Illinois, we find out that we don't have a very good handle on the holding company and how it is funded and how its assets match up with its liabilities. We just haven't been analyzing these things in this way. One doesn't imagine that they would ever get into this kind of difficulty, but we're at the point where they are in this kind of difficulty, and I think we have to do some rethinking in that area. I might say in that connection that this is not entirely a side issue in terms of monetary policy. We are going to be raising the capital ratios for holding companies and banks and the FDIC and Comptroller have already made some announcements in that direction. It's not final yet, but this is going to be done in the next week or so. We will be talking about moving toward a more building-block approach with respect to capital in the holding companies. Now, apart from the supervisory implications of that coming at this particular time--while the move is not drastic in the sense that most of the multinational holding companies will be able to meet the new capital ratios of 5-1/2 percent, which I presume is where it will end up--some of them aren't going to be very far above it. And I think there will probably be a little accompanying music [suggesting] that this is another step toward still higher ratios in the future. The net result, I think, moves in the direction of restraint on asset growth. It may even be more potent than monetary policy--at least if we did it a little more aggressively--at this particular point in time. So, that's just some background.",495
-fomc-corpus,1984,Two of the banks are going to fall short.,10
-fomc-corpus,1984,"Well, I don't know; two or three will fall short, I think. will certainly fall short.",21
-fomc-corpus,1984,"was getting there; I forget whether they were there. But I think most banks will want to get more comfortably above the new ratio than they are at the moment, so there's a degree of pressure there. Looking at the rest of the financial climate: We referred a bit to the problems abroad. I don't have anything to add to what I said earlier about the problems of the developed countries. Let me just say a word about the LDC problem. I don't think there is any question that the general psychological attitude in LDCs has deteriorated in terms of the determination to adjust and pay their debts. The focus of that, of course, is in Argentina. It's a little hard to tell what is happening in Argentina now. It's rather at an impasse. But that feeling has affected other countries, even though we can show objectively that countries like Mexico and Venezuela and Brazil are doing better than expected. It is not just an economic problem but an increasingly difficult political problem. This last increase in the prime rate coming one day after the Cartagena meeting convened, when there was a great effort to restrain the radicals in Latin America, hit our friends like a kick in the solar plexus in terms of keeping the political situation under control. I'm not saying, certainly not economically, that some further increase in interest rates in the United States follows like night after day. But that situation falls apart. I don't think that is true economically but politically I think we are increasingly close to margins of tolerance. The significance of that, of course, is partly that it feeds back into our domestic credit situation and the confidence in our own banking system. Now we have that whole set of problems. It's a set of problems we have not seen the likes of, in my opinion, since the early 1930s or late 1920s. One of the reasons we have the problem is that it has been so long since we've had it that no bankers could imagine it was going to happen again. So they went out perfectly happily and got rid of all their liquidity and filled up the balance sheet with less-than-strong loans. When you look at the real side of the economy, as I said yesterday and I guess the view is widely shared around here, there is just a lot of plain forward momentum. I see very little [slowing], except possibly in housing, and that's not clear. We get a housing starts figure tomorrow. I did see a builder survey yesterday that shows a further decline in sales; it was an attitudinal thing--traffic, sales prospects, and all the rest, which continues the trend that started two or three months ago in a fairly decided way. But that's a limited piece of evidence. Generally, I think the momentum is very strong in the domestic economy and is propelled by a lot of factors. If I were just sitting here looking at that without any of the financial problems, I wouldn't have much doubt about what I would do within the limits of monetary policy. I would be more restrictive because, just looking at that, I think that's where the risks lie. When I look at the financial system, I get quite a different picture of what maneuverability we have. To put it another way, I do think we have something of a knife's edge problem. If we are too easy, then this momentum in the economy will be excessive and will materialize in more strength than we'd like to see. If we are too tight, it might pull out the rug from the whole thing in a rather sudden way due to the financial concerns. I hope the knife has a dull edge rather than a sharp edge, but dull or sharp, it's not very easy to keep on a knife's edge. In a sense, I think we're coming close to running out of maneuvering room in terms of monetary policy alone. I don't conclude from this, as I guess I implied, that any kind of easing signal is justified or appropriate. But I do conclude, given everything we know at the moment, including that for the moment the monetary aggregates look reasonably quiescent, that it's not time to take a strong initiative in the restraining direction. So, that reduces the choices, in my mind, to a fairly narrow range. I am not saying that there is no room for some tightening down the road if the momentum of the economy continues and the aggregates move high and all the rest. I'm not saying [we wouldn't ease]--although I find this pretty far-fetched--if something happens that makes the economy on its own look considerably weaker. I really don't expect that. I do not discount the possibility of more financial stringency and difficulties that could arise from any number of directions, most likely from the LDC side. But it could arise from purely domestic or even developed country concerns. All of this leads me in terms of specifics to something like not doing very much right now, but remaining poised to tighten a little if we have to in terms of what happens down the road in the coming weeks. I guess I'll stop right there.",1013
-fomc-corpus,1984,"At the risk of sounding ""me too-ish,"" that's exactly my view of it. I think we should not tighten further; we should simply consolidate the tightening that has taken place in the market. And we should certainly not ease. So, it seems to me that alternative B is what is indicated. I might argue--and this is a nitpick--that on M3 I'm not sure it makes sense to put in 9-1/2 percent instead of 9 percent when 9 percent is the upper end [of the long-run range] and we're running over that. I don't know whether that one-quarter period is significant enough to aim for something that's over. But, with the exception of that nitpick, I would go with [alternative B]--$1 billion for borrowing and moving the funds range up that extra 1/2 point to 8 to 12 percent. I assume that the general language would permit room so that if the banks relax further and $1 billion of borrowing ends up giving us something in the neighborhood of 10-3/4 percent [for the funds rate], there would be flexibility to tighten a little so that we stay in that 11 or 11 plus percent range.",247
-fomc-corpus,1984,"Let me just clarify one thing. I said I think the aggregates are quiescent for the moment; that's based upon what information we have and estimates for July. And, of course, the last couple of weeks of July are a guess, but the first two or three weeks of July look like they're not really above the June average. So, we could have a reasonably low July figure.",79
-fomc-corpus,1984,Wasn't June rather high?,6
-fomc-corpus,1984,There's no doubt that June was on the high side; the average with July may not look too bad. May was high but the average with April was not out of line.,35
-fomc-corpus,1984,You were saying the level was approximately what it was in June rather than the rate of growth?,19
-fomc-corpus,1984,"Yes. Oh! I'm not saying the 12 percent rate of growth, I'm saying [the level].",21
-fomc-corpus,1984,Yes. I think maybe Ted thought--,8
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"It looks pretty safe that it will come in at what, Steve--about a 5 percent rate of growth or less?",25
-fomc-corpus,1984,"Yes, and we'd need an increase in the second half of July.",14
-fomc-corpus,1984,We would need a substantial increase in the second half to get it up to 4 or 5 percent.,22
-fomc-corpus,1984,"The analysis that has been given is one that I feel comfortable with. The real side of things would tend to lead one in the direction of some snugging up. But I think the problems on the financial side are sufficiently scary that they put a constraint on that. So, about where we are seems to make a lot of sense to me.",69
-fomc-corpus,1984,Mr. Martin.,4
-fomc-corpus,1984,"I would certainly subscribe to the Chairman's summary analysis of where we stand. I'd support the status quo. I'm not sure whether alternative B is that entirely; I will in a minute comment on those numbers for the aggregates. In support of the Chairman's position about the evidence of some precariousness in the financial system, I remind the Committee of the size of the largest savings and loan holding company, the Financial Corporation of America, which is now at about $32 billion with 80 plus percent of its deposits purchased, and the FSLIC insurance fund is running at $6 billion or so. I would name also the [all of] which the FDIC has indicated it will move on promptly. And we're talking about assets of $5.6 billion at $6.6 billion at and $7.5 billion at Add that to the ongoing negotiations with Continental and you get some interesting arithmetic. Let's not run the signal flag up the mast, but the arithmetic [indicates] that there is certainly a vulnerability. The small banks have those agricultural loans, which are not improving. Well, there's no point in going through the risks; the Chairman has subsumed them in his comments. I would hope that in the implementation of alternative B there will be flexibility, frankly, on the accommodative side. I have a slight difference from previous commentators in that I think the risks are rather imminent. And I would hope that the usual good sense is applied by the people at the Desk and the people here, as was evidenced in the very recent past so that as these crises develop and as the attitudinal waves pass through the money and capital markets, there will be flexibility on the accommodative side, which hopefully we can pick up coming round the barn, so to speak. We should all be aware, if alternative B is the consensus here, that relative to the March-to-June pace for M1 and M2 we're talking of moving from an 8-1/4 percent M1--I believe my numbers are right here--to 5-1/2 percent on M1. We're talking about M2 moving from something like 10-1/4 percent March-to-June to 7-1/2 percent. To me, that's too much. So, I'm somewhere between ""A"" and ""B."" I don't want to give the false signals of trying to soften interest rates that A implies, if I read this correctly. Nevertheless, I'm uncomfortable that we're bringing these aggregates down too fast as implied in ""B."" So it seems to me that we should give authority toward ""B"" but--yes, Steve?",530
-fomc-corpus,1984,You gave the M3 growth. That was 10.2 percent; M2 was quite a lot lower than that.,25
-fomc-corpus,1984,"Yes, there's something the matter with M2.",10
-fomc-corpus,1984,Oh! What is it for the March[-to-June period]?,14
-fomc-corpus,1984,"I just have the monthly figures here. Well, it was a quarterly growth rate of about 7 percent.",22
-fomc-corpus,1984,"Oh, all right. I'm sorry. So it's true for M1 but not M2.",19
-fomc-corpus,1984,"Yes, the figure you gave was for [M3].",12
-fomc-corpus,1984,"The quarterly average for monthly rates of 6.9, 8.7, and 7.3 percent--",24
-fomc-corpus,1984,I stand corrected.,4
-fomc-corpus,1984,It's 7.7 percent for M2.,10
-fomc-corpus,1984,For the three months?,5
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"So, I'm an ""A to B"" type, Mr. Chairman.",15
-fomc-corpus,1984,What are you on borrowing?,6
-fomc-corpus,1984,"I'd like to see the borrowing at $1 billion but, as the difficulties develop, I'd like to see if we could go to $900 to $1 billion. In other words, Tony, I'm arguing for a little flexibility on the accommodative side because I take these risks and these vulnerabilities very seriously.",61
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"Well, we seem to be close to the situation where the central bank has the choice of facing the threat of a financial debacle or risking inflation. It's something that has often been talked about, but it never looked quite as stark and immediate as now. On the side of forbearance and status quo, one could argue that we've had a rise in interest rates and its effects may not be fully embodied in our projections. It may slow down the economy. There are financial difficulties that may be on the rise and may themselves exert a restraining effect on the real sector. So it seems not unjustified to wait and consolidate, as Tony said, the recent interest rate increases. But, of course, there is the risk that if the aggregates and inflation expectations do expand, then the need to act is only postponed and the level of action may have to be higher. Six weeks or twelve weeks from now we may be sitting here and wish we had done a little now in order to forestall the need for more later. One thing that leaves me unsure about the proper action is that, with $1 billion of borrowing, the funds rate may drop back to the 10 to 11 percent range from the 10-1/2 to 11-1/2 percent range, and I think that would be a mistake--to give a signal of the rate dropping. If the present relationship of $1 billion of borrowing and 11 to 11-1/4 percent holds, that would be a reasonable thing to do. But I would then want to see flexibility in our assumptions with respect to excess reserves that would offset any effect of $1 billion of borrowing in the direction of depressing the funds rate. On the aggregates, all I have to say is that ""B"" seems consonant with these general propositions, and I have no particular exception to make with ""B,"" always bearing in mind that the projected funds rate there is 11 to 11-1/4 percent. Thank you.",403
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"Well, I think there is a time to do some snugging, and there's a difference between snugging and a gross move. What I would like to see is sort of a ""B+"", which would be something like a 5 percent growth from June-to-September because--",56
-fomc-corpus,1984,"That's a ""B-"" in the normal nomenclature.",11
-fomc-corpus,1984,"Well, ""B-,"" if you want to call it that way.",15
-fomc-corpus,1984,I like the first story!,6
-fomc-corpus,1984,"I think of that as a ""B+."" I note that the quarterly average under ""B,"" in fact, accelerates to 7.7 percent. And I think we ought to be raising the borrowing target modestly to, say, $1-1/4 billion, so that there is less opportunity to spill over inadvertently into a rapid growth in money as we maintain a borrowing target and provide reserves to get used and transferred into money. I think the momentum of the economy fully justifies this and I think the market has probably already significantly discounted something like this together with an increase in the discount rate.",123
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Mr. Chairman, I support your position. I think the evidence does suggest that the economy is decelerating. The leading indicators available for June suggest a further slowing ahead of us. If we were in the situation where the evidence clearly suggested the opposite, the decision would be a lot more difficult. But, I would certainly support alternative B.",69
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Mr. Chairman, like a lot of other people, I've been waiting expectantly for some moderation in the growth of the economy. And while we've had some, the question is whether that moderation is enough. In my judgment, it isn't. I think that the economy at the moment is growing too fast to be sustained and that under normal circumstances such conditions in the economy would suggest that we ought to be doing something affirmatively to brake the economy somewhat. Even interest-sensitive sectors of the economy, with the possible exception of housing, are not really showing much effect from higher interest rates. On the other hand, we are not seeing inflation, as evidenced by the fact that commodity prices and gold and the price of the dollar are not indicating inflationary expectations on the horizon. However, some of that at least can be explained by exchange differentials. Ordinarily, because of those factors and believing as I do that we ought to be taking some firming action, I would like to see us somewhere between ""B"" and ""C,""--a ""B-"" or ""C+""-- with borrowing at around $1.2 billion. Now, I don't know whether that degree of snugging, if that's what it is, would really exacerbate the financial situation domestically and internationally. I, too, have a lot of concern about what is happening. So, if that situation is as dire as you have indicated, then I would be happy with alternative B. The real concern that I have is that both of these problems--certainly the LDC problem and the domestic financial situation--are going to be with us for some time. These are not temporary problems. So, the question is: How long can we wait before we do something and how long are we going to be constrained by these forces?",361
-fomc-corpus,1984,"Let me just comment on that: Perhaps for a long time. I think the obvious economic policy approach in these conditions--where we are getting too much strength in the real economy and we have the financial difficulties--is tightening up on fiscal policy. I can't rub my genie to produce that, but the inability to produce it doesn't say there's another answer. Governor Gramley.",74
-fomc-corpus,1984,"I agree with Tony's and Henry's version of ""B"": Use the specs of ""B"" and if, in fact, we see some different attitudes of borrowing develop, inch up on the borrowing number rather than let interest rates go down. I do think, from a macro standpoint, that our real concern is that this slowdown in economic activity which the staff foresees, and which I could foresee also, may or may not happen. It is still primarily a forecast. The concrete signs of that are precious and slim at this point. We have to keep hoping that it will occur. And if it doesn't occur and we have upward pressure on interest rates, then we're going to have some very, very serious problems about what we should do. Henry is right: The choice for the short run is either more inflation or a financial debacle. I think the best we can do about this is not to let inflation happen, but just to hold to a rather steady, sensible policy. And if we don't get some budget restraint, then there's going to be no way to avoid this.",218
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"I would accept alternative B also. I'm considerably affected by the moderate numbers projected in alternative B and would remind you that they are projections. If, in fact, the economy doesn't begin to slow as everybody is hoping, the numbers may well be higher than that. And if they're higher than that, then I think we'll have to take some action. I'm as concerned about the financial situation as anybody but, as I said yesterday, I feel that the real problem would come from having an excessive expansion that leads to inflation that [in turn] leads to significantly higher interest rates, which would not just take [down] the Financial Corporation of America but about 100 other savings and loans with it. I guess I wouldn't do anything to try to save Financial Corporation or Bowery or somebody like that if what I were doing was risking losing a great many more further on.",172
-fomc-corpus,1984,Which particular institution is savable?,7
-fomc-corpus,1984,"So, I would pay a lot of attention to the performance of the aggregates in this period. I don't like to fine-tune the funds rate. I'm shocked that Henry is fine-tuning it to 1/2 of a point, because I always thought he believed that we ought to run on more basic things than just the funds rate. But I guess maybe it's because he doesn't want it to go down and that's why he would fine-tune it. But I would say that if it flexed down, I wouldn't have any problem with that. In that sense, I guess I join Pres. I don't want to bias the result. I'd take $1 billion [on borrowing] and the specs of alternative B, and if the funds rate happens to move down 1/4 or even 1/2 point to where it was just a few weeks ago, I wouldn't have any great problem with that.",184
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, I have a strong preference for the aggregate targets in alternative C. As I mentioned before when I latched on to what Lyle was saying, I think it's vital that we continue our stated long-run policy of working the aggregates down. There are obviously risks if we try to push M1 down too fast after this rate of expansion, but I think there are also risks if we let it grow at a rate of 7-1/2 percent for the last half of the year as it did in the first half. And I hope, of course--and I even have some faint expectations--that the rate of growth in the economy will slow somewhat so it won't be necessary for us to take any action to try to deal with the aggregates. I'm very much encouraged by Steve's projection of M1. So, despite my ordinary predilections to do a little now in the hopes of avoiding a more disruptive and stronger move later on, I would stick with the $1 billion borrowing target now and raise that only if the aggregates show greater strength than it now appears that they're showing.",222
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,I'll stick with the Solomon/Gramley version of alternative B.,13
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"I also would go with what Jerry just characterized as the Solomon/Gramley version. I have a concern about the uncertainty with respect to the $1 billion borrowing and its relationship to the current interest rate levels of 11 to 11-1/4 percent. Because of that uncertainty, then, I would focus more upon that [funds rate] itself, whether that's fine-tuning--Chuck's terminology--or not. We haven't had good evidence of a slowing of the [growth in the] economy yet, which I think all of us would like to see. The market essentially has taken us there, but for policy purposes it would seem to me more appropriate to focus on a federal funds rate because of that uncertainty in the period ahead. In other words, I would not let it go up or let it go down below the 11 percent level. It also says to me that if that's the general consensus, there should not be a movement in the discount rate, which is on the table before the Board. That's simply because if we follow the usual procedures, a 1/2 percentage point increase--if that were the number--would imply a 1/2 point increase in the funds rate level, which I think would be quite inappropriate.",253
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Well, Mr. Chairman, I would come out probably at ""B-."" I recognize the very real risks that you described, and they are real. On the other hand, I think there are risks on the other side. A perception that we were accommodating a lot of things could be almost as bad. I think, as Ted said, the markets have discounted quite a bit. I could see certainly holding where we are and maybe slightly more restraint. I would be inclined to go even farther except for the fact that our next meeting is coming up fairly soon and we will have another opportunity to discuss it and, obviously, we'll know more then than we know now. On the borrowing level, I'd probably opt for about $1.2 billion or $1.25 billion.",156
-fomc-corpus,1984,Ms. Seger.,5
-fomc-corpus,1984,"What I see is a difference of opinion between the Sun Belt and the Rust Bowl. Coming from the Rust Bowl, as I said earlier, I think the economy does show signs of slowing--not that we have gone into a decline, certainly, but the rate of growth is slowing. Also, I don't feel that the participants in the economy have fully adjusted to the interest rate increases we've had so far--for example, the last increase in the prime rate, which was rather recent. Business people don't adjust overnight and not even in a week or two weeks; I think we have to factor that in. Also, like the Chairman, I'm extremely concerned about the condition of banks. I don't think it's just Continental. Out in the other states there are banks with problems and there are also tremendous problems with the thrifts. The ones that squeaked through the '81-'82 period by holding their breath have certainly had a little chance to get healthy, but they need more time to get healthy. And even with that 25 basis point increase on what they have to pay for funds we're going to have a lot of them in the soup very quickly. Also, there are tremendous consumer risks. I haven't heard this pointed out, I don't believe, but more and more consumer loans have become variable rate loans. While that has helped the financial institutions get rid of some of their interest rate risk, it has also enhanced the credit risk by a great deal. I think many consumers don't realize what they signed on for. I'm not just talking about ARMs; there are other kinds of variable rate consumer loans--car loans, etc. And I think there is tremendous vulnerability as I look at this whole package here. So, if I had to vote for ""A,"" ""B,"" or ""C,"" I would go along with the ""B"" [specifications] and with the idea that the fed funds rate could range around 11 percent. I don't think financial market participants would think we had gotten sloppily easy if the fed funds rate were to drop, say, to 10-3/4 percent on a given day.",427
-fomc-corpus,1984,You're going to have to vote.,7
-fomc-corpus,1984,"Yes, I'm voting for ""B.""",8
-fomc-corpus,1984,"You don't have to vote right now, but you're going to have to vote either for it or against it at some point. I'm kidding!",28
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"I generally support the position you outlined, Mr. Chairman, although my inclinations are to lean toward tightening because of a fear of inflation down the road. I'm also very much concerned about avoiding any rocking of the boat in the near future if we can avoid it. So I come out for ""B"" with the proviso that Governor Gramley added.",71
-fomc-corpus,1984,Governor Rice.,3
-fomc-corpus,1984,I would support the Solomon/Gramley version of alternative B. And I hope it finds a knife's edge.,23
-fomc-corpus,1984,You have to wear gum shoes when I say that.,11
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"Maybe I'm missing something, but it does seem to be that there's a bit of a divergence of opinion around the table as to whether or not we have an overheated economy or one that is moving along quite well. For the reasons I stated yesterday, I fall in the latter category. I think the numbers are good and they're solid; but it's very, very uneven, particularly in the industrial sector. As a consequence, I would be very reluctant to see us make a move toward snugging at this particular point for that reason and for the reasons that you suggested at the beginning. Importantly, also, I think my outlook for inflation is perhaps a bit more positive than some. I just don't see in the current signs or the prospective signs that inflation really is likely to get away from us. So, as a consequence, I really do think this is good time to maintain a course that seems to be working. I would be in favor of alternative B with borrowing at a level of about $1.0 to $1.1 billion.",209
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"By year-end I'd very much like to come out at the midpoint of our M1 range. That would tie into all the longer-term kinds of considerations we were discussing earlier about what should happen to those ranges. And that would cause me to choose something in the area of ""B-,"" with a slight increase in the borrowing assumption, up to as high as $1.2 billion. I do that, of course, with a considerable amount of discomfort because I think the financial strains that have been enumerated are very real and very serious. But the knife's edge has been referred to a number of times, and I think the strength in the economy and that need for a long-term policy are also very present.",144
-fomc-corpus,1984,"I would be sorely tempted, if we were operating the way the Open Market Committee operated 10 or 15 years ago, to say ""Thank you, we have a consensus. Goodbye."" I'm afraid we have to be a little more nitpicky. We're down to nuances. Just to be clear, I don't mean to suggest myself that we can do much about these financial problems by these minor decisions. But, in the range we're talking about, they're not going to go away if we stand pat; and in the range that we're talking about, all these domestic things aren't going to suddenly collapse on us. The international situation, at some point, might collapse in the range in which we're talking. But it's a question of how much justification we need, in some sense, to take an overt step at this stage. And I think we need a little more than usual. There is obviously some small difference of opinion here; I suspect the prevailing view is what has been referred to as the Solomon/Gramley approach. I interpret that as: We don't do much now; we'd be very cautious about anything interpreted as any easing; and we might have to tighten if things come in stronger. I referred to the economy as having a lot of momentum; I may be wrong. I'm not sure I fully see all the slowing down so far in domestic demand, but M1 looks fairly quiescent in July. It could be anything in August. I wouldn't drop out of my seat if August came in with some very high numbers, in which case we may have to respond. But then we would have the evidence of that in front of us. Now, how do we put this in terms of a directive? I think the numbers are simple enough. We are really talking about the alternative B numbers. Some people said they were a little in-between but the only real difference, described as a quibble about the number, is whether we make M3 9-1/4 percent--which is an odd number to put in the directive anyway--or 9 percent. Let me say that this is no big deal with me, but in the interest of rounding, maybe 9 percent is the appropriate number to put in there. Does that make sense to people? I guess we are talking about 8 to 12 percent [on the funds range]. I don't think that affects the substance, but it will affect the visuals of this when and if it's announced. And I don't know how hard-pressed I'm going to be in testimony to indicate some of this. I don't interpret [raising the funds rate range to] 8 to 12 percent as meaning anything significant, but the market or certain Congressmen will. That does not say, given that the rate is between 11 and 11-1/2 percent, that we should not do that. But I just note that that will be interpreted by some people as a tightening.",591
-fomc-corpus,1984,Do you expect this bill forcing us to disclose immediately to pass in this session?,16
-fomc-corpus,1984,"No. It will come up, but I just assume it won't pass simply because they don't have much time. But anything can happen in the wild last days of a Congressional session, and it's the kind of thing that could be tacked on to something and we would just deal with it. I just want an understanding here that we are talking about [a funds rate range of] 8 to 12 percent despite the fact that some people may view this differently and it will get interpreted publicly as a tightening. I'm not interpreting it as a tightening in and of itself, but just a recognition of the reality that the funds rate is up around 11 plus percent currently. So, we give ourselves a little more leeway. Is that where we are? I don't see any dissent on any of this, if I may say so, with these numbers. I'm just getting the numerology now. Now I will try to describe reality. And I don't know how to put it in words [in the directive]. One possibility, which occurred to me last night but I didn't look at it very carefully, is to have a directive of the sort that we had in December, which basically says we're not going to ease, we're not going to do anything right now, but we might tighten during the period if the aggregates and the economy are running strong. Does that catch what people are talking about?",278
-fomc-corpus,1984,Does that commit us to tightening if they run strong?,11
-fomc-corpus,1984,"Well, it buys a little leeway; it suggests a willingness to do a little something if both the aggregates and--. How is it worded here? Specifically what we said--and this is not magic--is ""The Committee seeks in the short run to maintain at least the existing degree of reserve restraint. The action is expected to be associated with growth of [the aggregates].... Depending on evidence about the continuing strength of economic recovery and other factors bearing on the business and inflation outlook, somewhat greater restraint would be acceptable should the aggregates expand more rapidly."" We could change that ""depending on"" clause. I suppose we'd add something there about financial markets in these circumstances. The rest of it is pretty standard.",143
-fomc-corpus,1984,What you're saying is that you want it asymmetrical?,11
-fomc-corpus,1984,"Well, it's one possibility.",6
-fomc-corpus,1984,Because the way it was last time--,8
-fomc-corpus,1984,It was symmetrical.,4
-fomc-corpus,1984,It was symmetrical.,4
-fomc-corpus,1984,"Or that was the meaning. Just remember, we had all kinds of nuances there, but it was basically symmetrical. It wasn't, I guess absolutely symmetrical. Sometimes we use ""would"" in one sentence and ""might"" in the other. Maybe we were absolutely symmetrical last time. This would be asymmetrical.",62
-fomc-corpus,1984,"I couldn't support asymmetrical. No, I think that's the wrong thing to do. And I think it was very widely misinterpreted in December when it finally came out.",35
-fomc-corpus,1984,I'm not sure it was misinterpreted last time.,11
-fomc-corpus,1984,"I could not support an asymmetrical directive. I don't know whether implicit in such a directive and not enunciated because of the sensitivity of it would be an understanding that if there began to be trouble in financial markets, we would move in the other direction. I take it not. It would not have that.",63
-fomc-corpus,1984,"Oh, we always have the option of doing whatever we feel like doing with a consultation. I think it would assume that we don't expect to run into that contingency. That's a hard thing to put in the directive anyway, even if we had it symmetrical.",51
-fomc-corpus,1984,"Well, I have a little problem with that kind of asymmetrical directive. We might tilt it a bit in that direction by playing around with words like ""might."" For example, we could say ""Somewhat greater reserve restraint would be acceptable and leave ""might"" [for lesser restraint]. That might tip it a little; something of that order I could stomach more than a really overt loading of the dice to push rates up.",86
-fomc-corpus,1984,"In defense of December, we didn't do anything in this directive in December and I wish, in retrospect, that we had. We didn't have the evidence for it between the meetings.",36
-fomc-corpus,1984,"Yes, but when it was released, it was released in a different kind of context and even though we didn't do anything, it was interpreted as a bias towards tightening. And I guess I'd rather not have that bias at this point. I'm prepared to see rates go up under the right kinds of circumstances. But I also wouldn't want to create the image that that's where our biases are.",77
-fomc-corpus,1984,"If that were interpreted as a bias, I would view that favorably because I think that's where the bias should be.",24
-fomc-corpus,1984,"Well, I'm not sure that's where the bias should be. I think it may be a view of our setting policy such that we're accused of bias in the sense that [people say]: ""These guys always see inflation coming, no matter what the price figures are."" I think we have to avoid that appearance.",62
-fomc-corpus,1984,"That's my point, right.",6
-fomc-corpus,1984,"""Knee-jerk inflation fighters"" is the quote. That's a very unfair remark, but we do receive it.",24
-fomc-corpus,1984,A pretty good reputation.,5
-fomc-corpus,1984,"Well, my response to that is--",8
-fomc-corpus,1984,That's what central bankers are supposed to have.,9
-fomc-corpus,1984,"Yes, but always?",5
-fomc-corpus,1984,"Well, I don't think we can see the future clearly enough to bias this. I think we could get both some very good news on inflation and a marked slowing in the economy. I don't think we ought to seem to want to raise rates at every opportunity and notch them upward over time. And that's what that suggests to me.",66
-fomc-corpus,1984,"Well, governor, it seems to me the conversation has been that ex all of these other overriding considerations at the moment--LCDs, fragility, and so forth--the sentiment is that, all other things being equal, we would be [tightening].",52
-fomc-corpus,1984,I wouldn't--not with an M1 projection of 5-1/2 percent. I would not be tightening unless M1 comes in above 5-1/2 percent.,37
-fomc-corpus,1984,"Well, that's all it says.",7
-fomc-corpus,1984,"And if it comes in below, I think the funds rate ought to flex down.",17
-fomc-corpus,1984,That's what shifted my position right there.,8
-fomc-corpus,1984,"I could certainly support an asymmetrical directive because I do think we have to worry lots more about the economy growing too fast than the economy slowing down too much. But precisely for that reason, I think a modest move in that direction along the lines suggested by Ed would be all right, in the sense that I think the chances that M1 growth is going to slow below 5-1/2 percent are about 1 in 10. I'm really not worried about that. I think the third quarter is going to be quite a strong quarter; unless something very unusual happens, we're likely to get more M1 growth in that [quarter]. I don't disagree with Chuck; if [M1 did slow to below 5-1/2 percent], I'd want to think about easing. But I don't think it's going to.",166
-fomc-corpus,1984,"Well, I don't really think so either, but I think it could.",15
-fomc-corpus,1984,"If what we did was take that operational paragraph and used the word ""would"" in line 81 [of the staff's draft] and left ""might"" in line 82, careful Fed watchers would say ""Aha! a degree of asymmetry."" So, we'd get our purposes served.",60
-fomc-corpus,1984,"Well, you know the Oracle of Delphi used to have this kind of language in it--pretty subtle readings of pigeons' entrails. Having said that, I think it's probably okay to do that kind of thing. The very frankly asymmetrical approach is probably not the most advisable. So, I also would vote for a judicious mix of ""mights"" and ""woulds"" or ""woulds"" and ""coulds"" or whatever else we can use.",95
-fomc-corpus,1984,"Well, I do care, but I don't care that much. I'm perfectly happy to be asymmetrical. I just want the record to show that because the situation is asymmetrical without much doubt in my mind.",42
-fomc-corpus,1984,"I think the symmetrical solution, in the unlikely event that the aggregates or the economy slowed down, would not be bad. But the possibility of a fortuitous move down without any real change in the situation could be very adverse and would then be reversed. Subsequently, rates would go up again and we would have given the wrong signal. I don't think we ought to take that chance.",77
-fomc-corpus,1984,"That's the same point I made, Henry, and I'm assuming that this language could be interpreted to guard against that just because of changing bank attitudes toward excess reserves. This would prevent a meaningful drop in the rates. We could use this kind of [wording] and the flexibility would be sufficient to cover that contingency as well. Would you agree with that?",71
-fomc-corpus,1984,"I would agree with that, certainly. It's preferable that we have enough leeway here so that we don't give a false sense of easing if the money supply is not declining and there isn't evidence of the economy slowing, and so forth. And that may take a certain amount of flexibility in the management of reserves.",62
-fomc-corpus,1984,"I would think that the sentence beginning on line 83--""In either case such a change would be considered against"" all these things--certainly gives us enough flexibility to use judgment to guard against these fortuitous events that might lead one down the wrong path. It has everything in there except the kitchen sink, really.",66
-fomc-corpus,1984,"Well, that's mainly because I thought we'd be clear about it. I take it the contingency that has been raised here, which strikes me as a real one, tends to say the aggregates are more or less on path. We're always guessing what they will be next month. Let's say we start out with [M1 growth in] July at 3 percent or 4 percent, but we have a strong suspicion that it's going to be higher later and the other aggregates might be a little on the low side in July. But we have a strong suspicion that they're going to be higher later as the business news remains fairly good and there is no big change in that. If the money markets began easing, we'd be very cautious about supplying reserves until there was further confirmation of low money supply numbers and all the rest.",162
-fomc-corpus,1984,"I think you have to have a margin of protection in that direction. It would be almost calamitous to end up with a situation in which interest rates went down in the third quarter and had to go up in the fourth quarter. That, to me, would be the worst of all worlds.",60
-fomc-corpus,1984,"That would mean something as long-lasting even as quarters. To get a great feeling of relief and then in the next month to see them go back drastically in the other direction with the money supply taking off would be unfortunate, I think.",47
-fomc-corpus,1984,So do I.,4
-fomc-corpus,1984,"It also complicates the LDC political attitude. If they get a sense of relief and then they get whammed again, it just makes things harder.",31
-fomc-corpus,1984,I don't think I understand the rationale for the bias on the up side on rates. We're talking about a 4-week period until the next meeting.,30
-fomc-corpus,1984,Five weeks.,3
-fomc-corpus,1984,"We're at the 17th now and we're talking about an FOMC meeting on the 21st of August. However many days that is, it isn't very many. And the amount of information that will come in to suggest that we would push rates up from the present level further--. That's unconscionable in my view because we have had rates in the last 30 days go from the 10-1/2 to 10-3/4 percent range to 11-1/4 percent. And to put a directive out that will be read 30 days from now that suggests that this Committee sat around and adopted an asymmetrical directive that suggests a bias toward further tightening when we talked about the LDC problems and we talked about the fragility in the financial markets makes no sense to me.",165
-fomc-corpus,1984,"Well, I would not interpret this, Roger, as something we're bringing on just between now and August. Of course, this is the first meeting of a quarter. We're looking at quarterly growth rates for the third quarter for the first time. And we're trying to structure a directive that hopefully will last us through the quarter--not just until the next time--and give some indication about our basic concerns about how fast the economy is growing, the risks in financial markets, and so on. I would prefer to interpret it more broadly than that.",108
-fomc-corpus,1984,"I would add that there's no doubt in my mind--although I may be wrong--that the risks are that the economy is growing too fast. And on the inflationary side, the only thing that concerns me is the financial side. I'd be just as tight as I could be without precipitating that situation.",62
-fomc-corpus,1984,We may be there now.,6
-fomc-corpus,1984,Maybe. We're not too far from it. But I'm always willing to probe a little further.,19
-fomc-corpus,1984,Aren't you going to be asked about current short-term policy when you testify?,17
-fomc-corpus,1984,Probably.,2
-fomc-corpus,1984,"Quite strongly, I think.",6
-fomc-corpus,1984,"Yes, I think with any of these directives I would say, if I have to say something, that it has not changed.",26
-fomc-corpus,1984,Would you convey the flavor of asymmetry in your answers to those questions?,15
-fomc-corpus,1984,It depends upon how the questions are asked.,9
-fomc-corpus,1984,"Suppose the questions were asked the right way, would you do it?",15
-fomc-corpus,1984,"I might, yes.",5
-fomc-corpus,1984,Rather than symmetry?,4
-fomc-corpus,1984,"Well, maybe. I'm not going to say it just that way, I don't think. I might say that as I look at the situation with the economy moving the way it is and the inflationary risks, yes, there's a possibility we might have to tighten.",53
-fomc-corpus,1984,Particularly since you guys aren't doing anything on the deficit!,12
-fomc-corpus,1984,Particularly since you guys aren't doing anything on the deficit--and as I evaluate the economy--I don't see great prospects for much easing. I might well say that.,34
-fomc-corpus,1984,I would hope you would.,6
-fomc-corpus,1984,I hope you would.,5
-fomc-corpus,1984,No great easing this time for the period. It seems pretty unlikely.,14
-fomc-corpus,1984,"Well, where we are and if that's the way you like it, is ""seeks to maintain."" We'll make it ""would"" instead of ""might"" and leave the [other] ""might."" We'll stick in 5-1/2 percent, 7-1/2 percent, and 9 percent. I think there's some understanding that some flexibility is necessary to prevent false [signals] and 8 to 12 percent. If we don't have any general consensus [to try] to improve on that, let's close it now.",110
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Horn Yes Governor Martin No Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,47
-fomc-corpus,1984,"Now that we've disposed of that, we have to return to our other little problem here, if I can remember where we were. We have an issue yet. What we tentatively thought about was keeping them all the same; I began to worry a bit that if we keep M3 and debt the same, we actually ought to put a word in the directive itself. I don't know just what it would say. I don't remember what this boiler plate, which is pretty awful, says. We ought to add a sentence that while we reiterate the 6 to 9 percent and 8 to 11 percent, the Committee thinks there is a certain probability that growth will be above them.",139
-fomc-corpus,1984,Because of certain--,4
-fomc-corpus,1984,"Well, what Steve was suggesting when I raised this question with him was to add a sentence immediately following the one on the ranges saying ""It was anticipated that debt and M3 would increase at rates somewhat above their upper limits, reflecting in considerable part a rise in debt and the decline in equity financing related to recent merger activities."" Maybe we should put a ""however"" in there. I scribbled down something, which I wasn't very happy with. In effect, it says that while this was anticipated the Committee felt that these [recent] rates were excessive in the longer-term perspective--excessive as a benchmark for evaluating the appropriate trend for credit and M3 growth. Let me try that out. That may not be so bad. Put a ""while"" in front of this.",157
-fomc-corpus,1984,That comes after the sentence you just read about mergers?,11
-fomc-corpus,1984,"No. Make it all one sentence. We state the ranges. They're unchanged. Then say ""While it was anticipated that debt and M3 might increase at rates somewhat above their upper levels, reflecting in large part a rise in debt and decline in equity financing related to recent merger activity, the Committee felt that higher target ranges would provide an inappropriate benchmark for longer-term trends in M3 and debt growth.""",80
-fomc-corpus,1984,But then we're putting ourselves on record that we're projecting--if I understand it right--a continued hectic pace of merger activity in 1985. Or are you saying that 1985 is going to be higher because of the mergers?,47
-fomc-corpus,1984,This is a 1984 sentence.,8
-fomc-corpus,1984,Oh! I'm sorry.,5
-fomc-corpus,1984,"I would not like to put that ""in considerable part"" as the main reason why the credit variable is growing above the upper end. It's because the economy is growing so fast.",36
-fomc-corpus,1984,"We can take out the ""in considerable part."" Or we could take out the whole thing about merger activities and say ""will rise somewhat above their upper limits, the Committee felt that such a rate of growth was an inappropriate benchmark for evaluating credit growth over time."" Something like that tells them why we didn't raise the rate, even though we expect it to be higher. This is just for '84.",80
-fomc-corpus,1984,I think that's reasonable.,5
-fomc-corpus,1984,"Well, without worrying about the particular language, but that it is something about this being too high a benchmark for evaluating what is right, is that okay? SEVERAL. Right. Yes.",39
-fomc-corpus,1984,"Now we're set. Wait a minute. Do we need to change anything else? Maybe we ought to go over it. I'm looking at the typed-in language. ""In furtherance of these objectives, the Committee agreed to reaffirm the ranges for monetary growth that were established in January"" etc. We take out this stuff about M1. Then we give the total debt range, which is reaffirmed. Then we put it in a sentence. And that's the end of 1984. We're accepting all the language the staff has here.",107
-fomc-corpus,1984,"But what about the sentence at the end? ""The Committee understood that policy implementation would require continuing appraisals of relationships--""",26
-fomc-corpus,1984,"I'm not there. I'm just talking about the ranges. I assume that will stay in, but I'm not talking about '85 yet, which is the next sentence. I'm talking about all the sentences on page 3, or whatever I have in front of me, which I guess is the same thing.",61
-fomc-corpus,1984,"But doesn't the sentence I started to read, even though I jumped the gun, apply both to '84 and '85.",25
-fomc-corpus,1984,"Yes. I assume that will stay in, but we better [check]. Is that the general assumption--that that sentence stays in?",27
-fomc-corpus,1984,What sentence are you talking about?,7
-fomc-corpus,1984,"The next sentence in the next paragraph. The one-sentence paragraph: ""The Committee understood that policy implementation would require...."" I'm just assuming that stays in. Apply it both to '84 and '85. All I'm talking about now is '84 and I'm just accepting the language that was prepared here, with the addition of the sentence we talked about. The effect of this language change from what we had before is to remove the probationary status of Ml, but the other paragraph says that they are all to a degree probationary. With that, let us vote on 1984.",118
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,47
-fomc-corpus,1984,Let me review the bidding on '85. We had a couple of questions. Is the consensus for debt unchanged at 8 to 11 percent? Some people did suggest 8 to 10-1/2 percent.,45
-fomc-corpus,1984,"I still like that, but I think 8 to 11 percent is all right. I assume you will be saying something about this horrendous pace of credit and debt growth.",36
-fomc-corpus,1984,"The general consensus is toward 8 to 11 percent, I take it. I think everybody was pretty much for 6 to 9 percent for M3. Is that correct? We have this little cosmetic point on M2. Let me just see: Among the Committee members, how many want it at 6 to 8-1/2 percent? Eight. [Secretary's note: Messrs. Boehne, Corrigan, Gramley, Martin, Partee, Rice, Ms. Seger, and Mr. Wallich.] There seems to be a clear majority for that. Can we live with 6 to 8-1/2 percent? That brings us down to the M1 number, where I take it the range is between 4 to 7-1/2 percent and 4 to 7 percent. We had a tentative vote on this before, but we were split. Let me try again. For 4 to 7 percent? Six. [Secretary's note: Mr. Corrigan, Mr. Gramley, Ms. Horn, Mr. Partee, Ms. Seger, and Mr. Wallich.] Does that mean the other five, excluding me, have a firm opinion or are some neutral?",255
-fomc-corpus,1984,Tie.,2
-fomc-corpus,1984,Who wants 4 to 7-1/2 percent? Five. That means everybody has an opinion.,22
-fomc-corpus,1984,"Now how about a ""try to live with""?",10
-fomc-corpus,1984,"Well, we can try to live with 4 to 7-1/2 percent, but with some explicit statement that a further reduction to 7 percent might well be forthcoming.",37
-fomc-corpus,1984,I don't have any trouble with that.,8
-fomc-corpus,1984,Then I think the tactical advantage gets lost because in a certain sense--,14
-fomc-corpus,1984,He's not talking about publicly saying it. Are you?,11
-fomc-corpus,1984,"Well, I feel there is more to this than that. These are awfully weak reductions in these things if we don't go for 4 to 7 percent. I somewhat prefer going to 4 to 7 percent.",45
-fomc-corpus,1984,Who can live with it?,6
-fomc-corpus,1984,"--ranges of 8 to 11, 6 to 9, 6 to 8-1/2, and 4 to 7 percent.",33
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,47
-fomc-corpus,1984,Everybody could live with it!,6
-fomc-corpus,1984,"I think we still have to do some talking about the uncertainty of velocity. This is based upon an assumption that it returns to more normal behavior. If it doesn't, which could be in the upper direction, we obviously have to reexamine it.",50
-fomc-corpus,1984,But that last sentence you were talking about before provides for that.,13
-fomc-corpus,1984,He means in the testimony.,6
-fomc-corpus,1984,"I'm talking about the testimony. All right, I guess we're finished. I don't know where we are on these projections. I think you ought to look at them again anyway. I don't feel that strongly about it, but I don't think we have to sit here and say we're assuming that the exchange rate is exactly where it is now. But I think an assumption that it does not decline [unintelligible] something like getting up toward 10 percent. We seem to have 5 percent up and down wiggles regularly, and I'm not sure that that's anything very much. But make an assumption that permits the Humphrey-Hawkins report to say that these projections are not based upon a severe, if that's the right word, depreciation of the dollar which would obviously have substantial, important and significant implications for changes in prices. The dollar remains substantially within the range of the last year. That probably allows for quite a decline, doesn't it?",189
-fomc-corpus,1984,Wouldn't that have a substantial market effect?,9
-fomc-corpus,1984,"Well, I'm trying partly to avoid the market effect. We're saying we assume that the dollar is essentially in the range of the past year, but if it did decline a lot more than that, we would have more price inflation.",46
-fomc-corpus,1984,We wouldn't intervene. That might be the conclusion of some.,12
-fomc-corpus,1984,I hope we're going to intervene in the deutschemark if the dollar goes above 3 deutschemark. That becomes a threshold.,25
-fomc-corpus,1984,But I was thinking of supporting the dollar.,9
-fomc-corpus,1984,You wouldn't have to take a calculator to Europe then!,11
-fomc-corpus,1984,"All right.    I think Mr. Kichline would like to have [your revised projections] as soon as possible, which he interprets as midday on Thursday. What's today?    Tuesday.  I guess that's all we have, except the [confirmation of the August 21] date of the next meeting and sandwiches outside.",67
-fomc-corpus,1984,"If we can come to order, I need a motion to approve the minutes.",16
-fomc-corpus,1984,Move approval.,3
-fomc-corpus,1984,Without objection. You have received a report on the examination of the System Open Market Account. I assume you all have examined that with care.,28
-fomc-corpus,1984,It's very straightforward.,4
-fomc-corpus,1984,"Are there any comments? In the absence of any comments, we could have a motion to accept it.",21
-fomc-corpus,1984,Move approval.,3
-fomc-corpus,1984,Without objection.,3
-fomc-corpus,1984,"Mr. Cross,",4
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"Comments or questions? It left everybody speechless! We have nothing to approve, right?",18
-fomc-corpus,1984,Nothing to approve.,4
-fomc-corpus,1984,Let's turn to Mr. Sternlight.,8
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Any comments or questions about the earlier part? Mr. Black.,13
-fomc-corpus,1984,"Peter, do you regard this recently widening spread between the discount rate and federal funds rate as a transitory phenomenon that's likely to be reversed fairly soon? If so, how would the Desk react to that?",41
-fomc-corpus,1984,"I consider it transitory in the sense that I don't regard it as permanent, but I have some real question about whether it will reverse very soon. I think it might tend to narrow gradually but I don't have a strong sense of confidence as to the timing or extent of that.",56
-fomc-corpus,1984,"If it did happen pretty soon, would you hold to your borrowing target and let the federal funds rate come down?",23
-fomc-corpus,1984,"Well, that would depend a good deal on the nature of the discussion around the table here. I think [the answer is] mechanically, yes, but there are nuances in the day-to-day execution of policy in that we'd want to take guidance from the Committee's sentiment.",55
-fomc-corpus,1984,That would be the mechanical [response].,8
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"Peter, I too am sort of mystified by this up-creep in the funds rate relative to borrowings. It's really quite obvious and seems to be rather enduring. You mentioned Continental's borrowing in a negative way--as not being a factor--but I'm inclined to wonder whether in fact it isn't a factor. I seem to recall that we observed the same kind of phenomenon when Franklin borrowed sizable amounts in the summer of 1974, and I'm wondering whether there isn't something about the channels of distribution that could have some marginal impact on the rate relationship.",111
-fomc-corpus,1984,"I mentioned the reluctance to borrow as the most reasonably clear and persuasive reason to me. I didn't mean to dismiss entirely the Continental borrowing and the cutting of new channels. I'm not thoroughly persuaded; that has some plausibility to me, but I can't really pin down well in my mind just how the whole process worked.",64
-fomc-corpus,1984,"You seem to have the same view that I do. I feel that there might be something there too but, of course, one can't prove it and the arithmetic doesn't support it. But, still, there are quite different channels. The reason I mention it is that it doesn't look as if Continental is going to be out of the [discount] window anytime soon; in fact, they may borrow substantially more over the weeks and months to come. So, if there is a tendency for that [to occur], it could be exacerbated. And if we had to [unintelligible], I don't know what to do about it. But I wonder whether it isn't a factor.",137
-fomc-corpus,1984,We took a cursory look at it--and this is by no means definitive--and it looked as if there was reluctance to borrow by large Chicago banks more than anything else.,37
-fomc-corpus,1984,"Well, of course, one thing that happens when we count it as nonborrowed is that what used to be Continental's borrowing from time to time automatically gets excluded. Now, that can't be quantitatively very big. That would be one factor.",50
-fomc-corpus,1984,We figure the Chicago banks wanted to make darn sure nobody felt they were in the same situation as Continental and they might be more reluctant to borrow.,29
-fomc-corpus,1984,The big banks have not been in.,8
-fomc-corpus,1984,That was the most striking difference that we found in just a quick look at it.,17
-fomc-corpus,1984,"In fact, proportionately the District borrowings are down.",12
-fomc-corpus,1984,We had reports that one or two banks--for sure one New York bank--were told by their executives to stay out of the window.,28
-fomc-corpus,1984,I can imagine some of them are reacting that way.,11
-fomc-corpus,1984,"We've had that information from two or three of the very large banks. And some of them think that it's true of others, but not everyone admits to it in a direct way.",36
-fomc-corpus,1984,"We might see some more, given Financial Corporation of America's problems.",13
-fomc-corpus,1984,That is possible.,4
-fomc-corpus,1984,Any other comments?,4
-fomc-corpus,1984,"This is really an observation. With Continental's large and prospectively even larger borrowing and with Financial Corporation of America likely to come in, several people have asked the basic question of what our technical limitation is by way of a borrowing level. What is the operational limit? If there is a possibility of a problem, it might be helpful if we had a rather uniform statement as to how we might reply to this type of inquiry.",85
-fomc-corpus,1984,"Well, I don't think we want to give any impression that there is any limitation under these circumstances. Unfortunately there is, which surprised me. We have a collateral requirement for Federal Reserve notes which cannot be met by lending to banks unless the loans are secured by eligible paper. So, we may have to put in a little effort to get some eligible paper to secure those borrowings and to keep track of it. The limits are not all that far away, if we get another big bank coming in to borrow or if Continental's borrowing keeps going up. It depends upon circumstances elsewhere on a day-to-day or week-to-week basis. That troubles me.",130
-fomc-corpus,1984,The way I've heard the question is not so much the way Si has heard it but: At what level will distress borrowing complicate open market monetary policy operations? Will there be a limit on the amount of borrowing the System can make available to banks that need liquidity because of the problem it creates for our open market operations?,64
-fomc-corpus,1984,I think the answer is that Paul has [noted] something that is going to hit before the limit on open market operations hits.,27
-fomc-corpus,1984,It's going to hit earlier?,6
-fomc-corpus,1984,"Yes. That hits early. Hardly anybody knows about it, but we have to collateralize those notes and it's a criminal offense to issue them without proper collateral. So, it would come up with another ten billion in borrowing.",46
-fomc-corpus,1984,When banks are out of Federal Reserve notes we just send them coins!,14
-fomc-corpus,1984,"Well, that's what we would have to do--just withdraw currency from circulation.",16
-fomc-corpus,1984,Maybe that's how we can get the Susan B. Anthony coins in circulation!,15
-fomc-corpus,1984,"It depends upon what the market circumstances are. If market circumstances are disturbed, as they might be in those circumstances, we couldn't offset it. But it may be that we wouldn't want to [do that] in some circumstances.",45
-fomc-corpus,1984,"There are a lot of questions of that sort floating around and there is a lot of uneasiness. And if FCA comes into the [discount] window, I think we're going to see a significant increase in concerns. You know [about] the actions that took to help FCA out--they are a very tough bunch, strictly profit oriented--and for the first time I heard them saying that part of their motivation was their worry that the FCA situation would extend to other thrifts and just cause general problems which, of course, would affect them, too.",112
-fomc-corpus,1984,"Mr. Chairman, so everybody will be up to speed on the FCA situation, it's quite likely that they will be in to the window this week, though not in a big way in the sense that we've been pressuring them hard to get lots of collateral with us and all they have come up with so far is $2 billion. And that is all very large denomination commercial real estate loans. We have a team analyzing and evaluating this on a crash effort basis but initially, if they do request accommodation, we're going to take at least a 50 percent margin on that stuff and may never go above that margin. So, for collateral reasons, we couldn't go above $1 billion right at this moment. And it's doubtful that they are going to be able to get much more collateral into our Bank--at least this week. I might add that none of it, of course, is eligible commercial paper. It's all large denominations of commercial real estate loans. So, it won't help that particular aspect of [our collateral] problem.",206
-fomc-corpus,1984,"Yes, it may be that it will require a FHLB or FSLIC guarantee behind even a collateralized loan to provide enough liquidity even in the very short run on a day-to-day basis.",40
-fomc-corpus,1984,Can we lend to the Home Loan Banks?,9
-fomc-corpus,1984,"Well, that's an issue I've raised and I hope we will get a firm answer to that pretty quickly. We may need it. It's under discussion now, I understand, but I don't know what the answer is. We did raise the issue of whether we could lend to the Home Loan Bank based on collateral promissory notes that they have from their customers. FCA has been scrambling hard to get billions of collateral into the Home Loan Bank; that's where they put their big effort. But even there they may run out of gas, in terms of acceptable and available collateral. We hope to avoid the loans [to] the HLB itself; it would make many less waves in terms of all sorts of things if we could lend to FCA, but we are exploring direct loans to the Home Loan Bank as a fallback position. We've asked our staff along with the Board's staff to explore the legal and other aspects of such loans.",185
-fomc-corpus,1984,I'm sure it can be done. That's a paragraph 3 loan.,14
-fomc-corpus,1984,"Unless things have changed, by law at the moment a loan to a Home Loan Bank--unless it's secured by something interpreted as government securities--would require a 5-man vote of the Board and a declaration that it is because of unusual and exigent circumstances. It's technically possible by law but it would need at the moment to be within those confines.",70
-fomc-corpus,1984,The press is reporting $800 million borrowing from the Home Loan Bank. Is that accurate?,18
-fomc-corpus,1984,No.,2
-fomc-corpus,1984,No.,2
-fomc-corpus,1984,"Paul, if borrowing burgeoned, let's say, to $25 billion in the System and we didn't have the collateral to sell, just technically isn't it possible that we could raise reserve requirements? I understand the psychology, but that would be the mechanical way to resolve it, wouldn't it?",57
-fomc-corpus,1984,"Mechanically, yes, we could resolve it that way.",12
-fomc-corpus,1984,If we announced that that was the purpose.,9
-fomc-corpus,1984,It depends on the circumstances; I can't see offhand that that's likely to have any advantages over selling in the market.,24
-fomc-corpus,1984,But if we didn't have anything to sell--.,10
-fomc-corpus,1984,"That's not the problem, I don't think.",9
-fomc-corpus,1984,We have plenty of short-term securities to sell.,10
-fomc-corpus,1984,"Well, actually, that might be a way to maintain the assets that we need. I suppose that's what we could be driven to in order to maintain the assets we need to collateralize the currency. That could make all the banks love us!",49
-fomc-corpus,1984,"But at that point we probably would need some ease in the financial markets and, if anything, in the banking system.",24
-fomc-corpus,1984,"We could ease. If we're expanding reserves by the borrowing, we could less than offset them by the reserve requirements and still ease.",26
-fomc-corpus,1984,"No, you could get the same mechanical result. I guess we could do it--protecting our assets that we need to back currency.",28
-fomc-corpus,1984,"That's hard to explain, though. Can you imagine saying that on account of the financial crisis, we're raising reserve requirements?",24
-fomc-corpus,1984,"It's better than the alternative, Chuck, of saying ""We can't accommodate you at the window.""",19
-fomc-corpus,1984,"We would have to raise the reserve requirements quite a lot, I guess.",15
-fomc-corpus,1984,"Bob, back to your question again, the last figure we had yesterday on the American Savings & Loan borrowing from the HLB--and I can be corrected by staff--was about $2.3 billion. There was a reduction because of the payback out of the credit extended on a portfolio of single-family residential mortgages. So, they paid down part of a HLB balance that was running about $3 billion. They--temporarily, I stress--paid it down to about $2.3 billion yesterday. Of course, this morning at 9:00 a.m. California time, they may be right back to that or even higher.",131
-fomc-corpus,1984,Is the HLB's limitation basically collateral or their own funding problems?,14
-fomc-corpus,1984,"It's a combination of things, including the bit more autonomy that a HLB Board of Directors has compared to a Federal Reserve Bank Board of Directors.",29
-fomc-corpus,1984,Do they have a run on?,7
-fomc-corpus,1984,Of course they have a run on. They have had a run on now--,16
-fomc-corpus,1984,"I see comments in the press. First, they talked about the institutional deposits they were losing. Then in the last few days, ever since the revised earnings report, I saw that it was retail deposits.",41
-fomc-corpus,1984,"Tony, that's totally inaccurate. That New York Times story was especially bad yesterday about their losing only $200 million and that most of it was retail. In fact, in the last 4 or 5 business days the net loss has been a half billion dollars a day on average and the great bulk of it is in these jumbo accounts.",68
-fomc-corpus,1984,"So, the so-called retail is very frequently a result of telephone solicitation in a city like Washington, D.C. by an employee of FCA or by American. That's so-called retail. It's not from Merrill Lynch. That makes it retail.",48
-fomc-corpus,1984,"They had 300 people doing that, didn't they?",11
-fomc-corpus,1984,"1,000.",4
-fomc-corpus,1984,"It's 1,000 now?",7
-fomc-corpus,1984,Counting everybody.,3
-fomc-corpus,1984,"The press reports have been inaccurate on that too, then.",12
-fomc-corpus,1984,The only matter that one could say was well done in this whole thing--and not from a moral point of view--has been the management of news by these folks.,34
-fomc-corpus,1984,They lie very well.,5
-fomc-corpus,1984,"I was trying to avoid that term, John.",10
-fomc-corpus,1984,We have this question of limits. Are you [unintelligible] convinced by Mr. Sternlight's analysis?,24
-fomc-corpus,1984,He's in a better position than we are.,9
-fomc-corpus,1984,[I need] somebody to make a motion.,9
-fomc-corpus,1984,"Again, it's very uncertain and a lot depends on the extended credit. If I were sure that that were going up substantially, we wouldn't really need the [additional] leeway and I would just wait until the situation arises. I'm just asking as a matter of prudence because I see the possibility at this point.",63
-fomc-corpus,1984,What are you asking for specifically?,7
-fomc-corpus,1984,"An increase from $4 to $6 billion, Mr. Chairman.",14
-fomc-corpus,1984,And this will be in reserve absorbing--,8
-fomc-corpus,1984,That more or less assumes extended credit unchanged.,9
-fomc-corpus,1984,That isn't exactly likely to happen. Do we have a motion?,13
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,Do we have a second?,6
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,"Do we have any opposition? If not, it's approved. We have to ratify the transactions. Without objection. Mr. Kichline.",29
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"I have a question about your projection on inflation. You are projecting, as you just said, 1 percentage point higher inflation in '85 compared to '84. But if I understood correctly your analysis 6 weeks ago, you are projecting about a 1 percentage point rise in unit labor costs. Now, that alone could account for a 1 point rise in inflation but on top of that you're also factoring in a 10 or 15 percent reduction in the exchange rate, and presumably you'll get some some increase in utilization of capacity. I don't see how, based on your assumptions, you end up with only a 1 percentage point increase in inflation in '85 over '84.",138
-fomc-corpus,1984,"We now have unit labor costs rising in 1984 at about 2-1/2 percent and for 1985 we have them up in the neighborhood of 4-3/4 percent. It's a substantial rise, in part because compensation is rising and in part because we have smaller gains in our forecast for productivity. So, we get a substantial rise in unit labor costs, but from a level in 1984 that is quite moderate. With respect to the dollar, you are quite correct that we have the adverse effects there but they really show up very late in the year. As time has gone on, in fact, two things have happened. One is that Ted keeps saying the dollar in our forecast should come down 15 percent. The thing we don't talk about is from what level; and the level always is higher in the short run. So, in part what we're dealing with is more favorable prices from the dollar occurring early on in 1985; it's really in late 1985 that the adverse [dollar] effect occurs.",213
-fomc-corpus,1984,But don't the price effects show up a lot earlier than the trade effects?,15
-fomc-corpus,1984,"They certainly show up earlier, but Jim is certainly correct. If you had [a dollar decline of] 15 percent for the fourth quarter of the year--which is not what we're projecting--by the fourth quarter of next year you would only have half of the price effects of that. And if you spread out that 15 percent decline over the next 5 quarters, then you're really talking about having a relatively small component of the price effects of the dollar [decline]. In fact, we have nominal import prices going up over the 4 quarters in 1985 by about 14 percent, so even there we don't have all this coming through, with lags and so forth, until after the projection period.",145
-fomc-corpus,1984,"But even if the dollar stays where it is, since it has been rising over time we have some benefit for inflation from that rise if it stops.",30
-fomc-corpus,1984,That's Jim's point.,5
-fomc-corpus,1984,"Mr. Chairman, I wonder if I could follow on this with a similar question. I generally agree with the staff forecast but, if I understand your analysis correctly, you have revised your growth forecast upward and you have revised the inflation number downward for 1985, whereas the unemployment rate associated with both of those is unchanged. There are obviously several explanations for this--the strength of the dollar, perhaps increased productivity, and so on. But, frankly, I'm a little confused about what seems to me to be a somewhat inconsistent forecast. Can you enlighten me?",113
-fomc-corpus,1984,"First of all, I would say that given the margin of error I view our real side forecast as not significantly different from what we had before. But you're quite correct that to the extent we made changes over the 6-quarter period they are up--especially for 1985, where it's a quarter point or so higher. On the inflation side, I'd mention several things. One is very important: food prices. Indeed, we now have a food price increase of about 5 percent projected for this year and next. That had been in the range of 6-1/2 percent and earlier it was up to 7-1/2 percent. That's a big number in terms of the overall price picture. There we think we just missed; it may show up later but frankly we've held onto that forecast in making downward revisions along the way. But, again, it's very important. The dollar we have talked about. In the very near term there is energy; we had gasoline prices dropping at something like a seasonally adjusted 12 percent annual rate in the third quarter. That has lagged in the PPI; we haven't really seen much of that in the PPI and it should be showing up. When we get the CPI it ought to be showing up soon; so, in the very near term, we think energy markets are quite weak. We have noted that also spilling over into coal and natural gas prices. The only thing that seems to be happening is that electricity rates are going up. But that's important for us in the shorter run. More so, I'd say, is our assumption on oil prices which is that in fact they will be drifting down a little in real terms. So, we have taken a more optimistic view on some of those things. I would also note that on the wage side, the numbers that came in on the GNP revision over the last 3 years tended, especially in 1983, to revise down rates of increase in compensation. Part of it is on the benefit side but as more information became available, compensation increases in the past now look different--that is, lower and more favorable. On the wage data, we had been expecting fairly good numbers and they were better than we thought. The employment cost index now is running at 4 percent over the first half of the year. It's down more than a percentage point from 1983. The contracts that have been settled to date so far this year are averaging a 3.8 percent increase for the first year. Basically, we sat down and looked at a broad range of information from many different sources and concluded that it would be prudent to knock some tenths off of various things, which we did. And it added up to a more favorable picture.",556
-fomc-corpus,1984,I don't know as we can stand all this good news!,12
-fomc-corpus,1984,"Just one short question, Jim. [Unintelligible.] Do you have a gross domestic business product fixed-weight index for the second quarter now?",30
-fomc-corpus,1984,"Here comes the bad news. It was revised up to 4.1 percent; the preliminary number had been 3.3 percent. I would say that that is of virtually no concern because nearly all of it occurred in the residential structures component. The Commerce Department now says that prices associated with the residential construction area rose at an 11-1/2 percent annual rate in the second quarter. At this point, much of that is really fiction as much as fact. They don't have very much information.",102
-fomc-corpus,1984,How do they get it?,6
-fomc-corpus,1984,It seems like an extraordinary rate of increase in prices of residential construction.,14
-fomc-corpus,1984,"Well, keep in mind that there was something like a 2 percent increase, I believe, in the first quarter. They reported a 5-1/2 percent increase initially in the second quarter and now they have 11-1/2 percent. If history rings true, they could have zero or minus 3 percent for the third quarter. That number really just flips about. So, it's not in an area that we think is a real problem, but it was revised up.",99
-fomc-corpus,1984,"They're probably capturing improvements in quality, as I understand it. What do you think?",17
-fomc-corpus,1984,I don't know. At this point they really do have limited information and they have a great deal of trouble with mix problems. We have been getting a lot of increase in multifamily construction and they may well end up revising that away later on.,50
-fomc-corpus,1984,"If I understand, all the construction materials prices are steady or down and wage rates are steady.",19
-fomc-corpus,1984,And there are no changes in the implicit deflator. It's an unusual phenomenon.,16
-fomc-corpus,1984,"In support, Jim, of our outlook for inflation, I think we need to be careful not to assume that the projected changes in the value of the dollar--I'm being serious now--will have the kinds of impact on domestic producers and on prices of both business goods and consumer goods as was true in many other expansion periods. It seems to me that the loss of share of the market to foreign suppliers --to the out-sourcing entities--is to a large degree a fairly long-term loss of those markets. Domestic producers and domestic sellers may get those markets back or they may not, and those are important market gains to the foreign producer. He is going to hold on to that market share if that means price concessions or price steadiness. I think the American consumer will benefit from that. So, the loss of share of the market has a positive impact on domestic inflation in this country.",178
-fomc-corpus,1984,"On the other hand, although there may be something to what you say, we're going to get some protectionist measures that may lead to some direct price [effects] in steel and copper and other things.",41
-fomc-corpus,1984,"And those industries will find all kinds of ingenious ways to get around those measures unless they are very, very broad and firm indeed.",26
-fomc-corpus,1984,"I'm not sure that your basic proposition is clear because [foreigners had] even a much smaller share of the [domestic] market in 1978 when the dollar was down [unintelligible], and other exporters were giving discounts to keep their share of the market. What you're really saying is that because the foreign share of the market is larger than it was, they are going to be more willing to make concessions.",86
-fomc-corpus,1984,"They are going to have slow growth in their own economies, Tony. Their own markets are not expanding the way their share of our markets is expanding. They have a very great incentive to hold their prices or not increase them much, and that puts pressure on our price setters. These are administered prices and it is very important to keep them steady because they have just gotten that share of the market. If you have just penetrated it, you are going to be very careful in your pricing. These are cartel mentalities from these other countries. They have a different legal scheme where they are going to administer those prices carefully, I think, to maintain their market share in the world's biggest market.",138
-fomc-corpus,1984,Do you think they would tend to hold their dollar prices and eat the change in the exchange rate profit?,21
-fomc-corpus,1984,"I do, sir. We're talking about the short run.",12
-fomc-corpus,1984,"Empirically what they do, Chuck, as I had occasion to follow it very closely, is that they don't hold their dollar prices but typically will split with their distributor half the costs of the exchange [rate change]. The distributors also have an interest in preserving the volume and share of market, so they will cut their own [profit] and the manufacturer will [unintelligible] and be willing to accept some of the smaller profits.",89
-fomc-corpus,1984,For a while.,4
-fomc-corpus,1984,For a while. This is part of the lag that Ted is talking about.,16
-fomc-corpus,1984,I think we'll have more lag.,7
-fomc-corpus,1984,"It troubles me that most of the good news about inflation does seem to be reversible over time--not all of it, but most. It's reminiscent of the early '50s when we were telling ourselves that we had finally achieved price stability and what was happening was that food was coming down for several years and everything else was going up and the net was stability. This is likely to catch up with us again after a year or two.",87
-fomc-corpus,1984,In a recession?,4
-fomc-corpus,1984,I hope that will give us some boost. I was just assuming that the economy would be growing at a stable rate.,24
-fomc-corpus,1984,"If you analyze what happened to inflation in the last recovery which was almost a 5-year period going from the third quarter of '75 to the first quarter of '80--and I'm not saying I've done it scientifically, but I've asked a lot of questions about this--we hit double digit inflation problems. Part of that, of course, was a very large drop in the dollar. First of all, I would put the oil shock as [unintelligible] and then the drop in the dollar. And part of it, I guess, was monetary policy. Even though the money supply numbers looked pretty good for most of that period, interest rates really did not rise and in hindsight the experts tell me that there was a shift in the demand function--whatever that means, I don't know.",160
-fomc-corpus,1984,Unexplainable!,5
-fomc-corpus,1984,"The interest rates would not keep the rise [unintelligible] agreed-upon proposition. Until the dollar began declining, which forced some major rises in interest rates, [unintelligible] interest rates probably did not keep the economy from overheating. It's interesting to analyze when you look back if there is any way to give weight to these certain factors. Was the System more to blame than the Arabs and OPEC? I don't know. It's true that we probably are not going to have an oil shock. That looks to be the case. It looks as if there are going to be a lot of assurances against another oil shock almost permanently--I mean by permanently in the next 5 to 10 years. And presumably we're running monetary policy now somewhat more tightly. We are more sensitive to an inflationary threat during a recovery. On the other hand, we don't really know how the dollar will behave and what the impact of that would be. So, it seems to me that there's a useful lesson to be learned from doing more scientifically what I was trying to do--analyzing what is different in the factors affecting inflation in this recovery than in the last one. That is relative to Henry Wallich's kind of pessimism about [unintelligible]. Are we going to end up doing any better or not? It seems to me that there are two things going for us that may make a significant difference. One is the likely absence of any oil shock and the other is the way we are running monetary policy now.",308
-fomc-corpus,1984,"Well, I was speaking about an even more distant period. In the early '50s we had no particular oil shocks; we had a food shock. As I look at the numbers for the future, capacity utilization now has been upgraded in this staff projection by almost 1 percentage point for the end of '85. Nominal GNP is about the same, but real GNP is significantly higher in the latest projection. I don't know what happens to unit labor costs but they certainly rise very sharply from '84 to '85. And in that environment, to think that inflation will rise by only 1 percentage point is on the optimistic side.",130
-fomc-corpus,1984,And nobody has mentioned fiscal policy.,7
-fomc-corpus,1984,"Right. There is an increase of $20 billion in the full employment deficit--in other words, something we would have regarded as enormously stimulative some years back.",33
-fomc-corpus,1984,"Governor Wallich, do you think interest rates will rise in that scenario?",15
-fomc-corpus,1984,"We tend to think there might be some rise in interest rates in '85, which would hold things back a little.",24
-fomc-corpus,1984,"Well, it's interesting how the deficit has disappeared from the market's thinking. It was pervasive and now it's somewhere in the background.",26
-fomc-corpus,1984,"The one positive factor that you didn't mention, Tony, is that if you compare this expansion to the one of the late 1970s, the rate of wage advance is substantially lower now than it was at the same stage of that expansion.",49
-fomc-corpus,1984,And the rate of productivity increase is much higher.,10
-fomc-corpus,1984,Not yet.,3
-fomc-corpus,1984,Relative to the 1970s.,8
-fomc-corpus,1984,I don't think we can really document that yet.,10
-fomc-corpus,1984,2.9 percent and 3.3 percent are the numbers.,14
-fomc-corpus,1984,[Unintelligible] in the early '70s.,13
-fomc-corpus,1984,"Well, the trend was. But Frank is talking about the same period of expansion. We had a very substantial improvement in productivity as we came out of the 1974-75 recession.",38
-fomc-corpus,1984,Unit labor costs are doing much better now but primarily because the rate of wage advance is much lower.,20
-fomc-corpus,1984,"And, of course, real interest rates are much higher.",12
-fomc-corpus,1984,"But, Frank, it's interesting if you look at consumer prices. So far in this expansion they have been 5.6 percent, which is the second largest amount of increase in any of the 6 postwar recoveries. And the fixed-weight price index is up 6.2 percent versus 6.5 percent in the 1970-72 period, which means more is going to profit despite wage restraint. It doesn't look that different. It's rather scary as a matter of fact looking at some of these, which I have done on a preliminary basis but not as thoroughly as I need to. Producer prices look a lot better; they are half as much so far as in 1970-72--2.3 percent versus 4.6 percent for the first six quarters. That has food in there; if you look at the nonfood part you might get a different impression. I just happened to run across these right before the meeting.",193
-fomc-corpus,1984,"Why is it that the projection for the output per hour--that is, productivity--is so pessimistic for 1985? I missed that; it goes from 2.5 percent in 1984 to .8 percent.",47
-fomc-corpus,1984,"I'm glad you asked that question, Henry.",9
-fomc-corpus,1984,"Because we think that we've overshot trend. The way these things are done, in looking back at history one would assume that over time we would get down to a trend rate of growth. Our view is that in 1984 we're dealing with trend growth of productivity of around 1-1/4 percent. That's subject to debate, but that's the number we used. We're getting more than that and we expect we will slowly be approaching trend, so that in 1985 we fall below 1-1/4 percent.",107
-fomc-corpus,1984,"In looking at these summaries of District business conditions, I thought I detected a considerably more cautious tone than had been reflected earlier. Did I detect wrongly?",30
-fomc-corpus,1984,Do you mean on the price side or business?,10
-fomc-corpus,1984,"No, on the business [side].",8
-fomc-corpus,1984,"In my District I noticed that my board reflects that more cautious tone. They are heavily influenced by retail sales, car loans--the [industries] they are in--and they seem to feel that [business conditions] are not quite as ebullient as they were. Still, that's just a nuance of tone, I think.",67
-fomc-corpus,1984,"Part of that is that in the business community there is nothing very tangible except the old conventional wisdom that what goes up comes down. Things have been going along pretty well and they think it has to come to an end sooner or later, so I think that makes them cautious. Looking at it from an analytical point of view, while expansions vary all over the lot in terms of length, we are moving up toward an average life for this recovery. And I think Pres made a point on the inflation outlook that things are going along pretty well right now. As you look out, you can see certain possibilities of being ambushed but one that hasn't been talked about is the possibility of a recession. We have a great reluctance to project recessions around the table. In fact, most people do. But I think at least some mild recession out over the 1985-86 horizon is a reasonable possibility. And that is clearly a negative as far as inflation turning around. Being this far [into a recovery] with the positive signs that we have--. We really have made a remarkable downward adjustment in inflation from the last cycle to this one. And it seems to me that most of those gains are going to be maintained, largely because we have circumstances that are favorable and also just because expansions wear out in time and finally they die. That, I think, is the basic assurance of it really [not] getting away from us.",287
-fomc-corpus,1984,"I really don't understand how you can say that, Ed. We're 2-1/2 years into the recovery. At 2-1/2 years into the middle 1970s recovery, we didn't have much inflation. Bob was giving those figures.",53
-fomc-corpus,1984,"We're only 21 months, I guess, by a generous interpretation.",14
-fomc-corpus,1984,It took quite a while for that inflation to heat up in the middle 1970s.,19
-fomc-corpus,1984,"Yes, but that really got going, I think, as a result of the oil shock.",19
-fomc-corpus,1984,"Well,--",2
-fomc-corpus,1984,"It contributed to it, but was not a factor to [unintelligible].",17
-fomc-corpus,1984,"Yes. The oil increase was about early 1979, wasn't it?",15
-fomc-corpus,1984,No. Which one are you talking about?,9
-fomc-corpus,1984,The first one was in 1973.,9
-fomc-corpus,1984,I'm talking about the second oil shock.,8
-fomc-corpus,1984,The second part of the 1970s?,10
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,That was in '79 and in '74 we had one.,13
-fomc-corpus,1984,"I'm talking about the second half of the '70s. It took some while for the inflation to really accelerate. Then once it accelerated, it accelerated fast.",32
-fomc-corpus,1984,"But that was not oil, I think. Oil came after that, in '79.",18
-fomc-corpus,1984,I think what happened was this: In the first years of the Carter administration basic inflation was running only around 6 percent but they admitted privately that there were a lot of built-in factors in the policy that was being followed that would bring that inflation rate up substantially even without the oil shock. But it probably would not have gone to double digit rates; it probably would have gone to 8-1/2 percent without the second oil shock.,89
-fomc-corpus,1984,"I think we have much less room here for inflation to get going as it did then because of the level of interest rates. If we had a turnaround in inflationary psychology, I think we would get a big push-up in long-term rates. And I don't think there's that much room between where we are now and what it would take to trip the economy into a recession. So, I think it would take less of a change in inflationary expectations now than it did then to get the impact on interest rates that would give us the slowdown.",109
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"Just responding to this question of attitudes, we've been surveying people in our District and I would say the consensus is that no one anticipates a downturn this year. They are all feeling comfortable. They are a little more cautious as they sense the slowdown. We've been asking them what they think about prices and they give us two responses. One is that there are no price pressures out there from their suppliers and they are not able to raise prices in the market. Every time they try, they get knocked down. Looking ahead, however, to the year-end or the fourth quarter--not next year--they are all trying to raise prices about 4 percent.",131
-fomc-corpus,1984,"This brings up something that I want to check with Jim Kichline on. My people project that even by the end of 1985, assuming these growth figures that we more or less are in agreement on--let's say 3 percent real GNP in 1985--that utilization of capacity should not exceed 85 percent because they believe that capacity will be growing in 1985 at about the same rate. Therefore, even though we're up now to the 83-84 percent area--I don't know exactly where in there--we probably will not see 85 percent even by the end of 1985. Is that correct? Is that your assumption?",135
-fomc-corpus,1984,"That's right. We're at 82.5 percent now and that is our view. It moves up a little but we are assuming that capacity growth is increasing perhaps at a 3 to 3-1/2 percent rate now and we have growth of output slowing, so that our number at an endpoint is around 84-1/2 percent. So, our view would be consistent.",79
-fomc-corpus,1984,"That would make a big difference also, because as I remember the Carter period we got up to 88 percent and that [utilization rate] was putting on a lot of pressure.",37
-fomc-corpus,1984,"There is somewhat of an inevitability here too in the context of the ballpark range of numbers that we are looking at for unemployment and capacity utilization for 1985. We could be lucky and get the kind of inflation picture that people are talking about. But it is also true, inevitably true, that we're getting near the point in both capacity utilization and unemployment rates where it wouldn't take a heck of a lot to get a worse result. And with all the good things that are going on--and there are a lot of them--if we hit those points, whatever they are, in capacity and unemployment, we will start to get price pressure. It's as certain as the day is long.",139
-fomc-corpus,1984,"Well, it seems to me the major risk on the price side is the dollar. Let me examine the proposition that the economy may turn out to be a little softer in the near term than Mr. Kichline has projected. We have housing definitely going down now and I think we have some momentum in business spending with the latest number--though it may not mean anything--but the latest consumption figures are not so great.",85
-fomc-corpus,1984,"In the Fourth District, Mr. Chairman, we do have reports of some lessening in steel, which is definitely in that category of housing--",29
-fomc-corpus,1984,Steel still is showing no pickup from this little slump in the spring?,14
-fomc-corpus,1984,"Yes, but you were referring to business spending. We are getting a lot of reports of a great deal of enthusiasm on the business investment side of things. That sort of goes on with an attitude that good times will go on forever--forgetting underlying problems such as the exchange rate, deficits, and so forth.",63
-fomc-corpus,1984,"Well, that seems to be the strongest thing. I suppose for the short run the economy is going to be determined by inventories as always.",28
-fomc-corpus,1984,"The one thing we do know in that respect, though, is that the revisions of the second-quarter statistics make that picture look a little better. The upward revision of GNP was accompanied by a downward revision in the rate of inventory accumulation. So that looks a little better. In terms of the prospects for too much of a slowdown, I think one needs to take into account the fact that the 7.6 percent rate of growth in the second quarter took place despite a drop in auto inventories. If you take into account the drop in auto production, you're looking at an underlying rate of over 9 percent. The staff has it going down a long, long way and I think the basics that we've been looking at for the past year--including the thrust of both monetary and fiscal policies--would suggest to me that worries about an excessive slowdown would seem premature at this point.",176
-fomc-corpus,1984,We've had the shift of the tooling up in the automobile industry.,13
-fomc-corpus,1984,"Yes. It isn't going to add a lot to the third quarter, but it's going to stop taking off so much.",24
-fomc-corpus,1984,I was told it was going to add quite a lot to the third quarter.,16
-fomc-corpus,1984,It took out 2 percentage points or thereabouts in the second quarter and the amount of upward thrust in the third quarter I don't think is quite that large.,32
-fomc-corpus,1984,"[It depends on] what you are talking about. If you talk about the auto sector in total, it's a little more than 2 percentage points difference from Q1 to Q2. If you go through the exercise of saying ""If GM had behaved as the rest of the industry,"" then it's around a percentage point or a little more that it reduced [GNP] in the second quarter and it adds about a little more than a percentage point in the third quarter. So, there are [different] questions and different numbers. But we have a little more than a percentage point on that basis.",121
-fomc-corpus,1984,"The GNP figure ought to look pretty healthy in the third quarter, but I'm not sure that means anything. It has this bloop in it. Mr. Keehn.",35
-fomc-corpus,1984,"I would certainly support your observation that there is a more moderate tone out there. Certainly, in the Middle West, those sectors of the economy that have been doing well--",34
-fomc-corpus,1984,I was observing on your observation.,7
-fomc-corpus,1984,"Thank you. Those sectors that have been doing well are continuing to do well but in terms of output, employment, income, and orders, there is far less optimism than has been the case in the past. But as always, to repeat a comment, I continue to be impressed by how uneven all of this is. The folks in the capital goods industries--those impacted by both a high level of imports and a reduced level of exports--and anybody who is at all involved in the agricultural sector are continuing to be very, very gloomy about how things are going. And I suppose to say the obvious with regard to the inflation outlook, the UAW negotiations are quite key. And I can't get a very good feel as to what is going on out there. Those I talk to conjecture that there's a pretty good opportunity of getting through [the negotiations] without a strike and they say that if there is a settlement, it will be in the 4 to 6 percent area and [the companies] can make that up on productivity. But on the other side of that coin, the strike fund is at a record level. The union leadership that negotiated the concessions by and large has been voted out and on top of that the negotiations are described as being terribly, terribly complicated. I think that's an uncertain scenario, and certainly key to the wage outlook would be the results of that particular negotiation.",279
-fomc-corpus,1984,"Mr. Chairman, I think any effort to try to isolate factors that might result in a sharp slowing [of the expansion] or, as you put it, even an indication of a possibility--I won't even say probability--of recession should take into account the possibility of greatly increased nervousness on the part of consumers/ savers/depositors with regard to the thrift industry and to some extent the heightened concern about commercial banking. I'm prepared to expand on that theme, as I'm sure you're all delighted to hear. We have a major holder of household deposits--$900 billion or a trillion or whatever the number is, including the savings banks--and the news and the facts with regard to those industries are going to be very negative. I would guess, not out of any expertise, that the media will find the ongoing saga of difficulties in thrift institutions and questions about the efficacy of the deposit insurance system a potentially depressing factor on consumer behavior. I'm only saying this in response to your suggestion that we examine some of the downside factors, and this to me is a real one. I don't know what probability to attach to it.",225
-fomc-corpus,1984,"Pres, I'm sure that's a possibility; I don't deny that at all. But the experience I had was that the stress in the thrift institutions in Chicago was [met with] a yawn. We had one situation involving a panic in a small S&L where they made people line up. But whenever they were working [these situations] out in mergers, people seemed to be totally indifferent.",79
-fomc-corpus,1984,They certainly aren't yawning out in California.,9
-fomc-corpus,1984,"Well, what is happening there? Are the under $100,000 accounts actually being withdrawn?",19
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,So that's a real change.,6
-fomc-corpus,1984,In two days they lost between a hundred and two hundred million just in retail accounts.,17
-fomc-corpus,1984,"In an ideal response world, Pres, if you had your say in the Congress what would you do about it, if there were a financial crisis?",30
-fomc-corpus,1984,I would appropriate between $5 and $10 billion dollars for the FSLIC and whatever billion the actual analysis showed me for the FDIC.,28
-fomc-corpus,1984,"Of course, we do have the New York Savings Banks yet to deal with. Following FCA, we will have to go East and there will be something in New York City with two or three of them.",41
-fomc-corpus,1984,This FCA situation is extremely difficult. It is so big I don't know if we can handle it smoothly.,21
-fomc-corpus,1984,It's a $33 billion dollar savings and loan holding company.,12
-fomc-corpus,1984,"That, by the way, could have an effect on the asset side too. They have an awful lot of commitments to buy mortgages and if they don't deliver on those commitments, there is going to be quite a scramble among builders to find alternative funds. I don't know if it will have an effect or not all over the country.",66
-fomc-corpus,1984,"Chuck, you will be interested to hear that the CEO of one of the major money center banks in New York said at a meeting in my Bank with S&Ls and quite a few industrialists, [unintelligible] ""You would think that the regulatory authority would be able to prevent a situation like that."" And I said to him that my understanding was that they had--that the whole reckless expansion had been frowned upon very seriously by the regulatory authorities but they didn't have the legal authority [to stop it]. I said that we couldn't too easily in our system, given all the emphasis on deregulation, issue a cease and desist order simply because of imprudence or what we judge to be imprudent expansion when the chickens haven't come home to roost yet. [The question is] whether we really could prove that in court. What is the ability of the regulatory authorities to slow down an expansion that they think is imprudent?",189
-fomc-corpus,1984,"They'd have to resort to Section 207 of the Act in the Home Loan Bank System and find that it was unsafe and unsound. I shouldn't try to practice law here, but they would have to go further than imprudent and that's quite a finding, as we all very well know.",59
-fomc-corpus,1984,And you can ask where the bank regulators are too.,11
-fomc-corpus,1984,"Regulation is ex post. Supervision of financial institutions is always ex post, by the nature of it.",22
-fomc-corpus,1984,Miss Seger.,4
-fomc-corpus,1984,"I would like to make a couple of comments about the auto negotiations, following up on Si's comments. I know most people seem to be betting that there won't be a strike, but there is also a chance that there will be. I think the primary risk is that the cast of characters has changed dramatically. Doug Frazier, of course, has left as head of the UAW and this has triggered a lot of movements within the union. Mr. Beaver is not Doug Frazier and no one knows exactly how he will come down in the final days of negotiations next month. Furthermore, if there is no strike and if they settle for a ""modest"" in quotes 4 to 6 percent, maybe the auto industry can make that up with productivity gains; but to the extent that these settlements are duplicated by other industries that cannot make it up by productivity gains it can have an inflationary impact. I think, by the way, that the auto executives are more aware of that this time around than they used to be when they just went zipping along on their own, not giving a darn what they left in their wake. I think they have come to their senses a little.",241
-fomc-corpus,1984,Except on their own salaries!,6
-fomc-corpus,1984,"Actually, if you compare what some of them make to what some top people in banks make, including some banks that got into trouble, I don't think the comparison is that adverse! [Laughter.] Also, if there is a strike--as I said, the jury is still out--I think we will have to pay some attention to this in our forecast for the remaining months of this year. I know that the econometric models show that that is quickly made up, but those of us in the trenches who don't just go by models know that there is an adjustment period that isn't smooth necessarily. It does mean a loss in momentum, particularly at the time of the year when the new models are being introduced, and this could have an effect. I generally agree, Jim, with your forecast on auto sales, etc. but that's assuming there isn't a strike. A second point about inflation prospects that I don't hear mentioned very much around this table involves the changing attitudes on the part of business management. A lot of these people were really beaten up in these two recessions we had back to back and I think they have gotten new religion about cost control. Again, the old notion of who cares--the attitude of write a blank check to the unions or to anybody else because we can always pass these higher costs along--if it hasn't been completely eliminated is 90 some percent on its way out. I think we are going to see the effect of this different attitude, In line with that is a greater commitment to improving the efficiency of production. This is tied in, by the way, to the good capital spending numbers. A lot of those capital expenditures are for equipment that will allow them to operate more efficiently--expenditures on robotics, for example. I know it's nice to look back at historical trends but when things of this nature are developing that are different from history, I don't think extrapolating past trends is necessarily going to tell us what's coming up. So, on the one hand, I'm more encouraged about inflation prospects than some of you; on the other hand, looking at the auto side, I'm concerned about what that could do.",431
-fomc-corpus,1984,"That auto industry settlement is the second biggest threat to the inflation outlook, next to the dollar.",19
-fomc-corpus,1984,"The 4 to 6 percent settlement does not include the COLA, which they are going to maintain. Therefore, if inflation goes up, say, 5 percent altogether, then we're talking about a 10 percent increase in compensation. Am I incorrect?",52
-fomc-corpus,1984,"No, I think--I hope--when they are talking 4 to 6 percent they are including the COLA.",25
-fomc-corpus,1984,They are.,3
-fomc-corpus,1984,How can that be?,5
-fomc-corpus,1984,"Well, it's a guess.",6
-fomc-corpus,1984,I had a presentation which said that they were not.,11
-fomc-corpus,1984,A 4 to 6 percent increase without the COLA would be bigger than what they used to get.,22
-fomc-corpus,1984,"But if we're figuring inflation is going to be up in the neighborhood of 5 percent, are you talking about only a 1 percent [real] increase?",32
-fomc-corpus,1984,"Well, they don't get a full passthrough on the COLA, I guess.",18
-fomc-corpus,1984,I don't think it's quite full.,7
-fomc-corpus,1984,It's pretty big.,4
-fomc-corpus,1984,They toned down the formula--not the last time around but two times ago--so that they don't get a complete percentage [passthrough].,29
-fomc-corpus,1984,I wonder if the staff knows the answer to this.,11
-fomc-corpus,1984,"I don't know the answer. It is the case that when you're talking about these numbers of 6 percent or so that those are associated with the COLA. I know that the COLA requirements that they get are less generous than what they used to get. They used to get something close to 90-95 percent, but I don't know what the number is [currently].",76
-fomc-corpus,1984,"If you recall the Chairman's data on recent major settlements that he gave us six weeks ago, there was a string of no COLA, no COLA, no COLA, small COLA, and so on in that.",46
-fomc-corpus,1984,He came up with a little over 3 percent in the first year on the collective agreements.,19
-fomc-corpus,1984,But the COLAs were almost all absent.,9
-fomc-corpus,1984,Those figures are apart from COLAs. Not all those agreements had COLAs. Mr. Guffey.,22
-fomc-corpus,1984,But when the auto industry talks about their costs they have to think in terms of total costs.,19
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. With respect to your question ""Is there more pessimism?"" I'd say things perhaps are more pessimistic in the Tenth District. It's a very unbalanced recovery in the sense that in manufacturing, particularly auto assembly, aircraft, and other manufacturing, together with construction, things are going very well. I don't know that there's been any damping of those sectors of the economy. On the other hand, I'd just note that the good projection for inflation in the period ahead is tied largely to the energy and agricultural food sectors, which will have an effect of lowering the outlook for inflation. In each of those cases--in the energy sector, for example, the dropping of oil prices and the dropping of natural gas prices will impact the discovery and extraction of petroleum products in the Tenth District rather dramatically. There has been no increase in rig counts in the most recent time; it's fairly level and some ten to thirteen percent higher than it was April of '83, which was a low point in the rig count. If energy prices fall further, we're quite likely to see that sector turn down again, and it's already in trouble. At the same time, as all of you know and as has been recited around this table, the agricultural sector is in trouble and there is no prospect in the sense of exports or other factors that will raise commodity prices. That's the salvation and the hope, [but] there is nothing out there. As a matter of fact, there is a good crop assured at this point and that has a continuing depressing effect. The one tangible number that I can recite to you is out of a survey of farm land prices; they have decreased another 2-1/2 percent in the second quarter of 1984. That has an impact, obviously, that rolls back into the financial system that we quite likely will see around the first quarter of 1985. I think we're talking about the thrifts, for example, and potentially a segment of our financial industry that supports the agricultural sector that could be in really serious trouble late this year or in the first quarter of 1985. Again, I don't think the interest rates in and of themselves hold out much hope. Lower interest rates would help, to be sure, but that isn't what will extract the agricultural sector; it will be commodity prices, and nobody has any real hope that that will come to pass.",485
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Well, Mr. Chairman, in the Sixth District, I don't think you would find very much caution. There seems to be a good deal of optimism and bullishness on the part of most business people. To the extent that there is a cautionary psychology creeping in, I think it can be attributed to three basic things. One is the weakness in the housing sector and related industries. That sector is definitely coming off in our District and is giving cause for some concern. On the price front, we have an interesting dichotomy, it seems to me. On the one hand, there are a lot of people who are still concerned about inflation. They look into 1985 and they see capacity constraints; they see labor-wage negotiations perhaps bringing us out of this period of moderation; and they are a little worried about a precipitous decline of the dollar, which would hurt us on the inflation side. But on the other side of the coin, there are other people who are concerned about deflation. I've had a lot of questions about that, I guess in light of the newspaper articles that have appeared. So that's an interesting kind of schizophrenia, if you will, in the market psychology. Some people are afraid of higher prices and others are afraid that the bottom is going to drop out. A third thing that has emerged very recently is a very, very real concern on the part of most people about the financial system. When I was here 6 weeks ago I said in my comments that there was a ""ho hum"" attitude about Continental at that time. That has definitely been reversed. There is now a very definite concern about spillover effects of Continental and of course now a very, very great concern about the thrifts. So, those are the three areas of concerns that are beginning to emerge in our part of the country. And for what it's worth, the automobile people that I have talked to recently who have made their annual pilgrimage to Detroit and have come back are reporting that in their opinion there will be a strike. There doesn't seem to be any question in the minds of the people that I have talked to about that.",428
-fomc-corpus,1984,"I'm not sure a strike is the worst thing in the world that can happen, if the alternative is a high labor settlement.",25
-fomc-corpus,1984,"Incidentally, they think it's going to be relatively short--4 to 6 weeks.",18
-fomc-corpus,1984,A strike followed by higher wages.,7
-fomc-corpus,1984,"That's the worst--if we get the high wages and a strike. If no one else has any pressing comments, why don't we hear from Mr. Axilrod?",34
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"We'll take some brief questions now and maybe have coffee. Before that, let me just say that when I look at this directive I'm a little hard pressed to see why we're running below [the specifications for the aggregates]. I know we're running below the track a bit on M1; that's fine. I don't know why. The question that occurred to me right off is: Why reduce the target for M1 for the quarter when we're running a little low--or reduce it so much, anyway? Then, if it went back up and we got the target we were looking for before, we'd have to tighten. That's a little odd to me.",129
-fomc-corpus,1984,"We have a tradition of not changing much, too.",11
-fomc-corpus,1984,"My question for Mr. Axilrod is: We're seeing a period of relatively modest growth in the monetary aggregates accompanied by a period of sustained, very excessive rates of growth in total credit. How do you interpret these different growth rates and what policy implications do they have?",54
-fomc-corpus,1984,"One of my problems in answering your question, President Morris, is that I really would not ever have thought of running policy on total credit. But I would--",32
-fomc-corpus,1984,It makes it hard to communicate.,7
-fomc-corpus,1984,"I would tend more, if I were looking in that direction, to be looking through it to the economy.",22
-fomc-corpus,1984,"Well, put it this way, then: Relative to the nominal GNP, the monetary aggregates have been running very low and the credit aggregates are about in line with what one would have now. Put it in those terms.",45
-fomc-corpus,1984,"If we do get a 6 to 7 percent growth in August and September, the monetary aggregates--according to our always shaky equations--will be running about as we expected based on the quarterly model; on our monthly model, not quite. The quarterly model would have predicted for given interest rates and GNP enough money demand to create this much money growth without much different interest rates. So, that wouldn't be far off. What is far off, as you're suggesting, is the credit growth. I had in my head two reasons that I haven't quite been able to demonstrate statistically. One is that with the government being such a large element in borrowing--when the government is spending more than it's taking in--it has no real option to reduce assets. It really has to borrow. So, I think its borrowing propensity is [virtually] one for any amount of deficit spending. Whereas if other sectors are spending in excess of what they're taking in, they have the option of cutting down on assets, which doesn't get reflected in our credit figures. So, I have a feeling that the large persistent role of the government is raising credit relative to GNP. Also, and I think Governor Gramley mentioned this at a discussion earlier here, we're in a period where we have much more freedom for credit to flow at any price relative to earlier periods; there is more deregulation. And that may then be permitting a greater flow of credit at the high [rates], and the higher interest rates are exerting the pressure more than the restricted availability. Those are the only two factors I have, particularly.",319
-fomc-corpus,1984,I'll suggest another factor too.,6
-fomc-corpus,1984,"Well, right. One other is the stock market. I'm not forgetting stock market.",17
-fomc-corpus,1984,"Well, we went over that last time. I think the growth of domestic demand has been a lot faster than that of GNP. And those imports have to be financed too.",36
-fomc-corpus,1984,"I looked at that yesterday afternoon. It makes some difference, but not a great deal. What happened really is that there was less GNP rise last year relative to credit growth than you would have expected and this year it's more normal.",47
-fomc-corpus,1984,"We've had a difficult time isolating these various circumstances, but we could go back and look at it. But those are the elements I could think of so far.",33
-fomc-corpus,1984,Why don't we have a coffee break.,8
-fomc-corpus,1984,"Let us proceed. Let me indicate that I have some bias for not making radical changes in these monetary target numbers in the middle of the quarter unless there's a very good reason to do so. What's more important than those numbers may be what we actually do, reflected in the borrowing and the reserve assumptions. So, let us proceed.",66
-fomc-corpus,1984,"I had a thought, in the nature of a question for Steve: If one did feel that there had been some change in the demand for free reserves--as you say in the technical jargon--that was going to persist for a while, the way to deal with that technically would be to change the initial borrowing. Is that the way that one would deal with it?",74
-fomc-corpus,1984,"Well, that would be one way to do it. Clearly, another way would be not necessarily to change it but, as we observe what is happening in the course of operations, to adjust in the way we might adjust if we observed more excess reserves and a change in borrowing attitudes. We would be more willing to oversupply nonborrowed reserves to accommodate it. We would end up with a little less borrowing than was plugged into the path. There would be two ways of going at it and getting the same result: one prejudging and one not prejudging.",113
-fomc-corpus,1984,"Chuck, even though we did end up with a higher Fed funds rate than we would have expected for a $1 billion borrowing assumption, it seems to me we'd be imprudent now to reduce that borrowing level. It seems to me a little premature, given the strength of the expansion, to move down, say, to $700 or $800 million of borrowing.",73
-fomc-corpus,1984,"Well, I was asking this as a technical matter. If you thought that there had been a shift in the demand, the way to address it would be to change the borrowing level.",37
-fomc-corpus,1984,But we don't know how long that shift will persist. The usual--,14
-fomc-corpus,1984,"But if you thought it was going to endure for a while--. And we do have now the possibility that FCA and Continental are not done borrowing. They are going to be with us for some months to come--maybe years--with, I think, a steadily larger number. So, it could be that it will persist.",66
-fomc-corpus,1984,"Continental's borrowing is going to go up at least until that stockholders meeting. There may be a chance of getting it down then: I don't know. I would just note, to put it in your mind, that on this international debt situation a portion of it seems to be going as well as could be hoped. That Argentine situation could still go very much either way.",76
-fomc-corpus,1984,Is all of that special credit washed out now?,10
-fomc-corpus,1984,"Well, they still have $100 million. Is that what you mean?",15
-fomc-corpus,1984,Yes. And then did they pay back the other Latin American countries?,14
-fomc-corpus,1984,Yes. They either paid them back or made other arrangements to pay them back.,16
-fomc-corpus,1984,They paid them $125 million.,7
-fomc-corpus,1984,"But, you know, that situation had really looked [unintelligible]--without getting into too much detail. Even though the risks are that there will be a higher level of uneasiness about the banking system and the international system than a relaxation of these special tensions, which probably have been causing the fed funds rate to be higher than we had originally expected, it seems to me that that situation is very unpredictable. Even though we want flexibility to cope with that kind of thing, if it shifts in the other direction, it seems to me that at this point if we were to reduce the borrowing because we ended up with a higher fed funds rate than we expected, that would be sending a premature policy signal. The market would interpret that as a fairly significant easing of the fed funds rate. It would be attributed to a shift [toward an] easing of policy. It would not be attributed to a change of bank attitudes in regard to reluctance to borrow. Do we really want to bring about that kind of policy signal at this point?",211
-fomc-corpus,1984,"Well, the rate had drifted up by 1/2 or 3/4 of a point or something like that.",26
-fomc-corpus,1984,50 to 75 basis points.,7
-fomc-corpus,1984,"There's nothing in the aggregates that would have warranted that, and the economy has been moving broadly in the direction we expected it to--although maybe not as far--and the price numbers are even better. So, I don't see any reason why the rate should have drifted up.",56
-fomc-corpus,1984,"I don't know if you expressed an opinion on these specifications. If you would like to do so while you have the floor, Governor Partee--",29
-fomc-corpus,1984,"Well, all right. I would like to retain the specifications we had last time and view them somewhat broadly. We don't have to be slavish about it. That's none of these alternatives, is that right?",42
-fomc-corpus,1984,"That's none of these. The only difference of any significance, I think, is on Ml.",19
-fomc-corpus,1984,"Yes, I think that's right.",7
-fomc-corpus,1984,What would you do about the borrowing?,8
-fomc-corpus,1984,"I would reduce the borrowing number by $200 million to [a level of] $800 million [unintelligible]. Although I don't like to talk too much about the funds rate, I would expect [it to decline] but I would want to manage its decline. That is, I would want it to drift down only [gradually], the way that it drifted up, rather than suddenly adjust it down by 3/4 of a point the day after tomorrow.",97
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Mr. Chairman, if I understood Tony right, I would stay right where we are. I would leave the borrowing assumption right where it is and I wouldn't change the specifications. I agree that this is not the time.",44
-fomc-corpus,1984,You would make the specifications about where they were last time?,12
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,And the borrowing?,4
-fomc-corpus,1984,And the borrowing at the same level.,8
-fomc-corpus,1984,"So would I, Mr. Chairman.",8
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"I'd like to just say a word or two about what I think we ought to be worried about for a longer period. I have been worried, as everybody knows, about the prospects of worsening inflation. I haven't been right; the staff has been a lot more right than I. But I do think we could make a very big mistake if we don't recognize the potential for that. This was called to my attention by Tony this morning when he talked about the Carter period. There were two very large mistakes made then. One of them was misestimating the natural rate of unemployment; we thought it was around 5-1/2 percent. So, when the actual unemployment rate was 7 percent we thought the economy had all kinds of room to grow. The other was a failure to recognize how poor productivity really was. Let me just read to you what the actual productivity figures were showing in that period. From the fourth quarter of '74 to the fourth quarter of '75 we had a 3.8 percent increase in productivity; in '76 we had 2.2 percent; in '77 we had 2.6 percent. It looked like we were doing beautifully. In fact, those were all cyclical improvements in productivity, not secular trends. And we didn't recognize how bad things really were. So, I think we ought to be very, very careful in looking at the recent productivity statistics not to get overly optimistic. The other thing I want to mention is that if you look at what has been happening to monetary policy and take what I would regard as the best view of how stimulative it is, you have to look at real increases in the money stock. When you do that, you find that real M1 is going up at about twice the rate of the trend rate of increase, which is about 1 percent a year. It's going up at over 2 percent a year. So, I would like to take some of the benefits of the recent slowdown in money growth [incorporated] in the lower specs of ""B."" I note in this connection that if we stick with ""B,"" according to the staff we will end up with about a 6-1/2 percent increase in M1 fourth-quarter-to-fourth-quarter, which is about the midpoint of the range we set at the beginning of the year. And that would be reasonably satisfactory. So, I would stick with the specs of ""B"" with $1 billion in borrowing, and I would accept a lower aggregate growth for the third quarter.",513
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Well, Mr. Chairman, I think I understand the advantage of keeping the same specifications as last time.",21
-fomc-corpus,1984,I don't want to be absolutely rigid on that.,10
-fomc-corpus,1984,"No, without specifying exactly why, I think that's a good idea. On the other hand, I think it would be a mistake to lower the borrowing guideline because the market has now caught on to how we are running policy. If in following a $1 billion borrowing guideline we were to see interest rates drift down to where we thought they would be at the last meeting, then I think the market would understand that we were not pushing rates down but that rates were going down because of the smaller rate of growth in the economy--if that eventuates. If we pushed the guideline down, then I think the market would have a great deal of difficulty understanding why we chose this particular time to move to an overtly easier monetary policy.",147
-fomc-corpus,1984,"It would spark another rally in the bond and stock markets and it would look, I think, like politics if we were to do it at this time.",31
-fomc-corpus,1984,"Yes, exactly. Also, if there's any risk of error in the staff forecast, I think the risk lies in the economy being stronger than forecast. Therefore, even though the July specifications would seem to be incompatible right now, if the economy is a little stronger then they could become compatible. So, I would go along with the same package we had last time.",73
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"I too would like to stay where we are in terms of the borrowing level, money market conditions, and so on. I'd like to take the shortfall in M1 and to some extent the other Ms in July and put it in the bank and save it for a rainy day. I like the idea of not changing the darn aggregate specifications at the mid-quarter meeting. I don't know exactly how to get this directive language to satisfy that objective while satisfying the larger objective of staying where we are. But I assume we could figure out a way to do that.",112
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Mr. Chairman, I would support a policy which would suggest no change at this time. In my own thinking, that really comes out to alternative B. I think that would be the right specification at this time to bring us back to the midpoint of the range down the road. I don't think we need to be unduly concerned about weak monetary growth because it's likely to be temporary. I don't know what the August numbers will turn out to be, but I think July was abnormally low. But more importantly, perhaps, I too would like to associate myself with those who would not want to change that borrowing number. To bring the funds rate down would send the wrong signal to the market. I think it's very important at this point that we not give any evidence or any hint to the market of easing or have them interpret our policy as one of easing. If the shift in borrowing that we've seen is going to continue, as it might, the funds rate will continue to drift upward. I would assume, Mr. Chairman, if that were to happen and we don't change the borrowing number, that we would have a consultation as the rate hit that 12 percent level. If the borrowing pattern were to shift back to a more normal pattern, then I would be willing to validate an increase in the funds rate, which in turn would suggest to me some consultation at the 12 percent level.",279
-fomc-corpus,1984,Mr. Solomon.,4
-fomc-corpus,1984,"Well, as I said earlier, I think we ought to keep the $1 billion borrowing. I think the advantage of keeping the same M1 monetary aggregate target that we had in July is that if conditions weaken in the economy, then it's perfectly appropriate for us not to be locked into as tight a policy. I would keep the range of 8 to 12 percent [on the funds rate]. I would not change that even though the rate is around 11-7/8 percent now; I'd have a consultation if we have to. And I would change the directive so that it's symmetrical. You remember that it leans slightly, through the judicious use of ""would"" as against ""might,"" in the direction of our being quicker to restrain than to ease depending on what happens. And it seems to me that at this point we probably are justified in moving to more symmetrical language.",180
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"Well, I think we're acting under the impact of somewhat temporary factors. We've had a bad month and we are very much concerned about the banks, the thrifts, the LDCs, and the farmers. If we weren't acting under these constraints, I at least would favor a tauter policy. That seems to me appropriate for the situation where we have a strengthening economy--looking ahead for 1985, anyway. We have a lower rate of inflation, which to me suggests that the money supply should grow more slowly on account of the lower need for money. The staff sees ahead that interest rates will rise in '85. So, the question really is: Should this happen earlier or later? And if it happens earlier, wouldn't it reduce somewhat the degree of the rise? In that sense, we're really just buying time now by taking account of the undoubted problems that the System faces. I would favor something like a ""C+"" alternative and I would go to borrowing of $1-1/4 billion. I'd raise the funds rate range 1/2 percentage point at each end, to 8-1/2 to 12-1/2 percent. I think then it would be logical to be symmetrical again. If that [range] is lower, it seems to me we ought to stay asymmetrical.",267
-fomc-corpus,1984,I'm sure the staff appreciates that note of confidence that you see in their forecast.,16
-fomc-corpus,1984,[Henry is] trying to bring it about by his specs!,13
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"Mr. Chairman, I appreciated Lyle's brief analysis of the difficulties of estimating productivity. He does well to remind us of the errors we've all made in the past. Maybe the staff has made fewer than the rest of us; I don't know. I think we're making a corresponding error today: We are underestimating. The 1-1/4 percent trend line is not the trend line; it's more like 2 percent. I think we're returning to the trend line, but I have a different trend line, Jim. My reason is that we're a services and information workers society now, not manufacturing. Yet we are--maybe not overly obsessed, but--overly concerned with manufacturing output. Finally, I think that software works. Finally, an ordinary human being, not a wizard, can work a personal computer or a terminal or something like that. And that has permeated the services side of our economy--the sector from which people said we could not get productivity increases just as they used to say about restaurants before McDonald's came along and showed productivity in that area. This will be the surprise on the productivity side of our society--the rising output in services. I'm not saying the services are going to be anything we really need, but I think we're going to have a lot more of them, however you measure that. So, I believe that will keep inflation at the staff's [projected] level or even a touch better. The other factor that is going to contribute to less inflation is one that I deplore, and that is the impact on the financial system of failing thrift institutions against a backdrop, of a government institution--namely the Federal Savings & Loan Insurance Corporation--that is too small. Whatever has to be done about that as institutions fail--whatever receivership or conservatorship pattern we will suffer through in the next few years from that side of the economy and maybe some additional failing banks, given the rate at which banks are failing--will change the consumers' outlook. I don't think the American public is prepared for the kind of questioning that will result from these failures. And it may well result from substantial volumes of uninsured deposits at one or more institutions having to be paid back at less than 100 cents on the dollar out of asset administration which takes many years. If it is thrift institutions, these tend to be long-term assets and the payout period is long and the interest is lost. I believe this is going to be a material factor in the thinking of the American public with regard to their own finances and their own consumption function, if you will, over the next few years. I think that will affect inflation in a positive direction now, though it's unfortunate that it's coming from that side. To translate that into policy, I would go along with the Chairman's suggestion, which he says he didn't want to make too firmly, to keep policy where it is in terms of the directive of a few weeks ago with the exception that I would join my esteemed colleague, Governor Partee, in favoring $800 million in borrowing. I would leave the range on fed funds alone and would prefer the $800 million on borrowing to give us more flexibility--not only because of the aforementioned change or possible change in the commercial banks' attitude toward excess reserves, but because I feel that the financial failures will not only affect the attitude of consumers toward saving and spending, but will affect the attitude of commercial banks and other institutions with regard to borrowing from their respective central banks.",701
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"At the risk of sounding somewhat complacent, I think our policy for 12 months has been just about as good as anybody could have dared hope it would be. We came pretty close to the midpoint of our revised target range in the last half of last year and, with the behavior of the figures in July, we're heading pretty close to the midpoint of the present target range. So, we're in a good position to finish the year somewhere near that, regardless of which of these alternatives we adopt. And with velocity apparently picking up, it looks to me as if that's about where we ought to come out. I really prefer the [aggregate] specifications of ""C"" because they get us a little closer; by the same token I recognize there's not a whole lot of difference in these things. So, in my usual display of eclecticism I would opt for the other specifications of ""B,"" which would leave the federal funds range unchanged and the borrowing target unchanged. And, like Tony, I would prefer that we go ahead and make this directive symmetrical.",211
-fomc-corpus,1984,Miss Seger.,4
-fomc-corpus,1984,"I would go along with the idea of keeping the specifications the same as they were at the last meeting. As I read Steve's words here on page 5 [of the Bluebook], they suggest that alternative A comes closest to those adopted at the last meeting. So, that would be the one I would go along with. For reasons of concern about the health of the financial system, I would be reluctant to have the fed funds rate go above where it currently is, again because I think there are some special and technical reasons that are keeping it up there. If it could be allowed to back off a bit, I would certainly welcome that. In terms of the borrowing target, I would go with Mr. Partee's $800 million number.",151
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"Well, I would agree with Bob Black. It seems to me that we happen to be in one of those times when everything seems to be going very, very well--indeed, just about right. The comments at our last meeting suggested that the economic expansion was going to be a bit more robust than perhaps has been the case with the passage of time. I have some feeling that our comments today may suggest a greater degree of moderation than may be the case. I do think there is an element of moderation out there. Nonetheless, it seems to me that the outlook is excellent; there are inflation risks but the outlook seems to be favorable. Therefore, I would suggest--since we happen to be at about the midpoint of the range for M1--that continuing that as an objective and as a target between now and the end of the year is a very desirable alternative. That would put me in the camp of suggesting that alternative B would be the most appropriate. The borrowing level would be, say, $1 billion. I would leave the fed funds range as it is. I do think that the directive should be balanced but also that it should be worded in a way that would clearly suggest that we didn't change our basic objectives at this point; some of the wording could be adjusted accordingly.",260
-fomc-corpus,1984,All these comments that things are going nicely brings to mind that I just read a book about the battle of Midway where the Japanese sailed there with their whole fleet thinking everything was going nicely and one day later they thought it was not so nice. Mr. Boehne.,55
-fomc-corpus,1984,"I came in to this meeting with some bias toward ""B,"" but as I listen to the discussion, I agree that there is some virtue in keeping the quarterly specifications where they were in July. But I think those specifications are inconsistent with a billion dollar borrowing figure. There is no great virtue in consistency but I think there is that problem. My own sense is that there is something to this business with reserves. As to how much we should want to adjust for it, I don't think we should do it in any specified way but we ought to at least have a bias that attempts to correct for it. My bias would be for borrowings of less than $1 billion; I think $800-$900 million makes some sense. We have let the funds rate drift up over the last several months; we start out thinking where it's going to be and it ends up being higher. So, I don't think there would be any disaster to the economy or expectations about what we're doing if it had some downward drift; in fact, that would be my bias. I would keep the funds range at 8 to 12 percent and I would have a symmetrical directive.",232
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"Overall, I've been pretty well satisfied with the posture of our policy. In view of the ongoing strength of the economy in most, if not all areas, I think it would be premature to ease overtly. On the other hand, I'm particularly aware on the West Coast right now of the fragility of our financial system and what the repercussions could be of another major institution in serious trouble--and this time possibly involving outright losses to holders of uninsured deposits. Unless or until that situation clarifies, I would be reluctant to see anything happen to push the federal funds rate up higher. So, I come out favoring alternative B but along with four others who have already spoken on the subject, I also would be in favor of reducing the borrowing level to $800 million and would favor additionally the so-called symmetrical directive.",163
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"It seems to me that the present policy is producing about the right results. We had 7 percent growth in money in the first quarter and 6 percent in the second quarter. So, I wouldn't change the borrowing target. I think we ought to pay less attention to the fed funds rate and, therefore, I would like to see the band widened by 1/2 percentage point to accommodate the probabilities there. At this stage of the cycle and with the past pattern of money growth, it seems to me that the odds favor some pickup in inflation notwithstanding the anecdotal information that we have. I would favor alternative B, indicating growth of about 5-1/2 percent in M1 in the third quarter. This also would have the advantage of avoiding the base drift and would set us up in a good position in the fourth quarter to start our plan for money growth for next year. In terms of the concern in the marketplace, we have to think about what concerns might arise if we were to ease at this time, causing concern about inflation and possibly creating the opposite result than we intended, which would be higher long-term rates. Long-term rates have eased some at this point and if we hold firm in our policy, the probability is that they could ease some more. I don't think that just a slackening of growth in the business cycle necessarily should be associated with lower inflation. We could have the worst of all worlds--a slackening growth and rising inflation, as we've had in the past.",302
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. I also would opt for the B alternative. My concern is with the current federal funds level. I would hate to see it go any higher and thus would maintain the 8 to 12 percent range. But my real concern is: What happens if Financial Corporation of America does indeed affect the financial markets and create a flight to quality and, as a result, the federal funds rate balloons far beyond the 12 percent? What is the proper response of the Federal Reserve under those circumstances? Do we try to keep the funds rate within the 8 to 12 percent range or at the top of that range? Or do we pour in reserves in order to liquify the financial system and in order to contain the damage that might be done by the Financial Corporation of America situation on top of Continental? I pose it in the form of a question. What would be the proper response? How should this Committee and how should the Desk react to that? It seems to me there is more potential of that than of the fed funds rate falling rapidly and giving some indication to the market just before an election that we have eased. I would keep the billion dollar level, to be sure, and the 8 to 12 percent range, but I pose as a question: How should the Desk react if the Financial Corporation of America affects the funds rate and pushes it up far beyond the 12 percent for some period of time? I guess I'm posing that question to you, Mr. Chairman, since you have daily contact with the Desk.",312
-fomc-corpus,1984,"Well, I think we'll deal with that question later.",11
-fomc-corpus,1984,"Well, I still opt for ""B"" at the moment until we find out something different.",19
-fomc-corpus,1984,I'm left without a comment from Mrs. Horn.,10
-fomc-corpus,1984,"I feel that M1 should come in at the end of the year at the midpoint of its range for a lot of reasons that have been previously stated, and I'm pleased to see that it's near there now. Either alternative B or alternative C or something in between I think would work toward achieving that goal by the end of the year. I would be in favor of maintaining the $1 billion borrowing level and I think it would be a mistake to give the markets a signal through the fed funds rate of any real change. For that reason, I would like to protect against our producing a reduction in the federal funds rate.",124
-fomc-corpus,1984,"Well, I guess everybody has spoken. Oh no, Governor Rice. No, I have your comment here. We have some differences of opinion, I would say.",33
-fomc-corpus,1984,"Since I'm guilty of throwing in the $800 million dollar figure on borrowing, let me just say that I must have picked that off the wall. I don't know whether that's the figure or not. The point that I wanted to make is that if there has been a shift in the demand for excess reserves, I think we ought to recognize that and make some adjustment. And in my view if that results in a downward drift in the funds rate, we were certainly all content to see it drift up, so why shouldn't we be prepared to see it drift down? After all, the aggregates are on the weak side and there's nothing inconsistent in that. But I don't know whether $800 million is the right figure for what I'm talking about.",147
-fomc-corpus,1984,"Each $100 million represents about a quarter of a point. So, if you put it at $800 million instead of $1 billion, you would be bringing down the fed funds rate 50 basis points, in theory.",45
-fomc-corpus,1984,"Well, that's a very horseback kind of thing. I would rather have somebody who is technically proficient with the numbers indicate what they think.",27
-fomc-corpus,1984,"Well, let me take off from your comment and suggest what may lie somewhere in an area of consensus. Looking at the borrowing first, I guess it would be consistent with leaving that first sentence of the directive unchanged and nominally start off with something around $1 billion. Maybe in the old fashioned nomenclature--particularly if the market seems sensitive or somewhat disturbed in view of all these financial things or if the business news softens or if the money supply continues to come in low or all of the above--we should start off with some bias toward erring on the side of somewhat lower numbers but we don't aim at those.",125
-fomc-corpus,1984,"When you say ""bias toward lower numbers,"" are you talking about borrowing or interest rates or aggregates?",20
-fomc-corpus,1984,"I'm talking about borrowing now. I'm not saying aim at a lower number right now. I'm saying that when we make all these decisions for the next several weeks--[taking into account] the specific reserve averaging periods--we are willing to err a bit in that direction, depending partly on our guidance on the funds rate and how tight things look. I'd keep the funds band where it is, which is what most people have suggested. Then we would aim more overtly for a lower number if in fact the money numbers came in low or we had some of these other contingencies developing; but we wouldn't do that without that evidence. In terms of the numbers for the various aggregates, I don't think M2 or M3 are at issue, if I understand [the comments], except maybe for those who wanted ""C."" They are so close that it doesn't make any difference. I'm a little troubled by the thought that somehow we would aim as low as 4 or 4-1/2 percent [on M1] even overtly and with that kind of symmetrical approach without knowing a little more about the economy and other things than I know now. I would at least go higher on M1 than any of those alternatives suggest. That's interrelated with how we word the directive. With a higher number we certainly can make it symmetrical, recognizing that we're starting below so we already have this slight bias toward easing. If we end up with a lower number, I don't know what we do. I would make it asymmetrical in the other direction and, therefore, end up in the same place anyway.",321
-fomc-corpus,1984,You lost me on the last loop.,8
-fomc-corpus,1984,"Well, if we started off with an M1 figure of 4 percent and we began running above it, depending on where we are, I would not be very anxious to raise the borrowing level.",40
-fomc-corpus,1984,That was the second point. I understood that. On the one after that you lost me.,19
-fomc-corpus,1984,I don't remember the one after that.,8
-fomc-corpus,1984,"I think it was that you would make it asymmetrical in the other direction. If you put [M1] at four percent, then you wouldn't tighten if it came in higher but you would ease if it came in lower.",46
-fomc-corpus,1984,"Well, I just think that in terms of the visuals you get more or less the same result. Why change the number and raise all the questions about whether we had a different number than we had last time?",42
-fomc-corpus,1984,Exactly. And then you can have symmetrical language too.,11
-fomc-corpus,1984,"I don't know whether it's worthwhile or not, but we can even off all these numbers and make them 5 percent, 7 percent, and 9 percent. I don't know what words of art we have; it already says ""around.""",49
-fomc-corpus,1984,"We can't use ""around"" because it's already there.",11
-fomc-corpus,1984,"How would you interpret this 5 percent if you could have an asymmetrical calculation [for the] 3 months? If you took that 5 percent literally, it would imply a growth rate of 8-1/4 percent for August and September and that's way too high for me to be comfortable with. If you wanted to add -1.5, 5.5, and 8.1 percent together and [say that] averages [roughly] to five, then that's the sort of asymmetrical calculation I could agree with.",111
-fomc-corpus,1984,[Unintelligible.] I don't understand.,10
-fomc-corpus,1984,"My point is that we start from a low base; July was negative. If you use 5 percent for the period from June through September, it implies an August-September increase averaging 8-1/4 percent.",45
-fomc-corpus,1984,I'm assuming your arithmetic is correct. Is that correct?,11
-fomc-corpus,1984,"Well, pretty close. I think it might be more like 8 percent with the compounding, but it's right in that area.",27
-fomc-corpus,1984,"Well, that's always the case. Of course, [earlier] everybody accepted a minus 2 percent for July, which was really a very unusually low number. I presume we would accept a 10 or 12 percent for September, which is very well what it might be if the economy is reasonably strong. I think we would want to put them all together and say the average was not bad.",81
-fomc-corpus,1984,"Putting my point differently: If the staff is correct, a specification of $1 billion in borrowing to start with--and holding to that with the kind of federal funds rate which would be implied if the current demands for borrowing relative to that funds rate prevail--would not give you 5 percent growth. It would give you something more like 4 percent. So, if you were aiming for 5 percent, in fact, what you would do is proceed to lower levels of borrowing, lower levels of the funds rate, and more increase in the aggregates over time. And I don't think that would be appropriate.",122
-fomc-corpus,1984,You're talking about the difference between accepting and seeking.,10
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"I think that is an important difference. I guess my feeling is that the market determines what the money number is going to be in the short run a lot more than we do. And, as you know, it's a highly volatile number.",48
-fomc-corpus,1984,"If one were willing to play that game and put in a 5 percent for visual purposes only, then I wouldn't have any problem with it.",29
-fomc-corpus,1984,I have assumed that the 5 percent becomes meaningful only if conditions weaken.,15
-fomc-corpus,1984,In the economy?,4
-fomc-corpus,1984,"In the economy, right.",6
-fomc-corpus,1984,Beyond what the staff is talking about?,8
-fomc-corpus,1984,"That's right. Otherwise, the borrowing assumption would prevail and we'll see more or less a continuation of the present fed funds rate. But if conditions weaken, then I don't think we should have locked ourselves in to a 4 percent target, because I think it would be justified that the fed funds rate would come off somewhat on its own. What I'd be opposed to is for the market to perceive a clear and overt easing of policy by a move now to $800 million [on borrowing].",97
-fomc-corpus,1984,"Well, we're in an area of nuance. That is not unimportant, but I'm not sure it's going to be reflected adequately in any directive. I don't know whether this is the best way to do it, but look at it sentence by sentence. It says ""In the short run the Committee seeks to maintain""--the same language we've had. Let me as a first approximation either leave [the numbers] the same or round them off to the lower levels. Make them 5, 7, and 9 percent or where they are. What I would almost do--I wouldn't necessarily suggest this because I don't know that I'd want to give that much of a signal--is reverse the whole next sentence. So ""Somewhat lesser restraint would be acceptable if growth in the monetary aggregates slowed significantly, while somewhat greater reserve restraint would be acceptable in the event of more substantial growth. In either case, such a change would be considered...."" We don't have to reverse the sentence but I certainly would make it ""would"" instead of ""might.""",209
-fomc-corpus,1984,"If we reverse it, we need to reverse the sentence that shows that we did contemplate the downside risks in the financial system that we perceive could occur.",30
-fomc-corpus,1984,"I realize we're nitpicking, but even so it seems to me that if we move to symmetry by changing the ""might"" to ""would,"" that's sufficient. If we go ahead and reverse the order of this, we'd look a little silly if the economy turns out stronger than we think. It looks as if we're really getting into semantic signals by reversing those, don't you agree?",77
-fomc-corpus,1984,"Heck, I don't [know.] It might raise some questions about attaching more significance to little tiny wording nuances than we want to tolerate through time. That next sentence I certainly think should stay.",39
-fomc-corpus,1984,"Yes, I do too.",6
-fomc-corpus,1984,It's probably considered boilerplate at this time. We have 8 to 12 percent down below [for the funds rate range].,26
-fomc-corpus,1984,"Mr. Chairman, while you're on nuances, on line 74, given what has happened in July, is it--",24
-fomc-corpus,1984,I don't have any line 74 on my copy.,11
-fomc-corpus,1984,"The way it's written, right after the ""while somewhat lesser restraint might be acceptable"" it says ""if growth in the monetary aggregates slows significantly."" Since we've had significant slowing in July already, I wonder if it wouldn't be helped by adding the work ""further"" or something like that.",58
-fomc-corpus,1984,"Well, it has just bounced around month-to-month. April was down, May was up, June was up, July was down, and the quarter is up.",33
-fomc-corpus,1984,"Well, then it gets into ambiguities, Bob. Slow significantly further than minus 2? I think it is stated in terms of the quarterly numbers. And the ""slow significantly"" means relative to whatever number is in there.",46
-fomc-corpus,1984,"Actually, the two sides of that are not symmetrical as written. The first half is quite clear. ""In the event of more substantial growth of the monetary aggregates"" I assume means more substantial quite clearly than what is in the previous sentence.",48
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Yes. It probably would be wise, though, given Bob's point, to change that ""slightly"" to ""were significantly slower."" That would use parallel language to what was in the first part of the sentence and would deal with Bob's point.",51
-fomc-corpus,1984,Use what?,3
-fomc-corpus,1984,"""Were substantially slower,"" if you want to use exact symmetry.",13
-fomc-corpus,1984,"""In the event of significantly slower growth."" That's symmetrical with the top part of the sentence.",18
-fomc-corpus,1984,It's like the Delphic oracle!,8
-fomc-corpus,1984,"But ""were"" implies it isn't going to happen.",11
-fomc-corpus,1984,"""Of significantly slower growth."" Now, what numbers do we put in up above?",17
-fomc-corpus,1984,"5, 7, and 9 percent.",10
-fomc-corpus,1984,"I'm attracted to try it with the 5, 7, and 9 percent; maybe it has been more on our minds than anybody else's that we [typically] don't change these rates.",39
-fomc-corpus,1984,"Well, we've changed them in the past and sometimes we haven't changed them. I just have a brief record here. It looks like when we've changed them--well, there's one exception where we changed [M1] from 7 percent to 5 to 6 percent and kept the other two the same. Others we have not changed at all. Once we had 6 to 7 percent and we changed it to well above 6 to 7 percent; once we changed one from 6 percent to 7 percent and we changed some of the others by 1/2 point, basically. A 1/2 point is the maximum we've changed the others. What we've done before is change the adjective in front of it. We've said ""This action is expected to be consistent with growth of M1, M2, and M3 at annual rates of"" and following some previous pattern we changed it to ""somewhat less than"" or ""around"" or something like that. That's the kind of thing we've done before. I suppose that may be an alternative--just to change the adjective in front of it--but I don't think it makes a lot of difference. We can say ""This action is expected to be consistent with growth in M1 of around 5 percent or a little less and growth in M2 and M3 at 7 and 9 percent, respectively.""",280
-fomc-corpus,1984,That sounds all right.,5
-fomc-corpus,1984,"Does that sound better to people? ""This action is expected to be consistent with growth in M1 at around 5 percent or slightly less and in M2 and M3 at annual rates of 7 and 9 percent, respectively.""",48
-fomc-corpus,1984,We had 7-1/2 percent for M2.,13
-fomc-corpus,1984,"Well, we can leave 7-1/2 percent. Do you want to leave 7-1/2 percent? Either way you like: 7-1/2 or 7 percent.",42
-fomc-corpus,1984,I'd leave it at 7-1/2 percent.,12
-fomc-corpus,1984,"How many have a preference for 7-1/2 percent? One, two, three, four, five, six.",26
-fomc-corpus,1984,Seven.,2
-fomc-corpus,1984,I'll make it eight; I don't care.,9
-fomc-corpus,1984,I don't either.,4
-fomc-corpus,1984,"We have six ""preferences"" and at least two ""don't cares."" All right, let's try this for the language and then we'll discuss the nuances. ""In the short run, the Committee seeks to maintain existing pressures on reserve positions. This action is expected to be consistent with growth in M1 at an annual rate of around 5 percent or slightly less, and in M2 and M3 at annual rates of around 7-1/2 and 9 percent.... Somewhat greater reserve restraint would be acceptable in the event of more substantial growth in the monetary aggregates, while somewhat lesser restraint would be acceptable in the event of significantly slower growth. In either case...."" All the rest is the same, including the 8 to 12 percent [funds rate range]. We are aiming at $1 billion of borrowing. We recognize that we're starting out at least with growth a bit on the slow side. If we got evidence of some slowing in the economy--I guess in terms of the earlier discussion, I'm forgetting now about these special financial problems--and there are further upward pressures on the federal funds rate, we probably would be heading below $1 billion; but if we don't have those signals, we wouldn't, barring this other financial market question.",253
-fomc-corpus,1984,Are you talking about slowing in the economy beyond expectations?,11
-fomc-corpus,1984,"Yes. I don't know exactly what they are, but that's what I'm talking about.",17
-fomc-corpus,1984,It's hard to [quantify].,7
-fomc-corpus,1984,"If we get a weaker employment number, weaker this number or that number--broadly lower than expectations, yes. If we have financial problems that are great enough, we would provide some liquidity. I don't know how one judges that in advance; I think we have to play it by ear. We had this problem for a very short period of time with Continental when their borrowing went way up and the market was disturbed and we didn't take the money out right away, day-by-day, because the market was tightening up on its own. I certainly would take into account if this were all reflected, as you put it, in a flight to quality and in fact the federal funds rate and the CD rates were going way up--and to make rather extreme assumptions --the prime rate were going up. I would interpret that as getting a much tighter effect on policy than we calculated in making these assumptions on policy right now.",184
-fomc-corpus,1984,"And, therefore, you would react by providing substantially greater reserves.",13
-fomc-corpus,1984,"Yes. If they really got substantial, we'd have a Committee consultation. Well, that question certainly would be raised.",23
-fomc-corpus,1984,"Well, you wouldn't have any alternative.",8
-fomc-corpus,1984,I'm unclear as to what would happen to the funds rate. I could certainly see a widening spread--CD rates going up and bill rates going down--as an indication of a flight to quality. I'm unclear about what would happen to the funds rate.,50
-fomc-corpus,1984,"Our experience has been, Governor Partee, that when that has happened it has tended to put upward pressure on the funds rate--[recently], in any event.",34
-fomc-corpus,1984,"I think that is right in this cycle. I think what we're getting, and it wasn't mentioned earlier, is restraints on the supply side of federal funds as well as a reluctance to borrow from the Federal Reserve. People are cutting back on lines.",50
-fomc-corpus,1984,I think there's a husbanding of federal funds going on.,12
-fomc-corpus,1984,Dislocation.,3
-fomc-corpus,1984,"I guess that could happen, if they really became sensitive. Otherwise, it's a very liquid instrument to put your money into.",25
-fomc-corpus,1984,It's a liquid instrument if you have a good borrower. People are a little nervous about the borrowers these days. I think you see that in the Euromarket and you expect that to put more pressure on the domestic funds market.,46
-fomc-corpus,1984,The spread had gotten up to 160 basis points in Treasury bills and 3-month CDs. Then it went down a little to about 60 or 70 basis points and now it's back up to about 100.,44
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,I don't know in these disturbed periods how good those quotations are that we get on CD rates.,19
-fomc-corpus,1984,Okay.,2
-fomc-corpus,1984,They are probably people's imagination; they are rates they would like to aim at for CDs.,18
-fomc-corpus,1984,"Well, give or take maybe 10 basis points, I think they're probably fairly accurate.",18
-fomc-corpus,1984,"Well, they're accurate for some banks that can operate; some just can't operate in these markets. Anyway, it's understood what we're voting on and the nuances have been adequately explained? If there are no other questions, we will vote.",46
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich No,47
-fomc-corpus,1984,"I guess that completes [our agenda]. I might say one other thing. This is of no substantive importance, but I have found it convenient in defending why we don't release minutes right away among my other arguments to say that when we have a basic policy decision we typically do announce it right away. These other things are just implementing policy that we've already decided upon. And that broadly is reflected in the directive, it so happens. We speak about a policy directive but that refers to the whole thing, which has all the long-range targets. When it comes to what we were just discussing--the language is probably right here--it's called an operational paragraph [in the Bluebook]; I forget what it's actually called in the directive.",145
-fomc-corpus,1984,It's about that word.,5
-fomc-corpus,1984,"The phrase ""in implementing policy"" often appears. I'd just like to sharpen up the language a bit in the earlier discussions to make some distinction between policy with a capital P and implementing policy. This paragraph is implementing policy.",44
-fomc-corpus,1984,Do you find that a convincing argument?,8
-fomc-corpus,1984,It is useful. Is it credible?,8
-fomc-corpus,1984,"Actually, I think it is a useful distinction. I don't think it's just purely to handle the substantive points. People can say ""I want to know what your operational approach is."" But in terms of our own thinking we ought to make the distinction. I don't think we have changed anything here.",59
-fomc-corpus,1984,"Yes, but we do say--and it's a little inconsistent with that--that one reason we don't want to release the minutes right away is that if conditions change during the intermeeting period we may want to adjust the standards. Right?",47
-fomc-corpus,1984,I think [unintelligible] policy.,10
-fomc-corpus,1984,That also sounds like an adjustment of policy.,9
-fomc-corpus,1984,"Well, we're talking about semantics. What do you call policy and what do call something else? I think there is a distinction between--to use another phrase--longer-term strategy, which is a more basic approach, and these more tactical decisions. [Unintelligible] be tactical.",59
-fomc-corpus,1984,"What would be a ""basic approach"" short, say, of changing the annual ranges?",18
-fomc-corpus,1984,"Well, obviously, [what we did] in October, 1979--",16
-fomc-corpus,1984,And the middle of 1982.,8
-fomc-corpus,1984,"--and in late '82 or October of '82. And we did announce that very promptly. We didn't change the ranges but we said we were deemphasizing M1 and we announced it--not clearly, I guess. It was a more strategic decision.",53
-fomc-corpus,1984,Isn't this [directive] technically a communication to my Bank?,13
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,It is.,3
-fomc-corpus,1984,"Yes, and I think it's written that way. It says--",13
-fomc-corpus,1984,It's a directive to the Manager.,7
-fomc-corpus,1984,"It's a directive to the Manager and it says ""In implementing policy, follow this operational approach."" That's what it says. I think that distinction is in the directive now; it could be sharpened a bit. The whole thing is called the policy directive, but it repeats all the basic stuff.",59
-fomc-corpus,1984,"I have the impression--and it's just an impression--that we have fewer and fewer friends who come to our defense on our current release procedure and that we have gotten more defensive, say, over the last year or so than we have been in a number of years. Is that accurate or inaccurate?",60
-fomc-corpus,1984,"Oh, I think it's probably true. There's certainly a lot more noise about it. It's the kind of issue that the Kemp group has seized upon and they make a lot of noise about it. Certainly, the in-depth analysis is much greater now than it was. It's one of these things that's like fighting motherhood. Just like freedom of information, it's very hard to argue against it, even though you know it's a bad idea.",86
-fomc-corpus,1984,"Yes, I'll agree with that.",7
-fomc-corpus,1984,"All newspaper reporters, even the ones who are supportive of us, start off with a presumption that the maximum amount of disclosure is something good. It's very hard to argue otherwise.",36
-fomc-corpus,1984,"Steve has just pointed out something that we can put in this directive we just approved, with your approval. The previous paragraph says ""The Committee understood that policy implementation would require continuing appraisal"" and so forth. The insert would be: ""In implementing policy in the short run"" or ""In implementation of policy in the short run.""",66
-fomc-corpus,1984,"Since I'm still intrigued by this fed funds matter, would it be possible to request the research people at the individual Federal Reserve Banks to call around to some commercial banks to see if, in fact, they are more carefully analyzing the banks that they will sell fed funds to or if they've changed their approach in the last couple of months?",66
-fomc-corpus,1984,I could give you the answer. They are.,10
-fomc-corpus,1984,"Yes, I've talked to two individual banks that have. I have not done a survey.",18
-fomc-corpus,1984,"I'd be a little reluctant to do a survey simply because if we do, that itself becomes [an issue]. They begin asking why we're making a survey.",31
-fomc-corpus,1984,They interpret that as a signal that they should borrow less.,12
-fomc-corpus,1984,The Continental situation made a lot of [our District banks borrow less] even before that.,18
-fomc-corpus,1984,I think it's something to keep our ears open to rather than taking a survey.,16
-fomc-corpus,1984,"I didn't mean a written survey, just some--",10
-fomc-corpus,1984,"But even if you just call around in an organized way, it becomes a [survey].",18
-fomc-corpus,1984,It's still increasing [reporting burdens].,8
-fomc-corpus,1984,"Our manager of reporting burdens points out that that becomes a survey too. But apart from that, I think it's just the kind of thing that would raise more questions than we are prepared to answer. I have had that comment reported to me--not by any banks, but by nonbanks. Peter mentioned that it was attributed to a deliberate effort on the part of the Federal Reserve to police the discount window more rigidly. And I assume that isn't the case.",92
-fomc-corpus,1984,We checked up on that. There's no evidence of that at all.,14
-fomc-corpus,1984,You've checked with other Reserve Banks too?,8
-fomc-corpus,1984,Yes. I had my discount officers call some of the other discount officers.,15
-fomc-corpus,1984,"It was a conference call among the discount officers, and there was no substantiation of that.",19
-fomc-corpus,1984,"This reluctance to borrow is not just at the larger banks. At least two of the larger banks said to us that some of the regional banks were more reluctant to borrow. I don't know whether you would find any in your area being more reluctant to borrow. Because of the rumors in the market, every bank leans over backwards.",67
-fomc-corpus,1984,I think they are torn. This wide spread makes them want to have mechanical errors on Friday and that sort of thing.,24
-fomc-corpus,1984,I find it strange under those conditions that we seem to be hitting the'targets not only on borrowed but on excess reserves. I should think that excess reserves would be ballooning under these circumstances.,40
-fomc-corpus,1984,They're not.,3
-fomc-corpus,1984,Why would a bank want to hold additional cash assets that are [earning] nothing?,17
-fomc-corpus,1984,"I'm talking about the fact that there's a dislocation. In other words, there's a reluctance in regional banks to sell to money center banks.",29
-fomc-corpus,1984,But they could put it in other assets.,9
-fomc-corpus,1984,"Well, presumably there's some fine balance here. I'm just thinking out loud. They try to hold excess reserves and not borrow; then we provide enough reserves to satisfy [their demand for excess reserves]. And the equilibrium happens to be at an 11-3/4 percent funds rate. [Unintelligible]--well, the M2 is not.",72
-fomc-corpus,1984,I don't think there's any evidence that we're providing reserves more generously.,13
-fomc-corpus,1984,"Well, the money supply has gone down.",9
-fomc-corpus,1984,"And the reserve numbers are on the weak side rather than strong. So, it's something that we're doing here that is not ginning up the numbers but ginning them down. In other words, if there's something we're doing--",45
-fomc-corpus,1984,Why do you say the money supply has gone down? It hasn't gone down year-to-date; it hasn't gone down quarter-to-quarter; it was just down in July.,34
-fomc-corpus,1984,It was down in July.,6
-fomc-corpus,1984,It's back up already in August.,7
-fomc-corpus,1984,But it's going down--,5
-fomc-corpus,1984,"As a matter of fact, I wanted to ask Steve whether that July figure is for real--that is to say meaningful--or whether it might be a seasonal problem.",34
-fomc-corpus,1984,"Well, we run concurrent seasonals just to see how we're tracking once the revision is in. I don't have the figures in front of me but my memory is that the current seasonal through July would change that rate of growth from minus 1/2 percent to plus 2 percent and would change some of the others. There's a little evening out. So, it's still relatively low but it was--",80
-fomc-corpus,1984,I am not suggesting that a minus 1-1/2 percent is reflective of the trend of M1 growth.,24
-fomc-corpus,1984,It doesn't change the trend.,6
-fomc-corpus,1984,I hope it does not.,6
-fomc-corpus,1984,"Well, it seems to reflect that M1 is not as reliable as we had hoped it would be.",21
-fomc-corpus,1984,"Well, it is [unintelligible] you have unrealistic expectations of month-to-month fluctuations. We had a zero in April and a big May, and a big June balanced by a small July. If you take the four months together, it doesn't look too bad.",55
-fomc-corpus,1984,It's very stable quarter-to-quarter.,7
-fomc-corpus,1984,The   sandwiches are out there.,7
-fomc-corpus,1984,"We can start, if somebody wants to move the minutes.",12
-fomc-corpus,1984,"I move the minutes, Mr. Chairman.",9
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,Without objection. Let's turn to foreign currency operations.,10
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Perhaps you could refresh my memory and that of others as to the nature of this informal limit.,19
-fomc-corpus,1984,We raised the total amount of this limit and the DM amount. The total [informal limit] is now $5-1/2 billion.,30
-fomc-corpus,1984,What is the operative significance of this informal limit?,10
-fomc-corpus,1984,"Well, it is an informal limit. We have a formal limit of $8 billion, which is recorded and registered as the decision of the FOMC and I imagine made public. This $5-1/2 billion is an informal limit, which has been operative for a number of years, under which we seek the FOMC's views about how much we would operate within our total authorized $8 billion. We now have an informal maximum of $5-1/2 billion for all currencies, with [limits of] $4 billion in deutschemarks, $1 billion in yen, and $500 million in other currencies.",128
-fomc-corpus,1984,Suppose we were not having a Committee meeting and these limits were threatened to be exceeded?,18
-fomc-corpus,1984,I believe you have the authority--,7
-fomc-corpus,1984,"No, there is an Executive Committee--a 3-person subcommittee.",15
-fomc-corpus,1984,The Foreign Currency Subcommittee could authorize it.,9
-fomc-corpus,1984,What are your present holdings?,6
-fomc-corpus,1984,The present holding of DM is $3.9 billion equivalent. Our limit is $4 billion equivalent and I am requesting--,25
-fomc-corpus,1984,"If the mark increased in value, we would exceed the limit?",13
-fomc-corpus,1984,No. These are recorded on [the basis of] historical acquisition costs. We could never operate in this day and age if we were operating on the basis of market value.,35
-fomc-corpus,1984,"We haven't done much with this for a long time, I must say, and I am sure everybody's mind is very fuzzy on it--at least mine is. Why is it, Sam, that we take the interest in marks rather than converting it to dollars?",53
-fomc-corpus,1984,"Well, if we converted it into dollars, that would be, in effect, an intervention operation.",20
-fomc-corpus,1984,But it would be a very regularized small thing that would permit us to get [the interest earnings] back into our own currency.,27
-fomc-corpus,1984,"It is not as though we have such massive amounts of these currencies that we need to worry about our balances being too high, it seems to me. As I say, the United States [holdings] as a whole are way below what they were even a couple of years ago.",57
-fomc-corpus,1984,"Well, that is true. It's not even as much as the Continental loan. Nevertheless, a lot of people might consider $4 billion in marks to be quite a holding, particularly when you recall that we got most of it at under 2.",50
-fomc-corpus,1984,"Well, the total value of these at today's exchange rate would be less than $3.9 billion. So, I think we are talking about a very modest amount of currencies and it is in our interest to have some of these currencies available.",49
-fomc-corpus,1984,I assume you are not interested in driving the value of the dollar up any higher?,17
-fomc-corpus,1984,"I don't know what the periodic receipts are, but they certainly can't exceed $100 million. I guess I would have argued that it would not have had any appreciable effect on the dollar had we done this periodically when we get them as a convention. And I don't know why it is--",58
-fomc-corpus,1984,We get about $200 million per year.,9
-fomc-corpus,1984,"I think that's true if you believe that there is a principle involved here, but I don't know what the principle is. You're assuming that all interest on foreign currencies should as a matter of routine be converted to dollars? Is that what you're saying?",49
-fomc-corpus,1984,I don't know why it shouldn't be. I consider the home currency to be the dollar rather than the mark!,22
-fomc-corpus,1984,"That still is a form of intervention, so I don't understand why you would want to do that unless you had an intervention objective in mind.",28
-fomc-corpus,1984,"Well, I don't remember the basis for doing it this way.",13
-fomc-corpus,1984,Whether or not it's intervention seems to me semantic. The question is whether we feel comfortable or uncomfortable with the amount of currencies we hold. I personally feel that we hold an uncomfortably small amount.,40
-fomc-corpus,1984,"Mr. Chairman, it seems conceivable that we may need more than $500 million over the next year, so why not increase the informal limit by $1 billion instead of $500 million?",38
-fomc-corpus,1984,I'm perfectly happy to.,5
-fomc-corpus,1984,I certainly support that.,5
-fomc-corpus,1984,I would welcome an increase of $1 billion.,10
-fomc-corpus,1984,Is there some significance that you didn't articulate to the $500 million?,14
-fomc-corpus,1984,"No. It's just that the past couple of times when we raised it, we increased it by $500 million and I did not want to give the impression that there was anything very major involved. It seems to me it would be quite appropriate--and in fact it would be advisable--to increase it by $1 billion.",65
-fomc-corpus,1984,"The inevitability of gradualism! I'd go for a billion dollars. Operationally, I think it makes sense.",23
-fomc-corpus,1984,"Well, I really don't know why we have [an informal limit]. I would move to do away with it altogether. After all, at the rate at which interest is accumulating we will double our money every six or seven years anyhow.",47
-fomc-corpus,1984,Not at German interest rates or [rates on] Swiss francs.,13
-fomc-corpus,1984,Let's hope not.,4
-fomc-corpus,1984,"Well, do what you want to do, but it seems to me that this informal limit may be useful within the overall limit of $8 billion. It confuses me a bit as to what it is, but at the minimum it is some kind of Committee checkpoint. It is $5.5 billion presently. I don't think it does any harm and it forces the Committee to review this, though not very frequently. It hasn't been reviewed for however long it has been, but it seems to me it has at least a modest usefulness and I would think we probably would want to keep it. I have no problem with [an increase of] $1 billion. I think that's more appropriate, but that's because my bias is that we don't hold enough of these currencies anyway against the contingencies of an unknown world.",163
-fomc-corpus,1984,Then we'd want to raise the informal maximum for all currencies to $6 billion from $5-1/2 billion too?,25
-fomc-corpus,1984,"Well, it would be $6-1/2 billion.",13
-fomc-corpus,1984,$6-1/2 billion and raise the total for all of them?,16
-fomc-corpus,1984,"Actually, the yen is within $400 million [of its limit]. It's not so far away but the amount is not very large either--not that it is very difficult to change these.",38
-fomc-corpus,1984,"Another possibility, Mr. Chairman, if you wanted to consider it, would be to keep the informal limit on the total but to eliminate this difference between how much is in DM and how much is in yen, and how much is in Swiss francs and other currencies. That would provide a little more flexibility.",61
-fomc-corpus,1984,"Well, without taking that major step, I take it this is an understanding and not a formal [vote]. And I take it that what the understanding really means is that these are our foreign currency [limits] but in an emergency I can breach them. But the sense is that the Committee is thinking in terms of these [limits] and if they were breached I would come back to the Committee at some point and I would at least explain why they were breached. Limits of $5 billion [on DM], $1 billion [on yen] and $.5 billion [on other currencies] is the minimum change we're talking about. If there are no widespread objections to that, we will proceed. We've had a very strange exchange market during this period, as Mr. Cross has described, and he rationalized as best he could why the dollar is so strong. It's not so clear why it's so strong against declining interest [rates], weaker economic activity, and several developments indicating an easier Federal Reserve policy, all of which in days of yore--like two months ago--would have sent the dollar down. They don't seem to have any effect right now.",231
-fomc-corpus,1984,I would certainly agree that there is no very clear-cut explanation. It is amazing how much the attitudes [have changed]; everybody seems to talk about what a good thing the dollar is to get into these days. One can listen to how they talk now and think back to how they talked in 1978 and 1979 when it was going the other way and the United States was [viewed as] hopeless as far as the future was concerned. It's hard to believe they are talking about the same country.,103
-fomc-corpus,1984,"There was very widespread and deep concern about this among European Finance Ministers and central bankers--really for the first time, so far as central bankers are concerned. Certainly the intensity [was great] at the time of the IMF meeting, which was right in the middle of this surge. Various proposals for coordinated intervention were explored and there was very considerable urging that we ease policy much more aggressively to deal with this problem. The intervention that Mr. Cross referred to was coordinated in a rather loose way. It was a general agreement among 4 or 5 central banks, anyway, that upward movements in the dollar would be resisted in our respective markets over the past week. The dollar did stay in a lower range, as Mr. Cross indicated, but when it went up decidedly we had really rather modest intervention. There weren't all that many strong movements in the New York market but there was [unintelligible] intervention on some scale abroad occasionally when the dollar was strong, and that was all agreed to last week.",202
-fomc-corpus,1984,We intervened in a rising market? Is that right?,12
-fomc-corpus,1984,"In a rising market. The words you used, Mr. Cross, were ""a pronounced rising market.""",21
-fomc-corpus,1984,We don't attempt to create disorderly conditions the way the Germans did.,14
-fomc-corpus,1984,They jumped on the declining dollar.,7
-fomc-corpus,1984,"We deliberately didn't do that. I think it may have been helpful that they did it, but I don't particularly want to be in the posture of doing it.",32
-fomc-corpus,1984,I wouldn't want to be a party to it. I would like to have the opportunity to register myself against such an operation.,25
-fomc-corpus,1984,"Well, we haven't done it at this point and I have no present intention to do it. We weren't very aggressive, that's for sure. But we need to ratify the transactions if there are no other questions.",43
-fomc-corpus,1984,Move ratification. [,5
-fomc-corpus,1984,Second.],2
-fomc-corpus,1984,Mr. Sternlight.,5
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"Peter, do you think that it would work a little better if we used only adjustment borrowing for our borrowing targets and eliminated seasonal borrowing?",27
-fomc-corpus,1984,"I don't know that it would. It could have some different effects. Our experience is that seasonal borrowing does seem to respond to interest rate pressures, and I think that's the logic for coupling it with adjustment borrowing. On the other side, it doesn't have the same pressure to repay quickly that adjustment borrowing has and that's the logic on the other side of it.",71
-fomc-corpus,1984,You'd come out on balance for leaving it?,10
-fomc-corpus,1984,"I'd tend to leave it alone, I think.",10
-fomc-corpus,1984,"In the recent period, adjustment borrowing would have given you a better idea of what the federal funds rate was going to do, wouldn't it?",28
-fomc-corpus,1984,"Well, if we had done that in the recent period, I think it would have tended to push rates higher than they went because we had the seasonal component building up.",34
-fomc-corpus,1984,I was thinking you would have cut the adjustment [borrowing assumption].,14
-fomc-corpus,1984,"If we make the suitable adjustments in the borrowing level, which work into the path, we could work with either of those. However, the Committee may not want to do that [kind of] short-run adjusting. I tend to think of the combined total as a better number to work with, but I think it can be argued either way.",69
-fomc-corpus,1984,It is sensitive to interest rates? Is that right?,11
-fomc-corpus,1984,Adjustment borrowing?,3
-fomc-corpus,1984,I mean the seasonal.,5
-fomc-corpus,1984,"The seasonal, yes.",5
-fomc-corpus,1984,I would have thought that it was so much less sensitive that the other conceivably might work better. If you think the federal funds rate--,29
-fomc-corpus,1984,"President Black, we have done some empirical work, and it doesn't seem to show much difference between the two. And I think as Peter mentioned, in the jargon it is essentially an ""intercept"" problem. You would have a lower level of borrowing on average for whatever funds rate you would be thinking of. As far as the volatility in the relationship, day-to-day, between borrowing and the funds rate, I don't think it makes one iota of difference.",93
-fomc-corpus,1984,"Peter, do you think there still is a precautionary premium affecting the federal funds rate right now?",20
-fomc-corpus,1984,"I'm hard put to say what there is right now because after that funds rate [unintelligible] did give some ground, and one could say that there has been evidence just in the last few days of some lessened reluctance to use the window. We've had several sizable banks come in early in the reserve period. On the other hand, the funds rate has been back toward the high side in this current week. It is averaging about 11.21 percent so far in this statement period, which suggests that maybe this is just statement-date pressure--that would be my guess as of the moment--and that there is some return toward normalcy underlying this. But I would have to see another several days before I could conclude that with greater conviction.",152
-fomc-corpus,1984,"Well, it is a very strange period. Every indicator ordinarily would be associated with lower interest rates: The money supply was very sluggish; every bit of business news, I think, came in on the lower side of market expectations; and there was growing evidence of lower reserve pressures. We were in the market every day and the market just didn't react in any consistent way. And now, after all this, the federal funds rate goes up where it was before, with fewer reserve pressures.",97
-fomc-corpus,1984,"We could very well be having that statement-date effect, couldn't we, Paul? As I recall, looking back, we've had that rather regularly now over the last couple of years.",36
-fomc-corpus,1984,"It's a funny statement-date effect, coming after the statement date.",13
-fomc-corpus,1984,"We keep talking about the banks being reluctant to borrow, and many of the banks talk about the Fed having tightened its administration of the discount window. I've had that said to me time and time again even though I know that our discount officers deny that. But I don't know why there is such a strong impression of that around--or there was during this period of time. The fed funds rate was higher than what one would have expected.",87
-fomc-corpus,1984,That was back during the summer when we had all that other stuff. What I don't understand is this last month. It's the same phenomenon in the exchange market. The same thing is keeping the exchange market higher. It's a refusal to believe that [the numbers are] right--that the economy is slowing and that the money supply has weakened. It has been [that way] in the last two weeks.,81
-fomc-corpus,1984,"It doesn't work for the exchange rate, but I keep coming away with the feeling that the only plausible explanation in terms of the domestic market is that perhaps way beneath the surface this precautionary [motive] is still quite operative. It's the only thing I can figure out.",55
-fomc-corpus,1984,But that doesn't explain why. You are talking about caution [by banks] about borrowing because they might get contaminated.,23
-fomc-corpus,1984,"No, not so much on borrowing but that there is just a much more conservative attitude on the part of medium and large size banks in terms on their whole approach to funding and money management, with some implication, obviously, for their willingness to borrow. But I don't know. It's the only thing that makes any sense to me.",66
-fomc-corpus,1984,"To those bankers who are aware of the wildness and the degeneration in the financial position of the thrift industry in their state and their region and their market area, that surely is a factor because it is degenerating rather rapidly.",45
-fomc-corpus,1984,"But if that's the explanation, then we should be in the beginnings of a reversal of that because all the anecdotal reports as well as the reduction in the spread between CDs and Treasury bills show that there has been less anxiety in the banking system and in the markets generally in the last few days. In that case, if we were to continue, let's say, $750 million borrowing, we might end up with a much lower fed funds rate than one would expect at the present time.",97
-fomc-corpus,1984,I think there is less anxiety about the banking system. I think what Pres was talking about is more anxiety by the bankers about their own situations.,29
-fomc-corpus,1984,"In fact, they are aware that dozens of the S&Ls in their districts are going to fail and fail with a great public splash. And they are aware, if they are operating nationally, that hundreds of them are going to fail. I can see that in the bankers' psychology.",58
-fomc-corpus,1984,"Except that we have gotten reports in the last few days that show so much more relaxation on the part of bank management, particularly now that they feel that interest rates are not going to go up. All I'm saying is: If that's the explanation, then there are [unintelligible] conditions that will reverse that.",64
-fomc-corpus,1984,There may be some developments in coming days that will increase the anxiety.,14
-fomc-corpus,1984,Exactly. They will definitely increase their--,8
-fomc-corpus,1984,Another major bank has to show a big loss or something.,12
-fomc-corpus,1984,"I'm not talking about a bank. I'm talking about thrift institutions. Some of them are in your backyard, good sir.",24
-fomc-corpus,1984,I'm talking about banks.,5
-fomc-corpus,1984,All right.,3
-fomc-corpus,1984,Just read the newspapers. A lot of this may be the commentaries of all these people who make the newspaper every day. They are always predicting every day that interest rates are going to go up. And I think that must be--,47
-fomc-corpus,1984,"Well, there still is burned very deeply in the minds of people in the country--not just people who watch the financial markets every minute and every hour--the very high interest rates of several years ago when we had a 20 to 21 percent prime rate. The burn scar from that is still very obvious. And the most frequent question that I get when I'm out just talking to people who are running small and middle sized businesses is: We're not going to have 18 and 19 percent prime rates anymore are we?",105
-fomc-corpus,1984,What do you say?,5
-fomc-corpus,1984,It depends on how [unintelligible] interest rates. But the pain of that is still very close to the surface in a lot of peoples' minds.,33
-fomc-corpus,1984,I hear a lot of talk from the smaller and medium size banks about how they are more carefully limiting their fed funds sales. Is there possibly a net shrinkage in the market here?,37
-fomc-corpus,1984,"I don't know whether statistically it shows up as any net shrinkage, but I hear that too. They may put less or are prepared to put less with individual institutions.",34
-fomc-corpus,1984,They are certainly more selective. Maybe they distribute it out [more].,14
-fomc-corpus,1984,Shouldn't that show up in much higher excess reserves?,11
-fomc-corpus,1984,"The nationwide total for excess has not gone up, unless it's changing this very reserve period we're in. In the full reserve periods that we have had, that had not shown any more--",37
-fomc-corpus,1984,"Peter, you told me that there was a tendency in the beginning of these periods for excess reserves to be somewhat higher.",24
-fomc-corpus,1984,"Yes, a tendency within the period for more conservative management but nothing for the period as a whole.",20
-fomc-corpus,1984,"Well, I guess we'll turn to the business picture, which is crystal clear! We have to approve the operations.",23
-fomc-corpus,1984,Move approval. [,4
-fomc-corpus,1984,Second.],2
-fomc-corpus,1984,Mr. Kichline.,6
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Let me raise a question about your initial comment to the effect that no decline or stagnation is ahead.,21
-fomc-corpus,1984,"I think I said ""appears"" or ""the staff believes.""",14
-fomc-corpus,1984,"Okay. That's what I want to raise the question about. You said that things came in a little less strongly--or weaker or whatever adjective you used--than you had expected last time. That was only about 6 weeks ago and you were assuming that GNP was going to rise 5 percent in the third quarter. Now you're down to 2.7 percent. That's a heck of a big difference in six weeks, which reflects the fact that all the news coming in has been very appreciably lower than you were assuming.",107
-fomc-corpus,1984,"Yes. I would say two things were going on, though. One is that the information that we had at the time of the August meeting generally is weaker today with data revisions. When we had the August meeting, retail sales in July were reported to be down 0.9 percent. With the revised data, they are now reported to be down 2 percent. So, it is true that new information available for August has been weaker, but I'd say the past also looks weaker for consumption, residential construction, business-fixed investment, as well as for the merchandise trade area. It has been very broadly based. I think my briefing did not avoid the issue.",133
-fomc-corpus,1984,"I'm just raising a question. You are amplifying what I am saying. The statistics are quite a lot weaker than you anticipated six weeks ago. We started the summer on a high note and we surely ended it on a low note. GNP couldn't be much higher in September than it was in June. It may be lower. I don't know. As we look ahead, it is very hard to see housing going anyplace; and you say housing sales have leveled off. There was some figure released this morning that I was told last night would show a pretty sharp decline.",116
-fomc-corpus,1984,"I just received it. The house sales data were revised down for July, and August looks quite a bit weaker.",23
-fomc-corpus,1984,"I should remark that the revisions are an insider's leading indicator. If revisions are downward, that indicates weakness.",22
-fomc-corpus,1984,"Well, we've had a lot of downward revisions. It's very hard to see housing going anyplace. I would think an optimistic projection in the near term is stability. Plant and equipment orders have been down quite sharply over the last few months. Backlogs are obviously up from where they were in the recession, but expenditures are not that much lower than orders at this point. In fact, they are very close, and orders most recently have been weak.",90
-fomc-corpus,1984,"We had the McGraw-Hill survey, too.",11
-fomc-corpus,1984,I didn't see that.,5
-fomc-corpus,1984,"It's dated as of yesterday. They are tabulating the October survey. The first reading for 1985 will be available late in October. They have a little under half of the respondents in and the total is running around an 8 percent increase in nominal terms, which is substantially weaker than the staff forecast. The survey is [still] fragmentary; we don't know how to make a lot of sense out of it, but it is indeed a weak number.",93
-fomc-corpus,1984,"This is all accompanied by a great surge in imports, which certainly is eating into U.S. production. The however many percent increase in the exchange rate recently can't help that situation in the future; there was an enormous surge in the exchange rate. I don't know what consumption is going to do but it wasn't very good over the summer. The auto sales look all right. But that's the only thing that looks pretty good. All of these other things raise some question about the vulnerability of inventories in the sense of continuing large accumulation, which is the only thing going on now. So, why can't you make a pretty good case for no growth in the fourth quarter?",132
-fomc-corpus,1984,How many times in the past have we seen periods of economic expansion interrupted by a quarter of pause and then it goes on? I would bet that over the postwar period you could find ten of those.,41
-fomc-corpus,1984,I think the pauses typically come about two years after the beginning of an expansion. We normally go into a little slowing period.,25
-fomc-corpus,1984,"I find it hard to believe that with this budget deficit--even though we have very large negative net exports--we could have the economy sagging. There is just so much purchasing power put in. There's also the stimulation of [business] investment, which surely dominates housing. It's about 3 times as big as housing. So, as I look at the underlying factors, it seems to me it's a picture of continued [unintelligible] pressure--not certainly strength.",96
-fomc-corpus,1984,We're talking about the fourth quarter and this would be a quarter of pause and it could be a big pause.,22
-fomc-corpus,1984,"Well, that I could see. The things I'm talking about don't point to any particular quarter, but I do try to look a little further ahead and ask myself: Where are we going?",38
-fomc-corpus,1984,"Jim, have you looked at previous cycles to see whether--",12
-fomc-corpus,1984,"There are many. A classic case is 1976 where we had a slowdown, particularly in consumer spending, and it looked at the time as if the economy were perhaps falling apart. But it was really just one of these pauses that subsequently led to very sharp growth. I have an answer to your question from the model. We have all sorts of things in the model, and the probability of negative GNP growth occurring in the fourth quarter of 1984 according to the Board's econometric model is 25 percent.",105
-fomc-corpus,1984,It's what?,3
-fomc-corpus,1984,It is 25 percent. That probability has been rising because of the factors you've been citing.,19
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"I wonder if we have an example here of central bankers finding something going along about the way it ought to be going along and finding a whole lot to worry about. It seems to me that several months ago we were concerned about the economy overheating. We were going along well into a recovery and the concern was that we were going to go off the ledge and that it wasn't sustainable. We get some slowing over a period of several months and now some concern about a recession. It seems to me that what is happening is exactly what a majority of the Committee wanted to happen just a few months ago--that we are seeing this adjustment to a slower economy. My own region happens to be a region that's fairly sensitive to what is going on in the [overall] economy and historically it has tended to come down earlier than some other regions. I must say as I talk with people in various sectors that the evidence suggests some slowing [in the expansion] but there's not very much that would suggest that we're heading into a slide. There is less strength in manufacturing but the retailers report that things are going along really rather well. We've had some weakness in tourism largely because of the dollar and the fact that Canadians are not coming into the District. There is weakness in residential housing but commercial construction is going along reasonably well. The bankers report some slowing in C&I loans but not as a forerunner of a recession. So, where I come out is that the economy is doing exactly what we wanted it to do. We wanted [the expansion] to slow down some so that we could have a more sustainable growth. It seems to me that we are not as recession prone as I would have thought at this point in the recovery. I think inflation is under much better control and I think monetary policy has been conducted on a better basis this time around. We tightened earlier in a recovery than any time I recall since being in this room and I think we have begun to ease earlier than we normally have; so I think policy is considerably less pro-cyclical than it has been historically. I would come out thinking that what has been happening is pretty good for the economy.",432
-fomc-corpus,1984,Mr. Rice.,4
-fomc-corpus,1984,"Well, Mr. Chairman, the staff's revisions to the forecast for 1985 seem to be more than usually sensitive to the dollar exchange rate. We know what the various possibilities are there and we also know the difficulty of assessing the probabilities associated with forecasting the exchange rate. But I don't think many people would argue that the basic long-run strength in the economy is being threatened. I don't know of many people who have forecast a recession in 1985. I think the central question for us right now is: What is going to happen in the current quarter and possibly the next quarter? The question is whether the economy is going to continue to decelerate below the current level of activity estimated for the third quarter or whether it's going to stabilize at levels around those of the third quarter or whether it's going to rebound as projected by the staff. I think the scenario outlined by the staff for the fourth quarter is a very plausible one and I certainly hope that it is realized. If it is realized, we'll have pretty much what Ed Boehne was hoping for--that is, we will have the kind of situation that we want. However, I think we have to recognize and pay some attention to the kinds of factors that the Chairman pointed to just a moment ago: that there is evidence of considerable weakness and that the staff forecast is based on pretty wobbly foundations--primarily consumer behavior and the expected rebound in consumer spending. Now, at a time when investment spending is also decelerating somewhat, this rebound in the current quarter seems to me crucially [dependent] on a substantial rebound in consumer spending. And from past experience, I think we have found that predicting consumer behavior in the short run on a quarterly basis is a very hazardous business. In other words, it seems to me highly possible that, in light of the very rapid deceleration that we've seen in the last quarter, this could carry forward to very low levels of expansion. I would expect positive rates of growth, but conceivably fairly low rates of growth--marginally positive rates of growth--and that, in my judgment, would not be a desirable outcome. And I think we have an opportunity now to forestall that without any risk of threatening a sustainable expansion.",453
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,I appreciated Jim's comment on the 25 percent probability from the model of zero growth in the fourth quarter.,22
-fomc-corpus,1984,Minus.,2
-fomc-corpus,1984,Zero or negative.,4
-fomc-corpus,1984,"It seems to me that when we refer to the slowdown in growth we're talking about a change from 10.1 percent real GNP growth in the first quarter to 2.7 percent in the third quarter. I suppose that's a slowdown rather than a jamming on the brakes, but it is reasonably significant. Henry's point is well placed with regard to consumer behavior and the probability of the consumer coming back, particularly in the durables area. The other side of that coin is the consumer coming back to a saving rate that might reflect the news that I expect to occur with regard to failing thrift institutions and commercial banks as the year wears on. [When] the November 14 report of Financial Corporation of America comes upon the media and other institutions show difficulties, it could even be that the consumer will feel that saving may be a little more desirable. I don't know what the probability of that is but there is some probability. Of course, then the question is raised as to saving into what. As to the notion of a return in the nondefense capital goods area to a much stronger rate of spending, I think there is a great deal of uncertainty there and that uncertainty stems from the very point that the Chairman underlined previously, which is that interest rates are still relatively high and profit margins, due to foreign competition, are the narrowest in many, many industrial categories that they have been in several decades. And that certainly tends to weigh a bit upon a board of directors realizing that because of the financing gap they have to go outside. They can't do as they did in the earlier stages of the expansion and finance from internal sources. So, it seems to me, though I don't know what the probability is, that there is a risk--not the risk that we will have such a bad fourth quarter or first or second quarter going forward, but the risk of an earlier end to this expansion than would be desirable considering the need to face fiscal policy decisions in '85. And those are decisions that can best be made in [an environment] of a trend rate of real growth or even a 3 to 4 percent rate of growth rather than an expectation that the recession is around the corner and, therefore, it's too late to do anything in the fiscal policy area. I reiterate my concern about financial institutions and their lack of financial soundness and the vulnerability that the expansion has to the fact that this will be developing later this year and into next year. So, it seems to me that the Chairman needs to have flexibility and that we need to build into our thinking quite a bit of flexibility so that we can move, particularly to offset downward pressures, in the short- or intermediate-term future.",543
-fomc-corpus,1984,Miss Seger.,4
-fomc-corpus,1984,"As someone who was pessimistic rather early on, I guess I'm pleased to see the statistics finally supporting my woman's intuition in that the statistics across the board are certainly looking much weaker than they did back in July when I arrived here. I'm also viewing this as a good sign, as are people in Philadelphia, and not a bad sign. I think it's healthy that we are looking at some downward revisions in our forecast for the rest of this year and for 1985 because it's important to keep inflation under control and having these signs takes some of the heat off here to jam on the brakes. So, I'm pleased to see that this is happening. Also, I'm optimistic--maybe more optimistic than most people here--about some of the fundamental changes going on in the economy. I have mentioned these before, particularly those things that are influencing productivity favorably. There are other [developments] that influence the management of companies and increase their commitment to doing things efficiently, which of course is tied in to productivity. Their stronger moves in labor negotiations, some innovations, and more emphasis on R&D are the kinds of things that I think will pay big rewards longer term. I'm also concerned, though, about the problems of the thrifts. Maybe it's because I just gave a talk a week ago to some treasurers of savings and loans and I'm carrying those cards, but there are big problems there. There are big problems there even if interest rates don't rise, but the numbers I heard with even a modest increase in interest rates in the future are terribly scary. I think a very large group will be going down the chute rather than a somewhat smaller group. So, those are my concerns. But, as I said, overall I'm rather pleased with what is going on.",353
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Mr. Chairman, I too am rather pleased about the ways things have gone. I don't really see the risks being on the down side either for the fourth quarter or for 1985. I was a little surprised at the 2.7 percent staff projection. I would have thought it would be a little higher. I think the Commerce flash report of 3.6 percent is probably closer to the mark and, in fact, market watchers are expecting that to be revised upward somewhat. Also, the numbers that I've seen for September, in my District at least, are indicating some rebound in the economy from the slowing in the summer. Speaking specifically about my District, we are seeing the slowdown, but in all areas the strengths are still outweighing the weaknesses in the economy. So, I would think, Mr. Chairman, that the risk is that we will have a rebound in the fourth quarter and that that will carry over into 1985. I say risk not because I think it's going to be terribly significant but because the numbers will probably be lower. But I certainly don't see any negative growth or even zero growth in 1985. I think the institutional problems certainly will have an effect on consumer attitudes and consumer expectations but, at the moment at least, I sense a less nervous attitude on the part of people with respect to the banking system. I don't think the thrift problems have really surfaced very well in peoples' consciousness. Now, if FCA or some other thrift were to go belly up, we might have a different situation. But, for the moment at least, I think the market nervousness and consumer nervousness about the banking system has abated to some extent. Basically, as I look at the situation, I think we are in a pause. I expect the fourth quarter to come in a little better than the staff has projected and, as I said earlier, I think that will carry over into 1985. The wild card in all of this is the question of the dollar. And I would just like to raise at this point--if it's appropriate, Mr. Chairman--the question of how significant in our discussions today the question of the dollar should be. Perhaps we can talk about this later, but I wonder with respect to the dollar what might happen if this significant decline in the dollar [were to occur] whether this situation should be reflected in some way in the directive. I just throw that out as a point of discussion. What happens to the dollar can obviously affect these projections very, very significantly. If anything were to happen soon in terms of a marked change in the dollar, it could affect what happens in the fourth quarter or certainly in 1985. But with the exception of the dollar consideration, I would think the economy is on a pretty good track and I would be more concerned about inflation in 1985 rather than slow growth.",578
-fomc-corpus,1984,You refer to evidence of a rebound in your District in September. What is that evidence?,18
-fomc-corpus,1984,"Well, retail sales have come back in early September. Housing is back a bit more. It is still down from earlier levels, but better than the July numbers had suggested. Consumer spending generally is a little better.",43
-fomc-corpus,1984,"Well, I don't know. I heard a lot of stories about retail sales improving late in August and in early September. More recently I hear stories that they disappeared again. I don't know whether--",39
-fomc-corpus,1984,That's what I am hearing also--that they have become sluggish again after a little pickup in late August and early September.,24
-fomc-corpus,1984,"They could come back, [given] the discounting techniques to move the merchandise. I've heard [that their approach is]: Never mind what the price is; [unintelligible]; let's do something else here to move the merchandise.",48
-fomc-corpus,1984,"One of the interesting things that I find is that the retail sales reflected in the statistics are not borne out by the retailers that I talk to. We see evidence in the numbers of relatively weak retail sales, for example, yet when I talk to various retailers they say they are doing great. There is some discrepancy.",63
-fomc-corpus,1984,You must have been talking to different ones than I was talking to or I wouldn't have [unintelligible].,23
-fomc-corpus,1984,"Well, that's one thing about retailers: You can always find a retailer to support your position!",19
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"In the Eleventh District, Mr. Chairman, we are seeing some slowdown. Primarily what we see is a climate of weakness in the energy industry, particularly the processing portion. Refining and [unintelligible] actually are showing absolute declines both in employment and production. This summer drilling also declined on a year-over-year basis, although very recently there has been a little pickup there. Housing is ebbing. Non-residential construction is flattening out, and I really don't think that's too bad down our way. We do have a number of areas of strengths. On unemployment, of course, we're below the national average, which really still suggests to us a fairly tight labor market. This is borne out at our own Bank where we continue to see our turnover rate increasing. It's always fairly large, but it is picking up again. The excessive inventories in oil field equipment are being worked off and production and employment as a matter of fact are beginning to increase there. Defense contracting is helpful as is electronic equipment. In retail sales, we continue to make gains but anecdotally some retailers we talk to seem a bit pessimistic. The told me that they were getting increases of 17 and 18 percent and now it looks like 7 or 8 percent and he's not too sure what will occur as we go through the year. On the agricultural side in our District, while prices aren't that good, increased production has pretty well offset that. At least for this year, we think the District agricultural situation is not going to be all that bad overall, although it's not uniform. The drought areas, of course, are severely hurt. My bottom line is that this seems to me more of a pause right now, and I agree with those who think that maybe that's not too bad a development. I would anticipate that the fourth quarter might be a little better and that 1985--barring all these really terrible things that have been mentioned--shouldn't be all that bad.",399
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"Well, in the words of one of my associates: ""The Middle West has dropped out of the economic expansion."" But as I hear the comments, maybe we aren't the only ones to have dropped out. I think it's now clear that overall economic activity in the Middle West has been at least leveling off since the early part of the summer. Steel production is down and down significantly. Imports are taking a very much larger part of that market. The heavy capital goods sector continues to be relatively weak. One part of that sector, indeed, has turned around: Orders for large trucks, which had been very strong, have now turned around and are on the way down. Residential construction is down, the result of high interest rates. Our gains in employment rates have slowed down. Our unemployment rate is down, but it's probably more a factor of people just dropping out of the work force and not the result of higher employment numbers. Retail sales are uneven. There was a pickup during the back-to-school period. Nonetheless, the September numbers, according to what we're hearing, are again on the soft side. In the agricultural sector, the outlook continues to be relatively poor and the land values are continuing to go down. The outlook for farm incomes is not positive and that is backed up even more in the farm equipment sector where production is being further curtailed. Some major manufacturers are continuing to lay off workers. Broadly, the news is a bit more modest. I would not suggest by any of this that we are heading back into a recession. I think it would be far too early to suggest that. But certainly, at least in our area, the expansion has faded. And I think we are going to have to watch the numbers pretty carefully in the upcoming period.",352
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"In general, Mr. Chairman, I have a lot of sympathy for what Mr. Boehne said. At the same time, there is no question that the tone of things has changed. From my own perspective, two months ago I would have put about a zero probability on a fourth quarter of zero or something worse than that. I'm not sure where my own mental calculus would take me right now--maybe to the 25 percent the model has, or maybe a little less than that. But I still think the best bet, by a comfortable margin, is that we will see a pattern of economic growth emerge in the fourth quarter and in early 1985 along the broad lines suggested in the staff forecast. Having said that, there is no question that right now it's darn hard to read through the numbers. Clearly, for example, the way that imports are working their way into the economy is just off the charts in terms of our appreciation of what it means for domestic income, employment, and all the rest of it. On the other side, it's awfully hard to know what the underlying demand for automobiles is. We get reports through our directors and otherwise suggesting that the supply constraints in the automobile industry are very real and that the cars that people want simply are not available. The inventory situation is a very, very tough call. It could go either way. Again, the general attitude we seem to run into everyplace among business people is that they are being very aggressive and they are not terribly uncomfortable with their inventory situations even right now. On the housing sector, I think the general view that it's going to stand still is probably right. But there's one potential little problem there. I get the sense that these adjustable rate mortgages that were put out in such enormous quantities earlier in the year and late last year could be a potential problem in their own right that could possibly have some unsettling influences on the mortgage market, leaving aside the problems of the thrifts. The inflation outlook, I think, is clearly a plus, both in terms of attitudes and psychology as well as reality. While we may be a little surprised by the business numbers, in some way the biggest surprise is the continued very, very satisfactory showing on the inflation side, which is reflected in recent [wage] settlements as well. Just a word on the agricultural situation: The credit side is no better than it was in May; it's probably worse notwithstanding the fact that production yields are going to be pretty good. On balance, I think the credit side is probably worse. But all in all, as I said, I think the best bet by a comfortable margin is a rebound along the lines of the staff forecast. The biggest wild card by far is the financial situation, despite the progress that was made with some of the LDC debt problems and so forth. I think the real wild card is the possibility of some more uncertainties or unsettling events in the financial situation quickly spilling over into a question of confidence about dollar-denominated assets in general. It could have very adverse implications for the dollar. That would be the worst of all worlds.",622
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"I want to agree strongly with Ed Boehne. In fact, I would underline his comments by saying ""Thank goodness we have had a slowdown,"" because throughout 1983 the expansion was more rapid than we expected. We certainly didn't have in mind anything like that 10 percent increase for the first quarter; that was several percentage points above what we expected. The second quarter was also considerably stronger than originally forecast and than what we thought appropriate. Finally we have gotten a quarter on the low side. It's the first quarter I can remember in the recovery that's on the low side of the projection and it's about time that we start to see some balance. Somebody earlier was talking about putting some risks back into the situation. Well, I think that's necessary for the business situation as well as the foreign exchange value of the dollar --that there be a two-sided view as to what may be occurring. I'm inclined to think that this is temporary. Despite Emmett's comments that consumer spending is variable in the short run, I would say that there tends to be an equating of spending with income streams, and income streams are still good. So, the chances are very, very strong that there will be a recovery in consumer spending in the fourth quarter. Whether it will be as strong as the staff has projected, I don't know, but I would say the chances are good that there will be a larger increase in GNP in the fourth quarter than in the third. I'm a little more concerned about 1985. I noticed particularly the tremendous rate of increase in imports, and I think that is beginning to sap the economy. If that continues in 1985--which, incidentally, the projection doesn't forecast--we could get a considerably weaker year than has been forecast from the standpoint of domestic activity. But that's some time in the future and a lot will depend on the value of the dollar. And who knows what that may be? Just to take a figure, it may be 40 percent lower by the first of the year. Who can say where the dollar will be? I do think that our greatest threat, looking ahead over the next couple of years, is the possibility that we may find ourselves in a position where interest rates have to be substantially higher than they are now. And that's because of the thrifts, Martha, and the farmers, Jerry, and the small businessmen who have been referred to, and the LDCs, and the condition of financial institutions generally. A repetition of the 18 percent rate level that we saw before would be very, very destructive on the economy. As I see it, that need may still develop in the course of this cycle as we get farther out, and it's very important to try to keep the pressure off so that won't occur. That's the big thing we have to watch out for, and that's why I say ""Thank goodness for the slowdown!""",581
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"I feel very much the same way. Of course, I am in some way impressed by the immediate events, but we can't influence them very much. In other words, what we do now is not going to have any immediate effect even on the fourth quarter except maybe for housing. And looking at the longer run, it seems to me that inflation continues to be the main problem. I know it's boring to talk about inflation since it is finally doing so well. But really, that is to be expected. Here we are well above the natural rate of unemployment and inflation is going down, and that's what it's supposed to do. What puzzles me is that so many people expect rising inflation at a time when we have a very high level of unemployment. Maybe these expectations are [related to a view] that the dollar will go down or maybe to the fear of financial calamities. But basically we seem to be taking 5 percent [inflation] for granted. If it stays that way, then the problem is out of the way. I think we're living on borrowed time here with respect to the dollar. We don't know when it will come down. It's very unlikely to me that it will always stay at these levels. We have had remarkable wage moderation; it's hard to explain. Most expectations were for very high settlements, and surely that underlying feeling of ""restore and more"" must still be there. I am grateful to have had such good settlements. If you look at our money supply target, we have pulled that down on average 1/4 or 1/2 point at most for 1985. Nominal GNP is likely to go from about 10 percent growth to about 7.5 percent. So, if this change in the relationship of money to nominal GNP isn't going into output, maybe it will go into slower velocity but maybe it will go into higher prices. At least the makings of that are there. As I look at the outlook, I look more at mid-1985 and later in 1985 than at the fourth quarter [of 1984]. I think there's enough reason to believe that the fourth quarter isn't a cause for immediate alarm and to allow one to take this longer-run view. Thank you.",453
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Mr. Chairman, I came into this meeting feeling very optimistic because we've been able to move the economy to a slower growth mode without pushing interest rates higher than we did. I was afraid a few months ago; I didn't know what level of the funds rate would be required to slow down the economy. I have no concern about a prolonged period of stagnation, much less a recession, simply because I think the fundamental underpinnings to the economy are strong and I think the economy would be very responsive to even a modest downward movement in interest rates, which any prolonged stagnation would tend to generate. The main thing I've been concerned about in the near term is the foreign exchange market because it seems to me that there is a speculative bubble in that market. It's just like the tulip bulb mania. Whenever you see a market defying all the fundamentals, which it is doing now, you have to think the time is approaching when a correction has to be made. And, obviously, I'm concerned about the interest rate effects of a decline in the dollar. So, I think it is very fortunate that if the dollar should start declining fairly soon, it will do so in an economy that is moving ahead at a more reduced rate and the strains on the financial markets will not be as great as they otherwise would. I see that as our major problem coming up--how we respond in policy to the financial strains caused by a weaker dollar.",287
-fomc-corpus,1984,That's what we all have been saying for a year or more. Governor Gramley.,17
-fomc-corpus,1984,"I'm very much in the Ed Boehne/Chuck Partee camp. I do think something rather fundamental has happened to the basic expansion and I think we should be thankful for that. I would note again that we've been through a lot of periods of economic expansion--Jim mentioned 1976, which was one, but there have been many others--in which the growth of employment, industrial production, and real GNP slowed for awhile and then picked up again. Jim was asked what the probability of negative GNP in the fourth quarter was and he gave the answer .25. A more meaningful question in my judgment would be: What is the probability of two successive quarters of negative GNP growth? And the answer the model cranks out on that is .05, which is negligible. And that agrees with my own perception.",166
-fomc-corpus,1984,At this time? Did you have that run?,10
-fomc-corpus,1984,Yes. That's a regular output run of the model and I get the model forecast.,17
-fomc-corpus,1984,One in 20?,5
-fomc-corpus,1984,"Yes. If you look over the basic factors that have been driving the economy, and many of them have been mentioned here, they all seem to me to be conducive to continuation of economic expansion. Budget policy is expansive. Monetary policy has not been unduly restrictive--we're looking at a growth of real money over the first three quarters of around 2 percent, which is quite high by historical standards. Consumer confidence is high. Consumer balance sheets are in quite good shape--income ratios have gone up but to nowhere near where they once were. Net worth has improved recently with the pickup in stock prices. As for incentives for business investment, surely we can't expect to see 20 to 25 percent rates of real business fixed investment taking place, but profits are high, the tax incentives are still there, and capacity utilization is up. As for the inventory situation, one can see problems in some areas like chemicals and fibers, textiles, and metals, but overall inventory sales ratios are quite low. My perception is the one that Jerry mentioned--that most businesses are quite comfortable with their inventory positions. So, I think the staff has it about right. I think we will see a pickup in the fourth quarter, and if not then, we will see it in the first quarter. And then if we can see growth stay in the range of 3 to 3-1/2 percent, it's certainly going to be quite beneficial in terms of the impact on interest rates and aspects of financial markets and the problems we have there.",306
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. Focusing on our regional economy, it's not unlike what has been described in some other areas, particularly where there is a fairly dramatic division between urban and rural areas. In the urban areas, retail sales have leveled off; the housing starts, not unlike what has already been described, are falling off somewhat. On the other hand, commercial construction, particularly in Omaha, Kansas City, and Oklahoma City is booming. It started late and it will continue on for another couple of years simply to complete the projects that are underway. In the energy area, as Bob Boykin has indicated, there's been an uptick in rig count operations. In Oklahoma, Colorado, and Wyoming, the numbers are reasonably substantial as a matter of fact.",153
-fomc-corpus,1984,I thought he said the oil business was depressed.,10
-fomc-corpus,1984,"I said during the summer there was an uptick in Texas; the actual rig count was still down a little in New Mexico and parts of the country he's talking about. There have been rather substantial increases over the last month and we have begun to get a little uptick even in Texas. But comparing now to a year ago, it's still down a little.",72
-fomc-corpus,1984,"I think our numbers would reflect something modestly different from that; the uptick compared to a year ago would be somewhat greater than Bob has just described. In auto production, they are working very near capacity on the auto assembly lines. Aircraft, on the other hand, is almost a dead industry at the moment. They can't sell aircraft, particularly business aircraft. That is one of the things that businesses apparently defer and there's an overhang on the market of used aircraft. And that's rather an important part of our industry in the Tenth District. The agricultural scene is not unlike what already has been described. It's bad now and the prospects of it getting better any time in the near future are not bright--non-existent as a matter of fact. Russian grain sales are taking place now, but they're taking place in [the context of] an inventory overhang and as a result the prices do not reflect it nor does it pass through to the producer. And that, of course, has a continued impact on the financial side; the agricultural banks are sort of hanging on. The question is what they will do with collateral that supports those loans when the loans cannot be serviced--interest cannot be paid. As a result the best estimate is that if there is a bottom to be reached, it won't be reached until perhaps the first quarter of 1985. The question of what will happen from now to then is uncertain. But I think it should be important to this Committee to understand that unless we have a dramatic decrease in interest rates there will not be any salvation for the agricultural sector. The current rates, or modestly lower rates, will not be an answer to the financial problems in the agricultural sector. With respect to the staff forecast, I would agree with Ed Boehne and others who have expressed the view that we ought to be happy with the slowdown. As I look into the fourth quarter and particularly into 1985, I have some question about the staff forecast in that I think the economy will be somewhat weaker than they forecast. In the numbers that they used, retail sales are very important; auto sales, for example, are extremely important in 1985. The staff is looking at an 11 million unit rate for auto sales in 1985. The fourth quarter of 1985, for example, is in the area of 11.2 million--greater than any time in 1983. That suggests to me that if there is any retrenchment because of problems in the financial sector or otherwise, that forecast is more expansive than I would feel comfortable with. With respect to the dollar's strength, it's anybody's guess. But as it relates to inflation it would seem to me that so long as the dollar is strong imports are strong, and we could look at lesser real growth and lesser inflation and, thus, the forecast for nominal GNP in the period ending in the fourth quarter of 1985 would be somewhat less than the staff is projecting.",598
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"Mr. Chairman, in the Eighth District, economic activity is still strong--I think a little stronger than the national average--but we are clearly seeing signs of a slowdown. Building activity is high but housing starts are declining. Builders are comfortable with where they are but are worried about what will happen in the fall and generally are anticipating that the high interest rates will severely and adversely affect them. Consumer spending is strong in our District; sales of consumer goods haven't really slowed down. We have gotten a lot of information from national retailers that sales, after flattening out in the summer, picked up in late August or early September and, as I said, have become sluggish again. Locally, there is less of that sluggishness. Except for in the northern part of our District, the agricultural situation has improved; there is some reduction in the financial pressures that the farmers have been feeling for the last two years. I made a comparison here of weak points and strong points and what I ended up with is that the same industries and the same activities are on both the weak and the strong side. For example, in agriculture we have a very weak situation in northern Missouri. In the case of soybeans, it costs more to produce them than they can be sold for at the moment even though we are getting a lot of production --in the area of 50 bushels an acre. The value of the dollar is an adverse factor in exports, and cotton and rice are export crops in part of the District. On the other hand, they have the biggest production in history--greater than 1982. So, how that will come out is a close call in terms of the effects on them. Construction is at a high level but the outlook is for a weakening. In production, generally we're at a very high level. Automobile sales are characterized by the major dealers as red hot. They can't handle the demand, particularly for some of the larger cars. So, that looks good. On the other hand, we've had some plant closings in the District. International Harvester, a producer of farm implements, just closed a plant with 1500 workers; a small foundry closed; we saw the first AT&T effect in telecommunications with a small plant closing. In terms of the confidence factor, there is considerable concern about the thrifts. I had an interesting coincidence of three visits in the last two weeks by bankers who are concerned about the condition of thrifts. Now, why they are [concerned] may be a product of industry discussions, but they foresee major failures without identifying them. As I talk to the thrift people, they are concerned about the negative interest arbitrage but they haven't seen any deterioration in quality, including in the variable rate loans. The consumer's confidence is reflected in our District in rising consumer loans; the consumer is still borrowing. All in all, what I see is a slowing at a high level--not a lot of imbalances around that we could really do anything about. Agriculture is an example. There is some effect of the high dollar, but no big inventory problems that haven't been resolved. Our expectations are that nationally we'll probably see a continuation of about 3 percent growth next year but with inflation rising, probably on the order of 5-1/2 or 6 percent.",668
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"As for business conditions in our District, the anecdotes would support an economy that is levelling off but not declining. And we would view that as basically a good development. I would like to comment on inflation. A couple of speakers have commented on it and, in my opinion, it is an ongoing problem. There is, of course, a good side of this. We hear a number of anecdotes on productivity as well in our District--that it may be increasing and there may be some significant changes. On the negative side, leaving off fiscal policy from the discussion and turning to the exchange rate, I think there is a genuine concern that if the exchange rate were to be reduced significantly, that would show through to prices very quickly. In the Cleveland District we have a large number of the types of firms that are finding themselves subject to import substitution. And it's that pressure that has kept their margins in an area where they are just completely uncomfortable with them. They are just waiting for the moment to move [prices higher]. We hear many, many stories of these types of firms being poised to move the instant they can. So, that adds to my concern about inflation as the longer-term problem.",239
-fomc-corpus,1984,"Does anybody else want to comment at this point? Mr. Griffith, if you want to, we'll give you 30 seconds.",26
-fomc-corpus,1984,"Well, I can't add anything other than to say that we support the Ed Boehne concept. We think things are going really well. There's nothing wrong with sitting here right on target. Our staff forecast has, as does the Greenbook, fourth-quarter growth more in the 4 percent range. And we're optimistic about 8 percent nominal GNP growth next year. I would only add to two things that have been talked about earlier. In our District we also have agricultural problems, and I concur with Roger that these problems are going to show up in the first quarter of '85 and later. And, of course, the thrift industry problems--and it seems we must have half of them, all arising at one time--are, as I think Jerry pointed out, in fact causing great concern in the financial community. Bankers are huddling for strange reasons. They have strange views about borrowing; they have strange views about a lot of things; and they're very nervous about the thrift industry.",201
-fomc-corpus,1984,"Maybe you can give us a quick recital, Mr. Axilrod, and we'll [have coffee.]",21
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,"I might say that I don't have all these figures precisely in mind, but the latest indications on the money supply suggest that September is going to come in lower than was assumed. And the quarterly figure for June to September will be in the neighborhood of 2 percent or a little more, right?",59
-fomc-corpus,1984,It will be below 2-1/2 percent and could be as low as 2 percent. The numbers are variable.,26
-fomc-corpus,1984,October will start off appreciably below the September average. It's rather a very sluggish ending. The other figures for the 3 months are without any clear change.,32
-fomc-corpus,1984,"That is, growth from June to September would be 2 percent instead of 2-1/2 percent?",23
-fomc-corpus,1984,"September could be as much as 1-1/2 points lower than we had, so that takes off 1/2 point for the quarter.",31
-fomc-corpus,1984,I see.,3
-fomc-corpus,1984,"It may be worth pointing out that reserves have done nothing over the summer. A question was asked about the dollar earlier, and I'm not going to deal with all the questions of what happens if the dollar declines because I don't know. I've been worried about that for a year and it hasn't happened yet. Instead, it has been going up and going up very rapidly recently, as you know. That is a factor in my thinking at least. I suggest that something is the matter here in terms of some notion of longer-term equilibrium and is a factor in the business picture and, as I indicated earlier, a source of some alarm abroad. I certainly put that in my thinking as a factor to supply more reserves rather than less during this period. That factor alone is not the only factor, but I think at this stage it is not an insignificant one. Well, with that much introduction, who would like to say something?",184
-fomc-corpus,1984,"It seems to me that we ought to maintain the present borrowing level of $750 million. I do think it's worth commenting here, though, that I've been surprised that you have brought borrowings down from $1 billion to $750 million without any consultation with the Committee. Even though I think that was the correct thing to do and a certain amount of discretion is indicated in the directive, it seems to me that at some point you would want to check with the Committee to make sure that others share that view on how to use that discretion. The question could arise again, possibly, over the next few weeks: If we were to start with a borrowing level, let's say, of $750 million, at what point would you feel that you should check with the Committee if both money and the real economy turn out weaker and, therefore, you were reducing the borrowing level or increasing the nonborrowed reserve path? Turning to the decision for today, I'd start from the assumption that even though there may be weakness in the fourth quarter, that just does not mean an incipient recession. It seems to me that we already have been perceived in the markets as being fairly aggressive in easing and I think we ought to be somewhat cautious, particularly between now and the election period. Unless there are very clear economic reasons to do otherwise, we ought to continue to be fairly cautious rather than move toward a pronounced easing. As far as the targets go, alternative B strikes me as fine. I would leave the funds rate range where it is. There is one last point: It's not too likely, but if we were to get a restoration of confidence in the banking system in a way whereby the management of these banks began to follow a somewhat less cautious policy in reserve management, then with a borrowing level of $750 million, we might find fed funds dropping to as [low] as, say, 10-1/4 percent. And a question I think the Committee ought to consider is: Do we want that much of a drop? If this contingency were to arise--though I don't think it will--would we want to see that much of a drop? There could be an understanding that the Chairman would be in touch with the rest of the Committee at that point.",452
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Well, Mr. Chairman, I would support alternative B with the understanding, as during the last period, that the borrowing limit could be lowered if the aggregates come in extremely weak. But I think an 8 to 12 percent fed funds range is no longer appropriate. When interest rates were moving up, the lower end of the funds range didn't have much relevance. When they start moving down, then it seems to me the lower limit becomes the more relevant one. And to me an 8 percent lower limit is simply too low, certainly at this juncture. I would hate to see us make the sort of mistake we did in 1981 of pursuing vigorously an M1 that was showing some weakness and pushing rates down and getting an enormous surge of response from the economy again. I think that would be very unfortunate. It seems to me that we need to probe down on interest rates and not let them move down too sharply.",187
-fomc-corpus,1984,What are you referring to in 1981?,10
-fomc-corpus,1984,"Well, in '81--",6
-fomc-corpus,1984,In '80 when we had an 18-1/2 percent funds rate in June.,19
-fomc-corpus,1984,"That was an entirely different situation. A drop in the economy and the money supply decreased [unintelligible]. It was a mistake in retrospect, but I don't think we have anything like that now.",41
-fomc-corpus,1984,"The context is different. What I'm trying to say is that I don't think in the present context we ought to vigorously pursue a sluggish M1 if it means pushing interest rates down very sharply. And, therefore, I think it would be a mistake to have the directive give the Manager leeway to move interest rates down that far. I would suggest a 10 to 12 percent range on the funds rate as being much more realistic, and that would require the Committee to make another formal judgment before we went below ten percent.",105
-fomc-corpus,1984,I would just like to point out that even alternative A contemplates a funds rate no lower than 10-1/4 percent.,27
-fomc-corpus,1984,"Well, assuming that the aggregates come in that way.",11
-fomc-corpus,1984,It just seems rather silly to me in this situation to have a number as low as 8 percent when the lower limit is the relevant one.,29
-fomc-corpus,1984,You say 8 percent. This is a piece of the framework that I hadn't even considered--that the funds rate might be down around 8 percent.,31
-fomc-corpus,1984,Or even 10 percent. I would have problems with 10 percent in the next few weeks. I assume you would.,25
-fomc-corpus,1984,"I'm not sure I would have a problem with 10 percent, but certainly anything below 10 percent I think would be a little precipitous right now.",31
-fomc-corpus,1984,"It's a question of what kind of signals we want to give. After all, we're very close to the 12 percent and we're nowhere near the 8 percent at this point. Governor Martin.",39
-fomc-corpus,1984,"Mr. Chairman, I think that the growth in M1 and the growth in M2 over the last 4 months or so deserve some underlining here. The lack of growth in the monetary aggregates and the flat configuration of the curve of reserve growth argue, as one of our colleagues here indicated, for probing in the direction of restoring M1 and M2 to a somewhat higher configuration over the next weeks. It also seems to me that the slowing of the economy's rate of growth and the uncertainty with regard to nondefense capital spending suggest a probing in that direction. I would join Governor Gramley in his assertion that a 25 percent annual rate of growth of capital spending is not appropriate at this stage of the cycle, but I would also point out that we've had some minus figures in the nondefense capital area for two months and that the purchasing agents indicate strongly that this continued for a third month in September. I'm not sanguine that the consumers are going to come back that quickly. On top of the rationale stemming from the aggregates and from the reserve growth pattern you add the high uncertainties with regard to a possible growth recession--whatever that is--in the fourth quarter or the first quarter or both. We can certainly have two quarters of very, very low growth with the implication that says to the Congress when they come back--after all, we're talking about policies that will have some impact four or six or eight months from now just at the time when the Congress is back--and the question of taking some responsibility for fiscal policy is in the offing. If we have 1 or 2 percent real growth at that time, what prospect is there for some degree of responsibility for fiscal policy? And finally, it seems to me that the behavior pattern that Steve described with regard to borrowing, with regard to fed funds provision, and with regard to excess reserve positions on the part of the banking community will probably be reinforced. This aberrant behavior, if you will, that has kept the fed funds rate where it is despite almost daily intervention by us, despite the reserve position, and the borrowing position of the banking community, is going to be reinforced by the bad news that's going to come out of commercial banks and thrift institutions instance after instance. And we know this bad news is coming and that it is certainly not going to build confidence. It seems to me we should probe from the current level of $750 million of borrowing, from the current 11 to 11-1/2 percent level of fed funds, and from the current level of excess reserves carefully down toward the levels specified in ""A."" In other words, I recommend we start at the current levels and move very carefully toward ""A,"" consulting as you will with this Committee, Mr. Chairman. But, certainly, a $600 million level of borrowing is not out of the question; and if it takes a $500 million level of borrowing to get to that 10 to 10-1/2 percent range for fed funds, then so be it. A third reason for probing and moving in that direction is, of course, the dollar situation, which has been thoroughly discussed here and which is giving our central banker colleagues in Europe and Japan difficulties. To me, the aggregates, the economy, and the dollar argue for a careful probing movement in the direction of whatever it takes to bring the rate down in the direction of the level specified in ""A.""",689
-fomc-corpus,1984,But not necessarily the money supply numbers specified?,9
-fomc-corpus,1984,But not necessarily the money supply.,7
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. Tony Solomon has stated a position that I would like to join, with just a modest change for maybe different reasons. Rather than adopting ""B"" as proposed in the Bluebook at a 6 percent M1 level--and I'm not talking about either M2 or M3 or the federal funds range--I would prefer that the Committee adopt a shading toward ""C,"" to the 5-1/2 percent level, the same level we adopted for the third quarter. In other words, as the record is published it would reflect that there has been no change in the objective of the Committee with respect to money growth. The difference, obviously, is that we did not achieve 5-1/2 percent growth in the third quarter, but only 2 percent on a quarterly basis. It would give us the latitude to move down. My concern is, much as what has already been expressed, that the fed funds rate range have some flexibility in it but that within the next six weeks there not be any major move to a lower level. I think the chance of moving to lower interest rate levels is quite likely consistent with the comments that I made earlier in that I don't believe that the economy is going to be quite as strong as the staff is forecasting for the fourth quarter. I think we'll see some easing. But for the record I would like to see us re-adopt the same money targets that we had in the third quarter and try to achieve that 5-1/2 percent growth for M1.",312
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"I like the specifications of alternative B. I would neither want to raise the M1 number above 6 percent, which I think is a good center number to have in mind, nor to reduce it, especially following on the shortfalls that we already have had, which I think would signal a more restrictive stance. I like the specifications and I would leave the funds rate at 8 to 12 percent. It comes as somewhat of a shock to me that anybody would consider the 8 percent a relevant number. I see the point about not going to 8 percent in the short run, but I think the public relations effect of raising it from 8 percent to 10 percent would be too difficult for us to deal with, so I wouldn't do that. Now, I must say that I don't think there has been anything very aggressive about monetary policy in the last 6 weeks when you remember that we are significantly--significantly by several points--short of the targets we set just 6 weeks ago for the third quarter. We are three points short in the case of M1, 2-1/2 points or more short in the case of M2, and 2 points short in the case of M3. I'm surprised that policy didn't flex more toward an easier money market stance than it did over this period. So, far from wondering why there wasn't a conference call to see whether we should go that far, I'm wondering why there wasn't a conference call to see if we should have gone further in this period than we did. As I said, there's nothing wrong with these targets, but the trouble is that our most recent record is that we don't meet the targets. It may be that we will meet them readily or it may be that we won't meet them readily in the quarter to come, since we have just received this news about M1 perhaps falling even further short.",381
-fomc-corpus,1984,Please remember this is Tuesday and borrowing on Wednesday--,10
-fomc-corpus,1984,"Well, I know. That's why you're proposing Wednesday meetings, which is a very good reason for Wednesday meetings. But I am remembering that it looks as if we are going to have a shortfall [in M1] and it might carry through into M2 also; I don't know. I've been a little unhappy about an initial borrowing level as high as $750 million and it strengthens my view that we ought to cut it to $650 million to start with. I see nothing wrong with a 10 percent funds rate, although I guess I would have to agree that if it goes significantly below 10 percent for a period of time, that signals something new and I would want to talk about it before it got below 10 percent. But if reducing the initial borrowing number to $650 million happened to give us [a funds rate] moving down toward 10 percent, I wouldn't be at all concerned about it. Maybe that's the problem we're going to have, Mr. Chairman: that we all will choose alternative B but we all will have different ideas as to where [that may lead].",219
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Thank you, Mr. Chairman. Looking at the GNP I'm a bit more optimistic than some of the comments that I have heard. I think the third quarter may very well wind up stronger than the 2.7 percent that the staff has projected and that the fourth quarter, and indeed most of 1985, will be a little stronger as well. Also, I think the money supply is about where we want it, notwithstanding some of the recent weakness. There, too, I think we will have a bit of a rebound, as suggested by the Bluebook. So, the policy consideration that flows from those hypotheses would indicate to me that a status quo policy is appropriate, and for that reason I would opt for alternative B with a borrowing level at $750 million. I think it would be appropriate for consultation to occur if the fed funds rate were to drop below 10 percent. I have some sympathy with the remarks that were made earlier about the range of the fed funds rate. I really don't know what 8 percent means except for public relations purposes, but it doesn't seem to me to be very relevant in this environment. If the dollar were to surge again, I would assume that that would cause a different policy direction, and again perhaps a consultation would be appropriate. Mr. Chairman, the question that I raised earlier about the dollar in terms of any significant deviation upward or downward really went beyond consideration of policy at this meeting. I have a concern that we're all expecting at some point some decline in the dollar--and hopefully it would not be a precipitous decline--but nobody really knows and nobody knows when it's going to come down. I suppose we could say we'll have a winner one day--that it probably is going to come down. The question in my mind is: Is anyone looking at what our response should be if there is a precipitous decline or do we deal with this on an ad hoc basis? Maybe some planning is going on that I'm unaware of, but I raise the question of whether there is a contingency plan and, if not, should we be looking at some kind of contingency plan.",426
-fomc-corpus,1984,"Well, if you specify the conditions that you are imagining, I will develop a contingency plan.",19
-fomc-corpus,1984,I don't know what the--,6
-fomc-corpus,1984,Neither do I. That's the problem.,8
-fomc-corpus,1984,[Unintelligible.],6
-fomc-corpus,1984,The Secretary of the Treasury takes care of it.,10
-fomc-corpus,1984,"Well, two things occur to me: One is intervention and one is a change in policy.",19
-fomc-corpus,1984,"I don't know what the conditions would be. I suspect it will go down some day. I don't know whether it will be in 1984, 1985, or 1986. I suspect when it comes down it will come down precipitously. You tell me whether the economy is vigorously expanding at that point or whether it's weak and what the inflation rate is then and what the budgetary situation is and I would be glad to develop a contingency plan. But I named three variables, none of which I know about at this point, and all of which would affect my contingency plan.",119
-fomc-corpus,1984,"Well, I guess if I were doing it, I would lay out various scenarios.",17
-fomc-corpus,1984,"Well, I invite anybody who wants to engage in that exercise to engage in it. Mr. Black.",21
-fomc-corpus,1984,"Being more confused than usual about the economic outlook, which is a state I imagine most people around this table find [themselves in], it's hard to contemplate but I didn't say very much during the first part of the meeting. [Unintelligible] Boehne, Partee, and Gramley axis, for lack of a better term. But I think a point that Henry made does deserve stressing and that is that if we are fortunate enough to get the 4-3/4 percent inflation rate that the staff is projecting for next year, that would look good only in relation to the late 1970s and early 1980s; in any other time that would have been considered a major economic problem. So, in formulating our short-term objectives, I think we need to keep that longer-term objective in mind and try to hit our targets for what would be the 18th month in a row right on the button. If we could come out near the midpoint of the target, I think we would do something that would be very beneficial from the standpoint of the whole economy. To get to the bottom line: Like Chuck, I would go with all the provisions and specifications of ""B."" Unlike Chuck, though, with M1 growth picking up in September albeit not as much as I thought, given [the report] this morning that it's apparently somewhat more elastic with respect to interest rates than we thought earlier, I think it's unlikely that we've seen the full response to this decline in the fed funds rate that we had earlier. So, I would be inclined to let it sit there for a while or maybe move it down a tad at most and then wait and see what happens.",344
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"I would buy the specs of ""B"": $750 million on borrowing, 6 percent for M1, and leave the fed funds rate range where it is. Basically, I want to try to stay where we are. I would agree with Chuck that what we have done couldn't be considered aggressive easing, but I think we have eased significantly. The principal concern on my mind is that if I'm right and the staff is right on the outlook, the greatest danger at this point is that we might inadvertently ease too much, which would then give rise to the need for higher interest rates later. In this connection, it seems to me that none of us knows for sure whether or not this pause, if it is a pause, is going to continue through October or through the first part of November or exactly how long. That may mean that we're going to be looking at some rather weak money numbers for a while and I don't think we ought to panic. We ought to move gingerly toward a lower level of adjustment borrowing, if that's necessary. I would be quite reluctant, for example, to see us move down to $500 million, given that we've moved to $750 million within the past few weeks.",241
-fomc-corpus,1984,Governor Rice.,3
-fomc-corpus,1984,"Well, Mr. Chairman, I agree pretty much with what Pres Martin said. It seems to me that all of the recent developments point to a need to ease monetary conditions somewhat--the behavior of the aggregates, the level of the exchange rate, the level of the dollar, and the outlook for inflation. Hardly anyone expects an inflation rate next year above 5 percent. The consensus outlook among economists, as I read it, is between 4 and 5 percent. We ourselves revised our inflation forecast down. So, from almost everybody's point of view, the outlook for inflation is improving and is much better than it was just a month or so ago. If you add to that the condition of the thrifts, I think this is a time when we could reasonably hope for a somewhat lower level of interest rates. I think the case is as strong as it has been in recent years for some easing. Call it a probing easing if you like, but I think we ought to try to ease some. Now, the good thing about the present combination of circumstances is--at least it seems so to me--that we can do it with very little risk. If the economy surges in the fourth quarter or early next year--we expect it will not, but if it does--we are in a very good position to reverse without any damage to the economy to speak of. So, it seems to me that we can at this time think very much in terms of reducing the reserve pressures somewhat. I would go for a position somewhere between alternatives A and B, although Governor Partee's specifications for alternative B are very close to what I would be willing to go along with. We could call it ""B"" with Governor Partee's specifications. But I would like to see a level of borrowing around $600 million and I'd leave the funds rate range pretty much where it is.",379
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Mr. Chairman, in my view, it's a little premature to try to do any further easing right now. The status quo has a lot of appeal to me. Therefore, alternative B as specified in the Bluebook, with a $750 million dollar borrowing assumption, would be very acceptable to me.",60
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"I would go along with the specifications of alternative B, including an initial borrowing level of $750 million. However, it seems to me what is really crucial in this decision is how we--how you, Mr. Chairman--respond to incoming information over the next several weeks. I would respond more quickly to a continuation of weak aggregates and a weaker economy than I would the other way around. So, if we got surprised with stronger aggregate growth or a stronger economy, it would take more evidence to respond than it would if they continue to be on the weak side, just simply because of the accumulation of information that has come in on the weak side. With this kind of approach, we are more likely to end up a month from now with lower rates than we have now, but I think it would depend on incoming information as we proceed through the period, much as has occurred during the last 6 or 7 weeks.",185
-fomc-corpus,1984,"Would you change ""would"" to ""might"" to have an asymmetrical directive?",17
-fomc-corpus,1984,"Well, I suppose that is more literally what I'm saying. I could live with a symmetrical directive as long as we had a slightly asymmetrical interpretation.",30
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"I would take the specifications of ""B"" as is, with borrowing at $750 million. That view is partly conditioned on my view of the economy and partly conditioned on my thought that the trajectory we are facing going into 1985 with money growth is important. It's also based on a belief that if incoming developments did warrant some further easing, we could get a pretty quick response in the real economy. On that I happen to agree with Frank Morris. But it's also based on not very scientific observations that suggest that the law of averages with regard to the money supply is now working against us. We have gotten surprised on the down side for several months running and I have this fear that one of these months, for no necessarily obvious reason, we could have a big surprise on the up side. And, in that kind of circumstance, I think there is a very great risk of interest rates moving down much too fast--the risk of the whipsaw effect. I'd hate like the devil to find ourselves in a position later this year or early next year, for whatever reasons--the economy, money supply, the exchange rate--where we had to reverse quickly. Indeed, I would argue that that might be more damaging to the thrifts than staying where we are in the intervening weeks and months. So, I do see a real risk of a whipsaw effect that could be very damaging if we get too far out in front of this thing. I'd like to think that there was something that could be done with open market operations to facilitate a soft landing of the dollar, but I guess I don't. I do have an open mind as to what kind of contingent language, symmetrical or otherwise, might be in the directive that would permit some further reduction in the borrowing level if the economy and so forth warranted it. But I would be very much on the side of a gingerly response rather than any very aggressive probing. I would draw that distinction.",392
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"Well, I would go with Alternative B. I'm puzzled by the behavior of the aggregates. There has been more than the usual variation in very short-run velocity. I know that short-run velocity doesn't mean anything, but it is puzzling to observe the ups and downs over the first half. So, the specifications seem all right to me and borrowing of $750 million seems all right to me. On the funds rate, I would like to put a lower limit on it. I recognize that doing this in the public record might have adverse repercussions. For instance, it might affect interest rate expectations adversely. So, perhaps we could have an understanding that we would have a telephone conference. As for symmetry, I would prefer to stay symmetrical.",147
-fomc-corpus,1984,Miss Seger.,4
-fomc-corpus,1984,"I'm leaning toward the A alternative, with my first reason being the performance of the monetary aggregates in the third quarter. When I look at what the various alternatives are expected to produce in the way of monetary growth in the fourth quarter and for the 12 months in 1984, it looks as if even with alternative A the results would be within the longer-run targets with the exception of M3, which would be just outside by a very small amount. Also, as I mentioned earlier, the economy is definitely slowing. I don't believe we are heading straight for a recession but I think there has been a significant slowing. I happen to agree that it's going to continue to be on the moderate side of the spectrum and that would suggest that some easing, as in alternative A, is appropriate. To repeat what a number of people have mentioned, the strong dollar is a consideration here and I hope that we can do something to maybe at least stop its strong advance. Finally, I repeat my continuing concern about the thrifts and the health of the financial system in general. When I look at where the fed funds rate would likely go based on alternative A, as I read the statement here, it looks as if it would go somewhere between 10-1/4 and 10-1/2 percent; and I don't see that as a precipitous drop in interest rates. Maybe it's my bias, having seen a lot of volatility in interest rates, but from where the fed funds rate is now I would say that's on the modest side. Also, I am thinking of the signals that we sent to money market participants this summer when many of them assumed that the Fed had in fact tightened. I don't remember sitting here and voting for tightening. [That was] the conclusion that many of them drew from asymmetrical language. Consequently, I think we got an upward movement in the fed funds rate that in fact exceeded what we were talking about here at the time--at least what I thought we were hoping for. Having said all that, I would prefer to go with some easing and in general what is shown here in alternative A.",426
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"I would prefer that we use alternative B but make certain that we do everything possible to accomplish the M1 growth projected for the fourth quarter. I think the recent experience has demonstrated that when we have too many targets we can get inconsistencies in borrowing and interest rates and money and it probably is too big a pot. I would concentrate on money and if that caused us to lower the borrowing level or lower interest rates in order to accomplish that, I would be in favor of that. It seems to me that we have a broadly based economic expansion that has reached a high level and is turning a little sluggish but still doing all right. Price [increases] have slowed down. Interest rates have come down significantly. And we're dealing here with lags. What we have at the moment reflects the past monetary growth and what we do now will affect the future. And contrary to what Emmett mentioned, my observation is that people at the Conference Board, Chase, DRI, Morgan, and Citicorp, all are looking for 4-1/2 to 6 percent inflation next year in the projections that I see. And that's the range that I see also. We're right in the middle of the ranges on the money supply and I think we ought to try to stay right there.",257
-fomc-corpus,1984,"The Association of Business Economists, an organization of 200 people, is looking for an inflation rate somewhere between 4 and 5 percent. I also noticed yesterday that our shadows expect an inflation rate between 3 and 4 percent.",48
-fomc-corpus,1984,It's a little dangerous that they said they were content with policy!,13
-fomc-corpus,1984,"They also said that underlying policy is consistent with 6 to 7 percent inflation and that unless we bring money down, we might get worse results.",30
-fomc-corpus,1984,"And they were talking about 10 percent [on the funds rate] by the end of this year, weren't they?",24
-fomc-corpus,1984,I also heard that they approved what we have done this year.,13
-fomc-corpus,1984,That's what it said in the paper. Mr. Griffith.,12
-fomc-corpus,1984,"Mr. Chairman, the Twelfth District supports the specifications of ""B"" and very much what Ted just said and what Bob Boykin said. We think it's premature to make any change right now. We don't [know] exactly where the stop point is. And the point that Jerry Corrigan made our staff thinks is very important: that if [rates] were to go down too much too quickly, we could find ourselves starting off 1985 with the whipsaw effect. And for that reason we feel very strongly about the specifications of ""B"" as written.",115
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"For reasons that have been well stated, I think alternative B would be the most desirable alternative at this point. Clearly, there has been a moderation in the rate of economic growth. I think there is a disagreement around the table as to whether or not we are headed toward a more negative environment or indeed just down to a more sustainable rate of growth. But it does seem to me that from a monetary policy point of view, things are lined up awfully well at this point and the fundamentals are really right and that it would be premature to be making any kind of significant change. We are in a period where we would want to watch it pretty carefully but, fortunately, we have another meeting coming up in a fairly brief period of time. As a consequence, at this meeting alternative B seems to me to be the most appropriate alternative with borrowing of, say, $750 million, but I'd have a high element of flexibility on that borrowing. And I would attempt very hard to achieve a growth rate of M1 in the 6 percent area.",209
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"I support alternative B and I share very strongly the concerns that Jerry expressed and that were expressed by some other people around the table. Maybe I will just state it in a slightly different way. I would not like to give the market the wrong signal through borrowing and the fed funds rate. Now, if I only knew what the wrong signal was--.",70
-fomc-corpus,1984,Exactly. We could all share that.,8
-fomc-corpus,1984,"But, since I don't, moving slowly seems to me the best approach. And I would support ""B.""",22
-fomc-corpus,1984,"Well, I think you have identified the right question. There is clearly a strong consensus for ""B"" with a couple of exceptions. That is not surprising when we are talking about numbers for the money supply, which look nice. Most people have suggested not changing the fed funds rate [range]. That sounds right to me too; I don't see how we can raise the lower limit without getting peculiar interpretations. I thought we had a very full discussion at the last meeting of what to do in terms of contingencies and I must say I don't ever remember being in a position [during an intermeeting period] when every indicator that I looked at appeared to be in the same direction and neatly fit the directive for moving down. Whether I looked at M1, M2, M3, reserves, the exchange rate, the economy--what else have I left out here?",174
-fomc-corpus,1984,Prices.,2
-fomc-corpus,1984,"Prices--except for that last consumer price index number. That was the only fly in the ointment. But the producer price index and everything else seemed to fit exactly in a contingency that we considered and discussed at some length at the meeting as to how we would react under those circumstances. The one thing that was really surprising and added a little edge to the way we operated was the exchange rate. One could have argued that we should have been a little more aggressive in our monetary policy [response]. At least that's my thinking. In any event, that's behind us. We seem to have votes for ""B,"" which I interpret as including both the funds rate range and the aggregates. There are some differences of opinion on how that is to be dealt with. I would remind you of what Si Keehn just said. We meet again in 5 weeks; it's a relatively short period of time. I didn't hear anybody talking about a higher borrowings number. Some people were talking about a lower one and a number of people were talking explicitly or implicitly about not being too slow to move lower, if the evidence suggests that. Someplace in this area we ought to be able to reach some kind of consensus operationally. I don't like the directive as Mr. Sternlight and Mr. Axilrod wrote it, I must say. It starts out by saying policy is unchanged. I'll be more correct in my words; it says the ""implementation of policy has been unchanged"" when it obviously was changed in the last month. If we were to read all of our directives in succession, they would never say anything was changed, although in fact they were changed.",331
-fomc-corpus,1984,That's traditional.,3
-fomc-corpus,1984,"Well, I recall we had an argument about this once before. But it seems to me that the first sentence ought to acknowledge that we have somewhat less pressure on reserves than we did at the time of the last meeting [when we adopted a directive] that said no change unless something happens. Well, something happened. That's a more or less technical point. The real question is what we do thereafter. I certainly share the view that some have expressed that if things continue coming in on the low side and/or the exchange rate continues very strong, we shouldn't be very reluctant to ease further in the kind of range that has been discussed here. I, myself, am somewhat indifferent as to whether or not we do that right now. I don't think it is necessary [to take action now]. We have a very peculiar technical situation now where the funds rate is very high--and borrowings have been very high just in the last few days--relative to what one would think it would be with this borrowing level. The actual borrowing level we're going to publish is going to be way above our target. It's going to confuse people. And we are looking toward a great excess of reserves later in the week that may or may not be reflected very promptly in the funds rate. How we will handle that I don't know, but we are well above any borrowing number--about twice--that anybody has been talking about for the first week of this two-week period. And getting it down to any of these borrowing numbers in the course of this week is inconceivable. It would have to go to zero right away. So, during this period, we're going to have a much higher level of borrowing than any of these numbers we are talking about. Whether there was anything that could have been done about that, I don't know, but it's too late now. We are going to start off the first week of this five-week period with a very high level of borrowing relative to what we're presumably aiming at, which may mean that the funds rate temporarily will go quite low later in the week. In that case we obviously will be selling--not necessarily this week, but later in the two-week averaging period.",437
-fomc-corpus,1984,Is this the first week of a two-week period?,11
-fomc-corpus,1984,"Yes, this is the first week of the two-week period. Just as a guess, the funds rate isn't going to decline all that precipitously later in this calendar week but the banks may have such an accumulation of excess reserves by the early part of next week that it may plunge. And they will be even further confused by what we're trying to do. I have my doubts about these two-week averaging periods the more experience we have with that; the banks don't seem to have a very good idea of where the funds rate should be and it moves all over the lot.",114
-fomc-corpus,1984,Maybe we should go back to lagged reserve accounting.,11
-fomc-corpus,1984,I don't know how much that affects it. It may be that the contemporaneous reserve accounting makes them so much more uncertain about their reserve positions that it contributes to it. It may be a combination of the two.,43
-fomc-corpus,1984,[Unintelligible] uncertainty.,8
-fomc-corpus,1984,"In any event, in substance I will attempt to interpret what people are saying or some mean of what people are saying. We start where we are, or close to where we are, and are pretty prompt to move lower if the money supply weakness is further confirmed, if the dollar is strong, and if economic weakness is relatively further confirmed. All these signals would have to be pretty strong to carry us to borrowing as low as $500 million, I think, but not so strong to carry us down to $650 million or $600 million. The signals would have to be clear, but not extreme. Before I talk about language, how does that sound?",132
-fomc-corpus,1984,"I for one would repeat my own concern about moving too far too fast because I don't think we know when the economy is going to start picking up again. I thought I heard a fair number of people share that concern; maybe not. There were a number of people who were worried, as I am, about the possibility that if interest rates come down too much and if the economy then recovers rates would go bouncing back up again. And that's not a desirable development, in my judgment.",98
-fomc-corpus,1984,"Well, what we want to examine is how much is too much too fast. I would remind you, we now have a borrowing level that is down by $250 million, presumably, in terms of the previous target, with the fed funds rate as of the last few days down practically not at all. A lot of other things are going on. I don't know what you're thinking of. Putting it in terms of interest rates is easier to describe.",90
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,I don't have in my mind a 10 percent funds rate at this point.,16
-fomc-corpus,1984,"I don't think we are talking about very much, Lyle.",13
-fomc-corpus,1984,"If the funds rate were to get down into the 10-1/4 to 10-1/2 percent range, I wouldn't be acutely uncomfortable. If it gets down to 10 percent, having been up to 11-1/2 percent only a few weeks ago, that just seems to me to be too big a move.",71
-fomc-corpus,1984,But the 11-1/2 percent was an aberration to a considerable degree.,18
-fomc-corpus,1984,"Well, yes, except it stayed up in that 11-1/4 to 11-1/2 percent range for quite some time. To go down more than a full percentage point in a matter of 6 to 8 weeks--.",51
-fomc-corpus,1984,"Well, nobody knows. And we get daily fluctuations in the numbers; we already have. But to give you the state of my mind: I'm not thinking of a 10 percent funds rate at this point as a likely outcome without a good deal more weakness than what we've already seen.",57
-fomc-corpus,1984,"There is one thing I'm very uncomfortable about. As you stated, when you start out at $750 million, you're willing to go to $650 million and if the funds rate comes down a little more in the circumstance that you described, I think that's probably all right. My hunch is that, absent this precautionary premium or whatever we want to call it, the funds rate probably would move down by itself in the fourth quarter in the context in which we had money growth around 6 percent and borrowings around $750 million. But my real concern is the other contingency: that events could very well precipitate an increase in that precautionary premium. Then, we would end up with a situation in which at any borrowing level, the federal funds rate would tend to be higher. And then we would be left with a Catch-22 situation where money growth, wherever it may be, could be in some structural sense out of line with what is observed in the federal funds market and what is observed with the level of borrowing. And I just don't know what to do about that.",217
-fomc-corpus,1984,"I'm not sure what contingency you're talking about. There could be a million of them. Are you saying the implication, if the money supply should be high, is that--",34
-fomc-corpus,1984,"Now, that would be the worst. I'm saying that the contingency I'm concerned about would be if this precautionary atmosphere that we see in the way banks are managing their money is intensified.",37
-fomc-corpus,1984,"I understand that, but if that gives a tight [funds] market and money supply growth is relatively low, presumably we would ease the pressures on reserve positions. That's fairly easy.",37
-fomc-corpus,1984,"Yes, but my concern is that we might get that in a context in which money growth is strong.",21
-fomc-corpus,1984,"Well, then you've got a different situation.",9
-fomc-corpus,1984,Then we have a real problem.,7
-fomc-corpus,1984,"But we have these guides in the directive for the money supply growth, if it is strong.",19
-fomc-corpus,1984,"Yes, but he's saying he doesn't like that, presumably, when something looks contrary or peculiar. If we had rising interest rates and high money supply growth, then I think we would have to rethink it. I don't know how you write that in the directive.",52
-fomc-corpus,1984,You can't cover every eventuality.,7
-fomc-corpus,1984,I think that is clearly one where we'd have to rethink it.,13
-fomc-corpus,1984,I think there's a good chance we may be confronted with that.,13
-fomc-corpus,1984,"Well, we may; I don't know what we would do about it.",15
-fomc-corpus,1984,We have to be careful not to go back and overemphasize the importance of short-run money supply numbers. They may not be telling us anything.,31
-fomc-corpus,1984,Or they might be telling us something.,8
-fomc-corpus,1984,When we've had them for four months!,8
-fomc-corpus,1984,"But, normally, we look at longer periods, and in longer periods we seem to be all right. I understand that a lot of the recent economic indicators are somewhat weaker, but as long as we're doing so well in the long run [with respect to] the annual money targets why should we be that concerned about correcting the short run?",68
-fomc-corpus,1984,[Is] the short run 3 to 4 months?,13
-fomc-corpus,1984,I don't know what that lag is.,8
-fomc-corpus,1984,"I agree with you, Tony, but I do think that as the evidence accumulates we have to begin to recognize it. We had the weak July and then the staff said that August would snap back. Then August was low and they said that September would be good. Now September seems to be revising down, and in this case they don't seem to have much hope that October is going to be strong. Maybe, to complete the whole circle, October will be very strong. Right now it doesn't seem to look it. So, we're starting to develop [a pattern of] some months.",119
-fomc-corpus,1984,"If October is going to be strong, it's going to have to show up, I suspect, in the figure for October 8th, which we won't have for a while. And, if it doesn't show up then, we'll be in trouble in October because we'll have a couple of weeks in October below the September average.",65
-fomc-corpus,1984,"Well, the $8 billion increase that's--",9
-fomc-corpus,1984,"Yes, they usually come in the first or second week in the month; that's why I say that. If it doesn't come by October 8th, I think we're unlikely to get an increase like that.",42
-fomc-corpus,1984,"So that becomes four months of low growth. Four months is not as long as a year, but it's approaching six months and one starts to take it into account a little. At least that's the way I look at it.",45
-fomc-corpus,1984,"As in September, if we had a great big increase that first full week in October, it wouldn't mean much; it might be necessary to put October at 6 percent.",35
-fomc-corpus,1984,Which would be all right.,6
-fomc-corpus,1984,Which is what happened in September.,7
-fomc-corpus,1984,"Coming back to the question that you posed, I would agree with the basic strategy as you formulated it in terms of continuing where we are on the borrowing level, the alternative B numbers, and using your discretion that if everything comes in weak to go down to $600 or $650 million [on borrowing]. But it seems to me that a large number of us are concerned too about the perception as well as the substance of a large drop in interest rates engineered by the Fed in the next critical 5 to 6 weeks. And it seems to me that, under those circumstances, there would have to be a strong enough case for you to call a Committee consultation if you want to go below $600 million. If it's something in that area, that seems to me an appropriate way of touching different bases.",161
-fomc-corpus,1984,"I don't have any great problem with that, but my only connection with all the various political or semi-political sensitivities that have been mentioned is that, just speaking personally, I'm not very impressed with any of them I must say. I don't necessarily agree with the Vice Chairman's fiscal policy strategy. I'm not sure we'd know how to play that one. I'd just play it straight. And, in connection with the next few weeks, I'd play it straight too.",93
-fomc-corpus,1984,"Yes, if there's an overwhelming case for--",9
-fomc-corpus,1984,"Well, you say overwhelming--",6
-fomc-corpus,1984,Or clear case.,4
-fomc-corpus,1984,A reasonably clear case. That's all I'm saying.,10
-fomc-corpus,1984,The markets don't have as pessimistic a view as I think you and Pres Martin and maybe Emmett have been reflecting today.,25
-fomc-corpus,1984,I don't have a pessimistic view.,8
-fomc-corpus,1984,"Oh, I misunderstood you. I think the market view is quite clearly one that this is a temporary weakness--this 3-1/2 percent that we see on the third-quarter flash [GNP report] --and that the fourth quarter will continue with moderate strength. And I think it's important that we have a clear case before we're perceived as doing some very substantial easing.",76
-fomc-corpus,1984,"Well, it's a matter of degree. But I think it can be overemphasized. The market may be wrong and then we're going to look like damn fools, and pretty quickly. The market couldn't understand that we were easing earlier. But I think it's fully accepted and it's very hard to [find] fault with it, I think, in their view. I don't get any sense of complaint about it or wondering about it at this stage, although they didn't quite anticipate it. There was a kind of disbelief for some weeks.",107
-fomc-corpus,1984,I think you did the right thing.,8
-fomc-corpus,1984,The question is how the economy and the dollar and all the rest will behave. And none of us knows that.,23
-fomc-corpus,1984,"I think you did the right thing, but I guess I'm surprised also. For a man who's as skeptical as you are and most of us are about what the economic indicators are telling us about the real economy, don't you think it is dangerous to try to fine-tune an interest rate response so quickly? After all, we only began to see these weaker economic indicators that I'm talking about in the last few weeks. I think your judgment has been vindicated, but we only began to see a few weeks ago these indicators showing more weakness. And they could possibly have been wrong.",116
-fomc-corpus,1984,It wasn't just the numbers on the economy. I think they began showing up immediately after the last meeting. We had an extreme movement in the dollar and continued weakness in the monetary aggregates.,37
-fomc-corpus,1984,There were shortfalls in all of them.,9
-fomc-corpus,1984,"Yes, but since we ignored the strength of the dollar previously in domestic monetary policy, I guess I don't quite understand why this last speculative bubble had that much more impact on this situation. Although I agree with the direction of it, the--",48
-fomc-corpus,1984,"It was pretty extreme. In terms of my foreign colleagues, outrage is a little strong, but [their reaction verged] on outrage that we didn't pay more attention to it.",36
-fomc-corpus,1984,I know. But then I heard very critical comments from the key actors on the European side--central bankers I'm talking about--that our intervention was so feeble that it didn't really mean anything.,39
-fomc-corpus,1984,"I don't disagree with that, but there was very little support for intervention without monetary policy action on the part of the United States. Well, I think we are in an asymmetrical position; that's where my gut tells me we are. [The issue is] whether or not we put it down in the directive. I would. If the economy suddenly rebounded and the money supply began running significantly higher than alternative B, I would question what we do, particularly in the context of the dollar not strengthening further. I can imagine circumstances in which one might want to tighten, but I'd be pretty hard pressed to imagine what those circumstances would be in the next five weeks. It does not strain my credulity at all to think that we might want to go at least modestly in the other direction in the next five weeks. And I would think that the directive ought to reflect that. But just how it reflects that is--",185
-fomc-corpus,1984,"Well, as I suggested, we could just change the ""might"" and ""would.""",18
-fomc-corpus,1984,"Yes, I know. We could do that.",10
-fomc-corpus,1984,Or we could change the order of the two parts of the sentence.,14
-fomc-corpus,1984,"That, I think, is the minimum that one ought to do. Mr. Axilrod could distribute this [draft] that really is asymmetrical, if you're interested in looking at it. It would start out by saying ""In the implementation of policy in the short run the Committee seeks to maintain the lesser degree of restraint on reserve positions sought in recent weeks."" That's more or less technical; it acknowledges that we did something. Then, we'd put in the sentence with basically the alternative B [specifications]. It would go on to say that a somewhat or slightly further lessening of restraint on reserve positions would be acceptable in the light of significantly slower growth in the monetary aggregates, particularly in the context of continued moderation in economic activity and inflationary pressures. Then we'd go on with the standard language.",160
-fomc-corpus,1984,"I thought it would be ""only"" in the context. That implies that even without any weakening in the real economy there would be even less restraint just because of weakness in the monetary aggregates--that that alone would trigger it.",45
-fomc-corpus,1984,"It says ""particularly in the context of.""",9
-fomc-corpus,1984,Whereas the one we had before that said--,10
-fomc-corpus,1984,"It said ""only.""",5
-fomc-corpus,1984,"--""only in.""",5
-fomc-corpus,1984,Continued moderation in economic activity and inflationary pressures.,11
-fomc-corpus,1984,You're dropping out the tightening [alternative] altogether.,10
-fomc-corpus,1984,"In this version. We can put it back in, but I'd put it in another sentence--unless you want to use something like ""particularly."" Otherwise, we could just drop the next sentence.",39
-fomc-corpus,1984,"Yes, or leave the next sentence and drop the last phrase.",13
-fomc-corpus,1984,"The one thing that bothers me about this is that there is then no mention, except in another paragraph, of credit market conditions and the exchange rate. That is obscurely in there now with financial market conditions. That could be worked in somehow, I suppose. Let's put a comma, and then ""taking account of financial market conditions and the rate of credit growth.""",73
-fomc-corpus,1984,Doesn't that appear in the sentence immediately above the start of the operating paragraph?,16
-fomc-corpus,1984,"It does, but it doesn't get much attention there. It's not in the operative part of the directive. I don't have it in front of me, but you are right that there is a--",39
-fomc-corpus,1984,"My point, Paul, was that we could drop that whole phrase starting with ""particularly"" and instead make it a phrase such as ""evaluated in relation not only to indicators of the strength of..."" and just continue right on. Now, that makes it a one-sided directive, but I think it would solve Tony's problem that we would only look at easing in the context of weak money numbers and the confirming business and inflationary and credit situations.",90
-fomc-corpus,1984,"Well, I think it's a mistake not to have something on both sides. We can achieve the purpose you want by simply revising the existing sentence and putting the easier restraint first and then leaving the rest of the directive exactly as it is. So, it would read: ""Somewhat lesser reserve restraint would be acceptable in the context of significantly slower growth of the aggregates or somewhat greater restraint would be acceptable in the event of more substantial growth. In either case..."" and so on. It just seems to me that, with a couple of months of weakness in economic activity, to send a signal out that we have completely ruled out of our thinking any possibility that we would react to events on the other side is wrong. It's not the way to do things.",151
-fomc-corpus,1984,"I'd like to piggyback on that. I think an asymmetrical directive, or at least a tilt in that direction, makes sense. But I think the image that this directive will create, in contrast to the last directive, is a stronger change than I would think the Committee would want to convey. After all, the last directive, which was symmetrical, enabled a rather significant drop in the borrowings, which I happen to think was a wise thing to do. But I just wonder if one has to move that far in this directive. Some tilt or some small signal, yes; but this just seems to me to highlight it and it's awfully strong for my taste.",136
-fomc-corpus,1984,I think it would indicate a real policy shift if we dropped the up side of the symmetry.,19
-fomc-corpus,1984,I would agree.,4
-fomc-corpus,1984,"And I would agree, obviously.",7
-fomc-corpus,1984,"In the context of what I thought you were saying before, Mr. Chairman, in terms of borrowings that could get down to, say, $600 to $650 million and a federal funds rate that could get down to 10 percent or 10-1/2 percent or something like that, I think that contingency could be covered easily in a directive that tilts rather than falls. Again, I must say that the danger that really bothers me is this whipsaw phenomenon I spoke of before. If we went through a period where we had, say, a 150 basis points swing up and down in short-term interest rates in a period of three months or so, I think that would be very, very damaging to the real economy and for the thrifts, for the banks, and for everybody else.",165
-fomc-corpus,1984,"I don't see why, but that's--",8
-fomc-corpus,1984,"I would say the reason why is that if we start to move in that direction in a context in which it's perceived that there is a potential for a rather large move, the markets will respond very aggressively. We'll get another surge of all this crazy activity in the mortgage markets and then it will just get stopped dead in its tracks if interest rates have to turn around.",73
-fomc-corpus,1984,"I agree with Jerry completely. The more they see us responding quickly to short-run changes in the monetary aggregates, the more people in the market are going to say ""Are we going to go back to the extreme swings that we had where rates were running between 8 and 20 percent?"". I think we have to be careful of that; we ought to be moving very gradually.",76
-fomc-corpus,1984,I think you are assuming much more controllability of the market than in fact we have.,18
-fomc-corpus,1984,I don't have any problem--,6
-fomc-corpus,1984,"This great 1-1/2 percentage point reduction in long-term rates took place without any change in our borrowing assumption at all. We reduced the borrowing by $250 million--this massive move that you talk about--and long-term rates are practically where they were before we started moving borrowing down. And how far down the federal funds rate is, I don't even know. It depends upon whether you look at it on Friday or Monday or Wednesday.",90
-fomc-corpus,1984,"Well, that's because of special factors that you talked about earlier.",13
-fomc-corpus,1984,But it depends upon so many other factors that thinking we can predict this with any assurance is a bit beyond our capacity.,24
-fomc-corpus,1984,I don't have any trouble with the substance of what I think you're saying. I don't even have any trouble with the suggestion that it would take some considerable set of circumstances to envision a tightening move in the next five weeks. But what I do have trouble with is creating a perception that what we have in mind is more than what I think you're saying. Most people are saying--,75
-fomc-corpus,1984,"Well, I think you're assuming conditions that I'm not assuming on this.",14
-fomc-corpus,1984,I may be.,4
-fomc-corpus,1984,"All this easing that you're talking about takes place in the context of continuing quite sluggish business numbers, a strong dollar, and low money growth.",28
-fomc-corpus,1984,"Well, in those circumstances, if the borrowing level goes down in this five-week period, or even early in the five-week period, to this $650 or $600 million--",36
-fomc-corpus,1984,"Earlier you said you had no objection to making it double-barrelled as long as it's only tilted, but I assume that you don't object to putting back in some contingency language on the other side.",40
-fomc-corpus,1984,"If it's too formalistic, I think we're just doing a very formalistic thing and not being very enlightening. But I don't have any objection to dealing with that.",33
-fomc-corpus,1984,"May I suggest that you keep the sentence that you have there beginning with ""A somewhat further lessening of restraint"" and drop that last sentence? But in its place, we could have a sentence that would go something like this: ""Some increase in reserve restraint might possibly be appropriate in the context of substantially greater growth in the monetary aggregates.""",68
-fomc-corpus,1984,I have no objection to something like that.,9
-fomc-corpus,1984,"Other than ""possibly.""",5
-fomc-corpus,1984,"Yes, I don't know whether you want the word ""possibly"" in there.",16
-fomc-corpus,1984,Why not just take the existing sentence and reverse the order?,12
-fomc-corpus,1984,Indeed. That's a good suggestion.,7
-fomc-corpus,1984,"Yes, that's what I think.",7
-fomc-corpus,1984,"Well, if we want to tilt it, we could say ""well above"" instead of ""high growth.""",22
-fomc-corpus,1984,"This is a very minor thing, but I would not just take this existing sentence and reverse the order because it sounds so formalistic.",27
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"We would have changed nothing and people are supposed to read great meaning into the changing of the order of a sentence without one iota of change in the substance. That sounds a little too much. But if you put in an adjective or two, I don't mind that if you prefer it.",58
-fomc-corpus,1984,A moderate adjective?,4
-fomc-corpus,1984,This time I'm partly objecting because it rather sounds to me like we're playing games instead of reflecting anything substantive.,22
-fomc-corpus,1984,I think perhaps you have a stronger view from the down side of the economy than most of us have.,21
-fomc-corpus,1984,"If you really want to change the structure, I would go back to my proposal that we use your first sentence and then say ""evaluated in relation not only"" and so forth. Then we could have another sentence that says ""Conversely, if the monetary aggregates are strong and there is associated strength showing in the economy""--",65
-fomc-corpus,1984,I could easily support that.,6
-fomc-corpus,1984,"""Conversely"" strikes me as balancing it in the right direction.",14
-fomc-corpus,1984,It sounds a little less formalistic to me than just reversing [the order].,16
-fomc-corpus,1984,"Well, it is. It really does change it somewhat, I think, but not a great deal.",21
-fomc-corpus,1984,"But wouldn't you want to put that sentence before the ""in any event"" sentence?",17
-fomc-corpus,1984,"Well, he's combining those two sentences.",8
-fomc-corpus,1984,"No, I'm combining them and dropping that.",9
-fomc-corpus,1984,"The way he would have it read is ""A somewhat further lessening of restraint on reserve positions would be acceptable in the event of significantly slower growth in the monetary aggregates evaluated in relation not only to the indicated strength of the business expansion and inflationary pressures, but also to financial market conditions and the rate of credit growth."" That's a rather cumbersome sentence, but it's all right. ""Conversely, greater restraint might"" or ""would be acceptable.""",89
-fomc-corpus,1984,"""Might,"" I think.",6
-fomc-corpus,1984,"Is ""acceptable"" the word? We'd say ""acceptable in the event of""--well, ""significantly"" is the obvious word to put in here but we used ""significantly"" up above.",42
-fomc-corpus,1984,"""Monetary growth well above the numbers expected."" Is that what we call it?",18
-fomc-corpus,1984,"""Well above these expectations.""",6
-fomc-corpus,1984,"""Growth substantially more rapid.""",6
-fomc-corpus,1984,"""Substantially more rapid monetary growth."" Is that--",12
-fomc-corpus,1984,That would be all right.,6
-fomc-corpus,1984,"""And indications of""--we can't exactly say a rebound. ""Indications of stronger""?",17
-fomc-corpus,1984,"""New strength"" or something like that.",9
-fomc-corpus,1984,"""Economic growth and credit expansion."" [Unintelligible] Jack Kemp's concerns.",18
-fomc-corpus,1984,"""Indications of stronger expansion in economic and financial developments.""",12
-fomc-corpus,1984,"Sounds great. Real prose--poetry, in fact.",12
-fomc-corpus,1984,"Or ""stronger economic and credit market""--",9
-fomc-corpus,1984,"Add ""inflationary pressures."" I wrote ""indications of significant strengthening in economic activity and inflationary pressures.""",23
-fomc-corpus,1984,"Yes, I think it's good to get the [reference to] inflationary pressures in there--""of economic activity and inflationary pressures.""",28
-fomc-corpus,1984,It's hard to imagine we'll have evidence of all this in five weeks.,14
-fomc-corpus,1984,I think that's right.,5
-fomc-corpus,1984,More than fragmentary indications.,6
-fomc-corpus,1984,"Well, I know what I have now, and what's the rest of it?",16
-fomc-corpus,1984,The usual boiler.,4
-fomc-corpus,1984,"The usual last two sentences, or just the last sentence. It goes directly to the last sentence.",20
-fomc-corpus,1984,"Sometime we ought to put out a directive which says ""Complete with the usual boiler plate""!",20
-fomc-corpus,1984,"Let me just read it: ""In the implementation of policy in the short run, the Committee seeks to maintain the lesser degree of restraint on reserve positions sought in recent weeks. This action is expected to be consistent with growth in M1, M2, and M3 at annual rates of 6, 7-1/2, and 9 percent, respectively, during the period from September to December. A somewhat further lessening of restraint on reserve positions would be acceptable in the event of significantly slower growth in the monetary aggregates, evaluated in relation--."" Why don't we take out this ""not only"" bit to simplify the sentence?",129
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"--""evaluated in relation to the strength of business expansion and inflationary pressures and financial market conditions and the rate of credit growth."" Am I right?",31
-fomc-corpus,1984,"Did you want to put ""financial and exchange market conditions""?",12
-fomc-corpus,1984,"""Domestic and international."" Put in everything but the kitchen sink! ""...domestic and international financial market conditions, and the rate of credit growth. Conversely, greater restraint might be acceptable in the event of substantially more rapid monetary growth and indications of significant strengthening of economic activity and inflationary pressures. The Chairman may call for Committee consultation"" etc. And we leave in 8 to 12 percent [for the funds rate range].",85
-fomc-corpus,1984,Sounds right.,3
-fomc-corpus,1984,Then we want 8.,6
-fomc-corpus,1984,Would you read that significant strengthening in economic activity [part]?,12
-fomc-corpus,1984,"""...strengthening of economic activity and inflationary pressures.""",11
-fomc-corpus,1984,"That's right. The current range is up to 12 percent. That's just as well, isn't it, Steve?",23
-fomc-corpus,1984,"If that is satisfactory, we will vote.",9
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley Yes President Horn Yes Governor Martin No Governor Partee Yes Governor Rice No Governor Seger No Governor Wallich Yes,47
-fomc-corpus,1984,"Okay, I guess we are finished.",8
-fomc-corpus,1984,"Any other discussion? Well, I take it that there is a willingness to renegotiate all the swaps or to renew them for another year. There is not much renegotiation involved.",37
-fomc-corpus,1984,Do we need a formal vote?,7
-fomc-corpus,1984,"I guess we don't, do we?",8
-fomc-corpus,1984,I will assume the Committee agrees and will proceed accordingly.,11
-fomc-corpus,1984,We'll approve them when they are done. We have to ratify the transactions.,16
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Without objection. Mr. Sternlight.,8
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Questions?,2
-fomc-corpus,1984,"On this foreign issue: If the spread first went down and then went back up to where it was at the time of the issue, is there any justification for any bank to say that they would have lost money had they gone in on that and that they were smart not to go in on it?",60
-fomc-corpus,1984,"Well, I think some who went in on it felt that it was worth something, just for the prestige or the advertising factor. One had that sense on the bids that came in, and I think that some modest losses probably were taken in the course of doing that. Certainly, one hears that the next time around the spread is not likely to be as large as that 32 basis points--that maybe half that would be justifiable. That was the feeling I was getting.",96
-fomc-corpus,1984,The Japanese felt an obligation to cooperate. I think that was a significant factor that wouldn't necessarily be there in the future to such a degree.,28
-fomc-corpus,1984,"I would like to inquire, Peter: When did we drop the borrowing level from $750 to $700 million? I must tell you as a preface that I was surprised. The first time I realized it was from the Bluebook, which I thought was a mistake; I went back to the daily wires and there was no indication that I could find that the borrowing level had been dropped.",79
-fomc-corpus,1984,"Just a week ago, I believe. I am confident it was mentioned. Well, I can't say I read the wire of the call. I know that it certainly was reviewed at the conference call.",40
-fomc-corpus,1984,"If it wasn't in the wire, it should have been. It must have been an oversight.",19
-fomc-corpus,1984,Last Thursday or Friday.,5
-fomc-corpus,1984,I think I went back over [the wires of] the last week.,15
-fomc-corpus,1984,"It was right after that first week of the two-week period. We ended up at $700 million right about that time for the average borrowing level and it seemed sensible to make it $700 million, given all that had happened. It should have been in the memorandum of the call. If it wasn't, it was certainly an oversight.",67
-fomc-corpus,1984,"Well, I could be mistaken, but I don't think so.",13
-fomc-corpus,1984,"It has been an interesting market. I think that the range of short-term interest rates is predicated more on a market anticipation of a fed funds rate closer to 9-1/2 percent than the 10 or 9-7/8 percent that it has been averaging lately. So, there is a question--not that we're getting into that now--but assuming there's some further easing, the question is whether markets will assume that's the last; I doubt that they will. They'll probably assume there will be a discount rate cut later on and the markets will then take it even further and we may continue to get some lower rates than the projections.",131
-fomc-corpus,1984,Any other comments? We have to ratify the transactions.,12
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Without objection. Mr. Kichline.,9
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,You say the economy was expanding more rapidly in September and October. This is what the employment figures for October show as I understand it. That does not seem to be matched by industrial production or by consumption necessarily.,42
-fomc-corpus,1984,We said more rapidly in October than in September.,10
-fomc-corpus,1984,In employment.,3
-fomc-corpus,1984,That's true. The gains in employment in October were rather spectacular; it's the highest increase in over a year. I think that's unsustainable. It looks a little odd.,34
-fomc-corpus,1984,I understand the number. How do you interpret the unemployment claims figure?,14
-fomc-corpus,1984,"To start out I mentioned conflicting signs, and that indeed is one of them. Initial claims for unemployment insurance have been edging higher, including those for the week after the labor market reports were taken. We are estimating, as I noted, that industrial production was up about a quarter of a percent in October and that's better than a 0.6 percent decline. But the October level of production is still below what we saw in the summer. There are many what I would view as conflicting indicators of what is happening.",103
-fomc-corpus,1984,"Well, a lot of that increase in employment in October was in nonmanufacturing.",17
-fomc-corpus,1984,"The bulk of it. I think industrial production is related [more] to the manufacturing employment. But for some reason, people are going out and hiring lots of new employees in services and trades.",39
-fomc-corpus,1984,To unload the imports and sell them!,8
-fomc-corpus,1984,"To get them off the docks? Well, that could be.",13
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"I met yesterday with the chairman of the I asked him about the October retail sales. He said that their sales were lower than they expected and as a consequence that their inventories are up about 5 percent from where they thought they would be. He attributes it largely to the fact that October weather was unusually warm and that people just don't buy winter clothing until the weather turns cold. He is expecting a very strong Christmas selling season. That, for whatever it's worth, is the view.",96
-fomc-corpus,1984,He does recognize that he had a very soft October?,11
-fomc-corpus,1984,Yes. But he thinks he knows why--the weather factor. It wasn't something that alarms him.,20
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"I just want to underline some of the mixed signals, Jim. I note that the Michigan consumer confidence measure was off a little in October. I don't put a big weight on that. The hours worked quantum always puzzles me a bit, but I notice the hours worked were down in October according to the Labor Department. The Chairman has mentioned that initial claims for unemployment were up. The purchasing agents survey is not a good quantitative measure--it was revised three times ex post out of the [unintelligible] data--but for whatever it's worth it shows reductions in new orders, delivery speed, inventories, and payrolls, and less price increases. I think perhaps more important were the preliminary indications that the third-quarter real GNP may be revised downward due to the merchandise trade deficit number. If that is 1.7, not 2.7 percent, it may require a rethinking of some of the inventory changes. It already has been revised down once from 3.6 percent. I don't know what a soft landing is, but an 80 percent decline from the first half, when we had GNP growth of 8.4 percent--I don't know how soft that landing is. The undercarriage of the vehicle may be slightly bent in that kind of [scenario].",260
-fomc-corpus,1984,"Well, it's still above the runway.",8
-fomc-corpus,1984,"It's above the runway but perhaps without any wheels! At any rate, your comment with regard to oil prices, food prices, and other indications of inflation out there in the future is reassuring. Imports are still soaring--I'm tying onto the Chairman's comments as usual here--but those imports are having employment and income effects in U.S. firms. We know that. It seems to me that there is a risk of a growth recession in the first and second quarters of next year. I too have talked to retailers who feel they will get through the holiday selling season well and then have very quiet first and second quarters. And I see the risk of a growth recession, with rising unemployment and very low real growth taking off from that 1.7 or 1.5 percent. I saw one model's output that had 1.2 percent for the third quarter, which I don't believe, but it begins to get your attention, I think. The consumer comes into the first and second quarters with all those new cars bought on credit and all those other consumer durables and is paying the kinds of real interest rates one pays today, and I don't know whether that adds up to a snapback or not. It doesn't to me. I think that the risk is so high that we should be very concerned about it. If we get your [projected] 3.5 percent real [GNP] for the fourth quarter and run along at about 3 or 3-1/2 percent for 1985--given the margin of error, no disrespect intended--it seems to me that again gets to be a precarious position to be in with a substantial downside risk. If we get one or two exogenous factors in there when the economy is hovering around a 3 percent level, unemployment can get started up again. The foreign competitor is still cutting into those employment rolls. So, I think the margin of error is substantial. I would hate to see the Congress come back into this town, this font of all the wisdom in the universe, facing a 1 percent real growth figure and rising unemployment. We would just get some dandy decisions in the fiscal area in that circumstance. I think we are facing an increasing downside risk.",451
-fomc-corpus,1984,"Jim, the last time you talked some about the probabilities. May I ask whether you have anything new to say about that? That is, have you increased the probability of something around zero compared with six weeks ago or whenever we met last?",48
-fomc-corpus,1984,There is a probability of negative growth in the fourth quarter of 19 percent.,16
-fomc-corpus,1984,"Are you rounding, or is that--?",9
-fomc-corpus,1984,"Jim, what about the probabilities in the first and second quarters?",13
-fomc-corpus,1984,"This comes out of the econometric model exercises we performed. The model said 19 percent for the fourth quarter and 15 percent for the first quarter; then it drifts in the range of 25 or 30 percent, let's say, in the latter part of 1985.",58
-fomc-corpus,1984,Have you checked it with [Jimmy] the Greek?,11
-fomc-corpus,1984,No.,2
-fomc-corpus,1984,What is the probability of two consecutive quarters of negative growth?,12
-fomc-corpus,1984,Two consecutive quarters is very low--1 to 2 percent.,13
-fomc-corpus,1984,Governor Rice.,3
-fomc-corpus,1984,"Mr. Chairman, Governor Martin said a good part of what I had in mind except that I don't expect a growth recession in the first half of next year. I don't have any major argument with the staff forecast. But I am more comfortable with the longer-term part of the forecast than I am with the forecast for the current quarter. As was pointed out in the briefing, the performance of the current quarter is very sensitive to the increase in consumer expenditures; we have to get a substantial increase--on the order of 5 percent plus in this quarter--in order to get the projected growth for this quarter. In addition, even if we get this substantial increase in consumption expenditures, the stimulus to GNP depends on the distribution of these consumer expenditures between imports and the rundown of inventory. So, the net stimulus to real GNP may not be as strong as projected. On the other hand, it may well work out that output does increase in the range of 3-1/2 percent. My only point is that for this quarter we should be prepared to see an increase in real GNP of significantly less than 3-1/2 percent.",232
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"Perhaps in line with previous comments, I'm beginning to sense what I think is quite a different tone in our area than what I reported at the previous meeting. I have suggested in the past that the Middle West has not participated very fully in the recovery and expansion, and that continues to be the case. But some things may be developing that signal broader problems. The bad business has continued to be bad. The backlogs of orders are running down. But those businesses that have done better than others are beginning to feel the slowdown. One CEO that I talked with who works with what he calls pressure curves, which are some kind of regression analysis on the rate of incoming orders, says those are beginning to indicate to him that we are heading into a downturn. Specifically: The appliance business is noticeably weaker; heavy trucks, which were very strong early in the year, are now turning down; and the truck trailer business market was up because of a legislative change but is clearly turning around and slowing down.",198
-fomc-corpus,1984,What business?,3
-fomc-corpus,1984,Truck trailer.,3
-fomc-corpus,1984,That means double trailers.,5
-fomc-corpus,1984,There was a legislative change that provided for double bottoms and that really ballooned the market. That is coming down.,23
-fomc-corpus,1984,Let me just interrupt for a second. I had the impression that heavy trucks were doing well--that they had gone down and then gone up.,29
-fomc-corpus,1984,"Orders booked for very heavy trucks, Class 8 trucks, are down substantially and their production is down. A large retailer--which is frankly a euphemism for",33
-fomc-corpus,1984,Let's see if they told you the same thing they told me!,13
-fomc-corpus,1984,"We had a meeting of [local] economists a week or so ago and their representative, who had been quite optimistic about the Christmas outlook, is now a lot less optimistic.",35
-fomc-corpus,1984,They did.,3
-fomc-corpus,1984,"They are expressing some doubts about the outlook for retail sales. This suggests that while we thought the soft landing--or the reduction from the very high first and second quarters--was a welcome thing, it may be something a bit more fundamental. I'm beginning to wonder about that. I don't disagree with the staff forecast, but it tends to be a little on the high side, to me at least. The GNP numbers look high both for this quarter and for next year. Housing starts and auto sales look a little high. So, consistent with [the views of] Governor Rice and Governor Martin, I think there is an increasing risk of low or perhaps even negative growth rates. I just can't let the moment go by without commenting that conditions in the agricultural sector are continuing to deteriorate. What has been a very difficult situation has only gotten worse with the passage of time. The rains are now complicating the harvest season; commodity prices are down; meat prices are down; and land values are continuing to decline. [The latter] is particularly true in Iowa where admittedly they have come down from pretty high levels, but they are in a decline that's very significant. This is beginning to back up even more with regard to nonperforming loans in the agricultural banks. The banks keep saying that their problems are manageable; nonetheless, these are the kinds of things that can turn around pretty rapidly. Based on the calendar we are at a time of the year when for the next few months things [should] only get better. They ought to be better now than they are. And the fact that they are bad would indicate that in the next few months things are going to get worse. Agricultural equipment manufacturers are continuing to go through just a very dismal period. The outlook is poor and they are pulling down their production schedules very significantly. There is plenty of tractor and combine equipment at the retail level, so production is going to be very weak well into 1985. Our agricultural economist, who is a pretty conservative guy not given to extremes, said that in his view we are facing the worst set of circumstances in this area that he has known in his whole experience at the Bank. I don't think that we are at a turning point here, but I would certainly think that the odds have changed significantly and that the probability of going into a period of lower rates of growth than we thought in the past is increasing. It is certainly higher than it was at the past meeting or two.",496
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"In my District if you talk to people who are running companies, they still have fairly good expectations for 1985 but are less sure. Some doubts are beginning to creep in and I think we're in a period where expectations could change. The current results are quite mixed. Manufacturing tends to be flatter. In retailing, I find that we talk to one retailer and things look good in October and we talk to another retailer and things were pretty flat. So, the current indicators are rather mixed. I do think, however, that if we continue to get these mixed current indicators, the longer-term expectations are going to shift. If you start out with really good feelings about 1985, I think uncertainty tends to undermine them. So I think, as has been said around the table starting with Governor Martin, that there has been a change. I don't think it is a definite turning point but it's a period of increasing doubts. And if we don't begin to see some pickup very soon, attitudes about 1985 will shift significantly. If you felt strongly a month ago that we were having a snapback, you have to be a lot less sure about that now. If last month you were leaning toward [an expectation of] a growth recession, you have to be leaning more in that direction. My own view is that I'm fairly uncertain. There is a high degree of uncertainly about where things are going, but I think the risks have shifted toward a slower economy than I, at least, would have thought a month ago.",307
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Well, Mr. Chairman, I approach this with a little different view from the other speakers this morning. That's primarily, I suppose, because of where I live and work. To be sure, economic activity in the Atlanta District did go through a period of moderation in the summer but we have seen some pickup. Generally speaking, I think that economic activity is fairly healthy. Most of the indicators show strength, although there are some weak areas. We have heavy defense spending, particularly in the electronic and aerospace industries; oil and gas [activity] is even picking up in the Louisiana area; and the carpet industry, construction, and housing are picking up. In fact, housing surged by about 52 percent in the Southeast in the month of September. Tourism continues to be good. The weak spots are forest products and textiles and other export-related areas. Now, retail sales have been off even in our area; they picked up in September and fell off again a little in October. All of the retailers I speak to are experiencing downturns from their projections; their sales are not up to plan. They attribute this, as others have said, to the unusually warm weather in October. They are a bit cautious about Christmas, although I think most of them are fairly confident that they are going to have a good Christmas season. Agriculture is a mixed bag because of a number of factors, including drought followed by very heavy rain in early November. Looking beyond the Southeast, which is perhaps not typical [of the nation], I tend to agree with the staff forecast of renewed growth in the fourth quarter and in 1985, particularly because I think that we have not yet seen the effects working through the economy of the lower interest rates that we've recently experienced. On the inflation side, I am a little less confident about the staff's projection. I still think that is a problem that we really have to keep our eye on. I think the dollar is going to come off although, like everybody else, I won't be very quick to say when that will happen. But I think we are going to see the dollar coming off, with its implications for inflation. Also, the numbers that I have seen suggest that wage settlements in the service sector have not been nearly as low as they have been in manufacturing. And, of course, we have the fiscal stimulus, which I don't see being removed very quickly when Congress comes back. So, on balance, Mr. Chairman, I think we can expect reasonably good growth in 1985. I view the risk not as one of negative growth but rather of renewed inflation. Even if we didn't get 3-1/2 percent real GNP in 1985, I think that even 2-1/2 to 3 percent growth would still be fairly decent and not anything to be terribly worried about. At this point, I am not concerned about recession or any kind of negative growth in 1985.",589
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Well, the staff's projection for the fourth quarter is about in line with what most private forecasters have been saying; it's certainly plausible and maybe even the most likely forecast. But I have to agree with Preston Martin and Emmett Rice and Ed Boehne and Si Keehn: I believe the risk has shifted to the low side since we last met. As Jim Kichline pointed out, there are certainly some statistics that suggest that growth picked up in September--the employment figures and the figures on retail sales. But I think we have to bear in mind that given the export/import picture, even if final demand strengthens, that doesn't necessarily mean that we are going to have equivalent strength in domestic employment and demand. People may, as you said, Mr. Chairman, be lining up to unload those imports. Moreover, the lack of growth in M1 since midyear certainly makes it less likely that there will be any sustained resumption in growth any time soon. In short, I see some serious risks in the near-term economic future and I think we ought to keep those in mind as we address policy today.",224
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"Well, I am agnostic on the outlook. I think it has deteriorated somewhat. I made a list for myself of strong and weak factors and I stopped when I reached 12 on each side and had a number more. But I think the nature of the choices that we have is a little different. Expansions don't go on forever; at some point there will be a pause--a growth recession, hopefully not a real recession. If we had the choice of a growth recession in the near future or a real recession a year later, for instance--",113
-fomc-corpus,1984,What's a growth recession?,5
-fomc-corpus,1984,"When unemployment rises but GNP still rises--in other words, growth below potential. If we had that and it were reversed subsequently, that to me would be a less ominous thing than a new real recession. And that might well be a choice because the things one would have to do in order to make sure that there is no growth recession may very well generate imbalances or maladjustments and set in motion [forces] that a year or two later might produce a real recession. They might also, of course, get us back into inflation. Starting from 5 percent inflation, it seems to me one ought to use special caution in dealing with that prospect. It's not as though we were starting from close to zero.",146
-fomc-corpus,1984,It's not exactly at 5 percent either.,9
-fomc-corpus,1984,"I think the underlying inflation rate is of that order if one removes all the temporary [influences]. If we look at the probabilities of what is going to happen, they may be evenly balanced between a resumption of the expansion or a growth recession. I doubt that it would be a real recession. If we look at the risks that lie beyond that, action to keep [the economy] growing at all costs might produce a much worse situation later and might conceivably relaunch us into inflation. I think those possible costs are much higher than if the economy wants to take a short pause and then resume [growth] again.",127
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"As I look at the numbers coming in, I am inclined to agree with the staff that they do suggest there is some improvement in activity going on. When I think of how the numbers were coming in a month or two ago, the recent figures look to me a lot more optimistic. The last figure on new orders for nondefense capital goods was up after a couple of months of decline. Shipments were up quite strongly. The last figure we had for retail sales was up; we don't know what October will bring. I read the Beigebook and I thought it was saying that the gains we had in September seemed to be sustained in October even though that doesn't seem to be confirmed by department store sales.",143
-fomc-corpus,1984,Nor by the comments around here.,7
-fomc-corpus,1984,"Well, we haven't heard from everybody yet. But certainly, the comments in the Beigebook did not reflect what we're hearing today.",27
-fomc-corpus,1984,I think somebody else wrote the Beigebook!,10
-fomc-corpus,1984,"We're now looking at a period of rising auto production--increasing availability of models instead of the reverse that was going on in the summer. The last figures on housing starts and new home sales were up in contrast to earlier weakness. The October employment data were considerably stronger than the data coming in during the summer; indeed, we had a turnaround in manufacturing employment from a rather sizable decline in September to an increase in October. In a period like this there is bound to be uncertainty. As Henry mentioned, you can list a dozen factors on the positive side and a dozen on the negative side, and there is room for doubt among reasonable people as to where things are going. We've been through this sort of pause many, many times in periods of economic expansion. If you asked what basic factors were driving the economy during the first six quarters of recovery--strong fiscal stimulus, a lot of consumer confidence, low inflation, the technology driving business fixed investment--I think those factors are still there. And I'm about 75 percent certain, personally, that the incoming figures a month and two months from now will show a more positive trend. I do not worry about the possibility that third-quarter GNP growth will be revised downward. I don't doubt that at all. That is what happened in the past. Indeed, if it turns out that the downward revision reflects a lower rate of inventory investment, that would be on balance a plus and not a minus. I agree with the staff forecast. I think we will see some strengthening in activity. I don't know whether it is going to be in the fourth quarter and I don't really care. It's a question of whether or not it comes along soon enough, as I think it will, to generate the kind of growth that the staff is forecasting for 1985. And I think they are about right on the button.",370
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"In the Twelfth District, the pace of economic expansion really has slowed dramatically. We just haven't seen the bounceback in sales that is reported in some Districts. One thing that is going quite strongly in our District is nonresidential construction; in some of our leading cities it's almost of boom proportions. But it's certainly clear that the reduction we've seen so far in mortgage rates has been insufficient to prevent both the construction and the sale of new homes from falling further. That's a weak area. And as I've been reporting for a long time now, the strong dollar and the situation with foreign imports are hurting a good part of Western industries such as forest products and primary metals, and that is reducing the overall growth of manufacturing employment to a crawl. The agricultural situation is pretty grim in a good many of our states. In sum, I think the balance has changed toward the engine stalling here. If the plane is still in the air, it's about to make something worse than a soft landing. I agree with much of what was said by Governors Martin and Rice and Presidents Keehn, Boehne, and others. Monetary policy is supposed to be flexible and I think the time has come to err a bit on the side of ease unless the situation clarifies.",252
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"My own view is that the staff forecast is probably about on the mark. In fact, I still very much lean to the view that in the next two or three quarters as a whole, there is a good chance that the economy will be stronger than the staff forecast rather than weaker. I may be a little less certain about that now than I was six weeks ago, as are other people; nevertheless, that's still where I'd put the probabilities. The uncertainty factor clearly does reflect the very, very near-term outlook. What is this mishmash of statistics and anecdotes really telling us? On the retail sales side, we had meetings last week with the CEOs of all the big companies in Minneapolis--and there are two very sizable retailers headquartered there--and they, remain extremely bullish about the outlook for retail sales in the near term notwithstanding this pronounced slowing in the last two weeks of October. On the other side of the picture, a couple of the companies in the Twin Cities that are major manufacturers and suppliers of electronic gear and happen to be thought of as computer companies--in fact, they make lots of components that go into both commercial and residential construction--reported a surge in industrial bookings in October. That was the word that they used. Insofar as the equipment that they manufacture and sell is associated with housing, they don't know whether it's related to new housing or renovation, of course. But in October, or I should say the 30 days ending last Thursday, they had an all-time record 30-day pace of activity for bookings and shipments of electronic components that go into residential units. Maybe that's consistent with the view that the decline in interest rates that we've seen is beginning to take hold a little. While the housing sales figures in the last set of numbers were somewhat mixed geographically, there was some spark at least for one month evident in those statistics as well. When I put it together, again, I would agree with many of the comments that the immediate situation is harder than usual to read. I personally do not see a recession in sight or anything that would remotely qualify as a recession. I have two quick comments on imports and agriculture. This import phenomenon, as I think I said once before, is really off the chart. There is no doubt that that makes it extremely difficult to figure out where the driving forces are, but I will just try to put that in perspective with a couple of concrete examples. For example, one of these companies told me that just in the past six or seven months they have started buying disk drives for floppy disks for smaller computers from a Taiwanese supplier. They are delivered in Minneapolis for $60 a unit whereas the cheapest they can make them with no markup--the cheapest they can-manufacture them themselves anyplace in the United States--is $140 a unit. Another very large high-tech company reported to me that within the time frame of this year they started buying transformers for their medium size main frame computers from Far Eastern sources. Again, the price delivered to them in the United States is one-third of the cheapest price they can manufacture that type of component. Indeed, one of these companies reported to me that the situation has reached a point where, no matter what one assumes about exchange rates or anything else, from the point of view of their corporate long-term strategic planning they have now found themselves forced for the first time to consider seriously going into off-shore supply in a major way through their own facilities. They find that very distasteful but the economics of it are such that they find themselves compelled to think in those terms. On the agricultural situation, I would just echo what Si Keehn has said. It is not pretty. And I think it is now starting to back up in a way that you can see the implications of it on the small banks--all these darn small one-bank holding companies that are sitting out there and are leveraged to the hilt. It could be very troubling.",790
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"The situation from the vantage point of the Cleveland District isn't much different from what has been expressed by a number of people around the table. The Fourth District's difficulties are probably due to a [concurrence] of circumstances. First, there are the ongoing structural problems and the intense import competition, which we feel so strongly, together with the pause in economic activity. Most of our capital goods industries, excluding machine tools, have noted a flattening in orders and shipments. In steel we've had a few more furnace shutdowns. Housing in the District has been flat at best for several months and our bankers continue to comment on the difficult income situation that farmers find themselves in and the problems they will have servicing their debts. The result, as has been pointed out, is increased uncertainty about the outlook for next year. In our District we still have the basic view that the consumer will lift the economy into growth next year; around the District a strong Christmas is widely expected. Expectations are also for a continued thrust from business investment, although presumably at a slower pace. We have a basically positive outlook but a lot of concern is expressed; I think the concerns of many people arise in part because of how discouraged they are with the very strong import competition. Others focus on the long-term problems of the economy: the need for fiscal policy changes, the inflation problems, and so forth. Also, expectations are generally damped by the pause that we see. Although expectations are for growth next year, they are very shaky, and sometimes I wonder if they are held with enough confidence to get us over a few disappointments that we might see in the coming months.",329
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Mr. Chairman, I think it is fair to characterize the situation in the Eleventh District as one where we are continuing to see some improvement. Employment is increasing, industrial production is still moving up, and retail sales look fairly good. I will say that we have had slowdowns from earlier in the year. Weakness, of course, continues in the energy industry, and that might be getting a little worse. We also have had a downturn in construction but, as I indicated last time, I really don't think that's all that bad. I would pretty well agree with the Board staff's forecast. I would expect the fourth quarter obviously to look a little better than the third quarter. At least from the people I've talked to down our way, I have not picked up any real concern about a recession on the horizon as we go into 1985. The confidence factor, at least my own confidence factor, is not quite as strong as it was earlier. So, I'm not really complacent. On the other hand, my degree of discomfort, if you will, is probably not as great as that expressed by a number of people here. It seems to me that we're just coming into a period when there is uncertainty and when decisions become very difficult. I think there is an awfully great risk of overreacting to what might or might not happen.",272
-fomc-corpus,1984,Ms. Seger.,5
-fomc-corpus,1984,"I have been somewhat concerned about slowing business conditions for several months and I still am. I won't repeat all the signs; I heard them earlier and you have also. I will just add two things that I haven't heard mentioned so far. One is that in talking with a number of business economist friends who are neither kooks nor politicians I sense a big change in their attitudes in the last six weeks or so. In general their confidence in their forecasts for next year seems to have diminished. Frankly, if I had to point my finger at one factor that is responsible for this, it would be the signals that we have been sending from this building. They are looking at the slower monetary growth in the last four months and as a group are not interpreting that as poor marksmanship or the inability to hit our targets. They are interpreting these numbers as an actual tightening, particularly when they saw the fed funds rate shoot back up in August. So, I think that has led to some of the changes in attitude. Secondly, I was talking to a top economist for one of the Big Three auto companies who said that when they were doing their modeling and trying to forecast auto sales for next year they looked at the usual relationships among employment, income growth, credit availability and all the things that they know influence auto sales. They came up with a particular forecast, yet because of their lack of faith in that number, they peeled off about 300 to 400 thousand units from that because in the pit of their stomachs they didn't think they could hit the number that came out of their model. I am mentioning this to suggest that if there is a risk, I think it is that these numbers [forecast] for the fourth quarter and for 1985 will be too high rather than too low. I am not saying that there is a recession around the corner; I am not that good a forecaster. But I think there is the risk.",388
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"One thing that worries a person who looks at the business statistics all the time is a situation that can't very well be explained on the basis of past experience. And I can't very well explain why business is as weak as it has been in the last few months. That makes for considerable discomfort in a professional economist. I am very nervous at the present time. I felt confident that there would be a resurgence in the economy this fall because, like Lyle, I thought that we had just a temporary spell of reduced consumption. I thought the economy would come along in the fall because incomes and expectations and confidence and the real financial value of assets were all there to support strong consumer spending. I guess I still feel that. I am closer in view to the guy from than I am to the guy from in thinking that we're going to have a good Christmas. Nevertheless, there is no real indication of such a resurgence in attitudes of manufacturers and business people generally. The one thing that I have never dealt with is the problem of a steadily rising proportion of total markets being taken up with imports. Because we haven't had that in the 35 years that I have been an economist, it does occur to me that it's possible that retail sales can look good and strong and that plant and equipment spending can look good and strong and it won't do anything for the domestic economy if an important increment of that demand is going into imported goods. Therefore, it is quite possible that we could have strength in the indicators of the kind that Bob Forrestal talked about--retail sales and so forth--but weakness in the underlying performance of the economy. I think that's a big change from the past, and it seems to be a trend that is still persisting. The other thing that may have occurred--and it's very, very hard to know--is that, in fact, inflation expectations may have subsided over the last six months. We are getting some indications of that from these horseback surveys that people do on inflation. But I don't think they are much good; they really just reflect what has happened most recently. But it may be that we've had a period of low increases in wages and low increases in profit margins for a long enough time that people are now beginning to believe that by golly inflation isn't going to go back to 7 or 8 or 9 percent! You may remember in the spring that it wasn't hard to find outliers like Milton Friedman who thought that inflation would be at double digits by the end of this year. That has disappeared entirely. That also is something that could affect attitudes and the speed with which plans are put in place in order to beat price increases, because now people don't expect the price to increase whereas before they did. I would point out that the staff forecast is nothing to write home about in terms of great strength. The forecast is for a little over 3 percent real growth over the next five quarters. That's not a high number. I would also point out to you that there is an important presumption in that forecast and that is that real imports go no higher than they are now--that the whole import thrust is behind us. In the Greenbook, if you look at constant dollar net imports on a GNP basis, there has been a deterioration of $35 billion over the past four quarters. Over the next four quarters there will be none whatsoever, if that forecast is accurate. And that goes into the GNP forecast. If you don't believe that the import surge has ended, then you can't really believe a forecast as strong as the one the staff has shown. I don't know what you think, but I think that imports are still rising pretty darn rapidly and that the growth in imports will not be over until we can change the terms of trade in which the United States deals. So, the forecast of a little over 3 percent assumes that net imports stopped growing as of the third quarter, which is already behind us. That's not such a very strong forecast. Henry speaks about inflation. He says a base rate of 5 percent; I would say 4 percent. It is [not] zero. But unemployment isn't zero either. As a matter of fact, we have 7-1/2 percent unemployment; it has been hanging at that number, Henry, and I would argue that a 7-1/2 percent unemployment rate gives us room for further growth in the economy in the sense of looking at the performance compared with some kind of norm--what we would like to see ideally. The unemployment rate is about as distressingly above where it ought to be as the inflation rate is above what it ought to be. As I see it, it's a situation in which one can say inflation has done better than one would expect based on recent track performance. Unemployment is worse than it ought to be at this stage of a cyclical recovery. Therefore, although I'm not sure what is going to happen in the immediate future, I think that the economy is not going to go into a great resurgence in terms of output and employment and I think there is room for some more growth than seems in prospect in the numbers that we have.",1036
-fomc-corpus,1984,"May I just correct one comment on the forecast? I don't want to dispute the basic thrust of your argument, but on the import side we have identified a couple of areas--textiles and steel--where it is pretty clear that there was a buildup in imports in anticipation of trade policy actions that did occur and are going to, at a minimum, put us back toward the trend of where those imports were relative to GNP. It is partly because we have taken out that small piece--$2-1/2 billion in 1972 dollars--which is not trivial in terms of the numbers we are looking at. It's 2 or 2-1/2 percent, essentially, in current dollars. We have taken that piece out and allowed some payback of it so that we get the absolutely flat picture that you so accurately described. So we do have a continued rise in imports at least to the middle of next year absent that factor, which tells us the dollar's depreciation, putative depreciation, takes effect. But the reason you get the picture in the Greenbook is largely because we have that offsetting payback in the short run on imports.",234
-fomc-corpus,1984,"Well, am I looking at this table correctly?",10
-fomc-corpus,1984,"No, that's right.",5
-fomc-corpus,1984,A year ago you had a plus $12 billion; in the third quarter of this year it's a minus $22.6 billion. That's a change of $34-35 billion.,37
-fomc-corpus,1984,"No, no--",4
-fomc-corpus,1984,"And now, with this little $2 billion difference, you have essentially stability from now on out?",20
-fomc-corpus,1984,Is this imports of goods or goods and services?,10
-fomc-corpus,1984,The only one they have in constant dollars is goods and services. I am looking at page 1-21.,23
-fomc-corpus,1984,"But I think the staff's forecast is for some increase in the constant dollar value of goods counterbalanced by a decline in the services component, which largely reflects reduced investment income.",35
-fomc-corpus,1984,"Well, but the basic story is correct. Third-quarter [imports] of goods were something around $100 billion 1972 dollars, which is close to $20 billion higher than it was a year ago. [Unintelligible] another $3 or $4 billion in goods because you have oil in there over the forecast period. So, imports of services decline somewhat and that gives you the flat number on a GNP basis.",88
-fomc-corpus,1984,"And that is in the GNP forecast. Am I right, Jim?",15
-fomc-corpus,1984,Correct.,2
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"I am seeing in my District some of the change in attitude that has been commented on by others. I had a meeting with about a dozen chief executive officers of large companies last week and their consensus was that business had turned toward the soft side. They were generally concerned about inventory levels; it was not that inventories had gotten out of control, but the focus of these CEOs had moved to the control of inventories. The retailers spoke of a good Christmas instead of their previous very optimistic expectations about the Christmas season. They are reassessing their prospects in the retail area, and this group included four national retailers who had a pretty good feel of conditions nationally. They were focusing particularly on [sales in] recent weeks. In the manufacturing sector, one thing that struck me was that without exception, none of them sees any inflation anywhere either in what they buy or in their ability to change prices of what they sell. They relate this principally to the import competition, which seems to be pervasive. All of them one way or another seem to be experiencing that across the board. The other thing that impressed me was that they all felt that wages were under complete control--that settlements that had occurred were very modest indeed, and their expectations about wage settlements were of the same variety. The housing area has been fairly stable; we have had some softness in single-family starts offset by multifamily starts. In the appliance manufacturing area, we have seen specific reductions. For example, the GE manufacturing facility in Louisville has just announced another 1400 layoffs, including about 300 white collar workers. In the textile area, where import competition has a big effect, four plants in Arkansas have just been closed involving about 22,000 workers. The shoe industry in Missouri is in extremis, as they say, in terms of import competition. Agriculture in particular is hurting now because of rains that are delaying harvesting and causing some problems. We are getting reports that harvesting of animals is including breeding stock and that is an indication of problems there. So, when I put the whole thing together, I see a change of attitude and conditions from a slowing in the economy to an economy that has flattened out. My judgment is that the staff forecast is probably optimistic for the fourth quarter and for next year as well. My best guess is that, absent a significant change of policy soon, the next move in the economy will be down.",477
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,On the other side of Missouri--,7
-fomc-corpus,1984,It's a very thin edge.,6
-fomc-corpus,1984,"But an important thin edge. In the Tenth District there has been no improvement in those areas that I have expressed concern about before--principally agriculture, energy, and the aircraft manufacturing industry. There are a couple of factors, however, that may influence the future. One, in the agricultural sector, is the Administration's program that was announced a month or so ago for delaying or setting aside some of the debt of the producers. That is now being put into place and they hope to have it operational by January 1. For your information, it involves among other things setting aside 25 percent of a producer's total debt up to $200,000 and delaying that for a period of 5 years with no interest and no payback. It is a guarantee program also with respect to the commercial banks that are financing agriculture, if that comes about. It's a pilot program in five states--Missouri, Kansas, Nebraska, Minnesota, and Iowa. There is some mixed reaction from the agricultural sector, but it is something positive and they are trying to assess what the impact will be. After it is in place in these five states, they expect to expand it nationwide. With respect to the energy area, OPEC and the lowering of crude prices have damped the enthusiasm, which was not very great, in energy discovery. Another factor that has come to pass most recently was the announcement by Canada that they were going to reduce the price of natural gas imported into the United States by 25 percent. A lot of the Tenth District is very heavily engaged in natural gas production, so that could further depress any interest in discovery or exploration in that area. There is a fairly large segment of the District involved in high-tech business, particularly on the eastern slope of the Rockies. Most recently there have been rather substantial layoffs--about 2,000 people--in that area who were engaged in the production of semi-conductors. I'm told that the demand for semi-conductors worldwide has diminished but it has impacted this particular area more dramatically than I think any of us realizes. On the positive side, auto assembly [activity], in which we have a very large number employed, is going full out. Everybody is back and employed. Nonresidential construction is experiencing boom conditions in several areas in our District. Recreational activity is very high, with tourism and the ski industry looking forward to a very good year. I'd just note that in New Mexico, which is a very small part [of our District] population-wise but very important in the defense industry, is experiencing a boom particularly in the Albuquerque area simply because they are deeply involved in the production of defense equipment. With respect to the outlook, I would agree with those who think the Greenbook is about right or maybe not optimistic enough. I don't see the dangers that everybody expressed around the table that we are going to drop into a growth recession, if you will, in the fourth quarter and the first quarter of 1985--or even if we did, that that would be all bad. In other words, I don't see the potential of recession as a very high probability or any probability at all. On the national level, I would accept the staff forecast as being about right. And if we get it, I would be delighted.",662
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Mr. Chairman, I would like to associate myself with the Lyle Gramley school of predicting where we are. I think it's very typical toward the second year of an expansion to run into a slower rate of growth in the economy as the economy shifts to a lower rate of inventory accumulation. And I think that is exactly what is going on right now. I would assess the risks of a recession as close to zero. I think the underpinnings of the economy are very strong. The most surprising statistic of the last month was the 440,000 increase in employment. That--particularly the 55,000 increase in durable goods manufacturing employment--was much bigger than I had expected. These are not the kinds of numbers that one sees associated with an early stage of going into a recession. Furthermore, we have had a big decline in interest rates. I think this economy is going to be very responsive to that. We haven't had enough time yet to assess the impact the interest rate decline that has already taken place will have. We see one sign in the increase in new home sales and another sign in the strength of the stock market. Another sign is [unintelligible]. But I think we haven't yet seen the full effect on the real economic activity of the rate declines that have already taken place. So, I find the pessimism that I have heard around the table from many sources hard to understand. And I don't think this comes from the fact that I am living in a state that has an unemployment rate of 3.7 percent.",311
-fomc-corpus,1984,[Unintelligible.],6
-fomc-corpus,1984,"I am living in a state which has double that rate of unemployment and yet I share your view, Frank. I don't quite understand the level of concern that I hear other than that it is the inherent nature of central bankers always to look at the gloomy side. And I think the sense of balance would be not a major shift of policy as Ted Roberts is saying, but some modest though limited easing. I won't repeat the reasons why I think the staff forecast for next year is on balance probably as reasonable as one can expect. In our view it might be somewhat weaker in the fourth quarter because of inventory adjustment. But the general feeling in my District--what I hear from business leaders and from members of our board--is that there will be good Christmas retail sales and that manufacturing is not showing the earlier growth but is not showing any significant softening either. I also share Henry Wallich's view--I don't always agree with Henry, but I must say I do this time--that the business cycle is still with us and we should not be excessively alarmed about some tapering off and moderation. And even though 3 percent isn't high, Chuck, it seems to me that that is a very appropriate level--if that is what we actually get next year.",253
-fomc-corpus,1984,"Well, we could easily afford more.",8
-fomc-corpus,1984,"Well, I tend to assume that the dollar is going to come off more and I assume there will be inflationary pressures that will result from that--although they won't show up too immediately, I suppose. And I would be concerned about much more than a 3 percent growth rate. I think our capacity is growing around 3 percent and it may very well be that the structure of the economy and our comparative advantage has changed in the world and that we cannot expect to go back to a level of unemployment as low as we had in previous recoveries. Also, in those previous recoveries we got to double-digit inflation so we then tended to overreact the other way. It seems to me that a steadier, more prudent, balanced, calmer policy would be in the direction of easing which does not reflect as much concern about the economy as I heard around the table.",175
-fomc-corpus,1984,"Well, why don't we hear from Mr. Axilrod.",13
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Are there any more or less technical questions or comments?,11
-fomc-corpus,1984,"I have a technical question. As you try to sort out what is behind the weakness in M1 and whether it's from the demand side or from the supply side, if you look at reserves over the last couple of months--which is on the supply side and can be viewed in some rough way as a [base] for creating money--reserve growth, as you pointed out, has been quite weak. I wonder, as we go into November and December and try to guard against the continuation of this weakness, if there's any value in looking through the nonborrowed target more to reserve growth to try to reduce the odds of continued slow growth. Now, that presumes that part of the problem comes from the supply side. I just wondered technically if you have any reactions to that.",157
-fomc-corpus,1984,"Well, President Boehne, say the Committee wanted to achieve something like the alternative B path or, say, 7 percent growth in total reserves in November. [While] it's technically not impossible to conduct operations in an effort to achieve that if the Committee wanted it, it is impossible to tell you with any certainty, other than the way we do it in the Bluebook, what is likely to happen to the level of member bank borrowing. If the demand for those reserves doesn't happen to be there, we would have to keep throwing nonborrowed reserves out there until we force the demand on them--force the banks to create the required reserves. And that could take a very substantial drop in interest rates if the demand doesn't happen to be there. Our best guess, as is in the Bluebook implicitly, is that it would not take a substantial drop in interest rates, though I would [modulate] that a bit if the latest money supply figures I have seen hold up after a day or so.",203
-fomc-corpus,1984,I guess I am just getting at this supply/demand division that you mentioned. Does that give you any reading as to whether more of the problem lies with the supply side or the demand side?,39
-fomc-corpus,1984,"No, I think you have to look at the relationship between interest rates and velocity. Obviously, there would be more money out there, if we put in more reserves and there would be less money, vice versa. The way I would look at it would be to try to explain velocity. That is what I was trying to do. Does the fourth-quarter rise in velocity indicate that people didn't really want the money and that they are quite happy? Or does it indicate that people simply didn't get the money they really wanted and we had a temporary --in effect, arithmetic--rise in velocity and we're going to see that reflected later in income as they have to adjust to the fact that they don't have as much money as they want? I don't think just looking at the reserve-to-money relationship can tell you much about that.",164
-fomc-corpus,1984,"Steve, you commented on the possible impact of the MMDA alternative to less interest [on] transaction balances. I take it you were referring to the surprise in October?",34
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,But why wouldn't that kind of impact occur when the rates first dropped?,14
-fomc-corpus,1984,"MMDAs were rising in the first four months of the year at a slightly faster rate than they were rising in October. And then they stopped rising as market rates went up and banks didn't follow them all the way up. Then, with this recent very sharp drop in short rates, banks have lagged in the extent to which their MMDA rates have dropped. And, according to the figures we have for MMDAs, after declining for several months they started rising. At the same time we are observing in the figures--although we have problems with seasonal adjustments because we don't have them seasonally adjusted--a drop in NOW accounts and in the very recent figures also a drop in Super NOW accounts.",141
-fomc-corpus,1984,How big are Super NOW accounts?,7
-fomc-corpus,1984,The level? The level of NOW accounts is $140 billion approximately.,14
-fomc-corpus,1984,Super NOWs are what level?,7
-fomc-corpus,1984,$43 billion.,4
-fomc-corpus,1984,I think I have that number. They're about $45 billion.,13
-fomc-corpus,1984,Is that included in that $140 billion?,9
-fomc-corpus,1984,That's included; so there is $100 and some odd billion--,13
-fomc-corpus,1984,"Steve, are you saying that as the differential between NOW accounts and MMDAs declines, there's a percentage that shifts [to MMDAs] instead of the contrary?",34
-fomc-corpus,1984,"Well, [we were] reaching for hypotheses to explain this back in the second half of 1982 when interest rates dropped sharply and there was a sharp rise in NOW accounts. At that time there were no MMDAs. MMDAs have a lower reserve requirement than NOW accounts by a lot.",61
-fomc-corpus,1984,But that's an interesting thesis: that someone who accepts a lower-than-market rate gets more interested in changing to the market rate as the spread declines instead of as it widens.,35
-fomc-corpus,1984,"Well, I was thinking of these as monies that are in the market now that shift back into bank deposits as rates go down. And what bank deposits do they shift back into?",36
-fomc-corpus,1984,Not from NOWs to MMDAs but from the market to MMDAs.,17
-fomc-corpus,1984,"And instead of going back into NOWs, as we experienced in 1982--",17
-fomc-corpus,1984,Why would that make NOW accounts go down?,9
-fomc-corpus,1984,"Well, there are other things going on at the same time, obviously. But I was thinking mainly of shifts from the market and not using NOW accounts.",31
-fomc-corpus,1984,It keeps them from going up. I see the point.,12
-fomc-corpus,1984,But my question is: Why wouldn't that have occurred earlier than October? I am trying to figure out October and I can't.,25
-fomc-corpus,1984,"Well, that I really can't give an answer to. The banks' MMDA figures were running negative between 5 and 6 percent and then minus 1 percent in September. Then they rose to an 8.8 percent rate of growth in October.",52
-fomc-corpus,1984,For a while the money market funds were more attractive than the bank funds and that spread has declined more recently.,22
-fomc-corpus,1984,But why banks have chosen to lag their rates at this point is hard to answer.,17
-fomc-corpus,1984,"Mr. Guffey, did you have a question?",12
-fomc-corpus,1984,"Yes. With respect to the October number--and I know this won't make a great difference--do I remember correctly that last year when we did the seasonal adjustment those figures for the fourth quarter, including October, were revised up substantially? Would you not expect a similar event this year?",57
-fomc-corpus,1984,"What I have readily in mind is that for the second half of last year the rate of growth of M1 was raised 1-3/4 percentage points at an annual rate, of which 1 percentage point was seasonal and .7 was benchmark figures. This year, we've run through it assuming that money grew 7 percent in November and December and that changes the configuration somewhat in that the slowdown occurs more gradually over the course of the year. But you still would get, of course, a much slower growth in the latter months of the year than in the first several months of the year. But it will raise July, August, and September and make October less negative, say, by 4 percentage points depending on November-December. There's no doubt about that; it goes in that direction.",161
-fomc-corpus,1984,That's making a substantial--,5
-fomc-corpus,1984,"What if November-December were less than 7 percent? If, say, November and December were at 4 percent rather than 7 percent, would that have changed the seasonal distribution and in which direction?",42
-fomc-corpus,1984,I assume it would. I assume a lower growth rate would tilt a little more of the growth into the second half. But I didn't run it for that.,32
-fomc-corpus,1984,"I have a question about the contention that the increase in velocity in the fourth quarter might be explained by a supply side phenomenon rather than a demand side phenomenon. I know there are differences in speeds of adjustments, depending on the models, but if you had a stable money demand function and a restriction of supply and the short-run elasticities of demand with respect to interest rates were a lot less, what you would have is a phenomenon in which interest rates rose much more than they would have to to equate money demand to money supply. Well, that's not the problem we are looking at now. Interest rates are going down, not up. It seems to me you have to argue that if we have not had a downward shift in money demand either we don't really understand the factors affecting money demand, which is possible, or that our estimated nominal GNP figure for the fourth quarter is way too high.",179
-fomc-corpus,1984,"The only thing I would add to that, Governor Gramley, is that apart from the fact that the model [unintelligible] relationships, one could also argue that interest rates are higher than they otherwise would have been, obviously, if you had really forced in the money now. That's pretty much what I had in mind.",67
-fomc-corpus,1984,"Do you have something to say, Mr. Sternlight?",12
-fomc-corpus,1984,I was going to add a comment on the question Steve was raising earlier about why the banks have lagged in bringing down their rates on MMDA accounts. I think one reason might be that they see that as a rather easy way to get in some more retail money and lessen their dependence on day-to-day liability managed funds. I think some of them are conscious of the problems the big banks have had and wanted to strengthen their deposit base that way. That could have been a factor.,97
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"I'd just like to ask Steve a question about the use of his phrase ""searching for hypotheses"" here in view of the unexpected and unwelcomed decline in M1 in October, which seems to be getting worse. If there had not been a downward shift in money demand, are there alternative plausible explanations such as that we didn't provide enough reserves?",70
-fomc-corpus,1984,"Well, that's what I was trying to deal with. Reserves did drop somewhere around 15 to 18 percent.",24
-fomc-corpus,1984,Then interest rates would have had to rise.,9
-fomc-corpus,1984,Or drop a lot more to get the money in.,11
-fomc-corpus,1984,I mean if you didn't supply enough money and demand was constant.,13
-fomc-corpus,1984,"The other hypothesis that I tried to [test] was that if the demand was weakening in any event and if you supplied more money, interest rates would go down even more.",35
-fomc-corpus,1984,We've had enough hypotheses. We will go and drink some coffee.,13
-fomc-corpus,1984,"Let me express a few thoughts after listening to this conversation this morning, which I thought had quite a different tone than a month ago. The big surge theory seems to have disappeared or has strongly dissipated at least. Similarly, the economy has not been expanding very rapidly in recent months. We had that very large--and confusing to me--figure on employment in October. I would emphasize one point that a lot of people have emphasized already: The impact of imports on the manufacturing sector of the economy is pervasive. I won't go on at great lengths because it was explored earlier. But there are signs that what was happening earlier was that the expansion in demand was so great you could knock off 2 percent of it for imports and nobody felt the difference. Now, when domestic demand goes down, it makes a big difference. And I guess the imports actually have surged. You do get a sense of spreading layoffs among some pretty big areas in manufacturing industries right in the middle of this expansion. You mentioned textiles, shoes, lumber, and some others. And I think that affects the manufacturers' moods anyway--not just in terms of the current competition but I think they are looking at some of their investment plans. Some shoe businesses are going out of business, for instance.",253
-fomc-corpus,1984,Textiles too.,4
-fomc-corpus,1984,"And it is leading to some moderation there. But enough was said about that. As I look at the business picture, I think we have a rapid rate of inventory accumulation. That didn't look so bad when the economy was rising rapidly, but as soon as the economy stops rising so rapidly that rate of inventory accumulation has to come down. One senses that that's what businessmen feel. And I think the short-run question we have is: How will that happen? If retail sales are strong in the next few months, we can get a declining rate of inventory accumulation in a very smooth way and have a good setting for business next year. If retail sales don't pick up in the next few months, I think we have a quite different kind of problem. The GNP figure for the fourth quarter may not be a bit different in total but it's going to include more inventories and less sales, and that has quite different implications for next year. And I don't think we know. Everybody reports on talking to retailers who seem to change their minds every two weeks about their feelings about sales--for good reason, I suspect, because there is some instability in them. I surely don't know, but if I had to guess I'd say the retail sales figure in October is probably going to be weak because autos presumably were down. The explanation that there are not enough cars [in dealer inventories] is beginning to wear a little thin on me. Maybe it's all true; there is something curious in that industry. I don't think the industry wants to produce many more cars. I am beginning to think they get a nice profit margin where they are. The dealers like it, manufacturers like it, and so long as they have the Japanese shut off why take on another worker with all the pension obligations and everything else? Although we'll get some expansion in production there, I guess it will not be very much. We are in a period of great uncertainty, particularly about what retail sales are going to do. I think plant and equipment [spending] is holding up fairly well. I feel more comfortable about housing than I did a while ago simply because interest rates are going down. I would comment that I don't have any particular quarrel with the forecast, but I think we ought to put a good deal of uncertainty around any forecast. I would point out that the forecast level has been successively lowered in recent meetings at the same time that interest rates have been declining fairly precipitously. We have a lower forecast now for economic activity for the next year than we had in August or in previous meetings, with interest rates 2 percentage points lower.",521
-fomc-corpus,1984,Is that right? I thought the level of real GNP at the end of 1985 was almost exactly what it was in the previous forecast.,30
-fomc-corpus,1984,No. I don't know what the previous--,9
-fomc-corpus,1984,"It was, but the near term--",8
-fomc-corpus,1984,But two forecasts ago we had a 5 percent increase in the third-quarter GNP and we're now going to have 1-1/2 to 2 percent. That's a difference of almost 1 percent [in level terms] in the estimate of one quarter's change. I think it was still higher in an earlier estimate.,67
-fomc-corpus,1984,Then it has been coming down?,7
-fomc-corpus,1984,"It has been coming down by whatever the right amount is. In a perverse kind of way, maybe compared to the comments that I heard from a lot of people earlier, I feel more comfortable about the forecast this month than I did last month, partly because interest rates are down and I think the housing forecast is better based. We have the exchange rate at least moving in the other direction; we are not under the same pressure. We have had some--it is so brief it is hard to tell--firming of commodity prices in recent weeks which is quite in contrast to the trend we had for several months prior to that. And we do have that surprisingly good employment figure in services and retail trade in October, which I don't understand. Last month I saw no danger, frankly, that we could overease within the practical scope of whatever we were going to do. This time I am not so sure. Beginning at the level of interest rates that we have and given the feeling I have about the economy, I could conceive that we would get overly enthusiastic in terms of easing, whereas I didn't think that was possible last month. In terms of generally posturing ourselves, I think we are in a far better position for a variety of reasons, given all the risks that exist, to not be too far behind the curve in easing if that is the way things develop. That's partly because we have the risks of the dollar; I would hate to have to do a lot of aggressive easing in a situation where the dollar is already declining more than one would like to see. I would rather be in a position where, if anything, we have the easing done and are in a position to tighten up a little if the dollar does get in real trouble at some point. But in terms of our general posture, it's partly--and the point has been made--that there is room, obviously, for the economy to grow more than 3 percent next year. I am talking about the probabilities. The inflation picture looks under enough control so that I don't think we have to worry about an explosion on that side apart from anything that would develop on the exchange rate end itself. It is not a current concern but could be a concern almost at any time looking to the future depending upon how things develop. And given the experience we have had, I don't feel any great sense of inability to prevent the economy from bursting out on the up side in the foreseeable future. If we had to tighten some down the road, so be it. I don't have the feeling that it would be an impossible job to keep the economy from an unfortunate and overextended surge of activity if we faced that possibility rather than the opposite one of cumulating excessive weakness in the economy, given all the risks and uncertainties that I see. And one factor I might mention in that connection is that in the rest of the world I still do not see many signs of ebullient economic activity, to say the least. The European economy still seems to me to be in a very sluggish phase. I guess the latest information from Japan is not so bad, but it's on the slower side rather than on the stronger side. And that has been the one economy that has been showing a pretty good rate of advance. The problems in the developing world are obvious enough. Where that all leaves us, I don't quite know. But I think we may have room for a little more formal easing here if that's what you want to do. But I don't know that we want to go overboard about it. I might say that in view of the monetary developments, I think the only question in the past few weeks was whether we should have been easier and put in more reserves and reduced the borrowing level. The reason that was not done was simply because I judged that the tone of the discussion and the instructions last time clearly reflected some concern if interest rates--and the federal funds rate in particular--were to go down around the 10 percent level or below and other rates were declining rapidly. There wasn't much eagerness for being very aggressive, so we weren't very aggressive. In fact, interest rates obviously did get to those levels and in those conditions it didn't seem all that urgent. But I don't know that I personally had the feeling that the interest rate developments were disastrously rapid in terms of lower rates, given all the conditions. And I am not sure I would want to conduct a policy that I thought would actively back them up again as a deliberate matter of policy. But with that much discussion, let us proceed.",913
-fomc-corpus,1984,"I would like to propose that we move to an area between alternatives A and B. I think we get halfway there if we only bring the borrowing level down to $600 million. If the fed funds rate is running now at, say, 9-7/8 percent on average and we reduce the borrowing level by $100 million, the rate is likely to come down to 9-1/2 percent or a shade above. I think the markets then will expect a discount rate cut at some point following that; and if that were a 1/2 point reduction, that would bring [the funds rate] down to 9 percent. It seems to me that to go all the way to alternative B would be a great mistake. Therefore, borrowing somewhere in the area of $600 million makes the most sense. We probably ought to adjust the fed funds range. I forget what it is now--8 to 12 percent? Maybe we ought to make that 7 to 11 percent. For the monetary target figures I would probably take numbers halfway between the [A and B alternatives]. I don't have a clear view on M1; it seems to me less reliable than it has at other times. But the target figure is there.",251
-fomc-corpus,1984,By going halfway in between you are making a final judgment of 1/2 percentage point on a figure that we may come within 5 percentage points of if we are lucky.,36
-fomc-corpus,1984,We did this past time; it was within 5.,12
-fomc-corpus,1984,Okay.,2
-fomc-corpus,1984,Within 10!,4
-fomc-corpus,1984,I am pretty limited by 10.,8
-fomc-corpus,1984,I understand.,3
-fomc-corpus,1984,That's all I have.,5
-fomc-corpus,1984,"You mentioned something about reducing the discount rate; I have a comment on that. That may be a market expectation, but I don't think there is anything technical that would raise the question of a decline in the discount rate if the funds rate were 9-1/4 or 9-3/4 percent or so. We can do it if we want to, but I don't see any dynamic in the situation that forces that decision.",88
-fomc-corpus,1984,But if the Board were to take the move and cut it by 1/2 point--I'm not saying that it would--the fed funds rate would go down by 1/2 point with that.,42
-fomc-corpus,1984,"I might mention: Somebody tells me that Citibank reduced the prime rate by 1/4 point--a small move on the down side, considering.",32
-fomc-corpus,1984,They're trying to influence these deliberations here!,9
-fomc-corpus,1984,They'll [unintelligible] one way or the other here.,15
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"Mr. Chairman, I don't want to put too much emphasis in our discussion on M1 in a single month, despite the magnitude of that surprise decline of 7 or 7-1/2 percent--I think that's what I heard Steve say--in October. If it carries over into this month, though, I think it deserves some weight given that there are so many uncertainties from the real economy that we've all been sharing with one another here. It's so difficult to forecast not only the fourth quarter but the first and second quarters of next year when I think there is a high probability of some difficulties. Yes, even the third quarter is still [uncertain].",134
-fomc-corpus,1984,"Let me just say a word about that M1 number. If I understand it, given the fragmentary information we now have for the beginning of the month, we would have to get a big increase in the second week of the month--",48
-fomc-corpus,1984,I realize that.,4
-fomc-corpus,1984,I will make an empirical comment that big increases don't ordinarily come in the second week of a month.,20
-fomc-corpus,1984,"Even before these figures, we had been forecasting a fairly big increase in the second week of the month. But that is an unusual time for that to occur.",32
-fomc-corpus,1984,You have a 7 percent projection for November?,10
-fomc-corpus,1984,That's what we had before the very latest figures. I feel confident it will be lower now.,19
-fomc-corpus,1984,Yes. A figure that pulls down growth for the month of October at the end of the month by 1 percentage point means that November is starting appreciably lower than what they were assuming.,38
-fomc-corpus,1984,"Yes, the level is roughly $3-1/2 [billion] lower than we were assuming.",22
-fomc-corpus,1984,So the 7 percent for November in alternative A--,11
-fomc-corpus,1984,It's not going to happen.,6
-fomc-corpus,1984,"Of course, it is now way out on the curve somewhere. I take it so is the 7 percent in alternative B.",26
-fomc-corpus,1984,"Well, it is harder to get those figures in November. I don't think there is any question about it. Of course, if we get some momentum, it's not hard to get a big one-month figure. December could be anything. But it's going to be hard to get a big figure in November.",61
-fomc-corpus,1984,"If it were a perfect world--which it isn't, of course--the ideal targeting would be something around the midpoint for M1 and M2. We're getting somewhat different information from M2. Maybe it is a relief in that we are not getting quite the same message as from M1. But [the midpoint] obviously is not a potential in either of the alternatives as regards what could be done the rest of the year and beginning in the first quarter in terms of getting levels up to a point that would be consonant with a reasonable rate of real growth in the economy. There is no point in belaboring the lessons from the real side of the economy. And you are tired of hearing me talk about risks in the financial system--in thrift institutions, agricultural banks, and all the rest. I won't make my usual [comments] and take up your time--all this overhead sitting around the room--with that. But still, it seems to me that we can pay some more attention valuably to the aggregates, particularly M1 and M2, now. I am not clear with regard to M3. The risk of a growth recession is greatly enhanced if M1 is allowed to decelerate sharply for the whole fourth quarter. And even if we were to set an operating procedure and some short-term targets in which we overshot the midpoint, I don't see under these circumstances--with inflation being under control, the low M1 figure we have had, and the uncertainties in the economy--that that's a substantial risk. So, I come down for alternative A. Given what Steve and the Chairman have just discussed with regard to the growth of M1 and M2 for the fourth quarter, those are not modest figures but they're a long way from getting us to the midpoint [of our long-run targets]. As I understand it, very temporarily--hopefully very temporarily--the M1 figure is almost at the bottom of the range; it is within $400 to $600 million of the bottom. So, it seems to me that alternative A doesn't produce any kind of configuration vis-a-vis the midpoint of either of those two ranges to have any implication of overstimulation or the revival of inflation. Given what Steve and his colleagues have laid out here in terms of borrowing getting down considerably below Tony's number, it seems to me it would be well to go for the $400 to $500 million level. If that results in a fed funds rate rate below 9 percent or in the 9 to 9-1/2 percent range, that doesn't seem to me a problem. It was well said that we don't know what the implications are of the decline in interest rates that has already occurred. I agree with that. We also don't know the implications of 4 or maybe 5 months of decline in the growth of M1 particularly and to a lesser degree of M2. We don't know what the aggregates track will turn out to be going into the first quarter, so it seems to me that we are in a position of being able to change our targeting in an accommodative direction without any substantial risk of reigniting inflationary factors. I say again, at the risk of turning you all off, that if a fiscal policy question is going to confront the nation early next year, I would hate to see that confrontation with 1 percent real growth and unemployment heading for 8 percent or something of that sort. I vote for ""A,"" Mr. Chairman.",697
-fomc-corpus,1984,Mr. Roberts.,4
-fomc-corpus,1984,"I would like to reinforce what Governor Martin said. I think we are testing our luck by having had no growth in M1 for five months. And based on our inability to meet our past targets for M1 growth, I have no confidence that the projected November and December increases will occur unless we refocus our policy on reserve growth instead of interest rates, which is what I think we should have done. I think the reason M1 has not expanded is that we have been willing through our policy of targeting borrowing to resist the natural market declines in interest rates that otherwise would have occurred. I noticed that the growth in total reserves and M1 from the fourth quarter [of 1983] to October are essentially the same, for example. But in recent times we have had this precipitous drop in reserves. So my view would be that this is a time to effect a significant easing and to accomplish a growth in reserves that will result in a growth in money--without concern about the level of market rates.",202
-fomc-corpus,1984,Mr. Morris.,4
-fomc-corpus,1984,"Mr. Chairman, I would like to make a comment on our operating procedure. It seems to me that the events of this summer uncovered a significant defect in our current operating procedure in that, as a consequence of the Continental situation, the banks' borrowing behavior was very much different than we had assumed at the time of our meeting. They had a propensity to bid up the federal funds rate rather than come into the discount window and as a consequence we had a higher level of interest rates, which also fed into long-term bond yields, than the Committee had expected at the time of the meeting. If we have an excessively--",124
-fomc-corpus,1984,What meeting are you talking about?,7
-fomc-corpus,1984,"Well, it was the July meeting [or perhaps] two meetings ago. You recall we were not contemplating a federal funds rate that would go up to the 11-1/2 to 11-3/4 percent area. I don't think anyone around the table was talking about that high a level.",62
-fomc-corpus,1984,My memory is that that happened before that meeting or very close to it.,15
-fomc-corpus,1984,"I would have to look back and find out which meeting it was. But I think it is clear that there was a meeting in which as a consequence of this change in behavior we got a tighter federal funds market than any member of the Committee had talked about. And it seems to me that if we have a slower economy than we want now, perhaps part of it at least could have been produced by that higher level of interest rates than we contemplated. It seems to me that is the fact, and there may be a recurrence of this kind of situation in times to come. I just wonder whether we shouldn't take that into account in how we structure the directive. Since the borrowing [level] is not a key factor in the implementation of monetary policy, if that borrowing [level] produces unexpected results in interest rates, it seems to me that perhaps we ought to have the Committee take a look at the situation by conference call rather than just staying with it and accepting whatever rate comes out of it.",199
-fomc-corpus,1984,"Frank, one of the problems was that nobody could be sure how long that unpredictable behavior was going to continue. We didn't know how long that reluctance to borrow would continue and we certainly didn't want to take care of it in the directive because then we would have ended up [targeting] the fed funds rate more narrowly than I think--",68
-fomc-corpus,1984,"After hearing the discussion last month, I was almost tempted to raise the question on the agenda: Do you want to target the federal funds rate? That is what most people seemed to want to do last meeting. I wouldn't recommend it, but that's--",50
-fomc-corpus,1984,"I recognize that there are a lot of hazards in targeting the federal funds rate. I think the question is whether we ought to have a procedure under which, if the borrowing level is producing a significantly different level of rates than the Committee expected, the Committee should at least take a look at it.",59
-fomc-corpus,1984,"I think you're misreading this history a bit, if I may say so. There is no doubt that the funds rate got higher than was anticipated, given any particular level of borrowings. But this happened over a period of 4 or 5 months; we had several meetings when the interest rate was higher than we expected it to be and there was a deliberate decision not to do anything about it. When it first happened, the money supply was rising very rapidly in May and June and the economy was going along very rapidly and we had quite ebullient forecasts that people weren't objecting to as to the rate of economic growth. So, under those conditions people sat there and said, rightly or wrongly: ""The interest rate is higher than we expected it to be but it looks all right.""",160
-fomc-corpus,1984,"Sure. That's precisely the point. If it's coming from a strong economy and is expected, that's one thing. If it's coming from a deviant behavior on the part of the banks, that's another thing. It seems to me that our procedures ought to be able to differentiate these.",56
-fomc-corpus,1984,If we can distinguish.,5
-fomc-corpus,1984,"Well, the economy was visibly strong.",8
-fomc-corpus,1984,I don't know whether you have a particular proposal.,10
-fomc-corpus,1984,I have a proposal that we ask the staff to take a look at this problem--if you agree that it is one--and to design a proposal for dealing with it in the future.,38
-fomc-corpus,1984,This is not operative for today's meeting?,8
-fomc-corpus,1984,"No, I'm not talking about today's meeting.",9
-fomc-corpus,1984,"Well, perhaps we can return to that point.",10
-fomc-corpus,1984,"Beyond that, in line with my previous comments, I would prefer to stand back at the moment with alternative B until we get further information. I would be perfectly willing to support a move to a still further lowering of interest rates if the incoming evidence suggests continued weakening in the economy. But it seems to me that we ought to stop and take a reading with respect to what impact the rate declines we have already seen will have on the economy before we go further.",92
-fomc-corpus,1984,How long a time period are you talking about?,10
-fomc-corpus,1984,A few weeks.,4
-fomc-corpus,1984,What information are we going to get in the next few weeks? We know roughly what industrial production is going to be. The big information we're going to get is retail sales figures; there's nothing else of any significance.,43
-fomc-corpus,1984,Next Wednesday we will get the retail sales.,9
-fomc-corpus,1984,Is there anything else? When are durable goods orders? Is there anything else big coming out?,19
-fomc-corpus,1984,"No. We have personal income on November 19th; housing starts on the 20th; revised GNP figures on the 20th; and durable goods orders on the 21st, which will be the following week.",47
-fomc-corpus,1984,So we get retail sales and durable goods orders two weeks from now.,14
-fomc-corpus,1984,We are pretty sure that retail sales will be somewhat on the weak side.,15
-fomc-corpus,1984,"I don't think the retail sales figure is going to tell us much unless it is quite strong. If it is, I would think it significant. Myself, I think it is likely to be weak.",40
-fomc-corpus,1984,And the GNP revision is likely to be downward. So the first possible good-size plus number we could get would be on durable goods. That's hanging an awful lot on durable goods orders.,38
-fomc-corpus,1984,"And if the purchasing agents are right, we're not going to get a plus number.",17
-fomc-corpus,1984,"[Unintelligible] initial claims, basic commodity prices--",13
-fomc-corpus,1984,"We get commodity prices and initial claims, yes. Are you finished?",14
-fomc-corpus,1984,Yes sir.,3
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, I think it is important that we try to get M1 back on a moderate growth path as quickly as we can. Unless someone is prepared to make pretty heroic assumptions [about] shifts in demands for money, then it strikes me that a zero rate of growth over a four-month period is just about the maximum that we ought to tolerate. But I think we have to be very careful here and in particular take account of these lagged relationships that traditionally have existed between short-term rates and M1. We have pushed short-term rates down some 200 basis points, and in the past such a move usually has led to a very sharp spurt in money growth. It could be that this lagged response to the rate reductions we have already had will produce a fairly good pickup in M1 in November and December. I think it would be very desirable if we could finish with M1 close to the 6 percent midpoint at the end of the year. But at the same time, we have to keep in mind that the actions we take now affect reserve pressures over the next few weeks and are going to affect M1 in the early part of next year. I can see a danger that an overly determined effort to try to get near that midpoint could start us off in 1985 with an unacceptably rapid rate of money growth. But if you look at the quarterly rates of growth in M1 or the other aggregates for 1984 and see how much M1 in particular has decelerated, a fairly rapid growth in the first quarter of next year would not look all that bad to me. The bottom line is that I think our reactions should be rather cautious and measured. I prefer the aggregate outcomes anticipated by ""A,"" but at the same time I am not at all sure that it's necessary to push the borrowing target immediately down to $400 million with whatever reduction in the federal funds rate that might imply. I would feel more comfortable if we moved somewhat more slowly with a higher borrowing target initially for the next couple of weeks or so; if it becomes clear at that point that M1 is still below path, then I would be prepared to reduce the borrowing target accordingly. I would favor [the language in the Bluebook under] alternative Roman numeral II with certain changes in the second sentence for the wording of that and I strongly endorse Frank Morris' suggestion that it really is time for us to look at our procedures. I think everybody wants to get the money supply growing again, but we have no earthly idea how much we will have to reduce the borrowing target or how much the federal funds rate will have to come down to accomplish that. And I think that means that our procedures are pretty faulty. I doubt that I would end up with the same recommendation as Frank but I certainly do endorse his idea. In view of all these unexpected things that have happened this year, our control mechanism leaves a lot to be desired and I think we can improve it.",598
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"From my perspective what we have seen here over the past several weeks, and indeed months, has been something that I would consider an orderly adjustment in policy and interest rates and so on. There was at least a fleeting moment when I thought it might become a little messy but that did not materialize. In the broad context of the situation that we are looking at, I would not be troubled if interest rates went down a bit more in a context not unlike what Tony spoke about earlier. But let me turn to that in a minute. My view of the economy is a little different from many others. That is a factor in my thinking. But I would also caution against too much of a reaction to M1. We have been through M1 problems and we are going to go through them again. It seems to me that all of these fine arguments that Mr. Axilrod and others make about M1 really come down to the question of how many angels can dance on the head of a pin. I don't know how many. I do know that seasonal adjustment factors alone can make a big difference. We have looked at these data using a seasonal adjustment technique that's very respectable--I don't think it's any better than any others but it's very respectable--and it produces almost a $7 billion increase in the money supply from the first week of June to the second week of October rather than a decline.",280
-fomc-corpus,1984,"Better use that seasonal, Mr. Axilrod!",11
-fomc-corpus,1984,We need to have several seasonals and we can use the one that fits best!,17
-fomc-corpus,1984,50 seasonals!,4
-fomc-corpus,1984,"The point isn't that any one is better than any other. The point is that this series is notoriously noisy and we don't really understand it in the short run, and I think to pretend that we do is a mistake. The only thing we can be sure about in terms of M1 is that if it's surprising us on the down side right now, it's going to be surprising us on the up side at some point in the not too distant future. So, while I recognize the very special psychological if not political significance of M1, I must say I would be very cautious about going too far too fast in response to it even in the context of everything else that is going on. My thoughts on specifics would be somewhere between ""A"" and ""B."" I have no great concern about the money specifications themselves. Borrowing of $550 to $600 million wouldn't bother me. I would prefer, at least for now, to leave the federal funds range at 8 to 12 percent.",199
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"Well, no one can take first place away from me in recognizing the volatility of the M1 numbers. And I agree, Jerry, that the best thing to expect when we get a decline is a rise in the next month. But we have been sitting here looking at surprisingly weak numbers for quite a while and I think there is a cumulative effect that most people do feel has a significance. I think enough of M1 as an indicator that I am inclined to be considerably impressed by that or I presume that I am going to be impressed by it unless someone gives me very good evidence as to why I shouldn't be. As I review it, M1 has been surprisingly weak over a period of time and probably erratically weak in October. I just don't see how we could have such an economy that would produce a 7-1/2 percent decline in money as an indication of the future. But when you put it all together, it does amount to quite a bit. Because of that and the great damage that that's going to do us, as well as what I said earlier about the economy falling short and having room for further growth, I would not be opposed to alternative A as the way to go. I think it's time for a fairly pronounced further adjustment. And it won't hurt us; I agree with Paul that if it turns out to be wrong, we can tighten up a little later on. But right now it seems to me that the risks are such that we ought to be guided to a degree by this weakness in the M1 numbers. One advantage of a Wednesday meeting--maybe it isn't an advantage--is that at least we get the most recent figures that way. And I would point out that Steve has indicated that with these most recent figures it seems very improbable that we could get the M1 specs of alternative A. So, we ought to use something like the specs of alternative B since we already have fallen well short of what was put in the Bluebook for us last Friday. I also think that means we have to go to a different kind of description of our policy than just a repetition of the past one--focusing on what we would hope to see and would be prepared to tolerate in November-December following the surprising October weakness. I guess the Roman numeral II [draft] directive is a reasonable thing to be talking about. I would reduce the federal funds rate range from 8 to 12 percent to 7 to 11 percent, as Tony suggested; and I would regard the midpoint of that range, 9 percent, as entirely acceptable for the funds rate. [On borrowing], $400 million seems a rather marked change in operational targeting. I would put it at $500 million but I would not be prepared to accept a figure as high as $600 million, as I think Tony suggested. It is time for a little ""oomph"" to get into monetary policy. One final point: If in fact it is true that it is becoming the very general view out there that the inflation rate is going to be much calmer than was previously expected, that, of course means that nominal rates have to drop at least as much as the expected inflation rate--maybe a little more--in order to offset the deflating effect of that change in expectations. So, I don't know that we have gone too far at all in terms of the indicative real rates that would be associated with the declines we have had in nominal rates.",694
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Well, Mr. Chairman, given what I said earlier this morning, it's probably not difficult to predict where I come out. Of course, this behavior of M1 throws up some red flags and does suggest a cautionary attitude. But there are a couple of mitigating factors that I would like to put on the table. One, the debt number is still relatively high and that ameliorates my concern about the M1 decline a bit. Secondly, I really don't think that M1 is yet showing the influence of the lower rates that we've had in the past several weeks. Indeed, M1 might still be reacting to the higher rates that we had during the summer. So, given those lags and my view of the economy--which is that it's basically coming down to a sustainable level and we're going to get some pickup in the fourth quarter and into 1985 as suggested by the staff--I think we just ought to pause, rest on our oars, and let the easing that has occurred filter through to the economy and the money supply. M2 and M3 are behaving quite respectably and I am not at all uncomfortable with adopting a policy that would allow M1 to be in the lower end of the range for the balance of 1984. I would be very cautious about continuing to ease too much or pushing too hard in the direction of ease at this point. With respect to the directive, I would prefer alternative B, which as I interpret it is a status quo, wait-and-see alternative; and I would keep borrowing at $700 million with the funds range where it is. As for the directive [language] I would prefer the second alternative in the Bluebook, although in the second sentence of that alternative there is reference to M1 being in the lower end of the range and I'm not sure that it's necessary to flag that for the public generally. The bottom line for me, Mr. Chairman, is that I think we have time and I would stay where we are.",402
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"Well, Bob has given my speech; I am with him. I would like to suggest that there is a case that we could look at, Chuck, where the money numbers were giving us the same kind of misinformation they are now and that was in the late spring and early summer of 1980. Now, the situation was quite different. But we were looking at very, very large declines in real GNP and so we were experiencing weak growth of money because we were moving down the money demand function. And at the same time the money demand function was dropping a ton. Signs that the economy was going to come out of recession were beginning to emerge but that was very uncertain. So what we did--and I have to say that I participated in this--is that we kept pushing the interest rates down far enough so that finally we got the money growth that we had been contemplating; but when we got it we found that the economy was roaring upward. So money growth began to take place at horrendous rates and we pushed interest rates way, way up again and got involved in a situation of volatility of money growth and of interest rates which I think was neither necessary nor desirable. Now, this is a totally different situation than that.",248
-fomc-corpus,1984,You can get whipsawed. There's no question about that.,13
-fomc-corpus,1984,"Yes, and that's my point. I am optimistic that the economy is going to turn around; the signs of emerging strength are there. I am not certain, but I am reasonably confident that that's going to take place. I would not, therefore, want to see interest rates drop much further from where they are now. In this connection I would note that the staff forecast implies a federal funds rate for the end of 1985 in the 10-1/4 percent plus range and if we let the rate drop too much further, we are going to be looking at the need for a significant increase in interest rates to keep both the economy and money growth under reasonable control. One point I want to make is a more or less technical one: The staff has been telling us that seasonal borrowing is a very, very large part of the total adjustment plus seasonal borrowing. I think the number for the seasonal component is $300 to $350 million. If we adopted a borrowing target of $400 million, we are talking about $50 to $100 million of pure adjustment borrowing. I don't know where the federal funds rate is going to go but it could go down a lot further than to the 9 percent number that the staff is talking about.",250
-fomc-corpus,1984,I would assume that we are dealing with a time when seasonal borrowing would drop.,16
-fomc-corpus,1984,"Well, my thought would be that some of it would drop. Seasonal borrowing is running well ahead of where it runs with even much more total borrowing. We don't know for sure how much of it is going to stay because it is seasonal or distress borrowing and how much really represents the response to the rate. I think it will end up a little higher than one would normally think in any event.",79
-fomc-corpus,1984,A good part of the seasonal is arbitraging the discount rate. That was certainly true in my District. People just took advantage of the opportunity and they will stop doing it.,35
-fomc-corpus,1984,That [borrowing] will drop.,8
-fomc-corpus,1984,"The conduct of monetary policy would be better, I think, with a mix of a partial movement in the fed funds rate and a cut in the discount rate in order not to get the borrowing levels too low. If the borrowing level gets too low, I think there are complications.",56
-fomc-corpus,1984,I interrupted Lyle. I really was just thinking that we are at the time of the year when we ought to get a drop in the seasonal. That is all.,34
-fomc-corpus,1984,"Well, that could happen. I think the problems with the agricultural banks make it less clear that most of them have been playing the rate spread and that what we're likely to see is the normal seasonal decline. In any event, I would stick with alternative B. If we wanted to shave the borrowing level down to $650 million or so, that would be fine. I would want the federal funds rate to stick in the range of 9-1/2 percent plus or minus a little and wait and see what happens.",105
-fomc-corpus,1984,Governor Rice.,3
-fomc-corpus,1984,"As has been pointed out several times here, we've seen a good deal of easing since the last meeting. As a matter of fact, the easing is just about the amount that I had hoped for at the last meeting, so what has been taking place in the easing of policy is getting very close to my comfort level. I think it is important not to allow short-term interest rates to fall too far too fast. In this sense, I share Bob Black's feeling of the need for some caution in the rate at which we ease policy. Having said that, I think we have to do better than alternative B. I would hope for something between ""A"" and ""B"" and I am not uncomfortable as we move toward ""A."" I would be very happy to go along with Tony Solomon's recommendation of borrowing at $600 million and adjusting the fed funds rate range down to 7 to 11 percent and hope that the aggregates show some improvement.",191
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"In view of what I perceive to be the weak spots in business that could be spreading rather than about to improve, and given the sustained undershoot in M1 since the middle of the year, I am getting quite concerned about that problem. The well known volatility of M1 on a monthly basis begins to wash out when it has had a weak performance for four months. I take no comfort in the fact that M2 has been rising steadily because it did so preceding the last major recession that we had. I would be ready to err on the side of ease for a while and if that proves to be too much, we can always correct it later. By and large the one alternative that to me at least would be unwise is alternative B, since that anticipates a borrowing level of $700 million and an expected federal funds rate of 10 percent. In sum, I would be happy to see alternative A or possibly halfway between ""A"" and ""B."" And if we were to go for ""A,"" I would be a little cautious in going down to a borrowing level as low as $400 million right away; I would prefer to start at about $500 million for much the same reasons Governor Partee has already set forth.",249
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"On cyclical grounds, I really find it very hard to make an argument for any kind of easing. I see the risks of making the same old mistake of easing in the latter stages of an expansion. But the discussion of M1 may provide a justification for how I can perhaps get myself off the hook of being--",64
-fomc-corpus,1984,I didn't know we had that problem of easing too late in an expansion.,15
-fomc-corpus,1984,I think that has been what has often happened.,10
-fomc-corpus,1984,We always got accused of the opposite.,8
-fomc-corpus,1984,"Cyclically, I see--maybe it's inadequate tightening. But your remark, Mr. Chairman, that if we overshoot on the down side we could catch it again and tighten, does encourage me a little in a different interpretation of the situation. We obviously have very high real interest rates. As Chuck said, each time inflation expectations come down real interest rates go up. Over time we have to bring these down. The main way of bringing them down is to reduce the budget deficit. But I think it also has something to do with monetary policy in the sense that there isn't enough money in the economy to allow interest rates to be lower. Now, the difficulty is getting that money into the economy without going to a very high growth rate of the aggregates--which looks terrible, sends the wrong signal, and may never be caught up with and never be stopped. When you have a temporary reduction in demand for M1, or maybe a permanent reduction, that does provide an opportunity without seeming to gun the aggregates to increase the amount of money in the economy in a limited way and thereby put pressure on real rates. So, with that analysis, I could go somewhere between ""A"" and ""B."" I think $600 million would be the maximum, given the danger that borrowing could become too low and the funds rate might be destabilized.",269
-fomc-corpus,1984,[You mean] $600 million would be the minimum.,12
-fomc-corpus,1984,That's as far as you would go?,8
-fomc-corpus,1984,"That would be as far as I would want to go. And for the funds rate range, if this is an effort to bring rates down by increasing the stock of money and not the rate of growth of money in the economy, 7 to 11 percent would be acceptable.",56
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"Although there is some uncertainty as to where the economy is going, from the earlier comments it does seem to me that on balance the tone has changed very substantially from our past meeting and that we are in an environment where some easing is a reasonable expectation. I wouldn't make too much of the M1 number for one month but, as has been pointed out, this [weakness] has been persisting for some period of time now and just maybe it's telling us something. I would not in turn overreact, but as I look at the dots on the charts it seems to me that neither alternative A nor alternative B is an overreaction. Rather, I would think we ought to be aiming toward the middle of the range over a longer period of time as we look into the next year. And that leads me to alternative A. I would reduce the federal funds range to recognize a reduction that has taken place in the market--not so much because I think that 7 percent would be an operative rate. But if the federal funds rate were to get back into the 11 percent area with any persistence, I certainly think that would be an opportunity for a telephone call. With regard to the borrowings, I think going down to the level suggested in the Bluebook under alternative A is pretty severe; therefore, I would think a borrowing level of, say, $500 to $550 million would be appropriate.",282
-fomc-corpus,1984,Governor Seger.,4
-fomc-corpus,1984,"I am voting for alternative A for two basic reasons. One, of course, is what I see as the slowing in the economy and the sobering of the moods out there in the business world. Secondly, although I am not obsessed with what happens to M1, I am depressed with what has happened to M1 growth in the four months from July to October. In fact, what is shown even under alternative A for the final quarter this year does not look like red hot growth. Also, looking at M2, whose expected growth in the fourth quarter is 7-1/2 percent, which would be the midpoint of the long-term range, that doesn't seem excessive either. And then getting to where this would put us at year-end, we would be below the midpoint though within the long-term ranges for both M1 and M2. So, this doesn't strike me as easing irresponsibly. Also, when I look at the reserve figures, I am not surprised that monetary growth was as slow as it was in October. I guess I am surprised it wasn't slower when I see the dive in nonborrowed reserves and total reserves. So, I would vote for alternative A. In terms of the directive, I would use the number II alternative. I don't feel that the relationship between borrowing and the fed funds rate is clear enough to me to know what kind of borrowing numbers would come through. It seems to me this is somewhat of a crap shoot; there is obviously a number out there some place that is the right one, whatever that is, and it will give us fed funds in the range of 7 to 11 percent and would satisfy me.",335
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"In my opinion the pause in the economy and several months of flatness in the money supply argue for active support of growth in the money supply. Both ""A"" and ""B"" accept a shortfall in money, which I favor, but of the two I would favor moving toward alternative A. I would like to see that kind of growth rate in November and December. I think we ought to move carefully toward that. I wouldn't want to jump to a $400 million borrowing level. And as we test borrowing levels below $700 million, I would like to see a 9 percent plus federal funds rate and something around 9 percent triggering a call. I am assuming something quite far toward alternative A. In that assumption I assume no change in the discount rate. I am sympathetic with the people who have said that we have come a long way with regard to interest rates; they are down considerably and we ought to wait and see [the impact of] what we have already done. In addition, I still believe that the long-term underlying problem in the economy, and our top priority, is inflation. So, if we adopt something toward alternative A, we may have to reverse our actions if the recovery comes on as strongly as I think it might or if the growth in money resumes. But I prefer to take the risk of the reversal to the risk of waiting. That's where I come out.",281
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. With respect to the difference between alternatives A and B, given the money numbers that we have looked at, clearly a move to alternative A would suggest some further easing immediately after this meeting. We don't have a lot of hope, judging from the comments around the table and from the staff, that we will reach the level of money growth that is incorporated in alternative B; therefore, if we move to alternative A, we are going to be easing more aggressively immediately after this meeting. The second point is that in accordance with the staff's projection, alternative B suggests a federal funds rate in the neighborhood of 10 percent with a $700 million borrowing level. I think there is fairly good evidence that there has been some shift in the demand for borrowing and, therefore, the relationship between the borrowing level and the federal funds rate is perhaps less precise than in the past. Let me just make two points in that regard. One is that, clearly, the unwillingness of large banks to borrow following the Continental situation has reversed itself. They don't seem to be experiencing that unwillingness and as a result have come back to the discount window. The second and more important thing is what Lyle Gramley has spoken of and that is the relationship of the borrowing level to the federal funds rate when you incorporate seasonal borrowing into that borrowing level. Traditionally, seasonal borrowing has commenced growing around the first of the year, grows through August, and then declines to almost zero by the end of the year. This particular year that pattern did hold, but at a much higher level. Seasonal borrowing has been much higher than in the past. And there has been little or no decline from August forward, as we would have experienced in the past. We're now in the $300 to $325 million range for seasonal borrowing; if you consider that that has become less sensitive to interest rates, there is very little room. If you take that away from the total borrowing level of $700 million, we are at a frictional level, it seems to me; adjustment borrowing would be virtually nonexistent if we go to the $400 million level and at the frictional level if we remain at the [current] level. The conclusion that I would draw from all of this is that I would opt for alternative B because we don't know what relationships will come to pass as the result of the interest rate drops that have already taken place. I would consider those fairly aggressive--1-1/2 to 2 percentage points over the last five weeks. Secondly, I would also anticipate that if we adopted ""B"" as specified in the Bluebook with a $700 million level of borrowing, we would see some further easing in interest rate levels, maybe to the 9, 9-1/4 or 9-1/2 percent area. It would seem quite appropriate to me that we get to that 9 to 9-1/2 percent area, but I think we can achieve it with a $700 million borrowing level.",607
-fomc-corpus,1984,"Why do you say that, Roger?",8
-fomc-corpus,1984,"Simply because a good part of the seasonal is inelastic now or unresponsive to interest rate levels, which I think the record would reflect. Then you're really operating on a borrowing function of something in the neighborhood of $400 million and that is closer to a 9 percent federal funds rate than a 9-1/2 percent rate, as suggested by the Bluebook. Alternative A would get you there with a $400 million borrowing level.",89
-fomc-corpus,1984,"Well, I agree with you on the $400 million. I am just a little surprised that you said to continue the $700 million level would bring fed funds down to about 9-1/2 percent.",43
-fomc-corpus,1984,"I think fed funds right now are probably at the 9-1/2 percent level or thereabouts. If we don't do anything, I think we will see them come on down to that level. The last point I want to make is that if I were running policy by my own prescription, I would rather take ""B"" and a $700 million borrowing level for the reasons I have just expressed--expecting fed funds to come down to the 9-1/2 percent area. Then, if we saw a need for further easing, I would do it with a discount rate decrease rather than letting the fed funds rate run down to 9 percent or maybe even below 9 percent and then making a 1/4 or 1/2 point cut in the discount rate, which could push [rates] down to a level that I would not want to see occur.",179
-fomc-corpus,1984,May I just ask Roger a question?,8
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Roger, I've never looked all that closely at these seasonal borrowing arrangements. Do they have a terminal date?",21
-fomc-corpus,1984,"Yes, there should be a terminal date on seasonal borrowing; it can run out as far as 11 months, Chuck.",25
-fomc-corpus,1984,And you said it started in April?,8
-fomc-corpus,1984,"Historically, such borrowings start at the first of the year. Just to give you the figures from '81 to '83: On average, they would go up to a $250 million peak level in July and then decline back down to about $60 million in December. The pattern this year was that they started out at about $80 million in January, progressed up to a $350 million peak in August and are currently in the $310 to $325 million range; we don't see that falloff in the last half of the year.",110
-fomc-corpus,1984,That was why I asked that question. I just wondered whether there would come a point where you would want to clean up and call them off and say the year is over.,35
-fomc-corpus,1984,"If you consider that it is inelastic and that there has been a shift in demand for borrowing, then those banks that run out of their seasonal privilege are going to come back in for adjustment credit or they are going to be illiquid.",48
-fomc-corpus,1984,Then it will be adjustment credit at that point.,10
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"I came into this meeting with a lot of uncertainty about the economy and the outlook and, as it draws to a close, I really don't feel as though I have been overwhelmed by an abundance of clear vision.",42
-fomc-corpus,1984,The clearest vision we may have is that we're uncertain.,12
-fomc-corpus,1984,"I think we are all pretty much in the same boat of uncertainty. It really comes down, then, to how you posture yourself when you aren't sure and where you have more room for error. I think there is considerably more room for error on the expansion side than on the slowdown side. So, for all the reasons that have been given in support of that position, I come down on the side of alternative A. I think it is easier to undo a mistake on the stimulative side at this point than to undo a mistake of not being stimulative enough. I do think $400 million on borrowing is a little low; $500 million makes sense to me. Initially, my main concern is that it is a long time between now and the next meeting. If we tack on to the four months or so of slow growth in the economy and slow growth of the money supply, we could end up with six months of the wrong kinds of numbers. I am not a great fan of money but I think it does tell us something when it begins to cumulate like this. So, I think we ought to be awfully careful as we go through the intermeeting period. And if it turns out that the incoming figures on the economy are weaker and money continues to be weak and we don't have any really good reasons to explain it other than a weak economy, then I think we may have to become increasingly aggressive as we head toward the end of the year. I don't have strong feelings on the directive language; I have a slight preference for alternative I.",312
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Mr. Chairman, as I indicated a little earlier, my view of the economic outlook is not quite as pessimistic as some. I find myself in a dilemma because I find myself agreeing with the last speaker regardless of what he has said! Intuitively, the uncertainty that we all share, which is obvious, tells me that we shouldn't do very much that is different from what we are doing at this point. I really agreed with Karen Horn's description of the situation except that I come to a different conclusion about what to do about it. I would remain where we are, alternative B as prescribed, and then as events unfold move to a little more ease if necessary as opposed to going the other way to a bit more ease now in the recognition that we could move policy back. I would not go that way. On the borrowing assumption, however, I would not feel as strongly that it has to remain at $700 million. I rather agree with Roger: Alternative B as prescribed but with an initial borrowing assumption of $600 million would be all right with me.",214
-fomc-corpus,1984,"Since I have not looked at these directives very closely, the first one is just like last time, right? We would have to put in different numbers.",31
-fomc-corpus,1984,We are going to have to put in a lower Ml.,12
-fomc-corpus,1984,"I ordinarily have a strong bias toward not changing these directives in mid-quarter, but this time we are so far off on M1 that maybe it would be better to change the whole thing than to put in a funny number, which leads me to alternative II. A number of people, but not everybody, mentioned II. Let me ask whether we should work from II. I am not saying every dot and tittle of it, but the difference is that it involves saying something special about M1. That's the substance of it.",106
-fomc-corpus,1984,"I see a case for alternative I because I don't think we want to show a very high rate of money growth. If we do ease some, we would be doing enough. I don't think one would want to signal on top of that that something is being done that is really irrelevant [to our decisions], which is the sense [of the difference] between alternative I and alternative II.",77
-fomc-corpus,1984,"I am a little concerned also about the market speculating as to why we gave two-month instead of three-month growth rates. A lot of [market observers] will presume there are reasons; and if so, I wonder if they're worthy ones. If the numbers add up to what they add up to, then I don't see why we should put ourselves in the position of treating M1 specially in order to come up with a higher-sounding number when anybody who really is a Fed watcher is going to know exactly what it will mean and that it will say the same thing for the quarter as a whole. I have a mild preference for alternative I.",130
-fomc-corpus,1984,"I have not really examined this closely but the thought just occurred to me: Suppose we combine alternative I and II and avoid the two-month number. It may be a bad precedent since we haven't the vaguest idea whether we are going to come close to it for two months and part of the two months is already over. But suppose we said something like: ""This action is expected to be consistent with growth of M2 and M3"" at whatever [rates we decide]. Those rates are not changed in substance or even not changed at all. Maybe we could even say ""as indicated last month."" However, then we'd put in a special sentence about M1. ""In view of the shortfall in M1 in October it is anticipated that the quarterly figure would be""--whatever. And then maybe we should pick up this part ""More rapid growth would be acceptable in M1 in view of the substantial decline of M1 in October which brought that aggregate in the bottom half of its long-term range."" Or we could leave that last part off. Maybe that's the way to do it: Just put in a quarterly figure and a sentence on M1 and then say, just as you say here, that more rapid growth would be acceptable in view of the substantial decline. Make that the third sentence of alternative I.",263
-fomc-corpus,1984,"My objection to leaving it the way it is is this: It seems to me that either we make a mockery of having had targets or we have to ease an awfully lot more to get growth up to 6 percent. How can you reduce it from 6 percent to 2-1/2 percent just because you have had a bad month? Paul's way of dealing with that at least makes it understandable, I think.",87
-fomc-corpus,1984,At least we are admitting--,6
-fomc-corpus,1984,That's right.,3
-fomc-corpus,1984,But the number that we will put in there with that change will be something in the neighborhood of 1-1/2 to 2 percent for M1 growth in the fourth quarter.,38
-fomc-corpus,1984,It will be pretty small.,6
-fomc-corpus,1984,"Well, I don't think it is going to change whatever we put in anyway.",16
-fomc-corpus,1984,"That is the reason I would opt for alternative II, so we don't have to deal with it in mid-quarter.",23
-fomc-corpus,1984,I presumed we were going to put in 2-1/2 to 3-1/2 percent or compromise between them and put in 3 percent.,33
-fomc-corpus,1984,"Well, alternative II is only focused on the two months for M1.",15
-fomc-corpus,1984,"I know, but I presume that's the same as some quarterly figure.",14
-fomc-corpus,1984,"Yes, it's 2-1/2 or 3-1/2 percent, depending on--",21
-fomc-corpus,1984,"Well, it's going to take 1/2 percent bigger growth for the two months because we are one percent lower in October than we thought we were.",31
-fomc-corpus,1984,So we can't really put in more than 3 percent.,12
-fomc-corpus,1984,"Three is a nice round number and that implies a little over seven percent, I take it, for November-December. I don't even know what you have. What are you intending to put in here on the two alternatives? You said 7 percent for ""B."" What was it for ""A""?",61
-fomc-corpus,1984,"""A"" had 8-1/2 percent.",11
-fomc-corpus,1984,"[Unintelligible.] So, it is 8 or 8-1/2 percent, I guess. For ""B"" you had 7 percent and for ""A"" you had 8-1/2 percent and it is starting out a little low so that adds another 1/2 percent. So you would have 7-1/2 [and] 9 percent for those two months. If we put in 3 percent--if I'm doing this arithmetic right--that implies 8 to 8-1/2 percent for--",115
-fomc-corpus,1984,Something more--,3
-fomc-corpus,1984,"Well, 3-1/2 percent presumably implies 9 percent. If my arithmetic is right, it comes out about 8-1/4 percent.",33
-fomc-corpus,1984,"Yes, it's about 8-1/2 percent.",12
-fomc-corpus,1984,"Yes, that's right; you need 8-1/4 percent for November-December to get 3 percent for the three months.",28
-fomc-corpus,1984,"Well, our numbers are 3-1/2 percent for September to December and 8-1/2 percent for October to December.",29
-fomc-corpus,1984,With the new October figure?,6
-fomc-corpus,1984,"No, I am sorry. That's with the old October [unintelligible].",17
-fomc-corpus,1984,"Mr. Chairman, if you haven't written off alternative II altogether, I think you can do essentially that same thing fairly easily if you change the second sentence right after the semi-colon and say something like ""which would partly offset the unanticipated decline in October.""",52
-fomc-corpus,1984,There isn't that much difference between these two [alternatives]. The only difference is that one sentence really. It's a question of whether we state it as a quarterly figure or as a two-month figure.,40
-fomc-corpus,1984,That's exactly right.,4
-fomc-corpus,1984,The rest of this is all open.,8
-fomc-corpus,1984,"Well, not only have we used quarterly figures but, as I said before, Fed watchers are going to come out with the same arithmetic. Thirdly, if we do fall short of this 8 to 9 percent growth in November and December--",50
-fomc-corpus,1984,I don't know how you got that figure.,9
-fomc-corpus,1984,--it clearly makes it even fairly obvious to non-Fed watchers and casual Fed watchers that there was this enormous shortfall. I just don't see why we want to play around with moving away from the quarterly numbers. The minute we do that they are really going to take out their pencils and do all the arithmetic.,63
-fomc-corpus,1984,"I think the only issue here, which is not a substantive issue but a cosmetic issue, is precisely that: whether we want to cite a two-month number--whether that's a good policy on balance or not. I have some sympathy for saying it's not. We've pretty consistently used quarterly numbers.",58
-fomc-corpus,1984,We don't have any real reason for the shortfalls and how to read them.,16
-fomc-corpus,1984,"I guess I am saying that we might as well stick with the quarterly figure. In either event, I would make a special sentence about M1 and say whatever we want to say about a shortfall in it.",43
-fomc-corpus,1984,"Let me ask a minor question, Steve. If my recall is correct, and it probably isn't, didn't we always use the word ""reduce"" rather than ""decrease"" existing pressures on reserve positions?",41
-fomc-corpus,1984,"Oh heavens, I don't remember.",7
-fomc-corpus,1984,You think there's a difference?,6
-fomc-corpus,1984,Yes. People are going to wonder why.,9
-fomc-corpus,1984,I can't imagine that they will.,7
-fomc-corpus,1984,"But am I correct that we always used ""reduce""?",11
-fomc-corpus,1984,I don't know. I can check.,8
-fomc-corpus,1984,"Well, let me try to resolve the problem we have here and then we can come back and try to write something. Again, I don't think there is a substantive difference. After ""This action is expected to be consistent with growth of M2 and M3"" why don't we put in the same figures we had before. We're within a half percent of them, aren't we?",76
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Let's say ""growth of M2 and M3 at annual rates of 7-1/2 and 9 percent."" All right?",28
-fomc-corpus,1984,"That is, we are projecting to be within that; we are not actually--",16
-fomc-corpus,1984,What do you mean?,5
-fomc-corpus,1984,"Well, the October figures are quite different: 6 percent for M2 and 10 percent or so for M3.",25
-fomc-corpus,1984,"It's still a reasonable target, right?",8
-fomc-corpus,1984,"Yes, that's right.",5
-fomc-corpus,1984,"Shall we stick a phrase at the end of that such as ""as indicated at the last meeting"" or something like that? Then go with another sentence on M1? Well, maybe we don't need that ""as indicated at the last meeting.""",50
-fomc-corpus,1984,"You could say ""continue to be consistent.""",9
-fomc-corpus,1984,"Except we're changing the specifications, though. So, ""continue to be consistent""--",16
-fomc-corpus,1984,"No matter what we do, they are going to grow at those rates.",15
-fomc-corpus,1984,"""M1 is expected to grow over the period by"" whatever. Let's say 3 percent tentatively, which is halfway between and a round number. We could just put a semi-colon and then say ""more rapid growth would be acceptable in view of the substantial decline of M1 in October."" Or we could say ""M1 is expected to grow over the period by 3 percent, less than anticipated earlier in view of the shortfall in October.""",92
-fomc-corpus,1984,That's better.,3
-fomc-corpus,1984,What period are we speaking of?,7
-fomc-corpus,1984,From September.,3
-fomc-corpus,1984,"Oh, September to December.",6
-fomc-corpus,1984,"And then we could go on to say ""In the light of that shortfall, more rapid growth in that aggregate would be acceptable.""",27
-fomc-corpus,1984,"Do you want to say ""In view of the negative number in October"" rather than ""the shortfall""?",22
-fomc-corpus,1984,"I think ""decline in October"" is all right. Then we're going to say more generally ""Lesser restraint on reserve positions would be acceptable in the event of significantly slower growth in the monetary aggregates."" I sure don't know whether we need that greater restraint sentence.",53
-fomc-corpus,1984,"The whole thing starts out with ""decrease somewhat."" I wonder whether we want the ""somewhat.""",21
-fomc-corpus,1984,Let's get to that point. Is that general framework of the directive--just in terms of the language--all right?,24
-fomc-corpus,1984,Mind over matter.,4
-fomc-corpus,1984,"Let me take the funds rate first; that seems to be easier. Most people have said 7 to 11 percent, which makes sense to me. It's more centered and we raised it not so long ago. I think after all this period of time it might be appropriate to have some gesture toward reducing it.",63
-fomc-corpus,1984,It's a lucky number.,5
-fomc-corpus,1984,"Generally, we are at 7 to 11 percent?",12
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,I guess so.,4
-fomc-corpus,1984,"The critical figure will be the borrowing assumption. There we are dealing with a great deal of uncertainty. I think all these comments about the seasonal borrowing are relevant but also I suppose it's possible that the seasonal borrowing will decrease now that market rates are so low. We had an experience recently with a big bank waltzing in for a large amount of borrowing for no apparent reason. And if one or two big banks waltz in during a reserve period, that uses up all our borrowing here and we're left in a peculiar position. We have a full range of proposals here--from $400 or close to it to $700 million, which averages to $550 million.",134
-fomc-corpus,1984,You may have two groups of dissenting votes.,10
-fomc-corpus,1984,"I do think there is some danger in easing too aggressively here. I don't think that analogy in '80 is a terribly good one to give because we had those credit controls and other factors that were driving down M1. But we have had a pretty good decline in interest rates. I personally feel a little more comfortable about the outlook simply because interest rates have declined. I think we have to show some motion here and that seems to be the prevailing sentiment. What anything means I don't know. As a practical matter, I take it nobody would be very happy at this stage, contrary to a few weeks ago, to see the rates backing up appreciably in the market; the bill rate can go up a little from where it is today and so forth. But I don't know what borrowing level provides assurance against that.",163
-fomc-corpus,1984,I'm afraid that at $700 million there might very well be some backing up.,16
-fomc-corpus,1984,"I agree with that. We don't know that, but I would agree that the odds are substantial in that case. It could happen with $600 million but that is less likely, depending upon where you think it is now. Driving it down to $500 million seems to me a bigger step than is appropriate at the moment. Maybe it will be appropriate in a few weeks. My view is that that could put the funds rate at 8-1/2 percent, given--",96
-fomc-corpus,1984,If we have a volatile--,6
-fomc-corpus,1984,I thought we had a staff projection that $400 million would be consistent with 9 percent.,19
-fomc-corpus,1984,"Yes, that $400 million would be 9 percent.",12
-fomc-corpus,1984,"We think that borrowing of $400 million will keep the funds rate slightly above the discount rate. And it might go below that; I don't think it will. A lot depends on how we manage operations and the signals given. In general, that's probably right.",52
-fomc-corpus,1984,"But, if the markets think that we're going to be easing aggressively, they will go even further, Chuck.",22
-fomc-corpus,1984,They probably won't cut it much below the discount rate.,11
-fomc-corpus,1984,"Well, I ought to add a caveat, Governor Partee. With this two-week reserve period what President Solomon mentioned is perfectly right. If we have to push reserves in aggressively to get the borrowings down or if some big bank comes in early and creates a lot of excess reserves and the funds rate tends to go down, anticipations of a discount rate decrease will come into play and the actual funds rate may actually fall below the present discount rate. Now, I can't imagine that the borrowing will be particularly high in those circumstances, but there is some give there.",114
-fomc-corpus,1984,It would be pretty eccentric to have the funds rate much below the discount rate.,16
-fomc-corpus,1984,"Yes, not for any sustained period. But it has been for a few days; it was on Monday and Tuesday.",24
-fomc-corpus,1984,Maybe we just ought to provide some reserves and forget about this borrowing number.,15
-fomc-corpus,1984,"We could do that, but we're going to get the--",12
-fomc-corpus,1984,We don't know what will happen then.,8
-fomc-corpus,1984,"If the money supply is weak, we are going to drive [the funds rate] way down and then you get into the '80s [situation]. That's what we did in 1980--",41
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"--until we finally stopped and the funds rate got way below the discount rate. Maybe that's what we want to do at the next step but I am not sure we want to do it right now. Given the way this market has been acting, my gut feeling is that we ought to be in the $550 to $600 million range. And if the rate shows signs of backing up at that level--unless we get some really good business numbers--we ought to let borrowing go down further pretty promptly but do it over [a few weeks]. We have one two-week reserve period and then we have another two-week reserve period. I'd do it by the next reserve period maybe, but not all at once. Are we in the first week of a reserve period? No, we're just ending a reserve period.",162
-fomc-corpus,1984,It starts on Thursday.,5
-fomc-corpus,1984,The reserve period starts tomorrow.,6
-fomc-corpus,1984,"Well, by the beginning of the next reserve period we will have the retail sales and the durable goods orders figures and some more data on unemployment claims, won't we?",33
-fomc-corpus,1984,"We will have more flexibility and more options to move or not to move on the discount rate if we go down to the $600 million, or possibly the $550 million, level. I think the $600 million level is better, because otherwise we are going to have real problems with what may be a psychological situation in the markets where the expectations are so heavy for a discount rate cut and so affecting behavior that we may feel that that's what we want to do if conditions indicate further easing.",98
-fomc-corpus,1984,"That second reserve period, if I am reading it correctly from the calendar, starts with Thanksgiving. Is that a problem?",24
-fomc-corpus,1984,We serve pressed turkey here!,6
-fomc-corpus,1984,You have a thing for pressed turkey.,8
-fomc-corpus,1984,We don't want to end up being the turkey!,10
-fomc-corpus,1984,That second period may be eccentric because of the holiday.,11
-fomc-corpus,1984,"There might be reserve problems because of the holiday then, but I don't think it presents any problem for edging the borrowing down.",25
-fomc-corpus,1984,"Yes, particularly--",4
-fomc-corpus,1984,--particularly at the beginning of the period. It could at the end of the period.,18
-fomc-corpus,1984,"I don't want to be too arithmetic about it, but the great majority of the Committee is within $50 million of $550.",26
-fomc-corpus,1984,I could accept $550 million as a first step.,11
-fomc-corpus,1984,What would the second step be?,7
-fomc-corpus,1984,"Well, it would depend on whether we had to go further. We would have to go down toward $400.",23
-fomc-corpus,1984,If the money supply is weak and the economy is weak and so forth--,15
-fomc-corpus,1984,"If everything is still weak, probably.",8
-fomc-corpus,1984,Or a discount rate cut rather than go completely down to $400 million in the second step.,19
-fomc-corpus,1984,Maybe both.,3
-fomc-corpus,1984,But that would be a half-point cut.,9
-fomc-corpus,1984,"I would just remind you that the borrowing level was just reduced from $750 to $700 million this week. And federal funds today--although to be sure it's Wednesday--are trading below the discount rate. I don't know what all of that means and the funds rate shouldn't remain there, obviously, but we've already taken one cut from $750 to $700 million that the market doesn't know about. Now you're suggesting cutting it another $150 million.",89
-fomc-corpus,1984,"But at the conference call, you remember, there were some people who wanted to ease aggressively and some of us--and I was in the other group--wanted to ease only to a point where we avoided going down to 9-1/2 percent [on the funds rate]. We thought that the Chairman and the Open Market Desk might go as low as $650 million on the borrowing assumption. Some of us hoped the rate would not go much below 10 percent. I think they stayed very faithfully within the spirit of the consultation by bringing borrowing down only to $700 million. And the average fed funds rate recently has been a shade under 10 percent. So I think it was a perfectly appropriate move; I was a little surprised it didn't come earlier because the market situation was very strange. In a sense, that's past history almost, Roger, and I think--",175
-fomc-corpus,1984,Let me be sure to be understood. I am not critical of having moved to $700 million. I am just noting the fact that we very recently moved to the $700 million level and to talk about taking it to $550 million seems to me to be a rather large change in policy.,59
-fomc-corpus,1984,You have a pretty good microscope if you can tell the difference between $750 and $700 million.,20
-fomc-corpus,1984,"Well, to be sure.",6
-fomc-corpus,1984,It was a feeble gesture to--,8
-fomc-corpus,1984,"I cannot tell the difference, but the fact of the matter is that there has been an overt move and we don't know what the result is.",29
-fomc-corpus,1984,"I personally think that whatever we do the market is at a point where it is likely to try to run beyond it, which is another reason I would favor a more conservative approach. I think the market psychology is a big factor here.",47
-fomc-corpus,1984,"There is the possibility, of course, that the market, having already discounted a discount rate decrease and a move [by this Committee], might react adversely if we didn't move enough.",36
-fomc-corpus,1984,"If they did, then we ought to move more; I don't think anybody is talking about a backup.",21
-fomc-corpus,1984,"I still feel that $600 million gives us the maximum flexibility to respond to any changing circumstances either in the market psychology or in the real economy or--well, I don't think we'll see much change in the money numbers in the next few weeks.",49
-fomc-corpus,1984,"Frankly, the difference between $550 and $600 million is not going to be visible in anything we do. It's within the range of error that we hit anyway.",34
-fomc-corpus,1984,[It's not] the difference between $550 and $600 million. I think the only thing that matters is the extent to which there is an implicit automatic assumption that you'd go down further to $500 or even $400 million.,46
-fomc-corpus,1984,"I don't think the assumption is that we would automatically go down; the assumption is we would go down if the money numbers come in weaker than anticipated and if the business and general news is biased on the less strong side rather than the strong side. If we come up with a positive retail sales figure in October and a strong new orders figure and the money supply is up $3 billion in the week of the 15th and another $2 billion in the following week, the 22nd, I don't think there's any assumption that we'd do anything.",110
-fomc-corpus,1984,Would it be at $550 million then?,9
-fomc-corpus,1984,"If we start at $550 million, it would.",11
-fomc-corpus,1984,"We also ought to take a look at this seasonal question. I don't know whether we'll get all that much detail but I have a feeling that we may get the decline mainly from the seasonal dropping off. I'd forgotten about it until it came up today that this seasonal borrowing must be running toward the end of its period and that, therefore, there will be a drop in seasonal borrowing.",76
-fomc-corpus,1984,Why won't they just renew it for the following year?,11
-fomc-corpus,1984,"Oh, I don't think they can; it's not really done that way. They have to have a time when they're out of debt, I believe.",30
-fomc-corpus,1984,It may be a big factor this year. Normally it's not a big factor because the variations in the other borrowing and the errors in their relationship swamp it. But we're getting so close to it now that it may very well be a factor and we would certainly want to look carefully.,56
-fomc-corpus,1984,"It has been a factor, hasn't it, Steve?",11
-fomc-corpus,1984,"Well, it's a factor technically in the intercept, not necessarily in the slope of the relationship.",19
-fomc-corpus,1984,Why don't we compromise by saying the initial borrowing assumption is in a range of $550 to $600 million and leave it [to you] as you feel your way over the next couple of days?,40
-fomc-corpus,1984,How about $500 to $550 million?,9
-fomc-corpus,1984,$600 to $700 million.,7
-fomc-corpus,1984,"We're getting pretty narrow. From my standpoint, if you want to make it $550 to $600 million, it's fine with me. I'll make it whichever I feel like.",35
-fomc-corpus,1984,"That's the actual state of the art, I guess!",11
-fomc-corpus,1984,"I think everybody is saying we play this a little [flexibly]; we've been playing it this way anyway. It depends upon what happens in the market. If the market gets way ahead of it, we go slower; if it doesn't, we go faster.",52
-fomc-corpus,1984,I'd just like to see you have the flexibility to go to $400 million if the market conditions and the economy dictate.,24
-fomc-corpus,1984,I think that is within this anyway. You can have an argument as to whether the market conditions and the economy dictate it but it's certainly within the range of where we can go as I understand it.,40
-fomc-corpus,1984,"I would like to think that we're doing this within the context of alternative A, but we're--",19
-fomc-corpus,1984,"Well, I don't know what alternative A means. That's just a question of the number to put in, isn't it?",24
-fomc-corpus,1984,I just say that to give a sense of--,10
-fomc-corpus,1984,"Frankly, the number that I thought of putting in there--but it's not going to make any difference to me--is the round number that is halfway between ""A"" and ""B."" If we do it on a quarterly basis, I'd put in 3.",54
-fomc-corpus,1984,I have no problem with 3.,8
-fomc-corpus,1984,"There's a danger in the sense that the market is so bullish that they are going to seize on almost anything. We're getting a very significant bond market rally; I don't know that we've seen evidence of it in the stock market. Whatever we do they're going to do more, if they think there's more to come.",62
-fomc-corpus,1984,"To some extent that doesn't bother me because I don't think the general business picture is very risky on the up side. And if it gets moderately risky on the up side, we can tighten up. I don't want to get the money supply [expanding so rapidly] in the next few months that we've got a problem, but--",66
-fomc-corpus,1984,It gives you one more chance to adjust the portfolio if you're an FCA or something like that.,19
-fomc-corpus,1984,"[Steve], did you write down the language that we had? I'll fill in some numbers as you go along.",23
-fomc-corpus,1984,Maybe Normand has been writing.,7
-fomc-corpus,1984,"In sentence number one, I don't care whether it says ""reduce"" or ""decrease."" We'll take a vote on that. ""In the implementation of policy in the short run, the Committee seeks..."" ""To reduce"" is a better Anglo-Saxon term; no they're both Latin, aren't they?",61
-fomc-corpus,1984,"The staff sees no difference, but--.",9
-fomc-corpus,1984,"""Reduce"" sounds better to me. ""...seeks to reduce somewhat existing pressures on reserve positions. This action is expected to be consistent with growth of M2 and M3 at annual rates of around 7-1/2 and 9 percent during the period from September to December."" We're putting in there the same figures we had before; we're not very far away. Now I don't remember what I said before.",84
-fomc-corpus,1984,"""M1 is expected to grow over the period at a rate of around 3 percent....""",19
-fomc-corpus,1984,3 percent semi-colon.,6
-fomc-corpus,1984,"Or [comma] ""less than anticipated earlier in view of the decline in October.""",17
-fomc-corpus,1984,The unexplained decline.,5
-fomc-corpus,1984,"And you thought about possibly putting in there ""In light of that decline, more rapid growth would be acceptable.""",22
-fomc-corpus,1984,In light of that decline more rapid growth of Ml would be acceptable.,14
-fomc-corpus,1984,"And then ""More generally...""",6
-fomc-corpus,1984,"Yes, and then it would go on to say ""More generally lesser restraint..."" Instead of ""acceptable""--we just used the word ""acceptable""--let's say ""Lesser restraint on reserve positions would be sought in the event of significantly slower growth in the monetary aggregates, evaluated..."" etc.",58
-fomc-corpus,1984,"Well, if you go that far and use the word ""sought""--which is all right with me--then I think we ought to leave in the counterbalance sentence. Otherwise, if we leave that out too, then it's really going to look silly.",52
-fomc-corpus,1984,"Well, it's all right with me. The other sentence says ""acceptable,"" which is weaker than this other one. If that sounds generally all right, we're still left with what level of borrowing we're starting off with. I am perfectly happy with an understanding of $550 to $600 million that would be played in the first week depending upon how the market conditions look. We'll stay there if things are very equable. If things come out on the strong side, well, we'd stay for a while; if things come out on the weak side, we'd make another step downward.",115
-fomc-corpus,1984,"And if you have to make a very substantial step downward, we could have a consultation unless you decide to do it through a discount rate.",28
-fomc-corpus,1984,I think the second step is to go down to $400 million.,14
-fomc-corpus,1984,"We might well want a consultation staying within this, but we will have to see how obvious or clear it is. Is that reasonable? Let's see whether we've got the votes.",35
-fomc-corpus,1984,7 to 11?,5
-fomc-corpus,1984,And 7 to 11 percent on the funds rate.,12
-fomc-corpus,1984,Not to stir the soup but--,7
-fomc-corpus,1984,But it will.,4
-fomc-corpus,1984,"On this M3 number of 9 percent, I'd ask what the basis for that is. Neither alternative A nor B would suggest that.",28
-fomc-corpus,1984,It's the one we had the last time.,9
-fomc-corpus,1984,The fact that we had it the last time I don't find necessarily compelling.,15
-fomc-corpus,1984,"You're quite right, neither ""A"" nor ""B"" has that, but they are within 1/2 point of it and I think that's--",31
-fomc-corpus,1984,Just to carry over the language doesn't seem to be a clean way of developing a directive.,18
-fomc-corpus,1984,"We've typically done that, or tried to, when it's very close.",14
-fomc-corpus,1984,"Looking back, the Committee has accepted pretty much staying there when the expectation was within a percentage point.",20
-fomc-corpus,1984,"Actually, M3 is running a little high and M2 is running a little low. But gosh, we should be so close on these things ordinarily!",31
-fomc-corpus,1984,"If we end up with interest rates [down] much further with your second or third step, there's going to be absolutely no incentive in the Congress to do anything about that deficit.",36
-fomc-corpus,1984,It works the other way if the economy is slowing down so much.,14
-fomc-corpus,1984,That's the problem.,4
-fomc-corpus,1984,Governor Partee's comment that this would be done in the context of alternative A disturbs me a bit. I can probably agree to what you're saying in the context of alternative B.,37
-fomc-corpus,1984,"I don't know what ""in the context of"" means and I don't think I understand Governor Partee's comment.",23
-fomc-corpus,1984,I'll retract it.,4
-fomc-corpus,1984,"It's in the context of what we're talking about, which is a figure of 3 percent for M1 and 7-1/2 and 9 percent for M2 and M3 and these general borrowing numbers. It is talking about going to, say, $400 million, without making a great deal of it, if there is a succession of weak economic or monetary numbers.",77
-fomc-corpus,1984,I just could not let his comment go without additional comment.,12
-fomc-corpus,1984,You just have a short-term attitude ever since you got through--,13
-fomc-corpus,1984,"If no one has a better proposal at the moment, I think we ought to vote.",18
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Yes President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley No President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,47
-fomc-corpus,1984,We are finished.,4
-fomc-corpus,1984,We need to approve the minutes. No objection. We'll go to Mr. Cross.,17
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Any discussion?,3
-fomc-corpus,1984,Has anybody on the other side suggested any modification [in our swap line agreements]?,16
-fomc-corpus,1984,Only these two technical modifications have been proposed.,9
-fomc-corpus,1984,I think it's fair to say the Bundesbank raised the question of whether it was worthwhile having the swap line at all.,24
-fomc-corpus,1984,They asked whether we were interested in continuing it and I told them we were.,16
-fomc-corpus,1984,That was sheer bluff--a way of getting a message across.,13
-fomc-corpus,1984,"Any other discussion on this? If not, I will entertain a motion, other than Mr. Cross' motion, to renew these swap agreements as amended.",31
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,"Without objection, they are approved. Mr. Sternlight.",12
-fomc-corpus,1984,[Statement--see Appendix.],6
-fomc-corpus,1984,Any comments?,3
-fomc-corpus,1984,"Peter, you said that non-reduction of the budget deficit was not likely to have a great rate impact unless the economy rises. Does that imply that people believe that, yes, a reduction of the budget deficit would have a substantial rate impact?",49
-fomc-corpus,1984,"I think they believe that a significant reduction would have an impact, yes.",15
-fomc-corpus,1984,"Peter, maybe this is the wrong time to be raising the question, but sometime before we get through here I'd like to have somebody on the staff explain, if they can, what seems to be going on in M1 with this latest big drop of over $7 billion. Are we looking at seasonal problems, reporting problems, or don't we know?",70
-fomc-corpus,1984,"Well, I would say that there are at least seasonal problems. But Steve might want to comment.",20
-fomc-corpus,1984,"We'll know better tomorrow when we get some confirmation or not of the data for the last week. At the moment we expect a fairly great rebound, though maybe not an entire rebound. And yet, having looked it over very carefully, I think there was a seasonal problem having to do with days ending with threes compared with four or five and the timing of the Social Security payment, which I'm not sure was properly allowed for. So, I would expect a rebound in the week of the 18th and I'll be surprised if it isn't pretty big.",110
-fomc-corpus,1984,"Based on some of those market surveys taken among the larger banks, people in the market are looking for a sizable rebound from the $7 billion drop--on the order of $4 to $6 billion.",41
-fomc-corpus,1984,"So you want a $6 billion [leeway], Peter?",13
-fomc-corpus,1984,"I would suggest $6 billion, yes.",9
-fomc-corpus,1984,So moved.,3
-fomc-corpus,1984,Second.,2
-fomc-corpus,1984,"Approved. We need to ratify the transactions. Without objection, they're approved. Mr. Axilrod, you have presented a little paper on a number of items that don't have to be resolved now but should be resolved by the time we come to 1985.",54
-fomc-corpus,1984,"As I mentioned in the paper, a question that is somewhat but not necessarily related to the Committee's decisions is the importance the Committee may or may not wish to place on M1 which obviously is the aggregate most closely related to reserves. But the first issue is much more an operating issue; the other two are partly operating issues but partly [address] the policy thrust. The operating issue was mentioned by President Morris at the last meeting when he raised the question of the behavior of the funds rate and borrowing when the funds rate got higher [than expected]. The Committee, of course, voted with knowledge that the rate tended to get higher than at the least the staff was projecting at the beginning of each period--except for the last [unintelligible]. Later on there seemed to be some drop in the funds rate as borrowing stayed the same. In trying to explain that [behavior] we raised the possibility that shifts in the demand for borrowing could have occurred in the wake of the Continental problem and the problems with Latin American debt negotiations. I'd like to point out two aspects of this borrowing targeting that do create problems. One occurs when the money supply is weak, not because of these kinds of shifts in the supply function but because of what is going on in economic activity and transactions demands. I do believe that we did get a higher funds rate in the summer for any level of borrowing because banks became more protective of their positions in order to conserve their access to the discount window; they didn't really want to be seen at the window or to have rumors floating around the market that they were in there. In the paper I made an effort to estimate the extent of this effect. We ran through our money market model holding the funds rate at the May level, which was around 10.30 percent, through September. The borrowing level was about $1 billion. In doing that, we found that we could account for 2 percentage points [less] M1 growth at an annual rate. We also got 2 percentage points less growth at an annual rate over that period because of the gradual rise in the funds rate from 10.30 to 11.75 percent, given the level of borrowing. I would say that was a supply constraint, given what was going on in the banking system and the way we were targeting but, as I say, a constraint that the Committee accepted. Subsequently, I think another factor was at work. That, of course, was that these higher rates worked through and affected the economy, weakening the transactions demand for money. But it might have been weakening in any event. So, I can't isolate whether it was from that or from other factors that were working--the [unintelligible] working or the inventory cycle, for example. And that also tended to weaken money growth for any given level of borrowing. Now, the Committee does allow for all this in its operating procedures because as money supply weakens or strengthens there's room for judgmental adjustments in borrowing. But there is not [a provision] for any automatic adjustment in the [current] period. The actual judgmental adjustments in borrowing that have occurred are pretty much on track with what almost 100 percent automaticity would have given in the last month. But they are nowhere near on track with what 100 percent automaticity would have given, for example, prior to the last month. So, if there were any automaticity--as in the period from '79 to '82--borrowing would have been lower well before last month. In light of this, and partly because looking at the data in various ways it seems that M1 is nowhere near as bad a variable as it was in the period from '82 to the first half of '83, I do make a suggestion. It actually is somewhat like the suggestion Mr. Sternlight and I made earlier this year, which was not greeted with open arms by the Committee. That suggestion is to permit a certain degree of automaticity in the level of borrowing, should M1 weaken. The suggestion that I made [in the paper] is really rather moderate--a very small-scale automaticity--because I'm assuming that the Committee would prefer to continue essentially a judgmental approach. But within that general approach, it strikes me as possible to let borrowing fall by a very small amount if M1 is weak. The suggestion there is [to limit an automatic change in borrowing to perhaps] 25 to 50 percent of the deviation in M1 from what is acceptable. That would give you a [typical] deviation, I think, on the order of $35 to $70 or $100 million. Some weeks it would be down; some weeks it would be up. I'm suggesting that we permit that kind of variation and then lever on top of that the judgmental adjustment, should there be a persistent trend weakness in M1 or persistent weakness in the economy or persistent movement of the exchange rate away from what is considered desirable in light of the Committee's overall objectives. In addition, I think another lesson to be drawn from the experience of the summer and fall is in the area of judgmental adjustments. Traditionally, of course, for judgmental adjustments we look at interest rates, the economy, overall credit conditions, and other similar things. What has happened very recently, of course, is that the dollar has remained high on exchange markets longer than most people expected. With the international sector now becoming such an important element in changes in GNP, it seems to me that under present circumstances among the judgmental factors that might be given a little more weight than perhaps the Committee is used to thinking of would be the value of the dollar. Another I mentioned is, of course, indications of price pressures; one could add almost any indicator to help in assessing inflationary expectations and the degree of restraint that we might be getting from any given set of credit conditions. Those were comments that had to do mainly with the implementation of operating procedures, Mr. Chairman. But, of course, the degree to which the Committee either judgmentally, or even to a degree automatically, would want to respond to M1 depends in part on the reliability of M1 as an indicator of the behavior of the future variables about which the Committee is really concerned--which are obviously economic growth and the price level. Dick Porter and others on the staff did some work over the last few weeks in that respect and we're still in the process of evaluating it. But in substance, it seems to indicate that [the reliability of] M1, just looking at its velocity and its predictability to GNP, more or less disappeared over the 1982-1983 period; it was not a variable that one could put any confidence in. Now, when evaluated in relation to other variables such as M2 and M3, it is probably no less reliable in some sort of absolute sense than it was in the period before '82 to '83. From what we can discern statistically, it might be giving roughly the same average amount of information, but the degree of confidence we might want to have in that average amount of information ought to be a little less. That is, the range of variation around what it's conveying is a little wider. And I think that is not an unusual finding, given the kinds of institutional changes that have occurred since we entered this new era of deregulation with different kinds of deposits such as Super NOWs and MMDAs. People are still getting used to them and we're not sure how they're going to behave under various circumstances. So, I would judge from this that if you thought M1 was reliable in the '79-'82 period, with a caveat in a sense that one should be a little more uncertain now, you could think it is fairly reliable now. But I would emphasize that you ought to be more uncertain; that's what the data seem to be suggesting. Finally, Mr. Chairman, I discussed an issue that has come up in many years--target basing. I focused on the base for M1 because the market and everyone else seems to focus on it as the principal or key variable for the Committee. The question becomes whether to base on where M1 actually ended up the year or whether to base on the midpoint of your target or some such other point of your target. It happens that at the beginning of February at least, the Humphrey-Hawkins Report did suggest that the Committee thought that with velocity behaving somewhat normally M1 might come in around the middle of its target. It was mentioned in the report that if velocity were weak M1 could come in higher; it was silent on the question of velocity being strong. In the event, velocity growth in the year was about 4 percent, which is a shade higher than the average for the second year of expansion in the postwar period--but not enough higher, I suspect, to make a lot of difference in how you look at it analytically. I don't think I need to detail the analysis that is laid out in the paper, Mr. Chairman. I tended to conclude that presentational considerations in some sense argue against rebasing M1. It is a bit difficult to get clear the difference between an actual growth and a hypothetical growth based on your target. But even more importantly, I think it may be difficult to explain, if the Committee wished to rebase this year, why this year and not earlier years. In the past we have often considered a result within a percentage point of the midpoint as success, by which I mean well within the range of variation of ordinary M1 movement. It is probably well within the range of really unrandom shocks of velocity that probably should be compensated by M1 movements. Further, of course, it has to be noted that the Committee can indicate--and has done so in the past--that it may wish growth to be in the upper, the middle, or the lower portion of the range that it does adopt, depending on what it views as [a desirable] path in coming years. So, that option is open. In essence, this paper tends to be somewhat negative on the question of shifting the base, largely on practical grounds [relating to the difficulty] of explanation. On the economic issue of whether there has in fact been a demand shift that accounts for 1 percentage point lower growth, I tried to remain somewhat agnostic. There is evidence that says there is. You can look at our quarterly model. But I think ""within 1 percentage point"" doesn't seem like a very good practical argument to be making if growth were 2, 3, or 4 percentage points off. If there are [major] institutional developments we can point to, then I think the argument has practical weight. But I don't think it's a very good practical argument when you're only 1 percentage point off your midpoint. It seems a bit like [unintelligible].",2196
-fomc-corpus,1984,"Steve, with regard to the question of rebasing: Are you saying, in the absence of new savings instruments or other institutional changes, that if we were to select the midpoint of the fourth quarter or the midpoint of the year or something of that sort, that based on that rather hypothetical level we would tend to be locked in and have to, in effect, use that procedure in the future?",79
-fomc-corpus,1984,"No, I don't think the Committee is ever locked in, but I think you would have to explain why you rebased this year and not in earlier years when there may have been even bigger misses. And then, of course, you would have to explain why not rebase the next year. I don't think it locks you in to doing that each time at all.",74
-fomc-corpus,1984,"It would seem to me that it locks us in, in the sense that we're accepting the path of the previous year, which may or may not have been right. But if you extrapolate this [procedure] into the distant future, we'll always be on the midpoint of every past cone.",58
-fomc-corpus,1984,"In that sense, yes. I thought Governor Martin was asking the practical question of whether we could be forced in some sense to make the same decision.",30
-fomc-corpus,1984,Precedent.,4
-fomc-corpus,1984,"In principle, we [would] never base it on the midpoint unless we were willing to argue that we had reasonable targets, or what we might in retrospect judge to have been reasonable targets, in the previous year.",43
-fomc-corpus,1984,"Well, of course, whatever the money growth was, it was associated with a GNP result. And we would have to be saying also that we found the GNP result to be inadequate, I think, to rebase. The other comment I had is that this is putting a lot of emphasis on the midpoint. My recollection is that we have not emphasized the midpoint of the ranges. We have said that it's a range because we don't know where in the range would be the appropriate number. Of all years, this one we came closer to being within our ranges for everything than any other year I can recall. So, this burning issue is not really much of an issue this year, is it?",142
-fomc-corpus,1984,"We seem to be talking about this little matter of the base, which I suppose is the simplest to talk about. We don't have to make decisions on any of these issues today. We're just exchanging some preliminary views, so why don't we stay on this particular question for the moment. Frank, were you on this question or something else? [MR. MORRIS]. I was on the other operating procedure.",81
-fomc-corpus,1984,"Well, let's stay on this one since we started with it.",13
-fomc-corpus,1984,"I'd like to pursue the operating side too. On the issue of rebasing, it seems to me that's why we have some width in the ranges. I don't recall that we have said that the midpoint was better than the upper or the lower limits. What we generally have said is ""Here's the range and there might be certain [circumstances] that would take us to the top end, or maybe even a little over, or to the bottom. So, the idea of making the midpoint sacrosanct in any way is probably too mechanistic--or at least too mechanistic compared to how we've been operating in the past.",128
-fomc-corpus,1984,"Haven't we said, though, that we expected a particular aggregate to come in at around the midpoint, or above the midpoint, or below the midpoint?",32
-fomc-corpus,1984,Sometimes we have and sometimes we have not.,9
-fomc-corpus,1984,"Well, more recently we've stated what we expect.",10
-fomc-corpus,1984,Not for all aggregates all the time.,8
-fomc-corpus,1984,"In July, Mr. Chairman, the Committee and your report were silent on M1; it was in February when there was a [passing] mention that [growth around] the midpoint [would be appropriate], depending upon velocity.",46
-fomc-corpus,1984,[We said] in July that we expected M3 and credit to be above [their ranges].,20
-fomc-corpus,1984,"I think there is even less of a case for making a shift in 1985 based on the 1984 results--both for the reasons that Chuck gave and for the embarrassment we would have if we didn't make a downward correction in M3. I just don't see any way we could present anything as drastic as this to the public and to the Congress in a selective way. Down the road we could be facing an accumulation of many misses and it would not be an easy job to stick to this; and, certainly, we can't stick to it selectively. It seems to me that it would be a great mistake to depart from our policy of basing on the actual outcome rather than on the earlier year's targets.",143
-fomc-corpus,1984,I think we have said from time to time in the past--and I'm not sure whether we said it ex ante or ex post--that high growth or low growth in the earlier part of the year was fine because it made up for fairly slow or fairly rapid growth in the previous year.,58
-fomc-corpus,1984,"That raises the question of the presentation--the geometry that is so bedeviling in using that cone. When we start off above or below the line so drawn, if we could express it in terms of some kind of plus or minus a parallel line--.",52
-fomc-corpus,1984,"Yes, I saw them in the Bluebook.",10
-fomc-corpus,1984,What are those parallel lines? I wasn't clear as to what they were. They're upward sloping.,20
-fomc-corpus,1984,They're sloped on the midpoint--5-1/2 percent.,14
-fomc-corpus,1984,"Oh, I see. You get the end point and then draw them back.",16
-fomc-corpus,1984,Congratulations. I thought the staff would never do that. I tried 3 or 4 years ago and could never get the staff to do that.,30
-fomc-corpus,1984,You see they didn't throw the cone out. They just put some parallel lines around it. It makes everybody feel good; you can take your pick that way.,32
-fomc-corpus,1984,I think once before we drew M1 that way. Does anybody else want to comment on this rebasing question? I have not detected a lot of sympathy for it.,34
-fomc-corpus,1984,I would agree with Tony that it looks as though it's a major move. It's hard to explain. I don't think it is a very good idea.,30
-fomc-corpus,1984,It's hard to explain that you're aiming at a rate of growth from someplace you aren't.,17
-fomc-corpus,1984,The presentational problems are insurmountable.,10
-fomc-corpus,1984,If we continue to get $7 billion declines in M1 for the next few weeks--,18
-fomc-corpus,1984,"Yes, you might have to do--",8
-fomc-corpus,1984,[Unintelligible] something even less than that. Nobody else has comments on this question? We had a couple of people who wanted to talk about the operating procedure. Mr. Morris and Mr. Boehne.,45
-fomc-corpus,1984,"Mr. Chairman, I appreciate the memorandum that Steve wrote. I'm not very enchanted with the idea of solving this problem through automaticity. It seems to me that that would be a step backwards toward the kind of interest rate volatility we think we have gotten away from. But I do think that in a situation where the Manager finds that he cannot attain his total reserve path and at the same time produce the assumed level of borrowings--which is the case we had this summer--there is an incompatibility in the instructions to the Manager and it ought to be resolved not in some automatic way but by having a conference call to the Committee. I suspect we may well have the opposite case in '85 at some point, with total reserves growing faster than the original projection because the Manager is just pushing in nonborrowed reserves at an increased rate in order to meet the borrowing projection. I would have the Committee decide--on the basis of what is happening to interest rates, the economy, the money supply, the exchange rate, and everything else--how we should deal with this incompatibility in the instructions.",220
-fomc-corpus,1984,"I'm not quite sure what you're getting at. There is no instruction on total reserves, the way we have it now. Maybe there should be.",29
-fomc-corpus,1984,"The total reserve path comes from the Committee's objective with respect to the aggregates. [Required reserves are] plotted out first and then the Manager puts in the [excess reserve allowance] and then the assumed borrowing level is subtracted to form a nonborrowed reserve path. So, although we've [not] talked about a total reserves path, that's implicit in the whole operation. The problem this summer was that the Desk couldn't hit the total reserve path because it was following a nonborrowed path that was related to a level of borrowing that the market was not doing.",114
-fomc-corpus,1984,Wasn't the more meaningful incompatibility this summer the fact that we weren't getting the fed funds rate that one normally would associate with the nonborrowed reserve path? And that was because of the changes--,40
-fomc-corpus,1984,"That was a product of the banks' aversion to using the discount window, which was reflected in a lower-than-expected level of borrowing relative to the interest rate.",34
-fomc-corpus,1984,"Well, what would you do about that?",9
-fomc-corpus,1984,My thought is that we'd have a conference call and the Manager would say that we have a situation in which the banks appear to be averse to borrowing from the window and as a consequence they're [bidding] up the funds rate and we're not getting the level of borrowing that we expected to get. The question to the Committee then would be: Do we want to reduce the borrowing level or not?,80
-fomc-corpus,1984,We don't have to have a conference call; we have a meeting.,14
-fomc-corpus,1984,"Yes, we discussed that at a meeting and decided to let it roll.",15
-fomc-corpus,1984,"I'm talking about in between meetings, if we have an incompatibility in the instructions by this definition.",20
-fomc-corpus,1984,"But if the FOMC had chosen some percentage [of automaticity], say, 25 or 50, the Committee would know a priori what form the implementation would take.",36
-fomc-corpus,1984,"Yes, but there may be times when we might want to adjust the procedure and times when we might not, depending upon the circumstances. I'm rather disenchanted with automatic adjustments after our experience of recent years. I'd be more comfortable with a judgmental assessment as to what we ought to do to reach our objectives.",63
-fomc-corpus,1984,"I'm not sure I fully understand. You had the chance during the summer in a meeting, whether or not we had a conference call. You had repeated chances in September, October--. How many times did we meet this fall? Nobody wanted to do anything about it.",54
-fomc-corpus,1984,The relevant meetings were July and August.,8
-fomc-corpus,1984,"I forget which meeting it was, but we had an unexpected rise in the funds rate. To my knowledge and my recollection, nobody on this Committee contemplated the funds rate going above 11-1/2 percent even though we had a 12 percent [upper limit on the] range. That was not the expectation given in the Bluebook as to what the course of action chosen by the Committee would produce in the way of the funds rate. The funds rate rose from 10-1/2 to 11-1/2 percent, not because of any overt decisions on the part of the Committee but because of the change in attitude on the part of the banks to borrowing. Now, the question was: Should we have responded to that by lowering the borrowing? That's my question.",159
-fomc-corpus,1984,"I understand that question. But I say that at least once the Committee had a meeting and--for a while, anyway--said no. And the opposite happened this fall.",35
-fomc-corpus,1984,"I think it's quite clear with hindsight that we should have said yes. But that is clearly hindsight. However, I would much prefer that sort of procedure to an automatic response on the part of the Manager in putting in a certain amount of reserves.",49
-fomc-corpus,1984,"I would agree with you on the automaticity. I think there are problems with that. But, let's face it: In practice there is a modest range of flexibility based on consultations of the Manager and Steve Axilrod and the Chairman. We have recognized that, I think, by talking about some flexibility. In particular, at the last meeting we delegated some flexibility around a modest range. Basically, there are three people who make those decisions. I think it would be very awkward and difficult to have a consultation every time. What we are seeing now, and I think it's working fairly well, is that when there is a need to make a larger change in the borrowing, then the Chairman has a consultation. I don't really see that there should be changes in practices for times that might require some more immediate, flexible, and minor adjustment. Those adjustments are done now basically. Sometimes the Desk waits a day or two before draining or adding reserves. There is some flexibility now based on the tripartite approach we're following, keeping an eye on interest rates as well as on hitting the reserve path. I'd agree with you: I don't particularly like the idea of even a partially automatic adjustment; it just seems to me that what we're doing now makes a good deal of sense. I really do feel that we had the opportunity to take whatever action--a change in the borrowing--was necessary to get the funds rate that we were all thinking of. In that sense I agree with the Chairman; I think we had the opportunity. But the economic events were changing at the time--the economy seemed to be overheating and, therefore, we really didn't object to the fact that we were getting a higher fed funds rate. The majority of the Committee was comfortable enough with the situation.",353
-fomc-corpus,1984,"Well, maybe I'm proposing something we're already following. On the other hand, I think there is some merit in thinking of it in terms of a total reserves objective.",33
-fomc-corpus,1984,"We've not focused on that aspect of it because reserves have been falling short for some time. They are well below the mark. Mr. Boehne, I think, expressed a desire to talk earlier. I have a note here that Manufacturer's Hanover has cut its prime rate to 10-3/4 percent.",64
-fomc-corpus,1984,"On this judgment versus rules debate, there are different kinds of views as to how you can apply judgment. You can have a judgmental approach which says that when things don't go according to plan you look at the money supply and reserves and foreign exchange and so on and then make a judgmental response to whatever the deviation is. In that kind of approach, in effect, it takes positive evidence to make a change. Or you can have a judgmental approach which says that if we were on an automatic response of some kind, this is the way we would go; now, are there any good reasons why we might not want to go in that direction? So, in that sense, you need negative information. In the way this is carried out, is it more the first kind or the second kind or is it somewhere in between? I'm not sure.",171
-fomc-corpus,1984,"The degree of automaticity we're suggesting is so minimal that I suspect it would hardly be seen in the market at all except that to a minor degree it might temper the timing, at the margin, of Mr. Sternlight's operations. Therefore, it is really more of the second kind of indicator--that your judgment ought to be in this direction and here's a small step in a way that might even be reversed in the next two weeks if the aggregates pop back up. At least I have in mind more of the second kind of approach, in spirit. It wasn't that you would stop it, but it's so small that it isn't going to have any very significant effect until it really accumulates substantially.",140
-fomc-corpus,1984,So it's not really automaticity in the pure sense. It's a direction in which your judgment ought to be leaning and which you ought to follow unless there's a--,32
-fomc-corpus,1984,"There's a small step in that direction but one that I do not think will be noticeable in the market, given the variations we've had in the borrowing/funds rate relationship.",34
-fomc-corpus,1984,But in reality how does that differ from what happens now?,12
-fomc-corpus,1984,"Well, it gets you started and it tones up your thinking, I think. The word that comes to mind is ""excuse,"" but I don't mean it in a bad sense. It gives you a reason to be thinking in that direction--to start something so that you don't say it's just a feeling in my gut that's moving me. It's a reason, in some sense.",76
-fomc-corpus,1984,"So, it's really a fairly subtle shift from what happens now?",13
-fomc-corpus,1984,That's all I had in mind.,7
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"I would like to speak up in favor of some degree of automatic response, as Steve set forth a good case for it in his paper. In fact, the whole paper was a badly needed new look at our operating procedures in the sense of some general dissatisfaction by many of us--with the benefit of hindsight now--with how the second half turned out in terms of our money targets and interest rate levels and similar matters. I would have to say, though, with respect to our current operating procedure or even the amendment to it that you are proposing, Steve, that I think we're still going to be subject to all the weaknesses that we found way back in the 1960s with respect to free reserves. Any given level of borrowing or any given level of free reserves is compatible with a wide range of interest rates, a wide range of different economic outcomes, and a wide range of possible growth in the monetary aggregates. That's what we experienced so many years ago. I'm afraid we're still working with a tool that has those built-in disadvantages. So, while I personally would be in favor of going along some sort of semi-automatic route of the type Steve described, I think we also ought to consider, as an alternative to that, some semi-automatic targeting of nonborrowed reserves, which is after all closer to what we're really trying to control--the monetary aggregates as our intermediate targets. We don't need to get back to a full automatic pilot. Even if we were to go back to nonborrowed reserves targeting, we could also introduce some semi-automaticity simply by making judgments as to the degree to which the nonborrowed reserve path would be varied in response to a deviation of money from path. I'm pretty much convinced at this point that that kind of approach would be superior over the longer run than something hooked on the borrowing target. [The latter approach] most recently, as well as many years ago, has demonstrated the kinds of weaknesses that concern many of us.",397
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, I end up very close to John Balles on this. I'd like to say first of all that I agree that Steve has done a very fine job on this memo and, as some of you might suspect, I think he is right in saying that M1, despite all its imperfections, is probably still the best target. So, I would favor tightening up the targeting procedures on that so that we could more nearly hit our targets, which leads me to favor, as he does, some degree of automaticity. I think Steve's suggestion of about 50 percent of any deviation of required reserves from path would be a pretty good place to start. But I still entertain hopes that someday we're going to get to a total reserve target and a penalty discount rate, because I believe ultimately that that's the best hope we have for really getting to the point we want to go. I'd also like to mention the point that Steve made about the difference between a net borrowed reserve target and a fed funds target. I think that's a point that has escaped many of us. There are some differences there; maybe they are differences of degree. But if in fact there is a greater degree of fluctuation in the federal funds rate under the borrowed reserve targeting, I think that can give us good information, as Steve suggests, unless of course the change in the federal funds rate comes because of a shift in the borrowing function or something of that sort. To me the main point that really comes out of this paper is that it generally underscores the need for not less fluctuation in the federal funds rate but more fluctuation in order to achieve our targets. And that in turn calls for more frequent and maybe larger adjustments in the borrowing target to reinforce these desirable movements in the federal funds target. In short, I think that the present procedure, when we restrict the limit on fluctuations in the federal funds rate, is not that much different from targeting the federal funds rate. I would like to strengthen it so that we really do take more advantage of the differences that exist between those two basic procedures.",416
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"Well, I don't think I really want to change anything, and I guess I have a couple of reasons. First of all, I think that this whole debate about automaticity and targeting procedures and everything else is very germane as is this reliability question that Steve talks about in his memorandum. And on the reliability of M1, I must confess that I'm more skeptical, not less. In my judgment, these various equations under the best of conditions don't leave one very comfortable; and I would emphasize that those equations by definition are the best of conditions because among other things they incorporate all the historical data revisions. Apropos of that, even as we sit here today questioning what happened in the first half and the second half of this year, I think there's at least a 50-50 chance that by the time the jury is in and all the revisions are made M1 is going to look a lot different for the year 1984 than it looks right now.",193
-fomc-corpus,1984,The pattern within the year?,6
-fomc-corpus,1984,"Yes, the pattern within the year. In other words, the second half will be a good deal stronger and the first half will be a good deal weaker. I don't know that for certain but, as I say, there is at least a 50-50 chance of that and that's just the first revision. There will be several others down the road. So, I think the question of the reliability of M1 just in the narrow and empirical sense of the numbers themselves is a very, very important aspect of this question of automaticity. Partly for that reason but for many others, as Tony and others have touched on, I think it would be a mistake to make any move in the direction of a more automatic response no matter how marginal it may seem. Having said that, I too have my frustrations--not so much with the apparatus, but in some very real ways with the environment within which it works. Clearly, at least in my judgment, during this year and last year the Committee has moved in the direction of looking through reserves, M1, and all the Ms and looking more--perhaps not in a systematic way but in a fairly deliberate way--at the economy, exchange rates, prices, industrial production, and all the rest of it. And part of what we're seeing, in my judgment, is nothing more than the fact that the economy on both sides has surprised us in a significant way throughout this period. And because the economy has surprised us, we have found ourselves in the position where the need to make these flexible adjustments has seemed to the Committee as a whole to be a pressing need. I think the fact that those adjustments were made and the way that they were made over the period as a whole basically constituted a pretty solid approach to policy, recognizing that we're never going to be able to fine-tune this; that's just not in the cards. Some of the frustration that we all feel at times I think has to do with the fact that these adjustments are made in intermeeting periods and we all have our personal subjective biases as to which are most important and which are least important in the laundry list of things that we put into the directive--whether it's the exchange rate, or M2, or M22, or the GNP, or whatever. And because our personal biases may differ a little in terms of where the priorities lie, there may be differing degrees of frustration in terms of whether and how much of an adjustment is made in the borrowings target, particularly against the background of the appropriate inhibition against treating any of those intermeeting consultations as a meeting [requiring] a vote on all the rest of the apparatus that could go with it. My bottom line, Mr. Chairman, is that I think the apparatus works pretty well, particularly against the background of my personal skepticism about M1, and I think the frustrations that we all feel at times are almost inevitable. But compared to the alternative, I think those frustrations are quite manageable.",597
-fomc-corpus,1984,Mr. Forrestal.,5
-fomc-corpus,1984,"Well, Mr. Chairman, I have a good deal of sympathy for what Jerry has just said. On the other hand, it does seem to me that Steve's paper made a pretty compelling case for some degree of automatic response. I think that's particularly true when the demand for money is stable and we're not getting noise from other factors. I would really hate to see us get into a position of having conference calls of the Committee to deal with very minor issues that come along from time to time. But having said that, I too have a little hesitancy about the reliability of M1. Certainly, it's a better aggregate than the others we've been dealing with, but we've had some variations in M1 recently--and over the past year in fact. Because of that, I would like to keep any degree of automaticity to a minimum. But the scenario in the regime that Steve has outlined in this paper seems to be somewhat of a compromise between those who would move to a fully automatic response and those who wouldn't change it at all. I guess I would feel more comfortable if we had some degree of automatic response, but I would have to admit that as I look back over the past year I don't think policy would have been changed very much at all if we had had this kind of automatic response. But, I think to fine-tune it a little would be in order.",277
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"Let me make a clarifying point first, and that is that there are at least two operating issues that we started talking about and they don't have anything to do with one another necessarily. One is the level of borrowing and whether or not the federal funds rate in relation to the level of borrowing is where we thought it was going to be. And the other is how we respond to unexpected deviations of growth in M1 from the path laid out ahead of time. Now these two happened to be closely related this summer, but that was an accident. One has to deal with those two problems quite separately. I can easily think of an example in which the opposite sort of relationship began to develop between borrowing and the federal funds rate and the kind of automaticity we're talking about would have made things go in the wrong direction. The automaticity issue relates strictly to whether or not we respond more quickly and more sensitively to changes in growth of M1 relative to path than we have in the past. I'm very much with Jerry on that and I would put it this way: that we haven't been frozen in stone between FOMC meetings. We've evolved a procedure over the course of the past couple of years in which we instruct the Manager on what he's supposed to do when these deviations occur, and why, taking into account a whole lot of things. And in a world in which if money demand is stable from one quarter to the next it isn't necessarily stable from one month to the next, I think that is a lot more sensible response to deviations of money growth from the path than an automatic response.",318
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"Well, I think the word ""automatic"" ought to be banned from this discussion because I don't think there's anything automatic really being proposed. What we're talking about is some procedural rules that would be followed unless there is some reason for not following them, as is always the case with the Federal Open Market Committee. Before, we had a rule that we would provide the nonborrowed reserves consistent with the money growth we wanted to get and then borrowings automatically fell out. Now we set the level of borrowing and the reserves automatically fall out--the reserves associated with whatever the demand for money does and what occurs. What Steve is proposing is simply that one other way of dealing with this as a rule for operating procedure would be to go between these two extremes and split the difference. I think that makes a lot of sense. And the reason that I think it makes a lot of sense is that I've never known the time when in the first instance anyone could be certain enough that they ought to do something and, in fact, did it. We always have an ambiguous situation. It's always ambiguous. You could say in looking back as well as forward that maybe we ought to let M1 growth fall off [its path] because, after all, the economy has been strong and there are a lot of inflationary expectations out there. And it could turn out to be wrong: The economy isn't strong and there isn't the inflation expectation. But by the time you've learned that, a couple of months have gone by. It seems to me that some adjustment in the borrowing level to take account of the fact that M1 is falling off path is a reasonable thing to do. Now, as you all know, I've practically given up on having any view that anyone can look forward with a degree of certainty and, therefore, I'm always looking for the safer course. It would have been safer this summer, certainly, had we done it that way--and it might well be safer in the other direction looking forward in the next year--because we would have had quicker adjustments. The funds rate would have dropped faster had we followed the rule and it may go up faster if we follow the different procedural rule in the year ahead. And I think it's a better way to go. But, again, it's nothing but a procedure. And if the Chairman or Steve or Peter or anybody else feels that there is something odd that has accounted for this, there is no reason we can't get together and say ""Well, there's an oddity here; I think we ought not follow this rule.""",511
-fomc-corpus,1984,"Just in the interest of accuracy, let me redescribe what I think our techniques have been during this period. You said the contrast was between (1) setting a nonborrowed reserve path, keeping it, and the borrowings would fall out and (2) setting the borrowing and the nonborrowed reserves would fall out.",66
-fomc-corpus,1984,In the first instance.,5
-fomc-corpus,1984,"The correction I wanted to make was this: That may be true in the first instance, but we have always made adjustments either to the nonborrowed reserve path or now, conversely, to the borrowing, depending upon what the other was doing. You're talking about some bias when you're talking about this technique. But these things that Steve is talking about are so small that they're way within the discretionary adjustments we were making anyway with either technique. We make discretionary adjustments when the Committee permits it.",98
-fomc-corpus,1984,"I do think that one's attitude toward this is strongly shaped by how much one believes in M1. In fact, I've kept a tally so far and that exactly identifies the positions.",36
-fomc-corpus,1984,"Well, we have to get back to that subject, too. Mr. Guffey.",19
-fomc-corpus,1984,"Thank you, Mr. Chairman. I would start out with the premise that maintaining as much flexibility as possible is the most desirable course for the Committee. It does, however, turn [out that] the Chairman and the staff who work with this on a daily basis have a great deal of discretion, I think, within the very broad directive that the Committee adopts for the intermeeting period. Having said that, however, I am attracted somewhat to Steve's proposal because of its directional content if you will. It seems to me it is so small that it will not alter policy, particularly in the public's view or the market's view, but it will give the Committee some indication as to what the Desk is doing or what it's thinking about on a day-to-day or week-to-week basis. If the borrowing level were adjusted by as much as $20 million or $50 million at a particular time, then it's a clear indication that the people who are looking at it and making those judgments are indicating that money growth is deviating from what they believe the Committee directed at its past meeting. And in that sense, it seems to me it would be very helpful to me as a participant in this organization and would not do great damage in the sense of disrupting the markets or [producing] wide swings in the interest rates. As a result, I would be in favor of moving in this direction in the very modest way that Steve has proposed.",289
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"Well, we seem to be having a low key version of the discussion of rules versus discretion. To me good discretion or good judgment is always bound to be better than a mechanical rule. The question is whether good judgment is more likely than not. We went to automaticity in 1979 because we felt that in the past discretion or judgment had caused us to move too little and too late so, in effect, we forced our hand by automaticity. That, it seems to me, has not been our problem recently. We've had a great deal of discretion and the discretion I think has been sound. So in terms of recent results, there isn't a great deal to be said for going back to rules or automaticity. I do have a sense that this need not always be the case. Sometimes judgment can be right; it can be wrong. Maybe there is always a danger in this Committee, as in others, of doing unpleasant things too late and too little. Against that I think one can guard by having a small injection of automaticity. The upshot of my points is that we have fewer meetings a year than we used to have and we don't particularly want to have conference calls, but I certainly wouldn't want to go back to where our hands were tied excessively and where the automaticity of the rule got the better of our judgment.",269
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"I'm sorry, Mr. Chairman, but I was so busy a while ago making a case for automaticity that I neglected to say that I did not mean to rule out discretionary adjustments in the borrowing targets. I think those we've made recently have been very appropriate. I would want to augment the automatic part of it, if we vote for that, with discretionary movements such as we've had, if it appears those are desirable.",84
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Mr. Chairman, unless I'm missing something, it seems to me the issue is not rules versus discretion but rather rules for exercising discretion. I think the discretionary aspect is certainly there--at least that's what I'm interpreting Steve to be saying. It's pretty much a confirmation of what has been going on but with just a small amount of added comfort level to the staff in terms of doing what they have had to do. It seems to me that giving staff just the slight amount of latitude that Steve's talking about makes sense. I think anything excessive or any apparent trends or anything unusual would certainly come to the Committee and would come very quickly. I just think there's a certain degree of comfort level here that would be helpful to the staff, but I don't think it would be giving anything away from the standpoint of what the Committee is trying to accomplish. My bottom line is that I don't have any real problem with this.",181
-fomc-corpus,1984,Miss Seger.,4
-fomc-corpus,1984,"I admit to being confused--to make a general statement. The second thing that strikes me is that whether or not I think M1 is important, there are a lot of Fed watchers who do. So, maybe it's like gold: It isn't the theoretical matter but whether a lot of people assume it's important that makes it important. It's hard for me to divorce the slowdown in M1 growth from the very dramatic drop in total reserves. And just hearing Jerry Corrigan's remarks about the slowdown in the economy--that this is what produced the M1 slowdown--it is as if the Fed had nothing to do with the slowdown. I think it is pretty hard to argue that either we had nothing to do with the slowdown in the economy or the slowdown in M1. Also, I heard in the past couple of meetings concern about allowing the fed funds rate to drop much because then we might have to retrace the steps and jerk the economy around and or jerk the markets around; yet when the funds rate shot up from 10-1/2 percent or so to 11-3/4 percent, which did jerk the markets tremendously, I didn't hear the same kind of concern. So, again, I don't know the answer to this, but somewhere along the line I think we've got to make some changes.",264
-fomc-corpus,1984,Let me just clarify [my comment]. I think you misunderstood me. What I was saying was that when all is said and done the slowdown in M1 that everybody is so concerned about right now might not even be there in the final figures.,49
-fomc-corpus,1984,"Yes, but I think the slowdown in the economy is real. That's all I'm saying. And I think there is some association between that and what happened to monetary policy, particularly if you want to look at total reserve creation since late spring.",48
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"It seems to me that for many of the reasons that have been stated these are the kinds of decisions that lend themselves to judgment based on a variety of circumstances that can change very significantly from time to time and it's very hard to prejudge them. The only other thing I might add is that moving to some kind of mechanical procedure, which I think is what this suggests, is a bit of a slippery slope. If we begin to move in this direction and become very mechanical, it opens up the possibility that our critics would suggest that the whole procedure runs itself from a higher level of mechanical procedure than we're using. So, I would be very much in favor of staying with the procedures we're presently using.",140
-fomc-corpus,1984,Governor Rice.,3
-fomc-corpus,1984,"Mr. Chairman, on this issue I would line up with Governor Wallich, Governor Partee, and Bob Boykin. I think that Steve's proposal is very little different from what we're doing now. I don't see the lines closely drawn between judgment and automaticity. It seems to me that as long as we limit the automatic changes--especially on the low end--to 25 percent rather than 50 percent, the result would be little different from the procedures that we're following. That is especially true if you keep in mind how flexible this Committee has been all along. In my experience since I've been on this Committee, there has been no reluctance to superimpose judgment on any kind of arrangement that we had agreed to earlier. So, I'm confident that judgment, and hopefully good judgment, will always be there superimposed upon any slight automaticity that we agree to go with. And I think the advantage of 25 percent automatic changes is that it keeps us going in the right direction without over-committing us.",207
-fomc-corpus,1984,"Everybody is willing to impose judgment, so long as it's their judgment!",14
-fomc-corpus,1984,"Well, it seems to me that Steve's paper indicates that the reason for this proposal--other than the fact that proposals in Washington never die, they just come back around after a while--is that he detects a tendency to accommodate in part undesired swings in money demand. I suppose that is a more eloquent way of saying that we tend to be a little too late in our movements, depending in part on the direction of the so-called undesired swings. If that's true, then it seems to me that there is merit in this proposal in terms of ""expectability."" One would know as a member of this Committee, within these very small gradations, the move that would take place. I have confidence in not only my own judgment but in that of the Chairman, vis-a-vis his immediate comment here. And I'm sure he would in appropriate circumstances overrule the rule. What we're talking about are small gradations. In the example given, if you start at $650 million of borrowing, the $70 million [change] for the $2 billion deviation from what I take is a quarterly path, gets us what--25 or 30 basis points change in the fed funds rate, or something of that sort and a 25 basis points change in M1 [growth] or 50 basis points or something like that? We're talking about finite gradations of change, whatever the numbers are.",282
-fomc-corpus,1984,But you think they're that much?,7
-fomc-corpus,1984,"No, I don't think it's that much.",9
-fomc-corpus,1984,It wouldn't get you that much?,7
-fomc-corpus,1984,The rule of thumb is a $100 million borrowing level change gives you 1/4 point [on the funds rate].,25
-fomc-corpus,1984,"Well, these are small gradations. And it seems to me that that argues for building in some technique useful in [making] the judgment. If we adopt this, I think this Committee should from time-to-time set that percentage [rather than] simply accept 50 or 25 percent, because isn't it true that the impact would vary depending on the level at which borrowing started? So, I would say this is a good idea, but let's have some setting of the percentage.",97
-fomc-corpus,1984,"Just for my own edification: When you say the result is $25 million, what are you assuming that's related to--a $1 billion change in M1 or something?",36
-fomc-corpus,1984,"Well, I was assuming a 7 percent reserve requirement on transactions accounts.",15
-fomc-corpus,1984,"Yes, and how big a change in Ml?",10
-fomc-corpus,1984,I used as an example that a $2 billion change in M1 produces--,16
-fomc-corpus,1984,$35 million.,4
-fomc-corpus,1984,--$140 million on required reserves. Half of that is $70 million and 25 percent of it is $35 million.,26
-fomc-corpus,1984,And you would react every two weeks.,8
-fomc-corpus,1984,"What I had in mind was: [Suppose] you had a nonborrowed path based on $1 billion [of borrowings] and in this two-week period it began to appear that M1 was running $2 billion below [path]; M2 and M3 were not behaving so differently to override it--that, of course, would be in there. And the Manager wouldn't reduce nonborrowed by the full amount [implied by] the shortfall in M1.",98
-fomc-corpus,1984,"A few people commented, favorably or unfavorably, on what they thought of M1. Does anyone else wish to make comments on what they think of M1? Unless you have changed your mind, you don't need to raise your hand.",50
-fomc-corpus,1984,"Mr. Chairman, I don't want to miss this opportunity. I would simply say that several times around this table in the past few years I've heard the statement that now M1 has restored its normal velocity relationship. And I've always noted that this turned out to be a very temporary phenomenon.",57
-fomc-corpus,1984,"What about credit velocity, Frank?",7
-fomc-corpus,1984,"I also note that, beginning next year, the minimum deposit on Super NOW accounts drops down to $1,000. I don't know what impact that is going to have. I don't see much of a marketing effort around New England to do this, although there's a lot of activity in the money market deposit accounts. A lot of the banks have already announced that they're going down to a $1,000 [minimum] on money market deposit accounts. But I think M2 could be impacted. [Unintelligible] after a few months in which the gap between what we would have expected M1 velocity should be and the actual drops down to close to the normal range. I think we ought to consider this, until we have a lot more evidence, as sort of a random distribution of velocity for Ml.",163
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"I'd just like to remind us that we're going through a period now in which the money numbers have been weak and the economy is weak. So we say to ourselves ""Oh, I wish we hadn't let that happen."" But the safer course is not always the one of either slowing down money growth at this point too fast, or speeding it up at this point too slowly. I want to take you back to that period from October of 1981 until April of 1982 in which we had a growth rate of M1 in the range of 9 to 10 percent. Had we permitted the kind of growth that the economy needed to turn around, it would have been 15 percent. The safer course in that case was not to resist the growth of M1 but to let it happen. Now, that was a case in point in which the money demand function that we were using was just miles off track. And I don't think we should decide that just because M1 has been behaving reasonably well roughly since the middle of 1983--we have a little less than 18 months' experience--that this number is now going to be a safe guide for the future. I don't think it will be. I agree with Frank entirely.",250
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"I didn't comment on M1. I would not be prepared to restore it to its original grandeur. On the other hand, Lyle, I think more of it than I have in recent times. I feel it's probably as good an indicator as we have now. So, I would put a little more emphasis on M1 now.",67
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"Well, I'd like to concur with Steve's assessment of what has been happening to M1 recently. There is never any indicator that's going to be perfect. I think M1 has exhibited some stability recently, more than it did in the earlier period. But whenever I hear this criticism of M1, I have to ask: What are the alternatives? And the alternatives--such as M2 or M3--are even worse as far as I can tell. And the worst one of all in my personal opinion is the ""look at everything"" approach, which generally leads to confusion and indecision and action that is taken much too late. There's a tendency when one looks at everything to fail to distinguish between the leading indicators and the current indicators and end up not doing anything right. So, given the alternatives, I would still come out for putting more emphasis on M1 than many of you. I think that will guide us better than these others.",190
-fomc-corpus,1984,How many people would like to put primary emphasis on Ml?,12
-fomc-corpus,1984,Of the aggregates?,4
-fomc-corpus,1984,"No, of everything. We're not deciding anything today. Who would put primary emphasis on M1 in the conduct of open market operations?",27
-fomc-corpus,1984,"Well, isn't that what we're doing now?",9
-fomc-corpus,1984,"No, I don't think so.",7
-fomc-corpus,1984,"No, no. [Unintelligible] among the aggregates.",14
-fomc-corpus,1984,I see a few hands go up weakly and then they go down again.,16
-fomc-corpus,1984,But what you're really saying is a policy with the emphasis on M1 and the mechanical feedback--the same as from October '79 to the end of '82.,33
-fomc-corpus,1984,"[It would] certainly go in that direction, but whether or not it's mechanical--. Who would put primary emphasis on Ml?",26
-fomc-corpus,1984,Versus the Ms or including total reserves?,9
-fomc-corpus,1984,Everything. Primary emphasis.,5
-fomc-corpus,1984,"The economy, inflation--?",6
-fomc-corpus,1984,"It would be awfully important, but I would still want to keep my eyes open to--",19
-fomc-corpus,1984,I said primary; I didn't say exclusive.,9
-fomc-corpus,1984,Okay.,2
-fomc-corpus,1984,It has a role involving something from which we make a judgment?,13
-fomc-corpus,1984,Primary relative to anything else.,6
-fomc-corpus,1984,Okay.,2
-fomc-corpus,1984,"It's a matter of the magnitudes of everything else. If the economy collapses, I would not go with M1.",25
-fomc-corpus,1984,"Well, fortunately, we don't have to do anything about this today.",14
-fomc-corpus,1984,Merry Christmas.,4
-fomc-corpus,1984,"I'm not very happy with this proposal of Mr. Axilrod's. I'll tell you this: It's Mickey Mouse in my opinion. I don't see anything the matter with it, but it's trivial in a way. Let me give you two reasons why. I would point out that the money supply has been steadier when we depressed its importance and the automatic responses we have given to [the aggregates]. Not so many months ago we were being praised by the monetarists for this new way we had found to keep the money supply steady. I at least am suspicious that it's not entirely accidental--that any reaction we make to it of a sharp kind is after the fact and affects things with a lag. And it may send things off in another direction. So you get sine curves instead of stability. Nobody has talked much about the fact that we are working with economic projections and I find, just as a pragmatic judgment, that the Committee puts tremendous weight on them. The economic projections are consistently unreliable in terms of the ex post judgment that's made about what the satisfactory quarter-to-quarter movement is in the economy. And I think that's just a fact of life; it's not that the projections are any worse than anybody else's. You can't project the economy quarter-to-quarter or half year-to-half year with a degree of sensitivity that is required ex post to make everybody happy. That's another way of saying you can't fine-tune on the basis of economic projections. I find the Axilrod approach--I call it the Axilrod approach though he was responding to a request--a little narrow because it's focusing on whatever M, M1 presumably. Maybe the more relevant question, or at least as relevant a question, is whether we shouldn't be putting more weight on other indicators of what is happening. We have an exchange rate that in my judgment is wildly out of line with the needs of this economy over a period of time. And it should have been telling us something for a long period. We've had commodity prices falling rather sharply for six months now, I guess, during a period when economic projections were pointing in quite a different direction. Commodity pricing didn't prove to be the worst economic indicator in the world. And it tells you something in that it makes a policy difference as well. How well you do it in the first [unintelligible]. The only reason I would worry about the Axilrod proposal is that I wonder whether we'd be kidding ourselves by making this little automatic rule, if I may call it that, [and if] that would inhibit making discretionary changes. It is so minor in and of itself that it doesn't do much. And if the Committee sits around and says ""We have this automatic response mechanism so that's all we're going to do""--if that's the psychology of it--we may not be responding often or fast enough. I don't know whether it would work out that way, but I'd be a little suspicious.",586
-fomc-corpus,1984,"Mr. Chairman, when we made a 100 percent adjustment we did have these ad hoc adjustments made and I think we should continue those. And if this is Mickey Mouse then I'd like to kick it up to 100 percent and then--",48
-fomc-corpus,1984,I agree. You can argue the opposite. We used to do it 100 percent.,18
-fomc-corpus,1984,We'll have to go for Pluto!,7
-fomc-corpus,1984,"Well, this [unintelligible]. But there must be something drastic about doing more than that.",21
-fomc-corpus,1984,Certainly in the past we've found that we had to adjust by more than the change in required reserves in order to get the desired change in the aggregates.,30
-fomc-corpus,1984,"No, that's--",4
-fomc-corpus,1984,"Oh no, we are--",6
-fomc-corpus,1984,This is just a portion of the change in required reserves.,12
-fomc-corpus,1984,"[Unintelligible] you're getting a wiggle in M1, too.",17
-fomc-corpus,1984,"I don't know if it's of interest, Mr. Chairman, but I did work out--I couldn't do it dynamically--what the hypothetical borrowing at 100 percent in ""automatic"" adjustment would have been between Committee meetings starting over each Committee meeting and not assuming any adjustment in the figure. And what this shows is that in June and the first half of July this hypothetical level of borrowing would have been about $100 and some odd million above the $1 billion that was used consistently in that period for the path. The actual turned out to be a shade under $1 billion. But in the last half of July and the first half of August, with a 100 percent adjustment the hypothetical level of borrowing would have been on average $350 million less.",150
-fomc-corpus,1984,$350 million less than the $1.1 billion that we didn't make the previous time or than the $1 billion?,25
-fomc-corpus,1984,"No, the billion--always carrying it at the billion. I didn't know how to assume what was going on. And then in [the second half of] August and September we began lowering the level of borrowing judgmentally, so the last half of August was $1 billion and then September 12th it was $900 million and September 26th, $850 million. The [respective] hypothetical levels would have been $870, $680, and $760 million--so, running a little lower still. And then in October when we had been running with $750 or $700 million, the hypothetical would have varied between $65 and $505 million. And then in November--",140
-fomc-corpus,1984,Only $65 million--practically no borrowing?,11
-fomc-corpus,1984,"Practically no borrowing, yes. And then in November, they're very close.",16
-fomc-corpus,1984,That's with 100 percent?,6
-fomc-corpus,1984,That's with 100 percent. That's just the whole drop in required reserves against Ml.,17
-fomc-corpus,1984,Because September was the way it was?,8
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,What would have happened if the federal funds rate went all over the place? Then the money supply would have been all over the place too.,28
-fomc-corpus,1984,"Well, I guess what would have happened is that the funds rate, instead of rising in the course of July and August, would have been back down closer to the 10, 10-1/2 percent area, but that's--",48
-fomc-corpus,1984,"We wouldn't let it go down to $65 million, I presume. We would cut the discount rate.",21
-fomc-corpus,1984,I assume the judgment would override.,7
-fomc-corpus,1984,"Jerry, I think that's an empirical issue. There is reason to suppose that but, if the market saw us hitting what they thought we ought to hit a little more regularly, I'm not sure that we'd have that wild a gyration. We might. But I don't think it would hurt a lot if we did have it in the federal funds rate--",70
-fomc-corpus,1984,"Well, in the abstract that might be right. But on the basis of experience I see nothing that suggests that one can disentangle the behavior of the federal funds rate from these other short- and long-term rates. Now, in theory, they should be able to be disentangled.",57
-fomc-corpus,1984,That was the theory proposed in October of 1979; it just didn't work.,17
-fomc-corpus,1984,That's what we tried. And look at the behavior of the money market and the bond market and the mortgage market and everything else.,26
-fomc-corpus,1984,They survived.,3
-fomc-corpus,1984,Barely.,3
-fomc-corpus,1984,"Recall also that in the first half of this year we had growth rates in one month as low as 1/2 percent and in another month as high as 13 percent. And unless those are anticipated--those rates were surprises, and monthly variations of that kind are always to some degree a surprise--we are going to be accompanying them with very, very large variations of interest rates. I really can't see why anybody would want to go back to the kind of policy we pursued in the fall of '79 and the fall of '82, given the success of what has happened since.",118
-fomc-corpus,1984,"Well, the success of what has happened since depends upon what happens in the coming months.",18
-fomc-corpus,1984,"Well, yes. I'm by no means ruling out that with a monetary policy as ideal as any human brain can conceive, given our knowledge, that we're still going to have variations in economic activity. There's just no way that I could buy the argument that the main reason why we had this dramatic slowdown in the economy was because of high interest rates in the spring. I just don't believe that for a moment. Some of it is; the decline in housing surely is. But [with] the increase in the saving rate of 1/2 percentage point or so in the third quarter, why would you so argue when consumer credit continues to grow? This tremendous drop in net exports surely can't be assigned primarily to the rise in interest rates in the spring. It's a much broader phenomenon there. We can't provide a perfect monetary policy. There's no way.",169
-fomc-corpus,1984,We can provide a perfect monetary policy if you say we just can't provide a perfect economy.,18
-fomc-corpus,1984,"Well, all right; I'll accept that.",9
-fomc-corpus,1984,"There's another point, too, on this business of chasing M1 around. Don't forget that since the experience between [October] '79 and early '82 we've had a heck of a lot more deposit deregulation in the banking system and there's a potential implication in terms of the behavior of the real economy. The credit quality of banks and thrifts in the kind of interest rate environment the depository institutions are operating in is, if anything, worse than it was in that earlier period. I don't claim to--",102
-fomc-corpus,1984,"On the one hand, this is somewhat Mickey Mouse and, on the other hand, it takes us all the way back to 1979! I have a feeling that it's probably a little more than Mickey Mouse and not quite as dramatic as going back to '79. Whether one is for this or against it, it seems to me we're talking in extremes here.",73
-fomc-corpus,1984,Go right down the middle.,6
-fomc-corpus,1984,"Mr. Kichline, [after my] having given a great endorsement to all business forecasts, would you like to deliver one?",27
-fomc-corpus,1984,"Well, with my usual confidence I will plunge ahead. [Statement--see Appendix.]",17
-fomc-corpus,1984,"One of the questions that arises [with] the kind of outlook you forecast for next year--whatever the reliability of that may be--is where the risks lie. And is it satisfactory or does it itself imply that one ought to be going for a higher or theoretically lower [outcome]? Where do you lean on policy with a forecast of that sort, if you believe it. It doesn't tell me what the risks are on one side or the other.",91
-fomc-corpus,1984,I wonder if Jim has any comments about the risks.,11
-fomc-corpus,1984,"I think the risks on inflation have been changing to the more favorable side as time has gone on. In fact, there are many people--at least on the Research Division staff here--who would like to argue the case for lower rates of inflation in 1985 than in 1984. In particular, the profit margin is extraordinarily high and rather difficult to explain. Virtually all the models and past behavior would suggest a lower profit margin than has been in place for some time. If that profit margin were to begin to erode a bit, one could very readily take a posture of lower rates of inflation. In the shorter run the risks on the energy side--and Ted and I talked a little about this on the oil side--seem to be down rather than up as well. So, I would tilt the inflation side down a bit leaving real activity alone. On real activity I think the risks are fairly well balanced. We have quite a moderate picture, really. In thinking about real investment, in particular, this year we're expecting close to a 15 percent annual rate of increase in business fixed investment. We have 6 percent for next year. That's consistent with the Merrill-Lynch and McGraw-Hill surveys and it's consistent with the orders [figures]. Who knows what the tax proposals will do? They can cut either way. But essentially it's quite a moderate picture at the moment, and I think the risks there are reasonably well balanced up and down. I would take the same view on the consumer sector, although in the very short run it is confusing to us. So, I think the real side risks are fairly well balanced.",332
-fomc-corpus,1984,"On this profit margin question, I have a very vague impression from looking at the figures, though not closely. You can confirm it on the basis of a lot of careful work, I'm sure. Why do I hear so many complaints from businessmen--pretty much across the board it appears, though it may not be across the board--that profit margins are under pressure? They say ""I'd love to raise prices; I can't do it because of imports."" But the [overall] impression is that profit margins are awful.",103
-fomc-corpus,1984,"Well, they came back very strongly. And, as you know, profits as a percent of GNP are at very high levels in an historical perspective and they've stayed there. It's quite clear that there are many industries suffering substantially, but I think there is a severe distribution problem; it depends upon the nature of the industry and the degree to which it's subject to the import competition. I would only say that when you look at the aggregate numbers relative to GNP and other more narrow measures of profit margins they are really quite strong.",106
-fomc-corpus,1984,[Unintelligible] the manufacturing industry.,10
-fomc-corpus,1984,"Yes. What we don't see, however, in our own forecast is very much growth from here on out. So, I think what may have been happening is that there was this surge in profits in '83 and that has tapered off in '84. We think especially in the latter half we may be seeing some sick profit numbers. And next year in the staff's forecast, given the rate of growth of the real economy and prices, we have virtually no growth in profits. So, I think, one of the problems here is what businessmen are thinking about--continued very strong growth or maintenance of a high level.",124
-fomc-corpus,1984,You're looking at so-called economic profits.,8
-fomc-corpus,1984,Correct.,2
-fomc-corpus,1984,"Did you see that article in the Sunday New York Times yesterday? The automobile quotas are costing the consumer $10 to $13 billion dollars, of which $6 billion or more increases corporate profits in the automobile industry.",43
-fomc-corpus,1984,You mean above the [unintelligible] in corporate profits?,14
-fomc-corpus,1984,No. What they argue is that some of it went into overtime which could have been handled more economically.,21
-fomc-corpus,1984,"Well, I mean the $6 billion figure.",10
-fomc-corpus,1984,Yes. The $6 billion increases corporate profit.,10
-fomc-corpus,1984,[Unintelligible.],6
-fomc-corpus,1984,Maybe you assume they will only break even.,9
-fomc-corpus,1984,"You haven't any evidence, I presume, but how much gossip is there on what these tax proposals are doing? You say theoretically they might increase it. I understand that, but I haven't heard a--",40
-fomc-corpus,1984,"No, we're agnostic in the forecast. We haven't taken a position. If you believed something were going to happen along the lines of the Administration's proposal, I think there would be an incentive to accelerate equipment purchases to get the favorable depreciation and the tax credit. It's a bit risky on the structures side. If you were into a standard tax shelter partnership trying to turn over commercial buildings, I don't know that you'd want to touch that at all. Basically, it can cut either way. I would say the overriding feature is a healthy dose of uncertainty. And that is rather unhealthy in this environment. There is a lot of uncertainty.",127
-fomc-corpus,1984,"On depreciation: If you invest next year, that accelerated depreciation continues through the life of that investment?",20
-fomc-corpus,1984,"That's what the Administration has said: that there would be liberal transition rules. Their own numbers, at least [based on] talking to them, [suggest] that in the aggregate their proposals would raise the cost of capital about 10 to 12 percent over the life of an investment. So, it's a substantial potential change.",66
-fomc-corpus,1984,"If everything is indexed on inflation in this new tax proposal, presumably it will take a less high level of interest rates to prevent the economy from overheating.",30
-fomc-corpus,1984,"All the anecdotal evidence I hear in New England indicates that it has had the effect in the short run of putting a lot of investment plans on the shelf until this is resolved. I don't know whether that is true nationally or not, but that's the word I get from industrial people. They will wait and see.",63
-fomc-corpus,1984,"That's what I get, too.",7
-fomc-corpus,1984,Especially long-term investments.,5
-fomc-corpus,1984,But I think the people who are saying this have an ax to grind.,15
-fomc-corpus,1984,Sure.,2
-fomc-corpus,1984,Do you people have any feel at all as to how much of housing starts and residential construction outlays in recent quarters is for what would be considered second houses?,32
-fomc-corpus,1984,I don't know that we have a good feel for that. There are some scattered [signs] but it's very hard to break out of current starts figures.,32
-fomc-corpus,1984,"I think the dollar figure would be even more important because if one looks at all these recreational areas around the country, one sees very, very expensive houses and condos and so forth. They seem to be springing up all over the place.",48
-fomc-corpus,1984,"Well, it is very confusing. For example, I believe the Administration's proposal is that [a taxpayer] couldn't deduct more than $5,000 above investment income for interest charges on something other than a primary residence. What that really does is to induce people to take out big loans on their primary residence. And there are other incentives in terms of tax-adjusted returns, but the proposal doesn't adjust the interest paid on a primary residence. In effect, that gives a primary residence preferential treatment and will build in incentives to leverage highly that part of the market.",112
-fomc-corpus,1984,"Coming back to the more basic question that I guess you asked: If you assume [3] percent real growth in '85, you said that the risks of deviating either on the down side or the up side are about even in your opinion. Isn't it true that if there were a major change in the dollar, that would heavily weight the risks on the down side?",75
-fomc-corpus,1984,"Which way is the dollar going? If it goes up, it would be applying more restraint on the domestic economy. And that's one of the features of our forecast; we've knocked a few tenths off our forecast because we have been assuming in our recent forecast a higher value of the dollar [than we had earlier]. So, in effect, it is draining off income abroad. It's a depressing influence on the domestic economy. I think, Ted, that the assumption in this forecast is about an 8 percent decline in the value of the dollar over the course of 1985 from current levels. Now, if it were to go down much more than that, we'd be talking about lessened restraint on real activity and a better export picture than we're now talking about.",153
-fomc-corpus,1984,But that would show [up] more in the following year.,13
-fomc-corpus,1984,"Well, it depends obviously on when it occurs. If it occurred sooner, then you'd get more of it in the 12-month period than if it occurred later.",33
-fomc-corpus,1984,"Just out of curiosity, how do you get something as precise as an 8 percent assumption? You used to do 10 or 15 percent.",30
-fomc-corpus,1984,Approximately the same way.,5
-fomc-corpus,1984,"On this trade business, some of the people in my District say that even if we got a drop in the dollar of some substantial magnitude, that might prevent the further erosion of business but it wouldn't any time soon or maybe a very long time out in the future cause a turnaround in their business. They say that those companies that are now exporting to the United States would adjust their profit margins or their profits somewhere else to hang on to this newly acquired share of the market at least for a while. So, it would seem to me that the risks of this really speeding up the economy in 1985, even if we got a big drop in the dollar, [are slim]; it probably wouldn't happen.",141
-fomc-corpus,1984,What are you assuming in the trade balance next year?,11
-fomc-corpus,1984,I can't remember the number exactly. It's $125 billion on average for the year and approximately the same on the current account.,25
-fomc-corpus,1984,You're saying no further deterioration in the trade balance?,10
-fomc-corpus,1984,"Well, yes, on average.",7
-fomc-corpus,1984,We're assuming in New York $150 billion on the current account.,13
-fomc-corpus,1984,"Our current account at the end of the year goes to $140 billion. On President Boehne's comment: In aggregate terms I think the hardest thing to predict is the lag structure of the [effects of] exchange rate changes. Most equations do say that there is some lag in this, which I think one could say is a manifestation of exactly that phenomenon, even assuming some absorption of an exchange rate [change] in foreign profit margins. One way to interpret lags in these equations is that it's not until the exchange rate has gone down or up and stayed there that you get the impact of those exchange rate changes on real trade flows. And it is for that reason that one can be quite skeptical about the precise timing for any given exchange rate change--even a permanent exchange rate change--or how fast it would show through. There are equations around--in fact the Commerce Department uses a technique where they assume that almost all of the adjustment comes in a very short period of time. And that's what led them at one point to make very much more optimistic assumptions in their projections on the current account and the trade balance than we were making at that time because they assumed that there was nothing left in the pipeline. With a forecast of the type that we have--just an 8 percent decline against the background of a 12 percent increase last year--in some sense you have more in the pipeline than you're making up. So it's necessarily the case, at least on the exchange rate side, that you will have some net negative impact most of the year just with the [unintelligible] exchange rate adjustment of the type we would--",329
-fomc-corpus,1984,What are the interest rate implications of an 8 percent decline in the value of the dollar in the short run?,23
-fomc-corpus,1984,"There are some components of that in the price forecast, though less than last time, as Jim said, and also in the real forecast to the extent that interest rate projections are somehow related to the demand-for-money equations.",44
-fomc-corpus,1984,"If you get more economic activity and prices with the same money supply, we'd have to say you'll get somewhat higher interest rates than you're thinking of.",29
-fomc-corpus,1984,"Does anybody else want to deliver themselves of a comment at this point? If not, we'll come back and make more pregnant comments in the morning. December 18, 1984--Morning Session",39
-fomc-corpus,1984,"Mr. Kichline, what do you have for us this morning?",15
-fomc-corpus,1984,"With a smile, housing starts are virtually unchanged, staying at the depressed October level of 1.53 million units. Permits rose about 11 percent, however. Personal income is reported to have been up 0.7 percent in November following a downward revised 0.4 percent increase in October. At the same time, personal consumption expenditures on this release, which will go into the flash numbers of the Commerce Department, on their calculation rose 0.9 percent in November following a 0.2 percent decline in October.",108
-fomc-corpus,1984,"Mr. Axilrod, why don't you go ahead and say what you want to say?",19
-fomc-corpus,1984,"Well, Mr. Chairman, the three alternatives that we presented to the Committee in the Bluebook all encompass some recovery of M1 growth from the reduced pace we've had, at least [based on] these present and concurrent seasonals for the second half of the year. The middle one, alternative B, as the chart following page 7 in the Bluebook shows, would aim at getting M1 to a place that's relatively high in the tentative range adopted in July for 1985. Alternative A, which has an 8 percent growth for M1 suggested, would tend to move M1 above that cone. But the parallel dotted lines are intended to show a range of variation around a 5-1/2 percent growth rate over the year 1985, and it would be well within those parallel lines. We view the specification of alternative B, which is about a 6-3/4 percent rate of growth in M1 from November to March, with an assumption for December on the order of 7 percent, as roughly attainable with current money market conditions. And I might add that those current conditions when we were doing the Bluebook were a bit tighter than the present money market conditions. That is, we viewed that M1 growth as attainable with borrowing of around $400 million and the funds rate around 8-3/4 percent. In the last several days the funds rate has been below 8-1/2 percent; yesterday it was below 8 percent and this morning it is very close to 7 percent, just about 7-1/16 percent. So, in fact, alternative B calls for somewhat tighter money market conditions than those that have evolved in the last couple of days, given market attitudes and expectations. We think the driving force behind the increase in M1 demand that would lead to this growth under the specified reserve and money market conditions is the fact that we expect growth in the economy to be a little more rapid in the first quarter than it has been in the third and fourth quarters. And we are expecting, finally, to get some effects from the drop in interest rates that has occurred in recent months, which work with the usual lag. At the same time, Mr. Chairman, we expect growth in M2 and M3 to slow from the recent pace under the conditions of alternative B, largely because we expect a drop in interest rates on money market deposit accounts and money market funds as they finally catch up with this drop in market rates. So, we would expect a substantial slowing in growth of those aggregates in the MMDAs and money market funds. Alternative C is an effort to put the Committee at the middle of this 4 to 7 percent range. It is our view, given the projections we have of the economy, that this would require a somewhat higher fed funds rate and tighter reserve positions than alternative B. I ought to add, Mr. Chairman, that I do have some additional monetary figures for the week that we haven't published, the week of December 10. I don't have any data for the following week now, but I will have some later. We had expected an increase of almost $5 billion in M1 for that week and it now appears to be $3.6 billion, somewhat less of an increase. So, it looks like December will be lower unless the figures for the 17th, which we'll have later, turn out to be stronger than our expectations. It is a somewhat more moderate M1 picture for December as of this moment than we had at the time this document was written.",721
-fomc-corpus,1984,What's your best guess now for that number for the month as a whole?,15
-fomc-corpus,1984,"Well, I'd really rather wait until a little later when I get [some data for] the 17th.",23
-fomc-corpus,1984,December will turn out to be lower unless it's higher! That's about what that projection is worth.,19
-fomc-corpus,1984,"The only other thing I should mention, Mr. Chairman, is that we did suggest some bracketed language in the operating paragraph of the directive because the Committee had in the last directive wanted to take account of the shortfall in M1 growth in October and in the fourth quarter relative to the 6 percent it had decided on early in the quarter. We have suggested language that would continue [to convey] some of that concern. If you adopted alternative B, for example, it would permit more rapid growth in M1--above the 6-3/4 percent--from November to March should you want to continue to take account of the fact that M1 did come in quite a lot lower than the original [objective of] 6 percent. Alternative A in some sense tends to allow for that more than alternative B and we wouldn't consider that language necessary if the specifications were as high as those of alternative A.",184
-fomc-corpus,1984,"I think the time has come for some general reactions but before you do that I would like to suggest that you comment on several specific things. We are approaching the time for [setting] long-term ranges for 1985. Indeed, in a couple of weeks we are going to be in 1985. We have some preliminary long-term ranges for 1985 and I think you ought to put your comments in the context of what you think the appropriate longer-term ranges should be in a general way, whether similar to or the same as we had in July or, if different, in what respect different. In the same vein, [views] about the relative weight of some of these monetary aggregates or other factors might be relevant. You can add anything on operating techniques that we discussed a bit yesterday; that would be relevant too. We also are going to have to present some forecasts for next year and we will get those between this meeting and the next meeting. Let me make a couple of comments on that. There is a question of where we're going and, at this long distance from the end of next year, where we want to go. We have a projection of a little less than 3 percent [real GNP growth] next year, if you take the staff estimate. That presumably is based upon certain assumptions as to monetary growth. The assumption on interest rates seems to keep changing from meeting to meeting and getting lower, I would think, consistent with those monetary growth estimates. In any event, we're going to have to put forward a projection. And I think that we should consider at this stage at least, since we're making up policy, where we want to be, as they say, as well as where we think we're going to be. If you take the staff's 3 percent [real GNP growth forecast] as a starting point, is that satisfactory or not? I would put it this way: I would have to be persuaded that that's the ideal outcome for next year. It seems to me that the economy has a little more room to grow than that, ideally. Now, I'm not saying we can arrange this all ideally. But if we don't think it is going to grow 3 percent or faster, say 4 percent, I guess the question that arises is: Why aren't we easing? And what are the things that are inhibiting that, if any? Maybe there are some. If we were in a strongly inflationary period, for instance, I guess that would be an obvious inhibition. Is that where we are? Is that a risk? I think some commentary about that would be desirable just in the sense of where the risks are in the economy. As a benchmark, if you are in agreement about taking that 3 percent as a benchmark, Mr. Kichline says that in his judgment the risks [to that forecast] are evenly balanced. I'd like some comment as to whether that's what you think they are in some economic sense. I think there's a question of whether the implications are equally balanced and whether the risks and dangers in the larger sense of overshoots or undershoots from, let's say, 3 percent or wherever you think we're going, are evenly balanced. That comes back to the question of what the risks are of inciting inflation on the one side, I suppose, against inciting [growth] considerably weaker than 3 percent. And some of those quarterly figures that are already in the staff's projection are quite anemic. What are various bits of economic information including, I suppose, the condition of the oil market, commodity markets, gold markets, and exchange rates telling us about that? Finally, I think some discussion of how this all fits into a larger world setting is relevant. The United States certainly has been propelling, I think almost single-handedly, the world expansion for the past two years. There are not strong signs of self-propelling growth abroad that I can see at the moment. Japan seems to be slowing down a bit from a relatively rapid rate of growth. Europe seems to be talking about--with the help of a large amount of exports to the United States--a growth pattern probably barely sufficient to keep unemployment from rising further. That means growth of maybe 2-1/2 percent. But are we looking at prospects in the United States that in a sense remove a motor from world growth and what are the implications of that? Who's going to make it up, if anybody? If nobody is, what's the implication for policy? I think this inevitably gets involved with the exchange rate question because the strength of the dollar and the converse weakness of other currencies--particularly as that affects prices of imported raw materials, especially oil--and the inflationary impact it has in varying degrees in other countries is a factor in their own policy direction and policy mix and certainly is an inhibition on their monetary policy in terms of moving in an expansionary direction. So, with all those questions on the table, let me open up the [discussion]. Mr. Morris.",1014
-fomc-corpus,1984,"Mr. Chairman, I think the staff's forecast is too pessimistic on growth. I would expect growth to be more like 4 percent than 3 percent, primarily coming in the first half, because I think we're going to get a very big response to the decline in interest rates that has already taken place. I think we have to remember that the economy and M1 respond with a lag to a decline in interest rates. We're already seeing some beginning signs such as the rise in permits. We've already had a couple of months of increase in new home sales. There is some auguring that the consumer is coming out of his summer lull, particularly the new car sales in the first 10 days in December. The only sector I'm concerned about is capital spending because of the impact of the tax program--that is, the discussions suggest that the tax program will not go through. I don't really think we have a very good fix now on whether we're going to get an impact--at least a short-run impact--on capital spending plans or not. I would assume that that will be resolved pretty quickly by the President's State of the Union and budget messages. He will have to take a position one way or the other on accelerated depreciation and the investment tax credit. And if he should take the position of rejecting the Treasury's program, I think the decline in interest rates will reinforce the extraordinary incentives and produce another great upsurge in capital spending. So, I'm very optimistic about the first half--much more so than the staff.",307
-fomc-corpus,1984,Are you unhappy about that?,6
-fomc-corpus,1984,"No. I think we can handle a 4 percent growth rate. The big problem, or the big imponderable, is what is going to happen to productivity growth. I've been very optimistic on productivity, but I must say I haven't gotten much statistical comfort. My optimism is relying on the intuitive rather than the statistical because the big jump in employment in the last two months in an economy that's not growing very rapidly surely leads me to expect very poor productivity numbers for the fourth quarter. But I'm not sure that we're going to get in 1985 the pretty good productivity performance that would make a 4 percent real growth rate very easy to attain without putting inflationary strains on the economy. If we don't get it--if we get a poor productivity record--then I'd have to change my mind on this.",162
-fomc-corpus,1984,"You'd want to put a lot of emphasis on M1, I bet!",16
-fomc-corpus,1984,"No, sir! As I say, I've concluded that M1 velocity is a random walk and I think we have to look at other things. If we ever get back to a point where M1 velocity becomes reliable again, I'd be quite delighted. But I think it would hazardous for us to make the assumption that that time is now.",68
-fomc-corpus,1984,You're not thinking of radical differences in the ranges for next year?,13
-fomc-corpus,1984,"No, I think the ranges for next year are compatible with, say, an 8-1/2 percent nominal GNP rise, within which I think a 4 percent real growth rate would be comfortably encompassed. So, if we're going to continue to have targets for the aggregates, I don't see any reason to change any of the ranges.",71
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"Well, Mr. Chairman, let me respond to the questions to us in the order you raised them. First of all, in terms of the tentative ranges for 1985: They look fine to me; I don't see any particular reason at this point to change them. On the question of relative weights and operating techniques: As I mentioned yesterday, I'm not dissatisfied with our operating techniques. In fact, despite the surprises we've had in the economy, I think the performance of monetary policy, as best I can judge it over the past year or maybe two years, probably has been as good as you can get it. Despite the fact that M1 growth has popped around, 1984 is the first year that I can remember, Steve, where we've never actually gone outside the cone; we've been in the cone for the whole year. You raised the question yesterday, Mr. Chairman, about primary emphasis on M1. Part of the problem is that nobody knows quite what that means. I do think that in the fullness of time and over long enough periods of time the behavior of M1 should get a relatively heavy amount of weight, which I think it gets. But I don't think it should get primary weight if that means chasing it around in the short run. Again, looked at in the fullness of time, the behavior of M1 even for 1984 at 5 percent or so doesn't seem to me to be very far from something that I would consider quite acceptable. On the question of the forecast: In general, I'm pretty close to Frank. I certainly have been quite wrong in terms of my near-term expectations for the last couple of months. But as best I can weed through everything, I still think that the prospects for 1985 are on the stronger side of the staff's forecast, which is fine to me. If I were to try and articulate an optimal--I shouldn't say optimal but rather acceptable--set of goals for 1985, something in the area of 4 percent real growth with an inflation rate holding about where it is looks like a pretty result from my point of view. One thing I would stress, though, is that by a lot of standards inflation, even if it were to stay at 4 percent, is still high. Indeed, when you look at what has happened this year, there is still a question as to why inflation is as high as it is, not why it's as low as it is. I think that has to remain a consideration in our minds, particularly going out into 1985. As Jim pointed out yesterday, the pressures from profit margins are going to increase at least in a behavioral way. Whether they can reflect themselves in higher prices is another subject. I think the two wild cards of note, in terms of the economic outlook, are the trade situation and the tax policy questions. The staff forecast and most other forecasts basically are saying that the trade position will stay about where it is right now. I don't know if that's a safe bet or not. Certainly, as a general proposition, that situation continues to be a source of great uncertainty in my mind. And I don't know how to judge the uncertainties coming out of all these tax policy questions. My hunch is that they will hurt rather than help. The one other point I would make is that I now have the sense that--reflecting the relatively good performance of wages and prices and maybe especially wages--we may in this period have achieved something of a more permanent downward shift in inflationary expectations and in the yield curve. That, again, I think can be a positive development in terms of the real economy in 1985.",736
-fomc-corpus,1984,Governor Rice.,3
-fomc-corpus,1984,"Well, Mr. Chairman, I'll try to answer all of your questions in order as well. But first I'd like to say a word about the forecast. Unlike Frank and Jerry, I'm very comfortable with the staff's forecast; I think it's just about on target. I do not see any danger of a recession. I don't see any of the usual signs or conditions prevailing which usually precede a recession. On the contrary, the basic conditions appear to exist for continued moderate expansion.",96
-fomc-corpus,1984,"Let me just be clear. When you say you're comfortable with the forecast, that means you're comfortable with it as a forecast. And is it also desirable?",31
-fomc-corpus,1984,"That means I agree with it as a forecast. If I'm taking too long to get to it, I guess I could give you a ""yes"" or ""no. """,35
-fomc-corpus,1984,"No, I just wanted to be sure.",9
-fomc-corpus,1984,"Although there are good reasons for expecting a 3 percent rate of expansion next year, again unlike Frank and Jerry, I don't see anything in the economy that's going to spark an expansion at a rate beyond 3 percent. It may be, as Frank suggested a moment ago, that the recent decline in interest rates has been of such a magnitude as to stimulate further expansion. The decline of the federal funds rate to around 7 percent, as we had today, is something I had not anticipated. And I'm sure the staff forecast is not based on interest rates at these levels. So, one question is whether the funds rate and other short-term rates should stay in the 7 percent area or not. With rates in that area Frank may well have a good point about sparking a faster rate of expansion. But if they don't stay around that level--if funds rates go back up to where they were a few weeks ago or to the 8-3/4 percent rate recorded two days ago and the short-term market rates associated with that go to 9 percent, I really don't see what is going to spark a faster rate of expansion. I don't see it in consumer expenditures; I don't see it in the various components of investment; I don't see it in net exports. I don't know where it would come from. As the Chairman put it, if the staff forecast is about right, the question arises as to whether that is satisfactory. And my answer is that if that is absolutely the best we can do without inflation, yes, I would settle for a 3 percent rate of expansion. However, I'm not sure that that is the highest rate of growth that is consistent with low inflation. I'm not at all sure. My own inclination is to try for a higher rate. I'm not at all sure that 4 percent is a rate that is consistent with low inflation; 4 percent growth may be too high and may result in capacity or resource pressures. But I think we ought to try to pull for the highest rate of growth that is consistent with low inflation and keeping the risks of igniting inflationary expectations very low. I think we're in a good position to do that right now because the Federal Reserve has an unusual amount of credibility. And I think it's a time that we could use some of the credibility in the interest of getting some further growth. To put it simply: We can play it safe or we can take some risks toward more growth. I don't think the risks will be high. As a matter of fact, as I've already suggested, the moment we see some danger of capacity or resource pressures or wage/price pressures developing or the moment we see some ignition of inflationary expectations we can and should pull back. Now, let me say that I'm simply trying to suggest an attitude we might take. How does this translate into policy? As I said earlier, interest rates have come down much more in recent weeks than I had thought they would. I'm perfectly prepared, with interest rates at this level, to sit back and wait and see what happens and not push them any further.",621
-fomc-corpus,1984,"When you say this level, I think maybe we ought to discount today's federal funds rate for the purpose of this discussion. It's the last analysis, but--",31
-fomc-corpus,1984,7 percent in the--,5
-fomc-corpus,1984,"What I'm trying to convey is a feeling that things have eased quite a bit, and a lot of what I'm saying applies to an interest rate level that was higher than I thought was good for the economy. So, I would be prepared to sit back and see what effect this [easing] has for a while. And if it isn't producing some kind of support for the economy, why then I'd be in favor of easing somewhat further. But what I'm saying doesn't translate into doing something wild and pushing interest rates way, way down. That's not what I'm talking about; I'm talking about a cautious, probing attitude. We can talk about how to do that, which means numbers like ""B.""",139
-fomc-corpus,1984,"""B,"" okay.",4
-fomc-corpus,1984,"To answer you question about M1: I'm impressed with what the staff has found about the increased reliability of M1. If it has become more reliable in the last 18 months, let's recognize it. That is not to say rehabilitate it completely but recognize it and perhaps consider putting it on equal footing with the other aggregates.",66
-fomc-corpus,1984,We have it on equal footing right now.,9
-fomc-corpus,1984,"No, I've never hear anybody say it's on equal footing or is given equal weight.",17
-fomc-corpus,1984,Two meetings ago we put it rather explicitly on equal footing.,12
-fomc-corpus,1984,"That's the way the directive is written and that's the way the markets are interpreting it now. If anything, they're giving it more [weight].",28
-fomc-corpus,1984,"Well, the markets were giving it more. We're saying we are giving it more importance, even more importance than a month ago. The markets have long since been giving it greater importance than we have. Anyhow, if everybody agrees that we put it on equal footing with the other aggregates, that's as far as I'd like to go at the present time on M1. As for the ranges for next year, I'm comfortable with the ranges that we've established. However, if we implement this probing attitude that I've suggested we should push for, we should be prepared to see growth in the upper parts of those ranges. Is there something I haven't covered?",129
-fomc-corpus,1984,"Well, you and Mr. Corrigan started out by saying you were going to answer all my questions. You haven't answered the international questions.",28
-fomc-corpus,1984,"Oh, yes. What I'm suggesting is to try to get as fast a rate of growth [as is consistent with low inflation], which means lower interest rates. And lower interest rates are very consistent with what needs to be done on the international side. As a matter of fact, I think one could make a case for easing monetary policy purely on the exchange rate situation now because of its effects on and ramifications for our domestic economy.",86
-fomc-corpus,1984,Governor Martin.,3
-fomc-corpus,1984,"Mr. Chairman, with regard to your question as to the ""satisfactoriness"" of the 2.9 percent Greenbook projection for next year, I have some discomfort with the confidence factor around that 2.9 percent. It's so difficult to forecast today. We have good forecasters here and they have difficulty. I would move away from Jim's position that the risks are balanced. It seems to me that there are some areas that point toward downside risks--notably the reliance on the consumer rather than a BFI-led third year [of recovery], which was the scenario not too long ago. Now we have in our scenario, understandably, the consumer coming back in 1985 and continuing to accumulate debt very substantially, albeit not at as great a rate or for as many dollars as earlier. That curve is very steep, as you will recall. So, we have the consumer, who has been buying cars and durables and buying on credit and accumulating considerable debt, looked on to come back in 1985 and add to that debt very substantially. I'm not sure the consumer is going to do that to that degree. I'm certainly not sure the consumer is going to continue to accumulate that kind of debt in housing, despite some of the positive things that have been said about housing. It's true that housing starts didn't fall much last month, only 0.7 percent. It's true that there have been some positive figures on house sales. But housing prices are not rising in many of the key submarkets around the country and that motivation for taking on housing debt and for trading up in housing is missing. The delinquency rate on the residential mortgage portfolio is at unprecedented highs for this stage of an expansion--over 4 percent. There is no sign of that coming down. Foreclosures are very high. Add to that the need, if you're going to have housing sustained or rise, for an annual rate of 500,000 plus multiple units to the supply in '85 in the face of the syndicators who have been putting up much of this apartment property backing off because of tax uncertainty. Who is going to finance the massive blocks of apartments needed to maintain housing starts at 1.7 million units or some number like that when a third of it has to be multifamily units and the syndicators and the other speculative builders are somewhat deterred by the discussion of a change to the tax situation? So, I don't think 2.9 percent [real GNP growth] is satisfactory. I think that has a policy implication, Mr. Chairman. I would be a lot happier with a 4 percent plus or minus number rather than 2.9 percent. It indicates to me that we should address our policy in that direction. You raised the question of risks. I think there are risks to the forecast. I think there are also risks in the broader sense. I note that when we reviewed the two graphic depictions of unemployment that we tend to use, the curve showing insured unemployed has been rising since October, if I can read the graph, and it looks like the number on initial claims for unemployment has been rising since about midyear or July. And we're talking about 2.9 percent growth following two quarters of growth under 2 percent. In real terms we have those two quarters behind us and then an expectation of under 3 percent for a target long term. Take the confidence limit around the 2.9 percent in a broader sense. Let's consider the Congress returning and starting to talk about spending cuts with unemployment rising or at least unemployment claims high. What about the group of political people in and out of the legislatures who would like to take a crack at the Federal Reserve--who would like to restrict our independence or who would like to have us report in a different way and so forth. Are we willing to take the risk of unemployment and very slow economic growth as those folks begin to look at the Federal Reserve and what should be done? To me that's a risk. I may be exaggerating. In terms of the world context, I saw a figure somewhere, though I haven't verified it, of 19 million unemployed in the EC. Maybe that's not quite the figure but we know what the unemployment rates are in those countries and the Chairman indicated the outlook for growth there. There are some political and social risks in those countries of continued unemployment at this stage. The question was raised as to what importance should M1 have. Well, I think among the monetary aggregates it should have the premier position. But I think too that for us not to weigh more heavily the weighted average exchange rate borders on the irresponsible [given] that the exchange rate and the flood of imports into this country impact upon employment and the market share. As Ed Boehne was saying, once that market share is gone, it's gone for quite a while. And what does that mean for employment and unemployment in the next cycle? So, it seems to me that we need to put more emphasis than we have been upon the exchange rate. We need to put emphasis upon M1, certainly. And those indicators that have some reliability and which point toward future inflation, of course, have to be very important. I don't know whether they are more important than M1 or not, but obviously those signs of future inflation are important--the wage and benefit settlements and indicators such as productivity that Frank mentioned. Well, productivity is coming back. Remember that we've had such a disappointment in real growth that, as Frank said, with the services industries hiring people and real growth so low, of course, we have negative productivity figures. But I think that the staff's productivity figures are still too low, although I'm delighted to see that they have raised the trend number a touch. Thank you, sir. But the people I still have occasional contact with have changed their organizations substantially and they are going to get the productivity. Now, that leaves me to question the ranges for 1985 as the Chairman asked. There I am greatly troubled by our implicit treatment of velocity for 1985. I'm not sure that 6-3/4 percent will be enough, frankly. I'm not sure if velocity behavior is so hard to forecast. I've got 4 percent M1 and V1 for last year. That's somewhat of a surprise, I believe. Talk about confidence level plus or minus around trend velocity! What trend velocity do we need to have 6-3/4 percent be an adequate increase in the short run? What velocity do we need to get the midpoint of the range, to have that 5-1/2 percent be adequate for M1 in 1985? At 7 or 7.1 percent nominal [GNP growth] for '85, it seems to me the implication is that the top of the range for M1 for '85 may be too low; I would be much more comfortable if we had a little more flexibility there. I don't know whether we ought to go to 8 percent. I know it's the wrong signal in terms of Fed policy whose primary job over time is to bring down the rate of growth in the monetary aggregates in order to counter inflation. But why start off with a situation in which, if we use that darn geometric cone, we're so liable to start out above the upper limit? I'm a parallel line man myself. If these are the categories we're talking about, I think we should seriously consider a higher upper limit for M1 for 1985. And I think we should seriously consider that [complex] of short-term targets which would begin the process of getting a 4 percent plus or minus real growth in the near future.",1545
-fomc-corpus,1984,Governor Partee.,4
-fomc-corpus,1984,"Well, there are a lot of things out there in '85 that are going to happen that we don't have any notion of today. It's looking pretty far ahead and I think all we can do is go on the basis of central tendencies and realize that there will be many surprises to which we'll have to react as the year goes on. I would say that as we go through the third year of expansion, I would have a presumption that the risks are on the side of falling short rather than going over the rate of growth. As the expansion gets older it gets a little more dubious, a little more treacherous to continue to project that we will follow along those lines. In particular, there are two things that bother me about the outlook. The first--and I somewhat tentatively submit it to you--is that there has been a considerable income redistribution in the country both because of the tax changes and because of interest rates. As a result, I'm not sure that we can count on the personal saving rate dropping as it does in the projection. The staff didn't know why it went up, so they are putting it back down again. But if I look around for a reason why it might not go down, it would be that this is becoming a society that is very divided in terms of income results and wealth effects and that kind of thing, and I would expect a higher saving rate because of the fact that a lot of people are prosperous. Now, that doesn't necessarily mean more consumer credit because I would submit that the people who borrow are usually not the ones who have the wealth. They are the ones who need to do the spending. And that makes me somewhat sympathetic to Preston's point that maybe housing won't do so well and maybe automobiles won't do so well as the year goes on. The second and even more disturbing thing to me is the effect of net imports on the economy that we've seen this past year. It really has sapped the strength of the economic expansion as this year has progressed. The projection says net imports aren't going to go up much more and it could be right, but I really can't see that the situation has changed. It seems to me that the rising tide of imports is just not in the process [of stopping] unless something happens to stop it; it's going to grow and grow more and that's going to sap the strength of the economy as the year goes on. So my inclination, without having a specific forecast, would be to say that the chances are, if anything, that we'll end up on the low side rather than on the high side of an inadequate forecast. The growth rate specified for the year is inadequate. It's inadequate in terms of capacity utilization, which doesn't do a thing as the year goes on; it stays at 82 or a little below 82, as I recall. And it's inadequate in terms of the kinds of stimuli we need in order to get increasing capital spending. Profits aren't going to be doing much according to the forecast; markets aren't going to be improving. We're almost certain to have a gradual shutting off in the business investment expansion with this kind of forecast. So, I think we ought to have in mind 4 percent. I would have said 4-1/2 percent real growth from the fourth quarter to the fourth quarter. I think this kind of forecast is too poor to come forward with, especially when we recognize that we may fall short. I don't know about interest rates. I've given up forecasting interest rates or even saying what they ought to be because there are so many variables in the equations. For example, someone commented--I think it was Jerry--that maybe inflationary expectations have changed. If they have, these interest rates aren't going to stimulate anything. We are going to [need] lower interest rates because [the current rates] just won't bring forth the demand for credit to spend if people have a lower expectation for inflation and, therefore, a lower anticipation of what they will realize in terms of profit payoffs or appreciation payoffs on the investments they have made. Therefore, I just don't know where interest rates ought to be. I've had that feeling now for some while and it has grown as the years go on. That reinforces my view that we really have to look at the monetary aggregates, not interest rates, as what we hope to control. I'm trying to remember to answer the Chairman's questions, although he's left the room. My view is that M1 ought to have primary importance among the monetary aggregates. That has been my view and there is no change in it. I must say it was strengthened a little by Steve's analysis yesterday but I have felt that for some time and I continue to feel it. I don't know, but I suppose we have selective memories. Lyle can remember the times when M1 didn't tell us anything. I can remember the times when it did--",980
-fomc-corpus,1984,The two of us make a great team!,9
-fomc-corpus,1984,"--and somehow the latter times strike me as being more important. But we always have to be very careful in using M1 because there can be--as there was, I think, in 1982--shifts in the demand for money and we have to be sensitive to that. We don't want to ride our money supply target without regard to what is happening in other elements of the economy or in other aggregates or credit or in market conditions. But among the aggregates I think it is the most reliable and the one that we ought to put the most confidence in. I agree with Pres that we ought to reconsider the long-range targets for 1985. I'm inclined to think that we ought to put M1 growth back to 4 to 8 percent as it was for this year both because we have room for 4 to 4-1/2 percent real growth in the economy and because we've fallen a little short. One way to make the adjustment for the base drift would be to say ""All right, we had growth a little lower than we expected this year and we'll take a little higher growth next year if necessary to bring about this 4 to 4-1/2 percent real expansion in the economy. I think that makes a lot of sense. And I don't think in that context that it would be taken as a backing away from our inflation fighting attitude; I think it would be quite acceptable. I also agree, and I've never said this before in a meeting, that we ought to pay considerable attention to the exchange rate and we ought to do what we can to bring the exchange rate down. That also would suggest, other things equal, that when we can we ought to do things in the money sector that are apt to produce somewhat lower interest rates. By ""other things equal"" I mean if lowering rates isn't producing some kind of a calamitous result internally. I don't know whether it's going to bring the dollar down; certainly, it hasn't so far. But I suppose the weight of the evidence over time is that lower interest rates in this country might tend to do that. I wouldn't say we should make the exchange rate the target of policy [unintelligible] or something like that, but I'm very disturbed about this import situation. I think it's just going to have to be dealt with. If the exchange rate does come down--remembering also that a characteristic later on in periods of expansion is that we start to get more inflationary pressures--with lower exchange rates going through the third year of expansion, it seems to me that prices might be on the high side of the staff forecast. I guess I'd be prepared to make some price concession for getting the exchange rate down because I think it's that important a problem. I think I've answered all the questions, so I'll end at that point.",569
-fomc-corpus,1984,Mrs. Horn.,4
-fomc-corpus,1984,"I believe the staff forecast represents what is probably the most likely outcome. I'm still uneasy about the outlook, particularly for the next couple of quarters. The pause or the growth slowdown has been greater than I expected and greater than a lot of us expected. In analyzing that, I came up with a couple of events that in retrospect maybe weren't so surprising to me and a couple of events that caused me to focus anew on some existing issues in the economy. The ones I put in the class of maybe being more [surprises of] timing rather than real surprises would be consumer spending and the deterioration in the trade accounts. Those may well smooth out over time. A couple [of developments] lead me to a new focus on old issues. One is that I really do find surprising the extent to which the slowing in the national growth rate is represented in a stalling out of the economic recovery in the Midwest. To use the Ohio state numbers as representative of the Fourth District, employment in Ohio hasn't risen all year and unemployment is now beginning to inch upward. If you look at business in our area, particularly heavy manufacturing, you see the marking down of expectations. They still think the national recovery is going on but they don't think it's going to be reflected in their business, particularly in the traditional capital goods area. So, they're focusing instead on expansion of cost cutting and survival now. The second set of issues, which I find particularly worrisome, are those surrounding the situation in the farming, mining, and energy sectors. I really see little in recent developments to suggest the end of the income squeeze in these areas. Of course, not surprisingly in that respect--because really only time will deal with those problems--I think the time [will come] to write down some of the inflated asset prices from some of the decisions that were taken under a different set of economic [conditions]. But this remains a problem in many small towns and even some large ones in that we really don't see the spillover, if you will, of the national recovery even if we do expect it to continue on at about the 3 percent rate. I have two comments specifically on whether I think the 3 percent rate is adequate or not. I'd like to comment on both 1985 and then a bit beyond that. I think probably there is room for more than 3 percent growth in 1985; I might say 3 to 4 percent. But as we look at the long-term trend of the economy and, therefore, at what productivity increases are likely to be, I'm one of those people who are very impressed by some of the productivity stories I hear. Some of the remarkable cost-cutting stories and productivity changes that we have seen in our District are really very exciting. But they do take time to have their effect and I think they take more investment in order to have their effect, and the time periods can be significant before we really reap the full benefit of this. So, as I look beyond 1985, I wouldn't like to place too heavy a bet on a really significant change in the productivity numbers. For that reason, if we're talking publicly about something bigger than 3 percent next year, I'd like to be sure we don't put ourselves in the position where that sounds like more than 3 percent forevermore, because the forevermore numbers I tend to be more comfortable with are in the 2 to 3 percent range. I think if we get involved in more than the 2 to 3 percent range long term, we're counting on a faster quickening of some of the productivity improvements or we're counting on continued enormous numbers of imports to mop up the large demand, and I wouldn't like to be betting on those too far into the future. As far as the longer-term ranges, particularly the M1 range, as I look at them now they are not unreasonable in line with what I just discussed.",784
-fomc-corpus,1984,Mr. Black.,4
-fomc-corpus,1984,"Mr. Chairman, I think the Board staff forecast is about right in terms of the level of economic activity, but I would side very much with Pres and Chuck and Emmett on the risks on that, particularly concerning Chuck's last point. I am fearful that the foreign trade deficit is going to take a bigger bite out of our production and employment than we probably have assumed. If there's any risk, this strength of the dollar in the face of the narrowing interest rate differentials has impressed me a lot and that's where I would think the main risk lies. I think Jerry made a very important point on the inflation side in saying we ought not to be complacent about an inflation rate of 4 percent. I remember that in 1971 when President Nixon put on the wage and price controls that [level of inflation] was serious enough to be a national calamity. By the same token, I think we can pretty well count in our own productive capacity that which is abroad since we have such an open economy now that we're not apt to hit bottlenecks quite as quickly; I think the threat of foreign competition and actual foreign foreign competition have been one of the key reasons why inflation has not risen as much in this upswing as some of us thought earlier that it would. Jim said about the risk of inflation that he thought it would be less next year; I would guess it would be roughly about the same, but certainly less than I earlier thought it would be at this stage. On the long-run targets, I would come out about where Karen did and would leave those ranges unchanged. So far as the aggregates are concerned, I'll take a page from Orwell's Animal Farm and say that all aggregates are created equal but some are more equal than others and I would emphasize M1 since I think it really, despite its limitations, conveys more information than all the others do and certainly more than any one of them does. To your fourth question about whether 2.9 or 3 percent growth is satisfactory or not, I think Emmett gave the appropriate answer when he said that that's fine if that's all we can get without inflation. Historically, our long-run growth rate has been around 3-1/2 percent and 3 percent would not be that unusual at this stage of a recovery. But in the peculiar circumstances in which we have found ourselves, I believe that we probably could stand a little more than that. But anything much beyond 3-1/2 percent or so I think would spell problems for us down the road. And to your final question about how this fits into the world situation: If we don't provide the impetus for expanding world trade, who is going to do it? I suppose that foreign economies look a little better now than they did the last time we met but they still don't look very strong. So, I would expect we're going to have to carry the brunt of that burden; and for that reason I would agree with Chuck that we ought to take a little harder look at exchange rates this time than we've traditionally done around this table.",617
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"On the outlook, my views have been a little more optimistic than those of others and that has not been very successful so far. I still think there are reasons to think that '85 might come out a little better than the staff forecast. We have the very large budget deficit; we have the diminishing probability that something will be done about it. We've given the economy some kind of a push with lower interest rates in the last few months. But it's also true that one can look at each sector and find something negative. Consumer debt is rising; in business fixed investment there's the tax program and the obvious slow-down; there's the heavy drain from exports. So wherever one looks, there are considerable doubts. That leaves me somewhat agnostic and willing to assume that we are most likely to do a little better than 3 percent but with no great assurance. Now, as to what is desirable, I would rather not couch that in terms of a rate of economic growth. I would prefer to couch it in terms of certain conditions that are desirable to achieve. Unfortunately, the various conditions, which are very familiar, do not all pull in the same direction. I think we should get the dollar down. At the present level of the dollar we are ruining our trade and we're burdening the country with an international debt, the service of which is going to be a continuing burden on the exchange rate itself. The longer this goes on the lower the dollar will have to be in the long run in order to get anywhere near making income and [outgo] meet. We also, I think, need to get interest rates down. While I agree with Chuck that one can never be sure what interest rates are right--that's why we have aggregates targets--I think it is fairly clear that interest rates in this country and around the world are very high in real terms. They are a drag and are problems for developing countries and their debt. I would like to see something happen that would bring interest rates down. These are all things that call for expansion. But on the other side there is the inflation rate situation. I share with Jerry and you the view that 4 percent is not good enough. We have to keep bringing it down and we have to realize that this has a cost both in terms of real growth and in terms of the level of unemployment, capacity utilization, and also in terms of the objectives that I just listed. That is to say: If we want to get the inflation down, it is not helpful to do something that gets the dollar down. If we want to get inflation down more, it is not helpful to do something that brings interest rates down. It is a very difficult compromise. And I lean for the long run toward doing what brings the inflation down, although in the short run I think we may have a window here in which the combined fact that we have a weak economy and weak M1 and weak inflation gives us an opportunity for doing something that would give interest rates a downward push. But that's a short-run evaluation; it's not for the year. In terms of the rate of growth, I agree that over time we have to get unemployment down. But we're in the third year of an expansion and historically it has proved dangerous to try to accelerate [economic growth] in the late stages of an expansion. It has been tried before and it has led to inflation. Sooner or later we're going to have a pause; this economy is cyclical. Whether this pause comes in the third year or the fourth year and whether it means a growth recession or one or two down quarters it seems to me is not unimportant but it is less important than to do the structural things right--that is, inflation, interest rates, and the dollar. Turning to the ranges, I would keep them as is, recognizing that that means tightening them relative to [those we adopted in] July because we didn't anticipate the down-drift of the base. This will be helpful for inflation. It will not be helpful for growth or the dollar or for interest rates. I think that is the right thing to do, nevertheless. As far as the aggregates are concerned, intuitively, like many, I always look to M1. It's published every week. So, there it is. I think we need to look at each aggregate each time it makes its appearance and ask ourselves whether there is anything untoward about it. There is surely something untoward about M1 at the present time. It looks like an incipient shift in the demand function. I do think that at this time the [broader] aggregates, particularly debt, deserve a careful look. I would weigh all of these and I would give them different weights at different times. Usually I'd give M1 the highest weight but at the present time I would like to have some understanding of why it is weak--whether that is really a weakness that deserves to be corrected or a weakness that has some [causes] that will keep M1 at a lower level. Finally, as for the international aspect, I think it's enormously important from the point of view of the world to get the dollar down and avoid a situation in which the dollar later may collapse in disorder. That isn't going to be helpful to the world in terms of our current account deficit because our locomotive function in good part depends on the dollar being excessively high. But it's for us an unsustainable and intolerable situation, and the world too in some respects would be better off with a more sustainable level of the dollar. Moreover, I'm not convinced that what we do has all that much of an impact on the dollar. We can, of course, conduct monetary policy in a way that targets on the exchange rate by trial and error: If a little expansion doesn't bring down the exchange rate, a little more expansion can be tried and still more and there is no doubt that eventually monetary expansion will bring the dollar down. But that's not the way I think we want to do it. If we do it in a moderate way, we have to realize that whatever we do is of doubtful effect in the short run as we've seen in recent months when interest rates came down and the dollar rose. If we could bring interest rates down, that would be the greatest thing we could do for the rest of the world in terms of investment--for other countries in terms of their expansion and in terms of their debt. This is something that we can do only very marginally. If something happens on the budget deficit, I think we should be prepared to respond to that--not by a permanent increase in the rate of growth of the aggregates, which would just mean more inflation, but a temporary increase that would increase the money stock and help to depress interest rates somewhat more than the mere action of a reduction in the budget deficit and in the Treasury's borrowing could be expected to accomplish.",1381
-fomc-corpus,1984,"With all this talk about getting the dollar lower and improving the trade balance, let me just introduce another complication. If we don't have a big trade imbalance and a big capital inflow from abroad, how are we going to finance the budget deficit? Mr. Forrestal.",54
-fomc-corpus,1984,"Let me start with the ranges, Mr. Chairman. I don't think there is any need to do anything at this time about M1 or M2. I think 7 percent at the top of the range for M1 is sufficient to allow for adequate growth in 1985, provided we keep inflation about where it is and provided that we don't have an unusually low level of velocity. We should not lose sight of the fact--and I think we need to remind ourselves--that 1984 was a pretty good year. I think we did very, very well in terms of growth and, certainly, we did well in terms of inflation. And if you believe, as I guess I still believe but with a greater degree of uncertainty, that what we are in now is a pause and not a permanent decline in the economy, I really don't think we need to do anything with the ranges for M1 and M2. I guess we're not giving a lot of weight to M3 but I wouldn't be concerned if we moved that range up a bit to reflect the reality of what happened in 1984, though I really don't care all that much about it. With respect to the staff forecast, I think it's a little pessimistic in terms of growth. I think that growth will probably be around 4 percent, but I believe that's good. I would not be terribly comfortable with 2.9 percent growth for '85; that's a bit anemic. I think we can support 4 percent without reigniting inflationary expectations. Why do I think we might get greater growth? I think the saving rate is somewhat important and, unlike others, I believe the consumer is going to break out of this pattern of saving to some extent and we're going to get a return of the consumer to the marketplace. We've seen some evidence of that already in terms of the November retail sales. Perhaps I'm just reflecting my own District where retail sales are holding up pretty well and, in fact, some retailers are even changing their forecasts. I should say that some are moving them down as well. The deficit, of course, is still with us and that is having a stimulative effect on the economy, obviously. I think that we have eased considerably. We have had a drop in short-term rates of roughly 300 basis points. I think that's still going to work its way through the economy. We're expecting more rapid growth; we had more rapid growth of M1 in November. I don't know what Steve is going to tell us about December, but the last number I saw was 6 or 7 percent growth in December. So, I think those things are still in the pipeline and are going to push us to healthier growth--and by healthier I mean 4 percent in 1985. With that greater growth I would expect a little higher inflation than the staff is forecasting. The other thing that I looked at that I think is rather interesting is the fact that long-term rates have not moved down all that much. What is that telling us? Is it indicating a revival of inflationary expectations on the part of markets or does it suggest an expectation of greater economic growth? I think it's probably the latter. I think the markets are looking for healthier growth in the long run. The other thing that influences me to some extent is the money numbers that I'm seeing from the private forecasters, who are suggesting a fairly healthy growth in M1 in the first quarter of '85. With respect to the dollar, as others have said, this trade imbalance is a very, very distressing feature of the economy. And if we want to get the dollar down, or at least to help the dollar come down, I suppose one could argue that monetary ease is the way to do it. However, if we do that, the thing I'm concerned about is first of all that we haven't seen the dollar come down at all as a result of the decline in the differential between rates abroad and in the United States. Interest rates have come down here. I would have expected the dollar to come off but it didn't. And the question in my mind is: If we ease policy to bring the dollar down, are we going to reignite inflationary expectations, increase interest rates again, and then bring the dollar back to where it was? In other words, we may get the opposite effect of what we anticipate. So, I'm not sure there is very much we can do on the monetary policy side with respect to the dollar. I really just don't know. One other thing I want to mention is that in terms of the tax proposal, I think--as others have said as well--that it can cut either way. I find it very difficult to get people to say which way they are going to jump: whether they are going to accelerate their business fixed investment upon anticipation of being grandfathered or whether they are going to hold back. It could go either way, so that is an uncertainty. With respect to the operating techniques that you asked about, Mr. Chairman, I wouldn't know how to answer your question about placing primary emphasis. I think M1 deserves a lot of attention among the aggregates and I personally would pay more attention to M1 than to the others. But I do think it is very important that we keep our eye on all of the other factors, including economic growth, interest rates, and so on.",1084
-fomc-corpus,1984,Mr. Boehne.,6
-fomc-corpus,1984,"Based on very recent information, it seems to me that, at least in my District, the retail situation looks a little better. It's nothing to write home about but I suspect December might turn out to be a touch better than November. The more interesting point, as we go out into 1985, is that I believe the risks are on the down side from the staff forecast for two broad reasons: One is just the anatomy of a recovery and the second is the level of interest rates. The point has been made in several different ways, but there is an anatomy to a recovery; there is a rhythm to it. That rhythm is not constant from one recovery to another, but it usually starts with housing and moves into consumption and then it gets a kick from inventories and then investment and so on. To count on a big boost coming from consumption in the third year of a recovery it seems to me is at odds with that usual anatomy and that usual rhythm. It might happen, but I don't think it's a good bet. In the second area, interest rates, I think most of us around the table say that we've had a drop in interest rates, we've eased and we feel good, so why don't we just wait? It takes a little time; we know there are lags here. I don't think we have lowered interest rates as much as we think we have in terms of the impact on the economy. I think we have seen a bigger drop in nominal rates than we have in real rates. I think we are seeing a downward adjustment in inflationary expectations and I think interest rates are still very high. There is nothing about an 8 percent Treasury bill rate or a little more that is particularly low. And if you look at long-term rates, [they are up] there too. So, in terms of interest rates, I think we still have fairly restrictive restraint on the economy. So, for both those reasons--the anatomy of a recovery and interest rates--the odds favor a weaker economy than the staff has forecast. I think those kinds of risks are unacceptable, and I think the forecast that the staff has put together is unacceptable. I don't think 3 percent, or 2.9 percent, is acceptable to us. I have a hard time selling myself on it. I think it would be even more difficult to sell that to the public or the Congress or to our friends overseas. So, it seems to me, we have a forecast that is unacceptable. The risks are unacceptable and the policy implication is to try to have a somewhat more stimulative monetary policy to at least move us in a direction that we find more acceptable. I have trouble pinpointing a number but with all the hazards it seems to me something closer to 4 percent or a little over in terms of real growth would be a much more salable outlook and policy target. As far as the other questions: On the long-term ranges, I must say that my doubts about the ranges that we agreed to last July are on the rise. I'm not at this point prepared in an outright way to advocate raising them, but I think at a minimum we should indicate that growth would be at the upper end and perhaps exceed the ranges, particularly in the first part of the year when we get into the parallel lines and the cone business. But between now and February, I may very well change my mind and come down on the side of raising the upper limit both as a way of handling the undershoot and as a way of providing some breathing room to deal with the risks. As far as the weighting of the aggregates, I have never loved nor hated M1. I don't have any particular loyalty to it; I'm very agnostic about it. But it does seem to me that it has looked a little better recently. These weekly gyrations are certainly funny, but it seems to me that the case that M1 is better than it was a few months ago is a convincing case, so I would put it first among equals. I would give it an extra bow compared to the other aggregates. I, too, think--and I don't think I've even ever thought this let alone said it, Chuck--that the exchange rates and the commodity prices are telling us something. I don't know what kind of weight to assign to this but when so many signals in the economy are going one way or another and the aggregates to some extent are giving mixed signals, it seems to me that in a world with that kind of uncertainty there is information to be gleaned from the exchange markets and from commodity prices. And I think both of them tell us that our interest rates are too high. As far as the operating procedures are concerned, I'm much happier with the way we have been conducting ourselves in recent months than we were a couple of years ago when we were in a much more mechanistic mold. It does seem to me that while we ought to carry on more or less as we have been with some equal to primary importance to Ml and looking at borrowings, I would not keep both eyes on borrowing. I would look over at reserve growth and if we get ourselves in a situation where reserve growth either shoots way up or begins to fall off, it seems to me that, too, would be telling us something. I'm not for any formal modification, but I think we've got to look at both sides of how we get at this--both reserve growth as well as borrowing. I think that's everything, or at least all you want to hear.",1107
-fomc-corpus,1984,Governor Gramley.,4
-fomc-corpus,1984,"If I were to write down a forecast today, it would look very much like the staff's with about 3 percent growth. And I would agree with the staff's judgment that the risks are roughly balanced as to whether or not growth would exceed that or fall short. So, I don't agree with Frank or Jerry in that respect. My thinking has changed over the past several months and I hope it's not because the news has been coming in rather poorly. I think the worst way to forecast is to assume that tomorrow will be just like today. We all know that we can do a lot better than that. But some things have been happening that have affected my own judgments. The most important is the fact that the drag from the international sector is turning out to be a lot larger, a lot more pervasive, and a lot more persistent than I had anticipated. And the second is the evidence coming in over a series of months suggesting that the process of very rapid growth in business fixed investment is behind us. Turning to the desirability of this forecast, I certainly would agree with those who say that it would be much more desirable for growth to come out on the plus side of 3 percent than on the minus side. And I say this less for domestic reasons than international ones. Growth of 3 percent is still above my estimate of potential. It's also above the staff's estimate, which is why we make further progress in reducing unemployment with this forecast in 1985 according to the staff. But I don't think a 3 percent growth rate is satisfactory from the standpoint of the international economy. There is just no evidence of any developing dynamism or cumulation of the recovery in Western Europe. And if our economy grows at 3 percent or less, I think the risks increase that maybe the international economy generally is going to begin to stall, with consequences that I think are quite serious. Let me just say a word or two about the exchange rates. I think all of us want to see a lower exchange rate and I assume we all mean a lower real exchange rate. We all know that it's very, very easy to produce a lower nominal exchange rate. All we have to do is dump out money in buckets and gin up double digit inflation and the exchange rate will fall. All we would have to do is signal that we intend to do that and we would get some anticipatory movements, I'm sure. But what else we could do from the standpoint of monetary policy to bring the real exchange rate down, I don't know. If we foster more growth in the U.S. economy, will that raise or lower the exchange rate? I'm not sure. We're told that one of the reasons the exchange rate is as high as it is is because the investment prospects look so much better here than they do in Western Europe. If we lower interest rates in the short run, will that do the trick? Well, we've done that in recent weeks, and lo and behold the exchange rate turns around and goes back up again--according to some arguments, at least, because holders of dollars figure that interest rates have reached a temporary floor and may turn around and go back up again. I'd like to know what to do to bring the exchange rate down, and I think there is a way to do it, but the policy lever is not in our hands. It's in the hands of those who set fiscal policy. What do we do about the desire for more growth than 3 percent? If I may take a page out of your book, Mr. Chairman, let me remind us all that forecasts are often inaccurate. It may happen that we will get more growth than that 3 percent.",737
-fomc-corpus,1984,Or less.,3
-fomc-corpus,1984,"Or less, that's right. It's not clear at this point. I would note also that the staff forecast is for price inflation in 1985 at about the same rate as in 1984. And, as has been mentioned earlier, this is still above our long-run goal. But I would be prepared, over time, to try to conduct monetary policy in a way that would foster more growth than 3 percent if in fact evidence is produced as time goes on that more than 3 percent is not materializing. Now, that to me doesn't call for any changes in the ranges for the monetary aggregates in 1985. I don't like M1, particularly. Chuck and I are going to average one another out here! I wouldn't change the weight we give M1 in our implementation of monetary policy. But I can express my views on the ranges either in terms of M2 or M1 and I get the same answer. We have ranges; I think we ought to use them. That's what they are for. We don't have to hit the midpoint; we rarely do. But the upper limit of the range for M1 is 7 percent. If you add to that the 1-1/2 percent increase in velocity which is a trend increase independent of interest rates, that gives you 8-1/2 percent in nominal GNP. And with a 4 percent inflation rate that gives you 4-1/2 percent real growth, if the expansive forces are there. Or, with a 6 to 9 percent range for M2, an upper limit of 9 percent with no trend in the velocity of M2 independent of interest rates gives you 9 percent nominal GNP. So, I think we ought to sit with these ranges; I'm happy with them.",363
-fomc-corpus,1984,Isn't it 6 to 8-1/2 percent?,14
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,Make it 8-1/2 percent. Then my arguments for M1 and M2 are completely symmetrical.,23
-fomc-corpus,1984,They're exactly the same for the upper end of both ranges.,12
-fomc-corpus,1984,Mr. Keehn.,5
-fomc-corpus,1984,"Starting first with the economy: I would have said a month or six weeks ago that there was every opportunity that we could fall back into a recession. And though the recent indicators have been somewhat ambiguous, [not] doing a lot, I certainly have changed my view. I think there is every opportunity here to stabilize and, indeed, to begin to come out a bit on the high side. With regard to the forecast, I think the staff's forecast is a very reasonable assessment of the way 1985 may actually work out, though some of the underlying statistics in the forecast seem a little on the high side. For example, they are suggesting auto sales next year of about 11 million. That would go back to the rate in 1978 which, if you remember, was a very, very strong year. I think that looks a little high. Housing starts of 1.8 million also look a bit high. I think the tax bill will cause considerable uncertainty in that area. But net, I think 3 percent is a reasonable assessment of what may work out. With regard to inflation, though I certainly agree with Jerry that the level is high, on the current trend I think the news is uniformly good; I am extremely impressed on both the price and the wage side. People I talk with are simply unable to get price increases of any magnitude to stick at all, even in some of the tighter industries. On the wage side, people I've talked to say that contracts that have been renegotiated in 1984 are continuing very favorable trends--better than those that were renegotiated in 1983 in terms of the length of the contract and the wage costs. I think the productivity side of that is going to continue to be good and, therefore, most people are going to be able to go into 1985 without increases of unit labor costs. I think the trends [in inflation] are very, very positive. I would have said that is the most important thing that we're trying to do. Even if we deliberately gun the aggregates to try to increase the growth beyond what is suggested, it seems to me we run a very substantial risk of losing what we have already accomplished on the inflation front. So, that leads me to say that I would leave the ranges where they are, based on what we know now; things may change between now and February. There have been some compelling arguments to raise them and I understand that; nonetheless, I would leave them where they are now. With regard to the relative weights, I would not be slavish to M1 but among the aggregates that we use it seems to me M1 has the greatest reliability in terms of how we operate monetary policy and, therefore, I would place greater reliance on M1 next year than we have. The risks here, and I think everybody has said it, are certainly in the exchange rate and the balance of trade. Clearly, there are some excesses here that cannot continue. I don't know quite why they have continued as long as they have. An aside for a moment on the foreign trade side: As we look at the agricultural sector--and I won't spend any time on that--the conditions in the agricultural sector are much, much worse than they have been. Indeed, we are facing some very serious risks in that area. We think that the loss of the foreign market was the single most important cause of the problems that the agricultural sector is currently dealing with. So, the risks as I look at '85 are in the exchange rate and balance of trade areas. If that unwinds, particularly in a hurry, it could cause some unfortunate reactions. I hear what you're saying, Mr. Chairman, with regard to the need to have this imbalance to finance our fiscal deficit. I wouldn't mind bringing that problem into greater exposure as a way of trying to get Congress to do a little more than they are likely to do to bring down the fiscal deficit. Finally, on the international area, if we have continued growth of about the magnitude that we're suggesting, if inflation remains at the level that we anticipate, and if rates continue to come down, it does seem to me that we ought to be providing the stimulus for a continuation of the worldwide recovery. Therefore, that would not, on balance, be a bad performance.",869
-fomc-corpus,1984,"Have you prepared your swan song, Mr. Solomon?",12
-fomc-corpus,1984,"Maybe it would be more appropriate to skip it. I find Lyle Gramley's analytical reasoning very close to mine with one or two very minor exceptions, so I won't repeat. But it seems to me that there are too many uncertainties. They are unusually high in '85, higher really than in the first two years of recovery. [The outlook] is complicated now by the tax program, correction of the budget deficit, the dollar, etc. Under those circumstances, since we can't really know what the results of our actions will be, I would be in favor of very moderate moves--feeling our way as we go along. Under those circumstances, I obviously feel that we ought to maintain the present operating approach and not return to any degree of automaticity, no matter how marginal, because I think that tends to give us a psychological framework that is not conducive. I have absolutely no ability to predict whether the present level of interest rates or a level 1/2 or 3/4 of a point lower is going to give us 3 percent [growth] or give us 4 percent. So, I don't understand the policy implications of posing that question. I know there's a need to present to the Congress some ranges. On the other hand, if the Congress is going to beat the heck out of us because we say 3 percent rather than 4 percent, what are they going to do when we have to tell them about a dip in the economy coming along later? I don't think we've abolished the business cycle. So I don't know if that means that much to me. Maybe I'm not being sensitive to the situation in Washington. But I don't have a clear view that 4 percent is that much more significantly desirable than 3 percent, although I certainly agree that a 3+ percent is better than a 3- percent. The international case for some moderate easing is much stronger than the domestic case. Even though I don't think that a moderate easing of rates is necessarily going to change exchange rates, I think in the very long run the level of interest rates will be a very important determinant of exchange rates. In the short run I think a moderate easing may not have any significant effects. But there are other international objectives to be achieved from a moderate easing of interest rates. So, it seems to me that we ought to maintain the ranges where they are and I think they're permitting enough growth in M1 and M2. I'm not quite sure why we continue to leave an M3 that seems to be misaligned on the low side year after year. From what my staff tells me I believe we have tended over a rather longish period of time to see higher M3 than we would normally expect in relation to M2. I don't see any tactical problem or public relations problem in upping the M3 figure. I don't think it's [necessary] by any means, but I throw that out for what it's worth. I think I've touched on all the points that I find significant.",603
-fomc-corpus,1984,Mr. Guffey.,6
-fomc-corpus,1984,"Thank you, Mr. Chairman. Things are much clearer to me now as I return to the room. Let me say that I'm grateful to Jerry Corrigan for having captured, I think rather fully, my view of what will happen in '85 and what is appropriate to happen in '85. Let me just recap, because it has been a while since he spoke. With respect to the outlook for the economy, I believe that the staff forecast is a bit conservative; I would look for something more in the range of about 4 percent in '85. And that comes from the fact that the interest rates have come down. Given the lag effect, I think that we're going to see the consumer come back into the marketplace in the first half and that the first half will be somewhat stronger than is now being projected and the strength will carry through a good part of the year. As a result the 2.9 percent, I think, is a little low. I'd rather we focus someplace between 3 and 4 percent, and closer to 4 percent for the year as a whole. The question is whether that's an appropriate growth. I think we would be right on track if we could achieve that kind of performance in 1985. With regard to the ranges for 1985, I think what we adopted in July would be quite appropriate and it seems to me that there is latitude within those ranges. However, I would also give some recognition, Mr. Chairman, in your testimony or otherwise, to the fact that unless we rebase we would be in the upper half of that range or near the top and perhaps even [above it] for '85 because of the shortfall we've experienced in 1984. With regard to your question on M1, some may have misunderstood what I said yesterday with respect to the importance I would place on M1. I believe it has greater informational content than the other aggregates, either M2 or M3 or credit. As a result, I would look at it a little more closely, but that does not mean to suggest, along the lines of the question we were asked yesterday, that I'd place primary weight on it. I would not do that because I think the aggregates in and of themselves are only one of several informational variables that we should be looking at in the economy and everything else. I think what we've been doing in the most recent past is quite appropriate. I wouldn't ignore M1; I'd just put a little more weight on it than I would on M2, M3, or credit. With regard to the exchange value of the dollar, everybody has spoken on the importance of moving its value to some lower level, and I think we all would agree that that would be helpful to the United States and in a sense helpful to the debtor nations around the world. But I'm not convinced that we can do very much to correct that problem. As others have said, if we aggressively target monetary policy with that as an objective, it seems likely that it will backfire on us and we'll be back with a problem at least as serious as we have now and perhaps even more serious. The point I've come to is that it certainly is not totally within the power of this Committee or monetary policy to correct the excesses that now appear in that market. To the extent that we run U.S. monetary policy in a way to benefit our economic activity domestically, I think we have to leave it to the politicians and to fiscal policy to do the remainder. That does not suggest that we shouldn't nudge interest rates a bit more with that being one of the primary objectives. But if we were to set upon a course to correct the imbalances in the dollar vis-a-vis other currencies, I think we would be making a very great mistake. And that's said in the context of looking at my own District in which agriculture plays an important part and, as Mr. Keehn has already observed, the dollar itself is perhaps the only remedy to the situation--and it is a very serious one--that we find in the agricultural sector. But still, with that kind of background, I am not convinced that what we do with monetary policy will affect the exchange rate in any long-term beneficial way.",853
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"Is 3 percent enough? Probably not. Is 3 percent likely to be what we achieve? I think my staff would agree that that's probably the best we can hope for, given the present circumstances. The reason I take that view is that we do have some barriers to getting higher than 3 percent in growth. Just yesterday when the huge current account deficit of--what was it?--$32 billion for the third quarter was announced, the Secretary of Commerce again pointed out, to his credit, that the real cause of this strong dollar against the huge trade deficit was the federal budget deficit. Unless or until something is done about that, I'm afraid we're pretty limited in our ability to bring down exchange rates and to eliminate that great source of distortion in our whole economy. I continue to feel that we're not capturing what the whole problem of the U.S. economy is by simply distinguishing between a 3 percent versus a 4 percent economic growth rate for next year. There are sectors of the economy --and we're all aware of them--that simply haven't participated in the upsurge of 1983 and 1984 and prospectively for 1985. That's true of many kinds of agriculture--as has already been observed around the table--most parts of the mining industry, and the whole forest products industry. And many types of manufacturing that either compete against imported goods or that rely heavily on export markets haven't participated in this prosperity; they wonder where the prosperity is. There's so much I'd like to see done in the U.S. economy, but as several people have already observed--Lyle Gramley among others--we simply don't have all the variables under our control. And those variables have to do with the huge size of the federal budget deficit for starters. That has been exacerbated further, I'm sorry to see, by the tax reform proposal, which has now placed an additional element of uncertainty out there in the business community. I keep hearing, quite recently now from our own board of directors, that greater uncertainty hangs over the outlook for business capital spending and for certain parts of the housing industry, especially second homes which, if this tax reform goes through, would lose some of the present tax benefits in terms of deductibility of interest. It's frustrating in other words, Mr. Chairman, to want to do better and to think we could do better than 3 percent but to realize--which is where I come out--that we don't have our arms around all the problems in the sense of having the controls at our fingertips. In terms of what we ought to do on the ranges for next year, I am a strong believer in M1, as I think you all know, and because of the undershoot in M1 we've seen thus far this year I think there is a possible case for rebasing even though it has been very unpopular around this table so far. Simply put, it would permit us to bring down the ostensible range of monetary growth for next year because we'd be taking off from a higher base. That is, a 4 to 7 percent range would be appropriate in my view only if we were to rebase. I'm concerned by the fact that I think the drop in interest rates, which I welcome, will have the effect of reducing the velocity of money in 1985. Unless we're prepared to offset that, we could have an unintentionally restrictive effect on the economy, as was the case to a much larger extent in 1982 when we were too slow to recognize what was going on in the very sharp drop in the velocity of money that year. So, if we were to stick with the fourth quarter as the base for ranges for next year's monetary growth, I would certainly hope that you would make it clear in your testimony that we would aim for the upper part, if not the upper end, of that 4 to 7 percent range. I would be a little happier if we could rebase and have a higher takeoff point for the 4 to 7 percent. If we don't do that and we're going to use the fourth quarter of this year as the base, which now seems likely given the views already expressed, then I too would favor, as some others have, moving to a 4 to 8 percent range. With respect to the world economy, I just don't know how much further we can go than we have already in encouraging strong economic activity abroad [through] this tremendous surge of imports we've had in the United States. That has been good for other countries; it has been perfectly bad for a lot of our own industries. And I for one am going to start worrying more about the health of our economy at home in 1985, in view of at least the four major depressed sectors I've already talked about. I think there's a real limit on our ability to do something about bringing down those exchange rates and interest rates without some major risks of over-expansion on the monetary side. Coming back to what Jerry Corrigan and some others have said: That 4 percent inflation outlook is not exactly the best of all possible worlds; I'd like to see the inflation rate somewhat lower than that over a period of several years ahead. I come out, bottom line, that while I recognize all of these things I'd like to do, I'm afraid that until federal finances get straightened out we're pretty much limited in our ability to do what many of us would otherwise like to do.",1092
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"Well, Mr. Chairman, with respect to the economy, my own position would be that growth is likely to be closer to 4 percent than to 2.9 or 3 percent. I don't say that with a great deal of confidence but that's where my bias seems to be. For one thing, I'm not entirely sure what the full effect will be of the ease that we've undertaken recently. I don't think we've seen the full effect of that. I think we're seeing some positive effects, but I'd be a bit cautious in terms of trying to do a whole lot more at this time until we can assess that a little better. Reference has been made to all the uncertainties over which we have no control, uncertainties about which it is questionable exactly what, if anything, monetary policy could do. As for the long-term ranges for '85, they continue to look okay to me. I don't have a strong view one way or the other on Tony Solomon's point about the cosmetics of M3, but basically I'm satisfied with the tentative ranges that have been established. I do think M1 is important. I wouldn't characterize it as primarily important. It is something, though, that I would be inclined to pay a little more attention to. On the operating procedures, as I tried to indicate yesterday, I think the conduct of operations has been really quite satisfactory; if a slight adjustment would help the mechanical day-to-day process, I wouldn't have any really serious question about doing that. On the exchange rate problems, I agree with the views that have been expressed. It's one of the most serious issues that we have out there. It's a very, very real dilemma because anything that we do will cut both ways. I just have no satisfactory solution to suggest, although I have some feeling, much as John Balles said, that maybe we ought to be trying to do something about that over which we do have some control, which is our own domestic situation. My bottom line, Mr. Chairman, is that the word that keeps coming to me is patience. I think we're in a period now where patience is extremely important. There's always the desire to do something and I'm in favor of doing something provided that we get the desired result. Since I'm not sure what doing something would mean, I would be inclined to be very hesitant and, as Tony said, if we do anything, to do it very carefully and in very small steps.",486
-fomc-corpus,1984,Mr. Garbarini.,6
-fomc-corpus,1984,"Mr. Chairman, with regard to the forecast, the Board staff's analysis may very well be what we'll see next year. However, I believe the odds are somewhat more on the side of a shortfall. Why do I say that? Well, I guess we all have a tendency to be parochial as well as having biases and in our District, although signals are certainly mixed and this could be considered just a pause, I think we're seeing what was a relatively nice growth in employment slowing considerably and at least two states have seen unemployment begin to rise. Also, while the tax proposal could easily cut both ways, in the short run it probably will have a tendency to cause uncertainty. And from our discussions with business people, the uncertainty is certainly leading to some inaction. With regard to the satisfactoriness of 2.9 percent, I don't see it. I would prefer that all my colleagues who think that it might be higher be correct. I think the 3 percent level is still not satisfactory. I am particularly interested in commenting on the operating techniques. I would certainly like to see M1 on an equal footing and would have to say that I'd like to see it on the podium where it could talk to us. However, I would not leave it on that podium and let it talk without paying attention to other things. In that regard, if I may paraphrase the Chairman, I do not think it would be appropriate to give a Mickey Mouse signal by going to absolute weight on M1, if that is not what is going to be done. And I don't hear around this table that that would be the case. I would say again that I believe it should give us some great information. I share the concerns about the exchange rate and commodity prices, perhaps again [reflecting] parochial considerations in the Midwest. However, I am not sure that this body is in a position to effect any real changes in that regard and any psychological changes that we might see, if they were at the risk of inflation, I would not do.",413
-fomc-corpus,1984,Ms. Seger.,5
-fomc-corpus,1984,"I don't want to repeat what I have said the last couple of months about my concerns about the slowing economy because it would just be boring. I have hoped that the pause that we might be going through would certainly disappear and that the growth rate would speed up, but it hasn't so far. I've not felt that we really were risking a recession, although I do think we were flirting with one or skating on thin ice, you might say, where we'd need a lot of good luck and a strong tail wind to get across in a hurry before the ice breaks through. And that's sort of the way I feel. I think the staff forecast that Jim and his people prepared is probably about right, given what our policies have been. I would like to see more in the way of economic growth, certainly. Also, I think the staff is relying heavily on the revival of consumer spending and I would hate to look at the advance monthly retail sales figure or the auto sales report for the first 10 days in December and conclude from that that consumers are back on a spending spree because I don't put much faith in either one of those statistics. In terms of what we should be shooting for, I would like to see economic growth that's closer to 4 percent than to 3 percent. The reasons are a whole long list. One is that if you look at our commodity prices just about any one I could pick--copper, lumber, oil, and even gold, which is getting down close to $300 an ounce--has been weak and they are still weak. And I think having faster growth in this economy first of all would stabilize some of these prices that have been falling rapidly and in effect would help the industries that produce lumber or copper, for example. Also, I think that faster growth amazingly would help corporate profits--maybe not so amazingly, since that's the way it usually has happened in the past. When you get faster economic growth and more rapid growth in sales volume, since companies today tend to have a tremendous amount of more or less fixed costs, the additional volume tends to drop through to the bottom line. That, in turn, relieves some of the pressure on businessmen or women to raise prices because their profits are rebounding without the benefit of higher prices. Believe it or not, this also helps productivity. If you look at corporate balance sheets and income statements over the last 20 years in which this move toward a larger chunk of fixed cost and capital investment has occurred, when there is more rapid growth and faster output, the person standing there is not [only] pushing a button that starts a machine but the machine [also] produces 10 percent more an hour and the one guy is still standing there. This does tremendous things for productivity growth as well as for profits. By the way, both of those factors, I think, would be a positive in the capital spending picture. With the negatives in the capital spending picture--namely, the question mark about possible tax hikes or how the tax reform measures will actually shape up when Congress and the Executive branch get through--I feel that the uncertainties have been forcing many businesses to set their plans on the shelf until they see exactly what is going to materialize. But I think we can offset some of that uncertainty by having the better profit performance. And, for sure, a lower interest rate would help to get some marginal projects, short payoff kinds of projects, approved and through the mill even with the uncertainties about taxes. It seems to me that we would have to change monetary policy more toward ease in order to achieve the 4 percent or 4 percent plus growth that I would like to see. There's no doubt about it. But if we did, then I think the declining interest rates would have some additional benefits besides helping on the growth side--namely, we still have to deal with this problem of the fragility of the financial system worldwide and particularly in this country where we still have thrift institutions with big problems. We have the third world debt situation which, as I understand it, has not gone away. I just visited both Kansas City and Dallas and those people tell me there are problems [in their regions] with agriculture and with the oil industry. This is a minority view, but I also think lower interest rates would help on the dollar side. It may not help immediately, but if we drop our interest rates or pursue an easier monetary policy here, then that would allow other countries to pursue an easier monetary policy. Even if they matched us on the down side basis point for basis point, it still would help each of our economies even if the differential did not change at all. Ultimately, if that did lead to a speed-up in the economic growth of, say, the major European countries, I think that should help our export situation and eventually might even have some positive impact on the so-called super dollar. Let's see, there's one other thing I wanted to mention. Should we emphasize M1, M2, or M17? As I indicated yesterday, I'm not particularly a narrow monetarist; in fact, I'm not a monetarist at all. But I've talked to a lot of people who do follow what the Fed is doing, the so-called Fed watchers. Many of them advise major investors. They are movers and shakers on Wall Street and in commercial banking. And my feeling is that, as long as they think M1 is important and they emphasize it and they hang around every Thursday afternoon a little after 4:00 p.m. with bated breath waiting for that number to come out, then it has achieved an importance even when we don't want it to. Certainly, I would never argue that we should look just at M1, but I think we should pay plenty of attention to it and particularly when we set the targets for next year make sure that the bands for M1 growth are adequate to give us some faster economic growth. I would argue, too, at least in the early part of the year, for viewing this in a parallel line fashion rather than as a cone just to broaden out those numbers and for suggesting that it's okay to hit the upper end of the range rather than shooting for the midpoint or cruising at the low end. That's a lot; I think I've hit everything I wanted to say. Thank you.",1271
-fomc-corpus,1984,"I think we can have some coffee. The preliminary indications we have for the following week on the money supply are for a negative figure, which does not make December look particularly high at this point. Let's go have some coffee.",45
-fomc-corpus,1984,"If I may, I will make some preliminary comments in reaction to the go-around this morning. Really, I just have two. One is that I heard a lot of talk about getting the dollar down and there was a certain amount of talk that that may not be the easiest thing to do. It worries me a little to talk too casually about getting the dollar down, and I do think that we may have more difficulties in the future than we have now with the dollar beginning to go down too fast. We have this basic dilemma of how to get the budget financed, and we're going to have a big current account deficit no matter what happens for the next 12 months. Maybe to put it too starkly, if we have a lack of confidence in the dollar, we're going to have a real picnic in maintaining a decent level of interest rates or a degree of confidence in the inflation outlook in the next year. I do think we have a problem internationally and much of it is of our own making; and we have the disequilibrium in the budget. Perhaps the best thing that can happen is along the lines of what Ms. Seger has suggested: If there is a tendency for the dollar to decline, I suspect that other countries will ease; and given that they have enough room to ease, that might be healthy not only in their own context but if they expand a little more and have a little more confidence in their own currencies, that might over a period of time help to relieve the pressure on our trade position through greater expansion abroad and the dollar may come down in a healthier atmosphere. I simply am a bit sensitive to saying that it's an objective of policy to get the dollar down regardless; I don't think that puts us in a very good posture. I have no problem at all with the view--and in fact I strongly believe--that the strength in the dollar gives us room to ease, all other things equal. And that ought to be a factor in our considerations. In listening to most people, I get the feeling there's more concern that growth will turn out a little less than the staff has projected than a little more. Combine that with a view that it would not be totally satisfactory even if growth ended up precisely where the staff projected it, and it seems to me that gives you a bias toward some degree of further easing. We've spent a long time discussing all these general problems this morning. Let me try to shorten the process now and see whether I'm successful in that by suggesting something like alternative B so far as those numbers are concerned. But I certainly wouldn't mind rounding them off, given a healthy skepticism as to whether we're going to meet any of these numbers anyway and how precisely we're going to meet them. Consistent with that--or maybe inconsistent with it as now written but I will assert consistent with that, particularly if we're willing to see some greater growth than what we provide for here, which I assume the directive will say--I would ease the pressures on reserve positions to the point of almost no pressure. Borrowing would be, let's say, on the order of $250 million. And I'd be inclined to put down a federal funds rate range [of 6 to 10 percent, which is] consistent with alternative A, since the current rate is about halfway in between [the ""A"" and ""B"" ranges] now and I'm not sure I'd want to contemplate the rate going up to 11 percent. In terms of the directive, without getting into the precise language, I'm assuming some sentence along the lines of what we have in there now to the effect that because of the shortfalls we've had, more rapid growth in M1--or we could say somewhat more rapid growth in the aggregates generally--would be acceptable, particularly in the absence of evidence of a strong rebound in economic activity and in view of the strength of the dollar in the exchange markets. It would say something to the effect that we would accept more rapid [monetary] growth unless we saw the economy moving ahead more strongly--distinctly more strongly--than the projections suggest now, as long as the dollar remains reasonably strong in the exchange markets. So, in general terms, that would be a proposal to shoot at.",848
-fomc-corpus,1984,Would you round alternative B down on Ml?,9
-fomc-corpus,1984,"Well, I was thinking of rounding at least the M1 figure to 7 percent.",18
-fomc-corpus,1984,"It will be tough [to achieve], though. We now have indications that December [M1 growth] is sub-par. I think it would be safer, in terms of reaching it, to make it 6-1/2 percent.",49
-fomc-corpus,1984,"Yes, but this is November to March.",9
-fomc-corpus,1984,And includes December as the first month.,8
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Is your proposal that we start with $250 million as the borrowing number? This isn't ""B,"" then?",22
-fomc-corpus,1984,"It's ""B"" on the monetary specifications.",9
-fomc-corpus,1984,Just take the aggregates specs?,6
-fomc-corpus,1984,"And the money market specs of ""A.""",9
-fomc-corpus,1984,"I am asserting, based upon lengthy economic analysis and a presumed shortfall in December, that we've got to go with less pressures [on reserve positions] in order to even meet ""B. """,39
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"You're assuming that if we start with $250 million, we'll get a funds rate of 8 to 8-1/2 percent or somewhere in that range? Right?",35
-fomc-corpus,1984,"Well, of course, that would depend upon where the discount rate was.",15
-fomc-corpus,1984,"Yes, assuming no action of the discount rate.",10
-fomc-corpus,1984,My own guess--and other people tell me I'm wrong--is that it probably would be hanging around a little less than 8-1/2 percent.,32
-fomc-corpus,1984,"May I ask where the assertion of $250 million in borrowing being consistent with the specs of ""B"" comes from? Does one assume that the economy is not as robust as the staff has forecast and, therefore, transactions demand for money balances does not grow along the lines that the staff has forecast? Or does one assume that, given the state of the economy, the money demand function has been misspecified or fallen or something so we get slower growth of M1? In [the latter] case why do you want to go in this direction? I just don't follow the argument.",117
-fomc-corpus,1984,"My argument is very simple. We've had a constant shortfall all through the fall; we've consistently missed the relationship. And I didn't detect any ebullience about the economy in listening to the discussion around the table, and people would rather see it grow a bit faster than the projection rather than slower.",60
-fomc-corpus,1984,"I think it's true that the forecast has consistently been marked down, too, for the near-term quarters. I don't know where we had the fourth quarter last June, but it certainly wasn't at 1.3 percent.",44
-fomc-corpus,1984,"I have a question about the operating strategy. If we follow our operating strategy of focusing on borrowing and we run out of leeway, given current operating procedures and the current discount rate, we really either have to change the discount rate or begin to look at reserve growth rather than the borrowing to have any additional flexibility on the down side. Is that a proper interpretation?",73
-fomc-corpus,1984,"I think we've got to look at reserve growth at some point; we probably didn't look at it enough during the fall, as we were constrained by a borrowing number. And this is, in effect, a reflection of it. You reduce the borrowing in view of the fact that there hasn't been reserve growth or you run out of [room to reduce borrowing] and I think at some point you just put in more reserves. If you don't, you run into this problem of things falling away.",98
-fomc-corpus,1984,"Either you have to give more attention to the reserve growth or you have to lower the discount rate to have any additional downward leeway, or both.",30
-fomc-corpus,1984,"I think what you've said is very sensible, Mr. Chairman. This illustrates quite well why I favor a total reserve target. Under current procedures, we choose a borrowing level and we expect a certain federal funds rate; and to predict what is going to happen to the money supply necessitates a knowledge of the demand function for money that I don't think we will ever have. So, whether this will do what I want, I don't know. But if we were operating on the total reserve target, I would feel that we knew what was going to happen. And I was glad to hear you say that we need more emphasis on total reserves. I think that really is what has been our problem lately.",140
-fomc-corpus,1984,The staff's estimate of seasonal borrowing is $100 million and the staff says on page 9 of the Bluebook that the frictional level of borrowing--I assume this means adjustment borrowing--is now in the neighborhood of $150 to [$250] million.,52
-fomc-corpus,1984,"Yes, but that meant both adjustment plus seasonal borrowing. It may not have been clear, but that's what we had in mind.",26
-fomc-corpus,1984,"But when borrowing is getting down, do you view the $250 million borrowing level, with $100 million in seasonal, [as] one that approaches the low end of the frictional amount of adjustment borrowing? I think Ed's point is a really good one. If you don't lower the discount rate, you really don't have any target at all. Interest rates could drop a ton.",77
-fomc-corpus,1984,Except for growth in reserves.,6
-fomc-corpus,1984,"But if you're willing to provide that kind of growth in reserves--that is, if you start with a borrowing level which is frictional, then what happens is that you just dump in whatever reserves are necessary. And if interest rates drop down to 6 percent, that's within the 6 to 10 percent range for the fed funds rate, so then that's all right? It's not for me.",80
-fomc-corpus,1984,"I agree: not for me. When the fed funds rate drops down to, say, about 8-1/4 percent, there's going to be such intense and widespread expectation in the market that a discount rate cut will follow very shortly that it would be impossible to resist that. So, unless the Board cuts the discount rate only a quarter of a point, when the second shoe drops then we're really looking at something that brings it down into the 8 percent range. Now, I realize that for good reasons you're reluctant to talk about what the Board might or might not do about discount rate changes. But if we do go as far as $250 million--[not], say, $300 or $325 million--I think the pressure then becomes very strong for the second shoe to drop. It's hard to resist it. Whereas, if we go to the $300 or $325 million level, at least to start with, then the pressure would not be quite as great.",197
-fomc-corpus,1984,"I'm prepared to support your proposal, Paul. It's getting so that this period of poor business news is extending too long and I think we now have to probe. I don't, as I said, have much confidence in saying what kind of interest rates are appropriate or not. I think what we need is monetary expansion and we're not getting it. If, in fact, that December 17th number holds up to be a decline, we're going to have a hard time [getting] any decent number at all in the month of December. That will make another month in this long string and I think we now ought to be more aggressive in seeking monetary expansion. I'm not shocked at the idea of a frictional level of borrowing at all, nor with a further significant drop in short-term interest rates. And it may be that the discount rate would have to move. I don't want to prejudge that, but it may be that it will have to go [down]. So, I think it's a reasonable suggestion.",202
-fomc-corpus,1984,"Should we not focus also on a number like M2, which went up 15 percent at an annual rate in November? I suppose this downward revision of M1 means perhaps some downward revision of M2. The forecast that you have here for December is 13 percent?",55
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"That's been telling us that maybe what we're looking at is a circumstance in which what monies would have gone into NOW accounts earlier now are going into MMDAs, giving you the same interest rate effects.",40
-fomc-corpus,1984,"Well, except that I think the money is coming into MMDAs and money market funds from the open market because of the stickiness in those rate levels.",32
-fomc-corpus,1984,I suppose one can argue that in earlier days it would have gone into M1 and given us a good boost in M1. I don't think the most recent business news was so awful obviously in the last month but it has been pretty sluggish for some time.,52
-fomc-corpus,1984,It was reported--I've forgotten whether it was here at the Open Market Committee meeting or at the Board briefing--that Commerce is not giving much weight to that November retail sales figure.,36
-fomc-corpus,1984,"Well, in fact, Commerce doesn't know what the fourth quarter will be, whatever number comes out tomorrow.",21
-fomc-corpus,1984,"Well, Mr. Chairman, I think there is a danger of overreaction here. I feel very much the way Lyle does. We've had a declining period of interest rates here for only the last three months. There are lags in the response of the economy and in the response of M1 to that change. I think we ought to give a lot of weight to the fact that interest rates have declined substantially over a very short period of time and do a little more looking to see if we're getting responses from what we've done before we take a major further move.",114
-fomc-corpus,1984,"I don't see anything very major here but it's a matter of taste, I suppose.",17
-fomc-corpus,1984,"Mr. Chairman, I would support your proposal for a 7 percent M1 and a frictional borrowing level. We've had some revisions in what a frictional level is; we are in a position of making up for a shortfall that seems to be haunting us. We must be aware too that the way our decisionmaking has to go--properly go--is structured by Congress [unintelligible] some decades past. We seem to be after the fact and late. It seems to me that the kind of proposal that you made gives us flexibility; we're not irrevocably committed to a large move. And I think it is timely, considering the data both on the economy and the monetary aggregates.",143
-fomc-corpus,1984,"Some kind of downward push on short-term rates I think, is a good thing, but it depends very much what happens at the long end. It depends also, of course, on whether it would have to be reversed. What are the chances of a sharp drop in the funds rate being followed by a rise?",63
-fomc-corpus,1984,"Mr. Sternlight may have a different view, but I myself think that there's very little chance [of that] at this particular junction, looking over the next four or five or six weeks. But I really ought to say that if you're thinking of $250 million of borrowing, the funds rate is going to rise from the 7 percent area; it's likely to be somewhere around 8-1/2 percent, given the present discount rate. It's not the money market specs we worked out for alternative A. In our own minds [that entailed] an even lower level of borrowing and somewhat higher excess reserves to drive the funds rate further down. I thought I would add that minor point for clarity.",142
-fomc-corpus,1984,"To add to that, I think the $250 million of borrowing is likely to give you a steady state kind of situation--a funds rate very close to the discount rate, although we're not really in a steady state and the market widely expects something to happen to the discount rate. So, I expect $250 million of borrowing for the next little while to be associated with fed funds trading closer to 8 percent on average as the market broadly expects something on the discount rate. As to the long-term rates, I think there will be a slight declining effect from lower short-rates. I wouldn't expect a perverse effect on this occasion.",128
-fomc-corpus,1984,There is the other question: Would one have to anticipate a substantial reversal at a later time?,19
-fomc-corpus,1984,"Well, the fundamental [issue], I think, is one's view of the basic strength of demand for goods and services and inflationary expectations. Among the staff, views differ very widely on that. If you view our judgmental projections and compare them with straight model projections, things will differ. Our forecast implied, essentially, as Governor Gramley mentioned, velocity of about 1-1/2 percent for M1 next year. That is something like trend, probably. Taken literally, that would mean very little change in interest rates over the course of the year--maybe up a little or maybe down a little. If your view of inflationary expectations and demand for goods and services is even weaker than the staff forecast, then I would think interest rates, in a sense, would be lower than that. It seems to me very difficult to come to a judgment at this point on whether they are going to go up or down.",186
-fomc-corpus,1984,"But you wouldn't say that simply by putting in reserves now one would generate a situation that tended to reverse itself at a later time and made a rise in interest rates likely, independently of how the economy goes?",41
-fomc-corpus,1984,"It's hard for me ever to view it independently of how the economy goes. I really can't answer it independently of that, Governor Wallich.",28
-fomc-corpus,1984,"But note the risks in what Steve has just said. We have a 7 percent target for M1; growth has been falling short of target from time to time. The instability in the velocity figure quarter-to- quarter is notable. Velocity can be 4 percent off, 5 percent off, 7 percent off. [Unintelligible] an error of a hundred basis points. If velocity is flat or even negative--and it conceivably can be negative, though obviously it's not the most likely outcome--then the 7 percent specification for M1 is not very high in terms of velocity.",123
-fomc-corpus,1984,But that's not the key issue.,7
-fomc-corpus,1984,"I would like to argue for 6-1/2 percent, Pres, because I do think that [7 percent] implies too much for January and February. Unless something really happens here, we're going to have 4 or 5 percent [M1 growth] in December, and if we say 7 percent for the 3-month period, that implies something in the very high single digits for January and February and I think that's pressing too hard.",92
-fomc-corpus,1984,"But why is it so important? Given the situation, the difference between 6-1/2 and 7 percent is going to have relevance only if over a period of time--not the first few weeks, certainly--we find that we have significant money growth. Otherwise, it's not going to make any difference at all. What's going to influence everything in the next few weeks is the drop in the borrowing level and any type of change in the discount rate. So, I don't think the fact that December is going to have slow growth is of much importance, and I don't think the difference between 6-1/2 and 7 percent has that much [relevance]. It's a small chance that we would be up in that range where it's going to make a significant difference of any kind later in the quarter.",165
-fomc-corpus,1984,"Just arithmetically, I guess what that implies is 4 percent growth in December and 8 percent in the other three months.",28
-fomc-corpus,1984,It's a 4-month span.,7
-fomc-corpus,1984,"Yes, but if you get 4 percent in one month and 8 percent in three months, you get 28; that divided by 4 is 7.",34
-fomc-corpus,1984,"I think the real decision that is facing the Committee--I'm not talking now about the directive and what happens over the period of a quarter, because we are working under a system where there is substantial flexibility--is whether we want to see in the very near term, say, in a week or so, as much of a drop [in the funds rate]. I think Peter Sternlight is right, as I said earlier, that [the proposed borrowing level] would take the rate down close to the 8 percent level, even if arithmetically it should take it down to 8-1/2 percent or a shade above. The market psychology is such that it probably will drop to 8 percent because the markets will be expecting a discount rate cut and the pressures will be enormous. So, therefore, does the Committee really want to see that much of a drop that quickly? I think that's the most important issue we're facing, assuming we build the flexibility into the directive the way we have for the last few intermeeting periods. My personal view is that that's too big a drop too suddenly. Personally, I would reduce the borrowing level maybe to the $300 or $325 million level. I'd make it more gradual.",247
-fomc-corpus,1984,"What is the level of borrowing now, $400 million? That's what we were targeting.",18
-fomc-corpus,1984,It's averaging $260 million so far in this period but we would expect to see some lull.,19
-fomc-corpus,1984,It's a fluky situation we're in now.,9
-fomc-corpus,1984,"When the borrowing was $400 million, what did we think was the steady state of federal funds?",20
-fomc-corpus,1984,About 8-3/4 percent.,9
-fomc-corpus,1984,"Of course, it's a wild number between Christmas and New Year's anyway because of the statement date.",19
-fomc-corpus,1984,"Mr. Boehne, I see you on the list in lonely splendor.",17
-fomc-corpus,1984,"I think we need to push the ease button again and I think your approach is reasonable. However, procedurally, I would prefer our easing to be accompanied by a drop in the discount rate. While I think in this period we need to pay a little more attention to growth in reserves, I think not to change the discount rate would shift the emphasis too dramatically. So, I would prefer to see it accompanied with a drop in the discount rate just on procedural grounds and I would prefer rounding M1 up to 7 percent. It doesn't offend me if December M1 growth comes out at 4 percent to have 8 percent in January and February. That doesn't strike me as too much money growth in light of where we've been.",148
-fomc-corpus,1984,Mr. Balles.,5
-fomc-corpus,1984,"Well, I generally support your proposal, Mr. Chairman. I'm generally in accord with the comments made by Governors Martin and Partee. I think it is time, as Ed Boehne has described it, to push the ease button again. I would remind you that at our Bank, at least, we expect this recent decline in interest rates to show through in an actual negative number for velocity. As well as one can guess this, we think we might see negative velocity for the full first half of 1985. That would not surprise me. Therefore, I don't think we should shy away from what would otherwise appear to be an unusually large jump in the M1 numbers during that period of time. In fact, if there were a mood to go toward alternative A, I would even lean in that direction.",164
-fomc-corpus,1984,Mr. Corrigan.,5
-fomc-corpus,1984,"I don't have any problems with the monetary specifications of alternative B. I think shading to the 6-1/2 percent rather than the 7 percent for the reasons Chuck described may serve our interests better. I have just one other technical comment: You mentioned in your clarifying sentence for the directive, Mr. Chairman, a reference to the economy and the exchange rate. I personally would prefer not to make an explicit reference to the exchange rate because the kind of scenario where there is some suspicion in the marketplace that the Federal Reserve is trying to engineer the exchange rate really scares me in terms of a precipitous drop in the exchange rate, with all that means. So, I would prefer not to put that in the directive explicitly but leave it understood. Now, on the money market side--",159
-fomc-corpus,1984,Isn't it in there already?,7
-fomc-corpus,1984,Not in that particular sentence.,6
-fomc-corpus,1984,"It's put differently, but I think it's in there.",11
-fomc-corpus,1984,It's in there.,4
-fomc-corpus,1984,Line 85 on page 4.,8
-fomc-corpus,1984,"The way he was suggesting putting it in the operative sentence was different. I thought you were saying, Mr. Chairman, put it in the sentence that is in capital letters on page 12.",39
-fomc-corpus,1984,"Well, I guess we do have an ""international financial market conditions""--",14
-fomc-corpus,1984,That strikes me as a little different than an explicit reference to the exchange rate.,16
-fomc-corpus,1984,"That was what I was thinking of. We had a very explicit reference in the [announcement of the latest reduction in the] discount rate. But, it's a matter of debate. I would phrase it in a way that to me is unfrightening--say, that we might ease further if there is continuing strength in the exchange rate. It wouldn't say we're pushing the exchange rate down.",79
-fomc-corpus,1984,"I perceive that situation as maybe being more tentative than others, but I would be concerned about how the market might react to that. On the substance of the money market part of this, I'm not allergic to tapping the ease button but I have a little concern about pushing the panic button. And principally for those reasons, I would favor a more gradual approach, along the lines that Tony has suggested. I do, of course, view the economy as being at least a little stronger than many others here. I could be right or I could be wrong. On the other hand, if we can sneak in a further reduction in interest rates in a context in which I now believe there has been some kind of downward step-shift in inflationary expectations, I think that's fine. But I would prefer to be a little more gentle about the package and I would lean toward Tony's suggestion of sneaking up on it rather than going for the brass ring at one shot.",192
-fomc-corpus,1984,That seems to me an excessive description of the $50 million difference.,14
-fomc-corpus,1984,"No, I would see it as a more than $50 million.",14
-fomc-corpus,1984,It's this discount rate thing.,6
-fomc-corpus,1984,"I don't think it's a question of a $50 million difference. If you go back to when the borrowing level was put at $400 million, the thought then was that the steady state fed funds rate was 8-3/4 percent. If we were to go immediately to $250 million, I think the discount rate would have to go with it and it seems to me quite plausible that the fed funds rate could settle in at less than 8 percent. So, you're talking basically about a 75 to 100 basis point move in terms of the operative implications of the fed funds rate. And that to me is just a very, very big step. I'd love to think that we could end up there, but I think it is a very big step.",154
-fomc-corpus,1984,"Just as a technical comment, Mr. Chairman, none of us is an expert on what the market is thinking, but it is not at all clear to me, under current market conditions--the way they were the last two days--that a drop in the discount rate of 1/4 point wouldn't be followed by some backup in market rates. It would be viewed as a disappointment relative to market expectations. I am not certain where this complex of interest rates and borrowing would end up, but I would think it is possible that it could be 8 percent or a shade higher, depending a bit on how operations are conducted, as well as the 8 percent or a shade lower that you suggested. It's just not totally clear to me.",149
-fomc-corpus,1984,"Well, I'll tell you something that isn't perfectly clear to me: that there is a difference between $300 and $250 million, whether the discount rate is reduced or not. The Board of Governors is going to have to decide about the discount rate. We had several applications in and, as you know, some were [submitted] with some vigor. I don't know how many minds were persuaded on the Board of Governors. I would suggest that it isn't going to be very critical. It's not very critical in my mind, whichever way it goes.",109
-fomc-corpus,1984,"Steve, isn't there a possibility that a 1/4 point reduction in the discount rate might be interpreted as a last act of the drama--that the market interpretation will be ""All right, that is far as they are going to go""?",49
-fomc-corpus,1984,Certainly--or possibly as [far as] they are going to go for a while.,18
-fomc-corpus,1984,"Life goes on, I can see that.",9
-fomc-corpus,1984,"Just in the interest of clarity, I would think going for the brass ring, Jerry, would be to say we want an 8 percent increase in reserves in general, regardless. That's going for the brass ring.",43
-fomc-corpus,1984,I would agree with that. Any of these things in a behavioral way postulates very substantial increases in reserves.,22
-fomc-corpus,1984,Where is the funds rate now? We're kind of sneaking up on something that we've already reached.,20
-fomc-corpus,1984,The market sees it as 7 percent in an elastic way.,13
-fomc-corpus,1984,"Well, what happened when you went in to drain some reserves?",13
-fomc-corpus,1984,"We drained some reserves. I didn't hear what happened to the funds rate, Mr. Chairman.",19
-fomc-corpus,1984,"Since we're totally preoccupied with this question, why don't we find out?",15
-fomc-corpus,1984,We'll see what happens.,5
-fomc-corpus,1984,"I don't know; it could work that way. Yes, it could.",15
-fomc-corpus,1984,"As a matter of fact, the staff projection is for a good increase in money and we'll have a good increase in reserves if that occurs. But we have had a period of shortfalls that has been going on for quite a while. That's why I said ""regardless.""",55
-fomc-corpus,1984,Who else would like to say something? Ms. Seger.,13
-fomc-corpus,1984,"Well, I'm an ease advocate and I could certainly support you in alternative B and wouldn't be upset if you pushed over into the dimensions of alternative A, using the $250 million or so borrowing target. Also, I'd keep an eye on total reserves to make sure that they go along and allow the kind of expansion we need. I realize we don't set the discount rate here but I would like to encourage a discount rate cut of about 1/2 percentage point soon to go with this because I'm afraid that if we don't, we are going to have the market disappointment. Furthermore, if we cut it immediately, it would nudge some of the commercial bankers who have been flirting with the idea of cutting their prime rate into adopting the 1/2 percentage point cut that was launched yesterday.",158
-fomc-corpus,1984,Did anybody else go today?,6
-fomc-corpus,1984,I haven't heard one way or another.,8
-fomc-corpus,1984,They are waiting for us.,6
-fomc-corpus,1984,I checked at 10:10 a.m. and nobody else had gone.,16
-fomc-corpus,1984,But I think this would push them to act.,10
-fomc-corpus,1984,"What about that bank in St. Louis, Joe?",11
-fomc-corpus,1984,"Let me start by calling attention to a couple of things in the general paragraph that are nits, but I think they might well be picked. In line 9 we have--",36
-fomc-corpus,1984,What are you looking at?,6
-fomc-corpus,1984,"The general paragraphs [of the draft directive]. In line 9 it has ""largely reflecting a rebound in auto production."" The immediate antecedent of that is ""after two months of decline"" and [unintelligible] would be a lot better. I'd start the sentence ""After two months of decline, industrial production increased somewhat"" and then follow with ""reflecting."" My next one is going to be a little harder to swallow. On line 14 it says: ""The information on outlays and spending plans suggests substantially slower growth."" ""Substantially"" has been put in this line even though the staff forecast, although it was revised down from 7-1/2 percent, is 6 percent in real terms for the four quarters of 1985. I think what has happened here is that there is confusion between the fourth quarter, which has been revised down an awful lot, and the longer-run future. The easier way to handle that is just to leave it the way it was without the word ""substantially."" I'm not going to fight about that.",219
-fomc-corpus,1984,Neither am I. Is anybody else going to fight about it?,13
-fomc-corpus,1984,"Well, I must say that the slowing in business fixed investment is one of the big disappointments. I don't know if it fits into the exact flow of the data, but in that sense I think it is a major factor.",46
-fomc-corpus,1984,"My point is simply that this factor is not an awful lot different than it was the last time and to insert the word ""substantially"" now when the forecast has been revised down from a growth rate of 7-1/2 percent to 6 percent in real terms sounds like not quite--",61
-fomc-corpus,1984,"Use ""significantly""?",6
-fomc-corpus,1984,"Well, fine.",4
-fomc-corpus,1984,The increase in outlays went down quite a bit.,11
-fomc-corpus,1984,"Well, the fourth quarter is going to be very low. The shipments data both from domestic sources and based on the import data for October would suggest a very slow fourth quarter. And I thought putting in this word ""substantially"" maybe reflected a mix-up [between] what is ahead for the fourth quarter and what the outlook is for the more distant future.",73
-fomc-corpus,1984,"We might have been being excessively specific here but we were referring to the current quarter, the fourth quarter, in all this. We really were referring there to the substantial slowing that we're now projecting for the fourth quarter, taking account of the upward revision in the third quarter. That was revised up to a 16 percent rate of growth from the 8 percent we had earlier. So, this is really [a substantial slowing in] the fourth quarter from the third quarter.",94
-fomc-corpus,1984,"I think if we say current information or information for current outlays and take out ""plans""--",19
-fomc-corpus,1984,"It's the ""spending plans"" that's really confusing.",11
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"Let's take out the ""spending plans.""",9
-fomc-corpus,1984,"That would do it. Then the ""substantially"" is needed. On the more general issue, I don't want to push the ease button again; we pushed it the last time. I think Bob Boykin's prescription is the right one. What we need is a little patience. We need to remember that monetary policy works with very substantial lags. We've done a lot already. And I take some encouragement from this housing report that came out this morning. The rise in permits is quite strong. Permits are not a forecasting device; they don't tell you anything about what is going to happen in the future but they are a lot better indicator of what is happening now than the starts figures are. And to have the permits go up 11 percent, I think, means that we can be reasonably sure the process of a revival in housing is on the way.",174
-fomc-corpus,1984,"Permits are, in fact, above starts.",10
-fomc-corpus,1984,"Right. They were 1570, I believe.",11
-fomc-corpus,1984,Starts were 1528; normally permits are about 93 percent of starts.,16
-fomc-corpus,1984,But what we're leaving out of the housing discussion is the considerable pressure by the central bank against growth in mortgages and against savings and loan participation in joint ventures for builders--reserves and net worth requirements against rates of growth. We've left that out entirely. The funding is going to be a lot more difficult for the builder.,64
-fomc-corpus,1984,"Well, next I want to say that I thought we were supposed to be giving equal weight to M1 and M2 and I don't think we're giving any weight to M2. In fact, the M2 path for the fourth quarter is substantially above what we decided it was going to be in September and we're just throwing that out. Nobody is even talking about the fact that we had been expecting 7-1/2 percent growth and now it's 11 percent plus. We ought to think about that. I think we ought to ask ourselves whether or not some of the effects of the ease we've put in are showing up in M2 instead of M1 and if that isn't just as good in terms of what it does for easing conditions in credit markets. I don't think we have to go back to 8-3/4 percent on the funds rate but I would like us to aim for somewhere around the 8 to 8-1/4 percent range on the fed funds rate. I don't want to take back a lot of the ease that's been put in, but I don't want to ease further. And I don't know what borrowing number that would be associated with, but my guess is it would be around $325 million or thereabouts--maybe a little less. That would be my prescription for policy now.",266
-fomc-corpus,1984,Mr. Boykin.,5
-fomc-corpus,1984,"I would certainly agree with what Lyle says. As you said a little earlier, Mr. Chairman, you don't see much difference between $250 and $300 million [on borrowing]. Why don't we just go for $300 million?",47
-fomc-corpus,1984,Do you agree with Lyle because he paid you a tribute? Or is that an honest--,19
-fomc-corpus,1984,"No, I agree with Lyle because of his very astute analysis.",15
-fomc-corpus,1984,I promised to give him a quarter if he said that!,12
-fomc-corpus,1984,I think you've each given each other a quarter!,10
-fomc-corpus,1984,"No, I just think he says it better than I can; I just agree with what he's saying.",21
-fomc-corpus,1984,"Watch him, Lyle, because sometime he will pay you a tribute and then he will turn around--!",22
-fomc-corpus,1984,Would anybody else like to contribute to this? Mr. Guffey.,15
-fomc-corpus,1984,"I don't know whether it's a contribution or not: I have no quarrel with your prescription on the aggregates but I do share the concern about the $250 million borrowing level. To accept it, one must accept the premise of the staff that $250 million is at or above the frictional borrowing level. I'm not at all convinced, in view of the extent of the seasonal credit provisions, that that necessarily is above the frictional borrowing level. If it is not, we certainly will be establishing a federal funds rate, it seems to me, and I would accept Lyle's prescription that 8 to 8-1/4 percent is about the correct range. I would like to have some assurance that that's what we're looking at if we're going to adopt the $250 million borrowing level because I have a concern that if that level is below the frictional level, we'll essentially turn loose any control other than establishing the federal funds rate. In that connection, I've just observed that everybody is talking about a fourth-quarter growth rate in M1 that's very low. But if you are willing to believe that a seasonal adjustment factor might put as much as an additional 2 percent in the second half, that together with some benchmark revisions could bring growth up in the 4 to 5 percent range for the fourth quarter, which would be quite acceptable. We may be pushing the ease button a little before we have all of that knowledge. As a result, I would prefer to see a discount rate decrease by the Board of Governors and then to establish a borrowing level at least above the $300 million range with the target being a federal funds rate in the range of 8 to 8-1/4 percent.",342
-fomc-corpus,1984,Is there any reason to believe the change in seasonals would add as much as 2 percent?,20
-fomc-corpus,1984,"Well, on the assumption that M1 in December was going to be 7 percent, we re-ran [the seasonal adjustment program] and the second half was raised by 1/2 percent at an annual rate and the first half was lowered by 1/2 percent at an annual rate. I think I put in a footnote in that document for yesterday. But I should mention that this is well before we have any benchmarks and you can't tell what the variable month-by-month benchmarks are going to do to this. So, I don't have any evidence at this point that it would be nearly as large as President Guffey mentioned. But the weaker it gets in the second half, the more [the seasonal] goes up a little. But that leads you down a very funny road.",161
-fomc-corpus,1984,No matter what we do we're going to get the same number for December!,15
-fomc-corpus,1984,Governor Wallich.,4
-fomc-corpus,1984,"Well, I think this is an opportunity for giving interest rates a push because none of the immediate penalties that we usually face in relation to money supply, and in fact on the exchange rate, seem to apply at this time. I think interest rates have been stuck at levels that in a broad sense are not equilibrium rates but have been carried over from the past. So a push may get them to a fractionally lower level that might last, if this isn't immediately reversed by something that happens in the market. And I think it would be worth trying. It would have to be accompanied, probably, by a discount rate cut. I just wouldn't want to prejudice what we should do for the rest of the year in taking a year-out view. But in this immediate window, I think we have an opportunity for lower rates. By that I mean that if we do what you propose and [also] cut the discount rate, we might have a chance of lowering the level of interest rates in a structural underlying sense. And then when they move again, as of course they will, they might not make up this particular drop altogether.",225
-fomc-corpus,1984,Governor Rice.,3
-fomc-corpus,1984,"I support your proposal, Mr. Chairman. It's essentially in a range that I'm pleased with.",19
-fomc-corpus,1984,"Mr. Chairman, I should have added in response to President Guffey's question that of the 1/2 point increase 1 percentage point was in the fourth quarter. So it's concentrated there. But again, I don't know how it would work out.",53
-fomc-corpus,1984,"Mrs. Horn, we haven't heard from you.",10
-fomc-corpus,1984,"I support your proposal, Mr. Chairman.",9
-fomc-corpus,1984,"Let's look at the language a bit--going back from whether or not the borrowing proposal is supported. What about the federal funds range? It seems to me that where the rate is now makes it reasonable to say 6 to 10 percent, but I don't know whether everybody else agrees. Nobody else commented on it, I guess. SEVERAL. I would support it.",76
-fomc-corpus,1984,"Well, let's assume it's going to be 6 to 10 percent. Now, let me start with some language Mr. Axilrod gave me here. I suppose what we need is ""In the implementation of policy in the short run, the Committee seeks to reduce somewhat..."" I think that encompasses everybody. To say ""maintain existing"" may be a little confusing, given the last statistics that came out.",83
-fomc-corpus,1984,"Well, I'm going to respond to your question earlier about what happened over the course of the morning. The funds rate was 7 percent. We went in to drain some reserves. We got a lot of offers--$7 billion plus--and we did just $1 billion. Funds were last trading at 6-3/4 percent.",69
-fomc-corpus,1984,They have their bets; they are ahead of us.,11
-fomc-corpus,1984,They are ahead of us.,6
-fomc-corpus,1984,"Well, maybe that indicates that the level of frictional borrowing is $300 million instead of $250 million. At $250 million now the bottom is falling out of the funds rate. This is a very dangerous course of policy. Interest rates can drop with no bottom. There's just no way we're going to limit them, if it turns out that the estimate of frictional borrowing is wrong.",78
-fomc-corpus,1984,"But if we have 6 to 10 percent and it approaches 6 percent, we limit it. That's not zero.",25
-fomc-corpus,1984,"If you're prepared to live with a 6 percent funds rate, why, that's fine.",18
-fomc-corpus,1984,For how long--two days?,7
-fomc-corpus,1984,"Well, I don't want the fed funds rate to go anywhere near that level. I think we're going way too fast.",24
-fomc-corpus,1984,That's the whole problem.,5
-fomc-corpus,1984,That's where the disagreement lies.,6
-fomc-corpus,1984,"That's the disagreement. It's really more fundamental, I think.",12
-fomc-corpus,1984,It would really make more sense for us all to go home and you [Board members] can do a discount rate cut.,25
-fomc-corpus,1984,Here's another situation where there may be an incompatibility between the borrowing level and the path for total reserves. I think there's incompatibility on the other side of this.,33
-fomc-corpus,1984,"And lowering the discount rate is only a partial solution to the problem--that is, if the lowering of the discount rate does, to be sure, [leave unaffected] the frictional level of borrowing. But if what we do with monetary policy, both open market operations and discount rate changes, is send another strong signal to the market that we think the economy must be turning down and, therefore, we're going to push the ease button, don't expect interest rates to go back up again. It isn't going to happen that way. It didn't happen this last time.",113
-fomc-corpus,1984,"Okay, that's true. There's some similarity in our thinking, Lyle. But on the other hand, if we do want some easing, the preferable way of getting it at this point is a discount rate cut. I don't think you have to read quite as far reaching a message; the markets will do what you just said. Now, if you feel that there shouldn't be any easing at all in the rates, then I think you have a consistent position in also worrying about the message you're giving to the market. There's no way at this point that the market has really exaggerated expectations. I would have guessed at this point that if we were to demonstrate pretty clearly that the funds rate is not going to go below 8 percent, we probably would be able to deflate those expectations significantly.",158
-fomc-corpus,1984,That's the wrong way to get some support.,9
-fomc-corpus,1984,"I'm worried about the frictional borrowing level, also. And it seems to me that one way of doing it is to do a modest cut in the borrowing level and move the discount rate either 1/4, or possibly 1/2 point--or else just do the discount rate cut.",60
-fomc-corpus,1984,Maybe we ought to let you fellows handle the discount rate and we'll do the open market policy here!,20
-fomc-corpus,1984,"I think a discount rate cut, if it came, would look now like a following action, not like a strong policy signal.",26
-fomc-corpus,1984,I would note that all these concerns I've heard about declining interest rates for the last three months and not getting the borrowing level too low have been accompanied by a decline in reserves and M1.,38
-fomc-corpus,1984,And the economy.,4
-fomc-corpus,1984,"As to your specific question, before this general discussion, on the first sentence: Could one say ""seeks to reduce somewhat the pressures on reserve positions that have prevailed in recent weeks"" to get it away from just the last several days? I think that is really what we're talking about.",58
-fomc-corpus,1984,"Yes, I'm not sure that's very clear. I agree that technically meets the problem, but the markets are sitting there looking at not much more than $250 million in borrowing in the previous two-week period, right?",43
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"And they may be looking at something like that again when this comes out, but it doesn't come out for a while. They'd say ""Reduce from $250 million?""",34
-fomc-corpus,1984,"Maybe the best thing to do is to say that $250 million was the target and say ""seeks to maintain.""",24
-fomc-corpus,1984,"We still can say ""maintain.""",8
-fomc-corpus,1984,"Well, I'm wondering whether that kind of language wouldn't be less misleading somehow. ""The Committee seeks to maintain the recently reduced pressures on...""",27
-fomc-corpus,1984,I think that's a better way to do it.,10
-fomc-corpus,1984,"On Thursday, presuming our numbers are half-way near correct, the borrowing level we're going to publish will be more like $500 or $600 million for that one-week period that ends on that Wednesday.",41
-fomc-corpus,1984,"Theoretically, tomorrow--but who knows about these theories--there's going to be a lot of borrowing and the funds rate is going to be 9 percent or 10 percent maybe at 3:00 in the afternoon. In fact, the funds rate is going to be 18 percent and [a major bank] is going to come in and borrow $2 billion because the funds rate is 18 percent! Now, there may be a miss here in the figures, so I think this is just a question that's--",107
-fomc-corpus,1984,"Since it doesn't get published for 6 weeks, it seems to me that--",16
-fomc-corpus,1984,"It doesn't make that much difference probably, but--.",11
-fomc-corpus,1984,"I don't know; the general trend is down. We could probably leave it simply ""reduce somewhat"" and not worry about the fact that since Thursday and today there has been--",35
-fomc-corpus,1984,"Well, [the problem] is the previous two-week period or one-week period.",17
-fomc-corpus,1984,"Say ""reduce somewhat existing pressures"" or we could take out the word ""existing.""",17
-fomc-corpus,1984,"Yes, that would be a way to approach it.",11
-fomc-corpus,1984,I think that's probably the best solution.,8
-fomc-corpus,1984,That makes it pretty vague.,6
-fomc-corpus,1984,"""Seeks to maintain reserve positions"" or something like that.",13
-fomc-corpus,1984,"""Seeks to maintain minimal pressures on reserve positions.""",11
-fomc-corpus,1984,"I don't think that sends out the right message on what we've been talking about right around the table. I think the message that comes out from around the table is that we want to ease, so I think the words that we use have to convey that view. And the term ""reduce"" does that; the word ""maintain"" doesn't.",69
-fomc-corpus,1984,"Well, we'll leave it ""reduce somewhat pressures on reserve positions."" Then, ""This action is expected to be consistent with growth of M1""--what are we going to put in here? Mr. Axilrod wrote in 7, 9, and 9 percent; we could use 7, 8-1/2, and 8-1/2 percent or 6-1/2, 8-1/2, and 8-1/2 percent. What's your pleasure?",105
-fomc-corpus,1984,"7, 9, and 9.",9
-fomc-corpus,1984,"7, 9, and 9.",9
-fomc-corpus,1984,I do like these whole numbers.,7
-fomc-corpus,1984,I'll trade you. Why don't we do a trade?,11
-fomc-corpus,1984,Do it on this one instead of whole numbers and a fractional number.,14
-fomc-corpus,1984,"I was only technically concerned with the specifications between ""A"" and ""B"" and I was trying to find the M2 and M3 between ""A"" and ""B.""",36
-fomc-corpus,1984,And a discount rate [cut] of 1/2 point.,14
-fomc-corpus,1984,"Well, let's leave that open for the moment. Let us try this next sentence. I'm just going to read what Mr. Axilrod has written down: ""Somewhat more rapid growth of M1 would be acceptable..."" Do you just want to say M1 and not the others?",58
-fomc-corpus,1984,"Well, that's the only one that's falling well short.",11
-fomc-corpus,1984,It's the only one we're paying any attention to also. Now the truth comes out.,17
-fomc-corpus,1984,"I'm tempted to say ""Somewhat more rapid growth of the monetary aggregates would be acceptable in light of the currently estimated shortfall in growth for the fourth quarter""--No, this is only M1.",40
-fomc-corpus,1984,"Yes, that's why it was put that way.",10
-fomc-corpus,1984,"""...relative to the Committee's expectations at the beginning of the period, particularly in the absence of evidence of a strong rebound in the economy and in view of the strength of the dollar in exchange markets."" It would be more parallel if we said ""particularly in the absence of evidence of continued strength and--. It's the reverse; it's not the absence of the strength.",73
-fomc-corpus,1984,"""Particularly if business continues weak and the dollar strong.""",12
-fomc-corpus,1984,"Yes, that would make it parallel all right. How can we make this more parallel?",18
-fomc-corpus,1984,"""And in view of the strength of the dollar.""",10
-fomc-corpus,1984,"Well, ""particularly if business news continues weak and the dollar continues strong.""",15
-fomc-corpus,1984,I think that's exactly what we ought to have.,10
-fomc-corpus,1984,"""Continues weak"" isn't exactly right in terms of the latest figures, which aren't all that weak.",21
-fomc-corpus,1984,Change your mind--,4
-fomc-corpus,1984,"""Particularly with evidence of continued sluggishness"" or something like that.",15
-fomc-corpus,1984,That's okay.,3
-fomc-corpus,1984,"""Particularly should evidence continue of sluggish economic growth and strength of the dollar in exchange markets."" Now, that raises the Corrigan question.",28
-fomc-corpus,1984,"In fact, I'd take the Corrigan position a notch farther. It seems to me the way it comes out now that some people might read this as indicating that we actually would tighten monetary policy if the dollar began to decline. And that is not the message we're trying to get across.",57
-fomc-corpus,1984,"Doesn't the next sentence take care of your problem, Mr. Chairman?",15
-fomc-corpus,1984,"This suggests that the sentence relates to growth over the target numbers in the Ms, particularly M1. I guess it is M1.",27
-fomc-corpus,1984,"But Tony's point is right. More growth is acceptable because the dollar is high. If the dollar starts to fall, then the implication might be--",30
-fomc-corpus,1984,"Yes, we've got to be very careful about this now. There's a lot of attention being paid in the market to what we might do.",28
-fomc-corpus,1984,I agree it sounds that way. I don't know whether that's so bad. It sounds like precisely the opposite concern of Mr. Corrigan. You can't have it both ways; you can't object on both grounds.,42
-fomc-corpus,1984,"Okay. But the way it reads now, that's what it sounds like. People may read from that that we would tighten.",25
-fomc-corpus,1984,Down to 7 percent growth in M1--that's the context in which we're discussing this.,19
-fomc-corpus,1984,"Yes, that's right.",5
-fomc-corpus,1984,We had an overshoot in M1.,9
-fomc-corpus,1984,Are you going to have the next sentence?,9
-fomc-corpus,1984,"Well, I think the question remains whether we need either of the next sentences.",16
-fomc-corpus,1984,"What I was going to say is this: If we are going to have a succeeding sentence of some kind, maybe we ought to put in a more carefully worded [reference to] the foreign exchange market consideration instead of trying to get the symmetry in that one. It's a risk.",57
-fomc-corpus,1984,"Well, I don't know how you put it in.",11
-fomc-corpus,1984,"Well, basically what we have always said.",9
-fomc-corpus,1984,"I'm not saying this wording we have is great, but I don't know why we need either of the next two sentences when I look at them.",29
-fomc-corpus,1984,"What does the ""somewhat more rapid"" sentence say now?",13
-fomc-corpus,1984,"We'd say ""Somewhat more rapid growth of M1""--or the monetary aggregates, which in this case doesn't change anything else--""would be acceptable in light of the currently estimated shortfall in growth for the fourth quarter relative to the Committee's expectations at the beginning of the period, particularly should evidence continue of sluggish economic growth and strength of the dollar in exchange markets."" It isn't the most felicitous wording, in terms of reading it.",89
-fomc-corpus,1984,"I think it's the word ""evidence"" that louses it up. It doesn't carry through to the dollar. I think if we didn't have those qualifiers, which are only now a reference to acceptance of a larger M1 growth, then there would be a basis for continuing the two parallel sentences afterwards. Maybe something could be done, then, on the foreign exchange value of the dollar there. Otherwise, if we have those qualifiers, it makes the next two sentences seem redundant,",96
-fomc-corpus,1984,"It's hard to get lesser restraint on reserve positions. The second sentence, the ""greater restraint"" sentence, doesn't bother me; it's the previous one that just seems a little peculiar depending on how low we go [on borrowing]. We can't do much less restraint.",52
-fomc-corpus,1984,"What I think we can do--and the Fed watchers will spot the difference--is keep the succeeding sentence on lesser restraint and move up international financial market conditions to be the first [item in that list]. That gives some consideration to it--""evaluated in relation to the strength of international financial market conditions,"" etc.",64
-fomc-corpus,1984,"What are you suggesting here? That's correct. You haven't solved the next one. Mr. Axilrod has suggested that we combine the first two sentences. Go back to ""In the implementation of policy in the short run, the Committee seeks to reduce pressures on reserve positions consistent with growth"" etc. That says, whatever figure we stick in there, we can go further if the growth isn't up to it. We haven't got much further to go. And we don't need either of the [next two sentences]. Well, we could leave in the greater restraint sentence. We certainly don't need the sentence on lesser restraint; we've already said that.",128
-fomc-corpus,1984,"Well, I was going to suggest the opposite: Drop the dangling phrase beginning ""particularly"" and leave in the sentence, which is more or less similar to what's in there now, as a separate sentence; and move international financial market conditions up to the head of that list.",55
-fomc-corpus,1984,"I'd hate to put that ahead of the strength of the business expansion and inflationary pressures, Tony. I think that really is still our first objective.",30
-fomc-corpus,1984,Our own economy.,4
-fomc-corpus,1984,"I can give you simpler wording for this: ""Somewhat more rapid growth would be acceptable in the light of..., provided economic growth remains sluggish and the dollar remains strong in the exchange markets. We wouldn't tolerate the excessive monetary expansion if the dollar were weak in the exchange markets.",55
-fomc-corpus,1984,"I think ""particularly"" is better than ""provided."" Provided is absolute.",15
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"""Particularly provided""!",5
-fomc-corpus,1984,"Well, you can use ""particularly"" in the same wording.",13
-fomc-corpus,1984,"No you can't, I don't think.",8
-fomc-corpus,1984,"""Particularly if the economy remains sluggish and the dollar remains strong.""",14
-fomc-corpus,1984,"Where are you? ""Particularly if"" or ""particularly in the context of continued sluggish growth in economic activity and strength of the dollar in exchange markets."" I'm not sure that this fourth-quarter preliminary flash on the GNP is going to look all that sluggish. I don't know what you consider sluggish.",60
-fomc-corpus,1984,Less than 3 percent.,6
-fomc-corpus,1984,Under 3.,4
-fomc-corpus,1984,"Yes, under 3.",6
-fomc-corpus,1984,"Well, suppose we said ""particularly in the context of sluggish growth in economic activity and continued strength of the dollar in exchange markets.""",26
-fomc-corpus,1984,"What is ""continued strength of the dollar""? What do you think it means to most people--the dollar climbing further or maintaining present levels?",28
-fomc-corpus,1984,Maintaining present levels or higher.,7
-fomc-corpus,1984,"It could be interpreted, though--",7
-fomc-corpus,1984,"When the popular magazines call it the ""super dollar,"" people are looking at it.",17
-fomc-corpus,1984,"But it would be 180 degrees opposite of what the Committee wants if any significant number of people in Europe or in the United States were to read from this wording that we would resist, through monetary policy, declines in the dollar. That's not what we're trying to say. That fact that there's nothing in the dollar situation that would prevent us from easing is one thing. Carrying an implication that we would tighten monetary policy if the dollar began to come off is another.",93
-fomc-corpus,1984,"But, Tony, that would be such a departure from the policy of the immediate past. Why would they draw that conclusion from that wording?",28
-fomc-corpus,1984,I don't think they would draw that conclusion in the sentence talking about more rapid growth of M1 than what we've--.,24
-fomc-corpus,1984,The basic sentence.,4
-fomc-corpus,1984,I think it's just a risk. I'm not saying it's a strong probability.,15
-fomc-corpus,1984,"Well, do we leave out the next sentence? What do we do with Mr. Axilrod's suggestion ""seeks to reduce pressures on reserve positions consistent with..."" That would become more relevant maybe, depending upon the borrowing number we put in here. I must say, as I said before, my range of tolerance between $250 and $300 million is immense.",74
-fomc-corpus,1984,"There's a historical and understandable bias against answering this question, but within the context of either of those levels of borrowing is it the general expectation of the Committee that the steady state level of interest rates would fall out at below 8 percent? That's in some way the thing that I'm stuck on.",58
-fomc-corpus,1984,It depends upon what we do with the discount rate. But I think that is a dangerous thing to get hung up on. This Committee has been hung up on that for three months and has not eased as fast as it should have in terms of reserve growth and Ml.,54
-fomc-corpus,1984,"If that's a motion, I'll second it.",9
-fomc-corpus,1984,I'll third it.,4
-fomc-corpus,1984,Amen.,2
-fomc-corpus,1984,I don't know who that reflects upon--this Committee or the Board of Governors for not having moved faster on the discount rate cut.,26
-fomc-corpus,1984,Are you suggesting $300 million rather than $250 million?,12
-fomc-corpus,1984,"I'm suggesting that I could go anyplace between the two. I thought we attracted a great consensus on some number between those two, which would not bother me.",32
-fomc-corpus,1984,Like $275 million.,5
-fomc-corpus,1984,$275 million wouldn't bother me.,7
-fomc-corpus,1984,How about the range of $250 to $300 million?,12
-fomc-corpus,1984,"That's fine with me, too.",7
-fomc-corpus,1984,I still would prefer $300 million. MESSRS. BOYKIN and GUFFEY. I would too.,24
-fomc-corpus,1984,I don't think any of the people who have indicated that position here are going to be persuaded by your giving a few paltry million on reserves.,29
-fomc-corpus,1984,"It's important to us, even if you say it's not important to you.",15
-fomc-corpus,1984,But it could make them feel better.,8
-fomc-corpus,1984,Make it $300 million.,6
-fomc-corpus,1984,Give it to them; make it $300 million.,11
-fomc-corpus,1984,For a Christmas present?,5
-fomc-corpus,1984,$300 million with a 7-1/2 percent discount rate.,15
-fomc-corpus,1984,"I think this whole [paragraph] implies that if things remain sluggish, we will go down below that; I don't think there's anything that doesn't say that.",31
-fomc-corpus,1984,That's right.,3
-fomc-corpus,1984,That's what it says.,5
-fomc-corpus,1984,That kind of thing is fine with me too in most circumstances.,13
-fomc-corpus,1984,I don't think I'm indicating that we can come within $50 million when we're aiming there anyway.,19
-fomc-corpus,1984,"Look, I'm not really from a world--",9
-fomc-corpus,1984,That's going to be particularly hard if it's not too--,11
-fomc-corpus,1984,It seems to use the expression of Minneapolis or New York.,12
-fomc-corpus,1984,"Well, we had in mind--on the order of a suggestion--$300 million or lower to start with and we make the errors on the lower side.",32
-fomc-corpus,1984,Whose errors are they?,6
-fomc-corpus,1984,Collective error.,4
-fomc-corpus,1984,[Unintelligible] asymmetrical range of $250 to $300 million.,17
-fomc-corpus,1984,Is that satisfactory? MESSRS. MARTIN and BOEHNE. Yes.,17
-fomc-corpus,1984,To whom?,3
-fomc-corpus,1984,"Me, sitting here trying to figure out what to do. We're going to take more chances that it will be below $300 million than above.",29
-fomc-corpus,1984,Why don't you take a show of hands for. preference?,12
-fomc-corpus,1984,What is the question?,5
-fomc-corpus,1984,We haven't done a show of hands for a long time.,12
-fomc-corpus,1984,It would be nice to get a consensus; I'm striving for consensus.,14
-fomc-corpus,1984,I know you are. That's why I think you might need a show of hands as well.,19
-fomc-corpus,1984,"I'm not sure. We're combining the first two sentences. Do you understand that? We have the second sentence: ""particularly in the context of sluggish growth in economic activity and continued strength of the dollar in exchange markets."" And we take out the next sentence; it's implied by the first sentence. That next sentence could be left in or taken out; it doesn't bother me. It says that if we really get a significant strengthening in economic activity and inflationary pressures and if money growth is rapid, we'd tighten up some. That seems to me to be inoffensive, and I'd leave that in. Is that the consensus? MR. MARTIN and",129
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,And we put in 6 to 10 percent. MR. MARTIN and,16
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"And the borrowing level, as I now interpret it, is up to $300 million.",18
-fomc-corpus,1984,Up to? What is the nuance between $300 million and below and up to $300 million?,20
-fomc-corpus,1984,I tell you the only difference between $250 and $300 million is a great big fat nuance to me.,22
-fomc-corpus,1984,"I noticed. If it's such a minor nuance to you, why not try the $300 million?",20
-fomc-corpus,1984,Because a lot of people--the majority--want $250 million.,14
-fomc-corpus,1984,"Oh, do they?",5
-fomc-corpus,1984,Yes.,2
-fomc-corpus,1984,"[Unintelligible] the first two sentences, that fits.",14
-fomc-corpus,1984,Maybe in the spirit of Christmas we can give him $50 million.,14
-fomc-corpus,1984,And we have. [Let's vote.],8
-fomc-corpus,1984,I still don't know what we're voting on. What are we voting on?,15
-fomc-corpus,1984,Up to $300 million.,6
-fomc-corpus,1984,Chairman Volcker Yes Vice Chairman Solomon Up to $300? No. President Boehne Yes President Boykin Yes President Corrigan Yes Governor Gramley No President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,53
-fomc-corpus,1984,"Okay, I guess we're finished. [Secretary's note: At this point the group ate lunch in the Board room. During lunch, the following exchange occurred:]",32
-fomc-corpus,1984,"I'm afraid we left one thing open at the Open Market Committee meeting. We'll have to regather. We talked about the precise numbers to put in but didn't pin them down. The options were 7, 9, and 9 percent or 6-1/2, 8-1/2, and 8-1/2 percent. I guess I was assuming 7, 9, and 9 percent when we were voting but if other people were not assuming that, we ought to reconsider it.",106
-fomc-corpus,1984,"That's what I put down. I voted for 7, 9, and 9.",19
-fomc-corpus,1984,"I voted thinking 7, 9, and 9.",13
-fomc-corpus,1984,I could vote for either.,6
-fomc-corpus,1984,"I assumed we were voting for 7, 9, and 9.",16
-fomc-corpus,1984,"Well, if that was the general assumption, we'll leave it at 7, 9, and 9.",23
-fomc-corpus,1984,That's what I assumed too.,6
-fomc-corpus,1984,Okay.,2
-fomc-corpus,1985,"If we can come to order, the first item of business is electing the Vice Chairman.",19
-fomc-corpus,1985,"Mr. Chairman, after surveying the membership of this group and thinking of various outsiders who might [unintelligible] a change in the law, I conclude that I wish to nominate Gerald Corrigan as the Vice Chairman of the Federal Open Market Committee.",51
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,"That second came awfully quickly! Are there any objections? I haven't heard any, so Mr. Corrigan is duly elected and the Secretary will so record. We have to approve the minutes.",39
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,I second that.,4
-fomc-corpus,1985,"Without objection. Why are the reports on foreign currency and domestic open market operations separated [on the agenda]? We will go to foreign currency operations first, anyway. Are you prepared to report on domestic open market operations, Mr. Sternlight?",48
-fomc-corpus,1985,Yes I am. Sure.,6
-fomc-corpus,1985,"Well, we'll go to Mr. Cross first and you second.",13
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Any discussion?,3
-fomc-corpus,1985,"Sam, after listening to the conversations in Basle, would you get the impression that if sentiment on intervention is moving in any direction at all, it's moving in the direction of doing something more drastic--perhaps without the United States--[say], accumulation of some resources from interest and hitting the market hard when the dollar is already declining?",67
-fomc-corpus,1985,"Well, it's very difficult to say what they might do. I would think that the desire, obviously, is very much to have the United States: (a) take the lead; and (b) certainly, participate. Now, whether they will bring themselves to very large intervention in our absence--if we are out of the market entirely--looks pretty doubtful.",73
-fomc-corpus,1985,What kind of money are they talking about?,9
-fomc-corpus,1985,"I don't know that anybody is talking about any specific amount of money. I think there is a problem in that the operations that have been undertaken during this period--certainly on the United States side on the occasions that we have operated--have been limited to fairly modest amounts. On one occasion it was $40 million and on another occasion $48 million; the most we did was close to $150 million. There certainly is a feeling that one needs to act both in greater amounts and also with a greater forcefulness, as it were. They understand the U.S. view about not wanting, as I said, to bash the currency; but they do feel that something needs to be done to deal with these exchange rates more forcefully than has been done. There was certainly some uncertainty in the market after the G-5 announcement about what it meant. As time has gone by, that has tended to fizzle out and there has been the feeling that the intervention, while not insignificant, really hasn't been of a forceful and large nature, given the magnitude of the problem.",216
-fomc-corpus,1985,"[Unintelligible] go about intervention in the least effective way--in fact, I would say a counterproductive way. You can follow up on--",32
-fomc-corpus,1985,"Well, if I may pursue this a minute. Didn't you get the impression--I did myself--that the German intervention of September [1984], which was massive and to us appeared very heavy handed and clumsy at the time, is regarded much more positively over there as having been a really successful operation? Maybe that's [why] they seem to think it's the way to go--to wait until the dollar is softening and then push it down.",91
-fomc-corpus,1985,"Yes, I certainly think that. Absolutely. As a tactical move, the German operation of September did introduce a considerable amount of two-way risk and uncertainty in the market. It was very heavy and it is seen as having been a very useful and attractive operation. Now, in subsequent times when they have taken similar kinds of actions, they have not been as effective. But I don't disagree with you. I think it had a very powerful impact on the market; for some period of time it had the market wondering whether it was going to be hit again one of these days. That certainly introduced a certain caution in the market and I would think that that is a useful thing to do. There is certainly, on the part of some of the Europeans, a strong desire to see if tactics of that sort could not be used again with the same impact.",170
-fomc-corpus,1985,"But it inevitably runs out of steam, doesn't it? Where was the mark then? What was the mark/dollar rate when they did all that intervention?",31
-fomc-corpus,1985,Yes. It went up on the day that they hit it [hard]; at its height it was 3.17 and it went down about 4 percent.,33
-fomc-corpus,1985,And where is it today?,6
-fomc-corpus,1985,"It's at 3.29, but between September and February it went up. It certainly was an element that introduced a great deal of caution into the market and I think it did have a lasting effect for some period of time. On that day I believe they spent about $400 million; we're not talking massive amounts in the billions that were spent. I think everybody is fully cognizant of the limitations of intervention; in fact, maybe too much so. No one expects it by itself to solve all the problems in Europe or here. But certainly there is a view that, properly and forcefully used, it can be one additional weapon that can be very helpful in keeping this quite troublesome exchange market situation perhaps a little less volatile--I mean volatile in the upward sense.",155
-fomc-corpus,1985,"On the other side of the coin, though, Henry, if nothing happens to the exchange rate, I think it is pretty clear that there's likely to be more pressure on interest rates in a number of those countries.",43
-fomc-corpus,1985,"Yes, that's the point that several of them made.",11
-fomc-corpus,1985,"I think all, or certainly a lot, of the Europeans are going to be under upward pressure on their interest rates if their exchange rates continue to depreciate.",32
-fomc-corpus,1985,"Governor Wallich, if I may add a [different] and maybe minority view on that operation: I would tend to deny its success. I think it was rather a hit and run operation and that the failure of the dollar to go up--if that's a failure--subsequently, had a lot to do with the drop in interest rates in this country through the winter. And I think the expectation that that [decline] was coming to a halt was instrumental in the dollar turning around. When it turned around and got to that point it just went right through it; it kept going, as there was no intervention of significant size and determination forthcoming at that time.",135
-fomc-corpus,1985,I'm simply saying that we took a negative view of that operation; we viewed it as being contrary to good practice of not driving the rate but leaning against the wind. They seem to take a more positive view of it. And they seem to be of a mind to repeat it even though they know that they wouldn't get our cooperation on an operation like that.,71
-fomc-corpus,1985,"Looking back over the last 4 weeks, if we are going to do something like this, what's the strategy of doing it the way we have done it? If we're going to do it, we ought to do it with some conviction or it's hardly worth the trouble at all. It seems that we're intervening as though we're kind of being forced to do it and we really don't want to. Our intervention doesn't strike me as being very convincing to anybody.",91
-fomc-corpus,1985,"Are you answering that question, Mr. Cross?",10
-fomc-corpus,1985,"I don't think anyone will disagree with what you've said. I think you're right: that we need to act more forcefully if we're going to go in there, and show that we mean business and that we are prepared to do something in other than token amounts.",52
-fomc-corpus,1985,There are several cooks in this broth and some are from rather provincial provinces.,15
-fomc-corpus,1985,"Just to follow that up: As we talk about our intervention, how much control do we have over it at this point? Any at all? Do we have any say, unilaterally, as to what the central bank will do?",49
-fomc-corpus,1985,We [unintelligible] the central bank.,11
-fomc-corpus,1985,Okay. It may be that unless others change their minds we don't have any choice.,17
-fomc-corpus,1985,"Well, we don't operate unilaterally. Neither does the Treasury.",15
-fomc-corpus,1985,"Is this episode about over, Paul? As I recall, on the [FOMC telephone conference] call you said it was [to last] for a few weeks. A few weeks have gone by. Has it terminated?",46
-fomc-corpus,1985,"I don't think we're bound by that, particularly. Obviously, we haven't been acting effectively at all--",20
-fomc-corpus,1985,"Not at all, recently. That's why I asked the question.",13
-fomc-corpus,1985,"--in the burst of the last couple of days. But I wouldn't say minds couldn't change [if] this [dollar] movement gets pretty strong. But I think it had better get strong enough so that--. I personally am sick and tired of doing ineffectual things. I want to be effectual, or at least have a chance of being effectual.",75
-fomc-corpus,1985,"Sam, do you get the impression that the British are going to resist pretty forcefully allowing sterling to come into parity with the dollar?",27
-fomc-corpus,1985,"Well, resist? We're almost there. They are concerned about the exchange rate. They have raised their interest rates by an enormous amount and they have a very soft economy. So in that sense, they really have moved very, very strongly. They have not done an enormous amount in intervention. They have done some, but--",65
-fomc-corpus,1985,They have done very little intervention.,7
-fomc-corpus,1985,--very little.,4
-fomc-corpus,1985,At one point they put their interest rates up 4 percentage points. Do you consider that a strong action in the space of about 3 days?,30
-fomc-corpus,1985,But the question was: How much further are they prepared to go?,14
-fomc-corpus,1985,Up another 4 points? They may not be prepared.,12
-fomc-corpus,1985,How likely would it be that we would put ours down 4 points?,15
-fomc-corpus,1985,I think they feel that the 4-1/2 points that they have done is really quite a response to the downward exchange rate--,28
-fomc-corpus,1985,"Well, I think there is something to be said for what we've done so far. Yes, it would be better if we could operate effectively; but after a long time of doing virtually nothing we've now taken a few small, modest steps. It seems to me that that's something one could build on.",60
-fomc-corpus,1985,"I can see the essay now: ""In Defense of Ineffectiveness.""",15
-fomc-corpus,1985,"Well, before you become effective you have to be ineffective.",12
-fomc-corpus,1985,I will accept that. You just gave the rationale for what we've been doing: We have to go through this period of ineffectiveness. Would you like to ratify these ineffective transactions?,38
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. Mr. Sternlight.,8
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,How much of [the $6 billion leeway authorized for the intermeeting period] did you use?,21
-fomc-corpus,1985,"At the maximum, $4.4 billion. It wound up at just $4.3 billion, but we had so much uncertainty, particularly about what was going to happen to Continental's borrowing, that I think it was useful to have that flexibility during the period.",54
-fomc-corpus,1985,Any comments?,3
-fomc-corpus,1985,Do you mean on the [leeway] recommendation [or on his report]?,16
-fomc-corpus,1985,Either one.,3
-fomc-corpus,1985,"Well, I wanted to ask a question of Peter. Perhaps everybody else in the room knows this, but I don't. Early on you were talking about how you were running compared with the nonborrowed reserve path and you said that at year-end you were $300 million above it.",57
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,But then later you came closer to the nonborrowed reserve path.,14
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"Now, does that mean that the path called for a 35% increase? We've had a very large increase in nonborrowed reserves. Or does it mean that you adjust that path week by week?",41
-fomc-corpus,1985,The path gets adjusted as we proceed.,8
-fomc-corpus,1985,"So, unless we know what the adjustments are, we don't really know what [unintelligible] an operation.",24
-fomc-corpus,1985,"The guiding principle in drawing the path is to accommodate required reserves and the estimated demand for excess reserves and then the allowance for borrowings that comes out of the Committee's discussion. And if, as we proceed through a period, we find that required reserves are growing more substantially, we fold that information--when we get it--into a revision of the path. Most of those revisions--",77
-fomc-corpus,1985,"So, if you have strong monetary growth, you'll raise the path?",14
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Okay. Thank you.,5
-fomc-corpus,1985,Unless we increase borrowings.,6
-fomc-corpus,1985,"Well, I understood him to say that it will raise the path.",14
-fomc-corpus,1985,[Unintelligible.],6
-fomc-corpus,1985,That would have been an alternative and could come into the discussion also.,14
-fomc-corpus,1985,"Well, I just thought somebody might misinterpret it when you said you came so close to path. One needs to understand that you're constantly revising that for the larger growth [in required reserves], because otherwise one would think you were shooting for a very large rise in nonborrowed reserves.",58
-fomc-corpus,1985,"Well, we're shooting to accommodate required reserves--",9
-fomc-corpus,1985,Whatever is called for.,5
-fomc-corpus,1985,--at that level of borrowing.,7
-fomc-corpus,1985,On the [leeway] recommendation: I have no problem with it.,15
-fomc-corpus,1985,Any other comments?,4
-fomc-corpus,1985,"I just have a question. Hearing your comments after hearing Sam's, I wondered: How much coordination is there between the two--[the foreign and the domestic operations]? I heard you talk about tilting, which would lead to a higher fed funds rate etc., and yet I heard [Sam talk] about the problems of the dollar and how when rates ticked up the--",76
-fomc-corpus,1985,"Well, there's close coordination in the operational sense of Sam and his people being aware of what we're doing each day and vice versa. And on something like the drawing of the paths--whether we're talking about up to $300 million with a bias on the accommodative side or later modifying that bias--that is all coordinated through conversations with senior staff here and ensuing discussions that keep the Board informed. Certainly, we are keeping the Committee informed in our reports on the market: the morning call and the weekly reports.",101
-fomc-corpus,1985,"I guess what I'm saying is: If, as you saw the fed funds rate tick up you also saw a rather immediate impact in the foreign exchange markets, if we're concerned about a super dollar and we're concerned about whether or not we're intervening enough, I just wondered if we ever close the loop or get any feedback in here?",66
-fomc-corpus,1985,"Well, certainly we were aware of what was happening day-to-day on the dollar. And there were some individual days when the strength of the dollar had a fair input into the timing of our operations--the decision of just when to go in to put reserves into the domestic market.",56
-fomc-corpus,1985,But it never made you think that it might be inappropriate to allow the fed funds rate to continue to move upward?,23
-fomc-corpus,1985,"No. I think that we did have some concern about what was happening when funds were getting up to 8-1/2 to 8-3/4 percent, and we [began] shaping our operations in a way that I think helped to bring it down to 8-1/4 percent, though I wouldn't say that that was specifically a target.",75
-fomc-corpus,1985,"This is not a complete answer, but the domestic operation is very inflexible. They operate--",19
-fomc-corpus,1985,I'm just trying to educate myself.,7
-fomc-corpus,1985,"It's a good question. But [in the domestic market, generally] we operate at 11:30 to 11:45 a.m. Once we have made that decision [after the morning call], it's over. It's a revolution if we operate at 2:30 in the afternoon because at that point if the market sees the funds rate going up, that raises questions about whether we're pegging the funds rate. So, it's a perfectly reasonable question. But the fact is that the opportunities --just on an operational basis--during the day to take account of [exchange market developments] are limited. If we miss it because maybe the market wasn't acting that way at 11:30 a.m., we've missed it. Now, maybe that's not the way we should operate, but that is the way we do operate.",165
-fomc-corpus,1985,"If we have a money supply target and at any one time in any one day we don't act--in order not to drive up the funds rate because of what that might do to the dollar--then that has to be made up some other day. Otherwise, we miss our target and it may then mean a larger funds rate increase than if we had done it right away. We can't tell in advance.",81
-fomc-corpus,1985,We may also find out after the fact that it wasn't necessary to operate that day at all because the forecast has changed. That's not unusual; I suppose there's a 50-50 chance of that.,40
-fomc-corpus,1985,"If there were any systematic effort, as opposed to these issues of finesse, to place more direct significance, say, to the exchange rate in terms of Peter's day-to-day operations, I think that's the Committee's decision, not Peter's--with all due respect to Peter. I think there is room for the finesse factor from time to time, and I think he uses it. But I interpret your question as being a little more fundamental than that. I think if it's a more fundamental question like that, that's a decision we have to make, not him.",113
-fomc-corpus,1985,Just hearing the one presentation following on the heels of the other made me connect the two.,18
-fomc-corpus,1985,"A very good question. Are there any other comments? If not, do we have a motion on this [intermeeting] limit?",27
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. We need to ratify these transactions.,11
-fomc-corpus,1985,Move to ratify.,5
-fomc-corpus,1985,"No objection. Mr. Kichline. MESSRS. KICHLINE, PRELL and TRUMAN. [Statements--see Appendix.]",30
-fomc-corpus,1985,"I'm puzzled here. In July we projected a real GNP increase, 4th quarter to 4th quarter, of 3 to 3-1/4 percent?",36
-fomc-corpus,1985,That is correct--for 1985.,9
-fomc-corpus,1985,"Oh, for 1985! Well, now is the time to comment on the business and price situation. Governor Wallich.",26
-fomc-corpus,1985,"You have a near doubling--well, maybe not quite a doubling--of unit labor costs but very little increase in [the rate of] inflation. Is that the effect of offsetting factors?",39
-fomc-corpus,1985,"Governor Wallich, the unit labor cost increase last year was 2 percent and, as I said, goes to 3-1/4 percent and then to about 3-1/2 percent next year. A quick inspection of that chart indicates that there has been a very large gap between price increases and unit labor cost increases over the past couple of years. The increase in markup that has occurred is extraordinary in historical terms; and we're basically just seeing a narrowing of this gap in the period ahead. The unit labor cost [increases] will still be running a little lower than the price increases.",122
-fomc-corpus,1985,"Let me ask you a question following that question. In terms of these projections, we center on 4 percent for prices this year, which is an increase in the rate of price increase from last year. I get a little concerned about presenting price [projections] of an increasing rate of price increase--which show a great faith in Federal Reserve policy--particularly when it's not clear to me why that should be. You have this decline in the dollar in your projection--I'm not talking about your projection; basically, I'm talking about other peoples' projections--but I don't know whether people assumed a decline in the dollar. Last time we used the convention that we would not; I think we assumed some general range of fluctuation within historical experience, which seems to me a reasonable convention. It turned out to be a lot better, because the dollar was up, than if we'd assumed a depreciation. The actual price results have been at the very lower edge of our projections. And I wonder why we're so pessimistic on prices this coming year when the wage trend looks good, the dollar continues to appreciate, the profit margins have widened, as was suggested already, and the unemployment rate doesn't go down much. One can argue about productivity; the staff doesn't have terribly buoyant productivity estimates and maybe everybody else is very low on productivity. But I would like to hear why [people think] prices are going to be worse this year than last year.",288
-fomc-corpus,1985,"Well, it's very little. I have a 4 percent projection and I guess I would say it's a much better projection than I had at midyear for this year. There's only so far you can go!",42
-fomc-corpus,1985,Your philosophy is to catch up to reality slowly.,10
-fomc-corpus,1985,"Well, I also would be inclined to think that this rise in unit labor costs will have more effect on GDBP--pushing it up a little--than is shown in this chart. I don't think I would have allowed for that kind of compression in the difference between unit labor costs and GDBP and I did have in mind some kind of a decline in the dollar.",77
-fomc-corpus,1985,"Apart from the decline in the dollar, I presume over a long period of time unit labor costs go up the same as prices.",26
-fomc-corpus,1985,"I think the relationship is quite closely connected. I would say also, in response to Governor Wallich, that our general view in looking at the price situation is that one would take some standard measure of productivity and, in a sense, assume a markup by corporations over some standard unit labor cost measure--so that the cyclical gains that you get early on are rather quickly translated into additional profits. But this rise that we see in unit labor costs we would not translate immediately into an attempt by corporations to add on to that; rather, they would be taking a longer-term view.",116
-fomc-corpus,1985,At lower profits?,4
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,Not a lower profit. There's no [change] in margins.,13
-fomc-corpus,1985,"Lower than if they priced higher. We had more inflation with the same unit labor cost. We also had more profit, but we have to stick that income somewhere.",33
-fomc-corpus,1985,"My own interpretation of the price forecasts, looking at the range of forecasts as well as my own, is that I consider them basically unchanged. If you look at the deflator on a fixed-weight basis, excluding food and energy, for the four quarters ending in 1984 and the four quarters ending in 1985, it's basically 4 percent in both years. And when you look at 1985 as opposed to 1984, ending up with the same rate of inflation is better in some sense because, if the economy behaves like the forecast, I think we're going to have at least some pressures from commodity prices over the next year. The dollar certainly isn't going to continue to go up; it probably will go down. But even if it stays the same, people are not going to buy as much and we will get some further pressure on a year-over-year basis from unit labor costs. But I personally don't interpret the forecast as saying that inflation is worse in 1985 than in 1984. It is either about the same or maybe a little better.",216
-fomc-corpus,1985,I'm going to have a heck of a time explaining to the Congress that a number that goes up is really essentially the same or a little lower!,29
-fomc-corpus,1985,Tell them that it usually goes up quite a bit more in the third year of an expansion.,19
-fomc-corpus,1985,In the third year of an expansion that's really not much of an increase.,15
-fomc-corpus,1985,"I'm not sure as far as third years of expansions are concerned, but I don't see where we get any increase. I don't see why we don't have a decrease here, with what I see going on.",41
-fomc-corpus,1985,"I support the decrease-to-constant hypothesis, Mr. Chairman. We increased capacity by over 3 percent last year; there has been a surprising rehiring of experienced labor; and there is all of this talk that we heard earlier about the use of computers and telecommunications equipment and all that stuff that made up the investment boomlet. Surely, these organizations are going to do something with this equipment other than look at it and display it to visitors--which are two of the functions of this sort of new equipment. It seems to me that they will still have the pressure from foreign competition and that finally someday, somehow, sooner or later, the slimming down of many organizations that occurred--as the charm school middle managers were sent on their way and other adjustments were made in management and staff ranks--is going to have some effect on labor costs in a positive direction. My own personal projection was for less inflation--someone has to be an outlier--in 1985, and I would support your statement of a constant or declining [rate of inflation].",210
-fomc-corpus,1985,"I don't want to get the whole conversation going on this point. I think you might look at it again in the light of an unchanged dollar assumption. Not as much as a lot of other people, but we have been high on our inflation estimates before. I don't know what prices are going to be, but there certainly will be a range of uncertainty. Maybe they will go up. The question is where the greater probability lies.",86
-fomc-corpus,1985,"Could I ask a question on that? The greater probability is the number on a skewed distribution. Presumably, the probability distribution of inflation is that it can't go much below zero but it can go up quite far; it has a long right hand tail. Are you thinking in terms of the mode--the most likely single value--or the mean, including the tail?",75
-fomc-corpus,1985,"We have alleged for years that we have a modal forecast. I would say that it's very difficult, but basically, if we use the model and try to come out with confidence intervals, the model comes out with substantially lower rates of inflation. In fact, if you put a 70 percent confidence interval around our deflator estimate, a couple of times we drift out of that range on the high side. So with the same policy assumptions for 1985, the model forecast, for whatever it's worth, is a rate of increase in the deflator one percentage point less than in the staff forecast. I view that information as saying that the risks tend to be skewed on the down side. We think 3-1/2 percent is the most likely outcome; but if we're wrong, I'd say we're probably too high rather than too low.",170
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"I have a couple of questions, Mr. Chairman. Two of the most difficult things to forecast, as you know, are what will happen with the Federal deficit and what will happen to the dollar. I was just wondering if you did any sensitivity analysis in terms of alternate forecasts, supposing that there's no depreciation of the dollar and supposing that there's no action to reduce the Federal deficit.",78
-fomc-corpus,1985,"Ted, I don't know if we can run one with the exchange rate unchanged. You have some numbers on that there. We do run one that has a fiscal assumption of no fiscal action at all, so that would add $50 billion dollars, essentially, to outlays: $40 billion in outlays and $10 billion of less taxes. In 1986, which is the relevant year because we assume these fiscal actions take effect in 1986 and beyond, we get something like 1-1/4 to 1-1/2 percent higher real GNP--in the neighborhood of 4 percent or a little higher. The deflator in 1986 is only up a tenth or two but the momentum builds as you get into 1987 and beyond. Short-term interest rates in that scenario are about a percentage point higher in 1986 than those in the staff forecast.",181
-fomc-corpus,1985,"On the dollar, taking not the fourth-quarter level but the estimate for the first quarter--which is a good deal lower than we are now--as the jumping-off point, we don't get too much direct impact on either real GNP or prices from an unchanged dollar, since that [decline] is behind us. In the 3rd quarter, we get 0.2 down in each and then next year we would get a larger impact of twice that magnitude--an additional 0.4.",102
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"I wanted to ask a question about the debt to disposable income ratio. Your chart shows that ratio moving up pretty rapidly; it's probably near or a bit above the 1979 high. Do we know what accounts for this run-up in debt? Is it due to demographic forces or what really accounts for it? And if that debt ratio stays at about the same level or goes up, do you think it's going to put a constraint on spending in 1985?",93
-fomc-corpus,1985,"Well, we've been investing some special effort lately in trying to explain the behavior of debt. The major ingredient here is the consumer installment credit; its growth relative to income has been so sharp over the past couple of years. There are a number of factors that seem to be at work. One, as I mentioned, is that durable goods spending has been exceptionally strong, and that presumably is an area of spending that is relatively debt intensive. Another factor is a rather mechanical one: For a year or two after the period of credit controls, people seemed to be quite reluctant to use debt. [Credit] extensions during that period were depressed and it takes a while for the higher level of extensions subsequently to leave its full imprint on the repayment flows. Right now, and over the past couple of years, we've had a relatively low repayment flow from these past extensions, though we have a higher level of extensions currently. And as I indicated, in our projection we're expecting a catch-up as the more recent debt is what is mostly reflected in the repayment flow. There may be some demographic characteristics involved here. Clearly, over the postwar period as the population has aged, the younger generations have been more inclined to use debt. There's some evidence of that over time and there are a number of other minor factors. But this mechanical matter of extensions and repayments alone, according to some simulations we did, seems to explain a great deal of that debt growth. We don't have data anymore on extensions or repayments, but our inference would be that a fairly normal pattern of debt usage relative to the spending that has occurred would have produced this acceleration and should also produce a marked deceleration. As to whether it imposes a constraint, the logic would suggest that those individuals who have drawn upon their credit lines and so on and built up some debt may have some marginal constraint on their further spending. But this is a widely distributed debt. The evidence is that over the past several years it has been people in higher income brackets that have taken on most of this additional debt. They presumably have more flexibility and probably have more assets, so it should be only a limited constraint.",427
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"Mr. Chairman, I wanted to take exception to the [projections for] housing starts and residential construction volume for 1985. As the chart showed, the mortgage commitment rate is hovering around 13 percent on a 30-year fixed-rate loan and the proportion of adjustable rate loans has dropped significantly. I don't believe, given the satisfaction of the deferred housing demand that has occurred to date, that we can reach 1.75 million [in housing starts] or $166+ billion in residential investment in 1985. It could happen with a lower [mortgage] rate but the assumption of the staff is for somewhat higher rates, particularly toward the end of the year. In the models I've seen, it would take a fixed-rate somewhere around 12-1/2 percent. If you add the servicing on to that mortgage commitment rate for 30-year fixed-rate loans you get about 13-1/4 percent. So it seems to me that we're looking at 1.5 million rather than 1.75 million [on starts]. There are a number of other institutional changes. We know that the investigation of the Bank of America mortgage-backed security fraud situation is only beginning. There will be some investor reaction in the mortgage-backed security area. The thrift institution regulators are attempting to slow the growth [of such securities], and to the extent that there is some degree of success, that would affect availability. And finally, there is the so-called willingness factor in home buying that is disappearing, in the sense that the appreciation motivation that has been so prominent over the last several decades is waning in several regions of the country. The motivation to buy is for shelter and not for appreciation. The syndicates have been pushed out of the market in the multifamily area; the multiple unit vacancy rate is terrifically high in some parts of the country. It isn't enough to do a macro job and get this very high vacancy shown on the chart. For the United States there isn't a national housing market; there is mosaic of sub-markets around the country; and many of those have very, very high vacancy rates. So I don't see how we can get 600,000 or 650,000 in multifamily starts in 1985. I suggest that the forecast is [.25 million] high. That doesn't exactly throw the forecast out. I would couple that remark with a commendation for the analysis in the rest of the structural forecast for the next year in terms of real business fixed investment. I think it's a very good analysis, showing a very big cutback in structures in the real business fixed investment area. I did a little work prior to the meeting and then found that I was caught in the sense that I was only verifying what the staff has done here. I think that's quite accurate.",565
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"On the business fixed investment chart I continue to be amazed by this very favorable red trend line that we've watched the last couple of years, which seems completely out of context with our experience. Mike, I think you did comment as you went through the charts that most of that line, or a significant part of it, is in the communications/computer area. My question is: If you were to separate out what I would call for lack of a better term the ""grunt stuff""--the heavy capital production type of equipment--from the computer area and then, in turn, take a look at the part of that heavy equipment that is being supplied by the international market, wouldn't the line in fact be very, very different? And wouldn't that be a way of dramatizing how terribly uneven all of this is, despite the fact that we have a trend line that looks very favorable?",175
-fomc-corpus,1985,"Well, I confess I have not done the calculation for the residual component of producers' durable goods. It's a very logical concept; I wish I had done it. This aggregate here includes office and store machinery, communication equipment, scientific engineering equipment, and photographic equipment. It is a pretty good piece--almost half--of producers' durable equipment. My sense is that if you looked at the rest of the numbers, you would see a much more moderate advance. But as things progressed last year, we did see some fairly substantial increases in the heavy machinery area and so on. There is the distinction between production and purchase of this equipment. Clearly, the share of equipment sales that is going to foreign producers has increased very considerably. So the implication for domestic firms and the capital goods industry is one that is not quite as rosy as this picture.",168
-fomc-corpus,1985,Thank you.,3
-fomc-corpus,1985,Didn't those figures you had the other day suggest something like 50 percent of the increase in equipment was imported this year?,24
-fomc-corpus,1985,I think it is higher than that.,8
-fomc-corpus,1985,But the share this past year was about 25 percent.,12
-fomc-corpus,1985,That's the share of the total?,7
-fomc-corpus,1985,Share of the total.,5
-fomc-corpus,1985,You had a chart that had absolute numbers where one could see the increase in imports and the increase in the total.,23
-fomc-corpus,1985,"Maybe I have those numbers. The figure we have for 1984 was: total purchases of business capital goods excluding motor vehicles rose $18 billion, of which $10 billion was foreign. And the overall penetration is about a quarter.",47
-fomc-corpus,1985,"Wouldn't help things too much around Chicago, Si.",11
-fomc-corpus,1985,That's the problem.,4
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,Are you ready for more general comments?,8
-fomc-corpus,1985,I am.,3
-fomc-corpus,1985,"Let me make a couple of more general comments. Our own view of the economy for 1985 is one that has real GNP growing about 4 percent, with the deflator a shade lower than that. And at this juncture, that has the characteristics of a good forecast from my perspective. In the short run it could actually be a bit stronger. The impression I get from talking to business people and others over the past month or so is that most of them have been marking up their projection of real growth and marking down their inflation projection for the year. But I think there probably is a consensus somewhere in the 3-1/2 to 4 percent range for both real GNP and prices. On the point that was just brought up, the feeling comes out very, very forcefully in comments from directors and business leaders that we have crossed the Rubicon on this external stuff and that it may already be taking a bigger bite than even those numbers suggest. For example, who represents a very, very large multinational firm heavy in capital goods, thinks that in recent quarters 100 percent of the increase in spending on equipment is coming from abroad. Just within the past week he made some comments to the effect that he had seen his order book affected in a very sizable way just in the past month because of the international trade situation. So, that continues to be a wild card and it's getting wilder by the minute. I have some of the same concerns that Pres had about the housing sector. It should be a good year, but there are some things in there that I find troubling as well. Extracting from the traditional sectoral questions of what the risks are to a forecast, it seems to me that there are two or three more generic risks that are particularly important in the current setting. One of those is: What happens if interest rates go up in any appreciable way? Let me just define appreciable as more than a percentage point in the short run. Obviously, that would be a very difficult situation. And then you ask yourself: What could produce that? If the budget deficit is not reduced, that could produce it; and if the dollar declines in any appreciable way, that could produce it even though the cushion for a dollar decline is somewhat larger now than it was before. That result could also come from the economy growing too fast because, from my perspective at least, the balance in our credit markets is so precarious, as indicated in one of Mike's charts, that it doesn't take much to push us into a situation in which the economy is growing too fast. Even though that might not reflect itself in price pressures, it could easily be reflected in interest rate pressures. Then, of course, there is always the possibility--perhaps remote at the moment--that the market could conclude that money growth in some broad sense is getting away from us. So, there is a whole collection of things, any one of which I think could produce pressures on interest rates. And I think it goes without saying that any appreciable pressures in that direction would throw any forecast to the wind. Another thing that I am somewhat concerned about in terms of risks is the burden of all this debt we're accumulating. I'm not as sanguine as I thought you seemed to be, Mike, in terms of the cumulative effect of that debt burden--particularly in the context of what I think is still some fragility in the financial system. And I don't think all of these crazy new markets and instruments that are coming along almost daily are helping that situation. Just to put that debt situation in one perspective: Since 1982, the ratio of nonfinancial debt to nominal GNP has risen by 17 [hundredths]. It's almost a vertical line, and the level of that debt right now is so far out of line with anything we've ever experienced. That's just another way of looking at it that is troubling. The last thing I would mention on the risk side is the oil price; that has been talked about a little. I was surprised the other day when a point was made to me in a conversation with someone I regard as a fairly credible source. The nature of the comment was that among a group of people thought to be experts, a third of them now thought there was at least some possibility that the oil price could fall, say, to the $16 range. No one was predicting that as a hard prediction, but there was at least the recognition of that as a possibility by a fairly knowledgeable and sizable group of so-called experts. I must say when I stop and try to think about the implications of that, I'm not sure what they are. They probably, or most certainly, are not good. So, in general, I come out with [the view that] everybody is feeling good about the situation right now but getting a little more worried about what the situation implies down the road.",986
-fomc-corpus,1985,--more worried as you talked! Governor Gramley.,11
-fomc-corpus,1985,"Well, I think the forecast in many respects is a remarkably good one for the third year of a recovery--when growth in the first two years was well above the average for the first two years of recovery and in the third year the expansion is sustained at a rate well above potential growth and unemployment is reduced while keeping a low inflation rate and relatively stable interest rates. As I recall--and I didn't look this up--this forecast for '85 is not dramatically different than what the staff presented for '85 a year ago and I swore then that it couldn't happen. But we're here now and, if you look at outside forecasts, a very large number of them are centering on performance very much like this one. Indeed, when I put in my forecast, I found myself putting in numbers very much like what the staff has here. In thinking about uncertainties, what worries me the most is what's going to happen to the dollar. Lots of people worry about that, too. Oddly enough, some people say if the dollar goes up, that will be bad for the economy and when you ask them what will happen if the dollar goes down, they say that will be bad for the economy, too. There are some bad things and some good things, but we need to keep straight exactly what is going to happen if either of those two outcomes occurs. I worry more--a lot more--about what's going to happen when and if the dollar begins to fall than if it rises further. If it rises further, it will put some additional restraint on the growth of domestic production but it will have beneficial effects on the inflation rate and beneficial effects on interest rates. And I think it is not too difficult to handle the negative aspects on domestic growth by adjustments of monetary policy, even though I am worried about the kind of protectionist measures that develop [in those circumstances]. If the dollar begins to go down and go down rapidly, particularly [unintelligible] as we're approaching the natural rate of unemployment, it's going to stimulate the economy strongly. It's going to put strong upward pressures on prices and, through both of those things, strong upward pressures on interest rates. And that we're going to have a lot of problems with. So, I hope the staff is right and we begin to get a modest gradual decline of the dollar beginning fairly soon.",470
-fomc-corpus,1985,Sounds like one of the least likely forecasts--not that anybody has any better one.,17
-fomc-corpus,1985,"Just to comment generally on the outlook, the staff forecast is really quite consistent with ours. Our GNP is a little lower and our inflation is a little higher but not materially enough to comment on. But, as you can gather by my earlier comments, I am still just staggered by the continuing unevenness of it all. Many of the industries on the capital goods side are very weak and I think a lot of them have come to the conclusion that they are going to be left out and that this recovery is going to completely pass them by. I was talking with a man who runs a very large diversified company, including an extensive foundry operation, and they have concluded that they had better get ready for the next recession and now are in the process of closing permanently about half of their foundries. They just feel that that business is never going to come back. A risk I would point out--and I would say it's a local risk, certainly not a macro or a broad risk--is this agricultural situation. I almost don't dare mention it because I'm sure I can't say anything new or surprising and you've heard a lot about it. But it is very serious and is continuing to deteriorate. And it is one that I find very hard to get a handle on; I find it difficult to measure just how difficult and serious the problem is other than I have a hunch that the statistics we look at really don't adequately describe the problem. The land surveys that we look at suggest that land values are down 30 to 40 percent from the peak. But there isn't much land selling; and when land does sell, it's selling at 50 to 60 percent under the peak. People purposely are trying to hold land off the market [because] the real values are substantially lower. As the land value goes down, the debt [unintelligible] will get very, very high at the agricultural banks. Cash flow just isn't going to be adequate to service the debt. The concern among the ag banks is getting very high. I went to the Iowa bankers meeting in Sioux City last weekend and I was pleased to get out of town in one piece! They are pretty close-mouthed about the problem but they all can see that the losses are going to be very substantial when they total the direct loans to the farmers and the indirect loans to suppliers and merchants and the like. Also in the Midwest there has been a lot of this trading of banks around that is supported by loans on bank stock, and I have a hunch that that will be a problem that's going to grow in magnitude. When you add those together, I think the losses on the portfolios are going to be very substantial. Another way of saying that the numbers hide the nature of the problem a little is this: Of the 530 state banks in Iowa only 15 have capital of 7 percent or less; and of those 15, 12 are between 6 and 7 percent, which would suggest that there isn't a problem from a capital point of view. But when asset quality problems arise, a bank can go through capital awfully darn fast and all of a sudden there is an escalating problem. The Superintendent of Banks in Iowa suggests that about 140 of their 530 banks are what he would call problem banks and by that he means that 60 percent of capital is classified. But he thinks that number is going to go up and that by the end of the year about half of their banks will be in the problem category. These are all, I think, small banks and this is somewhat of a regional problem as opposed to one with broad national implications. But I do suggest to you that this agricultural problem--and, again, it can't be news to you--is serious and is escalating and that the number of bank failures is going to be significantly higher in the Midwest this year than was the case last year. It is not at a level nor of the type of institution that could be destabilizing, but I think it is a risk that merits notice.",813
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,"I've been in maybe a dozen meetings over the past month and I think this is the gloomiest couple of hours I've spent! Actually, the forecast looks like a pretty good forecast for the third year of a recovery and it seems to me that it's a reasonable forecast. I think you can argue with it in pieces but, at least in my part of the country, I find the mood more upbeat than I sense around the table. There is a long list of things that could go wrong; each one of them, certainly, could go wrong and 1985 could end up being a disastrous year. But it seems to me, if you're a betting person, that the outlook is really pretty good; and I don't see anything wrong with accepting a pretty good outlook when it comes our way. Clearly, there are risks with the dollar and there are problems with agriculture and there are other areas of risk. But on the whole I think maybe the Federal Reserve ought to surprise the country and not feel too bad about the outlook in 1985. So, I would be inclined to take the forecast more or less as it is, acknowledge that things could go wrong, but still present an upbeat kind of outlook.",242
-fomc-corpus,1985,Miss Seger.,4
-fomc-corpus,1985,"First, in terms of the inflation outlook, I came up with 3-1/2 percent without taking into account the value of the dollar; then Ted Truman convinced me that the dollar is going to depreciate so eventually I rounded my number up to 4 percent. If I had assumed it was going in the other direction, I would have rounded it down to 3 percent because I just do these in whole numbers; I don't have the confidence that I can do it any more finely than that. In terms of productivity--and this is something that I'm very interested in--one factor I think we're soft peddling, if not ignoring, in this whole productivity discussion is simply the commitment of business managers to be more productive. I deal with some of the same kinds of people that Si Keehn does out in the Rust Belt and they are viewing this as a very high priority item. It's shape up or you're going to be dead; it's as simple as that. Therefore, this has given them a strong incentive to be more productive. I understand that, unfortunately, that doesn't fit very well into the econometric models, but that doesn't mean it isn't a factor and that doesn't mean it isn't a very important factor. Furthermore, I think this notion ties in with what we're seeing in plant and equipment spending: that in order to get the kinds of productivity gains they feel they have to have to compete with the imports, they have to bring in state-of-the-art equipment. I just saw a plant on Friday that had robots all over the place at $90,000 per unit. It's not a small investment but they have to do this to improve their productivity. I think we're going to see more and more of this even in offices; maybe not in Washington, but in other parts of the country they are having to be more productive. They are having to use word processors; they are having to stretch clerical help by giving them better tools. I think we have to pay more attention to this because, as Jim said, it is important with respect to inflation possibilities and also to our growth potential. Finally, [I am concerned about] the continuing strong dollar, the agricultural problem that Si has already referred to, the third world debt situation--I went to a meeting last week at the State Department about the latter and that doesn't seem to me to be a problem that has gone away--and the thrifts, which are still hanging on the edge of the cliff. Looking at all four of those factors, I find it very difficult to think in terms of interest rates going any higher at all, because I think that would push all of those problems into a still more serious mode. And heaven knows they are bad enough!",548
-fomc-corpus,1985,Mr. Morris.,4
-fomc-corpus,1985,"Well, I agree with Ed Boehne only more so. I think the staff is projecting a smaller real growth for 1985 than we're going to realize. I put in a 4 percent number and I think that's a minimum; I really think we'll probably do better than that on real growth. It's hard for me to document my position very well on the basis of the numbers that have come in since our last meeting because they are a fairly mixed bag. But one thing that has impressed me in the past few weeks has been the extraordinary strength in the stock market. Since the 9th of January the stock market has put on a display of business confidence of a sort that is quite rare in our history. I think that we're going to be revising up these real growth projections and by midyear, say, I think that is going to put us in a very difficult position with respect to the effects of our actions on interest rates. So, it seems to me that our problems in 1985 are going to be the problems of a very strong economy and they are going to be just as difficult to deal with, and perhaps more so, than the problems we would face if the economy came in weaker.",245
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Mr. Chairman, we're in fairly close agreement with the staff forecast for 1985 but with a couple of different assumptions. One is that we [keyed] off the midpoint of the M1 [objective] and projected 5-1/2 percent M1 growth rather than the 6-1/2 percent that the staff has, and still came up with essentially the same numbers with the exception of the deflator; we would be somewhere in the range of about 1/2 percent higher on the deflator. The higher deflator number fell out of the unit labor cost component of the forecast, suggesting that unit labor costs would go up more than the staff has forecast. But in all respects, it would seem to me that we're going to get somewhat greater growth than the staff is forecasting in the first half of the year and somewhat less in the second half, largely because of the interest rate pressures that will be brought to bear because of that greater growth [in the first half] and maybe some action by the Federal Reserve to move against that. I would also want to note for the Committee, as a follow-up on a comment of Si Keehn, that the condition of the agricultural sector in the high plains of the Midwest is a very serious problem. It may not have the national impact, much as he has suggested, but that does not mean that there will not be great social and other disruptions in that area. And indeed, it could get out of hand. I would also want to note quickly, having talked to the Farm Credit people, bankers, large input suppliers to the agricultural sector, as well as to some Congressmen, that I fairly well concluded that there is not a great deal that monetary policy can do to alleviate that problem, at least in the very near term--I'm talking about 1985 and quite likely 1986. I'm not sure that there is a role for this Committee with respect to taking action to try to alleviate the problem that rests in the agricultural sector.",405
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"Mr. Chairman, I'm inclined to join those who are probably a little more optimistic than the Board staff, although I think the staff's forecast is very reasonable and I would be willing to accept it. As for concern about all of the problems, I feel much as you did, Ed: I felt very good until I got here. Those problems are all there and they are all very real possibilities. I guess the worst of all worlds would be if every one of them really came to pass; maybe just one of them will. We will just have to wait and see what's going to happen on the deficit problem. The dollar problem is pretty much of an unknown, and depending on how that develops--or if some of these things happen--I think we would all be shifting our views entirely. On agriculture, I tend to agree with Roger: I really don't know what we, sitting around this table, can do there. In the discussion, someone mentioned the oil price going to $16 or $15 dollars a barrel. Several months ago, in discussing what the effect would be on our financial institutions if we got a pretty good drop in the price of oil, the feeling was that if the price got to $25 a barrel, that was going to cause some very serious problems. Now that that is a very real situation, they are saying: ""Well, when it gets to $20 we're going to have some real problems."" So, it's hard to judge just where that level is. I don't believe it's quite as difficult at $25 now as they thought it was going to be--not that it's easy; it isn't. And now they are thinking maybe $20 is where the difficulty is--",341
-fomc-corpus,1985,Is the price $25 now?,7
-fomc-corpus,1985,"No. But I think it's becoming more and more of a reality that it's going to get there. Therefore, in the conversations, the assumption is that it's likely to get there so they question where the next down point is. But no, it's not there yet. Overall, looking at the situation today, I would certainly go forward with a great big smile on my face and keep my fingers crossed as I kept going.",84
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Mr. Chairman, I didn't comment on the general situation earlier so let me briefly do that now, if I may. First of all, I agree with the staff forecast; we came out very, very close to it. The only minor difference I would note is that, like some others, the shape of 1985 looks a little different to us than to the staff: we think there will be greater growth in the first half than in the second. But generally speaking, it is a reasonable forecast and it's one that I would be prepared to accept and one that I would be prepared to base policy on. In talking to people around my District, I sense that the confidence level is very high; there is a good deal of optimism about the economy. The private forecasters seem to be coming out pretty much the same way on growth and inflation. I, too, came to the meeting feeling pretty good; but unlike a few of my colleagues, I'm not particularly disturbed at what I'm hearing because I think that these problems are real. They are potential problems that I think we have to keep very clearly in mind--not that they're necessarily all going to happen, but I think we would [ignore] those problems at our peril. I think they are very real. I am beginning to feel in talking to some people that there is a sense of euphoria beginning to develop. And, at least in my small sample, people aren't even talking as much about the deficit anymore. They have had in 1984 a very, very good year of phenomenal growth; they are looking at good growth in 1985; and these the problems of the dollar, the deficit, oil prices, and agriculture seem to be diminishing in people's minds. So, I think we have to be careful to keep those problems very much in mind. The only other comment I would make is that I'm not so sure this agricultural situation is really a parochial one and not a macro one. We have it in our District, so now we're talking about the Midwest and the Southeast and perhaps the Southwest. And while the banks that might be affected are small, the aggregate of dislocation among the agricultural banks could be substantial. Again, while I'm optimistic, I think there are some dangers that we have to keep our eye on; but generally I would agree with the staff forecast.",472
-fomc-corpus,1985,"Except in prices, where you're much higher according to the--",12
-fomc-corpus,1985,We were higher? I thought we had 4.2 percent for the GNP deflator.,20
-fomc-corpus,1985,"4.2 percent, that's it.",8
-fomc-corpus,1985,We had 3.6 percent for '85 over '84.,14
-fomc-corpus,1985,3.6 percent in prices?,7
-fomc-corpus,1985,That's what I have.,5
-fomc-corpus,1985,"That's not what I have on this sheet, but I'll take it.",14
-fomc-corpus,1985,Let me read my margin--,6
-fomc-corpus,1985,"Don't read any further; 3.6 percent, you said?",14
-fomc-corpus,1985,"Well, 4.2 percent is the deflator number I had [unintelligible]; I thought I had the 3.6 number in front of me. Is that correct?",39
-fomc-corpus,1985,We'll take it.,4
-fomc-corpus,1985,"4.2 percent, and year-over-year 3.6 percent. I had it right.",20
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"Mr. Chairman, I think the staff's projection is certainly plausible and we can't quarrel much with it. I believe, like Frank Morris and Ed Boehne and Bob Boykin, that the risk is that the economy will come in somewhat stronger than that. Underlying their forecast is the assumption that the income velocity of M1 is going to grow a little more than 1 percent. That may well be right, but to me that seems on the low side of what is likely to happen. I would think it is more likely that we'll have more growth in nominal GNP as a result of a faster rising velocity, and I think that would be distributed partly between real output and prices. So, we come out at 4.4 percent on those. So far as the unemployment rate is concerned, I wouldn't be surprised to see that drop a bit lower than what we projected originally or what the staff is projecting. I think the demographics of the situation and improving real family incomes might well limit the increase in what the staff is projecting for labor force participation rates and bring that down maybe a couple of tenths of a percentage point below what they have.",233
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"Well, I'm inclined to agree with the optimists too. I think the short-term outlook is pretty good and the staff forecast is probably on the low end of what might occur in the next year. It has been shown pretty clearly now that what we had in the fall was a temporary stoppage in the growth and that growth has now resumed at a pretty good rate. I have this view that the outlook is good but the underlying situation is terrible. And the question is: Do we live in the short run or do we live in the long run when the underlying situation may reveal itself? I suppose the greatest problem that might occur would be a substantial increase in interest rates.",135
-fomc-corpus,1985,I think what you really mean to say is that the real world is fine but the financial world is terrible.,22
-fomc-corpus,1985,"Well, maybe that's what I'm affected by. I agree with Jerry that a sizable rise in interest rates would be quite difficult for these burdened sectors to take on. I don't agree with him that a 100 basis points is a sizable rise. After all, rates are down several hundred points over the last several months, but I guess I would agree that a 200 basis point increase would be a very difficult thing. From my vantage point right now, I'm beginning to think our greatest problem may be an excessive increase in activity here that in fact will bring a 200 basis point increase in interest rates looking out 6 months from now. Therefore, I'm more on the side of those who are now becoming somewhat fearful of too much of a rise in activity rather than on the side of those who think it's going to be too small in the period to come. In the end all these problems and more that have been listed by Jim and others are going to come out in some way or other, but I think probably not in 1985.",209
-fomc-corpus,1985,Governor Wallich.,4
-fomc-corpus,1985,"I think as one looks at the evolution of our projections, it has been very favorable. Growth projections have been upgraded and inflation projections have been reduced. I'm a little uneasy about the inflation projections but there are reasons for them. When you take the absolute levels, the rate of growth is very close to what we might consider potential and the rate of inflation is still way above what it ought to be. The staff has it coming down in a pretty satisfactory way; I doubt that [will happen]. In any event, I think there is much more to be done on that score.",116
-fomc-corpus,1985,"In the interest of accuracy, the staff has it about the same as it was last year.",19
-fomc-corpus,1985,Oh! Hasn't it been coming down in recent projections?,12
-fomc-corpus,1985,Their projections probably have been reduced.,7
-fomc-corpus,1985,"That's what I had in mind. Well, I have one other comment. We're in the third year of an expansion and there is no reason why expansions should come to an end after 3 years. But neither do I believe what the [Administration's] economic report says: that there is no relationship between the age of an expansion and the chances of it coming to an end. So I think the risks, as others have pointed out, are that something untoward may happen and may interfere with this reasonably good evolution. We have no serious imbalances other than, of course, the terrible one--the budget deficit. But we have a number of danger points, mainly financial. So, again, there are potential sources of the evolution being disturbed. To me this suggests that the risks are more on the side of excessive expansion than of going down unexpectedly, and our policy ought to be [formulated] accordingly.",184
-fomc-corpus,1985,Mrs. Horn.,4
-fomc-corpus,1985,"I think the staff forecast is a reasonable one. I am impressed with the year-end business statistics, and for that reason I agree with those around the table who are optimists and who feel the odds favor a stronger recovery than the one that's built into the forecast.",53
-fomc-corpus,1985,What are those year-end figures?,7
-fomc-corpus,1985,"Well, we could start with the 4th quarter GNP numbers and the auto numbers coming in strong. One of the things I was worried about at year-end was the buildup in inventories; I think that is not so severe, based on the variety of numbers that I see.",57
-fomc-corpus,1985,"On the other hand, I raised the question because new orders are down and housing is going no place on the latest numbers, and there are real questions about the commercial construction area. Who knows? The auto figure looked good, as did the inventory reduction.",51
-fomc-corpus,1985,"The whole personal consumption expenditures, or the consumer side, [looked good] and I tend to I focus on that. In any case, looking at some of the assumptions that underlie my forecast--and I think a lot of the others around the table--one could build a case for consumer and business outlays becoming stronger. If you assume an expansive fiscal policy, no sharp changes in the exchange rates, no abrupt rise in interest rates, low farm prices, even lower oil prices, and so forth, I think you can build a case for a stronger recovery than the one that the staff is forecasting, and I think that's pretty close to my forecast. If the recovery is stronger, then the question about inflation comes up. I would see it not spilling into the '85 numbers but be a danger in '86. And that, of course, requires either fiscal or monetary policy, or both, to deal with it. In the Fourth District, the pattern of business activity is sluggish with no particularly clear direction. But I can even put an optimistic light on the Fourth District outlook in that there is really a distinct change in mood, though it's probably short of Bob's term ""euphoria."" The impressionistic evidence we're getting has really quite a different tone to it. Of course, a lot of what we hear comes from the strong auto numbers in both December and January, but we're getting a lot of other stories. We've had no disappointment in retail sales in January, for example. We've had unexpected strength in chemical orders and, to a lesser degree, in both heavy trucks and steel orders as well. This is all recent and impressionistic rather than in the numbers. To keep from having a wholly optimistic report to the Committee, though, I will say that the talk about protectionism has increased--if that's possible--in the Midwest. You can't get two business people in the Midwest together without that being the subject, and I think that's a terribly serious danger as we go forward.",399
-fomc-corpus,1985,When do the retail sales figures come out for January?,11
-fomc-corpus,1985,8:30 a.m. tomorrow.,8
-fomc-corpus,1985,You could make a bold comment about them. Mr. Balles.,14
-fomc-corpus,1985,"Well, I want to make a comment on the general outlook. We're essentially in agreement with the staff forecast. In fact, our numbers are very close except that we're a little lower on inflation. We have 3.7 percent, mainly because we only expect a 4 percent decline in the dollar rather than 8 percent, but we would only be half as wrong. I think the staff forecast is quite plausible and I have no quarrel with it. I do want to say, though, that I think Chuck Partee put his finger right on it: The aggregate statistics look great but an awful lot of the economy looks sour. I don't ever recall a period in which there was such imbalance in the economy as we're witnessing right now. We really have two economies going here; it depends on what business you're in. None of our directors buys and sells GNP; they buy and sell other things. And if they are in the defense business, or aerospace, or electronics, or in some capital goods industries, they are doing great. But if they are in mining, agriculture, forest products, and so forth, they're doing lousy. To add to what Bob Forrestal and somebody else mentioned--that the Midwest is not the only place where agriculture is in trouble--two of our biggest banks are having problems right now and are under surveillance, in large part because of bum agricultural loans. Just so you don't get the wrong idea on that, it's not only bum real estate loans. There are bum farm loans and big chunks of very bad real estate loans; even the agri-business [unintelligible]. At big banks in California agriculture is a problem. I agree with Bob that it is not a local problem. It's time to be optimistic as we look at the aggregate statistics and I feel optimistic in that sense. But only at our peril, I think, should we ignore some of these other factors, which sooner or later are going to come home to roost. Going back to Henry's remarks about there being no relation between the age and the health of an expansion, I would simply add that most expansions in my recollection have come about because of a combination of inflationary pressures and rising interest rates. And those are the things that right now certainly could trigger what looks to be a sound expansionary trend and [turn out to] be unsustainable developments that could quickly come to an end. I feel good about the general prospects for 1985 and I'm beginning to wonder how much longer we'll live with these big problems hanging over us. One or more of those problems could push us over the cliff before 1985 is over, but I don't think that will happen. That's more likely to occur in 1986.",549
-fomc-corpus,1985,"We've come down on the optimistic side of the staff forecast: a little higher on GNP and a little lower on the deflator. But those who have talked about the agricultural sector are certainly reflecting our views. There are serious debt problems; collateral value is falling; and it has become a fairly hot political issue in our District and elsewhere, as you can imagine. There are bills in every one of our [state] legislatures to try to provide some relief for the agricultural sector. Most deal with ways to moderate the impact of debt service for the farmers. And, of course, one of the objectives is to provide some liquidity for spring planting--cash for seed--which is a very serious issue. While we don't think it is monetary policy's role to deal with this, monetary policy is not going to be immune in that there is a great deal of sensitivity to interest rates. And if rates start to rise, I think perhaps some political pressure that currently is not on the Fed will gravitate toward us. So we are concerned about rates in that context.",213
-fomc-corpus,1985,"If nobody else has anything to say, maybe we ought to have Mr. Axilrod say something about these targets for next year.",27
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,"We went over the question of whether to rebase last month. You're aware that that is one of the Administration's helpful proposals in its economic report and elsewhere. I detected very little or no--I don't remember [any]--sentiment for rebasing last time. You've had another month or more to think about it. Maybe we can dispose of that issue quickly, if you haven't changed your opinion. And if you have, let me know.",90
-fomc-corpus,1985,"I think the Chairman's memory serves him well. I don't believe there was any overt support for rebasing. To start from some theoretical level being captured by a range we set some time back has very little to recommend it, it seems to me. I would oppose any rebasing now, with all due respect to Bill Poole and his good language in the CEA report.",76
-fomc-corpus,1985,"Also, Mr. Chairman, with the revised numbers that we soon will be putting out, the deviation from the midpoint is down to three-tenths of 1 percent.",35
-fomc-corpus,1985,"No, no.",4
-fomc-corpus,1985,"No, it's more than that.",7
-fomc-corpus,1985,It's eight-tenths--5.2 percent.,11
-fomc-corpus,1985,"No, this change in--MR. MORRIS(?). [The midpoint] was 5-1/2 percent, wasn't it?",28
-fomc-corpus,1985,"6 percent. MR. MORRIS(?). The range was 4 to 8 percent, that's right.",22
-fomc-corpus,1985,"Aside from the numbers, I think Pres has made the basic case and I would agree with him 100 percent on this issue.",26
-fomc-corpus,1985,"Mr. Chairman, I always have had problems with telling someone we're aiming for a percentage rate of growth from some point we haven't reached, but I always have had sympathy for these moving lines around the midpoint rather than the moving megaphone.",48
-fomc-corpus,1985,"Well, let me get to that as--",9
-fomc-corpus,1985,"Well, that's part of the--",7
-fomc-corpus,1985,I'm going to get to that issue too.,9
-fomc-corpus,1985,Okay.,2
-fomc-corpus,1985,"They're somewhat related, but let me see what--",10
-fomc-corpus,1985,I'd be opposed to rebasing.,7
-fomc-corpus,1985,"I am, too, as you currently define it.",11
-fomc-corpus,1985,I don't hear any sentiment for rebasing here.,10
-fomc-corpus,1985,May I just ask a question? I haven't seen what it would do to the numbers to have an average of the months for the preceding year used as the base. I think that was one of the proposals that--,43
-fomc-corpus,1985,"No, I thought they based it on the fourth-quarter average.",13
-fomc-corpus,1985,I think they have it two ways.,8
-fomc-corpus,1985,"I think they used the fourth-quarter average. But another question, which I have looked at myself at times in the past, is why we put all this emphasis on the fourth quarter instead of on a yearly average target. That's another way to do it.",51
-fomc-corpus,1985,"Well, the growth for 1984 year-over-year was 6.9 percent; fourth-quarter-to-fourth-quarter it was 5.2 percent, rounded. I could get you the level, but these things just tend to offset each other; as you go back over the years they tend to average out.",64
-fomc-corpus,1985,"Mr. Balles, did you have some comment on this point?",14
-fomc-corpus,1985,"Well, mine is the same as Bob Black's. I think a good alternative to rebasing, which has its problems, is the flexibility [unintelligible] the parallel line idea that we've seen in the Bluebook.",46
-fomc-corpus,1985,"Well, let me get to that in a minute. I take it there is no sentiment to rebase. In fact, I don't think that this is an intellectually stupid way to approach it. It's a perfectly reasonable thing to do, but I don't think there's any more reason to rebase than not to rebase. It depends upon whether, on the basis of the year's events, we're happier to start out one way rather than the other way, depending upon some kind of an analysis. And that's the way I would explain it. But the convention is not to rebase, so the burden of proof is on changing it. In this particular year, if we rebased M1 up I don't know what we'd do about M3. We'd have to rebase it way down and have a peculiar explanation. The same is true for credit, I suppose, if we took that seriously.",178
-fomc-corpus,1985,"I did have one comment, Mr. Chairman. You said you'd get around to the idea of the parallel lines rather than the cone.",27
-fomc-corpus,1985,I'm getting around to it right now. If I view the consensus accurately on the cones [it is not to] rebase.,26
-fomc-corpus,1985,"But my point is that if we don't rebase, we should do something else or I think we'll have a big problem with M1 appearing to be over its range for a good part of--",39
-fomc-corpus,1985,"Well, on this issue of how we draw the picture I will declare my position: I have never liked cones. I went on a little campaign a couple of years ago when the staff had palsy in that they couldn't write these things without making a cone. But, one part of the substance, anyway--in fairness, I don't think it's all that the Council [of Economic Advisers] had in mind--is whether we are disturbed that we are above the cone now. Now, this gets into the short-run policy decision a little as well as the longer-run. But I think--",119
-fomc-corpus,1985,"Growth has been pretty fast, if that's what you're asking.",12
-fomc-corpus,1985,"Well, I'm not quite asking that. I'm asking: Are you so unhappy that it's not so slow, having started in December above that cone as part of the low base, that you thought it was important to get it back in the cone in January or February? Now, I would just assert ""no."" But that's certainly an interpretation; I don't know what the Committee thinks.",76
-fomc-corpus,1985,"Well, Mr. Chairman, I for one would agree with you; I'm not worried. I would be worried, except for the expectation of the Board's staff--with which our staff agrees--that the velocity of M1 will probably be down in this current quarter and maybe for the first half of the year, and that it will be up in the neighborhood of 1 percent for the year as a whole. That's an excellent reason to run above path right now and maybe for a good part of the year. It is going to make us look a little silly every Friday in that chart showing the level of M1 in relation to the cone for the year that The Wall Street Journal prints. The same thing is in the San Francisco Examiner and heaven knows where else around the country. Those who don't look at it carefully or don't remember all of your fine testimony, say: ""Aha! The Fed is off the money [target] and is overshooting again.""",194
-fomc-corpus,1985,"Technically, it is literally true that the way The Wall Street Journal depicts the picture, they can write that for the week of December 31st we were below the midpoint of the money supply target and that for the week of January 7th--without any change in the money supply--we were above target. I don't think that makes a lot of sense, but--",76
-fomc-corpus,1985,"Paul, when we use the parallel line, I think we ought to be clear what the meaning is. If we are well above where the cone would be in the early part of it but below the top parallel line, I believe that means that the growth rate from there on until the end of the area covered by the parallel line has to be less than the midpoint of the cone. Isn't that right?",81
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"So, it's really just cosmetic. It means that we have to get a lower growth rate if we're above that.",23
-fomc-corpus,1985,"This is literally drawing pictures, but pictures affect things. I don't know how we want to draw this. One way that appeals to me, but it's a really special case because I think it's more substantive--. If we just draw parallel lines, we have to ask ourselves the question: Would we be particularly happy--right now starting off in the upper part of the parallel lines--to go down to the bottom part, which is way below the cone?",91
-fomc-corpus,1985,That's a precipitous drop.,6
-fomc-corpus,1985,"It would be quite a precipitous drop. And I would argue--I think as a matter of substance, recognizing that all pictures aren't perfect--that we could just draw parallel lines and say this is the way it looks with parallel lines. We could draw parallel lines and a cone. That's one way of handling this; we've done that once. We also drew a skewed one once. I think it has some meaning to say that we have the points in the fourth quarter of this year, which are established by the basic target, whatever that is. We started out above the cone because it was coming up, largely in January but in December too. We probably don't contemplate--or wouldn't be really happy based upon anything we know now--going below that lower line in the cone. And we could draw a line up from that point in the fourth quarter back to the upper part of the range in the fourth quarter of this year. The result would be a truncated cone; I think that would be the mathematical expression. And it would be, I think, a substantive portrayal of the area in which we might like to be. But it's just one way of drawing the picture.",236
-fomc-corpus,1985,Would you describe that again?,6
-fomc-corpus,1985,Just fill in the top of those lines?,9
-fomc-corpus,1985,"It looks a bit like a whale, I think.",11
-fomc-corpus,1985,Draw a line from the fourth-quarter target of this year to the fourth-quarter target of next year. That's a line.,24
-fomc-corpus,1985,"Oh, I see.",5
-fomc-corpus,1985,And then draw a cone off of the fourth-quarter average? Would that be the point?,18
-fomc-corpus,1985,[Unintelligible] look at it in these terms.,13
-fomc-corpus,1985,"If you do it that way, the bottom lines are the same as the cone. Well, look at M2 here. It does not look very different from that; that top dotted line there would be a little higher.",45
-fomc-corpus,1985,It would be a little higher at the beginning.,10
-fomc-corpus,1985,"At the beginning, yes.",6
-fomc-corpus,1985,Isn't that essentially rebasing?,7
-fomc-corpus,1985,You're ending up in the fourth quarter just where you would end up anyway.,15
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,You would start the top parallel line where the 8 percent is? Is that how you would do it?,22
-fomc-corpus,1985,"Well, not at the end of the year. I would start it in November.",17
-fomc-corpus,1985,"All right, at the end of November. And you're going to call this a truncated cone?",19
-fomc-corpus,1985,I'm not going to call it anything. I would describe it to the [Congressional] Committee as a reasonable picture of the general zone in which we'd like to be as the year progresses.,38
-fomc-corpus,1985,"Mr. Chairman, are you aware that there's a brand of golf balls that has truncated-cone dimples?",22
-fomc-corpus,1985,"Actually, I think I drew a picture like this once without consulting this Committee. I was probably using it in testimony.",24
-fomc-corpus,1985,"So, this is sort of half rebasing and half not.",13
-fomc-corpus,1985,I don't think it's--,5
-fomc-corpus,1985,"No, it's not really rebasing.",8
-fomc-corpus,1985,It's not rebasing.,5
-fomc-corpus,1985,"It makes a lot of sense, actually.",9
-fomc-corpus,1985,"I think it recognizes that we wouldn't draw it that way unless we wanted to convey a notion that we were relaxed about being above this cone for a few months, or for the first half of the year or something.",43
-fomc-corpus,1985,Under other circumstances one might draw the geometry the other way.,12
-fomc-corpus,1985,The other way. I think it depends upon the substantive decision as to what kind of policy we want to--,22
-fomc-corpus,1985,"It conveys it a lot better than a geometrically neutral form, if you would.",17
-fomc-corpus,1985,Are you talking about that for all the Ms or only for M1?,15
-fomc-corpus,1985,"For M2 we might just draw the parallel lines, I suppose.",14
-fomc-corpus,1985,They're definitely pretty close.,5
-fomc-corpus,1985,"It's so close it makes practically no difference. For M3, I don't know what you want to do. We can draw parallel lines, I guess, and a cone. Mr. Sternlight, I have a note indicating that you wanted to talk.",51
-fomc-corpus,1985,No sir.,3
-fomc-corpus,1985,"I don't think we have to decide just at the moment, but we have to talk about it and decide when we come to the decision on what the targets should be precisely and what to say in the directive. We can just do it. One way of finessing this, which we did once, is to draw the parallel lines and the cone--which is what the staff has there.",79
-fomc-corpus,1985,Have both.,3
-fomc-corpus,1985,"Yes. Well, we could just draw the parallel lines.",12
-fomc-corpus,1985,Have both.,3
-fomc-corpus,1985,I'm pretty [easy-going] about all this. It doesn't--,13
-fomc-corpus,1985,"If we have both, you can do the kind of shading you want with words; and you'll tell a lot more about what our thrust in policy is than in any kind of picture we can draw. If we draw this strange looking picture, you're going to spend about 6 pages of your testimony trying to explain to Congress what that crazy thing is. If we draw both the dotted lines and the cones and then you say ""Look, we started off rapidly--""",93
-fomc-corpus,1985,The Wall Street Journal won't know what to put in their article! They'll have to reprogram it.,20
-fomc-corpus,1985,I'm not sure I could figure out what mathematical equation would describe that animal.,15
-fomc-corpus,1985,It's not a mathematical equation; it's a pragmatic line.,11
-fomc-corpus,1985,Joined at the top of last year's range is the top position.,13
-fomc-corpus,1985,"Besides, it's probably not just a truncated cone but--",11
-fomc-corpus,1985,The end of the year.,6
-fomc-corpus,1985,The top of the midpoint of the fourth quarter.,10
-fomc-corpus,1985,"A skewed truncated cone, with different slopes on both sides.",13
-fomc-corpus,1985,The Volckergram!,5
-fomc-corpus,1985,"There's also the question of what weight to put on M1. But it's getting late. I don't know whether there is some spontaneous consensus on the range itself. We can decide it tomorrow morning unless a spontaneous consensus emerges. If I recall [our discussion at the December meeting] correctly--though nobody is bound, obviously, by what he or she said last time--in a vague way the predominant support was for alternative II but there was some support for something that would look at least partly like alternative I. I don't think anybody was arguing for alternative III, although somebody may have said that the ranges should be tightened. I don't know; I don't remember that closely. Nobody is bound by that anyway. We'll narrow it down anyway. Is something less than alternative II in the ballpark?",157
-fomc-corpus,1985,"I join President Balles in the caveat that, to the extent that alternative II is beginning to emerge as a consensus, I think we may have pragmatic difficulties with the upper bound of M1. Given the staff forecast of income and interest rates, their warning that the projections on velocity have some confidence limits around them, and given the lagged effect of the interest rate drop that we've had, V1 could even be a little negative next year. If we're going for alternative II--as I hear you, John--it seems that we ought to do something about the upper boundary for M1; 7 percent may be too low.",128
-fomc-corpus,1985,I wouldn't--,3
-fomc-corpus,1985,"Well, I don't see the setting of these targets as a means of accommodating the economy. We're setting the targets so as to shape the economy.",29
-fomc-corpus,1985,"I'd like to see us shape the economy with a 4 percent real growth rate, Henry.",19
-fomc-corpus,1985,"Well, that's not my objective.",7
-fomc-corpus,1985,"If you look at where our projections were last July when we first set these targets versus where they are now, the median forecast for real GNP looks like it might be half a percent or so higher than it was then. For the GNP deflator it looks like the median forecast is going to be about 1-1/4 to 1-1/2 percent lower. So, we have more real money balances assumed and a larger real GNP growth and it seems to me that we would have a heck of a time explaining to anybody why we raised the targets for money growth. I think we could sit with these.",128
-fomc-corpus,1985,"Lyle, we're not raising the targets; we're lowering them by 1/2 a point for M1. I would suggest 7-1/2 percent to go along with the 8-1/2 percent on M2. That would be taking the upper limit 1/2 point [above the tentative target] and a 1/2 point [below the target] the year before. It gives us a little room. We're talking about being around the upper limit of each of those ranges.",104
-fomc-corpus,1985,"It's room I don't think we need. And I think we send the wrong kind of signal when, after having set these targets initially, we're forecasting more real growth and higher growth of money balances with the lower GNP deflator. I don't see that we need that additional freedom. And I would prefer to send a signal which says: ""Look, we're still concerned with bringing down growth of money and credit over the long run to bring down inflation.""",90
-fomc-corpus,1985,"I think there's a good argument for not changing anything in that we don't have the faintest idea what the velocities are going to be anyway. Therefore, why not--",33
-fomc-corpus,1985,But we're going to shape the economy anyway.,9
-fomc-corpus,1985,"And I don't see any point in changing the debt range because, historically, an 8 to 11 percent range for debt gives a lot of room for 8 percent nominal GNP growth.",39
-fomc-corpus,1985,It just hasn't in the last few years.,9
-fomc-corpus,1985,"Well, this may be a little side issue. It didn't last year and maybe the year before; I don't remember. But I was a little struck too when somebody--Mr. Axilrod, I guess--said that, obviously, we can't lower that unless we're going to say something about all these mergers and so forth. Why is the analysis so certain that what we have for nominal GNP growth--7 or 8 percent or whatever--is going to produce 11 or 12 percent debt growth when that's out of keeping with 90 percent of history? It is not last year's history, I agree; but what is the analytic background? Is it the deficit? Is it a high deficit that produces that? I don't know.",149
-fomc-corpus,1985,"No, because if it were 8 percent nominal GNP growth, particularly in a more mature stage of the business recovery, normally the deficit financing this percentage of GNP would be down. I think that's why the predicament of this overall credit market situation is so hard to--",55
-fomc-corpus,1985,What you're saying may be true; I'm not sure what it is--that the dollar of government deficit produces more debt than the dollar of private deficit?,30
-fomc-corpus,1985,"No, I'm saying--",5
-fomc-corpus,1985,"If there is a difference from the historical [experience], it's the fact that our total expenditures are running substantially above the GNP.",26
-fomc-corpus,1985,That's one reason.,4
-fomc-corpus,1985,"Therefore, you could argue that you need more debt. But don't you also need more money? Why do you need more debt and not more money to finance a greater level of expenditures? It's not immediately apparent to me.",44
-fomc-corpus,1985,Velocity is down.,4
-fomc-corpus,1985,"Well, we're throwing out two questions to the staff now. We'll get a response and go home. Maybe it's--",23
-fomc-corpus,1985,"Well, maybe part of it--",7
-fomc-corpus,1985,The staff was tempted to suggest throwing away the debt variable as not being useful.,16
-fomc-corpus,1985,I second that.,4
-fomc-corpus,1985,"President Morris mentioned one thing. In some research we've done, the debt does seem to run a little better relative to total spending than it does to GNP. So that gives you a percentage point. Last year we thought the mergers and acquisitions added about a point. I threw in a quarter of a point for the acceleration of state and local government borrowing.",71
-fomc-corpus,1985,That's 2-1/4 points.,9
-fomc-corpus,1985,"I think you can throw in another tenth or two for those HUD notes that came at the end of the year. I didn't throw that in there. I personally believe that the government deficit does get you greater credit growth relative to GNP, though it's a little hard to find it in the data. Of course, we haven't had so many years with these big deficits. You can base it partly on the grounds that the government does [not] really have the option to finance itself by (a) issuing equity or (b) drawing down assets. Now, the private [sector] can't draw down assets forever, but they have that [option] as well. So, we really have reduced the credit growth by roughly the same amount as we reduced nominal GNP. When we worked through the whole flow of funds, we had a hard time getting any less credit growth than that, going through it sector-by-sector and taking all these things I've mentioned into account. I think we have about 1/2 point or so in there for mergers and acquisitions. That would be my response. I don't know whether Mike or Jim has anything to add to that.",232
-fomc-corpus,1985,"We had some discomfort about the overall debt growth relative to GNP. But we also know, as President Corrigan pointed out, that we have had this very strong trend over the past two years. In arithmetic terms it seems to have been related to this unusual Federal borrowing, and that will continue. We just couldn't really find the basis--in terms of a set of credit flows consistent with our sectoral picture and the GNP forecast--for squeezing out much more debt in the household sector and the business sector. I must underscore that the assumption we made about mergers and acquisitions and so on is rather arbitrary. We don't see the pattern clearly yet, and it's not inconceivable that we could get a larger amount.",144
-fomc-corpus,1985,Just to clarify it in my mind: What would your straightforward projection of debt be consistent with your whole model and whatever mergers and acquisitions you allowed for?,30
-fomc-corpus,1985,11.7 percent.,5
-fomc-corpus,1985,"11.7 percent, which includes 1/2 point for mergers and acquisitions.",17
-fomc-corpus,1985,Roughly.,4
-fomc-corpus,1985,There's no model; this is purely judgmental.,10
-fomc-corpus,1985,And that's 2 percentage points less than a year ago.,12
-fomc-corpus,1985,But with a lower GNP.,7
-fomc-corpus,1985,It was 13.6 percent in 1984.,12
-fomc-corpus,1985,And 2 points less in the GNP growth.,11
-fomc-corpus,1985,It's a comparable excess over GNP growth.,9
-fomc-corpus,1985,"Let me make one comment on the Federal side. I was looking at the numbers back in the 1975 through 1978 period; in 1978 Federal debt was growing at under 10 percent--more like 9 percent. This time, in 1985, we are still facing 15 percent rates of increase. We have come down from 19 percent to 17-1/2 percent to 15 percent. Those are very large numbers to deal with and see the total decline.",102
-fomc-corpus,1985,"Yes. And even in 1975, on that chart we had earlier, the big spike in government borrowing was accompanied by a corresponding downward spike in private borrowing.",33
-fomc-corpus,1985,"That's what you'd think might happen normally. Well, let's stop for the evening unless somebody has something further they want to say.",25
-fomc-corpus,1985,Have you heard anything about transportation to the Embassy tonight?,11
-fomc-corpus,1985,There will be cars at the hotel at 7:15 p.m.,15
-fomc-corpus,1985,"We were in the midst of discussing these long-range targets, but maybe we can interrupt that for Mr. Kichline's report on the only new economic news we got overnight. Why don't you insert that at this stage?",45
-fomc-corpus,1985,"We have the advance retail sales number for January, which is that total sales are up 3/4 of a percent. But there were downward revisions for both November and December. The group, the so-called retail control--excluding autos and gasoline stations and nonconsumer sorts of things--was down 0.4 percent in January. More importantly, December was revised down to minus 0.2 percent; it had been plus 0.6 percent. And there was also a downward revision in November. Basically, the staff had assumed monthly increases of around 0.5 percent in the first quarter. That would have put the January level of this so-called retail control about 1.5 percent above the fourth-quarter average. Taking these numbers as they now stand, January is 0.1 of a percent below the fourth-quarter average. So, these numbers are appreciably weaker. Who knows what they will be 3 or 4 months from now when they're revised? But this is certainly not a bullish report.",206
-fomc-corpus,1985,"Was the November revision significant too, Jim?",9
-fomc-corpus,1985,Yes. For total sales they had been showing a 2.0 percent increase; it's now 1.5 percent.,25
-fomc-corpus,1985,I see.,3
-fomc-corpus,1985,"For this retail control, it was up 1.6 percent and it's now up 1.3 percent.",23
-fomc-corpus,1985,"So, it really has drifted quite a lot lower.",12
-fomc-corpus,1985,Correct.,2
-fomc-corpus,1985,"We were discussing what the long-range targets should be. I think the conclusion has been reached not to rebase, though some imagination in drawing lines may be desirable. We were on the subject of what the targets should be. There was some expression that they ought to be the way they are in alternative II and some expression that at least M1 ought to be a 1/2 percentage point higher on the upper end. There was one expression of that view. Does anybody else have anything to say? Mr. Rice.",105
-fomc-corpus,1985,"Mr. Chairman, given the forecasts that we've made --noting that nobody expects real growth less than 3 percent or in excess of 4-1/2 percent--I think alternative II looks very good. It seems to me that the ranges proposed for M1 and M2 would accommodate growth within the range of 3 to 4-1/2 percent. I'm quite comfortable with a range for M1 of 4 to 7 percent and for M2 of 6 to 8-1/2 percent. I could live with the proposed ranges for M3 and total credit, but I would prefer to see M3 raised 1/2 of a percentage point to 6-1/2 to 9-1/2 percent and credit at 9 to 12 percent. We expect M1 to come in near the upper reaches of the range. And while we hope that M3 will also be in the upper part of the range established, we have this experience of M3 running very high. And I don't see why we should not set the ranges so that M3 will be at least closer, if not within, the range. The main objection to that seems to be that this would transmit a signal to the public that we are not being sufficiently vigilant or, in the case of total credit, that we're trying to accommodate the deficit. I myself am not impressed with that argument. It seems to me that the public cares most of all about M1 and, to some extent, M2. But I don't believe the public would be alarmed if we recognize that M3 is tending to run very high relative to its range as it has in recent months and that we allowed for that by increasing the band to 6-1/2 to 9-1/2 percent. I would favor also a range for total credit of 9 to 12 percent.",384
-fomc-corpus,1985,"Refresh my memory, Mr. Axilrod. Do your technical gnomes think that M3 is [more] likely to run high relative to its range than M2?",36
-fomc-corpus,1985,"I think the difference in our point estimates is trivial. Our point estimate for M2 is around 8 percent and our point estimate for M3 is close to 8-3/4 percent. I would say that the best way to think of it is that M3 looks a shade closer to the upper end than M2, but I would have some doubts that M2 will run quite that low--",82
-fomc-corpus,1985,"But, Steve, doesn't that depend in part on the assumption of higher interest rates as the year goes on?",22
-fomc-corpus,1985,"That's right. We have a slight drift up in interest rates, which was--",16
-fomc-corpus,1985,But your assumption that M3 will stay within the range is based on your expectations that interest rates will--,21
-fomc-corpus,1985,Yes. I would say that's equally important to M2.,12
-fomc-corpus,1985,It may not happen.,5
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"Well, I would prefer the ranges actually adopted in mid-1984, although I'm a little agnostic on some shading of those targets insofar as they pertain to M3 and total credit. But, in particular, I would not want to see the M1 range for 1985 different from the 4 to 7 percent. If M1 were at the top of that range, at 7 percent, that would permit an 8 percent rise in nominal GNP with only a 1 percent increase in velocity. And that's not unusual, even for the third year of economic expansion. On the other hand, if inflation could actually be lower than 4 percent or so--as some people suggest--then that kind of a result could occur with even less than a 1 percent increase in velocity. More importantly, if it worked out during the year that velocity wasn't growing at all but was declining, I think it would be a heck of a lot easier to adjust in that direction--even if it meant being above the range, which I think is unlikely--than to have to adjust the other way. [By other way, I mean] having money growth at 7-1/2 or 8 percent, which would still be in the target range but in a context in which it turns out that velocity is increasing and nominal GNP is growing too fast. So, I feel somewhat strongly about that one in particular. In general, I prefer something like alternative II or the ranges we adopted tentatively in July--again with some agnosticism on credit and M3.",321
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"Mr. Chairman, I would echo Governor Rice's comments with regard to the understandable shift in our views toward the probability of a bit stronger growth. It seems to me that in our discussion yesterday, something like half of us were talking about growth of 4 percent, or at least higher growth than the staff forecast. It's obvious also in the tabulation done for the July [Humphrey-Hawkins] Report to the Congress vis-a-vis our most recent tabulation that there has been a shift of 1/2 or 1/4 percentage point, or something of that magnitude. That says to me that there is a stronger possibility than existed before that M1 growth for 1985 will not only run above the 6-1/2 percent but that it could easily run 7 or 7-1/2 percent. We still don't know what the lagged effect will be of the drop in short-term rates which, after all, was a very substantial drop. It hasn't worked its way through and we don't know what that will do to velocity. And we can't escape the din of news with regard to the strength of the dollar and the [unintelligible] that's in that news from time-to-time of almost a scramble for dollars in this or that market. It seems to me that we easily could have a 7-1/2 percent rate of growth in M1, which would be consonant with a favorable inflation outlook and export performance. Regardless of the geometry that we're presenting on this and that The Wall Street Journal is picking up, the implication at least is that M1 will be running above the 7-1/2 percent level and that there will be implicit or explicit pressure on us to adjust. I favor [an upper limit of] 7-1/2 percent with some comments with regard to some of these matters that have developed since July. Goodness knows, there have been enough developments of substance since we reported to the Congress in July to risk breaking a precedent! My understanding is that we don't change these outer boundaries of ranges of monetary aggregates once they are set; I don't see why we should be confined to that kind of a pattern. I suggest that we use 7-1/2 percent [as the upper limit] for M1. I think some of the same comments could extend to M2. It may run at or above the upper limit that we set in July. The 8-1/2 percent doesn't seem to be as important in the way the market looks at the monetary aggregates. We have to think of how they--the traders, the market makers--think. I would extend that even more so to M3 and to total credit. I'm not ready to jettison total credit as was suggested yesterday. Obviously, we don't seem to be gigged in the market and in the market comments when we exceed the latter two broader measures. So, I would opt for an upper limit of 7-1/2 percent for M1 and leave the other three ranges where they are.",620
-fomc-corpus,1985,I don't know what historians we have here. How much have we changed these ranges? Do we never change them? We [unintelligible]--,31
-fomc-corpus,1985,We have changed the tentative ranges. We have to check back; we can do that.,18
-fomc-corpus,1985,"I think we have, but not very frequently.",10
-fomc-corpus,1985,We'll check back on it.,6
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"I think there's a lot to be said for the 4 to 8 percent range on M1. My particular point estimate is 8 percent on nominal GNP, and if we have the 1 percent increase in velocity that the staff is predicting, that will result in a 7 percent [Ml] growth rate, which would be consistent with that. That's at the very upper end of our 4 to 7 percent range and a 4 to 8 percent range gives us a little room. And it seems to me that it's more likely to fit suitably in a year which--if it comes out as we are projecting it--produces suitable results of 4 percent or thereabouts on real growth and 4 percent or maybe a little less than that on inflation. I don't see why in advance we should show some inclination to try to screw down on the economy with this kind of a prospect. I also think it would look good from the standpoint of the public because we're saying: ""Look, inflation has developed quite a bit better than we expected."" Although it's not zero, as Henry keeps pointing out, it looks like it's going to be a quiet period and we don't want to stop the economy from having reasonable growth. Therefore, since the problems haven't materialized that we were beginning to anticipate when we cut that range back in July, I think there's a lot to be said for putting it back where it was before, at 4 to 8 percent. It could be played very well. Therefore, I think that's what we ought to do. I don't think we ought to get into some kind of a box on these other Ms because we're trying to be tight about everything. So, taking 4 to 8 percent for an M1 range, I also would take the rest of alternative I for M2 and M3. Maybe total credit ought to be 9 to 12 percent rather than 9-1/2 to 12-1/2 percent, but I see nothing wrong with that in the context we're talking about. Now, if our forecast turns out to be seriously in error, that upper limit will give us a constraint. If more inflation begins to develop, we'll start to pop over the upper limit and that will be the basis for snugging up in the market. On the other hand, if the staff is wrong on velocity and it goes up 2 percent or 3 percent rather than 1 percent, there's no reason we can't fall below the 7 percent normative number that I have now in my forecast and take 6 or 5-1/2 percent. That's within the range we're talking about. So, I think the 4 to 8 percent range fits very nicely with the economic circumstances that we're talking about for this particular year, and I would support that.",569
-fomc-corpus,1985,Velocity went up 4 percent last year. Mr. Black.,13
-fomc-corpus,1985,"Mr. Chairman, I come out in a different place than most of the others. I think we've done remarkably well with monetary policy the last year and a half, so far as M1 is concerned in particular. We've about hit our targets right on the button; we were a little off last year, but not a great deal. Accordingly, I think it's important that we continue this progress that we've made and I would go with alternative II. I accept the staff's suggestion that we increase the monitoring range [for total credit]. But I would strongly prefer that we omit any reference to coming in at the top part of that [M1] range. If we hit the 5-1/2 percent midpoint, that's a little pickup from what we had this past year: and with the economy still apparently strong, I just don't think any useful purpose would be accomplished by suggesting that we were aiming for the top portion of the range. I think it might undermine some of the progress we have made in increasing our credibility in the last year and a half.",212
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Mr. Chairman, I too would prefer to see M1 remain in the 4 to 7 percent range for the reasons that have already been expressed. And I would add just two. First, I think that inflation expectations are better than they have been in the last couple of months and, therefore, we'll have more rapid growth in real balances that will give us a little more leeway at the top end of the range. Also, to raise the M1 range to 4 to 8 percent at this time would express more concern about the economy than our projections would seem to indicate. I just have a feeling that moving it to 4 to 8 percent at this point could very well send the wrong signal to the market. For that reason I would prefer to keep the range where it is with the expectation that we probably would come in at the top of the range in any event. I think M2 also should follow the specifications of alternative II. With respect to M3, I have a slight preference for moving the range up to reflect the reality of the situation that we've had over the past several months, and I would suggest a range of 6 to 10 percent or perhaps 5-1/2 to 9-1/2 percent for M3. I think total credit perhaps should be widened also, say, to 8 to 12 percent, although the 8 percent is probably not a very significant number. But I think we need to move the top end, again to reflect what actually has been going on.",312
-fomc-corpus,1985,Anybody else have any comments?,6
-fomc-corpus,1985,"Mr. Chairman, I also support alternative II and the 4 to 7 percent range for M1. There may be reasons--Chuck and Pres have talked about some of them--why M1 indeed probably would come in toward the top part of the range. Nonetheless, with the uncertainties that we face--[the age of] the recovery, velocity, exchange rates, and so forth--I'd like to see discussion in the presentation of these ranges that is a little more symmetrical. While it certainly would refer to the top half of the range, I'd favor some discussion about the uncertainties and what kinds of things might have us choose to come in at the midpoint or even lower as the year progresses. The other reason that I favor the 4 to 7 percent range is that I think the statements about our long-term disinflationary goal sometimes get buried as we talk about some of the more immediate kinds of problems we have. And I think it would be a good place and a good way to restate the long-term goal that we have.",211
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,"As far as M1 is concerned, I'd be inclined to split the difference between alternative I and alternative II. I think we do have a reasonably favorable outlook for 1985 in terms of real growth and inflation. And I think we ought to take favorable things as they come along and not clamp down. Alternative II is just too snug a fit as far as accommodating what seems to me a pretty good outlook; we need a little breathing room at the top. Also, I would remind the Committee that 7-1/2 percent is not an increase; it's a decrease over what the range was for 1984. I agree there is something to the long-run goal of ratcheting these numbers down. But our goal was 4 to 8 percent last year; it was not something less than that. So, it seems to me that splitting the difference gives us the advantage of paying some allegiance to our longer-run goal of ratcheting these numbers down while at the same time providing some breathing room to accommodate what I think is a fairly favorable outlook.",214
-fomc-corpus,1985,"As it turns out, Mr. Chairman, it's more usual to change the tentative ranges than to adopt them. Of the four relevant years--1981 through 1984--only in 1982 were the tentative ranges agreed on [in July] adopted [the following February]. In 1981, 1983, and 1984 they were changed in varying ways. In 1983 there was a substantial change in M1: that's when it was reduced to a monitoring range and was raised to 4 to 8 percent as compared to the 2-1/2 to 5-1/2 percent tentative range. In other [years] the changes were in M2 or other broad aggregates.",145
-fomc-corpus,1985,Good report.,3
-fomc-corpus,1985,We changed M1 only once?,7
-fomc-corpus,1985,"As far as I can tell, I think that's right.",12
-fomc-corpus,1985,The change [unintelligible] circumstances.,10
-fomc-corpus,1985,Even central bankers change their minds!,7
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Well, Mr. Chairman, I would be with those who endorse alternative II. It seems to me that the reasons are very compelling to utilize that alternative, and I'm not sure I'm impressed by any compelling reasons to make a change at this point. The economic outlook as we discussed it around the table seems pretty solid. The inflation outlook is not unreasonable, although it certainly continues to be an area that we need to focus on. And the velocity patterns seem to be more predictable than has been the case. So, I would be in favor of alternative II. I certainly would think that raising the M3 and credit aggregate ranges would be appropriate. And I think we should begin to place much greater emphasis on M1 and that that should be clear in the message that you will be giving. I would think that the longer-run objective for the year ought to be toward the middle part and I would prefer that we not necessarily specify that we would be in the upper or lower part of the range. I would be bilateral on that, depending on how the velocity outlook develops during the year. Our objective should be toward the middle; by so doing, we continue to give emphasis and credibility to the objective of returning to reasonable price stability.",245
-fomc-corpus,1985,Mr. Wallich.,5
-fomc-corpus,1985,"I continue to think we ought to have our monetary targets and try to make the economy, and mostly inflation, conform to them. I think we are in some danger of adapting the targets to what we think is ahead in the economy. The only reason for doing the latter, it seems to me, is a concern about high interest rate problems for farmers, developing countries, or the dollar. Those are important. But somehow it seems to me that if we now raise our targets, we're in effect saying that we're going to maximize as best we can the expansion of the economy and maintain interest rates as low as is consistent with continued rapid growth rather than focus on the objective of inflation. I think inflation is the least achieved of all of our objectives even though it has been better than we expected. But the same is true of unemployment and growth; we have done better on each front than we expected. But in absolute terms we are farther from a good condition on inflation than we are, say, on unemployment and the use of the economy's potential. So, I would stay with alternative II, and where there seems to be a misfit such as on M3 and total credit, I would nevertheless stay with these ranges. I think they are telling us something; they are not just something that needs to be made to fit what the economy does. If they don't fit, they're telling us that credit is expanding at a rapid rate which at some time in the future will cause us trouble. And we should recognize that. Neither, therefore, would I aim at the upper [end of the] range. I would say that 7 percent plus 1 or 2 percent velocity gives us plenty of room. I would, therefore, accept alternative II exactly as it is. Thank you, Mr. Chairman.",361
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"I also would choose alternative II for a couple of reasons. One, if we raise the range even to 7-1/2 percent--which I recognize is a move down from the 4 to 8 percent--or if we move to an 8 percent limit on the high side, as has been suggested, I believe we're really saying that we've done our job on inflation and we're willing to accept inflation at roughly a 4 percent level or perhaps a little above. And that's a view that I would not want the Committee to give to the public; I would not want to permit that kind of interpretation. Secondly, as to the ranges themselves, it seems fairly clear from the discussion yesterday and from the projections that 4 to 7 percent will accommodate the growth in nominal GNP that we're looking for with the level of inflation we're expecting. And if it doesn't, as we have done in the past, we can talk about the upper part of the range. I would emphasize looking for growth near the midpoint, but I'd be willing to go to the upper part of the range providing velocity doesn't perform as we are projecting. As a result, it seems to me that these ranges accommodate what we're looking for. I would like to have the top at 7 percent, therefore providing some restraint in the event that the projections don't come through. Lastly, I'm not very concerned about M3 or credit; so the ranges, whatever they may be, are perfectly all right with me. For M1 and M2 I would prefer those in alternative II.",312
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Well, Mr. Chairman, as we all know, these ranges serve many masters. One of the masters is the general impression of the public as to our long-run game plan--which has been expressed so well by you over the years--to reduce gradually over time the rate of monetary growth and get it down to noninflationary levels. For that reason I think it is important, if only symbolic, to lower the upper end of that range a touch. Going down to 4 to 7 percent, however, brings up the problems that I talked about yesterday and that Governors Martin and Partee ran off very well today, so I won't repeat what those problems are. As I mentioned yesterday, our staff forecast shows money running considerably over the upper end of the 4 to 7 percent range for a good part of the first half of this year based on the present level of interest rates. To keep that from happening, our staff thinks we would have to get a very considerable increase in interest rates. That is on the assumption that the velocity of money is going to be declining during the first half of the year. Putting all that together, I would come out in favor of a 4 to 7-1/2 percent range. Although a case could certainly be made for 4 to 8 percent, I would prefer the 4 to 7-1/2 percent simply because of the public perception that we are gradually making some progress in reducing the upper end of that M1 range. And it is my understanding that the financial community certainly pays a lot more attention to M1 than they do any of the other Ms. I share President Guffey's views on M3 and total credit: it probably doesn't make much difference. But I would adopt the M2, M3, and total credit ranges of alternative I, simply to get back to reality a little. That would be the total picture I would recommend, Mr. Chairman.",395
-fomc-corpus,1985,Mr. Garbarini.,6
-fomc-corpus,1985,"Mr. Chairman, the heart of the Midwest continues to dance to a rhythm that I believe the Chairman has played over the years, which leads us down a road called ""reduced inflation."" We would support alternative II and hope that we would not signal that we will be in the higher end of the range.",62
-fomc-corpus,1985,Miss Seger.,4
-fomc-corpus,1985,"I support alternative I. I'll just say ""ditto"" to Governor Partee's comments plus add another observation about M1. And that is: In 1984, using the revised numbers, M1 growth was 5.2 percent, which was 0.8 below the midpoint of last year's goal, if I did the arithmetic correctly. I know we decided not rebase. Still, if the targets for last year were appropriate and if that's the way M1's actual performance came in, then I don't think we should ignore that when we set the targets for this year. Therefore, I would like to add that to all the other reasons for having the M1 range at 4 to 8 percent. Also, as I listen to comments--and I also went back and re-read materials for the last two years--I'm not convinced that we really have identified in any exact way the relationship between money growth and the economy. I don't think we always know what's going to happen to velocity; we may think we do, or would like to, but I don't think it works out that way. So, maybe it's more honest to send a signal that we don't have these precise measures and, therefore, we will go with broader bands.",252
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"Well, Mr. Chairman, I would join those who are arguing for alternative II, and I would be willing to take it the way it's specified in the Bluebook. I really have no additional justification for that other than I think it allows for adequate money growth. I do think that the perception is always important and it is certainly important right now. I think that would convey the perception that I'd like to see us convey.",85
-fomc-corpus,1985,Governor Gramley.,4
-fomc-corpus,1985,"I tend to think of these longer-run ranges the way Karen Horn does. They tend to send a message about what our strategy for monetary policy is over a longer period. And I really think there's a complacency developing in our country about this inflation problem. I just don't think we can afford to decide, even implicitly if not explicitly, that we don't need to be concerned about this inflation problem anymore. I'm a bit puzzled when people say 7 percent growth in M1 is a constraining influence on the economy. If our forecast for prices is half-way honest, we're talking about a 4 percent increase or less, and a 7 percent increase in nominal M1 provides for a 3 percent increase in real money balances. If you look over the trend of the past 20 to 25 years, you'll find that the growth rate of real M1 has a trend of less than 1 percent a year. So, I would like to stay with these targets. If the economy turns out nowhere near the lines of the staff forecast and it's much weaker, I would be prepared later on to see growth of M1 exceed that upper limit; but I don't want to send that kind of message now.",242
-fomc-corpus,1985,Mr. Morris.,4
-fomc-corpus,1985,"Well, I agree with Governor Gramley. From the standpoint of the effect on expectations, I think it is wise normally not to change the guidelines unless there is a compelling reason, and I don't see a compelling reason to change the guidelines. If we get trend velocity we can finance an 8 percent nominal GNP rise very comfortably within the alternative II guidelines. I don't know whether we're going to get trend velocity or not. If we don't--if we get an aberrant velocity behavior--we may have to change the guidelines within the year. But I don't think we ought to assume anything other than trend velocity at this point in time. And I think alternative II would meet our economic objectives very easily given that assumption.",144
-fomc-corpus,1985,Mr. Gainor.,5
-fomc-corpus,1985,"We would line up with those who favor alternative II. Our forecast shows very favorable growth, even with that range, and we think it's appropriate.",29
-fomc-corpus,1985,There's a tremendous unanimity among nonmembers.,9
-fomc-corpus,1985,That augurs well for next year!,8
-fomc-corpus,1985,"I think we get into this problem partly because I suspect the inflation forecast is too high--not to beat a dead horse anymore. There's room for real growth under any of the alternatives in here [if we had] more modest inflation assumptions. The choice boils down to this. I'm not going to make everybody happy; we have four targets here and 12 members and the permutations and combinations of that grouping are enormous. The only proposal I can make is to stick with something like alternative II; I don't know how many people that would make directly happy. Most people have been focusing on M1, so we can talk about modifying some of those other ranges if that's important. But I would also say that we ought to give the message--we do that in the short-term targets, I suppose--that we don't mind being above that cone for the time being. I would be inclined, in the interest of reconciliation if nothing else, and it may be meaningful, to put a sentence in the directive indicating that we wouldn't necessarily be unhappy if growth were in the upper part of the range. I don't like the sentence that's there now; and I don't know why we should single out M1 given all the comments either. I'd have a sentence to the effect that: ""The Committee agreed that growth in the monetary aggregates more generally in the upper parts of their ranges for 1985 may be appropriate, depending upon"" something. One approach would be to use ""provided inflationary tendencies remain subdued."" But I might say something about business too. I don't know quite what we should say. I don't think we want to say ""would be appropriate provided business is weak."" That sounds a little odd. It's the fact of the matter, but it might suggest we're anticipating something in that connection. Let me just try this. We have a majority that wants something like alternative II; it's not a very large majority but some of those said they didn't want to put in anything about being in the upper part of the range. The obvious accommodation is something like alternative II but some acknowledgment that growth in the upper part of the range might be possible. I wouldn't put it as an aim; I'd say it might be appropriate under certain conditions. An alternative, as has been expressed, is to go to something like 4 to 7-1/2 percent and not say anything about being in the upper part. Let me try broadly those two alternatives. We'll return to fine tuning M3 and credit later. Looking at M1: Who would have a preference for leaving it at 4 to 7 percent but with some acknowledgment--the precise language to be determined--first of all, that running above the range now isn't horribly prejudging the short-term decision; and secondly, that we wouldn't be amazed and may well find it desirable to be in the upper part of the range, depending on how things develop? To have a specific acknowledgement of that is one alternative. The other alternative would be just to go to 4 to 7-1/2 percent and leave it at that.",614
-fomc-corpus,1985,"With respect to the first alternative, are you contemplating putting it in writing or doing it in your testimony?",21
-fomc-corpus,1985,Right now I'm contemplating putting it into writing.,9
-fomc-corpus,1985,"Well, you're going to testify within--",8
-fomc-corpus,1985,"It could be done in the testimony, but what I'm proposing at the moment is that some sense of that be written into the directive.",27
-fomc-corpus,1985,"I'd prefer not to go that way. I'd rather go to the 7-1/2 percent, if those are the only alternatives you are suggesting.",31
-fomc-corpus,1985,"Well, I guess I want to concentrate on the members at the moment. Who would prefer what?",20
-fomc-corpus,1985,I have a strong preference for the first.,9
-fomc-corpus,1985,I have a strong preference for the second.,9
-fomc-corpus,1985,"Well, let's raise hands. How many have a preference for the first? Five. How many have a preference for the second? Five.",28
-fomc-corpus,1985,"I don't need to have a preference for either, do I?",13
-fomc-corpus,1985,"Two things were presented to you. I don't know what you like and [unintelligible]. If you have another preference that commands more support, that's--",32
-fomc-corpus,1985,"Without committing, if I had to choose between the two, then I would take the first.",19
-fomc-corpus,1985,"Well, let me go to the fine tuning. What do people feel about M2 or M3 and total credit? I don't know that we really want to raise the range for total credit; it's already awfully high. It may be exceeded. I don't know what kind of messages we would be sending by raising the total credit figures at this point.",71
-fomc-corpus,1985,I think it's a recognition of the unexpected size of the inflow of capital from abroad.,18
-fomc-corpus,1985,Are people talking about 9 to 12 percent?,11
-fomc-corpus,1985,Pardon?,3
-fomc-corpus,1985,Were you suggesting raising that?,6
-fomc-corpus,1985,To 9 to 12 percent.,8
-fomc-corpus,1985,"I thought you were talking about 9-1/2 to 12-1/2 percent, as in alternative I.",26
-fomc-corpus,1985,I said that seemed a little steep. But I was not speaking of the numbers; I was speaking of the reason why we would recognize that they were high numbers.,33
-fomc-corpus,1985,"I'm not sure of that reason, but he has me confused on it. Does anybody want to raise that from 9 to 12 percent?",29
-fomc-corpus,1985,Does anyone want to raise it?,7
-fomc-corpus,1985,Above 9 to 12 percent?,8
-fomc-corpus,1985,"Above 9 to 12 percent. All right, that's 9 to 12 percent. On M3 you expressed that opinion. Do other people want to raise the M3 range?",38
-fomc-corpus,1985,I wouldn't be bothered by 1/2 point [higher] on that just because I'm not sure what's going to happen to it.,27
-fomc-corpus,1985,"Everybody knows we studiously ignore M3 anyway, so whether we have 6 to 9 percent or 6 to 33 percent or whatever--",30
-fomc-corpus,1985,"Since it doesn't matter, why not raise it?",10
-fomc-corpus,1985,"Then, nobody is bothered by raising it to 9-1/2 percent? SEVERAL. No.",23
-fomc-corpus,1985,Did you say 6-1/2 to 9-1/2 percent?,18
-fomc-corpus,1985,"Yes. Well, 6-1/2 to 9-1/2 percent or 6 to 9-1/2 percent.",30
-fomc-corpus,1985,That's what I want; I want the 9-1/2 percent high end.,18
-fomc-corpus,1985,Why don't we make it 6 percent to whatever?,11
-fomc-corpus,1985,6 percent or more.,5
-fomc-corpus,1985,M2?,3
-fomc-corpus,1985,"Well, I think we're going to have trouble with that at 6 to 8-1/2 percent. I would prefer 6 to 9 percent.",33
-fomc-corpus,1985,I would too.,4
-fomc-corpus,1985,I would too.,4
-fomc-corpus,1985,I would too.,4
-fomc-corpus,1985,"I definitely would not. I simply don't understand why we have to raise all the ranges, or almost all of them, when we've had lower inflation than expected. It seems to me a devastating signal.",40
-fomc-corpus,1985,It provides for a little more room for real growth.,11
-fomc-corpus,1985,Sure.,2
-fomc-corpus,1985,I don't see anything wrong with that myself.,9
-fomc-corpus,1985,You want to maximize growth and take the inflation that that eventually would provide?,15
-fomc-corpus,1985,"The problem is that if you allow for real growth of more than 4 percent, I think you have to forget about the targets in one sense and ask yourself the question: What's likely to be going on in the economy over some period of time? I'm not talking about a quarter, but if over a period of time the economy is growing by more than 4 percent, it seems to me that in the circumstances we're faced with right now--leaving aside the magic of these targets--the outcome may well be one that is going to put more pressure on financial markets and interest rates. And it's going to subvert our effort to try and create a policy environment in which we can keep the economy growing at 4 percent for a long time. That's one of the things that worries me, Chuck.",161
-fomc-corpus,1985,"Well, to me 4 percent is desirable and 4-1/2 percent is acceptable. We're starting off with an unemployment rate of 7.4 percent. There was talk about that being the full employment level; I certainly don't agree with that. I think we have room to go down; I don't think we know; we have to probe and see. I think we probably could have 4-1/2 percent growth for this year without difficulty.",94
-fomc-corpus,1985,"Again, that's another possibility. The problem I have is that the higher we set the targets the more difficult it will be to react in some coherent way if things break on the up side.",38
-fomc-corpus,1985,"But if they break on the up side, we're going to go right through the upper ends of these ranges.",22
-fomc-corpus,1985,"Well, we had 5.6 percent real growth last year and inflation at 3.5 percent with 5.2 percent M1 growth.",31
-fomc-corpus,1985,A very unusual year. I don't think it will be repeated.,13
-fomc-corpus,1985,"That's because velocity went up 4 percent, Mr. Chairman.",13
-fomc-corpus,1985,I know it did. That's why--,8
-fomc-corpus,1985,"If you believe it's only going up 1 percent this year, then you have to allow for more growth of money. I think it's--",28
-fomc-corpus,1985,Who said it's going to go up 1 percent this year?,13
-fomc-corpus,1985,"I said if you think it might. That's what I'm assuming ranges are for: to allow for realistic possibilities. We're not committed to go to the upper end by setting it 1/2 percentage point higher, but it allows us to in case that develops, as our staff and the Board staff seem to think is likely. If it doesn't, so much the better. We're not committed to going to 7 or 7-1/2 percent. Governor Wallich raised the question: Why are we increasing our ranges? My answer to that, Henry, would be that it appears to us that the demand for money is increasing and one should allow for that in the determination of the ranges. If we don't, I think we'll get the kind of results we did in the first half of 1982 when we tightened up at a time that, in my opinion, we should not have and we drove the economy into a deeper recession than might otherwise have been the case. And it was because, in my case at least, of a belated recognition that the velocity of money was declining. I don't want to make that mistake again.",228
-fomc-corpus,1985,It wasn't declining last year; and 7 percent M1 growth was associated during the '70s with rapidly accelerating inflation.,25
-fomc-corpus,1985,"Well, the faster the rate of growth in money the lower the velocity is going to be, necessarily; it's just an arithmetic truth. If we hit the top part of the target we're going to have lower velocity. If we hit the midpoint, we're going to have higher velocity. I think either way we can finance it. But if we hit the top part, then somewhere along the way velocity is going to return to a somewhat normal pace, I would assume. And that's where the trouble comes in.",101
-fomc-corpus,1985,I think we ought to have a lot of humility around this table in forecasting velocity. It seems to me that all we can do is assume that we're going to get trend velocity; anything else is pure speculation.,42
-fomc-corpus,1985,The trouble is we don't even know what the trend is.,12
-fomc-corpus,1985,"Well, I would think the more the humility you have the wider the range you would want.",19
-fomc-corpus,1985,Why should we be more humble now than we were at midyear?,14
-fomc-corpus,1985,"Well, I'm going to defer this vote until we do the short run. Maybe that will put some light on what we should do. Will you introduce the short run, Mr. Axilrod?",40
-fomc-corpus,1985,"Well, Mr. Chairman, I will be referring, of course, to the table on page 10 [of the Bluebook]. Most of these alternatives, depending on what you perceive the Committee is willing to do for the rest of the year, would be consistent in the long run with the range of alternatives that the Committee is now discussing. In a sense, I suppose alternative B would be viewed as most consistent since that alternative assumes, if we're right about our estimates of M1 relationships to reserve conditions, very little change in underlying short-term interest rates and reserve conditions, typified by a level of borrowing in the neighborhood of $300 million over the next several weeks. We expect that that would be doable with an 8 percent growth in M1. I might add, although I don't know if the chicken's entrails are [of interest] to the Committee, that our monthly model would suggest somewhat higher growth of M1 over the balance of this period--perhaps a couple of points higher. On the other hand, the quarterly model, left to its own devices, would suggest that growth over the quarter would be a lot less than we're estimating here. The growth implied here would give you a negative velocity--on the order of [minus] 1-1/4 percent--assuming GNP is about as we have projected now for the first quarter. That would be, in a sense, a partial offset to the positive velocity on the order of 3 percent in the fourth quarter and would be, on average, obviously close to 1 percent. We expect also a substantial slowdown in M2 and M3 growth in February and March largely for the reason given earlier: that the drop in offering rates on MMDAs and money market funds is catching up with the drop in market rates. Indeed, market rates have risen about 25 basis points recently so they are accelerating that catch-up. So, we would expect M2 and M3 growth to slow substantially. All this is assuming funds are trading around 8-1/4 percent and not the average of about 8-1/2 percent of the last two weeks. But those relationships, as the Committee knows, are rather loose and depend very much on how the market perceives money supply and business conditions and how that might feed back and be affecting Fed policy over the very short run. Mr. Chairman, that very briefly sums up the essential points contained in [the Bluebook].",494
-fomc-corpus,1985,"Apart from the numerology here, I think as usual the decision at the moment is: Do we want to tighten up, ease up, or leave policy unchanged in the immediate future?",37
-fomc-corpus,1985,"In terms of the level of borrowing, this is surely a policy that can hardly be eased any further. The borrowing figure is very low. In terms of the funds rate to which this borrowing relates, I think it's true that that's still a rather high number relative to the rate of inflation. I see no reason to want to raise the funds rate at this time, but neither would I want it to go down; nor would I want to do something with the discount rate. So, I'd come out with ""B.""",104
-fomc-corpus,1985,"I would agree with ""B"" also; I would agree with what Henry said--that the current situation is adequate. It looks as if we're getting a pretty good recovery, somewhat shaded by that retail sales report this morning. But the rate of growth still seems adequate. I would point out that we've been bordering on the high side of monetary growth and, when I say ""remain unchanged,"" I have in mind a moving down in the rates of monetary growth of the sort that the staff is projecting for the quarter. If that didn't occur, I think it would give us trouble.",116
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,I ditto what Chuck just said.,8
-fomc-corpus,1985,So do I.,4
-fomc-corpus,1985,So do I.,4
-fomc-corpus,1985,"I go along with ""B,"" Mr. Chairman. My only reservation with regard to ""B"" is what the band of confidence is around the 8 percent December-to-March number for M1. It seems to me that the odds are that M1 will exceed 8 percent. My only discomfort is that 8-1/4 percent may not be the correct fed funds rate for the short run; maybe it should be 8-1/2 percent. But I take it that there is enough flexibility built into our procedures [to allow for] an 8-1/2 percent rate if we need it to get 8 percent [M1 growth] or whatever that is--less than the 10 percent and 12 percent that we've been experiencing in recent months. Given that assumption, I would go along with ""B.""",171
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"I would go with ""B"" also.",9
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"Mr. Chairman, I think it is desirable for us to try to end the year at the midpoint of alternative II, so I tend to favor the short-run M1 path of ""C."" By the same token, I have some leanings toward ""B"" too, because I don't believe it would be desirable necessarily to move to the kind of borrowing target that ""C"" contemplates in the Bluebook. Edging on up toward the $400 million borrowing level would be as much as I'd want to do. Perhaps more important than that, I'd want those words on lines 93 and 99--where we have the choice between ""would"" and ""might""--to be ""would"" in both cases. I don't think we know which way it's going to be and I'd like to see us be prepared to move in either direction, if the aggregates are not staying on the target. I think the phrase at the beginning should be ""increase slightly;"" that would be preferable to what is shown in ""C."" And I would go with the funds rate range of ""B"" because I'm not thinking about very much action at this point and that ought to be fully adequate to encompass anything I have in mind.",243
-fomc-corpus,1985,"""Increase slightly"" for pressure on reserve positions?",10
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Well, Mr. Chairman, the same factors that influenced me on my views on the long-term ranges are coming into play, particularly in the short term here. My view, and I hope it is correct, is that we're experiencing an increase in the demand for money as a direct reflection and delayed reaction to the drop in interest rates in the latter part of last year. To slow money down from the rapid growth rates of December and January would require a considerable increase in interest rates, which I don't want to see, particularly in view of the precarious situation of agricultural loans, international loans--the whole shooting match. Therefore, for this period and this period alone, I would come out in favor of alternative A for the short-term specifications.",148
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Mr. Chairman, of the three alternatives that you presented--tightening, loosening, or staying the same--I think the proper course for policy at the moment is steady as we go. We have another meeting of this Committee within a relatively short time, at the end of March. I think there is enough time to allow the situation to unfold and to wait and see what happens. If I have a bias, it would be for eliminating the tilt toward accommodation. And if we got [money growth] at the upper end of the range, I would hope that we would be prepared to move more promptly against that rather than the other way. But I think it is important that we stay steady for the time being, and I guess that's associated with alternative B and its specifications.",157
-fomc-corpus,1985,"Like Chuck, I'm worried about how fast money is growing now and I hope we're going to get that slowed down. I'm not at all certain that I know what level of the Federal funds rate is going to do that. I'm reluctant to see policy shift from one direction to another abruptly, and I can go along with ""B"" with the understanding that if, in fact, we get money growth above those numbers, we begin to snug up a bit. I would like to call the Committee's attention to the language of the operational paragraph with respect to what it says about economic activity. I think we need a change there. What we have there talks about an easier policy in the context of sluggish growth in economic activity and greater restraint if indications of significant strengthening of economic activity occurred. If we leave that wording, it seems to be saying that we still think the economy is sluggish and I don't think that's what we ought to say; we ought to have a more neutral set of phrases than that.",199
-fomc-corpus,1985,Anybody else have anything to say?,7
-fomc-corpus,1985,"I favor alternative B. I do share concerns with some of the people around the table that we have had 3 months of strong M1 growth and that by the end of March it could be more like 5 months. And at that point my concerns would be greater about the direction of M1 growth. But for the time being I favor ""B.""",72
-fomc-corpus,1985,Mr. Garbarini.,6
-fomc-corpus,1985,"I would also favor ""B,"" and I would pretty much echo Bob Black's comments: I also have a little more concern about the accommodation and, therefore, lean a little more toward ""C.""",40
-fomc-corpus,1985,Miss Seger.,4
-fomc-corpus,1985,"I can handle no change from the present [stance], if that's what alternative B is. I would be concerned, though, if no change brought about a substantial rise in the fed funds rate because of how that is interpreted in the markets as a signal of what we're doing and also because of the very severe problem with the super dollar and some of the other special factors that I've mentioned before.",78
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"I'd also choose alternative B. The only question that I would have with respect to alternative B is the $300 million borrowing level that the staff associates with an 8-1/4 percent funds rate. I would just point out the pattern of seasonal borrowing between now and the next meeting. If you just take 1984, for example, seasonal borrowing went to a very low level of roughly $150 million by the end of the period. If we're at or near a frictional level of borrowing now and we get $150 million of seasonal borrowing, then that suggests to me that the funds rate might well drop below the [8-1/4] percent. We would have a hard time holding it there without some additional--",147
-fomc-corpus,1985,What is seasonal borrowing now--$60 or $70 million?,13
-fomc-corpus,1985,The level of seasonal borrowing has been about $60 million over the past 4 or 5 weeks.,21
-fomc-corpus,1985,"Yes, in January; and then historically it begins to move up. For example, at the end of March in 1984 it was $150 million after starting the year at or about the same level [as this year]. So there's an increase of about $100 million in seasonal borrowing alone, which may complicate Desk operations if [adjustment] borrowings are at or near a frictional level now.",83
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Well, I was in favor of alternative II before and alternative B here seems to fit that pattern appropriately. So, for the reasons I've stated, I'd be in favor of alternative B.",37
-fomc-corpus,1985,Anybody else? Mr. Gainor.,8
-fomc-corpus,1985,"We too would favor alternative B. If we were going to fine tune it, however, we would move to the direction of ""C,"" probably to 7-3/4 percent or something like that [for M1].",46
-fomc-corpus,1985,"Mr. Morris, we're left without a comment from you.",12
-fomc-corpus,1985,"Well, I would buy alternative B. I think Roger has made a very good point that the borrowing target ought to be higher than $300 million--more like $400 million.",36
-fomc-corpus,1985,"Well, I think we need to develop fairly promptly a view as to the kind of weight we give to seasonal borrowing. It's not zero and it's not a hundred; it's something in between. Of course, we could have an unusual increase in seasonal borrowing--maybe not between now and the next meeting but between now and midyear --and we need to know how to evaluate that if it occurs.",79
-fomc-corpus,1985,"[Unintelligible] we've really had a different program for seasonal borrowing, we'd have to take account of it. It's going to develop in the next five weeks.",34
-fomc-corpus,1985,"What we present, of course, always assumes a normal seasonal in a sense.",16
-fomc-corpus,1985,"Yes. Well, this just reminds me that it's something we ought to be looking at.",18
-fomc-corpus,1985,"Well, in this case, we seem to have a great degree of unanimity about alternative B, whatever that means. Let me interpret alternative B. Borrowing is roughly around $300 million. It has been running a little above $300 million, actually, so I would think alternative B is consistent with something like $300 to $400 million, depending upon the tone and feel of the markets, including the exchange market. If the evidence accumulated in the next few weeks that we're distinctly above it, the tendency would be to tighten a bit.",109
-fomc-corpus,1985,Above on the aggregates?,5
-fomc-corpus,1985,"Yes, above these numbers for the aggregates. But probably we would not move very aggressively at this point. It sounds fine in concept. If this happened coinciding with weak business news and a strong dollar, I would have some question about it. At least at this point I would interpret this as not absolutely automatic if those two condition arose. But the presumption would be in that direction. The prospects of easing, I think, are substantially less in the sense that we would have to have slower growth in the aggregates than suggested in alternative B plus greater concerns about the business picture than have been expressed around this table. That's what I would interpret alternative B to mean. Does that differ widely from what anybody else thinks? I attempted to incorporate this into a somewhat rewritten directive but I don't have any copies of that.",162
-fomc-corpus,1985,"Yes, we have that.",6
-fomc-corpus,1985,You might take a look at it.,8
-fomc-corpus,1985,I think Lyle's point was good about those modifiers on the business situation.,16
-fomc-corpus,1985,"I have a suggestion for a way of dealing with that that's fairly neutral, and that is--",19
-fomc-corpus,1985,"Well, I rewrote the whole thing. I gagged a little at saying ""maintain"" the degree of reserve pressure when it's something of a euphemism to say we have any reserve pressure at the moment.",44
-fomc-corpus,1985,"It should read: ""the absence of reserve [pressures].""",14
-fomc-corpus,1985,"""The same reserve posture.""",5
-fomc-corpus,1985,"Well, I made it ""maintain reserve conditions."" Presumably, this would be--what do we have there: 8 percent and 10-1/2 percent and 9-3/4 percent? Those are awfully precise fractions. I doubt whether we generally put ""3/4s"" in there, do we?",69
-fomc-corpus,1985,Not really. We get hung up with maintaining differences among the alternatives consistent with what our model tells us.,21
-fomc-corpus,1985,[Unintelligible] number of models you look at.,13
-fomc-corpus,1985,"I would be sorely tempted to say 10 percent for both of them, just to round them off.",22
-fomc-corpus,1985,"Wouldn't it require quite a substantial slowing of M2 growth to get 10 percent, Steve?",20
-fomc-corpus,1985,"Well, it slows to 9 percent and then to 7-3/4 percent to get 10-1/2 percent.",28
-fomc-corpus,1985,January was pretty high?,5
-fomc-corpus,1985,January was 14-1/2 percent.,10
-fomc-corpus,1985,14-1/2 percent.,7
-fomc-corpus,1985,"Technically, we could separate out the M1, M2, and M3 and say something like: ""Growth of M1 would be at an annual rate of around 8 percent, and growth of M2 and M3"" etc.",50
-fomc-corpus,1985,"The only word I stumble over a bit is ""limited."" Could that be made ""gradual"" or ""moderate"" or--",27
-fomc-corpus,1985,"I do too. Maybe ""some."" And then for the easing sentence [rather than] ""might be acceptable,"" I think we ought to say ""would be acceptable"" under those conditions you have specified.",41
-fomc-corpus,1985,"Well, this is [unintelligible] the fact that I think of it in a deliberately asymmetrical manner. Wouldn't ""might"" and also the word ""substantially""--",38
-fomc-corpus,1985,"Yes, I thought ""substantially""--",9
-fomc-corpus,1985,I think it should be symmetrical given the unknowns we're mulling over here.,16
-fomc-corpus,1985,"I favor symmetry but if we must be asymmetrical, I think this is the right direction.",19
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,"Well, I didn't mind the ""substantially slower growth"" but then might ""be acceptable in the event of substantially slower growth in the monetary aggregates, sluggish growth in economic activity, and continued strength of the dollar""? I thought ""might"" was perhaps a little reserved. Lyle, I think that does take care of your problem.",68
-fomc-corpus,1985,"Yes. Where the term ""sluggish growth"" falls now, since it's second, it doesn't seem to say that we've failed to notice what has happened so far.",33
-fomc-corpus,1985,"We could put in a sentence on the aggregates and say something like this: ""Should growth in M1 appear to be exceeding an annual rate of around 8 percent and M2 and M3 a rate of around 10 to 11 percent.""",50
-fomc-corpus,1985,12 percent down from 14--,7
-fomc-corpus,1985,10 to 11 percent is okay. I think that is reasonably stated. We're going to get a slowing in M2 growth; there's no doubt about that. But I think it will be hard to get it within the quarter when one month is 14-1/2 percent.,57
-fomc-corpus,1985,"I don't know how we should describe this increase in reserve pressures. I was looking for a word that said we weren't going to be terribly aggressive about it in the next five weeks. Given the conditions, a ""modest increase""--",46
-fomc-corpus,1985,"""Some increase"" is pretty indefinite.",8
-fomc-corpus,1985,"""Some"" isn't necessarily ""modest."" What word do we typically use? It's probably ""some,"" isn't it?",24
-fomc-corpus,1985,"I think it is ""some.""",7
-fomc-corpus,1985,"How about ""some limited""?",6
-fomc-corpus,1985,"I think ""limited"" captures the spirit of what we've been talking about. If we did anything terribly aggressive, I would think that we'd want a consultation.",31
-fomc-corpus,1985,"Maybe it's a matter of semantics. [""Limited"" sounds as] if there is a predetermined point beyond which we would not go in any circumstance. It's partly the semantics of it that I'm reacting to. I am not talking about being aggressive or anything like that, but I think a word like ""gradual"" or ""some"" is just more in [tune] with the kind of approach we take to these things.",85
-fomc-corpus,1985,"I think the message is that we're giving this a little tap; we're not letting the 10 to 12 percent run but we're not reversing course. Isn't that what we're trying to get at? That's what ""some"" says.",46
-fomc-corpus,1985,"Well, in a sense. But I think ""some"" is probably what we use all the time when we've made big changes.",26
-fomc-corpus,1985,"It says ""pressures."" We could change it to ""conditions"" as it has previously been.",20
-fomc-corpus,1985,"We can't say ""increases in conditions.""",9
-fomc-corpus,1985,"Well, I was going to add--you may not care for this--that we could say ""some snugging up.""",25
-fomc-corpus,1985,You're right. I don't care for that.,9
-fomc-corpus,1985,It sounds a little obscene.,6
-fomc-corpus,1985,"Well, it has been pointed out to me that the typical version uses ""somewhat greater or somewhat lesser.""",22
-fomc-corpus,1985,"Well, so long as we all understand what's going to happen. This language is going to come out after the fact anyway. I think the point to be made is the one that Jerry made: that if we say ""limited,"" the public may say that we had a certain degree specified and would go no further beyond that. We still want to maintain the idea that we have the ability to respond to what is happening.",84
-fomc-corpus,1985,"It's conveying that sense of fluidity, even if we don't--",13
-fomc-corpus,1985,"Actually, the suggestion ""some limited"" is rather better with respect to that. ""Some limited increase in reserve pressures"" doesn't have the precision.",29
-fomc-corpus,1985,"We could go with ""modest"" or ""some modest.""",13
-fomc-corpus,1985,"We would have to say ""some modest.""",9
-fomc-corpus,1985,"That's more than ""modest.""",7
-fomc-corpus,1985,"What about saying ""reserve pressures would be increased somewhat, particularly if business activity""--",16
-fomc-corpus,1985,"Well, that sounds like more to me. I understand it won't be published until later, but that's what we always say.",25
-fomc-corpus,1985,"I think the word ""modest""--. Say ""modest increases would be sought.""",18
-fomc-corpus,1985,"Well, if this is where we are, do we make that sentence ""Should growth in M1 appear to be exceeding an annual rate of around 8 percent and M2 and M3 a rate of around 10 to 11 percent during the period from December to March, modest increases in reserve pressures will be sought, particularly"" etc.? And then say ""lesser restraint on reserve positions would be acceptable"" and keep the federal funds range at 6 to 10 percent. Is that where we are? This does imply, unless I'm wrong, that we will remain above this cone.",119
-fomc-corpus,1985,Oh yes.,3
-fomc-corpus,1985,"And in all cases, I guess.",8
-fomc-corpus,1985,"If the cone is 4 to 7 percent, it comes out as a projection that by March the level is something like $3-1/2 billion above it.",35
-fomc-corpus,1985,"Mr. Chairman, would you consider adding some words to the directive, such as you talked about a little earlier, to indicate that conditions might arise where we wish to be above that limit?",38
-fomc-corpus,1985,I think this implies that we would be above the upper limit. But I will return to that in the longer-term decision. I think this implies--and we might as well say it--that we expect to be above the upper limit of the cone in the early part of the year.,58
-fomc-corpus,1985,That would take away a lot of the uncertainty and speculation and guesswork in the market.,18
-fomc-corpus,1985,"Well, I think we should say it, if we have this kind of short-term directive. I think I'd probably say it in testimony.",28
-fomc-corpus,1985,"It's much better to say it in the testimony because that way the message gets to the public and you want it to. Otherwise, it's too late.",30
-fomc-corpus,1985,I think we should say it in both places.,10
-fomc-corpus,1985,"Well, I worry about this in the testimony: I don't know how to word it. We haven't exactly tightened but in the process of stopping the ease we're a little snugger than we were. I don't know quite what word to use to convey the nuance. It's hardly a snug.",57
-fomc-corpus,1985,"If you want to get a chuckle, say it just that way.",15
-fomc-corpus,1985,"I thought the term of art this season was ""tilt."" We have removed the tilt.",19
-fomc-corpus,1985,"If we're contemplating a shift to parallel lines, do you have to spend a lot of time talking about where we are in relationship to the cone?",29
-fomc-corpus,1985,I think we have to leave the cone.,9
-fomc-corpus,1985,"Well, it's implied. I take it we're ready to vote on this. Then we'll have coffee.",20
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Boehne Yes President Boykin Yes Governor Gramley Yes President Horn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,48
-fomc-corpus,1985,"I must say just for the record, and I'm sure it's apparent to all of you, that the exchange market has more prominence in this directive than it has ever had. It has been mentioned in recent [announcements of] discount rate changes, but--. Let's have coffee.",56
-fomc-corpus,1985,"Somehow I didn't get a great message from outer space as to how to resolve this long-range target while eating doughnuts. I continue to believe that what comes the closest to capturing the central tendency is leaving the 4 to 7 percent. We could raise M2 and M3--at least the upper ends--by a 1/2 point, if that makes people feel happier. We would make some note that growth is going to be running above the cone. I don't think we have to say that in the directive; I could say in the testimony that we're running ahead of the cone in the early part of the year and we expect that. I think that's normal and reasonable under all conditions. And we would have some reference, probably, in the directive that it might be acceptable to be in the upper part of the range, but make it short of saying we're aiming for that. I don't think we have to say what we're aiming for, conclusively, 9 months from now. We review it again at midyear. If we really find that velocity is not right, then we may have to change the target in the middle of the year; we've had some experience in doing that. But, meanwhile, we give a reasonable signal. And it all comes against the background that I would like to give a little more confident view as to the inflation outlook, which I will for myself [in my testimony]. Therefore, it makes all these numbers fit better. So, I will try again: something like 4 to 7 percent, with a modifier in the directive, which we don't have precise language for yet; I'm fairly indifferent on M2 and M3 but if it really makes people feel better to add another 1/2 point, I don't think that does us any grave damage one way or the other; total credit looks awfully high to me, but I guess we could leave it where it is. Let's see whether we can proceed on that basis. Let me ask a preliminary question. A number of people said they would rather have 4 to 7-1/2 percent or 4 to 8 percent but they may or may not have wanted another 1/2 point on M2 and M3. Does it make any of those people happier to have another 1/2 on M2 and M3?",475
-fomc-corpus,1985,"I'd much prefer it on M1, Mr. Chairman.",12
-fomc-corpus,1985,That's not what I asked.,6
-fomc-corpus,1985,We could have it on M1 and drop it from M2 and M3.,17
-fomc-corpus,1985,I could go along with that.,7
-fomc-corpus,1985,"Well, I think the trouble with that is that it's probably contrary to where the probabilities lie. The probabilities are that M2 and M3 are more likely to exceed [the upper ends of the ranges] than M1.",45
-fomc-corpus,1985,"But I would like to point out to you, Paul, that the staff's M1 projection under alternative B is for growth for the first quarter over the fourth quarter of 9.2 percent. If that's at all right, the 7 percent is a considerable constraint for the remainder of the year.",61
-fomc-corpus,1985,"Well, I don't know what it means for the middle of the year mathematically.",17
-fomc-corpus,1985,"Well, for three more quarters it means about 6 percent.",13
-fomc-corpus,1985,There's no question it means less than 7 percent.,11
-fomc-corpus,1985,About 6 percent.,5
-fomc-corpus,1985,About 6 percent?,5
-fomc-corpus,1985,About 6 percent or [just] below that.,11
-fomc-corpus,1985,"Sure, it takes all three--",7
-fomc-corpus,1985,"Yes, right.",4
-fomc-corpus,1985,"Mr. Chairman, one thing that might help--",10
-fomc-corpus,1985,"That is more, I would point out, than we had all of last year when the GNP was rising by 5-1/2 percent.",31
-fomc-corpus,1985,It could happen.,4
-fomc-corpus,1985,"Mr. Chairman, one thing that might help all those who are worried about the 7 percent ceiling would be what you propose on the matter of the so-called parallel lines or the bands. My concern, specifically--because we have a money market model which gives results very similar to those of the Board staff's monthly model--is that the model shows money growth for some months ahead at double-digit rates. To keep from getting that, we estimate we have to put short-term rates up at least 200 basis points or thereabouts. But if we were to adopt the bands, that would take care of the problem early in the year--in the sense that we would be above the cone but not above that parallel line.",145
-fomc-corpus,1985,"I certainly think we should be above the cone in these early months. Now, just how do we draw it? We can draw parallel lines; we can draw solid-line parallel lines and dotted-line cones; we can draw dotted-line or solid cones and dotted-line bands.",54
-fomc-corpus,1985,We could even use colors!,6
-fomc-corpus,1985,"We can draw the kind of thing that I drew, which is the way I tend to think of it. It doesn't make much difference in where the line actually falls. I'm open to any of those variants. I'd draw the parallel lines without the cone, if that's--",54
-fomc-corpus,1985,I think the discussion shows the danger of the band. The band allows you to go at any rate of speed during the early months.,27
-fomc-corpus,1985,And they have to slow down later.,8
-fomc-corpus,1985,"While I would ordinarily say it doesn't matter because you know what you're doing, here we're talking about it as though it really made a difference. We give ourselves more leeway; we use it right away.",41
-fomc-corpus,1985,"For a good reason, though, I would say. In this particular case, we ended up with a slowdown in M1 growth last year, so it's quite natural--it's a characteristic of the band--that we would also be happy with an extremely low growth in the first quarter, if you took it literally. We're not going to get that, but with just the band itself M1 growth would still be within the band if we had zero growth, I suppose--or close to it--for this quarter.",103
-fomc-corpus,1985,"The reverse is also true, though. If, as John says, we had double-digit M1 growth for several more months running, you can draw your lines any way you want and you have one heck of a problem.",45
-fomc-corpus,1985,"None of this changes the fact that what we're fixing is where we'd like to be at the end of the year. Indeed, I don't think it makes an enormous difference whether it is 1/2 percentage point higher at the top; it's visual. We're talking about $2-1/2 billion of money supply, right?",66
-fomc-corpus,1985,The band is a better way to communicate. It essentially expresses what we do.,16
-fomc-corpus,1985,I have no problem with a band. I assume that at the least we would draw a band along with the cone.,24
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"Since there has been discussion about it, just for the purpose of elucidating how the two things look, at a minimum we would draw them both.",30
-fomc-corpus,1985,And that would help.,5
-fomc-corpus,1985,"Well, we had the same problem at this time last year: January had growth in the double-digit range and we were above the cone until the end of the first quarter as I recall. I don't know how you explained it then but it didn't seem to create great problems.",55
-fomc-corpus,1985,"Well, does anybody have some striking suggestion as to how to draw the picture that they urgently want to bring to our attention? Left to my own devices, I will draw some kind of a band--a lopsided band or something--along with the cone.",53
-fomc-corpus,1985,It will become known as the Volckergram.,10
-fomc-corpus,1985,With a truncated band.,5
-fomc-corpus,1985,"If you connect the extreme points of last year's cone and this year's cone and make that the band, you'll find that you have a very low rate of growth in that connecting line. You would be going from something that rose 8 percent to the next cone, which would be rising 7 percent. And the connecting line, if that's the top of the band, will be a lot flatter than the upper side of either cone.",86
-fomc-corpus,1985,A little flatter.,4
-fomc-corpus,1985,"It will be a little flatter than a parallel line, but hardly enough to be discernable.",19
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,Probably 1 percent flatter.,6
-fomc-corpus,1985,"It would be 1 percent flatter; well, it would be 3/4 of a percent flatter. And since we're not up there at the beginning anyway, it wouldn't make much difference. The simplest thing to do is probably a compromise between them. I might draw a truncated line--draw the cone with just a top parallel line.",68
-fomc-corpus,1985,I'd settle for that.,5
-fomc-corpus,1985,Where are you thinking about beginning the line? You explained that yesterday and I thought I understood but I wasn't quite certain.,24
-fomc-corpus,1985,"Well, I'm not saying that now. We would just make it 3/4 of a percent different. If you draw parallel lines, they would both rise at a 5-1/2 percent rate of speed.",45
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"The bottom part of that would be out of sight; nobody wants to go there initially. The only modification I had was that instead of a parallel line, I'd draw it back to the fourth quarter.",40
-fomc-corpus,1985,Target.,2
-fomc-corpus,1985,"[The fourth-quarter] target, which would be 3/4 of a point higher because we ended up below the midpoint.",26
-fomc-corpus,1985,"Yes, that's what I understood you to say.",10
-fomc-corpus,1985,"And that's all. The only rationale is that I find it easy to explain. I say that that was last year's target and we presumed we would have been satisfied to be there. Assuming we were satisfied to be there, we want to have some continuity to the next year. We know where we want to be at the end of this year, we decided where we wanted to be at the end of last year, and that's just a line that happens to connect those two targets that we happened to agree upon. It's no big deal, and maybe it does--",112
-fomc-corpus,1985,"It creates lots of room, all right.",9
-fomc-corpus,1985,It sure does.,4
-fomc-corpus,1985,You're looking at these early months since--,8
-fomc-corpus,1985,"Yes, and we're well within it.",8
-fomc-corpus,1985,"Well, we're not all that much within it, are we?",13
-fomc-corpus,1985,"Well, if I understand the way you're going to draw it, we're a good deal more within it than with parallel lines.",25
-fomc-corpus,1985,"Yes, it's more than with parallel lines.",9
-fomc-corpus,1985,It would be 3/4 of a percentage point more within it than--,16
-fomc-corpus,1985,"Well, that is just connecting the points here. When I look at the--",16
-fomc-corpus,1985,You're unquestionably right in direction; I just don't know how far it will go. I'd have to look at it. Where are these great pictures [in the Bluebook]?,34
-fomc-corpus,1985,M1 is right after the full page of tables.,11
-fomc-corpus,1985,Two pages beyond page 10.,7
-fomc-corpus,1985,That's the way I drew it before; that's right. In the fourth quarter we're going to be 3/4 of a percentage point above the parallel line and it would get progressively less. I don't know what it would be in the first quarter; I suppose 5/8ths of a percentage point or so.,64
-fomc-corpus,1985,"Well, it'll be more comfortable throughout the year as far as how high up we can go. As far as the rate of growth we can have, once we reach it, it'll be less.",39
-fomc-corpus,1985,It won't be more comfortable in the fourth quarter.,10
-fomc-corpus,1985,There is more room to go up. There isn't more room once you're at the top.,18
-fomc-corpus,1985,"You can always turn the picture sideways, though, Henry!",12
-fomc-corpus,1985,Or upside down!,4
-fomc-corpus,1985,But only if you have a semi-log scale.,10
-fomc-corpus,1985,You come out the same place in the fourth quarter.,11
-fomc-corpus,1985,"Mr. Chairman, I think Governor Wallich is saying that if you reach the top of the parallel line you have to grow 5-1/2 percent, no more than that; if you reach the top of the higher line you have to grow 4-1/4 percent or something. These are rough numbers.",66
-fomc-corpus,1985,That is correct. It's 4-3/4 percent--,13
-fomc-corpus,1985,Say we've had a couple of quarters of 9 percent growth; the arithmetic implication is that it is going to have to drop to 5 percent.,30
-fomc-corpus,1985,"I think all these implications are the same. Wherever you are in the first quarter, to meet the target at the end of the year growth has to slow down.",33
-fomc-corpus,1985,Unless we rebase.,5
-fomc-corpus,1985,"Now, there might lie the basis for some compromise. We can go with the 4 to 7 percent on the understanding that we're going to increase it later.",33
-fomc-corpus,1985,"Well, I think clearly [unintelligible].",11
-fomc-corpus,1985,"I don't recall that we ever have, but I may be wrong about that.",16
-fomc-corpus,1985,"Yes, we did.",5
-fomc-corpus,1985,We did.,3
-fomc-corpus,1985,Oh yes.,3
-fomc-corpus,1985,"We rebased, but did we ever raise it?",11
-fomc-corpus,1985,"Yes, we did both.",6
-fomc-corpus,1985,We eliminated it for one year.,7
-fomc-corpus,1985,In mid-1983 we--,7
-fomc-corpus,1985,We rebased and raised [the M1 range].,11
-fomc-corpus,1985,We rebased and raised the target from 5 to 9 percent.,15
-fomc-corpus,1985,We rebased on the second quarter.,8
-fomc-corpus,1985,And accepted the overrun in the first half.,10
-fomc-corpus,1985,We rebased and we respecified.,8
-fomc-corpus,1985,We made a tremendous change in mid-1983.,11
-fomc-corpus,1985,The base became the second quarter.,7
-fomc-corpus,1985,And then we used it as a monitoring--,9
-fomc-corpus,1985,"That's right, we did; rebasing made a big difference.",13
-fomc-corpus,1985,"I think we always reserve this right and we have done it. Suppose it ended up that business is sluggish, inflation is doing fine, and the dollar is very strong, but liquidity preferences are high and money growth is running high. We said money growth is expected to run high in the first quarter of the year; if at the middle of the year we say we don't think it's reasonable for it to go down, we have to raise the target. What I would hope would happen is that inflation will be less, we will get nice orderly growth, that this trend appears in M1--which it may or may not--and that everything works out just copacetic. Who knows? How much do you think the consumer price index is going to be affected by this orange and vegetable situation?",159
-fomc-corpus,1985,"I think we have 4-3/4 to 5 percent for food prices in the first quarter. Our CPI projection, let's see--",29
-fomc-corpus,1985,"While the staff is looking that up, I would just note that one of the things that could really help the price outlook is some relaxation in these Japanese automobiles quotas because one of the troubling things about prices even now is the way the auto manufacturers are sneaking in all these price increases.",57
-fomc-corpus,1985,"Just as a matter of curiosity, the same thing occurred to me--",14
-fomc-corpus,1985,We are expecting a CPI of 3-1/2 to 4 percent in the first quarter. Offsetting the food price rise is an expected price decline in energy of 4 percent.,39
-fomc-corpus,1985,How much of a bulge do you have in the food prices?,14
-fomc-corpus,1985,"How much of a rise in food? Food prices rose 2-3/4 percent in the fourth quarter and we have them up to 4-3/4 percent, so that's a 2 percentage point increase. Energy prices were about flat--up a percent--and we have them down 4 percent, so they ought to be offsetting factors in the first quarter.",77
-fomc-corpus,1985,Are Japanese cars in the consumer price index?,9
-fomc-corpus,1985,"Conceptually, yes. They expanded the models some years ago and I used to know that and I don't remember. But yes, conceptually.",29
-fomc-corpus,1985,I wouldn't look for much price relief from raising the quotas. The quota increase probably will be quite small. And the excess demand for Japanese cars is so great that I think at existing prices they could just ship a few more and that's about it.,49
-fomc-corpus,1985,That's probably true.,4
-fomc-corpus,1985,I suspect that's right. But suppose they take the quota off?,13
-fomc-corpus,1985,"Well, my sense is that the Japanese would be so reluctant to risk the possibility of a reimposition of quotas that they would increase their shipments to the United States in quite modest amounts. I would doubt seriously, if we had a removal of the quotas, that we would see an increase in Japanese shipments of more than, say, 10 percent.",71
-fomc-corpus,1985,"But don't forget that the South Koreans are now coming onto the market. [Unintelligible] and some of these other companies are coming on strong. And the [cars are priced] at $6,000 and under.",47
-fomc-corpus,1985,"Yes, I know. I was just--",9
-fomc-corpus,1985,Favorable prices.,4
-fomc-corpus,1985,--making the comment solely with respect to Japanese quotas. The shipments from South Korea and so on are going to increase anyway. But the shipments from Japan I don't think are going to increase very much.,40
-fomc-corpus,1985,How big a car do they put in the consumer price index?,13
-fomc-corpus,1985,"I have somebody on the staff who could give you the [specifics] in all sorts of ways, but I'm not the person.",27
-fomc-corpus,1985,"You're not the man. But they don't price the expensive ones, do they?",16
-fomc-corpus,1985,Not the really [expensive ones].,8
-fomc-corpus,1985,I don't know what they call expensive.,8
-fomc-corpus,1985,Cadillacs.,4
-fomc-corpus,1985,I think we could guarantee that what they would call expensive would be different from what you'd call expensive.,20
-fomc-corpus,1985,"Actually, you'll find that any car is expensive.",10
-fomc-corpus,1985,I'm afraid so.,4
-fomc-corpus,1985,"$10,000 or more.",7
-fomc-corpus,1985,"Well, I don't hear any bright ideas about how to draw these parallel lines. If I don't hear any stronger ideas right now, I will reserve that prerogative unto myself with the understanding that there's going to be some kind of parallel line picture. But I will go back and ask two questions. Are those who want higher ranges at all consoled by making M2 and M3 higher? And are those who don't want higher numbers distressed by making M2 and M3 higher?",98
-fomc-corpus,1985,It depends on whether we can agree with regard to language.,12
-fomc-corpus,1985,"Well, let's look at the language. Steve has given me a modified sentence. I don't know whether you'll like it: ""The Committee agreed that growth in""--",32
-fomc-corpus,1985,They ignore the separate--,5
-fomc-corpus,1985,"It continues the first page. Change the ""M1"" to ""monetary aggregates"" and otherwise the first part remains the same: ""The Committee agreed that growth of the monetary aggregates in the upper part of their ranges for 1985 may be appropriate, provided that inflationary pressures remain subdued and depending on velocity trends."" If we use that kind of language, it just reads a little more smoothly to me to say ""may be appropriate depending on velocity trends and provided that...""",97
-fomc-corpus,1985,It's important to make that comment with regard to velocity. That's been a good deal of the substance of our discussion. And John Balles has been [suggesting] language with regard to the lagged effects of the interest rate drop in the last year. Whether that's appropriate--.,56
-fomc-corpus,1985,"Well, I think that's broadly encompassed in this term ""velocity trends."" It may not be a trend, but in this context we're not really talking about it depending on long-term velocity trends; what we mean is depending upon velocity this year.",49
-fomc-corpus,1985,We're talking about short-term velocity rather than long-term.,11
-fomc-corpus,1985,"One could say ""depending on velocity developments.""",9
-fomc-corpus,1985,"""Developments"" is a better word.",9
-fomc-corpus,1985,"And if we generalize it to say ""monetary aggregates"" that may be appropriate.",19
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,It picks up M2.,6
-fomc-corpus,1985,"""Depending on developments with respect to velocity and provided that inflationary pressures remain subdued."" How do you like that language?",24
-fomc-corpus,1985,Poetry.,3
-fomc-corpus,1985,"Sorry, Mr. Chairman, but are there some words in that--we don't have it in front of us--that say something about being above the cone or whatever?",34
-fomc-corpus,1985,"Well, I wouldn't say that in the directive. But it would be said; it's implicit in the decision we have just made. We're talking about a fourth-quarter target here and it sounds a little awkward--I don't object to it, but it seems to me totally unnecessary--to say here that consistent with that fourth-quarter target we intend to be above the cone in the first quarter.",77
-fomc-corpus,1985,"Oh, I see now.",6
-fomc-corpus,1985,"I think that point should be made; I just don't see that it's necessary here. I have no objections to saying it here, but it just seems rather complicated to me.",35
-fomc-corpus,1985,"You wouldn't be prepared to say monetary aggregates in the upper part of their ranges or above? Well, there are two great provisos.",27
-fomc-corpus,1985,"No, but I think I could say something about that in the testimony. I don't think we should set a range and say we might be above it. We might. We haven't been within the ranges all that consistently, but it's rather peculiar to say that in the directive.",55
-fomc-corpus,1985,That's why 7-1/2--,9
-fomc-corpus,1985,"I have no problem with saying: ""Obviously, we'll look at these at midyear; we expect to be above in the first half of the year and if velocity were really slow we'd have to look at this range again at midyear."" I think we probably ought to say that. What about M2 and M3? Let me examine the proposition this way. I am assuming this language and--. Where are we on these three ranges? I found myself testifying the other day unable to remember what the ranges were. At least psychologically that tells you something.",113
-fomc-corpus,1985,Page 5.,4
-fomc-corpus,1985,"What's the preference for [upper limits of]: (a) 7, 8-1/2, and 9 percent, which is exactly the same as alternative II, as opposed to (b) 7, 9, and 9-1/2 percent?",57
-fomc-corpus,1985,Opposed.,3
-fomc-corpus,1985,You want the (b)?,6
-fomc-corpus,1985,Or whatever it--,4
-fomc-corpus,1985,"Well, I didn't get around to asking the question!",11
-fomc-corpus,1985,"Oh, I thought you said--",7
-fomc-corpus,1985,You got a little overanxious over there!,11
-fomc-corpus,1985,"No, we're just quicker!",6
-fomc-corpus,1985,I'm going to ask both. Option (a) is alternative II as shown [in the Bluebook]; (b) is 1/2 percentage point higher for M2 and M3. How many prefer (a)?,45
-fomc-corpus,1985,What are you talking about now?,7
-fomc-corpus,1985,Option (a) is alternative II.,8
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,As is.,3
-fomc-corpus,1985,As is.,3
-fomc-corpus,1985,All of this has the language in the directive.,10
-fomc-corpus,1985,"There is only one hand up, Mr. Boykin's.",13
-fomc-corpus,1985,"Now, (b) with a 1/2 percentage point higher on the upper end of M2 and M3.",25
-fomc-corpus,1985,"Well, I'm not [for] M2.",10
-fomc-corpus,1985,I could live with your (b).,8
-fomc-corpus,1985,"Well, the in-between course is raising M3.",11
-fomc-corpus,1985,I think M2 is likely to give us trouble and I would want that upper end up a little. I don't care what we do to M3 because we don't pay any attention to it.,39
-fomc-corpus,1985,No; that's why it's harmless--,7
-fomc-corpus,1985,I don't think that's 100 percent true.,9
-fomc-corpus,1985,99 percent.,3
-fomc-corpus,1985,"So, we use 7, 9, and 9-1/2 percent [as upper limits] and 9 to 12 percent [for credit], I guess. Does that have the largest amount of support? It does raise a question in my mind: If we raise those M2 and M3 limits, maybe we should go back to just talking about M1 in that sentence we just wrote.",84
-fomc-corpus,1985,We might still have a problem with M2.,10
-fomc-corpus,1985,"Yes, we could but it--",7
-fomc-corpus,1985,Why don't you see who could accept your (b) but not necessarily prefer it.,17
-fomc-corpus,1985,"Yes, who can live with it?",8
-fomc-corpus,1985,"Our point estimate of M2, which may be a little low, would only be a half point above the midpoint of that 6 to 9 percent. It could well be 8-1/4 percent or higher.",46
-fomc-corpus,1985,But it's still well within the range.,8
-fomc-corpus,1985,"Yes. As I say, it's only a half point above the midpoint.",15
-fomc-corpus,1985,"Well, your point estimate is already in the upper part of the range. That's another way of putting it.",22
-fomc-corpus,1985,"Well, yes.",4
-fomc-corpus,1985,Your point estimate is what?,6
-fomc-corpus,1985,8 percent.,3
-fomc-corpus,1985,8 percent at the moment. That requires quite a slowdown in the subsequent quarters.,16
-fomc-corpus,1985,Keep in mind that that moment is 11:50 a.m. By 12:00 noon it may be something else!,26
-fomc-corpus,1985,10 percent!,3
-fomc-corpus,1985,"We count [deposits at] nonbank banks in the monetary aggregates, don't we?",19
-fomc-corpus,1985,Those that have checking.,5
-fomc-corpus,1985,[Unintelligible.],6
-fomc-corpus,1985,"Chuck, only those that take demand deposits.",9
-fomc-corpus,1985,What?,2
-fomc-corpus,1985,Ones that aren't supposed to take deposits--,9
-fomc-corpus,1985,This actually makes M2 and M3 higher than we had them last year. What were [the ranges for] last year? I don't guess there's any--,32
-fomc-corpus,1985,Both were 6 to 9 percent.,9
-fomc-corpus,1985,6 to 9 percent for both of them? So we can make M2 the same and M3 a little higher.,25
-fomc-corpus,1985,"If we change it once more, I'm going to wear a hole in this paper!",17
-fomc-corpus,1985,"Let's try that (b): 7, 9, and 9-1/2 percent; and 9 to 12 percent. How many go along with that? Well, I think that's as close as we're going to come. Let's vote on that.",54
-fomc-corpus,1985,"Just to educate me, if we go with the 4 to 7 percent for M1, can you tell me why we can't tie it to the midpoint of the fourth quarter--that is, the range for last year that we shot for?",50
-fomc-corpus,1985,"Well, we can, but we decided not to.",11
-fomc-corpus,1985,It's just that it produces so much rigidity to have that as a precedent for doing it in the future. It's like having a monetary rule.,28
-fomc-corpus,1985,"Making that up was one of the reasons why I wanted to have a wider band. So, I can go with the narrower band if it's calculated from a higher level.",34
-fomc-corpus,1985,"Well, that is the reason in my mind for indicating that we might be happy in the upper part of the range, based upon what we know now. All right. Do you know what you're voting on?",42
-fomc-corpus,1985,Not now.,3
-fomc-corpus,1985,I think so.,4
-fomc-corpus,1985,"7, 9, and 9-1/2 percent upper limits [for M1, M2, and M3, respectively], 9 to 12 percent [for credit], and the sentence as we talked about it in the directive. There's nothing else in the language that raises a question is there?",64
-fomc-corpus,1985,And with a Volckergram.,7
-fomc-corpus,1985,"He's liable. We have already given him the authority to make his pictures anyway he wants to including colors, dots--",23
-fomc-corpus,1985,On the understanding that there will be something like a parallel line on the [unintelligible].,20
-fomc-corpus,1985,Your reference is to all the aggregates and not just M1 in this sentence?,16
-fomc-corpus,1985,"I think it ought to say aggregates; it ought to be generalized. If they don't happen to be there--well, they won't be there.",29
-fomc-corpus,1985,Okay.,2
-fomc-corpus,1985,"Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Boehne No President Boykin Yes Governor Gramley Yes President Horn Yes Governor Martin No Governor Partee Reluctantly, yes",41
-fomc-corpus,1985,"Could you put in that ""reluctantly""?",10
-fomc-corpus,1985,Somewhat reluctantly?,4
-fomc-corpus,1985,Limitedly.,3
-fomc-corpus,1985,Governor Rice Yes Governor Seger Yes Governor Wallich No,11
-fomc-corpus,1985,"All right. I guess we have nothing else to do. The Secretary points out to me that we had better modify that sentence about retail sales registering a large increase in November and remaining at a higher level in December since it's no longer true. The language he suggests is: ""Total retail sales rose moderately in January following a decline in December."" With all that [unintelligible].",77
-fomc-corpus,1985,[Unintelligible.],6
-fomc-corpus,1985,"You have a chance to go back and redo your [Humphrey-Hawkins] projections if you do that within a day or two. I won't register my concern about the price numbers, except that I'm reminding you that I registered it.",49
-fomc-corpus,1985,Are we supposed to make a certain assumption about the value of the dollar to be consistent?,18
-fomc-corpus,1985,"Yes, I think the assumption would be stated as: the value of the dollar will not be substantially changed. I think what we said last time was that its value would not be outside the range-of trading in recent months or something like that. We could have an 8 percent decline and not be outside that range.",64
-fomc-corpus,1985,The assumption for the money growth is at the midpoint or--?,13
-fomc-corpus,1985,"I really don't know. The assumption for money at wherever you want to make it within that range, I guess.",23
-fomc-corpus,1985,It makes quite a difference.,6
-fomc-corpus,1985,The staff have [M1] at 6-1/2 percent in their assumptions.,19
-fomc-corpus,1985,"Well, that's the point.",6
-fomc-corpus,1985,We can proceed to other things    [and adjourn now].,13
-fomc-corpus,1985,Nominations closed!,4
-fomc-corpus,1985,Did he call him P. Adolph Volcker?,11
-fomc-corpus,1985,None of that!,4
-fomc-corpus,1985,"With the concurrence of the new Chairman, I would like to nominate Gerald Corrigan as the Vice Chairman of the Federal Open Market Committee.",27
-fomc-corpus,1985,Are there any objections? I'm not hearing any. We will proceed to the selection of staff officers. Maybe the Secretary can read the roll of proposed staff officers.,32
-fomc-corpus,1985,"For Staff Director and Secretary, Stephen Axilrod Assistant Secretary, Normand Bernard Deputy Assistant Secretary, Nancy Steele General Counsel, Michael Bradfield Deputy General Counsel, James Oltman Economist, James Kichline Economist (International), Edwin Truman. Associate Economists from the Board: Donald L. Kohn; David E. Lindsey; Michael J. Prell; and Charles J. Siegman. Associate Economists from the Federal Reserve Banks: Joseph R. Bisignano, proposed by President Balles; J. Alfred Broaddus, proposed by President Black; Richard Davis, proposed by President Corrigan; Karl Scheld, proposed by President Keehn; and Sheila Tschinkel, proposed by President Forrestal.",145
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. We need to select the Federal Reserve Bank for the execution of transactions for the System Account. The New York Bank has performed this service for some years. Do we have a motion?,39
-fomc-corpus,1985,Move the New York Bank.,6
-fomc-corpus,1985,We need a second.,5
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. We need to select the Managers for Domestic and for Foreign Operations of the System Open Market Account. Do I have a nomination for Mr. Sternlight and Mr. Cross?,37
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,"Without objection. You presumably have reviewed the current Foreign Currency Authorization, the Foreign Currency Directive, and the Procedural Instructions with respect to Foreign Currency Operations. There are no changes [proposed] in any of these. Are there any objections to continuing those? In the absence of any objections we will proceed. In the Authorization for Domestic Open Market Operations, we have a proposal to change the intermeeting limit. Mr. Sternlight, do you want to speak to that?",94
-fomc-corpus,1985,"Mr. Chairman, I don't think I have anything significant to add to the short memorandum that I sent to the Committee on that subject. As noted there, we had half a dozen occasions last year when we asked for increases in the intermeeting limit. It was never a problem to get [the Committee's approval of] those increases, but since we asked for increases in fully half of the intermeeting periods I think it was becoming almost a routine matter that was going beyond the purpose served by that intermeeting limit. That purpose, it seems to me, is to flag really unusual changes. If the limit were put up to a $6 billion level, I think it would still serve that purpose of flagging unusual changes in that leeway. I might mention that in the period that is coming up now we may very possibly need an increase even beyond the $6 billion. But I would rather wait until we are further into the period and have a better idea of just how much of a temporary increase we may want to request.",206
-fomc-corpus,1985,Any discussion?,3
-fomc-corpus,1985,"Not on that point. But with regard to the holdings, I would like to raise a question with regard to Farm Credit Bank holdings in the System Account. Given the circumstances, I wonder whether it would be appropriate to add to those holdings during the current year.",52
-fomc-corpus,1985,Let's dispose of this limit first. I take the silence to mean acquiescence. We had better get a motion then.,25
-fomc-corpus,1985,Move it.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,"With no objection, it's approved. Maybe we can wait [on the issued raised by Mr. Keehn] until we get to the agenda item on domestic open market operations. We need to approve the minutes.",42
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. Mr. Cross.,7
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,All in all not much of a market.,9
-fomc-corpus,1985,No question; the quality of it isn't much.,10
-fomc-corpus,1985,"Why did we buy sterling? Even though it was a small amount, what were the reasons for that?",21
-fomc-corpus,1985,"Well, this was at a time when sterling was being particularly hard hit and our purchase was in part a cooperative gesture to the British, who were very much concerned that the pound was taking more than its share of the brunt of this change. It coincided with the time of the high level visit of Mrs. Thatcher.",65
-fomc-corpus,1985,It was really just a gesture?,7
-fomc-corpus,1985,"Well, I think it had some implications of being done in light of those political circumstances, yes.",20
-fomc-corpus,1985,"Sam, $10 billion is a large amount even relative to the U.S. current account deficit. Do you see this amount of dollars having been put into the market as having any lasting effect on the exchange rate or is the whole move of the dollar due to [the savings and loan situation in] Ohio and similar factors?",65
-fomc-corpus,1985,"I would certainly think that the intervention had its effect. We collectively--mainly other central banks--added really quite an enormous amount of dollars to the stocks sitting out there. If you consider that we're running about a $10 billion current account deficit every month, we added another month there; and somebody has to absorb those dollars. Some of those were absorbed at levels that now don't look very good. So that has been overhanging the market and [the intervention] has called attention to the fact that the authorities can come in with a pretty heavy hand and do these operations. This is undoubtedly part of the reason, but not the only reason, why the markets themselves are in such a sloppy condition. People are increasingly unwilling to be market makers out there. I think intervention certainly has had an effect. It has reminded the market that the officials can come in rather forcefully and it has left a lot of dollars out there to be absorbed.",189
-fomc-corpus,1985,I'm not sure everybody interprets intervention as having that large an effect.,14
-fomc-corpus,1985,It's the equivalent of a month's current account deficit. It seems to me the price effect was quite small for that kind of quantity.,26
-fomc-corpus,1985,"Well, $10 billion is small relative to the total of $120 billion. Still, it's money that somebody out there has--",26
-fomc-corpus,1985,I understand. They have to hold it.,9
-fomc-corpus,1985,"I think you have to look at the foreign exchange market right now in broader terms than just the dollars representing the current account deficit. The magnitude of traffic in the churning and trading that are taking place in that market--both in the cash market and all these derivative markets--is just mind boggling at this point. I don't know how to measure it, but my hunch is that if we measured this particular episode of intervention against the size of the market in a trading sense--the $10 billion dollars spent over this period relative to what $10 billion dollars would have been in, say, 1978--my hunch is that it would be a pittance. Now, ultimately, the stocks should have something to do with the price response. But that market is just so enormous. Frankly, it's so enormous that to me it's very troubling just by nature of the flows and the changing structure and character. Sam and I were talking a little about that at breakfast this morning.",199
-fomc-corpus,1985,In terms of total stocks of financial assets the addition of $10 billion wouldn't be large; it would be very small.,24
-fomc-corpus,1985,We have to ratify the transactions.,8
-fomc-corpus,1985,Move it.,3
-fomc-corpus,1985,Without objection. Mr. Sternlight.,8
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Are there any comments on this general subject matter before we get to [the issued raised by] Mr. Keehn?,24
-fomc-corpus,1985,"Peter, how do you explain the fact that the ESM debacle had less effect on the market than Drysdale even though it would seem that the ESM effects will have wider ramifications?",39
-fomc-corpus,1985,"I think what was so frightening in the Drysdale case, Governor, was that there were a number of dealers that were heavily involved. And until Chase Manhattan and Manufacturers Hanover came through and agreed to meet those interest payments that Drysdale was unable to make on that fateful day, there were a number of dealers who were threatened with very serious losses and there was a real question of the ability of these major market makers to function in the market. The market was on the edge of becoming rather seized up and just unable to function well. This time there was a kind of disgust, a view that another one of these small dealers has misbehaved and inflicted some losses in various places in the economy. But this was not seen as entering the central marketplace in the same way as Drysdale.",161
-fomc-corpus,1985,It was just the public that lost.,8
-fomc-corpus,1985,Right. Only one dealer was involved.,8
-fomc-corpus,1985,They worry about their own.,6
-fomc-corpus,1985,"There were a couple of dealers involved, but they were able--",13
-fomc-corpus,1985,"There were some that took losses, too, but they were rather modest--certainly modest against their own capital strength.",24
-fomc-corpus,1985,What about the implications for this clearing agent? I guess they were going out of the business anyway? Is that right?,24
-fomc-corpus,1985,Yes. The firm that was doing the clearing for them was already in the process of unwinding its clearing operations.,23
-fomc-corpus,1985,"If there are no other matters to raise for Mr. Sternlight, we'll turn to Mr. Keehn.",22
-fomc-corpus,1985,I would just like to raise a question--not on the current holdings of Farm Credit Bank bonds--but whether adding to those holdings is appropriate. I don't know what the credit status of those bonds is but everything I hear leads me to believe that there are some questions about it. It is conceivable that we might get into a position later on where we will have to be financing that and we could be in the awkward position of holding the bonds and having added to the bond holdings during the year and at the same time we would be financing it. I just raise the question as to whether this is appropriate.,121
-fomc-corpus,1985,The quid pro quo of your comment is that it is not appropriate?,14
-fomc-corpus,1985,"I would think that if there is any substantial question about the credit standing of the Farm Credit Banks, maybe it would be appropriate not to be adding to those holdings.",33
-fomc-corpus,1985,"We haven't added for some time, have we?",10
-fomc-corpus,1985,"We have rolled over maturing holdings of agency issues but we have not added to holdings of agency issues for a couple of years now, Mr. Chairman. We have been watching the spreads in the agency market because we were concerned about just these kinds of questions. And in the eyes of the market--although we hear of an occasional case where an investor or two wants to reduce its exposure there--in general those spreads are holding quite narrowly for Farm Credit [issues] and for [those of] the other agencies too. In fact, one could probably raise questions about all of those agency securities--those of the Home Loan Banks or of Fannie Mae, which have had some loss experience. But in general those spreads are holding up very well and the Farm Credit Banks have been putting on a strong, and to me a fairly convincing campaign, to the effect that the system as a whole has quite a lot of strength in it. There was one Intermediate Credit Bank in Spokane that needed help from the rest of the system but in general they present what seems to the market--and to me in what I've seen--a fairly good picture.",227
-fomc-corpus,1985,Do we have any maturing Farm Credit issues coming due in the near future?,16
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"That, I suppose, would be the critical issue that we face.",14
-fomc-corpus,1985,We typically roll over the maturing ones into similar amounts.,12
-fomc-corpus,1985,What do we have in the near term in that respect?,12
-fomc-corpus,1985,I don't have a figure in my head.,9
-fomc-corpus,1985,I don't see how we can't roll over the ones we have.,13
-fomc-corpus,1985,I don't either.,4
-fomc-corpus,1985,"That would show up, wouldn't it?",8
-fomc-corpus,1985,I think very [unintelligible] in the market. I think it would tend to detract from the--,24
-fomc-corpus,1985,"I certainly agree with Peter that the other agencies seem to me at least as weak, if not weaker, than the Farm Credit Banks. Maybe I think that because they do have a very strong capital position. It's true that they have the largest concentration of loans of a potentially bad quality of anybody in the country, but they have very good capital.",69
-fomc-corpus,1985,It's debatable.,4
-fomc-corpus,1985,"So, it seems to me that we shouldn't do anything that would create a backing away, Si, although I don't think I would buy any more.",30
-fomc-corpus,1985,"There is more than the occasional investor not buying these things. Every country banker you talk to says he is kicking them out. In total they're not big enough to affect the market. I think these agencies are anomalous institutions anyway, and I would just as soon we didn't hold any or buy any. But we have a history [of doing so]. My own feeling is similar to what Mr. Keehn has expressed: We would be in an awkward position if we ended up lending to them and buying [their obligations] in the open market at the same time. If, say, we buy them now, that could be interpreted as support in a way that may or may not be desirable. I think we have to support them if they get in trouble; but I'm not sure we should be treating their securities as the equivalent of government securities, which is what they would like us to do and which we did for awhile--still do, I guess, in some sense. Anyway, I guess we are doing what you are suggesting, Mr. Keehn.",212
-fomc-corpus,1985,"That is, we avoid buying net new issues.",10
-fomc-corpus,1985,"Well, I think the attitude [should be] to try to reduce gradually our holdings without creating any tremor in the market.",26
-fomc-corpus,1985,I don't think we can reduce them in this particular year.,12
-fomc-corpus,1985,"I don't mean by selling. But where it is possible without creating any market image problems, that seems to me appropriate.",24
-fomc-corpus,1985,"I, on the other hand, wouldn't view that as being an appropriate role. I think we should stay with them and even at times support them. We're going to support them if they go down anyway. Although I wouldn't make an overt market entry. I'd sure hate to back away from them at this point. I think the statement by Peter that they show a good market presence and that they are able to attract funds at good rates now may be more PR than it is real. And I would hate for us to be a disruptive force by backing away from them.",113
-fomc-corpus,1985,I don't see how we can back away.,9
-fomc-corpus,1985,Their total debt has been declining sharply. It has been rather fortunate that their debt has been running off as potential buyers have run off also. It could be a fairly delicate situation.,36
-fomc-corpus,1985,I'm not sure it's running off all that much; some of that is seasonal.,16
-fomc-corpus,1985,"Well, but it was a billion dollars.",9
-fomc-corpus,1985,"It's about flat. There might have been a modest decline, but I don't think it was a big decline. They certainly have not been net money raisers.",32
-fomc-corpus,1985,"They were anticipating having to raise money from about now on, if I remember correctly. They had a flat period or a slight decline that would be natural but it would go up seasonally. Well, we have to ratify the transactions. [Approved without objection.] Mr. Kichline.",59
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,"Well, it all sounded rather complicated. I'm not sure of the message that emerged, but I'm sure that we are in a situation without any precedent in our lifetimes in many respects. There is instability in exchange rates and domestic financial markets, a very high dollar, an enormous budget deficit, and an enormous and growing trade deficit. Services are doing fine and the rest of the economy is not doing so well. What do you make out of it?",90
-fomc-corpus,1985,"Well, I thought the message was clearer than usual from Mr. Axilrod.",17
-fomc-corpus,1985,I thought Mr. Axilrod's message was that there is no way to get there from here.,21
-fomc-corpus,1985,"Without concentrating on the precise growth paths and the precise monetary policy decision, how do you assess the situation generally in the economy and financial markets, and what are the broad implications?",35
-fomc-corpus,1985,I find somewhat deplorable the way in which the latest number always dominates the year's forecast. Earlier in the year there was a widespread upgrading of projections for the year. Now we've had a month of relatively weak numbers and everybody is backtracking. I think one has to expect that with a moderate rate of growth the numbers will not always be strongly in one direction or the other and perhaps restrain one's eagerness always to take the latest numbers into account. I'm speaking to market forecasters. I would be willing to say we have made what seems to be a reasonable projection. Until there is pretty clear evidence that it is going off track we ought to stick by that and not follow the monthly ups and downs.,142
-fomc-corpus,1985,"But, Henry, I would suggest to you that it isn't just a monthly up and down. In the Greenbook, the staff has revised downward the first-quarter data and has revised downward certain other data that apply to periods of more than a month. They are looking at a 3.3 percent real growth number, which is down something like 10 percent. Certainly, the caveats are more imbedded in the material that is being reviewed than was true in February. We have just heard caveats with regard to business fixed investment. I would agree with those and add the comment, for whatever it's worth, that if I today still had the responsibility for Homart Development Co., I would not be starting one office building, one shopping center of any size, or one multiple unit dwelling in the United States of America. If you look at the curve of the starts in that area, it suggests something that is headed for explosion--an explosion downward. Okay, an implosion. That curve is just unsustainable in that part of the investment area broadly defined. We have seen since mid-1984 a decline in orders in category after category of business fixed investments. It's not just technology and it's not just heavy industry; it's virtually across the board. And it seems to me that a 6 percent growth in business fixed investment, broadly defined, for 1985 is just getting to be a less and less probable event. I would add to that the fragilities that were alluded to. If you pick up The Wall Street Journal this morning, there is a story about a major Canadian bank. Are we going to go a month without a large financial institution surprising the markets? Are we going to go two or three weeks without or some bank coming up with another $70 million loss in Paraguay or Ecuador or somewhere? This drumbeat of negative news is having its effect, if you can believe the part of the surveys of consumer attitudes toward financial institutions and finance. It seems to me that we have a very slow--not a moderate--growth, a very fragile financial system, and a very dubious [outlook for] business fixed investment, housing, and non-residential investment. We are looking at a very vulnerable year.",447
-fomc-corpus,1985,"Let me make a few comments, partly reinforced by going to a few board of directors meetings of various Federal Reserve Banks recently and hearing businessmen from the industrial sector of the economy talking. I think there are quite different trends in the industrial sector and elsewhere in the economy. But I don't think there is any doubt that the present trade picture and the prospects for the trade picture are having effects. The question is whether it is cutting the legs off of any expansion in that area or worse. We have seen the analysis. We have seen the event in the past couple of years where a lot of domestic demand has gone abroad, perhaps most strikingly in the area of investment goods. I think the question now--and the answer is not fully ascertainable but there are some symptoms--is whether the level of the dollar and the competitiveness of foreign goods are cutting investment expenditures--not just the supply of investment spending but the willingness to invest at all. Well, I mean ""at all"" as a relative term; let me say ""at anything like the momentum that it had before."" We have had a long series of production and orders figures that, with the exception of February which had some recovery, have been pretty flat. I don't have the sense, and computer manufacturers don't seem to have the sense, that there is any great thrust anymore in that area of the economy that had been the strongest. Now, that may be partly because supply conditions have increased but the indications are for less robustness there. And, of course, in many other areas of heavier equipment there wasn't much recovery at all anyway. In the commercial construction area that Governor Martin alluded to, the current figures are still going up strongly but it's hard to believe that they are going to go up indefinitely. New single-family housing is doing all right and could continue to do all right; I don't know how much of an expansionary force it is going to be. The mining and energy areas don't seem to be going anyplace, to put it kindly. I don't think the farmers are going to be a great source of expansionary thrust in the economy in terms of what they buy. So that's just reinforcing all the questions that already have been cited on the investment side. In the meanwhile, consumption so far is doing all right and service spending, of course, goes on. I might mention automobiles, which are doing just fine, but I don't know whether there are any prospects for any increases there partly because if the demand increased, I don't think the manufacturers--many of whom are more [unintelligible]--want to either increase capacity or employment in that industry. They have gone about as far they are going to go. If there are going to be any more cars sold, my sense is that they are going to be imported. So, while that's been a good area, it's not an area of great upward thrust. I can't avoid having the feeling that the kind of forecast the staff has may be as reasonable as other forecasts, as we always say, but it looks to me like something within the limits of a ceiling. It's hard to see where we can get more thrust out of the economy than they are projecting and I can see conditions arising, particularly on the import side, that might undercut the kind of forecast they have. On the inflation side, I think we also have a two-sided situation. On the services side, prices tend to go up with some momentum, and I'm not sure that's going to change. I'm sure it's not going to change much in the short run; it may be getting a little better but it's not suddenly going to turn toward stability. Prices on the goods side of the economy are basically flat. So, it's a little hard to see in these circumstances--and I'm assuming no major changes in monetary policy, fiscal policy, the dollar, and foreign developments--any great break-out there. Of course, we have the background of the financial strains that have been mentioned. I'll at least stop there and you can all shoot at that analysis. Mr. Boehne.",814
-fomc-corpus,1985,"One of the frustrating things about the economy is that it's so hard just to grab a simple summary of what it is that is going on. I think that already has been made clear in this discussion. There is just so much variability; there is just no national statement one could make about whether things are good or whether things are bad. Just to add to the complexity, I sense that in my District--which I suppose for 15 years or so has been more or less a laggard in the economy--some of this prosperity that has been in New England is beginning to drop down into the Mid-Atlantic states. So, we seem to be shifting our position among regions in the national economy. One just senses that things are probably a little better on average in the Middle Atlantic states than they are in some other parts of the country. But even within that relatively small area there are some real pockets of depression and unemployment in industry. If you look at agriculture, Si and Roger probably will continue to talk about the serious problems there; yet if you talk to farmers in Pennsylvania or in Delaware, they generally feel pretty good about the situation, and they are in considerably better shape than farmers elsewhere. So, it's this variability that I think is so frustrating. One isn't able to get a good handle on what is going on in any satisfying sense, and I think that variability causes a great deal of vulnerability in some particular areas. Let me just add a couple of points about imports. I am finding that [issue raised] at every meeting I attend--in small towns and big cities, with people in small business and big business. This import problem is quickly becoming much more of a political problem than an economic problem. Some of the Congressmen in my area, whom I've seen recently and who understand all the problems of trade restraint and all the good economic reasons why you don't want to do that, tell me that the political pressure is just getting so great they are not sure that they can resist doing something that they know isn't a very good idea. I think that is an indication of how widespread this is. The financial fragility issue, I think, is a rather interesting one. We are very close in Pennsylvania to Ohio. There was not any noticeable spillover, although it did raise consumer anxiety. Our institutions received lots of telephone calls but no real withdrawals occurred. But I think there is a difference. I think because of Ohio the financial fragility is more serious now than it was three weeks ago because the ordinary person understands it more. The ordinary person doesn't really understand government securities markets or international debt problems, but he does understand lines and the concern that he can't get his money out. So I think there is a new dimension to this fragility. Having made those observations, my general sense is that the economy is growing. I don't think that we're going to have a recession; I think it is growing. I do not sense any inflationary problems or any increase in inflation. So, without getting very specific about monetary policy, it seems to me that this is a good time not to do anything--just to stay where we are and not rock the boat from this quarter.",637
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"Mr. Chairman, it seems to me that the Greenbook projections for the first quarter and also for the rest of the year are pretty reasonable. I think, as Henry Wallich stated, that there is a tendency on our part to look at the most recent news in particular, and I think people have been focusing on the flash report for GNP. But if you look behind that and see that the survey on employment was taken during a bad week, it suggests that employment is probably a little stronger than the figures showed. As you mentioned, the consumer seems to be fairly strong and is spending with confidence, so that looks fairly good. So all in all, it looks to me like a pretty darn good performance for this stage of a business cycle; and it would be particularly good if we can count on inflation staying down. To me the policy implications stemming from that are that we ought to continue the same sort of policy we have been following the last several years. I wouldn't claim that the entire favorable outcome in the economy generally has been due solely to [monetary] policy, but I think it has done an awful lot to overcome the negative effects of the federal deficit on business confidence and the financial markets. And it probably also has helped to hold down inflationary pressures, although I think it is always important to keep in mind that a 4 percent inflation rate--or whatever the real rate is--is not really success over inflation in any sense. So, with that relatively optimistic view in mind, in relation to what some of the others have said around this table, I think a high priority ought to be given to trying to maintain the same sort of policy we've been following in the past. I would be very concerned if M1 were to move up above the upper band--not just out of the cone but above the upper band--or if we were to target something above that. I would be willing to tolerate a little less accommodative policy if necessary. I think the strength in the dollar is more or less preordained by the fiscal situation; if we try to resist that very much, we may find ourselves unleashing inflation a little more. So, I guess I'm considerably more hawkish than most of the people who have spoken thus far.",455
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"Well, like some of the others, I think the financial fragility is the new and potentially disruptive development that we're having in the economy. The Ohio situation, of course, did get a lot of national publicity--far more than Mississippi did eight years ago. That indicates something of the kind of concerns that people could have, but it's not the only thing. At our last meeting we were very much steeped and involved in the question of agricultural finance. Now, I don't think that has improved any in this period of time; it's just that Ohio took precedence over it and got more attention. The general savings and loan situation is pretty weak, as we all know, and the Home Loan Bank Board has been working hard to try to cut back on some of the lending that is totally unwarranted that has been done there. We're still subject to accidents, and not just like ESM. I noticed, Bob, that the strongest Texas bank reported in the last couple of days a surprising loss in loans to its directors; and it's just [without] question about the best of the Texas banks. Of course, is probably accident prone, and who knows what the next thing might be that will affect them. My view of the matter is that this probably will be affecting both peoples' attitudes toward the stability of finance and also the attitudes of lenders toward what their posture ought to be. I don't think it's at all a secret that the Comptroller of the Currency is taking a much tougher view in examinations now; he is classifying a lot more loans. And the national banks have a lot of exposure out there now that they didn't have a couple of years ago. I think that affects their attitudes and the Home Loan Bank Board is affecting S&L attitudes. So, both on the lending side--the availability of credit, which is something that Steve mentioned--and in terms of public attitudes, we have a new risk that I think has grown with the passage of time. And that probably will be reflected by a change in liquidity preferences. There is a little of that apparently in the market with Ohio but it could become very much stronger at some point in the future. I think it makes less dependable--not that they are dependable ever--but less dependable than usual the observation of the monetary numbers, because we don't know what kinds of attitudinal changes might be reflected in those numbers now or in the period ahead. I don't disagree with the staff forecast as a normative forecast. But I do think that the risks, stemming largely from the financial side, are on the down side.",517
-fomc-corpus,1985,Governor Gramley.,4
-fomc-corpus,1985,"I think Henry's point about looking over a longer period and not judging where the economy is going by last month's statistics is one that is worth repeating. If one looks at the first-quarter flash [for GNP] and compares it with where we are in the second quarter--during which time we have had a lot of erratic numbers--we're looking at growth of aggregate demand of around 3-3/4 percent and the growth of GNP is between 2-1/2 and 2-3/4 percent because we had a big drop in net exports during this period. What the staff is forecasting basically for the next 3 quarters is a continuation of that very moderate pace of growth in aggregate demand, a little under 4 percent, and a somewhat better GNP performance of about 1/2 percentage point less than the growth of aggregate demand because net exports are not going to drop so much. And that seems to me a reasonable forecast for the moment. I certainly agree that this confidence factor is one that's difficult to appraise, but presumably the staff thought about this in the process of putting together its forecast. I would remind you all that the increase in business fixed investment that they are talking about is a very, very substantial slowdown from what we saw in the first two years of recovery. In the first two years of recovery we have seen an increase in real business fixed investment of over 30 percent--a tremendous increase. And part of this forecast is a consequence, I think, of the erosion of confidence that has occurred. If you ask yourself what has happened typically in the third year of recovery in business fixed investment, typically it continues to go up and it does so even though corporate profits flatten out. The big difference besides the confidence factor this time is the fact that we have been looking at an actual decline in the rate of capacity utilization in manufacturing since the middle of last year. I would be inclined to give that some weight, but not an undue weight, because this is a recovery--as I would appraise it at least--in which the growth of business fixed investment by and large has not been related in any close way to the need for additional capacity. It has been replacement investment; it has been investment designed to cut costs and improve productivity; it has been investment driven very heavily by tax incentives and by technology. Having said all that, I would still come out--although I am a little less gloomy than the Chairman is--with the view that this is a forecast for which the risks are predominately on the down side. I don't see any serious concern that we're going to have more growth of aggregate demand during the course of 1985 and early 1986 than we would want.",550
-fomc-corpus,1985,Governor Rice.,3
-fomc-corpus,1985,"Well, Mr. Chairman, I find myself pretty much in agreement with many of the things that you pointed to, though I don't know if I would describe that as excessively gloomy. It depends upon the point of view from which you look at these things. There is a point that you made, which Lyle also pointed out, that I'd like to emphasize, and that is that the staff forecast is probably the best we can hope for. The risks to the forecast seem to me to be on the down side. Looking at the economy, it is very hard to see where a kick to the growth could occur. All the factors pointed to by the Chairman suggest that any higher growth rate than the one projected by the staff just seems to be unlikely. Now having said that, I do think the staff forecast for the short run is a good one. I think the current rate of expansion is probably a comfortable one but there are these vulnerabilities that Pres pointed to. Although the Chairman pointed out that consumer expenditures are really the main source of strength in the economy, it seems to me that as we go out into the year--into the second half--that there is some risk that consumer spending may not hold up. While as of now it seems possible to maintain current rates of growth, declining over time, I wouldn't be surprised at all if in fact the result of these vulnerabilities coming from declines of investment and also the lagged effect of import [penetration] on activity in the economy all add up to much lower rates of growth toward the end of the year than we expect at the present time. Just to summarize, I would say that while the staff forecast seems to me at this time to be the most likely outcome, we have to be prepared to see significantly lower rates of growth than forecast. As far as the fragility of the financial system, I was much more worried about that a week ago than I am today. I'm encouraged by the way the market has accepted the developments in Ohio and I'm encouraged by the way the people in Ohio have accepted what's going on there. So I'm not as worried as I might have been. While there are these threats to confidence, I would not at this point allow my concern about fragility in the system to influence my monetary policy prescription.",456
-fomc-corpus,1985,Mr. Stern has a special burden to say something fresh and insightful!,14
-fomc-corpus,1985,"I don't know if that's good or bad! I don't think there is any doubt that we have a two-tiered economy or whatever you want to call it. In our District, probably the best way to put it is an urban versus a rural split. The urban economies generally are doing rather well. The rural economies, because of agriculture and mining and some problems in timber, are not doing well and, obviously, that's where the fragility is. Looking at the aggregate picture, though, I must say that with the exception of the February employment and hours statistics in manufacturing I thought the statistics were reasonably positive in terms of retail sales, housing, and continuing increases in commercial construction and so forth. And with that interpretation, I'm not inclined at this point to change my view of the outlook for the balance of the year very much. I continue to think that the economy probably will do somewhat better than the Greenbook forecast. I admit that, yes, there are a lot of uncertainties. But if I were to look at it sector by sector, I would come out with a sense that the interest-sensitive sectors might do a little better than the Greenbook suggests. I would simply note that nominal interest rates today--real rates, of course, are difficult to gauge--are anywhere from a point and half to three points below their peaks of last year, and of course the economy did well last year. So, one should take that into [account in formulating] monetary policy in general. I agree that there are a lot of things that we have to be sensitive to in terms of domestic and international market factors and problems in specific institutions and in specific sectors of the economy. But I'm a little concerned; we don't want to tolerate excessive expansion in money--probably under any circumstances--but as an antidote to some of those things.",367
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Well, Mr. Chairman, I'll start with my own District. I think what I'm seeing and hearing is relatively strong growth on average, although there are some weak spots both geographically and in various sectors of that economy. But I'm hearing a lot of confidence even in those areas where economic performance hasn't been all that strong. There has been no spillover at all from the ESM or the Ohio thrift situations that I can tell. We have had some panicky questions from old ladies who had money in Florida thrifts, but there was no run on any of those institutions and no problems. As I looked at the national economy, I was somewhat surprised by the lower growth rate of GNP--the 2.1 percent flash that came out. But, given the weather situation in February and some other factors, my hunch is that that might be revised up somewhat. I was more concerned, frankly, about the flash number for the deflator, at 5.4 percent. I don't know whether the staff considers that to be a fluke or whether it represents a bottoming out of inflation.",221
-fomc-corpus,1985,That is an artificial statistic that is virtually meaningless--not economics.,13
-fomc-corpus,1985,"Well, people seem to look at it in any event.",12
-fomc-corpus,1985,So people look at it. It's not reflected in any other inflation figures.,15
-fomc-corpus,1985,"Well, whether it's economically significant or not, if there are other factors in the economy that represent an increase in inflation or inflationary expectations, I think that is something we have to be concerned about.",40
-fomc-corpus,1985,"You might just address yourself to that figure, Mr. Kichline. I don't think you mentioned it. I hope your conclusion is similar to mine.",31
-fomc-corpus,1985,"I'll get around to that. In terms of the price side, for the fixed-weight measure we have 3.1 percent and they have 3.3 percent, so we're off by two-tenths. All of this is attributable to shifting weights--and Mr. Truman's area is part of the problem because it's a quirky thing having to do with oil imports being subtracted out on the import side. We imported less oil and there is no offset showing up in inventories. So, whether or not it is entirely statistical like that--. It may indeed be revised away. If not, we would anticipate that the following quarter we could be surprised with a more favorable outcome.",137
-fomc-corpus,1985,"We have virtually no increase in producer prices this quarter, apparently a moderately low increase in consumer prices, and the fixed-weight index declined or actually, I guess, stayed the same. I don't think you should worry too much about the GNP deflator.",51
-fomc-corpus,1985,"Does this mean, Jim, that you think the real part might be a little larger?",18
-fomc-corpus,1985,"No. You mean in terms of the current quarter, right? I think basically what is happening is that they have taken something out in one place and they don't see it appearing in another place. When all is said and done, it may well be that we will get lower nominal and somewhat lower prices.",61
-fomc-corpus,1985,At about the same real--?,7
-fomc-corpus,1985,"Correct. Well, we have a real number that's higher than their 2.1 percent, so that's open to question--whether it will get revised up or whether we are wrong.",37
-fomc-corpus,1985,"We're expecting a higher real number and they say that real is going to be too low. Maybe it will be, but when you look at the assumptions they have made to put that figure together you're not automatically led to that conclusion. They assume that the trade balance will diminish from the January figure to a not very high level. All that has to happen is to have a higher trade balance. If it ran at the January level, that's going to knock off half the GNP growth that they have. They have no cutback in inventory accumulation; in fact, they have a slight increase from the January level, if I remember. These are figures they don't know at all and nobody knows at all. But just glancing at it and making some judgment, I don't think you can argue that the assumptions they have made are wildly on the down side. If I were making those assumptions, I would make them the other way. We just don't know what the trade balance is and [whether] production is flat or down.",204
-fomc-corpus,1985,"In any event, although I would lower my general thinking about GNP somewhat as a result of what has happened in the first quarter, I'm in general agreement with the forecast in the Greenbook. I personally think that the outlook for 1985 still looks pretty comfortable. Perhaps, as has been alluded to here earlier, the markets and market observers have become used to some rather high numbers in terms of GNP, and when the numbers move down to the trend rate people get a little excited. I'm not sure we should do that. I think we have to adjust our thinking to lower rates of growth and the view that those lower rates of growth are not necessarily bad. So, I'm not particularly gloomy about 1985. I think we're going to continue to have good sustainable growth in the economy. The forecast for the dollar, I suppose, is as reasonable as one can think at this time. I would just like to repeat something that was said earlier. In my District, too, I continue to hear over and over again this cry for protectionism as a result of imports, particularly in the textile and apparel industries. Indeed, some bills already have been introduced by Georgia Congressmen with respect to those industries. My real concern relates to the fragility question but not so much because of what happened in Ohio. There apparently hasn't been any particular spillover from that, except perhaps in attitudes; I am more concerned about the state of the thrift industry generally, including insured thrifts. We have that FCA situation overhanging the market, and I think that is a very serious concern that I'm sure we all share. In terms of what this means for monetary policy, I think we should certainly not do anything to loosen policy. My own preference would be a very slight tightening of policy. I won't go into any specifics at this point but I would like to see us at least hold where we are and perhaps move a bit more toward a tightening posture.",392
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"As far as the economy is concerned, I too have a pretty murky crystal ball at this time. We have a forecast that actually is a couple tenths stronger than the Greenbook forecast in terms of real GNP. I don't see any particular reason to change that right now, although I would concede that the balance of risks at this point seems to be on the down side rather than the up side. I do think that business attitudes, and perhaps consumer attitudes as well, have soured a bit even since we met last. As has already been said, part of that reflects the now broad-based--verging on universal--concerns about imports and the way in which they are affecting the domestic economy. I myself also sense a renewed sense of skepticism, notwithstanding Mr. Domenici's efforts, on the budget. At this point I think that skepticism, at least as it reaches me, is bordering on cynicism. Obviously, the Ohio situation and related problems have taken some toll; I'll get back to that in a minute. On the price side, I don't pay any attention to the GNP deflator but I must confess in dissecting the producer and consumer price indexes for the last couple of months, I do see a couple of things there that bother me. I can't imagine why they are there. For example, in the wholesale area for finished goods--or producer goods or whatever we call them now--there was a detectable uptick in the rate of increase in both January and February, which gets sloughed off as being used cars one month and something else another month. I see a little of the same thing, again hardly detectable, in the consumer area. Neither of those things in and of themselves is of great concern; but they are of concern in the sense that I can't imagine why they are there at all under the current circumstances. I certainly would associate myself with those who say that in some ways the greatest concern right now is this financial fragility. But I end up a little differently than some who have spoken. I must say I am very hard pressed, notwithstanding the efforts of the Comptroller and others, to see any renewed burst of conservatism or discipline in lending policies and financial market practices in general. If you look at just the growth of total credit, you don't see it. If you look at the ways in which activities are being financed off balance sheets and so forth, you don't see it. To the contrary, you can still find--without looking very hard--instances in which banking organizations are moving in the direction of more liberal lending policies in a very deliberate sense. So I would have, if anything, more concern there in that I do not see any real hard pervasive evidence of the kind of discipline in the financial sector that I think we ultimately are going to need. So far as the Ohio situation is concerned, I think the jury is still out. Karen probably knows more than I do about this, but it seems to me a distinct possibility that we still are facing a situation in which small depositors may end up losing money. If indeed that is the case, I would suggest that the jury may still be out in terms of the psychology of that and how that plays out over time. I'm not sure what to do about these financial soft spots. On the one hand, you might argue that a more accommodative policy would help; but to the extent that underlying discipline isn't there in the first place, I suppose you could argue that a more accommodative policy could hurt them. I'm not sure that we can solve that problem by the conventional kind of wiggles in monetary policy. But I think it is a very, very significant overhang on the overall situation right now.",749
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Well, it has been made pretty clear, Mr. Chairman, that in some ways trying to describe the economy is like the blind man trying to describe the elephant: It depends on what part of the beast you have hold of. I don't think we should be too surprised about what's going on in the world, or at least in the United States these days, in the sense that some academicians over the years have made it pretty clear that in an open economy, which we have, and with floating exchange rates, which we have, and with few if any inhibitions on capital flows, which is the case, that over time the stimulus coming from a fiscal deficit will be offset largely by a deteriorating foreign trade situation. That pretty well describes what has been going on now for some time in the United States. The weakness in industrial production and the weakness in manufacturing employment that we are seeing simply [unintelligible] that domestic adjustment for our foreign trade weakness. I suspect we're going to see more rather than less of that. The judgment really comes down to what one thinks is going to happen in the remaining months of this year. Just in the time of the 6 weeks since our last meeting our staff has become somewhat more pessimistic than the Board's staff; they wouldn't be surprised to see a second half in which the GNP is growing very slowly and may possibly even be flat. The basis for that rather pessimistic conclusion is the judgment--with which one could easily quarrel, and I assume the staff here would quarrel with it--that the dollar will continue to be strong. Their judgment is that it is not going to weaken appreciably and that the foreign trade situation will continue to deteriorate. Now, as I said, that's a judgment that is controversial, but that's why our particular staff forecast this month is markedly less optimistic than last month and less optimistic than the Board staff's forecast. Having said all that, I don't really believe that there is an awful lot that we can do through monetary policy that we haven't already done. We have been pretty generous in the provision of monetary and credit growth. I don't think there is an awful lot more we can do to run an expansive monetary policy to cure this enormous imbalance that you and others have so well described on the fiscal side. The bottom line is that I would be one of those to say this is no time to rock the boat. It's not any time to be squeezing down on monetary growth, and I also wouldn't be in favor of trying to accelerate beyond what we've already done. I would feel comfortable with coasting along near the upper end of this band, as we have been, for the balance of the year.",541
-fomc-corpus,1985,Mr. Morris.,4
-fomc-corpus,1985,"Well, Mr. Chairman, when the Ohio situation broke, I was very concerned because in Massachusetts we have more non-federally insured deposits in savings banks alone [than in Ohio] and then another $5 billion in cooperative banks and credit unions.",50
-fomc-corpus,1985,They're all run by good conservative Yankees!,8
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,They used to be anyway.,6
-fomc-corpus,1985,"I tried 10 years ago, in collaboration with the bank commissioner, to get a bill through requiring federal deposit insurance on all depository institutions in the state. I didn't get very far. I was afraid in this instance that we'd have a story in the Boston Globe to the effect that what is happening in Ohio is nothing compared to what could happen in Massachusetts and that the paper would list all of the uninsured banks and so on. That hasn't happened. While several of the banks substantially increased their currency orders to be ready for a run, the run has not happened. But we have had one positive effect from it so far, and that is that about 25 of these institutions have applied for FDIC insurance. Most of them are the larger banks and most of them are in pretty good shape, so I don't think there's any question about their getting insurance. If we get enough of them signed up, I think the $400 million fund that we have will be able to take care of the smaller institutions and we won't have a situation in Massachusetts where the failure of one institution could absorb the whole fund. On the economic side, Mr. Chairman, you're right that the computer industry is suffering a little slowdown here. But I think that's a reflection not only of an economic slowdown in general but of the fact that this industry had enormous growth last year. Whereas a year ago there was a shortage of semiconductors, now there's a glut; and there's a glut of computer hardware in general. But I noted that in February there was a big increase in new orders for computers; it could be that we're coming to the end of that inventory adjustment problem. A month ago I took the position that I thought the economy would do better than the staff projection. I still feel that way, but the evidence coming in during the past month certainly has not lent any support to my position. I had expected a much bigger bounce from the decline in interest rates than we have gotten. The decline in interest rates may have increased the demand for money but it doesn't seem to have increased the demand for goods and services. Just why we have had such a modest response to what was a fairly substantial decline in interest rates is not very clear to me. So, I'm inclined to have the same view as Ed Boehne: that despite the growth of M1, which has often not been a very good indicator for monetary policy in recent years, it would be wise for us to sit still until we see how the numbers for the real economy are going to go. As I said, they have been difficult for me to understand in the light of the decline in interest rates, the strength of the stock market, and other indicators that had suggested an upturn in the animal spirits. That's not showing through in the market place, and maybe it will, but until then--",568
-fomc-corpus,1985,I suggest to you that imports are a great antidote to animal spirits.,15
-fomc-corpus,1985,"Yes, I think you're quite right. You're also right in saying we are in an unprecedented situation here. I don't think our economic history can tell us an awful lot about what the probable future is going to hold when the basic conditions are so out of line with anything we have ever seen before. That again, I suppose, is an argument for not making any big move here.",76
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Well, the snow is gone in Chicago and I was feeling pretty good until I got here! I think any comments I would make on the economic scene are probably consistent with what I've said at previous meetings. The expansion in the Middle West continues, albeit at a more modest rate than is true with regard to the national figures. But these imbalances also continue. Some of the good businesses are doing quite well; autos and retail sales are examples of that and they anticipate a good year. The bad businesses, though, are not doing well. In some cases they are really doing very, very badly. Agriculture and anything to do with agriculture--capital goods, machine tools, and the like--are examples of that. A couple of more specific comments: Consistent with what other people have suggested, I certainly am hearing more and more about the impact this high value of the dollar is having with regard to both imports and exports. And I think there's somewhat of a grim, growing realization with the passage of time that the impact caused by this is becoming a little more permanent. There is an awful lot of foreign inventory that has been shipped and is wandering around the country. Distribution channels by and large are in place and I think have been established in a way that is going to be very difficult to break. A lot of production facilities have been closed; I think that's another way of saying that we may have become more dependent on foreign markets than we earlier realized. And I think there's a growing realization of that. Another mini-comment regarding the economic outlook relates to railroad car loadings. I was talking to the CEO of a large company the other day that has a major operating railroad and he commented that this is the third consecutive month of decline in car loadings after 18 consecutive months of increases. There is some noise in the numbers; trucks and barges are taking a bigger part of all this and it's a little hard to track that. But still, there are some commodities that don't lend themselves to either truck or barge traffic that are showing declines. This guy would not suggest that this is a forecast of a turn in the economy. Nonetheless, in the past, it has been a pretty good indicator and I think it's something we ought to keep our eye on.",453
-fomc-corpus,1985,"Is that year-over-year, Si?",8
-fomc-corpus,1985,"Yes, year-over-year. Turning to monetary policy, it does seem to me that despite these cautionary comments, no one that I talk to is suggesting that we face a recession. I think they can see far enough through the year with regard to their order books and backlogs that they anticipate a continuation of the expansion. It does seem to me that growth in the aggregates has been pretty strong--although perhaps March will come in at a lower number--and that unless we begin to take some corrective actions here and now, we could be in a position later on of having to be a bit more abrupt. Therefore, I'd suggest not something overt but just a little gentle leaning to begin to be sure that we do have control of the aggregates and to preclude the possibility of inflationary pressures later on in the year.",164
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"Mr. Chairman, it's becoming increasingly difficult to remain optimistic.",12
-fomc-corpus,1985,Gee whiz!,4
-fomc-corpus,1985,That's the worst comment I've heard all day!,9
-fomc-corpus,1985,"In our District, the economy continues to advance slowly. There are areas of concern. Obviously, the energy picture is pretty cloudy right now; you've all read about that. Rigs in Texas are down close to 9 percent over a year ago. While there has been a little stability in the oil price situation, most of the people I've talked to are not very optimistic. The construction side, on balance, is fairly stable; but that's rather misleading because multifamily units have taken a real nose dive. On the other hand, our commercial construction activity is picking up and that had been going at a fairly torrid pace down our way anyway. The banks, in increasing their lending, have shown rather significant expansion in loans and in the real estate area. Chuck made reference to one of our major banking organizations getting in the press. They have, of course, but that came right on the heels of the Ohio situation. But our other bank holding companies, both major and second-tier, also have been in the press. We had a fairly significant merger called off because [unintelligible] the condition of the two marriage partners, and they decided they had better go their own way. Our largest bank holding company has been in somewhat of a holding pattern and is trying to remain as quiet as possible. In the second-tier group, we have holding companies in Dallas that have all of their problems, including the infighting within their managements, being aired in the newspapers. We have a similar situation with a holding company out in New Mexico where the chief executive officer has been ousted and he has filed a $35 million lawsuit. All of this is just being spread everywhere and that doesn't instill confidence. On the economy generally, I have not picked up many comments indicating that there's real concern that we're going to go into recession. I have had a few rather disturbing comments made to me--and this is certainly anecdotal--along the lines that, well, maybe right now is a time where a little inflation wouldn't be all that bad. This is coming primarily from real estate developers. The first-quarter GNP was below my expectations. I do remind myself, though, that we have had little surprises from time to time; whether this one is going to stick or whether it's going to bounce around, I guess is highly debatable. On the fragility side, much as Jerry said, I'm not too sure that monetary policy can do very much about that, at least in the current circumstances. I would be satisfied personally to stay just about where we are on policy. Any tilt on that would probably be in the direction of a bit of concern about the growth in money.",536
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"Mr. Chairman, I want to comment briefly on the housing market outlook, partly because there have been comments which were rather optimistic in that area that I want to dissent from. If you follow the secondary market reports, it's clear that fixed-rate mortgage rates have been rising week-by-week. There have been some weeks in which the jump has been 10 or 15 basis points. We are all aware that there is a good deal less use of adjustable rate mortgages now. And to the extent that there's a shift in the borrower's purview here onto the [lender's], you're talking about a 233 basis point increase in the stated rate, going from adjustable to fixed on average--at least as far as Freddie Mac data are concerned. The borrowers who are in the lower down payment category are facing higher private mortgage insurance premiums today if they are unfortunate enough to have to use that device. And that premium, of course, goes to the qualification of the borrower as does the higher rate that is shown in the secondary market data. The mortgage insurers are reporting very heavy underwriting losses, which means that their credit analyses are more severe. Some of these companies are going to lose in last year plus this year an amount equal to their whole capital base of only a few years ago. So, they are likely to be slightly more conservative in their underwriting. The same comment can apply to the mortgage originator who faces delinquency rates starting with 30-day delinquencies of 5 or 6 or 7 percent--rates they have not faced in their whole careers, unless they're up in years a bit. And, of course, the rate of foreclosure losses is significant. The motivation of the borrower of having an investment as well as shelter is diminishing in many sections of the country. Indeed, there has been deflation in housing prices in certain price brackets in certain parts of the country. So, for us to attain the forecast of 1.75 million single-family units plus multifamily units I don't think is feasible. Added to the investment downside risk, I think, is a very substantial downside risk in housing.",424
-fomc-corpus,1985,I just note that prices of plywood have declined by 10 to 15 percent in the last two months to the lowest point since the [unintelligible] of the recession. Lumber prices are not doing a lot better than that.,48
-fomc-corpus,1985,A lot of them are Canadian.,7
-fomc-corpus,1985,That reflects part of the import situation; no doubt about that.,13
-fomc-corpus,1985,I think it's not even Canadian; they are importing timber even from places far more distant than Canada.,20
-fomc-corpus,1985,"True, true.",4
-fomc-corpus,1985,"How do you feel about multifamilies, Pres?",11
-fomc-corpus,1985,"Well, the vacancy rate is so high and the overbuilding is so substantial that, of course, that too is a vulnerable market. I don't know how a developer looks on the proposed tax changes. I take it there hasn't been enough debate on those to reverse that hold that it seemed to place on the syndicated apartment developer.",65
-fomc-corpus,1985,Mrs. Horn.,4
-fomc-corpus,1985,"Mr. Chairman, I agree in general with the staff forecast. I also agree with several people who have said that the investment outlook is very crucial to the forecast. A lot of numbers for sectors and for various orders and so forth have been quoted. The only comment I'd add--and in adding this I will say that I really haven't yet revised down substantially my outlook for investment this year--is that the longer-term incentives for investment remain favorable. And I think that, added to the list of the rather mixed or flat [indicators], causes me to think there is still hope in the investment area.",121
-fomc-corpus,1985,What are those long-term favorable aspects?,8
-fomc-corpus,1985,"Well, they really go back to some of the law changes in 1980, if my date is right--the sorts of things that I think probably caused the real return on investment to increase over a period of years and gradually put an underlying floor on investment that way. Turning to uncertainties, so far I think the Ohio situation has had a minimal effect on economic activity. Of course, it has had a larger effect on banking structure, but I certainly agree with Jerry's statement that the jury is still out there. Of the 71 institutions plus Home State that were closed, only about 20 are fully open today. As the week passes we expect several more, and perhaps several large ones, to be added to that list. But eventually, as this situation unfolds, there are some that will not qualify for federal insurance or otherwise qualify to open without recapitalization or, in some cases, that will not be enough and they will have to be merged or acquired successfully in order to keep the depositors whole. Public confidence has been running well ever since the Ohio legislature passed the act that requires federal insurance, essentially, plus some other ways to reopen. And that is being supported by these [recent] openings. But there will come a time when openings will not be so easy--if easy is the word, which it isn't--as it has been this week. Then the realization that either it will be or may be difficult to sell some of these institutions could once again come into the public eye. Having said all that, the financial fragility issue that I really worry about is not so much the Ohio one--though there could still be surprises down the road on that--but the overall one that we've been discussing for months, or maybe even years, around this table. And the fact that we had a very close look at that in the last several weeks and some groups who don't normally take such a close look--that is, individuals and consumers--also had a close look suggests that that group may be particularly sensitive if [they are] hit again. Overall, I do judge the financial fragility issue to continue to be very worrisome. As for monetary policy, taking all these things together, I would very much like not to find myself in a position three months from now of wanting to make a significant move in monetary policy; and I'd like to end up three months from now in a position where we have a good chance of being in the [monetary growth] ranges by year-end.",505
-fomc-corpus,1985,Let me just ask if there were any runs on any of the S&Ls that did open up?,21
-fomc-corpus,1985,"Of the ones that opened up fully there has been to our knowledge no extraordinary activity whatsoever. Virtually all of them are open on this partial payout basis--that is $100 [per withdrawal] and $750 a month per depositor. In those cases there are four of them that have had heavy lobby traffic. But of course the withdrawals are severely limited so the [total] withdrawals are in the realm of reason. And three of those four are ones that had experienced runs before the closing. All in all, I'd say so far the operation has been successful.",113
-fomc-corpus,1985,"It should probably be mentioned, Mr. Chairman, in that context that the amount of borrowing related to these thrifts has risen. Counting yesterday, when it rose another $4 million, the amount outstanding is $40.5 million.",47
-fomc-corpus,1985,I'd add that since they are open for the partial payouts and such borrowing is permitted to support that activity we would expect borrowing to increase each day for some time now.,33
-fomc-corpus,1985,"Karen, if a person has an account in his or her name and a joint account with a spouse--",21
-fomc-corpus,1985,Each account.,3
-fomc-corpus,1985,Each account could get $750.,7
-fomc-corpus,1985,Mr. Garbarini.,6
-fomc-corpus,1985,"Well, Mr. Chairman, given your statement about the good conservative New England Yankees, I guess it might be argumentative for me to say that I'm from a District that's in the heartland of conservatism. But at least I can say that we are centrally located and, therefore, somewhat contiguous to almost every area of fragility that has been discussed around this table. On the east we border the problem with savings and loans; on the northeast, central east and northwest, the agriculture problems; and on the southwest, the energy situation. However, because of that location we also touch upon some of the areas that my good friend at the right described as [experiencing] slow advancement, which can only be slow in terms of the standard of living that they've become accustomed to, I would say. So, when it comes to the economy we get very, very mixed signals. We recently held our initial meeting of our advisory council on small business and agriculture and heard some very interesting comments. We heard everything from statements that the only thing that will save agriculture is a complete government bailout, to statements that certain well managed agricultural areas that paid attention to their cash flows are doing very well, to encouraging statements that there's still a belief that technologically we have the capability of competing very well in the agricultural area with anyone in the world. Obviously, there's going to be a period of problems for those that did not manage well. I guess those mixed signals, as John Balles said, make it very difficult to describe the elephant. However, our best estimate would probably be something along the line of the real GNP growth of the staff forecast or perhaps just a little less. Perhaps of more concern to me is the fact that our estimate is also for somewhat greater inflation than the staff sees. And given all of those mixed signals and uncertainties, I would suggest that perhaps the advisable course for the System is to move very slowly and in the areas of its strength. Since I also have a slightly different opinion about what M1 tells us than one good Yankee from New England, I would say we should watch that very closely, not making moves of any magnitude. I would share Karen's concern about having to do something major later in the year. I certainly wouldn't want to see continued front loading of money that would cut our flexibility in the second half. On the other hand, I would hope that we would take any opportunity to continue with what our strength is, and that is to continue the long-range battle against inflation.",502
-fomc-corpus,1985,Ms. Seger.,5
-fomc-corpus,1985,"I want to thank the Chairman for visiting with some of the same people who have been talking to me for the last six months. If there's one theme that I get from these individuals, it's basically that their concerns involve the strong dollar--the surge in imports and the loss of export markets. These people include anyone from farmers to manufacturers but are primarily manufacturers. I heard within just the last couple of weeks, for example, that Ford Motors is closing the tractor plant that's right near where I have lived in the Detroit suburbs because they can no longer manufacture profitably in this country. They're going to move the operation overseas. I would just like to point out that once these movements are made they don't quickly reverse course. The dollar could take a dive in six months and it's unlikely, in my judgment, that they would then move back. So, I think the longer this goes on the more serious the consequences. And I don't think that we should take them lightly. Another thing I'd like to mention involves what I see as the risks in the staff forecast. As a cynic looking at consumer spending, what I see besides a lot of the spending going to imports is a lot of spending supported by credit--those magic plastic cards and things like that. In the auto industry, particularly, there are special terms--extending from 4 years to 5 years the term on a new car loan in order to get the monthly payment down sufficiently to qualify a buyer. You're living on borrowed time when that goes on to a very great degree. Also, there are tremendous special rate inducements; 8.8 percent is one number that you see, again as a means of trying to drag the people in off the streets and to get the monthly payments down so that they qualify. I think this is producing some good auto sales numbers at the moment, but it is the kind of foundation that to me looks like mush. The risk in business fixed investment has been mentioned by numerous people but I will repeat it. There are high vacancies in office buildings; there are major lags here and I don't think we've seen the full impact of these tax reform proposals on business spending. In the multifamily residential area, I would say ditto. There are substantial vacancies in apartment buildings and, also, I don't believe the tax response has shown up entirely. In terms of the dominant factors I think we should look at--and maybe this reflects my background, having held their hands and nursed the sick thrifts in 1981 and 1982--I see this fragility of the financial system as going far beyond Ohio. It is not that Ohio was an unimportant event. It certainly was a media event and made a lot of individuals aware of this problem. But I think there would be a lot of sick people around this country if they knew the condition of the rest of the thrifts and if they knew that probably a good 10 percent will go in the soup between now and sometime next year. And that's not because of somebody dipping in the till or a governor acting overly enthusiastically. These are fundamental problems with solvency and insolvency. And think what that does to FSLIC. To me it's like being reinsured by somebody who is three weeks from bankruptcy rather than bankrupt already. But I don't think that that word is generally out and that the problems are generally appreciated. The other factor I think we ought to give primary attention to in formulating monetary policy is this dollar strength that I've already referred to. I would be extremely concerned about any further rise in interest rates. I don't care if M1 growth goes to 37 percent next month, which I don't think it will. But this is the one thing--in case people haven't followed the thrift situation carefully--that does impact on thrifts very directly. It is the one thing that we do have an influence on that does hurt them or does influence them. If the increase in money market rates that has occurred since the last FOMC meeting--30 to 75 basis points or whatever it was--would just go on to total one percentage point and if that were factored into the cost of funds for thrifts, it would put somewhere between 50 and 75 percent of the industry in a loss situation. And that's on top of the ones that are already staring at insolvency. So, I think that interest rates are the connecting link and I don't think that we can ignore them if we're really concerned about this fragility problem. In fact, if I had been told at the last FOMC meeting that Steve and Peter would have been producing interest rate increases of 30 to 75 basis points, I would have dissented. So I hope that our move today will be moderate and that whatever we do we will take careful notice of what our steps are doing and will be doing to interest rates.",977
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Thank you, Mr. Chairman. My comments with regard to the economy are brief. Let me start by saying that we're in general agreement with the staff's forecast. I cannot quarrel with the comments that have been made that if there's a risk, the risk may be on the down side and not on the up side, because I don't see anything that indeed will move us to a higher level of output than has been forecast. Nor do I really see anything on the down side that will alter the judgment that that forecast is about right. I would, however, just note that the Tenth District probably is one of the better illustrations of the imbalances that exist within the economy that have been described. For example, on the plus side: we have a fairly large producer of automobiles--I think second in the nation--and that's going full out; the high-tech and defense industry is booming; commercial construction, at least in Kansas City and Omaha, is very vigorous. Aircraft production is a big component part of our activity and I've received an interesting report on aircraft most recently, and that is that the number of aircraft being produced is down, largely because of the inability of the aircraft producers to export. On the other hand, the dollar volume of aircraft being produced and sold is up simply because there has been a switch from the smaller type of aircraft back to the business jets, such as turbo jets, whose sales were dead in the water a year ago simply because business wasn't investing in that kind of capital good. So, there are parts of the economy that are faring very well. On the other side, I won't belabor the points on the energy, mining, and agricultural areas in which our District is very deeply involved, but all of them are flat on their backs. As for the fragility, there is fragility and it will begin to show up in the agricultural banks during 1985 as it has in the past. And I think that will accelerate somewhat. But there don't appear to be situations that can't be managed by the FDIC and by [FCA] and otherwise. But there will be a great deal of discussion about them as well as about the bankruptcy or the ceasing of business by the implement dealers, the grain dealers, and others that have been very important to the Main Street merchant in these small agricultural towns. And the impact is going to be very great. Just as a matter of personal interest, perhaps, there was a sale of a farm of some 700 acres in the little town of Platsburg, Missouri, and some 500 to 600 people showed up--mostly farmers and UAW retired workers--for whatever reason, to protest the sale on the courthouse steps. The farm was sold amid shouting and there was violence; there were 7 or 8 arrested, several injured in the melee, and they damaged the front doors to the courthouse where the sale took place. The reason I recite that event is because: (1) it does perhaps portend for the future what may happen as these farm sales increase; and (2) one of our ex-colleagues, Willis Winn, has his home in Platsburg, Missouri. I don't know that he was in the middle of it, and I doubt that he was.",661
-fomc-corpus,1985,It wasn't his farm was it?,7
-fomc-corpus,1985,"This happened on the 50th anniversary of a similar event in 1935 in which a federal marshal and his authorized [agents] tried to sell a farm on the courthouse steps of Clinton County in Platsburg. It was an unsuccessful sale; the crowd took off his pants and ran him out of town. They are more sophisticated now than they were 50 years ago. Turning to monetary policy: In my judgment, staying about where we are would be appropriate for the upcoming period and even for the three months of the second quarter. But I do have a concern that we not get ourselves in a position of letting money expand so rapidly that it takes all the flexibility away from the second half of the year and does not permit us, without some drastic moves, to get back within the bounds of the limits that we set for money growth at the last meeting. I would note also that we have been fairly expansive in money growth over the last three or four months and if there's any lagged effect of money growth on real output, then I think we shouldn't get too exercised at the moment about easing policy. In view of my concern about not getting caught in the last half of the year, then, I would be leaning to the side of snugging up just a bit through this second quarter.",260
-fomc-corpus,1985,I think we can go help the farmers by eating a doughnut or two!,16
-fomc-corpus,1985,"I detected a consensus on only one point: We're in a very difficult set of circumstances. I haven't heard anybody arguing for very bold moves in any direction. They may be justified, but I don't detect that we're in the mood to act on that. Given that we're in a very narrow sector, I'm not sure that what we do here is going to have major implications for the course of events in the next few months. We'll see what happens. We didn't talk much about all the contingencies that could happen later in the year, mainly revolving around the dollar and the budget. Nobody knows. If the dollar goes up much more, our dilemmas will be aggravated. If it comes down sharply, we'll have a different set of dilemmas but maybe a clearer set. A very steep drop in the dollar would give us, I think, some sense of the outlook turning more favorable over time, though maybe not immediately, but it also potentially could give us some inflationary problems. But I don't see what we can do to deal with that now. I don't think there is much we can do either about all this fragility in the short run [save] in some sense not aggravating it. I do think we are getting a very rapid growth in debt but I'm not sure we can do much about that either. I think that reflects some of the underlying imbalances in the economy. In the natural course of events it seems to me [appropriate] to remain somewhere around alternative B. We did have this fact that has been alluded to that borrowings have run consistently above what we started out to maintain, anyway--I suppose technically in part because excess reserves kept running above what we had assumed they would run. If one were starting with a notion of ""unchanged"" one has to define what ""unchanged"" is--whether it means borrowings or net borrowed reserves. Presumably we have been using borrowings recently. I must say that I think an overt tightening step at this stage--given the uncertainties in the business picture, the height of the dollar, and the financial markets--could turn out to rank as one of the more unfortunate bits of timing in our history. That's about where I am.",443
-fomc-corpus,1985,I agree that this is not the time to tighten. But it's also probably not the time to allow money growth to expand substantially above the band.,29
-fomc-corpus,1985,Suppose those two doctrines are inconsistent?,8
-fomc-corpus,1985,By tightening do you mean interest rates?,8
-fomc-corpus,1985,I didn't say that.,5
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,I suppose you could say by tightening that you mean reserve positions; that's what I mean.,18
-fomc-corpus,1985,"I think the danger of allowing M1 to continue to grow at a rapid rate is that people eventually will conclude that interest rates are going to go up and we're going to have to tighten. And we don't want that either. So my own feeling is that the best way to deal with our dilemma is ""steady as you go."" And, as you point out, the problem is to define that.",80
-fomc-corpus,1985,"Alternative B, if it works out, would cruise us right along this upper band for the time being. That seems to me not a bad outcome if we could get it. Fortunately, we have had this [slowing in] March; without March things really would be looking very grim.",58
-fomc-corpus,1985,"The latest very fragmentary numbers suggest that March might be just a touch higher than estimated. I don't think enough--well, we just don't know what it is. It could change from week-to-week. It's not enough to make a significant difference.",50
-fomc-corpus,1985,"Well, ""B"" means that all year we're going to be above the cone but we'll still be coming in approximately at the peak, at the [upper] end of the band. We have said that we might come in at the higher end. We have absolutely no margin here and this is what would concern me. If we get a further overshoot, then we'll be confronted with a need to do something two months from now that might be more drastic than what we would have to do now to slow it down. On the other hand, it--",111
-fomc-corpus,1985,It depends upon the environment in which we're operating. We don't have to slow it down.,18
-fomc-corpus,1985,"Yes. Well, it might well happen that we're taken off the hook by some development and we might wait for that, in that it is obvious that all the considerations relating to interest rates are adverse to any kind of tightening. Just name them: they are all negative except for the slowing of the money supply that I would like to bring about. If we can rely on March perpetuating itself at a reasonable rate, one can take that chance.",89
-fomc-corpus,1985,"Nobody knows. Although I guess that is the best econometric estimate--not quite perpetuating itself but that it is consistent with ""B.""",28
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,"I'm a little unclear on the current borrowing level and where we really are; perhaps Steve and Peter could clarify it. I have somewhat the feeling that we have been operating at a higher level since the last meeting than perhaps the target and that, as a consequence, the current level would take us someplace between ""B"" and ""C."" If that's right, that might suggest that ""B"" in fact would represent a slight easing from where we are. Is that a reasonable statement of the case?",99
-fomc-corpus,1985,"The borrowings have been running higher, that's for sure.",12
-fomc-corpus,1985,"We have been aiming at $350 million of borrowing but, as I said, for a couple of reasons--the main one being the greater demand for excess reserves--it has come out higher. I think particularly in that reserve period when borrowings averaged over $600 million there were some really special factors. Perhaps more indicative is this current reserve period when it's averaging about $470 million thus far. And even there I think it is probably being lifted some because of the greater demand for excess reserves.",99
-fomc-corpus,1985,When we have borrowings this low--and we had a couple of days when some big banks borrowed a large amount for what might kindly be called technical reasons--,32
-fomc-corpus,1985,There were times like that.,6
-fomc-corpus,1985,"They mismanaged their reserve positions. And when we're operating with borrowings in this range, a big lump is enough to affect the weekly average. One of them was $1.5 billion or something like that, I think, in one day. For a two-week period that's $100 million--and for a one-week period, $200 million--on the average. And it kind of comes out of the blue; the market wasn't all that tight but they--",94
-fomc-corpus,1985,"Another way to look at it, President Keehn, is that implied free reserves, so to speak, with $600 million in excess and $350 million in borrowing, are $250 million. In the first two-week period those free reserves ended up at $230 million but with $800 million of excess and $570 million of borrowing. In the second two-week period--the one that just ended, not the one we're in but the previous one--free reserves ended up at $110 million with $641 million of borrowing and $751 million of excess. When that period ended we thought the excess was $932 million. It has been revised down. So in that sense, we've been right around the path but borrowings came in high early and tended to stay up there [because of] occasional days of large borrowing.",165
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,"Well, it looks like alternative B with a hope and a prayer--that we start out the period with reserve positions about where they are. But I think we have to keep an open mind as we go through the next several weeks about the case for some snugging up there. There is a lot of wisdom to the point that you've made that we don't want to use up all our flexibility for later in the year, although one just can't lay out very precise contingency plans in terms of under what circumstances one might snug up or not. But I would start the period about where we are and keep an open mind--a fairly symmetrical open mind about what might happen as developments unfold through April.",138
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"In order to glorify the obvious, let me begin my statement with a reminder that we set the upper limit on M1, in my opinion, low relative to our assumptions about velocity this year. We attempted to give ourselves some running room by not reducing the upper limit of M2 and M3 so much. As you know, we came down from an 8 percent upper limit on M1 to 7 percent. It seems to me that lies behind the projection that we will run along the top of the so-called band with alternative B, which I support. Apparently, M1 is decelerating. The Chairman has indicated that the first estimate may be modified somewhat. I'm a little troubled that the results in the three econometric models that I follow seem to agree right now, which always gives me pause. They seem to agree that M1 at least, and also M2, will be coming down in this quarter. Secondly, we have the possible weakness in velocity, particularly in V1 that we discussed in February. I don't know what the velocity was in the first quarter but it must have been a minus 3 percent or something like that--7.4 percent compared with 10.3 percent. If we have flat or negative velocity, then to run along the top of the band does not seem to me to be that risky. Once again, I think these cones and bands are useful tools, of course, but I am very encouraged by the universal awareness here of the risks in the economy in so many of the real sectors and so many of the financial sectors and in the international and domestic situation. [Unintelligible] some slight difference from a band, the top of which was set in order to give a certain long-run signal, given the almost unprecedented risks matrix here, both real and financial. It seems to me, given the uncertainty with regard to velocity and the high probability of having a negative 1 percent or something of that sort, that around 7 percent is not an untoward goal for M1. So, I support alternative B. I support the $350 million borrowing and a reconsideration at the July meeting of the upper limit of the M1 band.",445
-fomc-corpus,1985,Mr Keehn.,4
-fomc-corpus,1985,"Well, let me try to make a case for something between ""B"" and ""C"" if I could. First, we did establish the ranges for the aggregates just a few weeks ago. And in your testimony I think you made it clear with regard to M1 that, with some caveats, we would be within the range but certainly within the upper part of the range. I think the earlier conversation around the table would have suggested that there are some greater risks this time than perhaps at the last meeting; nonetheless, nothing that I heard would cause a specific downward reduction in our forecast. The risks may be on the down side but they are not enough to suggest a downward revision in the forecast itself.",142
-fomc-corpus,1985,The staff did revise the forecast downward a little.,10
-fomc-corpus,1985,"Well, I'm talking about in a really major sense. I have a feeling that maybe we are currently between ""B"" and ""C"" and I would be in favor of maintaining the position that we have now with perhaps a slightly higher degree of pressure. Therefore, I might suggest for M1 a growth rate of, say, 6 percent, and a borrowing level of between $500 and $600 million, or in that area.",88
-fomc-corpus,1985,$500 to 600 million?,7
-fomc-corpus,1985,What sort of a funds rate does that likely give rise to?,13
-fomc-corpus,1985,"9 percent or higher. Higher than [unintelligible], particularly if we continue to use something like the current excess reserve number. Frankly, if the demand for excess reserves continues to run ahead of what we're using now, then I think the borrowing is going to tend to come out, say, $100 million or so higher than what we plug in there.",74
-fomc-corpus,1985,It looks like we're doing something wrong. Mr. Morris.,12
-fomc-corpus,1985,"Well, Mr. Chairman we have a conflict between M1 and the economic data. It seems to me that the more sensible thing would be to stay where we are until we see how this conflict is resolved. If we have a second quarter of strong M1 and relatively sluggish economic indicators, as we had for example in 1982, then I think we simply have to revise the target for M1. I think there is a real possibility we might have to do that. But in the meantime, I think alternative B is the most sensible course.",111
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"As I mentioned earlier, I think a lot of the economic success that we've enjoyed in the last year and half or so stems in part from our having done very well in meeting our M1 targets. In the last half of 1983 we came in about on target and we came in pretty closely on target for 1984. If, after our next meeting, it becomes apparent to the markets that we have aimed for a point such as ""B"" or ""A,"" which both are well above this upper band, then I think that's going to lead people to assume that we've thrown in the towel on inflation. I'd be very disturbed by aiming at any point above that upper band. As Roger suggested--and Steve and others made the point--if we do get to that point, then we have to make a pretty wrenching effort to get back to our targets and that involves obvious risks. So, as Steve stated very well, I think a little move now might go a long way; so I would come out preferring a path something like ""C."" I could live with something a little higher than that as long it weren't above the upper band and I think Si's suggestion of a borrowing range of $500 to $600 million would be about right. But what is more important to me than anything else is the reactive mechanism. What are we going to do if we find that the money supply isn't doing what we think it will do? It may be that we can actually stay within that range with falling rates. We really don't know because when the market is that tight the money supply is pretty hard to predict. So I think it would be a good idea to use an asymmetric directive that would require us to react much more strongly if we start showing too much [money] growth. I'd use ""would"" on the up side and ""might"" on the lower side, if it becomes weaker.",383
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"I would generally favor the specifications of ""B"" with one modification that I will come to in a minute. I would favor ""B"" with a symmetric approach to the directive, with the intention of not doing anything overt to change reserve availability immediately. Nevertheless, the one modification I would suggest--and this might be in the nature of splitting hairs--is reducing the [March to June] M1 target associated with alternative B to 6 percent. I think that might do a couple of things for us. One is that to the extent the long-run targets that we agreed to at our last meeting are appropriate, it seems to me it makes the second half of the year a little easier. That's one reason for doing it. But more fundamentally and more importantly in my mind, given my view of the economic outlook, I think that kind of target is certainly appropriate and would be associated with what I consider to be at least an adequate, and maybe a better than adequate, economic performance for the balance of the year. It seems to me that the practical implications of that modest reduction in the M1 target would be that we wouldn't have to do anything immediately in terms of reserve availability, as I said, but it would put us in a position where if money continued strong--as it has with the exception of March for the past few months--we could at least be in a position of considering whether we want to do something about it or not.",290
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Well, Mr. Chairman, I think the case has been pretty well made that we have all these uncertainties and that there is really not a compelling case, if you consider alternatives A, B and C, to make any bold moves. Contrary to our usual admonition of ""Don't sit there, do something,"" I would recommend the opposite approach this month: ""Don't do something, sit there."" I'd vote for ""B.""",85
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Because of the uncertainties that we've talked about in the economy and some of the strains on the financial industry, I would be inclined to accept the monetary specifications of alternative B. But if there were a bias, I would want to tilt a little, just a bit, toward snugging. The way I would do that would be not to push the borrowing back down to the $350 million level but to have it somewhere between $400 and $500 million. I think that might give us just a tad more pressure on reserves. Given the bias that I prefer, I also think that we should not respond to slower growth of money on the down side, so I would favor an asymmetrical directive.",139
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"I too would generally associate myself with alternative B but, for the reasons Mr. Stern mentioned and one other, I would favor having the M1 target at 6 percent--6, 7, and 8 percent [respectively for M1, M2, and M3]. In addition to the reasons that Gary stated, I think we have potentially a bit of a public relations problem in that 6-1/2 percent--and this really is splitting hairs--puts the target for the quarter above the parallel line. Against the background in which you and others of us have been saying that if there's a ""change in policy"" we would communicate it, I think that aiming at something that would be a hair above the parallel line at this point is susceptible to interpretation as a change in policy. So, I would like to see the 6 percent for the substantive reasons mentioned but also because it would just about kiss the parallel line.",190
-fomc-corpus,1985,Governor Gramley.,4
-fomc-corpus,1985,"I'm concerned, as many are, that over the long run--that is, the next 5 years or so--we will have an inflation problem that is probably going to get worse when the dollar begins to fall, so that less money growth is better than more. So, I would prefer to see the growth of M1 come in lower than 6-1/2 percent; but I wouldn't want to do anything to force it to do that. I like Ed's prescription of prayer better than Si Keehn's of raising the borrowing level to $500 or $600 million. It may be that by midyear we will regret this. But I don't think one can assume that, simply because money might be at the upper edge of the parallel line--maybe not even in close enough contact for an intimate kiss--at that point. I think we have to decide that later; we have to wait and see what economic conditions look like at that time. Six percent might make sense, cosmetically, for the M1 target for March to June. What I worry about, however, is that if we get a speed-up of tax refunds, we might have an increase in money growth for that reason, which really wouldn't make any significant difference to the course of economic activity. What I'd like to do is to adopt a course of policy now that keeps us really where we are. I don't want to see the fed funds rate go up to 9 percent and I don't want to see it go back down to 8 percent. I would like to see it hover in the range of 8-1/2 to 8-3/4 percent, or even 8-5/8 percent, which is about where it has been recently. I have a hunch that maybe we need a little higher level of initial borrowing than $350 million--maybe $400 million or somewhere around there. But the sense of my prescription would be to stay pretty steady at this time.",399
-fomc-corpus,1985,Do you think the Committee ought to hire a chaplain?,12
-fomc-corpus,1985,Governor Seger.,4
-fomc-corpus,1985,I guess I would like to begin with a question. Is the borrowing target really a target or isn't it? I sit here and I hear these numbers; yet at the next FOMC meeting I see what we come in with--,47
-fomc-corpus,1985,"Well, it is the number that's used in constructing the path for nonborrowed reserves, and the nonborrowed reserves are a target.",28
-fomc-corpus,1985,"Well, that isn't exactly my understanding. I think we tried to explain that in a memo a couple of meetings ago.",24
-fomc-corpus,1985,"It's very hard to control the distribution of reserves--other than nonborrowed--between borrowing and excess. It's very hard to control the distribution of free reserves. The market will tend to do that. Now, one can observe it as it comes; but if the market has the slightest idea that funds might track up for one reason or another [unintelligible] the borrowing will tend to come in early in a two-week period. And if it's high enough early enough, it's hard ever to get it down to target and that will manifest itself eventually in the excess reserves. Some of it we will take out in hitting our nonborrowed target but we won't take out all of it. So, to a great extent we're at the mercy of the market in that distribution. And I would think that the funds rate recently probably has been a bit higher than either Peter or I would have expected early in the period.",184
-fomc-corpus,1985,It's higher than I thought I understood at the last meeting.,12
-fomc-corpus,1985,"But it's not that much higher, I think, than if you had $350 million of borrowing and the same free reserves. If you had $500 million of borrowing and the same free reserves, it may be a little higher--perhaps an eighth of a point, I would guess--but it isn't very far off.",64
-fomc-corpus,1985,"At some point, though, do we at this Committee meeting have to take into account these changing attitudes toward excess reserves?",24
-fomc-corpus,1985,"That's something Mr. Sternlight can gauge in the course of the two-week period. All he can do is see what's happening to excess reserves and try to gauge a sense of the demands using whatever information we have, including how the funds rate is moving and what we think is governing the distribution of reserves.",61
-fomc-corpus,1985,"Well, okay.",4
-fomc-corpus,1985,"We have been doing that recently. We have been making an allowance in this current reserve period; even though $600 million is in there for excess reserves, we've been thinking of it as somewhat higher and not rushing in to take out what has looked over the last couple of days, for example, like more than enough reserves for the path.",68
-fomc-corpus,1985,It still seems that we're getting more of an interest rate impact than we expect or plan for at these meetings.,22
-fomc-corpus,1985,Slightly more.,5
-fomc-corpus,1985,"Well, Governor Seger, let me make just one more point on that. As I think was explained in the Bluebook, when money was running high, the borrowing assumption was thought to be in the $350 to $400 million range, so there was the merest little tilt in that sense. It probably got a little tighter--a shade marked up--[but] that has been reversed.",81
-fomc-corpus,1985,"We ended up with more borrowings than we intended, more excess reserves than were assumed, and we had somewhat higher interest rates than one might have guessed. But the Committee isn't operating on an interest rate target. If we wanted to operate on an interest rate target, we would; that's a decision the Committee could make.",64
-fomc-corpus,1985,"I understand that we're not operating on an interest rate target. But when we're trying to look at the various alternatives, one of the things I look at is what the expected interest rate impact will be given one choice versus another. And that's all I'm saying.",51
-fomc-corpus,1985,There's a certain temptation--,5
-fomc-corpus,1985,Sometimes they're wrong.,4
-fomc-corpus,1985,"In terms of the alternatives, if I had to choose among them, I'd take alternative B but with a tilt toward ""A"" rather than a tilt toward ""C"" because of my concerns about the impact of any additional increase in short-term interest rates on the financial system.",55
-fomc-corpus,1985,Mr. Garbarini.,6
-fomc-corpus,1985,"Well, Mr. Chairman, I expect to pray to the Lord to get His attention then have Him judge me on my actions. There is a lot of uncertainty. I would agree with much of what has been said by Jerry and Si. Although one might say that they differ, I think they differ only in the degree of the way to go about this. Since my bias is toward continuing to make sure that we don't over expand, I would be tempted to lean toward ""C."" But given the uncertainties and other considerations, I would say something in between ""B"" and ""C"" with--sharing Si's feeling--perhaps a slightly larger borrowing target.",132
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"Well, I rather like what Lyle said. I think, cosmetically, it would be desirable to put in a 6 percent M1 and we can review later whether or not we want to change the upper limit. But for now, I think the notion that growth would be running pretty parallel with that upward path line is a pretty good one. I think maybe the borrowings number could be snugged to $400 million, which is very little change. In fact, it may be a little easing from where we actually have been. But I wouldn't go as far as Si has suggested. I'm wondering if there are times--and I think there are--when it is desirable to pay more attention to the markets and less to the aggregates. And since I agree that it could be pretty destructive to have a sizable, significant, appreciable rise in the funds rate at this point, I wonder whether we shouldn't reduce [the top of] that range to 9 percent.",196
-fomc-corpus,1985,On the funds rate range?,6
-fomc-corpus,1985,"Yes. Maybe we ought to lower the rate to indicate some symmetry on this; perhaps we ought to raise the 6 percent [lower limit], but I think not. In any event, I think there ought to be an understanding that if following the course we're following is likely to take the funds rate above 9 percent, we certainly ought to talk about it. And perhaps we ought to signal that to the market by putting that in the directive.",90
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"I would favor alternative B with a modification to 6 percent [on M1 growth], making it 6, 7, and 8 percent, with borrowing of around $400 million.",39
-fomc-corpus,1985,Who else do we have here?,7
-fomc-corpus,1985,"Do you have me, Mr. Chairman?",9
-fomc-corpus,1985,No.,2
-fomc-corpus,1985,"I would favor the specifications of alternative B as presented, with $350 million on borrowing, because I think they are most likely to keep us where we are and are most likely to result in an 8-1/2 percent funds rate. I can live with any kind of refinement or fine tuning that would increase the chances of our staying at around an 8-1/2 percent funds rate.",81
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Thank you, Mr. Chairman. I would join those who would opt for a 6 percent target for M1--in other words, just a modest modification of alternative B for the reasons described by Jerry Corrigan and others. Clearly, that would imply maintaining the existing conditions, whatever that may mean. Therefore, in my mind it comes down to what borrowing level should be adopted. I would join those who would adopt a level in the $400 to $500 million range, tending toward $450 million I suppose, because based upon past experience it seems to me that we're talking about someplace around 8-1/2 to 8-5/8 percent as existing conditions with respect to interest rates. What gets us there is not clear, but it seems to me it would be something more than $350 or $400 million--something more in the $400 to $500 million range. I would just note that in the Bluebook there is a recognition of the seasonal borrowing and that the Desk would intend to accommodate the seasonal borrowing starting with a level of about $80 million in the current time period and increasing upward. Looking over the last three years, the second-quarter average for seasonal borrowing is something around $200 million, based upon the old seasonal borrowing privilege. Taking into consideration that we not only have a new temporary seasonal provision but we have expanded the regular seasonal provision to encompass a great many other banks, I hope the Desk will be mindful that that could explode on us, if indeed there are creditworthy borrowers out there to whom banks can pass through seasonal credit.",316
-fomc-corpus,1985,Are you getting any demand for that?,8
-fomc-corpus,1985,"No, as a matter of fact the demand that--. Well, first of all, are you talking about the temporary?",25
-fomc-corpus,1985,"Well, either one.",5
-fomc-corpus,1985,"The seasonal borrowing is at a very low level at the present time. I think the numbers are presently about $80 million nationwide, whereas in past years by this time we would have been up in the $150 million or so range and then would accelerate on up from that point. And we haven't seen that.",62
-fomc-corpus,1985,It's lower than normal.,5
-fomc-corpus,1985,It is lower than normal.,6
-fomc-corpus,1985,"Well, in 1984 and 1982 the spread of the funds rate over the discount rate was much higher than it is now. And in 1983 it was considerably less. So, the tendency of seasonal borrowing is to rise, obviously, from February to March but the level around which it fluctuates is affected by that spread.",69
-fomc-corpus,1985,You haven't had any inquiries for seasonal?,8
-fomc-corpus,1985,"No, as a matter of fact, it's interesting: I think they're sitting on their hands. The other aspect of this is that of the $650 million government provision--that is, the guaranteed loan program--only $8-1/2 million has been used. Nobody knows what to do, I think.",63
-fomc-corpus,1985,"Chuck, we have had a lot of inquiries; there is a tremendous amount of interest. I think people have reaffirmed that the problem was not liquidity but rather asset quality. Nonetheless, there have been a lot of inquiries and a general appreciation that, having faced the problem, we've developed a solution to try and deal with it. But no takers--",71
-fomc-corpus,1985,No takers.,4
-fomc-corpus,1985,"Well, two left [to speak]. Mrs. Horn.",12
-fomc-corpus,1985,"I would favor a borrowing level of about $500 million; that would put me in the ""B minus"" range. And I think the adjustment from 6-1/2 to 6 percent on M1 would be appropriate.",47
-fomc-corpus,1985,Governor Wallich.,4
-fomc-corpus,1985,"Well, at the margin. I could live with ""B"" as is. I would prefer it to be tightened a little to borrowing of $450 million and would accept a very mild increase in the funds rate and an M1 [target] at 6 percent.",54
-fomc-corpus,1985,"Well, we have a great desire for ""B"" if people know what ""B"" means. Just in terms of the numerology a number of people have said 6 percent [for M1 growth], and I would declare a victory for 6 percent on the simple basis that it's a round number.",62
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"It's a wonderful 6, 7, and 8 percent, and it will have no discernible effect on what we do! Now, whether the borrowings will have a discernible effect on what we do, we have some differences of opinion. My own bias would be on the lower side of that. In all this hypothesizing about what we might do, it's easy if money runs low; if it runs high, I'd want to know if it was running high after three consecutive months of decline in industrial production and the dollar 3 percent higher than it is now or whether it was running high with industrial production rising and the dollar falling. Then I would have a quite different attitude. I don't know how you forecast that at this point. And that's my problem. I have a sneaking suspicion that one of those is more likely than the other, which biases my attitude toward this a bit. The low end of the preferences on borrowing is roughly the $350 to $400 million range; then there are those who said a $500 million range and those who said $500 million or more.",222
-fomc-corpus,1985,I wanted $350 million; I don't think I said it.,13
-fomc-corpus,1985,Is borrowing at $500 to $600 million consistent with a 6 percent growth in Ml?,19
-fomc-corpus,1985,"Who knows? According to the analysis, $350 million is consistent with--",15
-fomc-corpus,1985,"Well, that's my point. I would think that--",11
-fomc-corpus,1985,$350 million is the midpoint of the range of our experts' [views] after examining all the entrails.,23
-fomc-corpus,1985,"Well, $500 to $600 million is going to put the funds rate under upward pressure isn't it? We didn't get an answer.",27
-fomc-corpus,1985,That's what it says here.,6
-fomc-corpus,1985,"It's hard to answer, but I would say that we would use whatever borrowing assumption the Committee arrives at to construct the path and we will make an excess reserves assumption. Let's say it's a little higher than $600 million--suppose it were $650 million. We will use that excess reserves assumption no matter what level of borrowing the Committee arrives at. So, if the Committee arrives at a level of borrowing at $500 million and we're assuming excess reserves of $650 million, in my mind, that would be a tighter reserve position than we have had over the previous period, comparing say, $350 to $400 million and $650 million. And that probably would lead to a funds rate somewhere above 8-1/2 percent, maybe 8-3/4 percent rather than one possibly below 8-1/2 percent or maybe 8-3/8 to 8-1/2 percent, which is my rough guess in relation to alternative B. Mr. Sternlight may have a somewhat different view.",207
-fomc-corpus,1985,"No, I think that would be--",8
-fomc-corpus,1985,"Well, maybe what we ought to do is have an agreement as to net borrowings rather than borrowings.",22
-fomc-corpus,1985,"Well, I'm not so sure about that. No, I think that would be a mistake, because we might get more demand for excess reserves. If we set a net borrowing target, that's putting more pressure on the market; I think that's in effect what happened last time. And I think we would not be getting the results that we wanted. What we do is make some judgments ex post, as a result of this meeting, that we have made an excess reserve assumption that is too low, though too low is a kind of qualified [assessment]. We didn't mind that so much when M1 was rising rapidly. If the business news isn't too weak or isn't doing anything extraordinary, we lean on that side or tolerate that side. If we're not so tolerant of that, we will be a little more aggressive in making sure that borrowings don't get too much above where we're talking about. It's very hard to judge that mechanically, because it depends upon what the market is thinking --how high the market shoves the federal funds rate. Therefore, we can get some surprisingly high borrowing in the beginning of the period, and there's not much we can do about it, once it is borrowed, without really putting out the money later in the week.",248
-fomc-corpus,1985,"Especially when we don't seem to understand why it is that there's this demand, particularly in the smaller institutions, for excess reserves.",25
-fomc-corpus,1985,"What you can do, if that's the judgment--you can't provide any insurance but if you want to lean against getting those kinds of borrowing figures--is put the money in a little earlier than you otherwise would put it in.",45
-fomc-corpus,1985,"Well, the market also runs ahead of itself. If you look at this whole period since the last Committee meeting, some of the increase in the funds rate, and I think some of the marginal pressure on the borrowings, just reflected the change in market psychology that took place early on in the period. There's no way in the world that you can try and wash that out. The market seems to do a pretty good job these days of getting ahead of this thing.",94
-fomc-corpus,1985,"From my standpoint, a not unreasonable approach would be to say that we're aiming at something like $350 to $400 million. That doesn't guarantee that in particular weeks or two-week periods it wouldn't be above that in particular circumstances; but we aim in that area with a little more caution or aggressiveness--depending upon which side you look at it--than we did last interval. That is lower than some people preferred, but there was a substantial body of opinion in that area. I think this would be consistent with the funds rate not going above 9 percent, but I don't know. Nobody knows. I've asked people what they want. We have a suggestion from Governor Partee to narrow that [funds rate] band. Does that attract support?",150
-fomc-corpus,1985,"I think if we lower that, that would signal to the market that we've shifted to a different kind of approach. In principle, I would like an early consultation; I think that makes a lot of sense--but not if we tell them we have narrowed the band and we are focused more on the funds rate.",63
-fomc-corpus,1985,"Yes, I could associate with that view. I think there may well be a case here for some bias in the direction of early consultation. But I would not want to see the formal band in the directive changed.",43
-fomc-corpus,1985,"I think it will be interpreted as: ""There they go, targeting interest rates."" I would join my two colleagues, or three colleagues, in opposing that.",32
-fomc-corpus,1985,There has been a lot of talk about targeting interest rates as we've gone around the table.,18
-fomc-corpus,1985,No. Speakers mentioned interest rates but nobody has been talking targeting; they are talking about what they would like to see.,24
-fomc-corpus,1985,Want to argue further Governor Partee?,8
-fomc-corpus,1985,No. I think it's out of character for me to even propose it!,15
-fomc-corpus,1985,"Well, let's assume that the funds rate band stays. But the message is that if the rate got above 9 percent, some people might be concerned enough to want to have a discussion of that. I think that message is clear. There aren't any other variables. The question is this borrowing number, if the 6, 7, 8 percent formulation is generally acceptable. Should I propose $350 to $400 million?",86
-fomc-corpus,1985,Yes sir.,3
-fomc-corpus,1985,"If we're successful in hitting $350 to $400 million, that will be the first time the market would have seen that number for about three or four weeks. I don't know what the reaction would be, but it could be one of ease, if we did it more than one week.",58
-fomc-corpus,1985,"Yes, we might be into very [sensitive]--",12
-fomc-corpus,1985,The market might like that.,6
-fomc-corpus,1985,"If I thought that were going to happen, I would share Roger's concern. I would rather have the market say: ""There has been no change in policy and the Fed is even-keeling now; it hasn't panicked because of those high growth numbers for money early in the year; on the other hand, it is not prepared to lower interest rates because it appears that the economy is going into recession."" So, if Roger is right, I'd rather see $450 million. I'm not sure.",100
-fomc-corpus,1985,"Well, the market looks at excess reserves too. And if the borrowing fluctuates some while excess fluctuates too, it seems to me they can put it together.",33
-fomc-corpus,1985,"Whatever number we put down here, I think one can be pretty sure that if excess reserves really jumped in some week, the way it would work out is that the borrowings probably would jump too. But we would be more cautious of them, probably, than we have been. There's a little peculiarity in the record: The last time we said [in the directive] that we didn't change, and we didn't have much change. If you just looked at borrowings, it looks like we tightened up. If we say we're [not] going to change this time and they go down, it looks like the opposite.",126
-fomc-corpus,1985,"Borrowings thus far this week, the week that we're going to publish--the week, not the two weeks--in the most recent Fed statements is running very close to $400 million, for whatever [that's worth].",44
-fomc-corpus,1985,"Taking account of all the noise, particularly that one two-week period where we had that $1-1/2 billion borrowing [by one] institution, I don't think the markets would sense that we're very far away from $400 million right now would they, Peter?",54
-fomc-corpus,1985,"They probably would guess that we had aimed at something like $400 to $500 million, because I think they dismissed that $600 million plus that we had in one two-week period. They probably would be thinking $400 to $500 million.",49
-fomc-corpus,1985,"Well, shouldn't we then consider using that figure?",10
-fomc-corpus,1985,"$350 million. That's what we [unintelligible] because we might get something on average a lot higher, just like now. $350 million.",32
-fomc-corpus,1985,"I think if we start with borrowing of $350 to $500 million, that ought to provide a lot of flexibility on exactly how that's interpreted, depending on demand for excess reserves and so on. And that's certainly not too wide a range of borrowing to be unreasonable.",53
-fomc-corpus,1985,What did you say--$350 to $500 million?,12
-fomc-corpus,1985,$350 to $500 million.,7
-fomc-corpus,1985,I said $400 million.,6
-fomc-corpus,1985,"Yes, I know. But I'm responding to Bob Black's suggestion that maybe we ought to start with $400 to $500 million instead of $350 to $400 million because that's really where we are now according to Peter Sternlight. So, I say let's be very reasonable: let's start with $350 to $500 million as a working range; that's presumably one we all might be able to live with.",82
-fomc-corpus,1985,I would think the $350 to $500 million would be a good compromise for the difference.,19
-fomc-corpus,1985,I assume the path then would be built upon a $425 million level.,15
-fomc-corpus,1985,"Well, Governor Gramley, that is where we are in terms of borrowing; it's not where we are now in terms of implied free reserves. I'm not arguing for a free reserves target. All I'm saying is that it is a shade tighter than we've been aiming to be, because on free reserves in the same way, it will be a shade tighter.",71
-fomc-corpus,1985,And 6-1/2 percent to 6 percent [on the M1 objective] is a shade tighter.,24
-fomc-corpus,1985,"Oh, yes.",4
-fomc-corpus,1985,"Okay, now we have two shades.",8
-fomc-corpus,1985,"I prefer $350 to $400 million, with some flexibility in--",14
-fomc-corpus,1985,I support that too.,5
-fomc-corpus,1985,I would too.,4
-fomc-corpus,1985,I can associate with that too.,7
-fomc-corpus,1985,Isn't $350 to $400 million a very narrow range? Really?,15
-fomc-corpus,1985,It means we're going to start at $375 million.,11
-fomc-corpus,1985,"Well, we ordinarily use a single point.",9
-fomc-corpus,1985,We usually have one single point.,7
-fomc-corpus,1985,"Well, sometimes we have one number and sometimes we have a range. In any case, it's implied as we play this out during the period, depending upon how money and other numbers run, that we take the risks of it being higher or lower. Well, I don't know where we are on this. We have a fair number of people around $350 to $400 million; we have a fair number who have something like--I'm checking off numbers here. Mr. Balles and Mr. Forrestal have not expressed themselves recently.",107
-fomc-corpus,1985,"I said $400 to $500 million, I thought.",12
-fomc-corpus,1985,I know; I thought maybe you'd become more flexible.,11
-fomc-corpus,1985,I'm not much concerned about the difference between $350 and $400 million. I am more flexible in that respect.,23
-fomc-corpus,1985,"I supported ""B"" as stated, Mr. Chairman.",12
-fomc-corpus,1985,That's $350 million.,5
-fomc-corpus,1985,Average the two of them.,6
-fomc-corpus,1985,The great compromiser!,5
-fomc-corpus,1985,And Mr. Rice is there too.,8
-fomc-corpus,1985,$350 million.,4
-fomc-corpus,1985,Martha was there too.,6
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"Mr. Chairman, could I ask Steve to elaborate a little more on what he thinks the federal funds implication of that might be?",26
-fomc-corpus,1985,Of what?,3
-fomc-corpus,1985,"In that case, we're not worried about the federal funds rate.",13
-fomc-corpus,1985,"Yes, but--",4
-fomc-corpus,1985,"If we really were to achieve $350 million, I think the implication for the funds rate would be something a little under 8-1/2 percent, maybe 8-1/4 percent. It really depends partly on what we put in for excess reserves too, Mr. Black. I think if we were to stay with $600 million, which has been proving to be on the low side, then using $600 million for excess and $350 for borrowing is really like imposing a somewhat higher level of borrowing--the $350 million would be more like getting $450 million. And with that, I think you'd get maybe 8-1/2 percent on fed funds. My own feeling is that if you're going to have some flexibility on the borrowing, you have to have some on the excess too, which we have to a degree.",171
-fomc-corpus,1985,We should know whether we can get fed funds rates running for a few days at 8-3/4 percent while remaining at $350 million.,30
-fomc-corpus,1985,[Unintelligible] percent.,8
-fomc-corpus,1985,"Well, we ought to talk about the wording, which I suppose is related. Most people are reasonably satisfied with $350 to $400 million. I think it reduces itself to a simple question: Does it help in terms of happy harmony, in people's best opinions, to make it $350 to $450 million?",63
-fomc-corpus,1985,[Unintelligible.],6
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,What about those on the other side?,8
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"All right, why don't we say $350 to $450 million? [Whether we] remain within that range in one particular week or two-week period will be gauged in part on how the money supply and other things [behave]--money supply and the exchange rate being the most obvious short-term indicators. All right, it's 6, 7, and 8 percent, $350 to $450 million, depending upon money growth and the exchange rate.",94
-fomc-corpus,1985,And the economy also.,5
-fomc-corpus,1985,"Well, the economy too; but it's not likely to change enough to remake the economy.",18
-fomc-corpus,1985,"Mr. Chairman, what about the ""woulds"" and ""mights""?",16
-fomc-corpus,1985,"I'll get to the wording now. This [draft] has so many words crossed out and put in that I find it a little difficult to read. The first sentence is fairly straightforward: ""In the implementation of policy for the immediate future, taking account of the progress against inflation, uncertainties in the business outlook, and the exchange value of the dollar, the Committee seeks to maintain the existing degree of pressure on reserve positions."" Then it goes on: ""This action is expected to be consistent with growth in M1, M2, and M3 at annual rates of around 6, 7, and 8 percent respectively during the period from March to June."" Now we have the ""woulds"" and ""mights"" in this next sentence. Before I get to that, in that next sentence, which begins ""In either case, such a change,"" I'm not sure I like all those things here, but I think we ought to mention all of them somehow. We have a 6 to 10 percent funds range with the understanding of Mr. Partee's concern. I might say, based upon what I know now, that I'm a little more reluctant to tighten than to ease. I can imagine conditions in which one might want to tighten; I can more easily imagine conditions in which one would want to ease.",266
-fomc-corpus,1985,"It seems to me that we ought to be symmetric, Paul, and that we ought to use the word ""might"" in both cases instead of ""would.""",32
-fomc-corpus,1985,And put the ease first.,6
-fomc-corpus,1985,"I guess at least we could do that--put ease first and use ""might"" in both sentences. That's not too bad.",26
-fomc-corpus,1985,"On page 13, this sentence that begins: ""In either case, such a change would be considered only in the context"" why do we want the word ""only""? We should just flat put it that we would consider this in the context of some larger considerations.",54
-fomc-corpus,1985,"If we put ""might"" in both cases, that's even more clear.",15
-fomc-corpus,1985,I think that's right.,5
-fomc-corpus,1985,"We'll do that, if that's acceptable, and reverse the sequence. We use ""might"" in both cases and take out the word ""only."" Is that all understood?",34
-fomc-corpus,1985,And the funds rate 6 to 10 percent?,11
-fomc-corpus,1985,"The funds rate range is 6 to 10 percent and it's 6, 7, and 8 percent [for the aggregates]. It all reads as it is except we reverse the order of the sentence, use the word ""might"" and take out ""only."" All the rest is the same.",62
-fomc-corpus,1985,That's right. You have left in the phrase in brackets that's in the first sentence?,17
-fomc-corpus,1985,Yes. I think it's useful. I don't know that anybody else has an opinion. Okay.,19
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Black Yes President Forrestal Yes Governor Gramley Yes President Keehn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Wallich Yes,43
-fomc-corpus,1985,I guess we're finished.,5
-fomc-corpus,1985,We have to approve the minutes.,7
-fomc-corpus,1985,Move approval.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. I have an extraordinary item this morning. We have had a request from the Chairman of the Council of Economic Advisers to receive the weekly report of the Manager for Foreign Operations and the weekly report of the Manager for Domestic Operations.,48
-fomc-corpus,1985,Little does he know!,5
-fomc-corpus,1985,"I will say it is sent to the Treasury; it has always been sent to them, historically. The question is whether we can change this rule and send it to the Chairman of the Council of Economic Advisers under our rules of confidentiality. Does anyone have a strong opinion on this? Do we have to take a formal action? Does this have to appear in the record so we have to have a vote?",82
-fomc-corpus,1985,"No, I don't think so.",7
-fomc-corpus,1985,"There used to be projections in the New York report on domestic operations. I don't know; maybe they've been taken out. It was a source of leaks earlier. Peter, do you have any projections anymore in your report?",44
-fomc-corpus,1985,"No, in the Manager's weekly report we do not include the projections in what has been going to the Treasury. I would think if you approve this, we'd send the same [to the Chairman of the Council].",43
-fomc-corpus,1985,I remember we had problems with that some years ago.,11
-fomc-corpus,1985,I don't know that we ever had a problem; I know we worried about it.,17
-fomc-corpus,1985,"Well, you know, it was distributed widely in the Treasury to something like 150 people some years ago.",22
-fomc-corpus,1985,150?,2
-fomc-corpus,1985,It was a big number!,6
-fomc-corpus,1985,Mr. Sprinkel has not lobbied for this.,12
-fomc-corpus,1985,I don't think they have 150 people anymore!,10
-fomc-corpus,1985,Not hearing any objection--,5
-fomc-corpus,1985,"I have a question, though: Would this continue to be sent to the Chairman ex officio or is it specific to the present Chairman?",28
-fomc-corpus,1985,I think once you begin this--. The problem is: I don't know whether any subsequent Chairman will be interested.,23
-fomc-corpus,1985,"I would be inclined to sunset the decision at the end of the present Chairman's term of office and, in effect, await a new request. The individual who first requests information like this may well understand the confidentiality with which to protect it. The next guy may not.",54
-fomc-corpus,1985,It's worth reviewing.,4
-fomc-corpus,1985,"Mr. Chairman, if we do send it, I think probably we should add those few words to our present memorandum [on rules regarding confidentiality] because at the time of that GAO investigation, it was crucial whether the procedures we were following were consistent with the written documentation.",55
-fomc-corpus,1985,I assume we are going to add it.,9
-fomc-corpus,1985,Then there's the question of sunsetting it.,9
-fomc-corpus,1985,"Can you take it out at the time you sunset it, Steve? That would be the only graceful way to do it.",25
-fomc-corpus,1985,I guess we could.,5
-fomc-corpus,1985,"In the old days, the guy at the New York Fed who wrote the report could never read it.",21
-fomc-corpus,1985,"We can add ""upon request"".",7
-fomc-corpus,1985,"Mr. Chairman, is there some sort of ""need to know"" test?",16
-fomc-corpus,1985,"It's not supposed to go to anyone else other than those who receive it. But--how many people here read this report? [Secretary's note: Among those whose hands were raised, only Mr. Wallich spoke.]",44
-fomc-corpus,1985,"Well, not every report.",6
-fomc-corpus,1985,I think I have the sense of the meeting. Mr. Cross.,14
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Comments? Questions?,4
-fomc-corpus,1985,"Sam, this kind of information, I think, is substantially ignored by the people who are working on the exercise of the G-10 Deputies--the reform of the monetary system. The discussion of intervention there continues exactly along the old lines of what was said at the time of the study--we can do a little but not much and so forth. But there was no sense from any of the central bankers or Treasury people there of a cumulative deterioration of markets, which I take it to be the implication of what you say.",106
-fomc-corpus,1985,"Well, certainly the complaints about market conditions have been much, much worse. And there's no doubt that the day-to-day volatility in the past two or three months has been far greater than in earlier periods. We've been hearing for a long time from the banks regarding their concern about the market's condition and we're beginning to hear more complaints from some of the corporate representatives at this point. That's a new element in this.",83
-fomc-corpus,1985,Are the banks not making any money these days?,10
-fomc-corpus,1985,"Generally speaking, most are making money on the exchange market, if you look at their quarterly reports. With some notable exceptions, they continue to make money.",31
-fomc-corpus,1985,Though less so in the first quarter compared to last year.,12
-fomc-corpus,1985,"Less so. It does vary; it moves up and down. But at least at the banks in New York that we keep an eye on, the number of quarters in which they had large losses was very few and that was only at a very few institutions.",52
-fomc-corpus,1985,"To me it's astonishing, given what has been going on in this market, that somebody hasn't taken one great big loss in foreign exchange operations. It's a miracle.",32
-fomc-corpus,1985,Is it a miracle or have they hedged their positions sufficiently so that they get by?,18
-fomc-corpus,1985,The logic of that can only take you so far. Somebody somewhere is absorbing the price risk associated with this volatility.,23
-fomc-corpus,1985,"I think the banks are withdrawing more and more from the market, so they are protecting themselves by being much more unwilling to be market-makers except in limited conditions than they were before.",36
-fomc-corpus,1985,Are they hedging or are they using some creative accounting?,12
-fomc-corpus,1985,"No, they're just not doing business.",8
-fomc-corpus,1985,"No, I'm talking about the traders not the banks.",11
-fomc-corpus,1985,Everybody can't be hedged; that's clear enough.,10
-fomc-corpus,1985,"It is a matter of considerable concern. The volatility did increase considerably, of course, after the operations in late February. Now, that does not mean necessarily that people should be unhappy about the heavy intervention in late February. But there is a question of whether there should be some follow up to that kind of arrangement to provide for a little more structure in the market and a little more effort to try and deal with this kind of very short-term variability.",90
-fomc-corpus,1985,"There's short-term variability, hourly variability, daily variability, and intra-daily variability.",17
-fomc-corpus,1985,"What I've been talking about here was intra-day--the amount during one 24-hour day--which, as I say, now averages about 2 percent whereas in earlier periods it was much less.",40
-fomc-corpus,1985,"Well, in the absence of a constructive suggestion we'll turn to Mr. Sternlight.",17
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,"Discussion? If not, we'll ratify the transactions. Motion?",13
-fomc-corpus,1985,So move.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. Mr. Prell.,8
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,"When I listen to you, I wonder how you get all those projected GNP increases. Well, what comments are there? Mr. Black.",29
-fomc-corpus,1985,"Mike, do you have the figures for gross domestic purchases and domestic final purchases for the first quarter as a percentage increase?",24
-fomc-corpus,1985,"Yes, for brevity, I eliminated a sentence in which I was going to refer to gross domestic purchases.",22
-fomc-corpus,1985,"Well, you alluded to it.",8
-fomc-corpus,1985,"For the first quarter, it was 4 percent; and final sales to domestic purchasers was 3-1/2 percent.",26
-fomc-corpus,1985,"In both cases, it was down by 1/2 percentage point.",15
-fomc-corpus,1985,"Yes, I believe so.",6
-fomc-corpus,1985,Down by 0.4 on the first one and 0.8 on the [second].,20
-fomc-corpus,1985,Ted tells me the 3-1/2 percent final sales to domestic purchasers is unchanged.,19
-fomc-corpus,1985,"But the reduction of 4 [tenths] is primarily, I think, a consequence of governmental purchases rather than private final purchases. That is, the private final purchases were actually revised up somewhat from what they had been. That part does not signify anything.",52
-fomc-corpus,1985,"What were those figures, Lyle? Do you have them?",13
-fomc-corpus,1985,"The domestic final demand was revised down from 1673.2 to 1672.9 but the private component thereof was increased from 1362.6 to 1363.8. I don't have the growth rate, but it is a tiny little adjustment.",54
-fomc-corpus,1985,"Mike, I thought I heard you suggest that there would be less strength in state and local purchases looking ahead. That sort of surprises me; I had the impression that revenues were coming in very well and I assumed that expenditures in the state and local sector would rise with more prosperous times.",57
-fomc-corpus,1985,"Well, it is certainly the case that their operating capital account budget surplus position has improved over the past year, and we think it will stay reasonably positive. Last year there was some spurt in construction outlays, but on the whole there was not a tremendous growth of state and local expenditures. The first quarter of this year doesn't look particularly strong. And while there is a lot of talk about a backlog of repair and renovation work that needs to be done, we just don't see the evidence of it. I think there is a great deal of caution on the part of many state and local government units about forging ahead with spending programs partly because, given taxpayer attitudes, they don't think they are going to be able to keep all those tax revenues that they got from increasing taxes in earlier years. Then there is the question of what will happen both with tax reform and federal spending. Both the House and Senate proposals spell the end of grants to state and local government revenue sharing by 1987. So, I think there is a good deal of caution being exercised.",212
-fomc-corpus,1985,Are we ready for comments or are we still in the question period?,14
-fomc-corpus,1985,We're in the comment period.,6
-fomc-corpus,1985,"Well, I have been out travelling around the District more than usual this spring and talking to lots of people in different kinds of businesses. It is a little hard to summarize the situation because there is such great variability among industries. In general, what I find is that people are saying: ""Well, things aren't great, but they aren't terrible either."" In my District there seems to be a changing economic mix more toward some of the faster growing sectors and away from the traditional manufacturing area. So, in general, I think the tone is probably a little better in my District than it might be in some others. One thing that did strike me, as I was talking to lots of people, is that the expectations about the economic outlook seem to me in a rather precarious zone right now. Earlier, around the start of a recovery when expectations are generally for expansion, if you get a bearish statistic, it is greeted as an aberration and it doesn't really have very much effect on expectations. When you get into a recession it is just the other way around: Everyone thinks things are going downhill and if you get a bullish statistic, that is viewed as an aberration. With this kind of bombardment of mixed signals that we are getting, I think we are in a period where expectations could change rather rapidly. Right now I think the predominant view is still that the economy is going to continue to expand; but there are just enough [negative] reports coming in, that people can shift over. It is almost like a teeter totter and the weight of opinion could shift more toward the down side. A story that somebody told me illustrates this. A person who runs a medium size capital goods firm, a family business, told me that while they still expect a good second half, what makes her nervous is that the salesmen, instead of buying cars and boats, are now buying CDs in insured institutions. And that gives her a great deal of pause about what might happen. So, I think we are in a gray area where these expectations could change rather rapidly. On the inflation front, I just don't sense any great concern about inflation. Most people that I spoke to are talking about fairly moderate wage increases. They find it difficult to pass on price increases and they find that the prices from their suppliers are holding fairly steady. So, whatever the statistics coming in, I just don't find much out there on the inflation side. The influence of the international sector continues to strike me in a dramatic way. In the smallest of businesses and the smallest of towns one keeps hearing more about world markets and world trade. I have heard even more concern this spring about Korean imports than Japanese imports; that seems to be the new kind of enemy, if you want to look at it that way. More and more business people are expressing concern about competition from the Koreans.",572
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"I would like to add some rail cars to the locomotive of expectations already alluded to. I am struck by the cumulative nature of the vulnerabilities of markets and of the financial side of the economy. Notice that in our first two reports this morning there were some comments on the variability in foreign exchange markets. Think of the junk bond phenomenon, which continues into this year. The SEC indicated that they are not disposed to intervene in the merger and acquisition surge. You are talking about $80 or $90 billion at an annual rate of equity retirement replaced by debt. In the commodity markets and the COMEX in New York, the three largest traders failed to meet a margin call one day, though it was only a temporary phenomenon. As for the LDC debt deterioration, we get reports out of Argentina on a series of private bank failures; the government steps in and this passes. Capital flight has resumed from the LDCs and various measures we're all familiar with are being implemented there. It is not all one-sided, of course. We have what sounds like favorable news out of Venezuela and the Philippines, but still there is the onus of this capital flight situation. Newspapers in the last few days have had the Coldwell Bankers survey, which talks about $25 billion plus of nonresidential construction coming on stream--80 percent above 1980. I think there is a kind of frenzy of office building and other kinds of activity. Sooner or later that is going to put pressure on major money funds around the country because tens of billions of dollars are coming in there, resulting in overbuilding. Multiple unit dwellings are hung on the revenue M bonds, industrial revenue bonds--techniques that are a tax phenomenon in part. Vacancies are accumulating there. As for government bond dealers, obviously, we know the work that has been done in that area by the New York Fed. But I wonder if we weren't so concerned with the cost and we weren't so concerned with the smooth running of this enormous market, if maybe we might have come up with something a little less voluntary and more like the rulemaking being extended in the municipal securities market. But we have the vulnerabilities to contend with and who wants to take that chance? Ed Gray has talked about $100 billion in savings and loan assets in savings and loans that are essentially defunct. Well, that's $100 billion out of an industry that is 10 times that large that he has found; and I wonder what else is out there that could come around to haunt us. The President is about to go on the road to present the so-called tax reform and simplification program. There is going to be a great deal of attention to top bracket rates and a capital gains treatment a little more favorable than the Treasury proposal. Is that going to add to a speculative bubble that seems to be occurring in market after market after market? Where can we find a financial market that doesn't have this feeling of a kind of froth in it right now? And how many of these things need to go down in one day, one week, or one month before we talk about expectations and attitudes? Government securities and mortgage-backed securities markets are enormous markets trading hundreds and hundreds of billions of dollars now. And one day, Ginnie Mae, Fannie Mae, or Freddie Mac may decide they are not going to settle. Well, all that [happened in the past] and there were negotiations and so forth and every one of these potential crises worked out fine. Everybody saluted and got in [line] and did what they had to do and it worked. But what are the dangers that we are facing here? I am not so concerned about the tiny bit of evidence of price increase; I certainly am concerned about unemployment and the lack of employment growth and the 0.7 percent real growth figure that that implies. Think of the cumulative nature of financial vulnerabilities of the country right now. I think I voted for--maybe I even made the motion, I can't remember--the [recent] discount rate cut. I think we should have done that. But my goodness, let us be aware of what we do next in terms of this tremendous pervasive, ubiquitous, financial vulnerability that we have here. That is my cheerful message.",855
-fomc-corpus,1985,I don't know whether [that means] we should tighten up or ease up.,16
-fomc-corpus,1985,The remedy for that is good old-fashioned monetary discipline--make credit tight enough.,16
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Well, I do think we are in a period when the signals are decidedly mixed at best and are very conflicting. The good businesses are continuing to do pretty well and are continuing at a pretty good level; the automobile business is good even though it has leveled off a bit. Those in the industry do say that the dip in the early part of May should not be taken as a change in the trend. They view it rather as a comparative issue, given a very strong period the year before. Retail sales in our District, if you put March and April together and adjust for Easter, are really very strong; commercial building is particularly strong--indeed I think perhaps too strong; steel output is rising a bit; and the service sector is strong. But on the negative side, I think the news is very serious. The capital goods people are experiencing a slowdown this year as compared to last year, and last year certainly was not very strong. One CEO I talked to who has a very heavy commitment to the capital goods sector said that his company had a really dreadful month in April and if they had another month or two like that, he would be very, very worried about the outlook. The agricultural situation is deteriorating further. Land values are down. We had a good planting season this year and are considerably ahead of last year; some 83 percent of the farm planting is done. Therefore, over the long time between now and harvest the outlook is for higher levels of production, which will have a depressing effect on commodity prices. Anybody who has anything to do with the agricultural sector is having a very tough time. The implement people are operating their plants at about 30 percent of capacity and there is a significant number of plants that have just simply shut down. I commented last time that railroad shipping and car-loadings were down; we have had another period here in which the railroad shippings are down. There's an interesting import implication here that one man told me about. Whereas before they were shipping [unintelligible], now the parts are coming in in a finished state and are by and large being shipped by truck. On the inflation front, I think the news is mixed. I agree with Mike that many of the positive factors may be behind us and that there are some very significant increases taking place in the services side, in pretty steep amounts. But more positively, I am impressed with the number of people I have talked to who are still renegotiating contracts for three years in the 3 to 4 percent area. And they are finding their union negotiators to be very, very flexible with regard to work rules. They are getting very significant productivity increases as a consequence of this. And the pricing out there is terribly competitive; the people I have talked to just simply can't get price increases through in a full sense. If there are any trends that are persistent in all this, I think one is that expectations are being revised downward. I haven't talked with anybody who is revising his expectations upward. No one that I talked with suggests that we are on the edge of a recession; nonetheless, they do think that the outlook for the rest of the year and next year is more modest. I think that the most significant trend is this export-import problem and the dollar value. I have a couple of anecdotes. First, cement--and I have always had the feeling that cement was a commodity that was very, very transportation sensitive in that beyond 200 miles [shipments] fell off the edge of the table. Fifteen percent of the cement consumption this year is going to be from imports, which I find rather staggering. Also, we had our first meeting of our small business advisory council, a group that I would have thought would be absolutely insulated from this dollar problem. We had a representative from Indiana, and one from Iowa and both of them said that without a single doubt the most difficult problem they are having is the export-import problem--the value of the dollar. Their industries and businesses are being very hard hit by imports. As I look at it, I think this high value of the dollar is the most pervasive problem that we are dealing with. The economic news is pretty mixed and the inflation news is pretty mixed, and I think that we are probably in a period where it is awfully difficult to tell how the future is going to unfold.",877
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Well, Mr. Chairman, the conditions in our part of the country pretty much mirror what is going on in the rest of the country in terms of mixed signals. The service industry throughout the District seems to be doing pretty well. We have fairly good news with respect to construction, real estate, tourism and so on; but the bad news is related to the manufacturing sector and those sectors that are dependent on a lower dollar--particularly textiles, apparel, and agriculture to some extent. Energy is also a negative in the economy. With respect to the apparel industry, you might be interested in knowing that the protectionist sentiment is growing by leaps and bounds. Their latest slogan is ""Take off your foreign clothes."" I am also concerned about the overbuilding, particularly in offices and multifamily structures, that seems to be going on in many cities in the Southeast. I think that is creating vacancy rates that are going to be unsustainable in the long run. So, as we look at what's going on in our District and around the country, I think we would now revise our forecast down somewhat. That seems to be the general sentiment of people that I talked to. Expectations are being cautiously revised downward. Like Si, I don't hear anybody talking about a recession; but on the other hand, I think there's a great deal of concern about where the economy may be going. On balance, we don't differ significantly from the projections in the Greenbook. If anything, our expectations in the near term may be a little lower than suggested in the Greenbook. Going out a little further, I think the reduction in the discount rate and other short-term interest rates might give a little push to the economy, but with a lag--later on in the year. So as I look out over the horizon, I think the risk is on the down side for the economy, and I think growth for the rest of the year is going to be just barely acceptable. I would say one other thing about sentiments in the District, and that is that there is a great deal of concern now about the financial stability of the banking system. If you put together all of the various episodes that we have had, people are asking: Is this just the tip of the iceberg or is there more? With these government securities dealers, firms like E.F. Hutton and so on, the list goes on and on. While there may not be any direct relationships among all of these, the psychological atmosphere that is being created is one of mounting distrust in the financial system or concern about whether the stability of the system is what it should be. People are asking questions very strongly about that. In summary, Mr. Chairman, my view now--and I haven't had this view before--is that the economy is tottering a little and that our policy prescription needs to take that into account.",570
-fomc-corpus,1985,How do you respond to that question?,8
-fomc-corpus,1985,Which question?,3
-fomc-corpus,1985,About the financial stability.,5
-fomc-corpus,1985,"Well, my stock answer, which I think is the correct one, is that the banking system is in good shape and that these are isolated incidents. I say that with my fingers crossed.",38
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Mr. Chairman, reverting for a moment to the similarities and dissimilarities of the Board staff's forecast to our staff's forecast: We have similar views on the outlook going through the fourth quarter of this year in a number of major areas including consumption, capital spending, government spending, and inventories. Where we differ, and where our staff turns out to be somewhat less optimistic than the Board's staff, is with respect to our expectation that imports will be up somewhat more because of the recent behavior of the dollar and that housing will be up somewhat less than the Board staff's projection because of the weakness in disposable income. So, even though our two forecasts tend to converge, ours is up a little from last month and the Board staff's outlook for real GNP has been revised downward this time from last month. We are still significantly lower for the year as a whole, showing a 2 percent real GNP gain, fourth quarter to fourth quarter, versus the Board staff's view of 2-1/2 percent. Whether it is 2 or 2-1/2 percent, it is still going to be a pretty weak year. I share the view that we are experiencing already--and are likely to see more of it as the year goes on--a pretty sluggish economy operating below its potential, in large part because of an enormous distortion and imbalance that has already been touched on, particularly relating to the impact of the huge federal deficit and the high dollar and the import surge that has resulted from all of that. Like Si, we recently had our meeting of our council on small business and agriculture in response to your suggestion. We got a whole earful of bad news and I, too, was surprised by some of the anecdotes that we heard. For example, one of the small business firms represented was a very small manufacturer up in Oregon, which is outside the Portland metropolitan area. It turns out that they export a good deal of equipment all around the world; more than half of their business in fact is foreign. We really got some graphic illustrations of what the high dollar has done to this small little business. We found similar illustrations from other representatives of small concerns that were there. Contrary to conditions in your District, Si, or yours, Roger, where the family farm still predominates, as you know in the West it is the large scale farm that predominates. And even representatives of those agri-businesses were singing the blues and gave some pretty graphic illustrations of how bad business was, not just because of the high interest rates but also the strong dollar. Cotton is one of the major products of our agriculture in California and traditionally about 80 percent of it has been exported. You can imagine what the high dollar has done to cotton exports; that particular business is in big trouble. Based on the latest information we have, nearly all of the nine states in our District experienced an increase in unemployment fractionally; and in the latest month for which we have data for total employment, it actually dropped a bit. Electronics, which had been one of our stronger growth industries for some years is now flat; manufacturing has been rather weak except for defense spending; and lumber is still a disaster. Aerospace is the one industry still going fairly strong. On balance, adding up all these strong and weak areas, it is clear that the weaknesses predominate and that we are seeing in the West what we are seeing in the national statistics: a pretty sluggish performance. Therefore, when we get around to the policy discussion, that would be the reason I would like to err, if we are going to err at all, on the side of ease.",733
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"Mr. Chairman, I have long since abandoned any hope that anybody can do very well in projecting the economic outlook over any extended period of time. I am particularly uncomfortable in trying to do that today because the signals are so mixed. But having said that, my guess would be that if the staff forecast is wrong, it may be a tad bit on the low side. As we see it, domestic demand is still pretty strong and the sharp growth in M1 back in the winter is likely to keep it fairly strong. The real question is: What's going to happen to imports? And I don't think we know the answer to that. I agree with the staff's assessment that the dollar probably has peaked and will continue on down. When that will be felt by some slowing in the rate of increase of imports, I don't know; it may be in 1986 as Mike suggested. We were thinking we probably would see some effects before then. In any event, we think that by the last half of this year GNP might be somewhere around the 3.3 percent growth that the staff is projecting for the last half of this year. On the implicit assumption on velocity that the staff has made, if we had the kind of growth in M1 that they seem to be talking about--say, 6-1/2 percent from the fourth quarter of last year to the fourth quarter of this year--that implies a slight decline in M1 velocity. If we get a more rapid rate of growth in Ml, that would of course mean more than that, and that would be very unusual for this stage of a business expansion. I certainly wouldn't say it can't happen, but I don't think it is very likely. So in short, I don't believe the general economic outlook provides any very compelling reasons at this point for any significant move toward ease. It is tempting to think in terms of ease, as we see all these worries that Pres has outlined. But to me at this point that really would exacerbate most of these problems. It was excessively easy policy, coupled with some other things, that I think created most of these in the past. To me it is time, even though the statistics seem to be flashing danger signals, to keep our eye on our long-run objective. I would try to keep the aggregates under control; specifically, I had in mind trying to get M1 back somewhere within these target bands that we set for ourselves.",491
-fomc-corpus,1985,Mr. Morris.,4
-fomc-corpus,1985,"I want to applaud the Board for reducing the discount rate, although the timing I found a little surprising. But--",23
-fomc-corpus,1985,You can't win!,4
-fomc-corpus,1985,"I think [unintelligible] that the economy has performed in a much weaker fashion than I expected or than I think most of us expected a few months ago. I am finding in the comments of businessmen--right across the board regardless of the industry, again with the exception of the defense industry--that they all tell me that orders are coming in at lower rates than they had contemplated. And there is a very sobering mood developing. Another phenomenon--I don't know whether it is confined to the New England area and I would like to hear some other comments on this--is that a lot of businessmen are telling me that they have been waiting for the dollar to go down so that they can begin competing in world markets again. They have about given up on that, so they are planning in a great many industries to expand their production facilities abroad. That is the only way that they can compete in world markets; they can't do it from a U.S. base. In the past few years, the decline in U.S. direct investment abroad has been an element of strength in the dollar. But if we see a pretty widespread movement to build new production capacity abroad, that could very well put downward pressure on the dollar at some point if the movement got very far. Has anybody else run into this phenomenon?",263
-fomc-corpus,1985,I hear the threat all the time. Everybody I talk to--,13
-fomc-corpus,1985,But they are beginning to plan to do it now. That's the difference.,15
-fomc-corpus,1985,Governor Rice.,3
-fomc-corpus,1985,"Well, Mr. Chairman, I think the major concern is whether the economy is going to rebound moderately in the second half as projected in the staff forecast or whether it is going to continue along the present sluggish path. Now, if one is convinced that the economy is going to perform along the lines of the forecast in the second half, I don't think we need to worry too much; the worry then would be about next year. While I think the staff forecast probably captures the most likely outcome, the factors supporting that outlook do not seem to me to be very strong. While we probably can expect continued strength from residential construction, the rate of growth in business fixed investment and consumption expenditures will be declining. Yet, the 3 to 3-1/2 percent growth that we look to depends on some moderate strength in both these categories. So, it is very hard to be confident that there is this basic strength in spending that's going to produce this outcome. With resource utilization significantly below capacity, with capacity utilization most recently falling--and even if it stabilizes from this point on, it will still be at a relatively low level--and with the outlook for unemployment not very reassuring in that it is not declining significantly, it seems to me that the economy is vulnerable on the down side. There seems to be very little risk of excessive growth in these circumstances. So, I would say that what we can reasonably expect is an economy that is, as Governor Martin put it, very vulnerable. It could go either way; I see no strong momentum in either direction. I think the inflation outlook is moderate. Most of the recent influences on the inflation rate are probably temporary; I am not convinced that the recent spike in wage costs is more than temporary. I would say, therefore, that with the inflation outlook moderate we should not be satisfied with anything less than a 3 to 3-1/2 percent rate of growth in the second half. And I think we should make our policy judgments with that particular bias in mind. Thank you.",409
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"Mr. Chairman, looking at the economy first and taking a little longer perspective on it, I think the numbers would suggest that domestic final demand really has been performing more or less as expected for the third year of the recovery and maybe even a little better than expected. But the wild card, as has been amply reflected so far in the discussion, insofar as the GNP and production, etc., is the external side. Against that backdrop, I still lean to the view that for the balance of the year real GNP is likely to be growing in the 3 to 3-1/2 percent range. And I think that this recent rather pronounced decline in interest rates provides a little further measure of insurance in that direction. At the same time, that kind of forecast is one that assumes a much smaller drag coming from the external sector over the balance of the year. While economists seem pretty comfortable as a group with that, I will be darned if I can find a businessman--whether in small or large business--who agrees with that. I think that remains, therefore, the wild card. I agree with those who say that the nonresidential sector--the construction sector in particular--looks very vulnerable at this point. On this question of financial shocks and disturbances, the point has to be made--whatever else one might want to say about them--that to the extent that they are being managed and contained, they are being managed and contained with a very high degree of government involvement. Whether it is front page news or not, that has been the case. Indeed, what I see almost daily is the situation where ""free markets will take care of things"" is a slogan only until people think they are on the hook. And then that slogan goes out the window in one heck of a hurry. I would like to say that I can see some reemergence of discipline growing out of this cumulation of problems, but I don't see it. The leaders in banking and investment banking institutions, foreign and domestic, have reached the point where I think they want discipline. But in a setting in which all of the institutional sand has been taken out of the wheels, they don't seem to know how to get it. I think that those vulnerabilities in that setting are something to be concerned about. On the inflation side, I keep coming out on the side of being uneasy. I look at the numbers and I listen to what everybody says and I am tempted to reach the same conclusion that Governor Rice just stated: that these are all temporary things. But I can't quite get myself comfortable with that. Even if these things are temporary, the rate of inflation that we are seeing right now, against the backdrop of the exchange rate that we are seeing right now, still strikes me as high. I am concerned that if the inflation rate were to start to creep up from where it is now, even by a percentage point or so, and produce the situation in which we felt at some point we had to move against that, it would be a very, very difficult thing to engineer, to put it mildly. But more importantly, I think some of this financial market situation that we are seeing still reflects a kind of residual point of view that says somewhere down the road inflation is going to bail this situation out. So, I can't bring myself to be sanguine about the inflationary situation, even though I certainly don't think it is something that has to be the number one priority for policy. But I think it has to be watched very, very closely.",714
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"First, in terms of our District economy, I would characterize that as simply more of the same. The split that we have had, which may be most easily described as urban versus rural, persists. The economy in the urban areas--from the city of Rochester to Sioux Falls to Rapid City--continues to do reasonably well on balance; the economy in the rural areas is very difficult at best. And that has been the situation for quite some time. On the national level, without wanting to belabor the obvious, the key word in my mind is uncertainty. As I look at the Greenbook forecast, my own view of the situation is that the economy is going to have to hustle just to get that 2.3 percent real growth in the second quarter, given the monthly trajectory in the first quarter. But having said that, I expect that the economy may do a little better than the Greenbook suggests in the second half of the year, largely because I think the interest sensitive sectors of the economy may do somewhat better. But I would re-emphasize the term uncertainty. I do not have a great deal of confidence in that particular scenario, although it is the one that, under the circumstances, I am inclined to go with. We too have had our first meeting of our advisory council on small business and agriculture, and we included labor as well. Most of the news would have to be described as grim, particularly from the people associated with the agricultural sector. The focus of concern seems to have shifted a bit, however, in the last several months. The focus used to be on the producer--the farmer. I think now the focus is shifting to his or her lender, be it the Farm Credit System or the agricultural banks. There seems to be rather vague but mounting concern about the status of some of those lenders.",369
-fomc-corpus,1985,Governor Wallich.,4
-fomc-corpus,1985,"The war between the forces of the budget and the trade balance seems to have moved increasingly in the direction of the trade balance prevailing, which pulls the economy down, over the stimulus that comes from the budget deficit. To some extent this will continue, as net exports are scheduled in our forecast to become increasingly negative for several more quarters. But my impression is that it is slowing down. On the other side, of course, if we succeed in bringing the budget deficit down, that expansionary force diminishes as it ought to. It seems to me that there is a sort of stand-off in the economy between these two forces. And they have very drastic repercussions on various sectors: farmers, some parts of heavy industry, and the import-competing sectors. So this is not a static situation; it is a situation full of great tension. Given that there is a [pause], as it were, this may be the opportunity to do something that in the long run is very important: to try to reduce the structure of interest rates--not in the sense of stimulating the economy in trying to accomplish a short-run objective, but to bring interest rates down over time, as with inflation. If I thought that a reduction in interest rates now would have the effect simply of a brief stimulus, I would think that could be a great mistake. Let me look for a moment at the mistakes that we might fall into. We have always leaned toward fine tuning. When the economy is going down, immediately one sees what one could do by monetary policy if one doesn't think too much about the long lags. Long lags have been mentioned and I think they are important. What we do now in May may have effects early next year, at which time the problems we face may look quite different. There has been a proclivity at the Federal Reserve to push harder late in the cycle, perhaps because the cycle tends to peter out, the natural forces of expansion diminish. It's the nature of a business cycle. And one tries hard to postpone the evil day and push back the moment when the economy flattens out so that we do not have to go into recession. One stacks up problems, financial problems and economic problems, for the future; and instead of a mild growth recession, one may get a real recession a little later. So, I would not press very hard to keep the expansion alive if what it wants to do is to slow down. But that does not seem to me a very clear description of the present situation. It may be more of a lull before the current account ceases to drag it down while budget improvement and lower interest rates give a certain stimulation. Finally, as for the alternative of inflation and unemployment, I keep looking at that myself and I arrive at a somewhat different conclusion. I think that inflation is still much above where it ought to be. And I don't see it coming down other than in a recession, which we want to avoid. So we do have to do something to bring it down during a period of good activity. A 7.3 percent unemployment is not good and 2-1/2 percent growth also isn't very good. I would still pay a price to bring the inflation down. Thank you.",648
-fomc-corpus,1985,What is that price?,5
-fomc-corpus,1985,"Well, 2-1/2 percent growth for a year and acceptance of 7.3 percent unemployment.",23
-fomc-corpus,1985,"I thought you indicated earlier that that wasn't going to bring it down, but I--",17
-fomc-corpus,1985,"Well, the inflation should come down; the unemployment and the growth rate will be less satisfactory under that [scenario].",23
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"Mr. Chairman, I don't really have anything positive to bring to the table today. The situation in the Eleventh District pretty well mirrors what has been going on [in other Districts]. We obviously had a slowing in the first quarter of 1985. In the fourth quarter of 1984 we were pretty well paralleling the nation in terms of economic growth but our rate of increase has slipped below the pace of the nation in the first quarter, in part because of absolutely declining activity in energy, electronics, and construction. Reference already has been made to office building construction and that sort of thing. Of course, we have had an awful lot of construction in our area as I've reported in the past. The problems in Houston are very well known; they are not unforeseen problems; they have been trying to live with their problems for a couple of years. We are getting reports that now there is concern in Austin, which has been a very strong boom area; that seems to be slowing very significantly. As an example, based on a recent survey, we had about 18 million square feet of office space sitting empty in Dallas in March--a vacancy rate of a little over 21 percent. But on top of that in March we had another 25 million square feet of office space under construction. The conclusion of the survey was that we are now approaching the end of a real estate cycle. I think I can accept that statement. Agriculture remains weak. Our preliminary indication on our latest survey of agricultural land prices actually showed a little increase in 1984 but the first quarter now is beginning to show a little decline. So, it looks as though those who said we are about a year to a year and a half behind the Midwest might be right. Having said all that, I would also share the view expressed by a few others regarding a little concern about overreacting on the side of ease, despite all the gloomy reports. The uncertainty is very, very great and I still think it remains to be seen which way the economy is going to turn.",413
-fomc-corpus,1985,Governor Seger.,4
-fomc-corpus,1985,"I have been very impressed with the size of the downward revision in the official staff forecast since our Humphrey-Hawkins FOMC meeting in February. That shows a far more significant change than just the change from the March meeting to this meeting. I must say that I concur with those downward revisions because of the problems with the manufacturing sector of this country and the import competition. The fact that imports are hurting not just the auto industry and not just textiles but a broad spectrum of companies in many, many different industries really depresses me. Also, I see the kinds of people who are aware of this: individuals I would expect to be unsophisticated and not even know what exchange rates are. But they are tuned in to the super dollar; they also are tuned into why it's super; and they know that it is hitting them very directly. I think that we have not seen the full extent of this yet. Also, I continue to be very concerned about the fragilities of the financial system. I got on this jag early; unfortunately, it has been going on since '81 and '82 and I don't see it getting better. I see it getting a lot worse because it is not just a couple of states that have had specific problems, namely local depressions; it is now a lot broader. Unlike Jerry, I don't think this is because free markets don't work. I think the problems with the financial system go back to poor public policy in the '70s: namely, a very inflationary policy that sent bad signals to financial institutions and participants in financial markets. Then when the gears were shifted and we went into a more moderate approach to public policy, i.e., fighting inflation and producing deflation in certain sectors of the economy, it was a real adjustment for those people to make. Also, I think we have to be candid and say we probably have not regulated them as well as we could have. Supervision has left a lot to be desired. That is the message that I think comes through from Ohio and Maryland. It isn't that free markets don't work but that the supervisor did a crummy job. I think further that if you really started to dig into the asset portfolios of many institutions that have not been looked at, you're going to find a lot of water in there to squeeze out. We haven't seen it all yet. And when that squeezing takes place, I think we are going to see many, many more insolvencies. I am not just talking about thrifts; I am talking about banks. This is, of course, a problem for those institutions themselves but I am more and more worried about how that will impact on consumer confidence in general and on business confidence--and particularly how it will impact on these little towns in rural areas. If you want to have some fun, go back and read about the 1920s and the problems in the agricultural community in that decade and what that did not just to agriculture but to whole sections of the country when the problems with farms brought down farm banks and the result was tremendous local recessions or depressions. I think this is one thing we have to take very, very seriously. Finally, I just want to mention that I talked to three of the highest level economists in the auto industry and I'll just relay to you a couple comments from them because I think they are rather interesting. In general, their sales forecasts are below what we are talking about. One is using 10.5 million units or possibly slightly above that as total new car deliveries for calendar year 1985. Some of the sales that used to be in the form of autos are now going to be for small trucks, so there might be a little more in there; they think truck sales will be about 4.5 million. The big point this fellow made was that it takes a lot more marketing money to move cars. In other words, consumers are not coming in and beating the doors down to buy; they are having to be dragged in to purchase. Interest rate incentives are being used very heavily. The customers are interest rate sensitive, and the special promotional rates of 8.5 to 8.8 percent for slow moving cars have worked to move those specific cars. Auto makers are putting those incentives on some other cars--small cars--because they want to help their ""cafe"" ratings with the U.S. government. The penalties are going to be severe if they don't average out okay for this year, so they want to move more of these fuel economy cars to help that. Another chief economist is talking about 10.6 million deliveries for the year and truck deliveries of 4.4 million. But again, he mentioned this interest rate incentive to move new cars. It is substantial. He said that the going regular rate for new car loans would be about 14.5 percent and they are using 8.8 percent on selected lines. The third fellow says that the market at the moment is the strongest in this recovery if you just look at sales volume, year-to-date. According to his numbers they are coming out with 10.9 million [currently] but for the whole year he still thinks deliveries will be down somewhere around 10.6 to 10.7 million. And they're having to buy the business. He said the incentives provided on some of the big car purchases are $2,000. He also mentioned the competition from imports, such as Mercedes Benz, on the big car lines, and he brought up the matter of the strong dollar. In his view, we have not seen the full impact of the rise in the dollar in lower auto prices and, therefore, they have a lot of room to cut prices if they want to go after sales because this has just been going into their pockets in the form of profits. If they really wanted to go after sales more aggressively, he thinks they could. Anyway, [these economists] are not complacent about the economy as a whole and they see a slowdown being something that would cool off their numbers still more.",1219
-fomc-corpus,1985,"Since my District is contiguous in small part to Mr. Boykin's, I'm glad that they have found they are at the end of the building cycle. We have had space for lease in three of our offices for some time and have found that the overbuilding in those areas was recognized, at least by us, somewhat earlier. Our discussions with business folks in our District reinforce some of the comments Jerry made about their lack of optimism and what Frank said about firms giving some serious consideration to moving manufacturing facilities. However, I would say that in such discussions in the past generally those folks were the most pessimistic right before things got a little better. The lack of any what might be called ""meaningful"" growth in the first half wasn't too much of a surprise to us and was fairly consistent with the projections that we had made. As I recall, at the February meeting--and you testified about the central tendency [of forecasts] expressed around this table--we were somewhat of an outlier both on real output and inflation. On real output we were 1/2 to 3/4 of a point [lower] and on the inflation side about 3/4 to 1 percentage point higher. For the second half, even though there is that lack of optimism in the business community in our District, and in spite of the mitigating factors such as the strength in the dollar, I believe that the stimulation that we gave to the economy in the last half of 1984 and the first half of this year and the impetus of current rates and promise of a reduction in the budget deficit could give us stronger growth, perhaps even above that 3 percent plus level. I would echo Bob Black's and Governor Wallich's comments that at this point in time surely we are looking at uncertainty but not a disaster, and that keeping our eyes on our long-term goals is certainly appropriate.",378
-fomc-corpus,1985,"Let me focus just briefly on the Tenth District economy. The major sectors in that economy are agriculture, energy--which includes both petroleum and mining [unintelligible]--aircraft, auto, and high-tech, including semiconductors. In that array, only one is doing very well and that's the automobile industry. The remainder are all in a depressed state. In agriculture the situation is basically the same that has been well publicized and that we've talked about around the table. I would note that, based on the results of a quarterly survey just completed, the land values in the Tenth District--that would be dry land, irrigated, and pasture land--are down another 6 percent from the end of 1984. In the aggregate for the District as a whole, land values are down 38 percent from the high of 1981. Now, that means that in some of those states it's down 30 percent, depending upon the kind of agricultural land, and in some states it's down 40 to 45 percent; on average, it is down 38 percent. But the important fact, I think, is that land continues to drop in value, showing a 6 percent decline from the end of 1984. Energy, both the petroleum and mining, is just rocking along with no great hope of any resurgence in the period ahead. Aircraft manufacturers just can't sell commercial or private aircraft overseas as a result of the dollar. And with high interest rates and the uncertainty about what the future state of the tax law will be, corporations are just laying back in the woods and not committing themselves to aircraft. As a result the industry is struggling. The auto industry in the District, which is a very big employer and a big component of the economy, is going full out and that's the real positive aspect. In the high-tech area, which is in Kansas City, essentially, and in New Mexico and the eastern range of the Rockies, we find that the competition from overseas together with the [strength of the] dollar [has put] the semiconductor part of that industry at great risk. As a matter of fact, we had the second closing of a high-tech firm in Colorado this past week. They just are not able to compete with the overseas markets. Having said all that, I would like to turn momentarily to the national economy. I take some encouragement from the comments that have come from around the table. There is very little concern about a recession. That is to say, the staff's forecast of 2 to 3 percent growth for the year as a whole suggests that we will be in the positive figures and perhaps not working against the high unemployment rate. Nonetheless, there is no concern about recession, and I find that true in talking to people in the Tenth District; recession is not on their minds. Our staff, looking at the outlook for the period ahead, would forecast just a bit more expansion in the second and third quarters than the Board staff's forecast, but on balance we would come out for the year as a whole about where the Board staff comes out, with slightly more growth in the latter part of the year because of the interest rate action that was taken most recently. There are two parts to that expectation of a bit more expansion than in the Board staff's forecast: one would be inventories in the second quarter and the other would be domestic consumption remaining very strong through the second and third quarters. My own view, however, would be a bit more optimistic than the Board's staff or even my own staff. Given the money growth in late 1984 and the early part of this year, I think the chances are that we will see some real strength beginning to emerge in the third quarter and maybe on through the remainder of 1985. Having said all that, I also have met with the small business and agricultural group as well as people around the District and, clearly, the focus in their minds is the strength of the U.S. dollar. That touches each of the areas that I mentioned that the Tenth District is involved in. It is becoming very [apparent] that they tie in the federal budget deficit with the dollar and they see that as their enemy at the moment. The most recent decrease in the interest rates is looked upon very favorably, and I should think the reduction of the discount rate will fall in that category. I would just note, if I heard the Vice Chairman right that he could not [identify] any financial markets that didn't have froth in them, that I can tell you that the agricultural financial markets don't have froth in them.",932
-fomc-corpus,1985,No new froth.,5
-fomc-corpus,1985,"Well, we are hearing a lot of gloomy reports today and that's understandable. There is a lot to be gloomy about. When that sort of thing happens I think it's worthwhile at least to remind ourselves that there are some positive signs developing. Housing has been moving up for four or five months now. I agree with Jerry that we have had enough reduction in interest rates, given the lag in the way they affect spending and credit sensitive sectors of the economy, that we should expect to see some results from that as time goes on. I would regard auto sales as a positive; they may go down but they certainly have been quite strong recently. Consumers remain quite confident. And I take some comfort in the fact that, although investment spending intentions for 1985 are a lot more subdued than they were at this time last year, we don't seem to have seen any further deterioration from the fall to the spring. That rather surprises me, but maybe it will turn out that that won't hold up. We should remind ourselves also, I think, that periods of slowdown during an economic expansion are the rule, not the exception. If I remember my business cycle history correctly, Wesley Mitchell and Arthur Burns used to talk about a mid-cycle retardation, which occurred about 3/4ths of the time. The problem is that we don't know whether we are in the 3/4ths now or in the 1/4th. I am not a wild optimist by any means. I agree with the staff's forecast that we will have some pickup in economic activity. I have a hard time assessing whether the risks are a little on the minus or the plus side, but I think I would assign a probability of .001 to an outcome of more growth over the next year than I would be comfortable living with. Now, I would like to put that in a longer-run context. I think we ought to take into account the fact that what we are looking at now is an economy that is being severely depressed by competition from the international side. It's a consequence of a horrendous increase in the value of the dollar and the dollar is eventually going to decline. When? I don't know whether it is going to be next week or next month or next year; but when the dollar goes back down, we could find the economy as severely stimulated as it is now being depressed. And if that occurs in the context of a federal structural budget deficit that is still rising, we are in big trouble. That may not happen, but I think one has to remember that the problem we may be worried about on average over the next three years is not too little growth but too much, and not too little demand, but too much. We need to keep that in mind as we think about the course of monetary policy under present circumstances.",564
-fomc-corpus,1985,"Well, Lyle said a good deal of what I was going to say. This has been such a gloomy go-around today that I thought maybe I couldn't even survive it! I didn't get any sense as I was listening to everybody that in the first four months of the year nonfarm payrolls rose by more than 1 million workers. That's a tremendous rate of addition to our employment.",78
-fomc-corpus,1985,Want to be gloomy? Look at how lousy that means productivity grew.,14
-fomc-corpus,1985,"Well, we don't even measure productivity in services or trade and, of course, that is where the employment gains were. They weren't in manufacturing. I think that we tend to be bemused by manufacturing, because historically it was the cyclically volatile sector and historically where we thought we got our oomph. And, of course, we are not getting any now with the import competition. I agree with Lyle that that is a temporary phenomenon, although temporary in terms of years, perhaps, rather than months. But we really have had a very buoyant domestic economy in my view, with the strength being sapped by the import competition. And I think we ought to keep that in context. Now, I'm as concerned as anyone here--even Pres--about the condition of the financial markets. I think that they are in terrible shape. In fact, I can't even bring myself anymore, Bob, to say what you say about the banking [system]. I don't know that it is sound or that banks are in good condition. I am very much taken by the fact that we are 2-1/2 years into the recovery and that we are still talking about all of these problems. We have a thousand problem banks, [the ones rated] fours and fives. We have failures moving along and we are 2-1/2 years into the recovery. What happens come a recession--which will come? I don't know. There may be no way out of this box. But I do believe that the worst conceivable thing that could happen--the thing I have nightmares about--is a situation that brings about the necessity of a substantial increase in interest rates. By substantial I don't mean a point; I mean a substantial increase in interest rates because of, let's say, a very sharp drop in the dollar or a sudden strengthening in the economy because of less import competition or an inflation rate that accelerates. I remind all of you that all the research shows that inflation starts with prices, not wages. And then when prices move up, wages follow. They will do it this time too--that is, if we have another rise in prices. But an increase of 3 or 4 percentage points in interest rates would absolutely sink most of our financial institutions--certainly most of our thrifts and a good many of our other financial institutions. So, I think the big thing to guard against is getting ourselves into a situation where perforce we have to tolerate or accept, and maybe even encourage, a substantial increase in interest rates six months from now, a year from now, or a year and a half from now, as the case may be. So, I find myself a little timid on this business of stimulating the economy at this point through monetary expansion. Some fluctuation in rates is all right, certainly. One has to recognize that we are not anywhere close to our potential, that we very easily could accommodate in the near term more growth than is forecast, and that we may not have as much growth as is being forecast, because quarter after quarter we have had shortfalls in our projections. But I wouldn't want to do that in any kind of gung ho way because I think that would raise the odds that a subsequent sizable fall in the dollar and a subsequent increase in observed prices would bring higher rates that would give us really serious financial troubles in our system. So, I come out on the side of caution and moderation in what we do today.",696
-fomc-corpus,1985,"Mr. Axilrod, why don't you pronounce an invocation.",13
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,"Let me just make a couple of very brief comments. In terms of the business situation and outlook, I myself would be quite surprised if we have seen the end of the import penetration at anything like the current exchange rate. I think that process is maybe not in midstream--it's beyond the midstream--but we are not to the other shore by a long shot in my own appraisal. Mr. Morris expressed a bit of surprise at the timing of the discount rate change. I am not quite sure what you had in mind. You may have had in mind the timing relative to this meeting.",119
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"That was a factor that we considered and we thought on balance that it was better to get it out of the way before the meeting--kind of as a benchmark--rather than leaving some question as to how it would fit in connection with open market operations. I would simply say that I did not have in mind that we would be reversing direction of that action by tightening up on open market operations. With that much preliminary, who would like to comment?",90
-fomc-corpus,1985,"We have observed in Boston that the only thing in the economy that is very strong is M1. I have distributed to all of you a chart that I thought was rather interesting entitled ""Super NOW Account Yields."" In the last six months more than a third of the growth of M1 has been in Super NOW accounts.",65
-fomc-corpus,1985,In Super NOWs as opposed to NOW accounts?,10
-fomc-corpus,1985,"Ten billion dollars out of the $26 billion growth in M1 has been in Super NOW accounts. In the prior 6 months, instead of growing at a $10 billion rate, they grew at less than $2 billion. I think the answer to why M1 exhibited slow growth in the middle of the year and very rapid growth in recent months is shown on this chart. The interest rates on Super NOWs as administered by the banks tend to be rather sluggish relative to market rates. When rates went up sharply in the spring and summer, the opportunity cost of holding Super NOWs relative to money market mutual funds rose substantially, so we had a very slow rate of growth in Super NOWs. As the opportunity cost dropped--there's now only a one percent differential and I suspect in the weeks ahead it may drop below the one percent level--you would expect people to--",176
-fomc-corpus,1985,"Before you say that, let me just ask: A one percent differential between what and what? That's not what it looks like.",26
-fomc-corpus,1985,"The difference between the [yields on] money market mutual funds and the Super NOW accounts is about 1 percentage point. In the original that bottom chart was colored; the differential was about 1 percentage point as of April. I suspect now it is probably down lower than that. As the opportunity cost changes I think you would expect that the public's willingness to hold Super NOWs relative to money market funds would change; and it changes in precisely the direction that you would expect. So, I think this explains a part of the acceleration in M1 growth--not all of it, but a part of it. It also raises again the question that I have been raising for several years: If a large, and the fastest growing, component of M1 is paying a rate very close to the money market mutual funds rate, should you expect the aggregate that contains that rapidly growing component to behave the same way as it has in the past? Quite clearly, it seems to me, the new M1 is going to be more interest sensitive than the old M1 as long as the stickiness of the Super NOW account rate persists; and the relationship between the new M1 and the nominal GNP is going to be as unpredictable as it has been during the past few years.",256
-fomc-corpus,1985,"It all sounds very plausible to me. I asked a similar question to the staff recently and they told me there was nothing to it, so I will let them respond. I may have misinterpreted their answer.",43
-fomc-corpus,1985,"I think what you're observing is the interest sensitivity of M1. This is why the models have been predicting large growth in M1. This was somewhat of a phenomenon in earlier periods. Part of the growth of the Super NOWs, of course, is related to the switching out of NOWs when the minimum went down from $2500 to $1000 at the beginning of this year. But if you go back for six months, there has been a $10 or $11 billion increase in regular NOW accounts, including Super NOWs, so that they have been--as they have been in the past--a large part of the increase in M1. That is the reason we have been contending that M1 cannot have the same degree of weight it had in 1979-1982. There are a lot of reasons for that, but one is that one cannot be certain how M1 velocity is going to behave under different circumstances. I think President Morris rightly points out that the interest sensitivity has increased with the Super NOWs and NOWs in M1 and the sluggish behavior of their rates was indeed quite a phenomenon in 1982 and early 1983. But after a while we are not sure what is going to happen to that interest sensitivity. If the institutions begin moving their rates with the market rates, then to a degree that interest sensitivity will diminish. Our own uncertainty in that respect is one of the reasons that we are a little reluctant to advocate M1 strongly at this point. We just haven't had experience in varying kinds of circumstances as we go through all of these transitions.",322
-fomc-corpus,1985,"But it does suggest to me that with rates coming down and the differential narrowing, if anything, we could very well see sustained strong growth in M1.",31
-fomc-corpus,1985,"Well, what I asked you, [Mr. Axilrod], explicitly the other day was: Does it look different if you look at the old M1 and M1A? You told me no, but this would seem to imply that it should look different.",54
-fomc-corpus,1985,"Well, on other figures they don't behave differently--the velocity behavior and the growth rates behave very similarly. Give me a second and I can round those figures up here.",34
-fomc-corpus,1985,"While Mr. Axilrod is looking, I will give you a sample of one.",18
-fomc-corpus,1985,"In the first quarter, growth in M1 was 10-1/2 percent and growth in the old M1A was 6.8 percent. In the second quarter, growth in M1--this is with certain assumptions--would be around 6.7 percent and M1A would be 5.3 percent. If you look back since 1981--omit the year 1981--in 1982, 1983, and 1984 growth in M1A was running anywhere from 1-1/2 to 5 percentage points below growth in M1. So the relationships that have emerged in the first and second quarters are not that different. The velocity of M1A declined 0.3 of a percent in the first quarter when velocity of M1 declined about 0.4; in the second quarter the velocity of old M1A was about unchanged, or down a little now given our revisions, and it was down 0.2 percent on old M1. So they are behaving roughly the same. But the greater growth in M1 relative to M1A is a function of the greater growth in the NOW account component. But the structural relationship--",246
-fomc-corpus,1985,What were the fourth-quarter figures?,7
-fomc-corpus,1985,Fourth quarter of 1984? M1 grew 3.2 percent and M1A 1.4 percent; the velocity [growth rate] was around 3-3/4 percent for M1 and 5-1/2 percent for M1A. M1A has had a steadily higher velocity [growth] for several years now. The reason is that NOW accounts have low velocity [growth].,85
-fomc-corpus,1985,"There is another way you can get basically the same conclusion. One of my favorite ways--nobody else likes it but me, I guess--is to look at those old money demand functions and ask: What would money have done if the relationship between GNP and interest rates and the growth of money had been what it used to be? If you do that, you find that over the past year the predicted growth of M1 on those old money demand models was 6.9 percent compared with an actual of 6.2 percent; for the past two quarters predicted growth was 7.0 percent compared with an actual of 6.8 percent. I think the really big question is not so much whether money is behaving in a peculiar way relative to what might have happened in the past if old money demand models prevailed, but rather whether money growth has the same kind of meaning when you have an exchange rate that is way, way out of line. We used to think that money was related to aggregate demand not to output. That in itself makes a difference. But maybe even the relationship between money growth and aggregate demand is not the same in a world of wildly volatile and fluctuating exchange rates.",242
-fomc-corpus,1985,That's another thing you can look at--that this money growth may not look all that odd compared to demand. [Unintelligible] 4 percent in the first quarter.,36
-fomc-corpus,1985,"Mr. Chairman, I did ask some people to run some--Mr. Garbarini will excuse the words ""simple-type""--simple-type St. Louis model predictions from M1. That had been something we tested back in 1982-1983 to see if there indeed had been some sort of demand shift. In that period. M1 had been predicting a lot higher nominal GNP than actually developed. We were in a discussion with monetarists [unintelligible] would be needing, and indeed the nominal GNP came in lower than the monetarist-type models would predict. M1A in those days was not predicting so badly for 1983. Now, simple predictions on M1 underpredicted in the first half of 1984 and overpredicted in the second half. Looking into 1985, they would predict in the first quarter a 9-1/2 percent nominal GNP, which is almost 3 points or so higher than we got; and they are predicting double-digit nominal GNP, of course, in the second and third quarters. The old M1A is also predicting nominal GNP higher than our staff is predicting, although not as high as the M1. So, if the nominal GNP comes out about as our staff predicts, it looks as if we are going to see a pattern somewhat similar to what happened in 1983 in terms of these predictions.",290
-fomc-corpus,1985,"Well, what I conclude from all this discussion is that we better have a little more orderly analysis of this before the next meeting when we have to look at those [long-run] targets.",38
-fomc-corpus,1985,We will provide some.,5
-fomc-corpus,1985,It does suggest that if M1 keeps rising very rapidly between now and July that we might have to rebase it for 1985.,28
-fomc-corpus,1985,"I think we can face that issue then. Meanwhile, who would like to make a suggestion? In the absence of any other suggestions, I will make a suggestion: Keep the reserve pressures about where they are.",42
-fomc-corpus,1985,"As long as we know where they are. I will make a suggestion which really does involve keeping reserve pressures about where they are. In terms of the monetary aggregate specifications, I can easily live with those specified in alternative B. I personally would shade the borrowings level a bit higher than the staff's suggestion of $300 to $350 million. This is really splitting [hairs], but I would rather see it $350 to $375 million because I think that is compatible with existing money market conditions, as I understand them.",106
-fomc-corpus,1985,"Now, what are you doing with the thrift [borrowings]? Is that--",16
-fomc-corpus,1985,The thrifts are out as described by Mr. Axilrod in his [briefing] a few minutes ago.,24
-fomc-corpus,1985,"Totally out, Steve?",6
-fomc-corpus,1985,"Well, that's what I was assuming.",8
-fomc-corpus,1985,You regard them as a functional equivalent of extended credit?,11
-fomc-corpus,1985,The Ohio thrifts are on extended credit and the bulk of those in the Richmond District are on extended credit at the moment. Some additional ones may be put on.,33
-fomc-corpus,1985,"Oh, is that right?",6
-fomc-corpus,1985,"We would be glad to put them all in there, if you will take it out of that figure, because it is like extended credit on those that [unintelligible] for a short time; [the institutions are] not feeling the adjustment pressure that is ordinarily felt in adjustment credit.",59
-fomc-corpus,1985,I would think you could [unintelligible] out of extended credit as you do out of adjustment credit.,23
-fomc-corpus,1985,The rate is higher.,5
-fomc-corpus,1985,Those institutions are under some pressure.,7
-fomc-corpus,1985,"Again, I would take alternative B with borrowings of $350 to $375 million. We have this awkward problem of having set monetary growth paths for the quarter in March that, especially in the case of M2 and M3, just are now so far out of line with what we were talking about then that I think we have to consider --although no one likes it--finessing the language of the directive to acknowledge that situation at least as it pertains to M2 and M3. I think M1 we can finesse without any great problems. That's about where I am.",118
-fomc-corpus,1985,"You are prepared to accept those low M2 and M3 numbers, though?",16
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,You don't think that there is any information content in them?,12
-fomc-corpus,1985,I do not.,4
-fomc-corpus,1985,"Picking up on Governor Rice's comments with regard to the economy growing under its potential, I would certainly subscribe to that comment. I don't know whether it's 3 or 3-1/2 percent or more, but certainly [2.7] percent and a range of 2 to 2-1/2 percent are under potential. It seems to me, though, that that question is properly addressed in the July review rather than in this short-run situation we face. Secondly, I would like to address the suggestion that M1 be brought down to the band--I think it was the band, not the cone. I won't get too methodical with you here. It seems to me that the growth in GNP right now is too low, and that there is a downside risk. The 7.3 percent potential growth rate [for M1] that Steve mentioned earlier--if that is the case for the year--I don't find all that disturbing, considering the discussions that we have had with regard to V1. It seems to me that in the usual model it would take a federal funds rate--what would it be: 8-1/2 or 9 cent?--to bring M1 down within that band. And it seems to me that that is not called for under these circumstances. As far as alternatives are concerned, the point I was trying to make by reviewing the horror stories that unfortunately are real and not in the movies anymore is that I think we made the correct move in reducing the discount rate but that there is enough speculative fever out there that if we were observed doing anything further in the direction of ease, we would run a risk that I don't believe is necessary of aiding and abetting that fever. So it seems to me that this is a wonderful time for the Chairman--as only the Chairman can do--to make that representation that we are central bankers and we are concerned with orderly markets and inflation and we are going to hold the line, as it were. That gets me certainly to voting for alternative B as the closest thing to the status quo I can read out of today's confusing events and the description thereof. If the market expects a nudge further in the direction of ease, our failure to satisfy that expectation might be the best thing we could do right now, when I feel there is so much potential panic out there. As far as the borrowing is concerned, I go along with Jerry's suggestion of $350-$375 million, partly because I cannot understand how the thrifts' borrowing [fits], and secondly because I don't know how much borrowing will occur as unfortunate events unfold and how that will affect the borrowing level. It seems to me that results in a federal funds rate, perhaps as was indicated, between 7-1/2 and 8 percent; and I think that is appropriate in terms of market pressures and the discount rate reduction.",583
-fomc-corpus,1985,"Mr. Chairman, my wife tells me I'm hard to please and if she were here today she would say that my actions would prove that because I don't like any of the alternatives. I am mindful of the risks involved in this, but all of these alternatives would put us above the upper band and also above the upper cone for M1. And I just don't think anything would be gained by pushing M1 above the long-run target range; on the contrary, I think we have a lot to lose. The financial market participants are well aware of these parallel bands and if they see us running short-run targets above those bands, I think they are going to question our anti-inflationary resolve. Therefore, I couldn't accept anything above 5-1/2 percent, which would put us about at the top of the band. Actually I prefer 5 percent, which would give us a little breathing room. I don't know what kind of federal funds rate it would take to do that--it might take a little bit of an uptick from where we are now--maybe where we were right before the discount rate was cut. But if that had to be, I would rather see that than encounter the kind of scenario that Chuck outlined earlier, where later we find that we were wrong and have to push it up still more. And if an increase is necessary, I think that might be some indication that the economy is really stronger than the Greenbook suggests. On this matter of not changing policy: If the Committee does adopt alternative B, as I suppose it will, I think most people would regard that as a clear easing of the short-run policy stance that we adopted at the March meeting. Now, there is nothing in the directive language to indicate that any easing has occurred but we have taken a small step in that way. And in particular the term ""maintain"" in the first sentence of alternative B would be somewhat confusing. I recognize the system we use and that the term ""degree of reserve pressures"" refers to the level of borrowing. But I don't think that the outside world looks at it quite that narrowly, so they might not understand it. So, I think that's at least a question we ought to address if we go with ""B"" as I would guess the Committee probably is going to do.",465
-fomc-corpus,1985,"I would just like to respond very briefly to some of the observations that have been made. First, if I thought we were facing an inflation rate of 5 percent, I certainly would be much more concerned and that would be reflected in my view of appropriate policy in that I'd probably want to be more restrictive. I don't think we are. Secondly, if I thought we could get the inflation rate down under 2 percent by keeping the economy growing at 2 percent and the unemployment rate at 7.3 percent, I would be willing to do that too. I would be willing to pay that price, but I don't think we can get inflation down below 2 percent by holding the economy down at such a low rate of growth. I don't see any beneficial effects to be achieved from such a slow stagnating rate of growth and that is why I said that we ought not to be satisfied with anything less than 3 to 3-1/2 percent. Having said that, I would favor alternative B with a tilt toward ""A."" By that I mean that I would be willing to relax borrowing a little below Jerry's recommendation and more in accord with the borrowing that we would expect to be compatible with alternative B--in the $300 to $350 million range.",256
-fomc-corpus,1985,"Well, I do think we are probably at a time where maintaining the existing degree of reserve pressure is appropriate. I am a little unclear as to whether that is ""B"" or ""C"" at this point. I am a bit uncertain about the thrift aspect of the borrowing level, so I think I would favor alternative B. If I were going to vary from that, I would have a slight tendency toward ""C,"" which maybe suggests raising the borrowing level a bit from the earlier recommendations to the area of $400 million. That seems to me probably about where we are, adjusting for the thrift borrowing.",122
-fomc-corpus,1985,"Well, I earlier indicated that I think we have to be thinking about where we are going over the longer run in deciding on policy today. By that I mean that I don't think we ought to dump in reserves in buckets. We shouldn't act panicky. We shouldn't let rates drop a ton. We should be ready to take back whatever additional stimulus we put in now, if it turns out that the economy gets a bit more robust as the year goes along than we now are forecasting. I do think that what we need to worry about most with respect to M1 is not so much how fast it is presently growing, but whether or not there is going to be an impression out there that the Fed is throwing in the towel on inflation. If that impression were widespread, I would be deeply concerned. I don't sense that now and I do want to make sure that we don't give that impression. But I am perfectly happy to go along with the specifications of ""B"" and the borrowing range specified by Jerry of $350 to $375 million.",209
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Just a word on this matter of M1 showing growth above the band: I think we're all aware of the fact that there has been a change in the pattern of velocity here, probably stemming from deregulation and what that has done to the interest elasticity of the demand for money. In any event, our staff felt at the time of our February meeting, and still feels now, that we're likely to see a decline in V1 of approximately 1 percentage point for 1985 as a whole. So that influences my view of what the appropriate growth rate of M1 is. Because of that decline in velocity that seems to be going on, I'm not concerned that we are courting inflation or a reigniting of inflation in the near term. With respect to the specifications, I would be in favor of the federal funds rate associated with alternative B of about 7-3/4 percent and borrowing in the neighborhood of $300 to $350 million. The San Francisco money model, given those and other inputs, would expect the growth rate of M1 to be more like that shown in alternative A. If it were 7 percent or a bit higher, that would be all right with me in view of the losses in the economy and the view I expressed earlier today about tilting in the direction of ease until we get some better balance back in the economy. So, as I mentioned, I would favor alternative B.",284
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Given the sluggishness of the economy and the fact that inflation is at a moderate rate and the dollar--in spite of its recent declines--is still at high levels, I think the Committee should appropriately confirm or ratify the accommodative stance that has been taken over the last couple of weeks. I'm not particularly disturbed about M1 being over its band at the present time, given the relative weakness of the broader aggregates and what I sense is going to be a continued weakness in the second quarter. So I would think, Mr. Chairman, that we ought to maintain the current reserve pressures, if ""pressures"" if the right word to use at this point. I would opt for alternative B with the borrowing specification given in the Bluebook which would translate in my mind to a federal funds rate of about 7-3/4 or 7-1/2 percent.",176
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"Well, Mr. Chairman, I generally would support alternative B. I must admit to being a little concerned about selecting a target that leaves M1 above its channel. But it seems to me that at this point in time that is a relatively low-cost insurance policy, if you will, that may at the margin help economic performance. That seems appropriate to me under the circumstances and, therefore, I don't have any problems with the general specifications of B. I don't have a conviction on the borrowing level, in part because of some of the noise that's affecting those numbers. But it seems to me that maybe a borrowing target centering on $350 million would be appropriate under the circumstances.",136
-fomc-corpus,1985,Mr. Morris.,4
-fomc-corpus,1985,"Well, Mr. Chairman, I think last week was an historic week in the evolution of the thinking of the Federal Reserve. On Thursday we announced a $2-1/2 billion rise in M1 and on Friday we announced a discount rate cut, which shows that we're really learning from experience.",60
-fomc-corpus,1985,Or that we didn't know what the money supply was.,11
-fomc-corpus,1985,"As I read the numbers, it's clear to me that the U.S. economy--and I think the world economy--needs a lower level of interest rates in the United States to the extent that that can be produced without jeopardizing our determination to control inflation. It seems to me, therefore, that it's appropriate for us to probe a little on interest rates. I'm not completely persuaded that what has happened already will be enough. But I think we ought to sit back and assess things before we move any further. So, I would support ""B"" with Jerry Corrigan's $350-$375 million on borrowing.",123
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,"I favor alternative B, but I think we ought to recognize that alternative B in the context of a 7-1/2 percent discount rate is an easier policy than in the context of an 8 percent discount rate. I think it's technically correct to say that we're maintaining the same policy. But for the world at large that's only going to be a technicality. I would think we would be better off in the wording to use the words ""maintain the existing degree of pressure on reserve positions"" but that we might add the phrase ""in the context of the recent decline in the discount rate."" Otherwise, I think we're going to let something that is technically correct in a very narrow sense lead us into a communication problem. The other point is that the M1 specification of 6-3/4 percent strikes me as being overly precise; perhaps we ought to round that to something that looks a little more even, like 7 percent.",190
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"Well, I have some sympathy with Bob Black's position. It makes me uneasy to be running above track on M1. There's no magic in it, of course. But we specified it and it is a relatively high number historically. We're at the time in the cycle when it's conceivable that we're seeing weaknesses here and there that could do the kind of thing that would lead people to say, as they do about the '70s, that we acted in an inflationary manner. It is a sensitive time to overrun the objectives that we have set before. I am impressed, however, by the fact that the M1 target ranges were set in the context of a higher interest rate structure than we now have. And interest rates, as Frank has pointed out, do now very much affect the behavior of M1. So, that may be somewhat of a temporary explanation at least. I think we need to review this all quite thoroughly for the next meeting, including what NOW accounts are doing, particularly Super NOWs. You remember when the minimums were reduced on all of them in January that we said we were going to watch carefully to see what happened. I'm not sure that we have watched that carefully since then, having decided that nothing was going to happen. So that all ought to be reviewed. I'm also impressed by the extreme weakness in M2 and M3. I've asked about that several times and I'm always told that it's a technical thing that will soon reverse itself. But, in fact, if you look at the family of aggregates--and you remember that the Committee has a family of aggregates so that it won't be misled by some exotic movement in one of them--we're in pretty good shape. M2 and M3 have declined down not only within the parallel lines but are now within the cones. And seeing that gives me a little more comfort. So, I would accept alternative B. And if I were going to err, I'd err on the side of tightness rather than ease.",403
-fomc-corpus,1985,I just wonder whether the weakness in M2 and M3 is--and we saw this at the same time last year--an IRA account phenomenon.,30
-fomc-corpus,1985,"Well, it could be that. It could be the Treasury refund situation and the big Treasury balance. I think we just have to look at it.",30
-fomc-corpus,1985,"Well, as I recall, didn't we have a similar kind of weakness last spring, Steve?",19
-fomc-corpus,1985,"Not that dramatic. If you put in all of the IRA increase seasonally unadjusted, that would add 4 percentage points to the growth rate. And assuming that our seasonal on the nontransactions component--",42
-fomc-corpus,1985,4 percentage points for one month?,7
-fomc-corpus,1985,"Yes, at an annual rate, for one month. If you assume that our seasonal on the nontransactions component caught at least half of that--which strikes me as a reasonable assumption--you'd add a couple of points, which would leave growth still very weak. You'd need other explanations.",59
-fomc-corpus,1985,"These M2 and M3 numbers are quite low however you look at them. If they were really that low for the quarter, I'd worry a bit. It allows much room for increases. Mrs. Horn.",42
-fomc-corpus,1985,"Mr. Chairman, I'd like to show some progress in moving the monetary aggregates--M1 in particular--toward where we want to be at year-end. Because of the uncertainties in the economy and the uncertainties with respect to velocity, where I personally would like to come out at year-end is in the top part of the ranges, particularly for M1. I'm not in favor of bringing it back too fast for a number of reasons, including the uncertainties. But I'm also not sure it's the appropriate time to be active on the other side either. So, I would favor alternative C, but I would favor changing the borrowing number upward slowly as things develop.",132
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Thank you, Mr. Chairman. I would favor the aggregates specifications of alternative B. It doesn't bother me greatly that we are at, or near, or above the top of the parallel line [for M1], given the weakness we've had. I think it's an appropriate response, with the velocity [growth] being negative for what would appear to be two quarters. But what I am bothered about is the borrowing level suggested in the Bluebook: the $300 to $350 million range, which will achieve a 7-3/4 percent federal funds rate. If I'm correct in my thinking about that, if we maintain the same pressures on reserves that we've had in the past and have dropped the discount rate 1/2 percentage point, then that would suggest that in order to get a funds rate of 7-3/4 percent we would need to have the same borrowing level that we had before we dropped the discount rate. And if I understand the numbers right, that level is closer to $400 million than it is to $300 to $350 million. I think borrowing averaged $380 million over the intermeeting period. The point that I'd like to make is that $300 to $350 million seems a little low and I would be a little more cautious so as to get to the 7-3/4 percent over time. As a result, I would opt for a borrowing level of $375 to $425 million with a target, obviously, of $400 million starting out. And I should think that if we're looking ultimately to move to 7-3/4 percent that we can do it gradually. The other point that I would make, and I've made it before, is that seasonal borrowings are now running about $170 million, which is half of the $300 to $350 million, and they will continue to build over the upcoming intermeeting period. Therefore, with a $300-$350 million borrowing objective, we're really getting very close to turning loose and actually pegging the federal funds rate, which I would oppose. Therefore, I would accept ""B"" and recommend a borrowing range of $375 to $425 million, centering on $400 million for the start of the intermeeting period.",450
-fomc-corpus,1985,Ms. Seger.,5
-fomc-corpus,1985,"As I reviewed the table here and the charts on the various monetary aggregates, it seemed to me that what I saw for M2 and M3 was, as Chuck said, that as of April we were already not only within the parallel lines but within the cones. Also, as I look at where the various alternatives A, B, and C are plotted for the end of the quarter, they are not really that far apart. They are within the cones at that point. For M1 I see that as of April we're a touch above but with each alternative--A, B, or C--we are going to be above the parallel line. So if we're concerned about how the financial market participants would view this, I don't see that it makes more than about a nickel's worth of difference. I don't think that they just look at M1 to begin with; and secondly, I don't think that they would be that sensitive to these short-range positions we are taking. So I guess I could practically roll the dice here and say that if everyone is going with alternative B, I certainly can. But I hope if there is a way to lean that we would lean toward alternative A rather than toward tightening, particularly because I think we have to be very careful about what our actions do to the fed funds rate and what message that sends to market participants about what we did today. In terms of the borrowing target, frankly, I'm so confused about how the thrift numbers come in here that I really don't know exactly what number to pick up. But I think I would rather have it lower than higher, which is a very vague way to put it.",330
-fomc-corpus,1985,Mr. Garbarini.,6
-fomc-corpus,1985,"Mr. Chairman, I strongly endorse your recommendation that monetary policy be consistent with what we've been doing recently. I'm concerned that, while monetary policy might work with lags, monetary messages work somewhat quicker. And it seems to me that anything other than ""C"" gives a message of a move toward ease. If we had to go with ""B,"" I'd agree with Roger that at least we should increase the borrowing level.",84
-fomc-corpus,1985,"I wonder, Paul, whether the staff has any view on this seasonal borrowing point that Roger made. I had sort of forgotten about the fact that it would be moving up--I presume significantly--in weeks to come.",44
-fomc-corpus,1985,"Well, it may. It looks like it would tend to rise a little in May naturally, although in 1984 the spread between the funds rate and the discount rate was about the same as in April--maybe a tad higher. It looks to me at least that if the spread between the funds rate and the discount rate is unchanged, that it probably would be running, say, $30 or $40 million or so or maybe a little more above what is ""normal"" for seasonal borrowing given this spread and this time of year. So, implicitly, the $350 million was allowing for that. And that probably would give you a funds rate of 7-3/4 percent shaded on the down side I would guess rather than shaded above. I don't know if Mr. Sternlight agrees or disagrees with that.",166
-fomc-corpus,1985,"No, I'd agree with that--shaded to the down side.",14
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,I would find alternative B acceptable. In my view the borrowing assumption as a minimum should be $350 to $375 million. I would not go below that.,32
-fomc-corpus,1985,Governor Wallich hasn't been heard from.,8
-fomc-corpus,1985,"Well, as I said before, the chief monetary objective that I envisage is to overcome the stickiness of the long-term rate and to bring about more reasonable real long-term rates. This can be done by steepening the yield curve--that is pulling the short-term rate down--provided that it doesn't lead to an excessive acceleration of M1 or the other aggregates. Fortunately, that seems to be what is happening now, so our range of maneuver is very limited. We have already reduced the funds rate, the short-term end of the yield spectrum. And I think we've probably done as much as we dare right now. One has to observe what the market does. If the market accepts it and brings down the long-term end so that the yield curve doesn't steepen, well, then one has made a step forward and one shouldn't take any risks of the market rejecting the maneuver. In practical terms I'm concerned also by how quickly one moves from the cone to the band. The main virtue of the band that I see is that it seems to give us in writing a lot of leeway; it doesn't matter whether the money supply overshoots quite sharply in the short run; we don't have to bring it back immediately. But other than that, the band is not a good guide. It's the cone that is the right guide. So given the constraints, I can go with ""B"" and I can go with $350-$375 million on the borrowing and a funds rate to match, which would be 7-3/4 percent or a little more perhaps.",314
-fomc-corpus,1985,"I'd just make one quick technical comment on M2. In March and especially in April there has been a very substantial runoff of RPs, which we think is associated with the anomaly of the Treasury balance and the refund problem. That itself is a major factor in terms of abnormally slow growth of M2 in this period.",65
-fomc-corpus,1985,"Yes, I think that's right. But I'm hearing also that April was the lowest M2 growth since 1970. That goes back a long way. It may be strictly technical, but it gives me pause so long as I see it there.",50
-fomc-corpus,1985,"I agree. But the runoff of RPs, Peter, was how much in April?",18
-fomc-corpus,1985,I think that was the main factor in the weakness in M2 but I don't know how many percentage points.,22
-fomc-corpus,1985,It was big dollars.,5
-fomc-corpus,1985,One of the things is that thrifts are getting to be a part of these numbers and we know that FCA is still in trouble. And as a matter of fact the whole savings and loan industry seems to be much less aggressive in terms of expansion--I guess because of the Home Loan Bank Board rule on incremental net capital. So I'm wondering whether there might be something more there.,76
-fomc-corpus,1985,It may well be. It's probably unduly optimistic to think that they decided not to make so many bad loans.,23
-fomc-corpus,1985,"No, they're going to make as many bad loans but they're going to make fewer good ones!",19
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Mr. Chairman, there seems to be some misunderstanding as to what the level of borrowing is that we set forth with respect to the different alternatives, especially with ""B."" I would ask Steve--and I think the rest of you might be interested in the answer--whether, as I understood it, the level of borrowing he was talking about in the Bluebook assumed that all the so-called special situation borrowing with respect to thrifts would be treated as other extended credit. So, that is not as fluky a number or as unpredictable a number as it might otherwise be. That is the understanding, is it not?",124
-fomc-corpus,1985,"Well, that's how we wrote the Bluebook. I think what's unpredictable, essentially, is the relationship [of borrowing] to the funds rate. There has been a lot of looseness in that relationship. And I don't think any of us can guarantee any particular funds rate for any particular level of borrowing. We can guarantee sort of an area, but not any particular level.",75
-fomc-corpus,1985,"As a follow-up on that: Your $380 million borrowing level that you averaged out over the period excluded everything, right?",25
-fomc-corpus,1985,I excluded it. That's right; I took out all of the special situation borrowing.,17
-fomc-corpus,1985,"Which is clearly wrong at the extreme, it seems to me.",13
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,In the same sense that it was wrong to take out all the borrowing by Continental last summer. Some fraction probably should have been left in there; I assume that some of it was not extended credit.,40
-fomc-corpus,1985,"Small or large. Well, there's no great desire to change things aggressively. That is a point with which I agree, but let me just make a couple of supplementary comments. I don't know where we are on the economy; it's not looking very good. I do know the exchange rate is awfully high and I surely wouldn't want to push it higher. I would rather do the reverse. I don't know what is going on with M1 or M2 or M3. I know they are giving out different signals, but I don't feel very religious about M1 at this point. If the economy shows further signs of softening and the dollar is going higher and financial strains in a number of directions continue or get aggravated, as they well might, I think we're running some financial [risks] in the financial system, clearly. There are financial strains across a large part of the structure of the American manufacturing industry at least. One is partly related to the other. And I think we have to maintain some flexibility on the easier side, although I wouldn't [move in that direction] right now. I think that's a much more likely hypothesis than the opposite, although I don't mind maintaining flexibility on the opposite side either. This alternative B/alternative C business never appears in anything [we publish]; maybe we ought to look at the [draft] directive language, which I don't like much in the sense that it doesn't change anything from last time. There have been a number of comments that we ought to mention the discount rate someplace. I think that would be wise. Let's put something in the first sentence there. I'm not quite sure why we would say ""uncertainties in the business outlook."" It seems to me what we ought to be saying is ""relatively slow growth.""",356
-fomc-corpus,1985,"We can't really say ""taking account of progress against inflation"" anymore either.",15
-fomc-corpus,1985,"That's long term. Another thing on the inflation front, as we said in our announcement [about the discount rate], is that the commodity prices are just continuing to fall. The averages for the most part, except for the very low level at the bottom of the recession, are as low as they have been in two years and the level is about where it was in '79 or '80.",79
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"That is a real reduction in commodity prices of 30 or 40 percent, I suppose. And it's just about across the board: in agricultural prices, industrial, mining--",35
-fomc-corpus,1985,That's another reason why it's disturbing that the general price level is rising as much as it is.,19
-fomc-corpus,1985,"Well, it's rising and it's mainly in the prices of services. But there has been a little bulge in gasoline prices recently, which we may have for another month in the statistics, but that seems to be over in the commodities prices.",48
-fomc-corpus,1985,Car prices.,3
-fomc-corpus,1985,Car prices went down last month.,7
-fomc-corpus,1985,In the latest consumer [price report]? I haven't seen that.,13
-fomc-corpus,1985,The Japanese premium ought to start coming in.,9
-fomc-corpus,1985,"Well, I just read it. Used car prices were down slightly and the new car prices were unchanged. It's a rare thing for used car prices to come down.",33
-fomc-corpus,1985,"It's all those trade-ins, with this high level of new sales.",14
-fomc-corpus,1985,"Well, the easy thing to do, and maybe it's sufficient, is just to mention in the first sentence that the discount rate went down.",28
-fomc-corpus,1985,"Well, there are three items mentioned--",8
-fomc-corpus,1985,"Let me suggest something radical: take out all this business about progress against inflation, uncertainties, and the exchange value of the dollar.",26
-fomc-corpus,1985,"Yes, they really are all very difficult.",9
-fomc-corpus,1985,"Say: ""In the implementation of policy for the immediate future, against the background of the recent decline in the discount rate."" We mentioned all these things [in our announcement of the discount rate action.] Put a footnote on it that says ""See the statement on the--""",56
-fomc-corpus,1985,"Well, these are mentioned elsewhere too I think. This is just somewhat--okay.",17
-fomc-corpus,1985,I think that's a good idea.,7
-fomc-corpus,1985,"""In the implementation of policy for the immediate future and against the background of the recent reduction in the discount rate""--is it worth mentioning market rates in there?",31
-fomc-corpus,1985,You don't need it.,5
-fomc-corpus,1985,"I guess we say ""The Committee seeks to maintain the existing--."" Does it sound a little more accurate to say ""The Committee seeks to maintain the range--""?",33
-fomc-corpus,1985,"How about ""the recent""?",6
-fomc-corpus,1985,"""The recent""? Borrowing is going to be very high this week isn't it? How about ""in the period""?",23
-fomc-corpus,1985,"Well, yes, with this particular week's situation.",10
-fomc-corpus,1985,"[Mr. Axilrod,] you had a rather selective recitation, I think, of the average borrowing.",24
-fomc-corpus,1985,"No, no. It's going to be high with the--",12
-fomc-corpus,1985,Just yesterday there were--,5
-fomc-corpus,1985,It was high with all the thrifts in. They are not all in extended credit yet. So we're running high with them in.,27
-fomc-corpus,1985,That would only take out about $200 million in the period average. I would say that what we'll publish this week will be high because most of them are in.,33
-fomc-corpus,1985,"It's going to be high without all the thrifts, isn't it?",14
-fomc-corpus,1985,"Well, I calculated that average--",7
-fomc-corpus,1985,My feeling is that without thrifts this period's average will be at something like $600 million.,20
-fomc-corpus,1985,We could still get some borrowing in New York today.,11
-fomc-corpus,1985,"For the period, but the week will be a little high.",13
-fomc-corpus,1985,Did you say $600 million without the thrifts?,11
-fomc-corpus,1985,"Yes, that's high.",5
-fomc-corpus,1985,"I guess ""recent"" is better than ""existing"" in that connection. When I say it, it doesn't sound very good; but I guess ""recent"" is better than ""existing.""",38
-fomc-corpus,1985,"Maybe you could say ""prevailed over recent weeks"" or something.",15
-fomc-corpus,1985,"""In most recent weeks.""",5
-fomc-corpus,1985,"""Selected recent weeks""!",5
-fomc-corpus,1985,"""As interpreted in recent weeks""?",6
-fomc-corpus,1985,"I don't know. The more we try to explain it the more difficulty we get in. ""The Committee seeks to maintain about the same degree of pressure on bank reserve positions."" Let's go on to the next sentence, having resolved that one. I think this bracketed suggestion may be better; what do you think? M2 and M3 are awfully low looking.",74
-fomc-corpus,1985,4 percent and 5-1/4 percent.,11
-fomc-corpus,1985,"Just put it in there baldly. Look at the alternative: ""This action is expected to be consistent with growth in M1 at an annual rate of around--."" We can say ""6 percent or a little higher.""",45
-fomc-corpus,1985,It's likely to be 6-1/2 percent.,12
-fomc-corpus,1985,"Well, but those differences are so fine. I don't mean to sound--",15
-fomc-corpus,1985,That's a two-month rate for the two of them?,11
-fomc-corpus,1985,No. The way this is written the M1 is a three-month rate.,16
-fomc-corpus,1985,March to June.,4
-fomc-corpus,1985,"Yes, but the other two are two-month rates.",11
-fomc-corpus,1985,"Yes, that's right.",5
-fomc-corpus,1985,"Well, I guess that's 6-1/2 to 7-1/2 percent.",20
-fomc-corpus,1985,"We could put M1 on a 6 to 7 percent basis and keep the timeframe the same for all the aggregates. It's a little peculiar, isn't it, to have one aggregate over one time period and the other two over different periods? If we said 6 to 7 percent, it's much--",62
-fomc-corpus,1985,"Well, everything is a little peculiar because they are not ordinarily that far off.",16
-fomc-corpus,1985,6 to 7 percent kind of gets them all. But if we use April to June--,19
-fomc-corpus,1985,"But is 6 to 7 percent consistent with ""maintain the existing""? It seems to me that that doesn't line up.",26
-fomc-corpus,1985,It does April to June.,6
-fomc-corpus,1985,April to June it does.,6
-fomc-corpus,1985,"I hate to put two-month growth rates in there, but we could do that--roughly 6 to 7 percent--for all of them for April to June.",35
-fomc-corpus,1985,It gives us a little more flexibility.,8
-fomc-corpus,1985,M3 is actually higher than that I think.,10
-fomc-corpus,1985,"Another alternative, Mr. Chairman, would be to use the three months for M2 and M3 and maybe lower the number a little from the 7 to 8 percent or lower it a lot and indicate the possibility that it might be more because of the shortfall in the--",57
-fomc-corpus,1985,"I suppose we could just say something more vague such as ""expected to be consistent with growth of M1 at an annual rate of around 6 percent or a little higher, while M2 and M3 would be expected to increase at a slower rate of speed than implied earlier, due to the sluggish growth in the--""",65
-fomc-corpus,1985,That would do it. That would be in the spirit of the last--,15
-fomc-corpus,1985,I think the neatest thing to do is to say April to June rates of 6 to 7 percent for all of them and just wink at that 7-1/2 percent on M3.,42
-fomc-corpus,1985,"Yes, I think that--",6
-fomc-corpus,1985,Even better might be to say 6 to 7 percent for M1 and M2 April to June and 7 to 8 percent for M3.,32
-fomc-corpus,1985,My only trouble with that is that I don't like two-month growth rates and if M2 and M3 turned out to have a little bulge on the other side--well within what we thought earlier--it wouldn't bother me. But I don't know that it makes a lot of difference.,58
-fomc-corpus,1985,"You could say ""M2 and M3 may grow slower than the 7 to 8 percent rates expected earlier because of..."" to allow for that possibility.",32
-fomc-corpus,1985,"I don't mind that. Let me try something like that. The alternative, I guess, is giving a two-month growth rate but say ""expected to be consistent with growth of M1 at an annual rate of around 6 percent or a little higher, while M2 and M3 are expected to grow more slowly over the quarter than anticipated earlier in the light of the--."" One of them was actually minus wasn't it?",85
-fomc-corpus,1985,"Yes, ""in light of that--""",9
-fomc-corpus,1985,"""April performance.""",4
-fomc-corpus,1985,"""In light of April.""",5
-fomc-corpus,1985,"""The sluggish April performance.""",5
-fomc-corpus,1985,"""The sluggish April.""",4
-fomc-corpus,1985,"""Their sluggish April performance"" or ""their weakness"" maybe.",13
-fomc-corpus,1985,"If we separate M1 and M2 and M3, does that perhaps convey the notion that only M1 is the target now and that for M2 and M3 we have expectations but not targets?",41
-fomc-corpus,1985,"You used the word ""expected"" in both cases didn't you, Paul?",15
-fomc-corpus,1985,"The way this would read is: ""This action is expected to be consistent with growth in M1 at an annual rate of around 6 percent or a little higher while M2 and M3 are expected to grow more slowly over the quarter than anticipated earlier in the light of their weakness in April"". The advantage of this is that it has M1 a tad higher than what we said we envisaged before and it's immediately balanced by saying M2 and M3 are considerably lower. The alternative is just using the two-month growth rates. Or we can do what we have here. Which do you prefer? I guess I slightly prefer this.",128
-fomc-corpus,1985,It's fine with me.,5
-fomc-corpus,1985,Me too.,3
-fomc-corpus,1985,I prefer your recent language.,6
-fomc-corpus,1985,"Well, let's assume that for the moment. [The next sentence is]: ""Somewhat lesser reserve restraint--""",23
-fomc-corpus,1985,"""Would be acceptable.""",5
-fomc-corpus,1985,"I'm perfectly happy to have it ""would"" in the first part and ""might"" in the second part.",22
-fomc-corpus,1985,That's a shift.,4
-fomc-corpus,1985,[Unintelligible].,6
-fomc-corpus,1985,[Unintelligible.],6
-fomc-corpus,1985,That's noticeable.,3
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Under a magnifying glass!,6
-fomc-corpus,1985,"Well, that's where [markets] put the directive language.",12
-fomc-corpus,1985,This isn't going to come out until two months from now.,12
-fomc-corpus,1985,"I think they have to be ""woulds"" in both cases or ""mights"" in both cases; I don't care which it is. SPEAKER(?) Well, in both cases it ought to be ""might"" so that we don't get trapped.",51
-fomc-corpus,1985,"I can go with ""might.""",7
-fomc-corpus,1985,"I'd prefer ""would/might.""",7
-fomc-corpus,1985,"[Unintelligible] you'd prefer ""woulds.""",12
-fomc-corpus,1985,"That's what I prefer too, but what do you all want to do? It doesn't make that much difference.",22
-fomc-corpus,1985,"""Might"" and ""would.""",7
-fomc-corpus,1985,"No, I prefer ""would/would;"" I always prefer that so that we don't make a mistake.",21
-fomc-corpus,1985,"How many members of the Committee prefer ""might/would""? The alternative is going to be ""might/might.""",23
-fomc-corpus,1985,"What happened to ""would/might""?",8
-fomc-corpus,1985,"That's right: ""would/might."" Did I say it wrong?",14
-fomc-corpus,1985,Yes sir.,3
-fomc-corpus,1985,"I thought that's what I gave first. Who prefers ""would/might""? Wait a minute; let me see. How many ""might/mights"" do we have? Five. Somebody didn't vote.",40
-fomc-corpus,1985,Probably you.,3
-fomc-corpus,1985,"I picked the ""would/might.""",8
-fomc-corpus,1985,He counted himself.,4
-fomc-corpus,1985,"""Would/mights."" That sounds infectious!",9
-fomc-corpus,1985,You wouldn't mind some company.,6
-fomc-corpus,1985,"I count one vote [more] for ""would/might"" at this point.",17
-fomc-corpus,1985,We can have a softball game: the Mights and the Woulds!,15
-fomc-corpus,1985,That's what it sounds like!,6
-fomc-corpus,1985,What's this federal funds rate range? We have it at 6 to 10 percent and that still seems to be ample to cover all contingencies.,30
-fomc-corpus,1985,"In ""B"" it's 5-1/2 to 9 percent.",16
-fomc-corpus,1985,"Well, where do you want the federal funds rate? I don't think it's worth changing to get it to 5-1/2--",28
-fomc-corpus,1985,Zero to 12 percent.,6
-fomc-corpus,1985,6 to 10-1/2 percent.,10
-fomc-corpus,1985,"Well, we're left with this borrowing figure. The center point seems to be $350 million.",19
-fomc-corpus,1985,And all the thrift borrowing out.,7
-fomc-corpus,1985,"Well, all the emergency thrift borrowing.",8
-fomc-corpus,1985,Only emergency thrift borrowing.,5
-fomc-corpus,1985,"The bulk of it is now extended credit and perhaps more of it will be. But I would say that Mr. Sternlight has made a mental adjustment even for some of it that might not yet be classified as extended credit, at least recently.",49
-fomc-corpus,1985,It would still be around $100 million now [unintelligible] extended credit when we make some allowance--,23
-fomc-corpus,1985,[Unintelligible] adjustments.,8
-fomc-corpus,1985,Now we're talking!,4
-fomc-corpus,1985,"I don't like to get in a position of splitting hairs about this borrowing. But it seems to me that $350 million taken by itself is kind of a threshold because if it goes down and stays down at $350 million or falls below that, there is a real danger: I think we'd find ourselves again in a situation where it would start pushing on the current level of the discount rate. And at this juncture, I at least would not want us to fall into a situation where the behavior of the federal funds rate starts to give rise to market expectations of a further discount rate reduction. I had mentioned $350 to $375 million, but I think the $350 million number at this point is more than symbolically significant because I think it does get you into that range where I would start to get very uncomfortable.",164
-fomc-corpus,1985,Why don't we make it $350 to $400 million and allow some discretion to be exercised here? I think we all expressed the view that we didn't want it to threaten the discount rate.,38
-fomc-corpus,1985,"Whether the discount rate is threatened or not will depend upon what goes on in the economy or the exchange rate, I suspect.",25
-fomc-corpus,1985,"But that would take place in the normal course [of events], and I wouldn't want to kind of fall into that independent of the economy.",28
-fomc-corpus,1985,"I'd be concerned, Mr. Chairman, about moving up to $400 million. I'm afraid that might push the funds rate up. I would not like to see that happen.",35
-fomc-corpus,1985,"Well, that's why it is discretionary.",8
-fomc-corpus,1985,"Leaving a little margin here is fine, obviously. We can leave a little margin by saying $325 to $375 million.",25
-fomc-corpus,1985,I would support that.,5
-fomc-corpus,1985,"I think nobody is talking about trying to force the federal funds rate down at this point below where it would naturally lie, which is a little above the discount rate.",33
-fomc-corpus,1985,"I would feel much more comfortable if we stayed above $350 million. I like Jerry's formulation of $350 to $375 million. It just seems to me that if the funds rate gets down below the 7-3/4 percent range, then it raises questions again about whether or not we're going to have another cut in the discount rate. We've sent some very strong signals to the markets with this cut in the discount rate. And I really wouldn't want to send any more messages like that.",100
-fomc-corpus,1985,I don't know whether we sent a very strong message; they were anticipating it for two weeks before it happened.,22
-fomc-corpus,1985,"Well, given what's happened to market interest rates and stock prices, it seems to me that the markets weren't expecting it all that confidently.",27
-fomc-corpus,1985,The bond market was down 1/2 of a point this morning; I don't know where it is now.,23
-fomc-corpus,1985,20 points in the stock market yesterday.,8
-fomc-corpus,1985,"Well, it sent a signal to the market that they think that at this meeting we are really going to go toward ease. That's one of the things I think it conveyed to the markets.",38
-fomc-corpus,1985,"As a technical point, Mr. Chairman--",9
-fomc-corpus,1985,What did the stock market do this morning?,9
-fomc-corpus,1985,"Well, the first half-hour it was down 2 points, [so] it may be down [now]. I might mention a technical point: If, because of a wire failure, a large bank borrows $1-1/2 billion or something like that on a Friday--which often happens to us--the level of borrowing can easily be $600 to $700 million with money market conditions very little different from a borrowing level of $300 to $350 million. So there has to be--I hope--some sense from the Committee that there can be wide swings here in borrowing.",120
-fomc-corpus,1985,I think we've learned that from experience.,8
-fomc-corpus,1985,$325 to $375 million.,7
-fomc-corpus,1985,"Mr. Chairman, the target that I think you're looking at is $350 to $375 million. If I understand, that would result in the federal funds rate quite likely moving to the 7-3/4 percent area immediately. Is that a correct interpretation?",53
-fomc-corpus,1985,"Well, you ask this question every time, Roger, and I'm not a prophet.",17
-fomc-corpus,1985,I understand that.,4
-fomc-corpus,1985,"I would assume it's somewhere in that neighborhood, give or take 50 basis points.",17
-fomc-corpus,1985,"Well, if there's 50 basis points down to 7-1/4 percent then I would oppose it, obviously. I understand you're not a prophet; but I think the staff's projection suggests that it will be moving immediately to 7-3/4 percent as a result of the discount rate cut with a $350 million borrowing level.",70
-fomc-corpus,1985,"Yes. There may be slight differences in judgment among the staff here. I had $300 to $350 million; there are other people, and I think Mr. Sternlight is one, who would say $350 million or maybe a shade above for that. I don't know how one could possibly be certain on this.",64
-fomc-corpus,1985,"That certainly does seem to suggest $325 to $375 million then, doesn't it? It encompasses both views.",22
-fomc-corpus,1985,But it really suggests that we ought to have an agreed upon target for the federal funds rate. I would think that's--,24
-fomc-corpus,1985,"Oh, shame on you, Governor Gramley!",10
-fomc-corpus,1985,Not a written one. Let Steve translate that to whatever borrowing level is appropriate.,16
-fomc-corpus,1985,"The stock market, Mr. Chairman, is unchanged at 1:00 p.m.",18
-fomc-corpus,1985,And that means it kept all its gain.,9
-fomc-corpus,1985,So it is pretty good.,6
-fomc-corpus,1985,"Well, I don't know that we need to linger over this point forever. I assume we will start--and probably miss it by $100 million plus or minus--somewhere around $350 million or slightly above with a bit of flexibility on either side.",51
-fomc-corpus,1985,What was that again?,5
-fomc-corpus,1985,We start at $350 or a little above and have some flexibility either way as we move along.,20
-fomc-corpus,1985,I don't see how anybody could have a problem with that.,12
-fomc-corpus,1985,How do you want to express that noble thought?,10
-fomc-corpus,1985,Just the way you did it.,7
-fomc-corpus,1985,Just say $350 for the moment with an understanding that there's a little flexibility. All right.,19
-fomc-corpus,1985,Did you settle the [language] for this earlier part?,12
-fomc-corpus,1985,"I think so. We more or less settled it but various people are unhappy. It reads: ""In the implementation of policy for the immediate future, and against the background of the recent reduction in the discount rate, the Committee seeks to maintain about the same degree of pressure on bank reserve positions. This action is expected to be consistent with growth in M1 at an annual rate of around 6 percent or a little higher during the period from March to June, while M2 and M3 are expected to grow more slowly over the quarter than anticipated earlier in the light of their weakness in April. Somewhat lesser reserve restraint would be acceptable in the event of substantially slower growth of the monetary aggregates while somewhat greater restraint might be acceptable in the event of substantially higher growth."" All the rest of it is the same with 6 to 10 percent [for the funds rate range].",175
-fomc-corpus,1985,"We ended up with ""would"" and ""might"" on the second page?",16
-fomc-corpus,1985,"By one vote as I understood it, with one person not voting.",14
-fomc-corpus,1985,"Where you said that there would be less growth than earlier anticipated for M2 and M3, don't you think we ought to put in the percentages earlier anticipated? There's no base there unless somebody goes back and looks at--",44
-fomc-corpus,1985,"Yes, that's right.",5
-fomc-corpus,1985,Whatever they were. What were they?,8
-fomc-corpus,1985,7 to 8 percent.,6
-fomc-corpus,1985,For both?,3
-fomc-corpus,1985,It was 7 percent for M2 and 8 percent for M3.,16
-fomc-corpus,1985,"Add ""the 7 to 8 percent range anticipated earlier."" Would you want to say ""grow significantly more slowly""? It was 7 to 8 percent for both?",35
-fomc-corpus,1985,No; it was 7 percent for M2 and 8 percent for M3. And more slowly--,22
-fomc-corpus,1985,"So it should say the ""7 and 8 percent anticipated, respectively.""",15
-fomc-corpus,1985,"""Anticipated for M2 and M3, respectively.""",13
-fomc-corpus,1985,"""Anticipated earlier for M2 and M3, respectively.""",14
-fomc-corpus,1985,"I would just say ""less rapidly"" instead of ""substantially less rapidly"" because, as you say, if we should happen to get a snap-back, it would be acceptable.",38
-fomc-corpus,1985,"Okay. Well, if that's all right and nobody wants to raise any further points, [we can vote].",22
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Black No President Forrestal Yes Governor Gramley Yes President Keehn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,47
-fomc-corpus,1985,Okay.,2
-fomc-corpus,1985,We need to approve the minutes.,7
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,We'll turn to foreign currency operations.,7
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Comments or questions?,4
-fomc-corpus,1985,"Gretchen, when you say that people holding dollars have many alternative techniques to protect themselves and so are encouraged, is it to be understood that the cost of that does not fully account for the difference in interest rates?",44
-fomc-corpus,1985,"Well, they can manage this hedging quite aggressively and they can select, if you will, the term of their insurance protection against an adverse exchange rate move. So, they can pay the price of this insurance for relatively short periods of time. We believe, or at least we have heard, that in many cases during the spring money was made on these so-called protective hedging operations when the dollar came down earlier in the year.",87
-fomc-corpus,1985,"No other comments, observations? You provoked nobody! Domestic operations, Mr. Sternlight.",19
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Comments?,2
-fomc-corpus,1985,"Move approval, Mr. Chairman.",7
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,"Without objection. We'll see whether the economy sparks any more [comment]. MESSRS. KICHLINE, PRELL, and TRUMAN. [Statements--see Appendix.]",36
-fomc-corpus,1985,Are there any comments or questions?,7
-fomc-corpus,1985,"Could I ask a question about these consumer and mortgage delinquencies? While we have had some better experience recently, they are still very high on balance. Does that conflict with what we are seeing in higher net wealth or is there an explanation due to distribution of income? How do you explain that apparent conflict?",62
-fomc-corpus,1985,"Well, it is very, very difficult. In a sense it conflicts with the wealth figures; on the other hand, one of the things that has prevented wealth from growing so fast has been the mild increase in housing prices, which had been a significant ingredient earlier in wealth growth. It appears that there is a combination of factors involved in mortgage delinquencies. One is that unemployment is still quite high in an historical sense, and considerably higher than the average in some locales. Income growth obviously varies across individuals, so those who took on mortgages earlier perhaps with adjustable rates or with very aggressive underwriting terms--graduated payments or whatever--may find themselves with a greater burden than they can handle readily. The fact that the equity in their homes has not built up appreciably or could even be negative, where there is negative amortization, has led them not to fight too hard to hang onto their homes. So it is a very complex matter, but those all seem to be ingredients in this picture. On the consumer side, the ratio is still fairly low historically but it could easily move higher, given what appears to be rather aggressive lending and very aggressive borrowing in many cases.",234
-fomc-corpus,1985,"My impression is that it is moving higher quite rapidly. You have the first-quarter figure here, right?",21
-fomc-corpus,1985,"That's right. We don't have any anecdotal evidence that would suggest that the second quarter is going to look worse. We polled the senior loan officers at commercial banks last month and they suggested that the first quarter run-up had a bit of a seasonal in it and that they weren't seeing a further deterioration. In fact, they did not seem to be very concerned about delinquency rates.",77
-fomc-corpus,1985,That's the trouble with senior bank lending officers!,9
-fomc-corpus,1985,"We talked to the auto finance companies and they suggested that the next figures may look a little better than the last figures. So, we don't see a reversal of the upturn, but there doesn't seem to be a continuing deterioration.",46
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,"You gave passing mention to the consumer installment debt burden which, as I recall, is high cyclically and is high over a much longer period of time. Has that not been a fairly reliable indicator not only of consumer spending but of the length of business expansions? I guess I was a bit surprised that you did not spend a little more time on it. Or is it not all that important in the flow of the business cycle?",86
-fomc-corpus,1985,"Do you want two opposing answers? If Mike answers, you'll hear something very different from what you will hear from me. I would be concerned about it. Mike and a number of other people are less concerned about it. It has been a topic of great debate among the staff looking at this. At least two things are a bit different now, allegedly. One is that a portion of the increase is associated with a supposedly growing use of credit cards for convenience purposes; those balances get built into the numbers but, indeed, are paid off monthly and are presumed not to be a problem--just a shift in means of payment. The second argument is that the outstandings were so depressed in 1980, 1981, and 1982 that, basically, repayments have been lagging. And if that view is correct, with the strong debt taken on in 1983-84 and so far this year, repayments ought to be rising and, therefore, we ought to be seeing very limited further growth. If you go back historically, I think it's hard to isolate that factor as one element, but it did peak in late 1978 or early 1979 and things got worse from there on. But lots of things were going on in that period of time. I would say that there are really differing views on this whole issue--certainly among the staff.",277
-fomc-corpus,1985,"I might say, as a cyclical indicator, that many times in the past one of the elements in the downturn of consumer borrowing and of activity in general was a constraint on the supply of credit. As rates went up, usury ceilings began to bite and the supply of consumer credit began to diminish. So it is a very complex issue, looking at the cyclical history.",76
-fomc-corpus,1985,"I might just comment on your comment. There is some merit to the argument that credit cards are being used more as a convenience. The actual numbers escape me at the moment but in talking with several bankers I was told that a very, very high percentage--an overwhelmingly high percentage of people--do not pay off their credit cards in full when the bill comes. So that would suggest that, yes, there may be some convenience; but there is also some debt in the true sense of the word there. So, I would not put a whole lot of weight on that as a reason to downplay the importance of the numbers.",126
-fomc-corpus,1985,We felt it was sufficiently important to mention it.,10
-fomc-corpus,1985,But not have a chart.,6
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Mike, I have a question with regard to labor productivity and unit labor costs. With productivity continuing to increase and with compensation continuing to be fairly level through '86 [in your forecast], I am a little surprised that the unit labor cost doesn't show more improvement than it does or, in fact, come down a bit. If these numbers are right, I'm also a bit surprised that your expectation regarding inflation isn't a little higher. Can you rationalize that?",91
-fomc-corpus,1985,"The arithmetic is that we have compensation per hour rising a fraction over 4 percent from here on and we have productivity growing at something over one percent on average over the next six quarters. So, net, you come out with unit labor costs rising something over 3 percent on average. It's conceivable that price movements would move closer to that of unit labor costs and thus give us a bit better inflation performance. On the other hand, to the extent that the depreciation of the dollar permits businesses to improve their margins a bit, that will tend to maintain some spread over that period. In general, we have things moving fairly closely together--a fairly normal cyclical path.",133
-fomc-corpus,1985,"Could I just add on here? That is a very sharp rise in non-oil import prices on that chart, Mike. Is that an 8 percent rate of depreciation of the dollar plus a rate of inflation for imported prices in foreign currency terms? It seems an awfully sharp increase to me.",60
-fomc-corpus,1985,It is in fact somewhat less. It is an annual rate of something like 4 percent over the four quarters of 1985 and about 9 percent as it [unintelligible] over the four quarters of 1986.,48
-fomc-corpus,1985,It is 3 percent in 1985 and 9 percent in 1986.,18
-fomc-corpus,1985,But it is the combination of the dollar--,9
-fomc-corpus,1985,The dollar is depreciating at an 8 percent rate and you are getting an additional price effect. You are getting something less than that reflected in import prices.,32
-fomc-corpus,1985,Something less than that?,5
-fomc-corpus,1985,"We assume that only half of the depreciation shows through, in and of itself, to the level of inflation. Looked at another way: you have an 8 percent decline of the dollar but only 4 percent added on to inflation.",48
-fomc-corpus,1985,You have about a 12 percent rise [in import prices] over this forecast period?,18
-fomc-corpus,1985,About 12 to 13 percent.,8
-fomc-corpus,1985,But on a quarterly rate [basis] it is about a 2 to 2-1/2 percent rate.,24
-fomc-corpus,1985,I'd be surprised if there were 4 percent inflation abroad in the kinds of things they export to the United States.,23
-fomc-corpus,1985,A lot of people say profit margins are going to decline on shipments to the United States and this does not seem to allow much for that as the dollar drops.,32
-fomc-corpus,1985,"I think at this point you can make a pretty good case that that could happen, even to the extent of neutralizing a small 8 percent change in the exchange rate completely on domestic prices.",39
-fomc-corpus,1985,"It would still leave margins very, very wide for those sellers into the U.S. market--into the most exciting market they could have market share in. They'd absorb it all.",37
-fomc-corpus,1985,Going back to this chart that Mr. Keehn referred to: Is that a 1 or 1-1/4 percent difference between the red line and the compensation line?,36
-fomc-corpus,1985,That is the question that I asked.,8
-fomc-corpus,1985,"Between compensation and labor costs? Yes, approximately.",10
-fomc-corpus,1985,"If we had a 10 percent decline in oil prices--you have more than that in here--how much does that lower GNP prices? What is oil, 5 percent of the GNP?",41
-fomc-corpus,1985,A 10 percent decline in oil prices beyond what we have already built in?,16
-fomc-corpus,1985,"No, no--a 10 percent decline.",10
-fomc-corpus,1985,"We estimated that a $2 to $3 a barrel decline in the oil price could have an effect, over a couple of years, of about one-half percent on the consumer price level.",38
-fomc-corpus,1985,"In this forecast, if you were to exclude energy prices, for example--there are some lags in this--in 1986 you would get a fixed-weight price index that would rise three-tenths faster. So what we have built in amounts to about a quarter of a percent or more impact on prices in the GNP accounting sense.",70
-fomc-corpus,1985,Excluding energy.,4
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,I think what Mr. Prell just told me is that if the energy price goes down that much you would have a slower rate of increase.,29
-fomc-corpus,1985,"We have a decline in the oil price of $2.75 a barrel. That is worth three-tenths of a percent in the inflation rate next year. That's not inconsistent with what I was saying, given the lag structure--about one-half percent for two years.",55
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Mr. Chairman, I have a question, if I could, to ask Jim. With respect to this overall forecast, Jim, how do you think it will be affected by the threat--or the prospect, as the case may be, depending on the standpoint of the viewer--of tax reform?",60
-fomc-corpus,1985,"Well, we have not made an explicit assumption in terms of passage of a tax reform proposal. We tried to capture as best we could in a variety of sectors the expectational effects that might be there. Our sense is that in the business fixed investment area--and this certainly is supported by the results of the Reserve Banks' poll of corporate executives--they are probably offsetting. There is some incentive for firms perhaps to speed up their plans in the hopes of being grandfathered, given existing depreciation rules. On the other side, the general issue of uncertainty about a change in depreciation laws might well hold some back. So, net, we don't think much is going on there. In housing we have a sense that the Administration's proposal is on balance a negative feature and that it is probably not a large issue in the short term. I would think on average uncertainty about changing taxes is probably a small negative.",182
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"Mike, you made some reference to pent-up demand on the part of the consumer and I think indicated that this probably was largely behind us. I would like some elaboration on that because, as I recall the [staff's] February presentation, there was some considerable discussion about the continuation of pent-up demands--the average age of cars on the road, household formation and home ownership, and those kinds of things.",83
-fomc-corpus,1985,"I guess I nailed myself! I think we are being fairly consistent. I showed last time, for example, that the stock of non-auto durables for households had fallen off during the early 1980s and had come back considerably through 1984. And in the first half of this year we had continued very strong durables spending. So, we think we're pretty near the historical trend line, if that's any indicator of those pent-up demands. On the auto side, it is very hard to read. It looks like the age of the auto stock has leveled off. The level of auto sales that we have in the forecast is historically quite high. We have almost 11 million units in total this year and we have it going down to about 10-3/4 million units next year. While that does not imply growth in consumer durables spending, it does mean that some of the aging of the auto stock will be reversed probably to a slight degree. But we are not seeing any likelihood that supplies are going to be such that we could have very much stronger auto demand. And given the income growth that we are projecting, we don't see the basis for projecting very much stronger spending on consumer durables. But it is simply a question of how much is behind us. Our judgment is that a good bit of that durables pent-up demand is behind us now.",278
-fomc-corpus,1985,"I want to return to this price issue for a moment. I cannot resist giving you this little background--and I may as well do it now--on the record of the Federal Open Market Committee's price forecasts over the last three years. In the beginning of 1983--just taking the central tendency--we estimated prices at 4-1/2 percent, and we continued with that in July; they came out at 3-3/4 percent. We started out [in July 1983] projecting prices for 1984 at 4-3/4 percent and maintained them there in February; they came out at 3.6 percent. We started out in July 1984, in our first forecast [for 1985], projecting 5-3/8 percent and then we lowered it substantially [in February].",172
-fomc-corpus,1985,It's about time for us to miss in the other direction!,12
-fomc-corpus,1985,Any other comments?,4
-fomc-corpus,1985,"Mr. Chairman, I am struck not only by the usual difficulties of forecasting but by the degree of uncertainty--not to take away from any of the work of our colleagues on the staff here and at the banks. It seemed to me that as you worked through the presentation and the graphics today the theme could be uncertainty about non-oil imports and real GNP. Mr. Truman, in an attempt to be reassuring, said that even if we hit the higher imports--therefore the lower line relative to the GNP--it won't put us in a recession. That was an attempt to be reassuring, which I appreciate. But if you translate that into the projection of consumer spending, which over the last nine quarters has represented about 60 percent of the real GNP chain, you note the uncertainty that the import segment of that spending presents. I noted in the presentation that that was a reasonable comment: that the consumer spending element of the GNP assumes that the domestic segment of that spending will be somewhat higher. There will be a bigger domestic share. But there again, it seems to me that the uncertainty presents itself. In the business investment area, I have no problem with the inventory projection; but when we get to business fixed investment, I wonder whether or not the computer and the telecommunications spending are indeed going to revive or hold, or whether [such spending] really has topped out and the catch-up in that has occurred. It seems to me that there is uncertainty there. There certainly is uncertainty as to when the nonresidential building industry is going to collapse--not whether, but when. That certainly applies to the industrial buildings, which haven't gone anywhere. There are closed plants all over the United States and there is overbuilding of office buildings and shopping centers. So, that is a question of when, not whether. I don't have any problem with the rather optimistic housing projections but we certainly can have difficulties in the business fixed investment. It just seems to me that uncertainty is practically the theme of our forecast, necessarily. I am struck by the range [of uncertainty] that we have to have around any of these lines we're looking at.",431
-fomc-corpus,1985,Governor Wallich.,4
-fomc-corpus,1985,"In the Greenbook you note that the capacity utilization has fallen by more than 2 percent. Labor capacity utilization--that is, the rate of unemployment--has remained almost flat. Can one put these two things together and say that there is increasing pressure against price increases: constant pressure against wage increases and more pressure against industrial price increases?",67
-fomc-corpus,1985,"It is very clear that there has been a downward trend in capacity utilization and that would continue in this forecast. Basically, it reflects the strains that are being placed upon manufacturing and mining; there firms have been working aggressively to cut costs and we have been seeing declines in employment. Employment is down almost one-quarter million over the last six months in the manufacturing sector. As you know, we have continued to see further growth in service employment. Put together, we have an unemployment rate that has been stuck for virtually the last year at 7-1/4 percent. Now, we think that 7-1/4 percent is high enough to continue to exert some downward influence on price increases and we think that would persist over the projection horizon. I think it is the case that industrial prices are being constrained in part by import competition in many areas where firms are experiencing pressure. If they had the opportunity and felt they could get away with it and not lose market share, they would try to push some price increases through. But they can't. And I don't think in this projection horizon that that will change very much. So, both capacity utilization and the aggregate unemployment rate seem to me to be at levels that would be exerting some downward pressures on price increases.",252
-fomc-corpus,1985,Thank you.,3
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,"I would like to pick up on the uncertainty theme that Governor Martin raised. I think there is uncertainty here; but as I look through the presentation and think about the various sectors, I can visualize this forecast materializing. I can visualize something slower than this; I can even visualize a recession over this time horizon. But I find it very difficult to visualize sufficiently more rapid growth than is in this forecast that would jeopardize the outlook for inflation. As one goes through this, sector by sector, one could make a case for slower consumer growth but it's hard to make a case for booming consumer growth. In the investment sector, I think it's the same kind of outlook and it's the same in the government sector. The foreign sector may be less of a drag, but it is still going to continue to be a major drag. Even if we got somewhat faster growth, it's hard to see that bringing about a significant increase in inflation above this forecast. The major source of inflation in here comes from the foreign side. Someone made the point earlier, with which I agree, that those margins are big and fat in terms of what's being imported into this country. And this is a very lucrative market. So I am much less fearful of that kind of import inflation being as serious as is [suggested] here. The other point I would make is about the tone that I sense out there. My District has been, I think, one of the most upbeat Districts in recent quarters. I think that has been true up and down the Atlantic coast. That area has been more upbeat than other parts of the country. I have sensed a change in that tone. I sensed the beginning of a change the last time we met; but I sense it even more strongly now that there is a definite scaling down of the outlook for the rest of the year and in 1986 by a whole range of businesses. The only strong sector in my District now is real estate and construction, and I think that has a definite time limit. Like every place else, there has been weakness in manufacturing, but it has now spread to retailing and to some of the services. So, if you look at the objective evidence that is here and at the change in the tone--even granted the uncertainty that is present--it seems to me that there is more chance that we are going to end up on the softer side of this forecast than on the too strong side of it.",491
-fomc-corpus,1985,"Let me make another comment about these forecasts [by Committee members]. If that is true, it is not reflected in the forecasts given in preparation for this meeting. They are almost invariably higher than what the staff is forecasting, sometimes substantially.",47
-fomc-corpus,1985,"Well, Mr. Chairman, sometimes those forecasts have a lot more staff input than other input.",19
-fomc-corpus,1985,"I'd just make that observation. Also, they are [unintelligible]. Now, one thing may be that the staff is assuming a lower second quarter than other people may have been assuming.",39
-fomc-corpus,1985,"Well, I fall into that camp that you just described, and it wasn't staff input. I put in a rather higher forecast, but this chart show gives me the uneasy feeling that we are about to stall. The problem, as I see it, is in these charts that tend to be toward the bottom of the page. As I go through the forecast here, for example, you have a very sizable rise in the multifamily vacancy rate and an increase in the mortgage delinquency rate; and I think that starts to raise some questions about whether residential construction will be all that high. I agree with Pres; I am surprised that your vacancy rate for office buildings is only a little over ten percent since I think there is hardly a place in the Coldwell Bankers survey that that's low. Maybe New York City is so heavily weighted that it brings it down. In any event, it is just a question of when there will be a collapse in office building rather than whether.",195
-fomc-corpus,1985,"Governor Partee, the scale is on the left. It's the red line and the red scale, so it's about 15 percent.",27
-fomc-corpus,1985,"I am going to make a modest procedural suggestion. In the future, when you present a set of charts, you might number them so that we can refind them.",34
-fomc-corpus,1985,It probably has risen considerably further.,7
-fomc-corpus,1985,"I should have, I suppose, done the color coordination and gone to the left, but I didn't. So I see that you have a vacancy rate of more like 15 or 16 percent, which is a very high vacancy rate. One hears of concessions occurring all over the country. I am somewhat inclined to agree that consumers have been overspending; their debt has risen sharply and delinquency rates are up some in that area. You considerably restock the car inventories and durable goods inventories and, therefore, that looks sort of high. Even for the poor state and local governments, who have been spending at a very modest rate, your chart at the bottom shows their surplus dropping off to nothing in the projection period. So I tend to get the impression looking through this--and I realize it is very dangerous--that a stall is quite conceivable, particularly if one takes Mr. Truman's adverse line on imports, which is closer to what I would have expected than the one that the staff projected as their central tendency. I tend to be persuaded by this presentation that the economy is really pretty weak.",220
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"Mr. Chairman, you may rule this next comment out of order; I'm experienced in that. But I would like to raise a question about the principal assumptions. I am aware that it is necessary for the staff in its presentation of materials to make an assumption about [money growth for] the rest of 1985 and for 1986. And it is quite understandable to use an M1 growth of 8-1/2 percent for the first period and 5-1/2 percent for 1986 to hit some kind of middle point. Likewise, it is very understandable to use the assumption of level interest rates out through 1986. But given those assumptions and the others, all of which seem to be internally consistent, that produces then 2-1/2 percent real growth. As to the Chairman's comment that the numbers in the FOMC's projections tend to be a bit higher, I think that goes back to the Chairman's informal poll here in March, in which as I remember the question he asked was: Is 3 percent real growth adequate? As I recall the results--I have a rather fuzzy memory--there wasn't anyone here, among the voting or non-voting participants, who felt that 3 percent was an adequate real rate of growth. Well, if 3 percent wasn't, is 2-1/2 percent adequate for this period? Or shouldn't we in subsequent deliberations--the Chairman hasn't ruled me out of order yet--consider the rate of growth and the level interest rates as something that needs to be debated and some decisions made, which normally would be made in our procedures here?",331
-fomc-corpus,1985,"I think that we will inevitably get to that. You are talking about the assumptions. I would have wished earlier that $50 billion [in deficit cuts] might turn out to be reasonable, or in my wildest thoughts, low. I must say right now that I think it is much too high for an assumption as to how much the budget is going to be cut in 1986. Mr. Black.",83
-fomc-corpus,1985,"Mr. Chairman, I think there is one element of uncertainty that possibly overshadows these other uncertainties that others have mentioned and that is the issue that Steve outlined in his very fine paper: the question as to whether we have had this permanent one-time drop in velocity of money or not. The truth of the matter is that none of us knows. I am inclined to think that we have had some of that; but if we have not, then I think there is a definite risk that with this much money, we could have more growth than is being projected. I think that's the key to the uncertainty to all of this and I don't know how to find an answer to that one.",138
-fomc-corpus,1985,A permanent one-time drop in velocity would be the second occasion.,13
-fomc-corpus,1985,The second permanent one in very few years.,9
-fomc-corpus,1985,Do we have any other comments on the business situation?,11
-fomc-corpus,1985,The forecast that I put in--I have to say it was my own and not my staff's--,21
-fomc-corpus,1985,That's the way it's supposed to be.,8
-fomc-corpus,1985,"Like Governor Partee's, it is very much on the high side in terms of what I see as the consensus for 1986.",28
-fomc-corpus,1985,"My comparison was for 1985, but I guess it's also true--well, less so, for 1986.",25
-fomc-corpus,1985,"In looking at the six quarters ahead, my forecast is on the high side. Arithmetically, it has that result because of a bunch of small differences in net exports and government purchases. But the big difference is in housing where I have basically gone with about 2 million units in housing starts, and that accounts for about 3/4 to almost a full percentage point difference in real growth. I came to that view with some considerable hesitation; nevertheless, I do think that there is something to the view that pent-up demand for conventional owner-occupied housing--not second residences such as Vail, Colorado condominiums--is still pretty strong in a framework within which financing opportunities look distinctly better. On the investment side, I don't have any real insight except to say that in recent weeks I have spoken to three CEOs of major computer electronics companies about this question: Do we see a real turnaround in high-tech investment or some kind of short-run glitch? Their opinion is that it is more likely a short-run glitch than any kind of real weakness of a permanent nature that is setting in. I don't think it is going to make a great upside difference, but I think it does say something about the relative downside risks to the investment sector itself. I am influenced in the outlook also by the fall in interest rates that we have seen; and while I am certainly by no stretch of the imagination a monetarist, we sure as heck have a lot of liquidity in the economy by any definition that I can think of. Having said all that, I would have to say in terms of my own forecast that I would quickly recognize that the risks are on the down side. I think the financial sector presents its own risks; the commercial real estate sector that Chuck mentioned is one that worries me enormously at this point. Indeed, when you really look through the problem of the dynamics in trying to reverse the trade balance in any significant way, it is really tough sledding. We did a little exercise that probably isn't much better than the little exercises other people do--this is not built into the forecast--but even if we quickly got something as large as a 15 percent one-time downward change in the exchange rate, the implications of that for the trade balance over this six-quarter period are really quite modest, to put it mildly. So, while one can perhaps argue with some conviction that the rate of deterioration in the trade balance should moderate and might even come close to stabilizing, producing any meaningful reversal--particularly in the face of these very, very large profit margins of foreign suppliers--is going to be enormously difficult. The long-run implications of that in terms of the current account, in terms of the capital flows from abroad, and in terms of the ultimate vulnerability to a big shock in the exchange rate, seem to be that it will get a lot worse as time goes on. I certainly don't have an answer as to what to do; but I am more impressed with how difficult it is to get ourselves out of the quagmire. On the price side, my own forecast is somewhere around the middle or a shade on the low side. I basically have not assumed that a modest decline in the dollar will produce any further price pressures. In the face of that, the reason I have a somewhat higher forecast of price increases relative to, say, unit labor costs, is that I do have a larger spread between unit labor costs and prices built into my own mental arithmetic than the Board staff does. And that simply is a recognition of my own view that the pressure on domestic producers to seize every little opportunity, every little crack in the window, to pass along cost increases in the form of price increases, even in the current labor market capacity utilization setting, is just so powerful. That is about where I am, Mr. Chairman.",769
-fomc-corpus,1985,You see the risks on the down side of the staff forecast or the down side of your own forecast?,21
-fomc-corpus,1985,"Well, the down side of my own forecast.",10
-fomc-corpus,1985,Mr. Morris.,4
-fomc-corpus,1985,"Well, Mr. Chairman, I guess I am the optimist in this crowd. The degree of pessimism I have heard around the table surprises me. I think that what we have been seeing in recent months is fairly typical of what we see toward the end of the second year of expansion: housing has run out of gas, insofar as an upturn, and we have had an inventory adjustment. Go back to years like 1962, for example. I remember; I was at the Treasury. There was real concern that we were going into recession. For some reason, after the Cuban missile crisis, consumers decided to up their spending. Maybe they were happy to be still alive. I don't know what the connection was, but the recession of '62 disappeared very rapidly. I am encouraged by signs that I see in the financial markets in response to what we have done already. There is strength in the stock market; I am very impressed at the response in the long-term bond market, where we have gotten more bang than I expected we would get. And so far as the consumer sector is concerned, the Michigan Survey of consumer confidence, which had been tending to show some deterioration in the last six months, turned up again pretty substantially in the month of June. So, it just seems to me that the level of pessimism around here is a little beyond what the situation merits, and that is one reason our forecast is significantly higher than the Board staff's forecast.",296
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Well, without getting into the issue of whether or not 2-1/2 percent growth is enough or whether or not we can do anything about it, our forecast is quite parallel to the Board staff's--a touch on the higher side. The unevenness that we have had in the District continues, and at this point there is no reason to expect any fundamental change in that between now and the end of the current cycle, particularly in light of the high value of the dollar. Many of the companies that are in the heavy capital area really don't think that they are going to get back to the levels of 1978 and 1979. But there are other parts of the economy--autos, for example--that are doing well and as I talk to people about next year they continue to think they are going to have a good year next year. Residential building is going to be strong. Many retail people think that this year will continue to be good and that next year will be good. There are some risks out there. I won't belabor the agricultural problem, at least at this point. But I do think that as we look at it, the opportunity for a continued expansion at about the rate that is forecast is entirely reasonable. We are doing this against the background of a highly stimulative fiscal policy and a monetary policy that I think is at least accommodative and, as a consequence, at this point the risk of a recession or any significant downside run from the forecast is somewhat unlikely. Therefore, I agree with Mr. Morris that the opportunity is for a continued expansion, perhaps at about the rate that is suggested.",328
-fomc-corpus,1985,You have a forecast very close to the staff's on real GNP; you're quite a lot higher on prices.,23
-fomc-corpus,1985,"Right. If we have any bias, it's that the inflation rate will be higher than the staff is suggesting. Our GNP number in terms of real growth is just a touch on the higher side.",40
-fomc-corpus,1985,Why are you pessimistic on prices?,8
-fomc-corpus,1985,"Well, I think the exchange rate situation is likely to turn around a little; it seems to me that there are some underlying pressures there that will add to prices. And, frankly, it does seem to me that we have a monetary policy that provides a background in which the opportunity for price increases is really there. Over the last two or three months we have put a lot of money into the system and, if history is any guide, that ultimately ought to result in a higher level of prices.",100
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"Well, I agree with the more positive tone that seems to be developing. Our forecast is for more rapid growth than the staff has for both this year and next. While it differs in various bits and pieces, I think the critical difference is in the consumer sector, in consumer spending. Underlying that is the fact that I am impressed by some of the things that we have already talked about: the wealth effect stemming largely from the run-up of stock prices; the effect stemming from declines in interest rates; the pent-up demand that may or may not be satisfied. My own view is that I doubt that the last couple quarters have gone all that far in eliminating a lot of that [demand]. So I come out on the more positive side, largely because of those things and because I think that we have been reasonably accommodative as well. In the District, there seems to be very little that's new. The two-tiered economy continues with a vengeance. The one thing that is new, and does concern me, is that the preponderance of the anecdotal evidence does seem to be becoming more negative, and it's not confined entirely to agriculture and mining. If it were confined to those sectors, I would certainly expect it and believe it. But some of that negative tone in the anecdotal evidence, I think, is a bit of something that feeds on itself. You hear about layoffs in high-tech companies or one or two of the computer firms and you get the impression that employment is dropping, net; and yet you look at the data and [don't see it]. I know of at least one firm where, yes, they have laid off some people in their peripheral operations but their total employment is up because they have a main-frame operation that is doing very well. What gets covered and what gets commented on are the layoffs; and what gets lost is the growth that is occurring elsewhere. So I am inclined to temper that somewhat more negative tone to the anecdotal evidence a bit, based on the numbers. The unemployment rate in the Twin Cities is 3.8 percent. Everywhere you go there are help wanted signs up. That [area] accounts for about 1/4 of the people in the entire District and certainly more than that in terms of non-agricultural economic activity.",461
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"Well, with regard to the outlook, our staff is also somewhat more optimistic than the Board staff, starting with the second half of this year and running all through 1986. We would expect, starting with the quarter we are now in, that the growth rate of real GNP would be something over 3 percent and that 1986 would come in at 3.4 percent. Certainly, we are not great optimists because somewhat over 3 percent isn't exactly something to write home about in terms of rates of growth, but at least it is not quite as bearish as the Board staff's forecast, which may still turn out to be correct. I am just giving you what our staff thinks. The differences, with which I concur, seem to be that our staff is expecting a somewhat stronger picture both in consumption as well as in business capital spending, in large part because of the lagged effects of lower interest rates and greater availability of money and credit. Time will tell whether this modestly more optimistic view is right or not.",209
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Well, Mr. Chairman, our forecast is pretty much the same as the Board staff's; I don't know whether that puts me in the optimistic or the pessimistic camp. I guess I am a little confused because I think that there is more uncertainty in the economy now than we have seen in a while. Talking to people around my District, I sense that while the situation continues to be pretty good in everything except the manufacturing and agricultural areas, there is a perceptible change of attitude toward more uncertainty and more apprehension of a downturn. I cannot quantify why that is taking place, but that is clearly a sentiment that is coming through to me. If anything, as I indicated before, I am concerned about the growth of debt and delinquencies. I also think, if we are going to face lower capacity utilization in the economy, that we could very well get less business-fixed investment than has been forecast. So I think the risk is perhaps on the down side. I would be surprised if economic growth turned out to be much higher than my forecast and the Board staff's forecast. On the inflation side, again, we are not terribly far off. Frankly, I don't see--outside of an abrupt change in the exchange value of the dollar--where inflation is going to come from in the near term; so my concern about inflation has abated to some extent.",276
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Thank you, Mr. Chairman. I am glad to be at or near the end of the ones to speak because I was a little depressed with the earlier conversations, and I was delighted to hear Frank Morris and others come forth with a little more optimistic view. Our forecast is very close to the staff's forecast. My staff would suggest that the risks are more on the down side than the up side and I guess I don't totally share that view. It seems to me that the two-tiered economy that has been spoken about--not only in Gary Stern's District but in mine and others that are predominantly agricultural and mining-related--is certainly there. But looking on a national level, I am more inclined to believe that we have experienced a pause in the first and second quarters. With what the Federal Reserve has done in conjunction with the very stimulative fiscal package, it would seem to me that we could look forward to some better growth in the latter half of this year and well into 1986. But I don't want to minimize the impact of the two-tiered economy. It seems to me that one of the greatest risks that we may face is the instability in the financial system. As Jerry has noted, there is a lot of liquidity; but when you look at agriculture and mining and the prospects for a further drop in oil prices, which impacts the producers in the United States largely in the Texas, Oklahoma, and Wyoming areas, the prospects for financial instability that can throw this forecast askew seem to me to be very great. And that is one of my greater concerns--not whether 3 percent is right or 2-1/2 percent is satisfactory, but what may happen in these other areas, particularly in the financial area. I am not at all convinced that what we have done up to now isn't about enough to stabilize the situation; to do more may translate into prices rather than stability to that system. In other words, I am not sure that the Committee can do a lot to fend off those kinds of uncertainty.",409
-fomc-corpus,1985,Would you think things are still deteriorating in agriculture?,11
-fomc-corpus,1985,"Indeed they are, Chuck. As a matter of fact, if I may, let me give you some facts. As far as the crops, wheat is being harvested now and is largely out in the mid-section, going on north. But the commodity prices are falling. For example, the commodity price of corn was some 21 percent below the price of a year ago; the price of soy beans is down 15 percent from a year earlier; winter wheat, which is just now being harvested, is down 9 to 10 percent from a year earlier; fat cattle are down 18 percent from a year earlier. It's these falling commodity prices that are worsening what has happened in the farm credit area, which has been fairly stable over the last month or two. You haven't heard much about it. It's simply because they are in the field and the real crisis isn't going to surface until the fall. But my own view is that that crisis hasn't passed and is indeed going to worsen as fall and winter approach. We are going to find that growing back in spades in the financial sector, particularly in agricultural banks and the Farm Credit System.",229
-fomc-corpus,1985,"Mr. Boykin, you can tell us about the energy business.",14
-fomc-corpus,1985,"Well, [when Roger] was talking about commodities, he didn't mention cotton. We grow a lot of cotton down our way, but the price of cotton is down from 70.6 cents a pound in May of last year to 49 cents a pound.",53
-fomc-corpus,1985,All those inflationary pressures!,6
-fomc-corpus,1985,That's a big drop.,5
-fomc-corpus,1985,"That is a big drop. On the energy side, the rig count numbers were down about 25 percent from a year ago, which is fairly significant. I noticed in the staff's forecast [an oil price drop from] $26 to $24 a barrel. The talk among the bankers--those who are lending in the energy business--is that they think they could manage fairly well down to $25 a barrel or possibly $24 a barrel. Now, last year they were saying that was extreme--that they'd have a hard time going down that far. Now they have decided that they could manage a little better going down there. But the energy side is very, very uncertain. My own view is probably a little more optimistic than the Board staff's. I am inclined to line up more with Frank Morris; I don't know whether it's just out of habit! Our problem is that we are adjusting mentally--or I am adjusting--to what's happening in the rest of the country. We are about where the rest of the country is, which puts us in a rather unusual position--at least for the last ten years or so. I think a lot has been done in terms of interest rates and in terms of money growth. I personally don't have a great deal of concern that we are going to fall into a recession. What is an acceptable rate of growth? I know we are not debating that, but 3 percent or so certainly by historical standards has been close to the long-run trend. It seems to me that, given where policy has been, the Board staff's forecast is reasonable. As I say, I'd probably put it slightly higher and I think most of the reasons already have been stated, one way or another. I still have some confidence in the consumer; I have confidence on the housing side. Now, commercial real estate construction I obviously have a lot of concerns about. All I know is that I still see holes being dug--figuratively speaking, probably. I hear about the concessions that are being made in real estate. We have been sampling the local market because we are going to have to lease some more space. At least on the first go-round, it doesn't seem that optimistic when we talk to them. Now, we haven't gotten down to horse trading, so that's probably different. I remember we were looking for space this time last year and we will be for a number of years! [Laughter.] Last time, I made three final decisions! When you talk the first time, everybody tells you what their deal is; then when you tell them you are not going to take it and you are ready to take another deal all of a sudden they say: ""Yes, but you haven't heard the best deal."" We finally had to shut it off because we had to go ahead and make a commitment. I do agree that there are going to be some serious problems. But at least in terms of construction activity, it is continuing to show some strength. If you talk to an individual developer, he will tell you his project is all right: There is a lot of equity in it and his firm is prepared for the long term and he is worried about the fellow down the street. And I haven't run into the fellow down the street yet!",656
-fomc-corpus,1985,"What equity in it? The equity is a loan from the bank! We have a strategy for you, Mr. Boykin: You are going to take one of those deals where you get three years called ""free rent"" and then we'll let you build a building three years from now!",58
-fomc-corpus,1985,"Well, Mr. Chairman, I agree that there seems to be some conflict between the anecdotal evidence and the figures as you try to make some sense out of them. On the anecdotal side, most of the people I talk to and most of what I read suggest that the economy is a lot weaker than one would expect. On the other hand, trying to make some sense out of the figures, one gets the impression of less weakness and some improvement, at least in the short run. While my forecast is on the weak side of the range, I should explain that it does hide what I see going on between [now and year-end]. My forecast was influenced by what happened in the first part of this year: the first two quarters of the year came in very low. But in the second half of the year, I see the economy expanding at least at a 3 percent rate and maybe as high as 3-1/2 percent. The reason for that is that, looking at the numbers, it appears to me that it is hard to find any large component that is going to be weak for the next six months. The business fixed investment outlook is pretty good for the rest of the year. Business plans seem to be pretty firm, from 9 to 10 percent nominal. Despite the overbuilding in office buildings, the numbers for non-residential construction are strong and contracts for non-residential construction seem to be holding up their strength. So apparently growth in that area is going to continue at least for another six months. And I am not at all convinced that consumption expenditures are going to slow down to the extent that the staff forecasts; I am not entirely convinced that the pent-up demand has been entirely satisfied. There has been a very strong increase in employment in the first half of this year and that may well influence consumption expenditures through the rest of the year, so consumption may well hold up higher than the staff forecasts. So, my forecast is upbeat for the second half of the year. Averaging it with the first half of the year brings it out on the low side. And this strength in the second half, in my view, carries over into the first half of 1986. But then as 1986 proceeds, I [would expect] increasing weakness because (1) the expansion matures, and (2) as time goes on consumption expenditures are more likely to fall in line with disposable income, which has been declining and probably will continue [to decline]. Eventually, non-residential construction is going to peter out as we move toward the second half of 1986. And in the absence of any stimulus--and of course the net new fiscal stimulus gets weaker and weaker as time goes on--it is hard to see where stimulus for continued growth along a 3-1/2 percent path will come from, especially in the last half of 1986. So, I would expect the economy to be expanding in the 3 percent range in the first half of 1986 and petering out very noticeably in the second half. Again, averaging the two halves, 1986 comes out low as well. So, my overall forecast for 1985 and 1986 looks low, but it does mask fairly credible performance for the second half of this year and the first half of next year.",673
-fomc-corpus,1985,I don't want to suggest that everybody has to defend their differences in forecasts here; they are all in a very narrow range.,25
-fomc-corpus,1985,"Having listened to the forecasts, which is the principal function, I do think that we haven't done a great deal in terms of evaluation of what these forecasts mean. The rate of growth, at 2-1/2 to 3 percent, is not great. It's not going to get us back to full employment. But it's at about our long-term potential; at that rate we are going to continue to expand more or less with a constant rate of unemployment. The rate of unemployment of a little over 7 percent is not good, but it is not very far from what most people think is the so-called natural rate of unemployment, the non-accelerating inflation rate of unemployment. We can gain maybe 1/2 or 3/4 of a point to 6-1/2 percent or so, but that is all. Now, the one number that I think is totally unsatisfactory is a 3-1/2 to 4 percent rate of inflation. That is quite abnormal in terms of the historical inflation level of the American economy. It's abnormal in terms of the inflation levels that are tolerated in industrial economies abroad, if they regard themselves successful in this respect. I think the inflation rate cannot be accepted as satisfactory--inflation simply defined as a continuation of a going rate with the going rate being, in effect, acceptable. I think the main shortfall in these three variables we are looking at--the rate of growth, the level of unemployment, and the rate of inflation--is the rate of inflation.",309
-fomc-corpus,1985,"A lot of people would say unemployment, Henry.",10
-fomc-corpus,1985,There isn't much to be gained; unemployment is high in structural terms.,14
-fomc-corpus,1985,"Well, if it came down to 6-1/2 percent, we would have a very considerable increase in the number of employed.",28
-fomc-corpus,1985,"I agree with you, Henry, but what do you do about it?",15
-fomc-corpus,1985,"Well, we're evaluating risks. The risks on the down side seem rather impressive; the possibility of a breaking-out on the up side in real terms doesn't strike me as very likely. Nevertheless, given the unsatisfactory inflation rate, I think we should not back away from the risks on the down side in order to get a lower rate of inflation--or particularly avoid getting a higher rate [of inflation], which is likely to be the consequence of aiming for a higher rate of growth.",96
-fomc-corpus,1985,"The comment made about the budget earlier is reinforced by the fact that I now read that Mr. Stockman has resigned as Director of the Office of Management and Budget. It's not encouraging to think that we'll have striking new vigor toward budget cuts. We are going to have a difficult arithmetic job, if nothing else, to explore everybody's ideas and where all of these targets should be. There are umpteen different variations; I am a bit concerned about the time. I think perhaps we ought to spend time this evening having Mr. Axilrod explain to us all about the money supply.",117
-fomc-corpus,1985,I'm afraid I may not shed any more light than was in the 40 or so pages of various documents dealing with this problem that were circulated to the Committee.,32
-fomc-corpus,1985,[Your report] might be more condensed.,9
-fomc-corpus,1985,It will be more condensed. [Statement--see Appendix.],12
-fomc-corpus,1985,"I think that we should not try to get into a discussion of just where to set these targets for the short-run policy at the moment, given the time [of day]. But I think we have a little more time for any questions or comments people want to make about the kinds of issues that were raised in the paper that Steve distributed and touched upon in his comments as a kind of a philosophic background to the discussion.",85
-fomc-corpus,1985,"Could I ask a question, not having read the paper as carefully as I should have, because I just came back? The principal conclusion seems to be that we have had another shift in the demand function for money, that we have no strong reason to think that it will move back, and that we should in a sense let by-gones be by-gones. My question is: How likely is it that this was an episode such as we have had at times in the past and that from here on out there will be a higher degree of stability in the relationship of M1 to the economy--not necessarily at the old velocity, but maybe at a velocity that is rising less rapidly than before? Is it likely that we might have that so that we could go back to targeting M1 at moderate rates, or would we have to anticipate continued or repeated incidents of this kind that would make the variable quite useless?",183
-fomc-corpus,1985,"Well, as a minor point, I think you have to anticipate it in the third quarter, given what has happened. It's not impossible to have it, but it would take a very sharp drop in demand deposits in July or August to produce a third quarter that isn't as high as the roughly 10 percent that we are projecting. That assumes 5 or 5-1/2 percent growth, month by month. So I think you have to anticipate an unusual looking third quarter in terms of velocity unless the GNP comes roaring back. Over the long run, Governor Wallich, it is true that the paper implies that this could be a one-time drop in velocity. It didn't say for certain, obviously. And that was really on the assumption that the present level of nominal interest rates would not be reversed and that inflation wouldn't occur, which would bring them up--or in effect that the economy wasn't so strong that that would drive them up either way. In that case, there would be no reason to reverse this velocity. We would go back to trend and not to 5 or 6 or 7 percent velocity to offset that. I don't think that the trend will occur if you did that until the fourth or first quarter or some time like that; it wouldn't occur right away. But there are two other points I would make, one on both sides. One is that it is not absolutely clear that this present level of real and nominal rates will be sustained on the high side. It could very well drop; it is hard to think of real rates of return as high as these present real market rates seem to be. On the other side, however, we have done various charts using various lags relating money to GNP showing that they correspond reasonably well; and we have had times of large money growth followed by large GNP growth. That did happen in the 1982-1983 period, but we were operating at such a low level of the economy that we had more in real GNP and very little in price. Now we are operating at a much higher level of capacity, as you mentioned or implied. If this were going to be followed by a burst, one would expect it to have a little real effect but a little more price effect. So having looked at those charts, I felt somewhat ambivalent. I would not in any way want to think that it was an absolute dead certainty that we had a one-time drop in velocity that was not going to be at least somewhat reversed. I just don't feel that certain about it in my own mind.",518
-fomc-corpus,1985,"Just a question of clarification, Steve. I thought at first that you were referring to a shift in the demand for money, but as I read it more I thought you were talking about a movement on the existing demand curve for money, weren't you?",50
-fomc-corpus,1985,"That right. The models don't explain everything. In fact, if you read the residuals, you could say to yourself that there's a 2 or 3 percentage point upward shift in demand for money. But I wasn't stressing that. I was stressing the impact of the interest rate decline itself in relation to the elasticity.",64
-fomc-corpus,1985,"I have just a few comments. One is that I thought the paper was excellent; it was very thought provoking. I have a couple of questions. As I read it, I came away feeling that your conclusions were more tentative than Henry implied--that you had a feeling and a fair amount of circumstantial evidence that there is something wrong with the relationship of M1 and the economy, but that is was fairly difficult to prove that with any great certainty.",91
-fomc-corpus,1985,That's what I was trying to say.,8
-fomc-corpus,1985,"My other comment is that you based a good bit of what you are thinking [on the view] that we are moving from one level of real interest rates down to another level and that that is affecting velocity, which is quite plausible. Is there some symmetry to this on the other side? In other words, in the 1970s and early 1980s when real interest rates were rising did we also see movements in the opposite direction in velocity?",92
-fomc-corpus,1985,"Well, I am not sure it looked that dramatic. I really haven't checked it out in the detail that you are suggesting. We saw it to a minor degree in late 1983: the movement in velocity was somewhat higher because of the interest rate increase, and it was rather consistent with what our models were saying. If you look over the whole postwar period, where I feel a little more secure than the models, we tend to believe that about a point or more of the trend velocity over that period of 3 points or so is explained by the rise in interest rates over that period. They enter the model with those sorts of effects. In any particular period we'd be off because of the model misses and the shifts. But I can't really respond to the very particular period of the 1970s and early 1980s.",169
-fomc-corpus,1985,"Well, my main point is not such a specific question. It is that it would strengthen the argument, I think, if there were some symmetry to it.",32
-fomc-corpus,1985,I think there probably is.,6
-fomc-corpus,1985,The model is symmetrical.,5
-fomc-corpus,1985,"Yes, the model is symmetrical. I was trying to think of history. The basic issue is that if you go from 10 percent price inflation to zero and the interest rates go from 13 to 3 percent consistently, you would expect a big increase in the willingness to hold cash. The question is how to satisfy those cash holders who now feel that the opportunity cost is such--3 points instead of [13]--that they might as well hold cash. It seems to be happening lumpily as we phase down. So, if we ever get to price stability--it may not happen but if we ever did--I would expect another instance or two of this kind as the nominal rates dropped down, unless in 1986 when we free up the ceiling rates on NOWs and super NOWs we get just parallel movements in those rates. They won't ever be just exactly parallel rates because of reserve requirements. But if you had actually parallel movements in the offering rates and the market rates, you might not get this phenomenon. It's that possibility that makes us think the interest elasticity will become less as you go on, so that this phenomenon might not be so pronounced when you get into that period.",240
-fomc-corpus,1985,"Mr. Melzer, first I would like to take the opportunity to welcome you to these deliberations. We look forward to some clarification of all these doubts that others have expressed.",36
-fomc-corpus,1985,"Thank you. Steve, I had a question in terms of comparing the present situation to the 1983 period--where we not only had a decline in rates but also had the account innovation--whether that represents a substantive difference in terms of the analysis. I would think, certainly in terms of the perceptions of a rebasing, that it might be more difficult at least from a layman's point of view to rationalize a rebasing at this juncture than it was at that point.",98
-fomc-corpus,1985,"Well, we were closer to the account innovation that affected M1 at that time but it had gone on for some time. In any event, now we are a little further away except for the drop from $2500 to $1000 in the minimum balance, which we don't think had a significant effect. I think the economics of it are roughly the same; whether the public relations of it are the same is [another question]. I am not sure that it is all that different, even though you probably can--",104
-fomc-corpus,1985,We claimed at that time when there was a lot of innovation that it affected M2 and M3 more than M1.,25
-fomc-corpus,1985,"We had that February-March base for M2 and M3 and we said that we now had a build-up of nationwide NOW accounts and it was beginning to have this effect. This wasn't the introductory period; it already had been built up and, being there, it was having this effect. But, of course, the very latest strength in M1 is in currency and demand deposits.",78
-fomc-corpus,1985,There is not much innovation to refer to this year.,11
-fomc-corpus,1985,That is the point of this paper: it wasn't the [current] innovation per se that might have increased the elasticity; it was the impact [of declining interest rates] on the elasticity that could do it.,42
-fomc-corpus,1985,"Yes. It could just be an argument that with the rate of inflation down and inflation expectations declining, why, it is a better bet to hold money.",31
-fomc-corpus,1985,And interest rates [down].,6
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"Steve said a minute ago that these models don't explain everything. I think of that as an understatement of some proportion! I am not sure that they explain anything to me anymore. But looking at M1 right now, it seems to me, abstracting at least a little from all the models, that one can draw one of several conclusions. One is that history is history and down the road we're going to get more nominal GNP or more inflation or both; but none of us seems to see that. The second conclusion is one that Pres just mentioned: that what we are seeing is an adjustment taking place, reflecting fundamentally the shift going on in the economy to lower nominal interest rates and lower rates of inflation, which could quite conceivably be very plausible in the context that it leads to some lower secular growth of velocity. That, in turn, would mean that whatever we thought to be an optimal growth in M1 is now higher in some permanent way than it once was. The third explanation is that there is something to these technical shifts, whether due to innovation, or to changes in spread relationships, or even to something like this E.F. Hutton situation. I personally do not rule out the possibility that the Hutton situation has had an impact. I won't say that other firms' practices are exactly parallel to Hutton, but anyone who thinks that those types of cash management practices as a general thing are limited to one or two firms is being quite naive. And anybody who thinks that those firms who might have been doing the same general kind of thing are going to tell you about it is very naive. But I think that one has to allow for those types of possibilities, whether due to financial innovation or other types of phenomena. Of course, the difficulty with those things, if they are there, is that we can't quantify them; we can never be sure what they mean. And in the short run they certainly do mean that velocity and demand for money, neither of which is quite the same thing, are going to bounce around. And at the extreme, the conclusion that you have to draw is that this velocity or money demand relationship is just shot and money is no longer any good as a policy variable. As a practical matter, I don't think we can afford that conclusion even though some of us may like it. Because if you don't like money, you have to find something else to use as a policy variable. Where I come out is that both for practical and what I at least would consider to be theoretically attractive reasons we have to work with some combination of the second and third things that I mentioned. And within that framework I agree with Tom that it may be more difficult today than it was in 1983 to make the case for jiggling around ranges or bases or something. But as a practical matter, I come out to the view that we don't have any choice but to be thinking in that broad direction, without prejudging exactly how that should be done.",598
-fomc-corpus,1985,"It's potentially dangerous to change the base, isn't it? If I understood Steve, we don't know that this--whatever it is that is occurring--is over. If it is occurring, it may continue; and in fact it seems likely to reflect itself in the third quarter. What is [M1 growth for the quarter], 10 percent?",69
-fomc-corpus,1985,"Yes, that is in large part a carry-over of the second quarter.",15
-fomc-corpus,1985,I understand that. And then it could be much higher.,12
-fomc-corpus,1985,I don't want to get too deeply into those precise questions now. Mr. Balles.,18
-fomc-corpus,1985,"Mr. Chairman, I would like to set forth the case for rebasing--and I think there is a pretty good case for it--and then ask Steve a question. Admittedly, the circumstances are different now than they were in 1983 and the technical justifications for the rebasing may be somewhat different, but I think it is still pretty solid. We have had extraordinary circumstances here; in part, the rapid growth that we had in the first half of this year in M1 could be viewed as a catch-up from unusually low growth in the second half of 1984. Certainly, in the case of the San Francisco analysis, the drag on the economy caused by the net imports was much bigger than we had anticipated. That, in turn, has depressed activity and required, I think, an extra surge of money to take care of it. But given that set of biases or set of preconceptions that I have and given the tough job that you have--you would have to explain to the Congress and hence to the whole world why we are rebasing or raising the range--I would like to put a question to Steve. If it is putting you on the spot, Steve, just say so. In terms of the adverse risk of either raising the range or rebasing--adverse in the sense that it might cause some people in the country such as savers, investors, and so forth, to view the Fed as now off on a kick of monetizing the federal debt or giving up somewhat on its battle against inflation--which would you view as having the least risky impact?",323
-fomc-corpus,1985,"I found it impossible to try to discern a big difference in public psychology. I think the main risk is in doing either and not hitting it. Just to remind the Committee: In 1983, the [range] at the beginning of the year was 4 to 8 percent; growth in the first half was 11.9 percent; it was rebased to QII to QIV to a 5 to 9 percent growth rate and that was hit. By the time we reseasonalized and everything, the growth in the second half was 8.4 percent and for the year was 10.4 percent. Then, the next year, the range of 4 to 8 percent was hit. So, the Committee wasn't repeating the experience after the mid-1970s where it was rebasing every quarter and the range was missed every quarter. To me, the main problem wouldn't be whether to raise the range or rebase; the problem would be that it would be very desirable to hit it if you do [either], so that it does not set in motion--",222
-fomc-corpus,1985,We said that was only a monitoring range.,9
-fomc-corpus,1985,"Yes, but it was hit nonetheless.",8
-fomc-corpus,1985,"I think it has been very well said by Tom and others that we do not have quite the rationale in this period of time that we had in 1982-83 with regard to the number of new instruments, new minima, new rates, and less rate control. On the other hand, we have had the passage of time and we are aware that cash management techniques continue to be employed--perhaps some ways outside the three sigma limit, as in Hutton's case. At any rate, those institutional commentators who are likely to react to a rebasing, I argue, are themselves cash managers, and they themselves are shifting funds, even as individuals, between and among their firms' interest-bearing or noninterest-bearing accounts. So, I think there is a chance to appeal to the day-to-day experiences of the financial managers and the financial commentators that there is indeed this relationship between the holding of assets with varied degrees of liquidity as a characteristic and the changes in the levels of interest rates. Furthermore, I think there is the Hutton phenomenon that is more widespread than perhaps is obvious. I agree with Jerry in that regard. Furthermore, we rebased to take into account changes in institutions and interest rates once before, in very recent experience. This rebasing was not followed by an augmentation of inflation; indeed, if anything, there has been a little--I'm agreeing with Henry that it's unsatisfactorily little--disinflation that followed. So it seems to me that there can be an appeal made to what people and institutions and financial managers are doing themselves following changes in interest rates. There is a common sense kind of [case] that can be made to justify and explain and communicate the rebasing that I think is necessary here. And I think it is important that that be done because I am hopeful that there will be additional changes in the interest rates. While the elasticity may diminish--I have no problems with that as the spreads and the increments get smaller--nevertheless, there may well be an additional impact upon V1 and the other velocities, which we will be able to explain if we are successful in this rebasing.",428
-fomc-corpus,1985,We have someone distributing some pretty little charts here; I keep expecting someone to comment on them.,19
-fomc-corpus,1985,That's me. You didn't call on me. Norm was supposed to tell you.,16
-fomc-corpus,1985,Perhaps I can call upon you and we can pronounce the benediction.,15
-fomc-corpus,1985,I'd like to refer first to the table at the rear.,12
-fomc-corpus,1985,"When I first saw that table, I figured these were your charts.",14
-fomc-corpus,1985,"We have been trying to describe the deviation of the aggregates from their traditional historical behavior in terms of two things: one, financial innovations; and two, the decline in the interest rates. This table suggests to me that there are other factors of major consequence involved in this situation that we don't understand. I refer you to total liquid assets, L, and call your attention to the fact that the behavior--the deviation from the 1970-1980 trend--is very similar for total liquid assets as it is for the monetary aggregates.",107
-fomc-corpus,1985,I can't understand what these numbers are; perhaps you can explain.,13
-fomc-corpus,1985,This is a cumulative deviation of the velocity of these various aggregates.,13
-fomc-corpus,1985,Cumulative deviation from the trend line established earlier?,10
-fomc-corpus,1985,"Right, from the 1970-1980 trend line. Now, total liquid assets should not be affected by financial innovation because all of these new instruments are presumably included in the aggregate and switches among them really don't have any effect. Secondly, I have not been able to figure out any reason why a decline in interest rates should lead people to want to hold more liquid assets relative to nominal income. In fact, I think you could argue--thinking back to my investment days--that you would get the opposite effect; that is, the decline in short-term rates should lead people to push into longer-dated assets in order to try to maintain their yields. But the fact is that the movement of M1 velocity, although the amplitude is greater, is year to year very similar. We have, I think, in the case of total liquid assets a deviation from historical experience that cannot be explained by anything that I have been able to think of, which suggests to me that from a philosophical point of view, something is going on here that we don't know much about. This should lead us to conclude two things. One, I think, is to try to explain to the public that we can't run a sensible monetary policy by blindly following any of these [monetary aggregates] because we don't know what rate of growth in them is going to be compatible with a reasonable economic performance. The second is, that if we have to publish ranges, we should have a propensity to broaden the ranges, because I think quite clearly that we have a problem in trying to use any of these, blindly, as a guide to monetary policy. Now, my second point: Steve's paper--and I thought the paper was very well done--argues that super NOW accounts have tended to reduce the interest elasticity of M1. My conclusion is quite the opposite: that the way the banks have priced them in fact has led to super NOW accounts increasing the interest elasticity of M1. The first graph shows that the banks have been fairly responsive in adjusting the money market deposit account rates to changes in the market rate. I'm comparing them here to the money market mutual fund rate. Therefore, I think you can conclude that M2 is now much less interest sensitive than it used to be. And I think the behavior of M2 recently has suggested that. If you look at the way the banks have priced super NOW accounts, you would have thought there was a Regulation Q ceiling of 7-1/2 percent on super NOWs because there was no response to this big run-up in interest rates. Now, if the banks are going to continue to price super NOW accounts in this fashion, then you can expect that the super NOW is going to increase interest elasticity of M1. If you look at the last chart, the top shows the interest rate spread between super NOW accounts and money market mutual funds and the bottom shows the growth rates of super NOW accounts. During the summer of last year the spread had reached around 3 percent against the super NOW; super NOWs were priced about 3 percent below money market mutual funds and the rate of growth of super NOWs dropped to a 3 percent annual rate. These are over three month spans. When the spread closed up again, with a decline in market rates, the rate of growth of super NOWs moved from a 3 percent to a 45 percent annual rate. I submit that, at least until the banks start pricing their products differently, the super NOW account is going to increase the interest elasticity of M1 rather than reduce it.",717
-fomc-corpus,1985,"You're permitted a brief rebuttal, Mr. Axilrod.",13
-fomc-corpus,1985,"Well, we're in some sense talking about the long-run not the very short-run elasticity. In the very short run, there are obviously lags. Secondly, they have been adjusting the rate downward even though they don't adjust it upward and I don't know what point they are going to get. Thirdly, they are adjusting it and that is different from the NOW account ceiling rate, which isn't adjusted, so you get a bigger impact on that, which compares to super NOWs.",96
-fomc-corpus,1985,"But if they were only adjusted downward, the effect is going to be much like the old Regulation Q ceiling. If they don't respond when market rates rise, we should expect that the regular super NOW will drop very sharply.",44
-fomc-corpus,1985,I do not know what would happen if market rates began rising from the current level. I suspect that might be.,23
-fomc-corpus,1985,"You are permitted to discuss that between you men. I would like to make one observation in closing for the evening: What we are struggling with is not exactly unique in the central banking world these days, or recently. In many ways our situation resembles what the Swiss had in 1978 when they said the Swiss franc, in their judgment, was getting way overvalued. And finally they said: The heck with monetary targets; we will operate under the exchange rate. M1 went up 21 or 23 percent that year; I am not sure whether they are happy in retrospect or not. They still have a pretty good inflation record relative to others. I am sure there is no cause and effect but the Bank of Canada, for the inverse reason I guess, gave up monetary targeting a couple of years ago and their inflation rate promptly sank for the first time in 10 years. The English are apparently debating right now whether to abandon the monetary targets or not, again in favor of the exchange rate. This debate is proceeding on an international scale. We will see you at 9 o'clock in the morning.",224
-fomc-corpus,1985,9:30 a.m.,6
-fomc-corpus,1985,I think we better make it 9 a.m.,11
-fomc-corpus,1985,"As I sat here and listened yesterday, I did not detect enormous differences about the short-run outlook, although I think there are a lot of uncertainties. I do think that we somewhat neglected in our discussion the rather large problems of why, as a practical matter, we have some enormous disequilibria in the economy that we are dealing with. We can't save enough to finance all of our investment and we have a government deficit; we are buying abroad much more than we sell. I don't think either of those phenomena can last forever, and all of these nice projections that we have assume that the expansion is going to go along rather smoothly without any great discontinuity. That may be right for the next year and it may be right for the next 18 months. I don't think it'll be right forever and I wouldn't count on it for the next year. We face a very sluggish picture abroad, as near as I can see, with no great growth. I think we will see some growth, but not enough to reduce appreciably their unemployment or increase appreciably our exports. I don't see many signs of change in policy there. We have a lot of financial strains around, whether internally or externally, and they are going to take a long time to cure. We may even break an axle as we proceed in the financial markets. Henry Wallich tells us we still have an inflation problem. People from the farms tell us we have deflationary problems. In the oil area, we have a deflationary problem. Mr. Corrigan tells us we have lots of liquidity. When I look around at all the figures, it looks to me like we have a lot of bankruptcies, which isn't exactly consistent with overflowing liquidity in the economy.",349
-fomc-corpus,1985,Bad distribution.,3
-fomc-corpus,1985,"Wild distribution; I think that's right. Everybody, seat of their pants, was telling me that the economy isn't going anyplace. The M1 figure tells you it is going to zoom, if you believe M1. So, we have a lot of questions and I don't know how we contribute to the answer to all of these problems. I think the answer is that we don't. We can't magically deal with the budget problem, the trade problem, and the financial problems and cure them all very easily. We can maybe avoid aggravating them. But when I look around and think about what to do in the short run for the moment, I am not sure that we can do much differently than what we have been doing. And I approach the long-run targeting from that standpoint. I would suspect, from what I heard yesterday--you tell me if I'm wrong--that I am not going to be hearing any proposals for radical changes in operations in the short run.",193
-fomc-corpus,1985,"How do you define radical, Mr. Chairman? I would like to see that M1 slow down a little.",23
-fomc-corpus,1985,"We would all like to see it slow down. The question is whether anybody wants a tightening action to slow it down. These long-term ranges all depend upon the unknowns of M1 in the short run. If we had one month of zero [M1 growth], it would look better. But we are entering [the third quarter], as you know, at a very high trajectory off of June; and any number we put down is going to be above [the long-run range] in the short run. Well, that's a fact we face. So long as we don't have the base as June--we could do that, I suppose--we wouldn't be above in the short run. I don't know as anyone proposes that. We could have a base of two months, I guess.",159
-fomc-corpus,1985,"The logic of Steve Axilrod's paper--that there may be successive future bursts of M1--suggests that even if we somehow got around the recent bulge by rebasing, the same thing may happen again. That suggests that we should put M1 back where it was a year or two ago, on sort of a probation status.",70
-fomc-corpus,1985,A probation status after rebasing as we did just a couple of years ago?,16
-fomc-corpus,1985,"I would just suspend it, so to speak, because there is no point in rebasing M2 and M3 and we are almost forced to give those more weight, even though we don't think very highly of them, because of the failure of M1.",52
-fomc-corpus,1985,"I think if we put M1 in the penalty box now, we will have difficulty getting the door open to extricate it.",26
-fomc-corpus,1985,"Well, I am a little uncertain as to whether we should discuss the short run or long run first because obviously they are interrelated. Let me just test my assumption that nobody wants any radical changes in the short run--maybe Mr. Black is an exception. A radical change I assume is a change in the borrowing target by more than $50 or $100 million.",74
-fomc-corpus,1985,I could probably live with $100 million.,9
-fomc-corpus,1985,"Well, we will have you on the other side; you want a change. Does anyone else want a change of that magnitude?",26
-fomc-corpus,1985,"I would like to see the borrowing number raised. I could live with less than $100 million, but I would like to see it go up.",30
-fomc-corpus,1985,I would like to see it up.,8
-fomc-corpus,1985,I think it ought to be higher.,8
-fomc-corpus,1985,You all want to tighten policy right now?,9
-fomc-corpus,1985,I think it should be the same.,8
-fomc-corpus,1985,Whether the policy is tightened depends upon what happens.,10
-fomc-corpus,1985,"Well, my observation is that we are getting far too much money with the borrowing number we have and, therefore, we ought to nudge it up a little.",33
-fomc-corpus,1985,"You don't like to talk about these things, but in some ways the best of all worlds would be to find an opportunity to lower the discount rate and then raise the borrowing up a little.",38
-fomc-corpus,1985,There almost would have to be an announcement on that--that would be such an extraordinary thing to do.,21
-fomc-corpus,1985,I wouldn't do it quite as boldly as I just stated it.,13
-fomc-corpus,1985,You really don't want to tighten.,7
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,"Well, I don't want to tighten either. I want to slow down the rate of growth of M1. I don't want to tighten in the sense of raising interest rates. I don't think raising the borrowing level somewhat at this time actually would have much effect on market rates in the short term.",59
-fomc-corpus,1985,"Actually, the level has been above our target for some time.",13
-fomc-corpus,1985,The actual level has been way above the target a good part of the time. So have free reserves. Who could say that wouldn't happen if we did the same thing again? I've heard from three people saying that they would like to tighten. Does that mean that the other nine don't want to?,59
-fomc-corpus,1985,I don't want to.,5
-fomc-corpus,1985,"I certainly wouldn't want to tighten at this point. In fact, I would tilt a little on the other side.",23
-fomc-corpus,1985,I would too. I would tilt toward something to reduce rates below where they are now.,18
-fomc-corpus,1985,I think we are in a situation similar to 1982 where we looked around the economy and the only thing that we could find that was really strong was M1. We concluded at that time that M1 was not giving a proper signal and it seems to me that we ought to draw that same conclusion today.,63
-fomc-corpus,1985,We have had a very considerable increase in business activity [since] then.,15
-fomc-corpus,1985,We wouldn't have if we had followed the M1 target.,12
-fomc-corpus,1985,That's true.,3
-fomc-corpus,1985,We would have had a world depression.,8
-fomc-corpus,1985,That's true. But the question is: Can we afford that much of an increase in business activity now?,21
-fomc-corpus,1985,I think we can afford quite a bit.,9
-fomc-corpus,1985,"With 2 percent real growth, we could afford something, surely.",14
-fomc-corpus,1985,"Well, that's certainly true. Can we afford 10 percent?",13
-fomc-corpus,1985,A 10 percent increase over the two percent? Sure. That gets you to 2.2 percent!,22
-fomc-corpus,1985,I would not have thought anyone would think 10 percent was likely.,14
-fomc-corpus,1985,I don't think it's likely. It's very difficult. One would have to disregard M1 altogether.,19
-fomc-corpus,1985,That's a good idea.,5
-fomc-corpus,1985,"No, I don't think it is a good idea. I don't think the experience of the postwar period suggests that it is a good idea.",29
-fomc-corpus,1985,"I question the relevance of the experience of the postwar period. I think the experience of recent years shows that it has taken more money, more liquid assets, and more debt to generate one dollar of nominal GNP. The old relationships are not holding up, and at some point in time we've got to recognize that.",64
-fomc-corpus,1985,"First of all, I would say that I don't know what the answer is. Obviously, we went off course in May and June from what was expected. Maybe that will continue and maybe it won't. The best staff input that we have says that roughly unchanged reserve paths will be reflected in a markedly lower M1 growth rate.",65
-fomc-corpus,1985,It's still unacceptably high.,7
-fomc-corpus,1985,"I think we have to be very careful with May and June, particularly June. We go back and revise, revise, and revise. My goodness, that June could be like May or whatever it was last year: it could come down when we revise.",51
-fomc-corpus,1985,What's the first six months: 11 percent?,10
-fomc-corpus,1985,11-1/2 percent from December to June.,11
-fomc-corpus,1985,"What's the outlook for, say, July?",9
-fomc-corpus,1985,"Well, our estimate--and it is subject to quite an instant revision because we are getting more data here very quickly--is on the order of 7 percent. A range of 6 to 7-1/2 percent or something like that is a good way to think about it, given what I know about the very first week. But I will know more shortly.",76
-fomc-corpus,1985,"The fact is that we don't know; we never know. But it would not be unlike all experience if we had a month here of something [near] zero at some point. I don't know why demand deposits are so high; it's the most intriguing part. Good ole demand deposits seldom jump around that much. I don't know whether it has anything to do with E. F. Hutton or not. There is no evidence for it, but one wonders a little. If it does, we ought to allow for it. If it doesn't, past experience would suggest that it is going to go down at some point.",124
-fomc-corpus,1985,Didn't that happen in 1980?,8
-fomc-corpus,1985,Didn't what happen?,4
-fomc-corpus,1985,"Well, we had this big jump in the money supply and then we said it couldn't possibly slow down enough. I may be wrong on this but, as I recall, money started expanding very rapidly.",40
-fomc-corpus,1985,"That was when we had credit controls--in the spring of 1980, I think.",19
-fomc-corpus,1985,"Yes, we did have credit controls.",8
-fomc-corpus,1985,The latter part of 1980 was certainly a period where we kept underprojecting the money supply; it kept rising more rapidly in the latter part of the year than we anticipated. There's no question about that.,43
-fomc-corpus,1985,That's right. It was the opposite. We said that it couldn't possibly increase at the rate it turned out to increase.,24
-fomc-corpus,1985,That is correct. Last fall it kept increasing less than we anticipated. So you can take your pick of experiences.,23
-fomc-corpus,1985,"One prudent way to move forward, if we really don't know quite what to do, is to go forward staying about where we are, keeping a very open mind about what we do three, four, five weeks from now, depending on how the economy comes in and the money numbers come in.",59
-fomc-corpus,1985,"That's about the way I would read it, yes.",11
-fomc-corpus,1985,I'd certainly concur.,4
-fomc-corpus,1985,"I would agree with that. It seems to me it's a mistake to chase half-heartedly after M1. If we really believed in it, we would have to do something very drastic. If we don't believe in it, it makes no sense responding to it at all. The other two [aggregates] and debt are still high, so maybe a little firmness is justified; but I think that it would be a mistake to subject ourselves to the need to work off the overshoot at a time when the economy is clearly not very strong.",109
-fomc-corpus,1985,"I didn't hear any suggestion yesterday--now, I'm just reading into the comments--that anybody was talking about working off the overshoot.",27
-fomc-corpus,1985,"I think the best solution, Mr. Chairman, is to rebase this. It probably surprises a lot of people that I say that. But I'd rebase, in a sense forgiving part of this on the basis that there is probably some substance in what Steve is saying. If we were to rebase, for example, and keep the 4 to 7 percent range and hit the top of that, that would result in an 8.9 percent rate of growth in M1 for the year, which seems adequate even if M1 has changed in meaning. I would think that would be enough liquidity to keep the economy going pretty well.",130
-fomc-corpus,1985,My problem with rebasing is that we don't know that we have run the end of this string.,20
-fomc-corpus,1985,"No, we don't.",5
-fomc-corpus,1985,If we could rebase on the third quarter--.,11
-fomc-corpus,1985,That's one thing--delayed rebasing--that we haven't considered.,14
-fomc-corpus,1985,"But I think there is a very great danger that if you rebase, it sounds as if you are serious.",23
-fomc-corpus,1985,"Of course, that's part of my motive.",9
-fomc-corpus,1985,"And it very well may be that we'll start right out on the high side of any rebased numbers, assuming we rebase on the second quarter.",30
-fomc-corpus,1985,"That is why I think we not only have to rebase, but in some sense qualify [M1] or suspend it because this may repeat itself.",31
-fomc-corpus,1985,"Yes, why not put M1 back on a monitoring status? In a sense, I would argue that that is where it has been the last couple of months anyway, looking at the directive and the way we have not responded. It's already there, essentially, in my mind; and I suspect market participants have reached that conclusion as well.",68
-fomc-corpus,1985,"It would be hard not to; it grew over twice as fast as our target. Of course, they don't know what the target was.",28
-fomc-corpus,1985,"I would support the point of view also that we put M1 on a monitoring basis. That may come as a surprise to some of you who know that I believe in targeting M1 and in its relation to prices and in its usefulness in the past. I also think it will be very useful to us in the future in the long run in the fight against inflation. But I do think that rebasing or revising the current targets is an indication that we are serious about pursuing those targets. Or at least I believe that when we do set targets for M1, we ought to be serious about them because I think it's that important. And at this point, at least speaking for myself, I don't know where I would like M1 to be in the fourth quarter of this year. It is too early, I think. We don't have the kind of information I would like to have to set the serious M1 target that I would like to set. So, it seems to me that it is most appropriate to say M1 is a monitoring variable right now. The rest of what I would like said is that we are serious about the long-term battle against inflation and about coming back to M1 as soon as practicable. Our experience the last time we did this was that it was after something like a year that we found we could indeed reemphasize M1. We could indicate that we would hope that at least by the fourth quarter of this year we might have enough information to then reemphasize M1 and conclude on that. For that reason, I would not do anything with the 1985 targets but for 1986 I would reduce the target for M1 to a range of 3-1/2 to 6-1/2 percent, slightly below the 1985 range, to indicate our seriousness in coming back to this kind of strategy as soon as we have some more information.",388
-fomc-corpus,1985,"Before we go too far down the road on monitoring, I would just like to raise the question: What do we do instead? What kind of guides do we have? Are we going to start following M2? Or are we going back to taking the funds rate or relying on money market conditions or--going back 30 years--the tone and feel of the market? We have to have something in lieu of M1, and I think that question needs to be answered before we make a decision on just monitoring M1.",106
-fomc-corpus,1985,"Isn't the answer ""All of the above,"" John?",12
-fomc-corpus,1985,I'm not sure.,4
-fomc-corpus,1985,"Of course, we are not going to know whether M1 really has lost its meaning until several quarters down the road anyway. I think there's a good possibility that it has lost a good part of it, so my inclination is to hedge the bets and assume it has lost some but not all of it. That gets me to this rebasing. But if we are wrong and it means what it used to mean, then we are in for a lot of trouble. I hope it has lost a lot of its meaning.",104
-fomc-corpus,1985,"Let's do the easy part first. What do we do with M2, M3, and debt? The obvious thing is not to change the ranges for this year. The argument, I guess, revolves around M2 and whether we give ourselves a little more room on M2. We're a few tenths above the range now.",67
-fomc-corpus,1985,We are not above the parallel lines. We are above the cone. We are something like $11 billion under the parallel lines.,26
-fomc-corpus,1985,"But our forecasts are running 1 to 1-1/2 percentage points below what we were talking about back in February. If we thought then that these targets were appropriate, then don't they look sort of out of line?",46
-fomc-corpus,1985,My only comment about February is that I think the Greenbook had the federal funds rate rising to 9-1/2 percent by the end of the year. And 200 basis points does make a bit of difference in growth rates of the aggregates. Was the funds rate 9 or 9-1/2 percent by the end of the year in our February Greenbook? We had the federal funds rising over the year.,87
-fomc-corpus,1985,"In February, yes.",5
-fomc-corpus,1985,"Oh, six months ago! You're not assuming that now.",12
-fomc-corpus,1985,We are assuming interest rates are about flat at current levels. That's the current assumption.,17
-fomc-corpus,1985,Then that's theoretically consistent with M2 being within the target and M3 being within the target.,19
-fomc-corpus,1985,"My only point is--given the high level of real rates and the difficulty of forecasting the rates and a caveat from Steve's excellent paper--that from time to time there is at least the prospect of real and nominal rates coming down. I think that argues for more flexibility--that is, rebasing to, let's say, a 4 to 8 percent range rather than a 4 to 7 percent range.",85
-fomc-corpus,1985,I'm on M2 and M3 and debt at this point.,13
-fomc-corpus,1985,Okay. Sorry.,4
-fomc-corpus,1985,"If we are giving any serious thought to putting M1 on standby, I think it would be a serious error to raise the targets on the rest of the aggregates, which have been reasonably well behaved. Dropping M1 and then raising M2 and M3 would certainly give the impression that we are letting [monetary policy] go to the winds. I think the only way we could possibly say that we are going to watch M1 carefully and do that credibly--and we don't know what all that has been going on means--would be to hold to the [ranges for the] other aggregates that have been expanding reasonably. It's true that credit is above its range; I believe it hasn't increased its excess above the range. And the projection has it generally coming down in the next year.",161
-fomc-corpus,1985,Our point estimate for credit for the year is 12.1 percent. The range is 9 to 12 percent.,25
-fomc-corpus,1985,And about 1 point of that is the merger--,11
-fomc-corpus,1985,Whatever it turns out to be by the time the year is over; it may be less.,19
-fomc-corpus,1985,"We're having a little more of that, I think, than we assumed at the beginning of the year. Does anyone strongly object to that conclusion?",29
-fomc-corpus,1985,I certainly don't object strongly to that.,8
-fomc-corpus,1985,No.,2
-fomc-corpus,1985,No.,2
-fomc-corpus,1985,"Can we ignore, though, the changed forecast for this year? The staff has cut its estimate of real growth from 3.6 percent down to 2-1/4 percent for 1985 and has cut it slightly for 1986 from 2.7 percent to 2.5 percent. And comparing the estimates of the Board members and the Presidents in February to today, those also were cut rather significantly. It would seem to me that we would have to take that into account: that what was appropriate for monetary targets back in February ought to be reexamined if we are perking along that much more slowly and the expectation is for continued sluggishness, using our own numbers here.",142
-fomc-corpus,1985,"In my numbers I took the first quarter as a loss but then pretty much went on with the old quarterly figures I had; I think that is what the staff did too. You could argue that, even so, the economy is somewhat smaller because it did not grow in the first quarter and, therefore, with regard to the money supply that there is more money relative to economic activity. That doesn't seem to me to argue that we should further increase the amount of money--M2, M3, debt, etc.--relative to this smaller activity.",110
-fomc-corpus,1985,"With the same amounts of the aggregates, Martha, and the smaller GNP, one would expect lower interest rates.",23
-fomc-corpus,1985,Which is what we got.,6
-fomc-corpus,1985,"And that could continue. You could argue that if we have smaller GNP growth, we don't need as much credit as we did before. We get these lower rates, which brings the GNP back up and brings the aggregates up to our previous ranges. One other comment I would like to make, if I could, Paul: I know we haven't talked much about 1986, but I do want to remind everyone that Reg. Q goes off entirely in the spring of 1986. The staff has said that they do not think it will have much effect. But, boy, it is a pretty wild environment out there when you don't have any limits on anything! All NOW accounts would become super NOWs, by definition. Savings accounts would come back into their own. Who knows what might happen to savings accounts? So, I think we have to have a certain amount of diffidence in talking about what might happen in the aggregates in 1986 because of that event.",197
-fomc-corpus,1985,"Well, let's very tentatively assume that we are not going to change M2 and M3 and debt--we'll go back to look at them--as background to the discussion of M1. Does anybody want to change the range for the year? I haven't heard any sentiment of that sort: to go back to the beginning of the year and just raise the range for M1 for '85.",81
-fomc-corpus,1985,"Yes, rather than rebasing. I wouldn't want to rebase at the present time for reasons that Chuck stated. I would prefer, if we are going to ignore M1, to just ignore it.",41
-fomc-corpus,1985,I'm not saying that now. That is another option.,11
-fomc-corpus,1985,Another option--,3
-fomc-corpus,1985,Change the range through the year.,7
-fomc-corpus,1985,"Yes, change the range for the year.",9
-fomc-corpus,1985,Without rebasing.,4
-fomc-corpus,1985,Without rebasing.,4
-fomc-corpus,1985,That's not ignoring it.,5
-fomc-corpus,1985,"Well, there's still the question of how much weight to give it.",14
-fomc-corpus,1985,I think I would agree with that. I would like to raise the range on the basis of the experience that we have had.,26
-fomc-corpus,1985,"Steve, I want to make sure that I understand. I know these numbers are very slippery, but in light of your best estimate for July--",29
-fomc-corpus,1985,Subject to change in an hour.,7
-fomc-corpus,1985,"If you were thinking in terms of changing the ranges and not rebasing, what kind of growth would you have in M1 over the balance of the year, taking account of July as best you know it? Would it come in, say, within 9 percent or 8 percent?",58
-fomc-corpus,1985,What would the growth for the year be?,9
-fomc-corpus,1985,The second half of the year.,7
-fomc-corpus,1985,The second half would be close to 7 percent--6-3/4 to 7 percent.,21
-fomc-corpus,1985,7.1 percent is the way I figured it.,11
-fomc-corpus,1985,"What we have here is Q2 to Q4, assuming a 5-1/2 percent growth from June to September--and we think that is consistent with July coming in around 7 percent and growth phasing down from there. Then growth goes down from September to December to 3-1/2 percent, and that would only be if interest rates didn't go down any more and the effects of the drop since May had worn out. Then the growth for the year, Q4 to Q4, would be 8.8 percent; and the growth for the second half, Q2 to Q4--on that kind of averaging basis--would be 6.9 percent. That then assumes that the average growth, month by month, is roughly 4 percent over the balance of the year.",164
-fomc-corpus,1985,In June and July you are using something like 7 percent?,13
-fomc-corpus,1985,"Yes, something like 7 percent for July. Now, if we had a very weak July like we did last year when we had almost zero [M1 growth] in July, and these demand deposits came running off--we have no evidence that that's occurring yet, except a little in the very first week of July--then you could get a more favorable picture, in a sense. You would get a much weaker third quarter than we are assuming, as the demand deposits unwind, which would make the fourth quarter look a bit better. But we have no basis for that yet. So our median assumption is the one I just gave you.",129
-fomc-corpus,1985,"In the end, I might be agnostic; but I guess I have some sympathy for changing the ranges rather than rebasing.",26
-fomc-corpus,1985,"I might add, Mr. Chairman, that all the models that we look at would say that growth in the third quarter, month to month, will be more like 7 percent. We have taken 1-1/2 points off that because of the thought that this bulge of demand deposits in May and June simply has to unwind. So if that doesn't happen, there's more danger of greater growth.",82
-fomc-corpus,1985,I don't quite see the consistency of saying that we suspend M1 in some sense and then we fiddle around with the upper margin by 1 percentage point. I think it is better to leave it and say it was a bad job.,47
-fomc-corpus,1985,"I blow a little hot and cold too, Henry. But the other side of it is that rebasing carries with it this implication that the problem is behind us.",33
-fomc-corpus,1985,"I wouldn't rebase it either; I would just give up on it for the time being. When we reinstate it, which I hope we do someday, then it ought to be on a rebased basis--after proving itself.",47
-fomc-corpus,1985,That scares me a little.,6
-fomc-corpus,1985,"You get very different conclusions because of the arithmetic in this too. If we did raise the upper limit to 9 percent, if I figured right, from the second quarter to the fourth quarter the growth rate would be around 7 percent; I think Steve's [estimate] was slightly different. If you look at June to December, you are looking at the 5 percent; but if you look at the growth on a quarterly basis, it does not look like that much deceleration from the 10-1/2 percent or whatever it was in the first half. The arithmetic can always be so troublesome on this; I don't know whether it's better to look at it on a quarterly basis or not. I guess I would like to look at it in a chart and put least squares to it; that's the way I tend to think.",169
-fomc-corpus,1985,I wasn't thinking of raising the upper limit 2 points.,12
-fomc-corpus,1985,No.,2
-fomc-corpus,1985,"You said 9 percent; I was thinking of 4 to 8 percent. And I would do it on the grounds that there is a great deal of uncertainty about what may happen. Zero is not the only possibility for a month; we may have a month that is negative. We might find ourselves back within [the range] but running high because we have had a cumulation of such high numbers. It seems to me that simply a recognition of the fact that it has run so strong thus far this year and that there seems to be a changed relationship would lead us to say that we would raise the limit because of that. As Henry said, we have M1 on probation because we really don't understand what is going on here. It could come down within the ranges--and it could in August, say. I don't think July is a likely month, but August is a possibility. If that should happen--",184
-fomc-corpus,1985,"The same point, of course, holds if we go to eight percent. The second quarter to the fourth quarter would be, if I figured it right, about 5.3 percent and June to December would be 2.8 percent. The fact that June is so high is obviously the reason.",61
-fomc-corpus,1985,"As I hear the numbers, it appears that if we rebase--and I think there are some compelling reasons to rebase--and maintain the same 4 to 7 percent range, there is a high probability that we would be about in the range. Or a possibility--",56
-fomc-corpus,1985,Yes. I wouldn't say a high probability.,9
-fomc-corpus,1985,"What bothers me about raising the upper part of the range as opposed to rebasing is that when we get to next year and we want to work it down a little--if indeed we want to, and certainly over the long run we have all agreed that we want to--if we start with 8 percent, we have to work it back down to where it once was before and then down beyond that. And in this political environment in which we live, if we had 4 to 7 percent on a rebased basis, it is easy to work it down, if that is what we want to do then. If we had a 9 or 8 percent top, I think--",140
-fomc-corpus,1985,"I would like to support Bob Black's point on that. I think [there is] the historical continuity factor as perceived by the public when we have to announce not only '85 but tentative '86 targets. We might get to the same end results by raising the range to 4 to 8 percent or even 5 to 9 percent versus rebasing and keeping 4 to 7 percent but I think it would make the 1986 rationale a lot harder to establish, whatever range we decide on. Either keeping them the same as they were or cranking them down a notch would be my preference. So that led me, Mr. Chairman, to favor rebasing over raising the range.",141
-fomc-corpus,1985,"Well, I don't see anything wrong with it. What we would be doing is raising the spread too, Bob. If we take it to 4 to 8 percent, I don't see anything wrong with 3 to 7 percent next year. And I think [M1 growth] might well be very low [next year] because of Reg. Q ending, which I think is going to lead to transfers from checking-type to savings-type instruments.",91
-fomc-corpus,1985,"That is a good point. I think we probably will end up about the same place at the end of the year, in terms of the level, regardless of which course we take. The important thing is what we do in the shorter run.",49
-fomc-corpus,1985,"Well, I can't speak with certainty, but it just seems to me that as a result of Reg. Q we can get some rebirth in the kinds of instruments that we classify as M2 rather than M1.",44
-fomc-corpus,1985,Anybody who is going to move out of savings deposits already has.,13
-fomc-corpus,1985,"But I am talking about moving back in, with new attractive instruments.",14
-fomc-corpus,1985,How can you make an instrument more attractive than a money market deposit account already is?,17
-fomc-corpus,1985,No minimum balance.,4
-fomc-corpus,1985,"There's no minimum balance on the MMDA now, is there?",13
-fomc-corpus,1985,"Well, a thousand dollars.",6
-fomc-corpus,1985,There's a limit on withdrawals.,6
-fomc-corpus,1985,"Well, it is hard to say. NOW accounts could get the expansion, too, because there would no longer be the 5-1/4 percent [rate] limit on NOW accounts. As I say, I just have no idea. But it is conceivable that M1 could come out low in the range next year.",66
-fomc-corpus,1985,The principal change next year will be to take the ceiling off the [interest rate paid on] NOW accounts so that it will increase the transactions--,29
-fomc-corpus,1985,"Well, that is a possibility, too.",9
-fomc-corpus,1985,"One problem that I have in terms of thinking about rebasing--and yesterday I thought that was the appropriate way to go--is not knowing whether the problem is behind us. That concerns me. On the other hand, putting M1 on a monitoring basis also troubles me. As I reflected on some of the activity in terms of the foreign exchange markets and also what is happening to the growth rate in GNP here in the United States versus overseas economies, I could see a substantial shift in psychology in terms of what has been driving some of the capital flows in this direction. None of us really knows how the dollar is going to correct. We have assumed an 8 percent depreciation for next year, but it seems to me that if we got a more dramatic weakening of the dollar--not even a precipitous one, but a more dramatic one than that--that is going to feed back pretty quickly into inflationary expectations here, certainly amongst market participants in the domestic credit markets. At the same time that will affect feelings about the ability to continue to finance the deficit through foreign investments. And at the same time we have what we were talking about yesterday, in terms of a less favorable outlook on the budget deficit. It just seems to me that if we were to put M1 on a monitoring basis against the backdrop of all those potential developments, people could question our resolve in terms of dealing with inflation in the long term. And it could have a very significant impact, particularly in terms of the shape of the yield curve, I would say. So, as between monitoring or one of the other two options, I would do one of the other two. And, as I say, I am troubled about rebasing because that implies that we know the problem is behind us. As I said yesterday, I think it is a more difficult argument to make in terms of the rationale than it was two years ago.",382
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Mr. Chairman, there has been a good deal of discussion about the uncertainty of what M1 is going to do. I would start from the premise that M1 has a value in that it has informational content even now when we are uncertain about it. We have seen it return to more normal relationships in the past and I would hope that would occur in the future. As a result, I would not want to do away with M1 totally. But in view of the uncertainty, it would seem to me that it makes no sense either to rebase or raise the top limit for the reason that that uncertainty suggests: that we don't know whether we can hit the target if we raise the top, for example, or if we rebase. To be sure, it improves the chances. But it also implies to the market, it seems to me, a precision that nobody around this table believes--that we know what is going to happen to M1 in the period ahead. Therefore, I come to the conclusion that we should do nothing with M1 other than to move it to a monitoring status. We should let you describe in the upcoming testimony that velocity and demand for money have created the uncertainty; that M2, M3, and debt are all within their boundaries; that the economy is chugging along--maybe not to the level that we want, but chugging along nonetheless; and that looking at all things we are setting aside M1, which we don't understand, to a monitoring status but are not totally doing away with it because it does have some information content as to direction if nothing else. So up or down, if you will, on M1 I would describe what has happened in the past and the uncertainty, and rely upon the other touchstones--and I am talking about the aggregates, principally, as well as the economy and the level of the dollar. I would not want to raise the upper limit or rebase because either one implies precision that we don't have.",402
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Well, Mr. Chairman, I certainly share the uncertainty that has been voiced around the table about the performance of M1. But I am a little concerned about moving it to a monitoring position at this point. If we do that, in light of what happened last year, I think the public is going to come to the conclusion that we, in effect, are setting it aside. We moved it into a probationary status and then we moved it back to a regular target status: now if we turn around and do it again, I am a little concerned about the public's perception about that. While there is uncertainty, I think there is some evidence, and some possibility, that M1 will return to more normal levels. I am inclined to believe, although there are uncertainties, that this is a one-time shift and that we will get more normal relationships in the future. For that reason, I think that rebasing is supportable; and for that reason I would like to suggest that rebasing is probably the better way to go. Again, I think it is premature to put M1 on a monitoring status at this time. If we rebase or if we raise the targets without rebasing and find out on the basis of subsequent experience that M1 is not in fact returning to a more normal level, then I'd move it to a monitoring status or set it aside completely. I would prefer to rebase and leave the target essentially where it is, at 4 to 7 percent.",301
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,"Well, I don't think anybody around the table feels terribly comfortable with any of the suggestions that have been made.",22
-fomc-corpus,1985,That's not true! [Laughter.],8
-fomc-corpus,1985,"It seems to me that when you find yourself in that situation, you want to keep your options open and keep some flexibility for movement between now and the time you want to choose among those options. As I sit here and read proposal two on page four of the various options for the directive, it strikes me that that particular proposal provides flexibility, keeps options open, and is about as sure as we can be about anything. As I read it, it puts M1 on something of a monitoring range and the only thing that it commits us to is slower M1 growth in the second half of the year compared to the first half of the year, which seems to me about as precise as one can be at this point. It is sort of a fuzzy middle ground, but it seems to me that is about where we are.",165
-fomc-corpus,1985,"I must say, if this is right in substance, that this is a most peculiar sentence, it seems to me. We reaffirm the range and then we say it doesn't mean anything.",37
-fomc-corpus,1985,"Well, we may want to play around with the wording in terms of using the word ""reaffirm."" But it seems to me that this does capture the essence of where we are; one can play around with [the wording of] this alternative. I don't think we really know enough to raise the range or rebase because we just are not sure what happened during the first half let alone what might happen. I think that most of us, certainly, would like to see slower growth in M1 during the second half than in the first half.",110
-fomc-corpus,1985,I would share that [view]. I think proposal number 2 does capture what I have in mind: put M1 on a monitoring status but don't do away with it.,35
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"I won't reiterate the reasons I expressed earlier for favoring putting M1 on a monitoring status. But if it is on a monitoring status, we do need some range; at least in the past we have had that. And whether we rebase or not I would prefer that we widen the range a little, maybe to something like 4 to 8 percent. The real reason for doing that, in my mind, is that it gives us a little more flexibility going into next year. And given all the uncertainties both about the economy and about deposit flows and asset holdings, and given further the elimination of Reg. Q, that flexibility strikes me as desirable. For that reason, looking ahead to 1986, I would want to take this opportunity to broaden the M1 range. It seems to me it would be on the side of prudence.",172
-fomc-corpus,1985,"If it were 8 percent, Steve, what could growth be from June to December?",18
-fomc-corpus,1985,"Recognize that a lot depends on the pattern of the months. Assuming essentially a straight line after whatever happens in July, for 8 percent for the year you would have month-to-month average growth of roughly 2-3/4 percent--not much.",52
-fomc-corpus,1985,And what would growth over the second half of the year be?,13
-fomc-corpus,1985,"Growth from June to December, as I said, would be 2-3/4 percent; on a Q2 to Q4 basis it would be around 5-1/4 percent, again depending on how the months bounce around. That, by the way, given the staff GNP projection and the way the quarterly averages work out, still would give you a negative velocity in the third quarter and then a very strong positive velocity in the fourth quarter.",93
-fomc-corpus,1985,"Considering the difficulty in predicting velocity so far in this expansion and considering the difficulty in projecting interest rates, real and nominal, so far in this business expansion, it would seem to me that we would want to give ourselves the flexibility that has been alluded to several times here and that rebasing gives us that flexibility. It also recognizes the unusualness of recent events with regard to both velocity and, therefore, on the other side of that coin, the growth of the aggregates. Why not give ourselves the operational flexibility that rebasing presents and indicate--to work a word to death--the uncertainty associated with these relationships at the moment? Maybe we ought not use the term ""monitoring"" and so forth if our goal here is [unintelligible]. Let us not call it ""monitoring;"" let us call it ""bananas"" or something else. But let's give ourselves some operational flexibility. We don't know what will happen to interest rates; we don't know what the public's attitude is toward holding various kinds of assets.",206
-fomc-corpus,1985,"While the objective in proposal 2 as stated--that we would expect M1 growth to slow down in the second half--is obviously something we desire, that proposal seems a bit on the vague side. Perhaps we do need to be just a bit more specific about what we plan to do and how we plan to do it. Just to say it again: It seems to me that the arguments for rebasing are compelling and I would be in favor of rebasing; I quite recognize that this may not be the last time that we have to do it. I don't think we ought to get into the business of rebasing every other meeting--nor would I expect that to occur--but I don't see anything wrong with rebasing now and perhaps having to rebase some time in the future if there is a recurrence of some of these events. But I do think that we need to be a little more specific as to how we are going to be conducting monetary policy. I think rebasing is a way of recognizing that something has taken place that we need to deal with. Reestablishing a range provides some guidance as to what we plan to do, though always being able to use judgment as we go along. So I would be in favor of rebasing, reaffirming the ranges at least for this year, and going into next year very likely with the same ranges in place for next year that we have for this year.",287
-fomc-corpus,1985,Governor Rice.,3
-fomc-corpus,1985,"Well, Gary expressed my view pretty well. It seems to be me that raising the upper limit to 8 percent simply recognizes what has happened already. But at the same time, it puts us in a position to be flexible.",46
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"Well, Mr. Chairman, I am having a little difficulty following some of the discussion from the standpoint of rebasing or raising ranges, and so forth. I still don't have a sense --maybe I am missing it--of whether or not we want to address this very large growth in M1 and address it forthrightly. I am leaning in that direction in my own view. It seems to me that once that basic point becomes clear, how we structure our ranges then becomes a little easier. I am not comfortable at this point in knowing where we really stand in terms of: Are we going to try to do something about M1 or are we going to accept it the way it is and just let whatever happened happen? And based on what we think [the answer to] that might be, then decide to rebase or change the range? I guess what I am saying is that I would like to see, however it is constructed, some movement to reduce the rate of growth in M1.",202
-fomc-corpus,1985,Would you like to see some reduced growth in M1--just for instance--if trade problems continue to get worse and the dollar goes up and the economy is in recession?,35
-fomc-corpus,1985,"To some extent, I would be inclined to do that looking longer term, because I have a very uneasy feeling that we are building major problems as opposed to the difficult problems that we have right now.",40
-fomc-corpus,1985,What major long-range problem will you be adjusting by curtailing M1 with the dollar strong and the economy in recession?,25
-fomc-corpus,1985,"The major problem, it seems to me, would be the possibility of inflation coming back and coming back very strongly.",23
-fomc-corpus,1985,In a recession?,4
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Recession/depression?,5
-fomc-corpus,1985,"Well, I think the argument is that you have built in excess liquidity that then becomes uncontrollable.",20
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"Boy, that's a tough belief to follow right into a recession.",13
-fomc-corpus,1985,Fundamentalist economics!,5
-fomc-corpus,1985,I am sure that Friedman would say that if he were sitting here.,14
-fomc-corpus,1985,That's not what he said ex post in 1933.,12
-fomc-corpus,1985,Don't misunderstand me. I am not talking about [unintelligible] it. I am just talking about moving in the direction of some restraint.,30
-fomc-corpus,1985,We can conclude that everybody would be delighted if M1 subsided without doing--,16
-fomc-corpus,1985,And was accompanied by declining interest rates.,8
-fomc-corpus,1985,We will stipulate that.,6
-fomc-corpus,1985,"Well, I don't think we're coming to a recession.",11
-fomc-corpus,1985,"I think it is a heck of a lot more important what we do than what numbers we put down here, myself.",24
-fomc-corpus,1985,"Well, that is what I am searching for--not how we present it. In the final analysis it will become rather transparent. I think the big question out there--at least in the layman's mind--is that we have had this excess of M1 money growth and are we going to do something about it or not?",66
-fomc-corpus,1985,I don't think that's a question in many laymen's minds.,13
-fomc-corpus,1985,[Their question is:] Do they have a job?,11
-fomc-corpus,1985,"Well, quasi-laymen.",7
-fomc-corpus,1985,Interest rates are all they care about.,8
-fomc-corpus,1985,"Well, I sense that the Chairman felt somewhat like that in posing the question first as to what we do in the short run. I think he was saying something perfectly compatible with what you are saying, although his answer might not be the same as yours. But I think he was saying that's where one ought to start.",64
-fomc-corpus,1985,I agree. All I am saying is--and maybe you got ahead of me--that I didn't sense that that really had been answered.,28
-fomc-corpus,1985,"No, I agree with you. It's just that I didn't want to be associated with you in any way, so I didn't say that! I did really; I thought that was your best statement to date, as a matter of fact.",48
-fomc-corpus,1985,"Well, the sense of this, I guess, is that if we don't do anything other than keep the numbers the same, we probably ought to rebase. We can pick numbers that are the same arithmetically and that are a more forward-looking, easier translation of what we intend, rather than changing the range for the whole year to take account of what took place in the first half of the year.",83
-fomc-corpus,1985,"Doesn't that imply to the markets that we are intending to hit those targets if we rebase, or if we raise them?",26
-fomc-corpus,1985,"If we change the existing targets, it also implies that to the market. It depends on the language surrounding it.",23
-fomc-corpus,1985,"That's exactly my point. If we either change the target or rebase, it implies that we are going to hit it. And I might just observe that there is a possibility that if we rebase we won't even hit the bottom end of the target. That's an outside possibility, to be sure; nonetheless, the possibility exists. And certainly it's going to put us to the test to hit the top of the target if we rebase. Therefore, I would opt not to do either of those two things, but describe what has happened and describe what we think will happen in the future and put M1 on a monitoring basis.",126
-fomc-corpus,1985,"Well, an alternative is not saying anything about M1, in effect. I think that that does suspend it. But that does not reflect the desire that everybody would like to see it lower.",39
-fomc-corpus,1985,"I think we do maximize our problems if we rebase because if things continue as they are, we are going to be over the top; and if this was some kind of a strange aberration that is reversed, we are going to be below the bottom of a rebased number. I think Roger is right: that possibility increases. That exposes us to the maximum danger of missing it utterly on either side.",82
-fomc-corpus,1985,It doesn't increase that danger if we just simply move the range to take into account what already has happened.,21
-fomc-corpus,1985,It's obvious that that's my preference.,7
-fomc-corpus,1985,"If you keep missing the target on a continuing basis, isn't that the time to set it aside?",20
-fomc-corpus,1985,We surely have missed it.,6
-fomc-corpus,1985,But we haven't rebased. Why not try the rebasing and then--?,16
-fomc-corpus,1985,Because we don't know why it is down. We don't know what accounts for what happened in May and June.,22
-fomc-corpus,1985,And we don't know whether it is over or not.,11
-fomc-corpus,1985,We don't know whether it is over; we don't know if it is reversing. We don't really know anything about it.,24
-fomc-corpus,1985,"Well, I would be willing to take that chance: rebase and then see what happens.",19
-fomc-corpus,1985,I don't share that.,5
-fomc-corpus,1985,I gathered you didn't.,5
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"I would associate myself, at least in part, with Tom Melzer's remarks that the frequency with which these problems come up--no matter how we deal with them--inevitably will raise questions about the philosophy and the practical approach to policy that we are taking. Somewhere out in the future--I don't think that we are there now--there will be at least a perception, or maybe even a danger, that we could kind of slide into a degree of indifference about the speed of money and credit growth, however defined. There could be that danger. Primarily for that reason, I don't want to end up in a position of altogether disregarding M1, which I think, Roger, is the logical conclusion of your position. Then, looking between rebasing and raising the range, I would have a modest preference for raising the range; I'd put it at 4 to 8 percent or something like that, with some language about probation, as opposed to rebasing. But in the end, [Mr. Chairman,] you are the one who is going to have explain it. I wouldn't go to war over one or the other, but I do think the integrity of the process, in a context in which the importance of M1 for the time being is reduced, is preserved a little better by raising the range rather than rebasing.",273
-fomc-corpus,1985,"I would like to make the argument for rebasing on a slightly different basis. It is certainly important that the financial markets accept what we do here as being operationally dictated and not an abandonment of disinflation as a primary goal of this institution. On the other hand, it seems to me that the operational considerations are important here and that we should attempt to adopt those features of a policy which are most likely, with all the difficulty of forecasting, to be attainable. We rebased in very recent history. There was not a reinflation following those actions, and it seems to me that operationally we would have a little more flexibility [by rebasing]. We can be careful with the language in which we ascribe weight to M1, but nevertheless I think it is important to reiterate that M1 is an information variable. It does have content; most of the time it does have information that is valuable in the implementation of policy. I think that rebasing and the right language accomplish this. Why not pick the alternative we are most likely to succeed in?",215
-fomc-corpus,1985,"Well, you can make them arithmetically equivalent.",12
-fomc-corpus,1985,"But we have to raise the top limit so high if we don't rebase, Mr. Chairman. To be pragmatic, we really ought to use a 10 percent top for that range and who wants to go to 10 percent? I don't.",50
-fomc-corpus,1985,I wouldn't rebase. I wouldn't change the M1 range. I would just let M1 sit there with a statement that it is not more than a monitoring--whatever the word is--variable. I wouldn't change any of the other ranges. That makes for a--,54
-fomc-corpus,1985,It's not even a monitoring range if you don't expect to make it.,14
-fomc-corpus,1985,"Well, we can eliminate M1 totally, but I don't see any purpose in doing that.",19
-fomc-corpus,1985,"The hardest thing to explain is why we wouldn't change the range and yet expect to be over it. I can see where one can abandon the range. That's easy to explain. If it's wider, that's another question. But I don't know how we can sit there and say we reaffirmed the range for M1, but expect to be well over it.",71
-fomc-corpus,1985,By 300 basis points.,6
-fomc-corpus,1985,"How much over we don't know, and that's why raising the range somewhat gets--",16
-fomc-corpus,1985,"I am rather impressed with the integrity argument that Jerry just gave. People who have been around here for some years know that we are often accused of rebasing any time we get into trouble. That has been a constant source of friction and difficulty in discussions of these matters. I think we can rebase if we have a good argument for rebasing. My problem with rebasing now is that we don't know what has happened. In 1982 it was a stab, but it sure looked as if [M1 growth] was running way off. Right now we don't know. What we really have is a couple of high months, which happen to be the months just right now, and we don't know what is going to happen. And when we rebase, it looks like we are rebasing to make it easier. That's the old complaint about rebasing.",173
-fomc-corpus,1985,"Chuck, we have had interest rates come down 400 basis points from their peaks and, in somewhat more recent time, 200 basis points. That must have some relationship.",35
-fomc-corpus,1985,I think that's a reason for raising the range.,10
-fomc-corpus,1985,"I must say, I don't see much difference between rebasing and raising the range.",17
-fomc-corpus,1985,I do.,3
-fomc-corpus,1985,"Well, there is a cosmetic difference and I think Pres has put his finger on it. It's just the numbers you look at.",26
-fomc-corpus,1985,"Cosmetically, I don't see any substantive difference; arithmetically it is equivalent.",19
-fomc-corpus,1985,I think the majority have indicated that they are not prepared to wring out the high M1 numbers. So we are only talking about cosmetics. We have given up on substance here.,37
-fomc-corpus,1985,"Well, I just don't see the cosmetic difference in your own terms between saying we are raising the range or we are rebasing. They both amount to the same thing.",34
-fomc-corpus,1985,"Arithmetically, obviously you can make them come out to the same thing. But to my way of thinking--again, this is a highly judgmental thing--[there is a difference]. Raising the range and accompanying that with some verbiage along the line that several people, including Mr. Stern, have suggested says: We don't know what has happened; we don't know if it's over; we still think over time this variable matters; and we still have a view over time as to what we would like to do, but we are not going to--particularly in these current circumstances--let that view get carved in stone. Now, rebasing seems to say something that in my judgment is a little different than that. The way that it is different is that to me it does not carry the same conviction in terms of what we are trying to do over time.",176
-fomc-corpus,1985,You escape me. We raise the [M1 growth] rate for a year and that expresses a great conviction.,23
-fomc-corpus,1985,It doesn't express great conviction. I just don't think we can go on in the situation that we have in terms of rebasing when we don't have a good explanation as to why we are rebasing.,40
-fomc-corpus,1985,What's your good explanation as to why you are raising [M1 growth] rates?,17
-fomc-corpus,1985,Because I don't know.,5
-fomc-corpus,1985,You lose me.,4
-fomc-corpus,1985,In one case you wipe the slate clean and in the other case you don't.,16
-fomc-corpus,1985,You wipe the slate clean and end up with a lower number; you don't wipe the slate clean and end up with a higher number. I don't think it takes any genius to say that you are at the same place at the end of the year.,50
-fomc-corpus,1985,"I think you can count it either way. All I'm saying is that in my judgment it strikes me a little better, and that's all, to do it that way. But I could live with it the other way.",44
-fomc-corpus,1985,"It doesn't make any difference either way; you end up in the same place, except in the one case you are putting in higher numbers and in the other case you are not.",36
-fomc-corpus,1985,"Mr. Chairman, coming back to both the integrity point and to Bob's point about what it is that we want to do with M1: Although I have a technical preference that I have already expressed for not doing anything on the M1 target and declaring it a monitoring range, it seems to me the real issue here is not so much technically what we do, but the words you use to surround it. The real issue is that you in fact very carefully describe to people what it is about M1 and the uncertainty, what the circumstances are that we find ourselves in, and what kinds of circumstances we might find ourselves in the future that might cause us to do this, that, or the other thing. Those words in the end will be what preserves our integrity, whatever technical mechanism we use at this point.",163
-fomc-corpus,1985,I can agree with that.,6
-fomc-corpus,1985,"I pretty well agree with you, Mr. Chairman, that there isn't a lot of difference, but one minor issue is: Which one would make it easier for us as we work over the long run to lower those ranges? That's why, frankly, I came out in favor of the 4 to 7 percent range, rebased. I think it would be easier to get it down, as I assume we are going to have to do over time, if we have a top of 7 percent rather than a top of 8 percent. But that is a very minor point, probably.",120
-fomc-corpus,1985,"Rebasing carries a little more implication that we think this is probably an exceptional circumstance. If you don't rebase, you are starting with a higher number, and it's harder to put it down lower the lower you get. That's what it amounts to.",51
-fomc-corpus,1985,"That's my point, really.",6
-fomc-corpus,1985,How do you view this? You are the one who has to sell this and we are talking a lot about cosmetics here. Do you think there would be a big problem if we suspended the M1 range altogether versus trying to put something in there that we say we don't know very much about?,59
-fomc-corpus,1985,"Well, the trouble with that from my standpoint is that if we ever have to tighten, it's good to have that M1 number out there.",29
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"If we abandon it completely, we've lost a [unintelligible]. Suppose it runs [above] whatever we put down, whether we change it for the year or rebase. We could always say, if we have to, that we have persuasive enough evidence that says we're going to run above it. If we don't have it out there at all, and we don't want to run above it, that's a little hard to do.",88
-fomc-corpus,1985,Good argument.,3
-fomc-corpus,1985,It could be very hard to put back in too.,11
-fomc-corpus,1985,"I guess what the cosmetic issue comes down to is whether we want to say primarily that we think this is an exceptional case or whether we want to build the kind of background for a permanent increase in the rate of increase in M1. It might be right, if in fact the trend velocity is changing. Maybe it is. I think probably it is. Maybe we don't want to move the money supply down to where we used to think that we wanted to move it, because with the changed structure, it's going to have to be higher relative to the nominal GNP. If that's what you think, then change the range for the whole year and begin getting people used to higher M1 numbers. If the odds are this is once and for all, rebase it. Who knows?",157
-fomc-corpus,1985,"Mr. Chairman, it seems to me that, contrary to some of the views that have been expressed here, there is no greater implication of being forced to hit a rebased target than if we didn't rebase. I don't know what experience or earlier precedent would correspond to that conclusion. Circumstances change and uncertainties develop that we don't anticipate; I don't think we are stuck with any rebased range any more than we are stuck with hitting today's range.",91
-fomc-corpus,1985,"Well, that's what I am saying. The differences are relatively minor, but I do think it depends upon whether you want to get people used to higher M1 figures as a kind of norm or not. I think we are getting used to higher M1 figures anyway, because that's probably the fact of the situation. So, it's a question of how fast you want to go in that direction. I think it's hard to go from 5 to 9 percent--or whatever we are talking about if we don't rebase--down to 4 to 7 percent if that's where you want to go next year. Or less. It's much easier to do that if you rebase and don't have to go down at all or go down a relatively minor amount.",152
-fomc-corpus,1985,"That's the big argument in favor of rebasing, in my opinion.",14
-fomc-corpus,1985,Mine too.,3
-fomc-corpus,1985,All I'm sure of is that we are going to decide one way or the other.,17
-fomc-corpus,1985,"I would like to ask a question about your last statement that it is more difficult to go to 4 to 7 percent next year from the 5 to 9 percent. If we rebase or raise the range this year because of an aberrant behavior of M1 that we think is behind us, and we select the fourth-quarter average as the next year's starting point, I don't see that 4 to 7 percent is any more difficult in 1986 from either of those two starting points.",102
-fomc-corpus,1985,"That doesn't say that you cannot do it. I just say that, marginally, it takes a little more explanation.",24
-fomc-corpus,1985,And the explanation has to be that it was a one-time aberration that occurred in M1 in 1985.,24
-fomc-corpus,1985,Right. Do you express a one-time aberration more clearly by rebasing or by raising the range for the whole year?,25
-fomc-corpus,1985,I guess I would suggest that we don't do either.,11
-fomc-corpus,1985,Don't do either?,4
-fomc-corpus,1985,Don't do either.,4
-fomc-corpus,1985,But what I find a little difficult to say is that we haven't changed our range but we expect to be above it.,24
-fomc-corpus,1985,"We said at the beginning of the year that we set a range of 4 to 7 percent and that we expected to be at or near the top. And indeed, we are above the top because of unforeseen circumstances. I don't see any problem with admitting that and admitting that we don't know--",60
-fomc-corpus,1985,We will admit that we are above the top. That's where we are.,15
-fomc-corpus,1985,"If we do neither, every Friday we are going to be confronted by The Wall Street Journal's bad diagrams showing us not just above the top of the cone but at an extreme distance above the top of the cone.",43
-fomc-corpus,1985,"Well, if we express it strongly enough, they might stop showing the chart. But I take it that that's not what you want to do. You want to retain some discipline.",36
-fomc-corpus,1985,That diagram looks out of control.,7
-fomc-corpus,1985,That's because it is out of control.,8
-fomc-corpus,1985,I don't know quite what words we would use to say our range is 4 to 7 percent but it doesn't mean anything.,26
-fomc-corpus,1985,"You simply would describe in your testimony that, because of the uncertainty. M1 is on a monitoring basis or however else we may describe it; that it has informational content so that we are going to retain it; and that we don't know what is going to happen over the remainder of the year but we are still dedicated to the proposition that we are going to move toward price stability in the period ahead. And we do that with the 1986 targets.",92
-fomc-corpus,1985,I can explain abandoning M1; that's straightforward. But I don't know what the 4 to 7 percent means if we are not intending to--. There is no content.,36
-fomc-corpus,1985,I think that's correct. But I don't know that you can explain any better 4 to 7 percent rebased or raising the range to 5 to 9 percent.,35
-fomc-corpus,1985,"Well, I have to say I think we expect to be within the range. That's not a promise. We can violate it again, if that's the wisdom. But at least I can say we expect to be around the upper edges. We do think it's once and for all--well, not quite once and for all--a step function. I don't find that very difficult. To explain that we don't have an M1 range is simple enough too. What I find a little difficult to say is our range is 4 to 7 percent, but that doesn't mean anything.",116
-fomc-corpus,1985,"Well, I think we can find words to get over that hump, if that's the only hill we have to climb.",24
-fomc-corpus,1985,"Well, if you feel much more comfortable with rebasing, I'll accept it.",16
-fomc-corpus,1985,"Well, much more comfortable is an exaggeration. I don't feel very comfortable with no change at all. Probably a better expression of where we want to be is to rebase--assuming that the arithmetic is all the same anyway [and] there is no argument on what it should be.",58
-fomc-corpus,1985,"My problem with setting new guidelines is that if we have every reason to believe that we are going to get still further lagged responses to declines in interest rates that have already taken place, that's a big uncertainty. It, therefore, makes more sense to me to set aside M1 as a target variable for this year and reconsider it again for next year.",71
-fomc-corpus,1985,"That's a perfectly coherent approach. Presentationally, it's easy. I don't see any objections to that side. That's a question of substance: whether we want to set aside M1 that far, which says we can't come back later in the year and say we think M1 is too high, in effect. It makes it more difficult. Do we want to throw out--throw out is a bit exaggerated--the possibility of saying that M1 is just too high and we want to tighten up?",100
-fomc-corpus,1985,"Well, if M1 is too high because the economy is stronger, the other measures are going to be too high as well. I don't see that retaining M1 is that critical.",37
-fomc-corpus,1985,"As a practical matter, I'm not sure how Peter and Steve would go about constructing a framework to operate in, literally, if we just throw it out.",31
-fomc-corpus,1985,We did it in 1982.,8
-fomc-corpus,1985,We didn't throw it out.,6
-fomc-corpus,1985,"In 1982, what did we do--rebase in the middle of the year?",19
-fomc-corpus,1985,1983.,3
-fomc-corpus,1985,What did we do in 1982? We didn't do anything in 1982? We just ran above it.,24
-fomc-corpus,1985,"No, I don't think so.",7
-fomc-corpus,1985,We ran at 8.8 percent against a top of 5-1/2 percent.,20
-fomc-corpus,1985,"We were within the range at the midyear meeting, I guess, in 1982 and we just let it run above [later].",28
-fomc-corpus,1985,I think you made a statement in September or October of 1982 to indicate that that was happening.,21
-fomc-corpus,1985,"What we did was: We didn't change our range in mid-1982. We ran above it. We set a new monitoring range at the beginning of 1983, and then we rebased in the middle of 1983.",48
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,"And we said we were going to be more serious about it. That's the difference. In the middle of 1983 we rebased and said we were going to get a bit more serious about it, I guess.",44
-fomc-corpus,1985,This time we're going to rebase but we're not going to get more serious.,16
-fomc-corpus,1985,"This time we rebase and say but we're not going to get more serious. Well, we didn't say much more serious, as I remember. We still called it a monitoring range. Okay. I guess we didn't get a lot more serious about it in the middle of '83--only slightly more; we got more serious about it at the beginning of '84. Well, we'll go to something easy, like next year. Does anybody have strong feelings about next year?",95
-fomc-corpus,1985,"I just have one thing, Mr. Chairman. As I said, the evidence suggests to me that nobody knows whether it's a permanent change or not. But the fact is that it does seem now to take more money, more liquid assets, and more debt to generate a dollar of the GNP. Therefore, it seems to me that there is a strong case for maintaining the ranges and making no change for next year.",84
-fomc-corpus,1985,For M1 for next year?,7
-fomc-corpus,1985,I'm for [retaining them] where they are.,11
-fomc-corpus,1985,You're for alternative I for next year.,8
-fomc-corpus,1985,That retains the ranges for this year for M1 and M2 and reduces the range for M3.,21
-fomc-corpus,1985,It just reduces the top end of the range for M3 by 1/2 percentage point; that's all it does.,25
-fomc-corpus,1985,I don't--,3
-fomc-corpus,1985,That's right. It reduces credit and I would think--,11
-fomc-corpus,1985,It reduces the debt range.,6
-fomc-corpus,1985,--you would reduce M1 if you move up the range or rebase.,16
-fomc-corpus,1985,"Yes, we're leaving M1 aside for the moment. The other three--",15
-fomc-corpus,1985,I don't see any case for reducing the M3 and debt ranges. What rationale is there for that?,21
-fomc-corpus,1985,"Well, the main rationale is that this tracks the nominal GNP. The rationale is that there would be less debt expansion because the increase in spending is lower in '86 than in '85 because of the turn in the balance of payments. But that may or may not happen. And secondly, we expect that there will be less merger activity. That's the rationale.",73
-fomc-corpus,1985,"Yes, but I think there's going to be--",10
-fomc-corpus,1985,Our point estimate for 1986 is 10.4 percent.,14
-fomc-corpus,1985,1986 will probably have a higher nominal GNP than 1985.,15
-fomc-corpus,1985,"Well, as I say, one of the questions raised is: Does the Committee like the GNP? If they don't like the GNP--",29
-fomc-corpus,1985,"I think that's correct. The GNP estimates [of Board members and Presidents]--well, there is a 5-1/2 percent on the low side and an 8-1/2 percent peak--are bunched in the 6-3/4 to 8 percent area, roughly. If you just took that and said there shouldn't be any velocity changes, you're more or less satisfied there. And for M2 and M3 and debt you could take alternative I or you could take alternative II too; there isn't much difference. Alternative III begins to look like a squeeze on our projections of nominal GNP.",127
-fomc-corpus,1985,"That was our idea, Mr. Chairman. Alternative II in some sense gives a little looser fit, which would provide some room if the Committee wanted to express a view of wanting more nominal GNP than is in the staff projection. Alternative III is tighter.",52
-fomc-corpus,1985,"There is so little difference between I and II that it's negligible, it seems to me. Alternative III does begin to be a pretty tight fit, given the nominal GNP figures that are projected. You can argue that they're too high, I suppose, if you want to tighten it. I think you have to begin arguing that, though.",68
-fomc-corpus,1985,"I think part of that argument, Mr. Chairman, turns on the expectation of what is the real growth trend line. Is it really 2 or 2-1/2 percent or is it 3 or 3-1/2 percent?",51
-fomc-corpus,1985,"Well, here I'm just talking about M2 and M3 and debt for which, presumably, in the long run there isn't any trend.",28
-fomc-corpus,1985,You meant real GNP didn't you?,8
-fomc-corpus,1985,"Yes, I'm talking about real GNP.",9
-fomc-corpus,1985,"Oh, I'm sorry.",5
-fomc-corpus,1985,"If 2 to 2-1/2 percent is the trend, then we could be comfortable with the staff structure rather than our own higher projections. But if that's incorrect and the longer-term growth line is around 3 or 3-1/2 percent, then the staff model will give us higher unemployment.",64
-fomc-corpus,1985,"I don't know where our real GNP average [projection] is. It looks like it ought to be over 3 percent. Well, I don't know; some are more pessimistic.",38
-fomc-corpus,1985,"Personally, I think it's closer to 3 or 3-1/2 percent and, therefore, we're flirting with higher unemployment at 2 to 2-1/2 percent real growth. Why should we take that risk?",47
-fomc-corpus,1985,"Well, I think it's fair to say by and large that the projections for next year cluster around a 3 percent real growth. So, alternative I and alternative II would allow for that. You could argue that that's too low, but [unintelligible] probably higher price figures than are likely. Another fall of the dollar--. Well, I'm just looking at the easy aggregates now: M2, M3 and debt. Who's for alternative I? Who's for alternative II? Who's for alternative III? That knocks out alternative III. Not everybody raised his or her hand by a long shot. The difference between these is very small: it's 1/2 percentage point on the upper end of M2 and 1/2 percentage point on the upper and lower end in the debt range. M3 is the same [in both]. If I don't hear great howls, it seems to me those are nice round numbers; we don't get into halves.",196
-fomc-corpus,1985,"Yes, they are nice round numbers.",8
-fomc-corpus,1985,"Alternative I for M2, M3, and debt--that's all I'm talking about. Now, M1 is another story. That may affect what people want to do about this year.",38
-fomc-corpus,1985,With monetary--,3
-fomc-corpus,1985,The choices given range from 3-1/2 to 6-1/2 percent to 4 to 8 percent. Who has a strong feeling about that?,35
-fomc-corpus,1985,"I don't know how you can have a strong feeling about M1 at all right now. But, again, I would have a preference--not a strong feeling--for the specifications of alternative I. That's against the background of what I think is one of the stronger economic forecasts for next year. And I think there is a very plausible case developing that the velocity of M1 may be moving lower. Maybe in the current institutional, inflation, and interest rate environment the kind of trend or expected behavior of M1 velocity is more like 1 percent instead of 3 percent. That's what I [tend to factor] into my own thinking.",129
-fomc-corpus,1985,Maybe it's even zero.,5
-fomc-corpus,1985,"No,--",2
-fomc-corpus,1985,Minus 2.,4
-fomc-corpus,1985,"I certainly don't have any illusions about that judgment, but I think the M1 specifications of alternative I are quite compatible with growth in the real economy of 4 percent next year, which is basically what is in my forecast anyway. So, that's where I come out.",54
-fomc-corpus,1985,[Unintelligible] maybe you get 1 percent increase in velocity with that projection.,19
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,Even if you're in the top of it.,9
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"Well, I like 4 to 7 percent too, because this is supposed to be a tentative indication for next year. We know very little about what M1 is doing, as we are going to admit in one way or another again. So I think tentatively what we should say is that we would hope to reestablish this range.",70
-fomc-corpus,1985,"There is a cosmetic aspect in this. If we voted 4 to 8 percent this year, then 4 to 7 percent looks better to me for next year than if we vote 4 to 7 percent rebased and 4 to 7 percent for next year. I think we ought to appear to be working toward our long-run objectives; I'd like to see it a little lower than whatever we select.",85
-fomc-corpus,1985,"Well, it gets back to the explanation that we give for why the ranges in M1 are no longer valid. If we think it's something more permanent, then it's going to be hard to argue to keep dropping the top of M1. If we argue that it's a one-shot deal in 1985, then one can make the argument. I find it hard to decide what to do in 1986 until I have some sense as to which argument you feel most comfortable giving for whatever we're going to do on M1 in 1985. I think there's a logical consistency here that one needs to pay a bit of attention to.",128
-fomc-corpus,1985,"But if, by the time we get to 1986 we have that information on the velocity of M1, as I assume we will--and if it looks as if it has permanently declined--then I would be willing to go up at that point. I don't see that evidence now. When we had the last episode in '82-'83 we had a decided decline in inflationary expectations and there was reason to expect the trend rate to decline. We haven't had that this time, as I read it. So there is less reason to expect the trend to decline, although there certainly does appear to have been that one-time downward shift in velocity.",131
-fomc-corpus,1985,What if it isn't a one-time downward shift? What if it's going to happen again?,18
-fomc-corpus,1985,"If it keeps happening, it's going to become more or less permanent and then I'd be willing to have higher ranges. That's what I'm saying. By that time I think we would have the evidence, and I would favor higher ranges if that is in fact true. I'm a real pragmatist, despite what you may think.",65
-fomc-corpus,1985,You're a purist.,5
-fomc-corpus,1985,I'm a pure pragmatist.,7
-fomc-corpus,1985,"I suppose there's something to be said for 4 to 8 percent simply on the basis that it's a wider range, given all the uncertainties we have talked about.",33
-fomc-corpus,1985,"And given that we will be overshooting--overshooting, changing, rebasing, and so forth for this year.",24
-fomc-corpus,1985,"I would find it hard to understand. It's true that there's greater uncertainty, but also the number is higher. The upper number is higher and it sounds as though we are yielding.",36
-fomc-corpus,1985,"It's not higher than what actually is going to occur in 1985. It's much lower; 8 is lower than 10, I believe.",30
-fomc-corpus,1985,We don't know what's going to happen in '85.,11
-fomc-corpus,1985,I wouldn't bet on 8 percent for '85.,11
-fomc-corpus,1985,I wouldn't bet on 10 percent either.,9
-fomc-corpus,1985,"In that this is a preliminary look at next year, it seems to me that establishing a range of 4 to 7 percent now would be appropriate. If the circumstances are significantly changed at the end of the year and we want to have a higher range next year, we will be perfectly free to do that when we get into the February meeting.",70
-fomc-corpus,1985,"I happen to agree with Si on that, but I think it's time for our semi-annual reminder from Steve. The July figure that we pick out, as I seem to recall, Mr. Chairman, more often than not--and probably very more often than not--is never changed by the time we get to January. For some reason this Committee has felt in January that we ought to stick with what we picked out in the beginning of July. Am I wrong on that, Steve?",98
-fomc-corpus,1985,"Well, let us get the figures; I just want to check my memory.",16
-fomc-corpus,1985,"Well, 4 to 7 percent looks like a perfectly reasonable figure on the kind of analysis we used to use. Whether that's still reasonable in terms of potential velocity under today's conditions is the question; it's an awfully tight fit. And it assumes an increase in velocity.",55
-fomc-corpus,1985,"I come out on the other side, given that this is a preliminary number. For that reason I'd start with something like 4 to 8 percent. If the economy is doing better as the year progresses--and when we get into 1986 if M1 is looking a little more reasonable--it seems to me that February would be the time to move to 4 to 7 percent. I suspect (a) that that's not a big change; and (b) that 4 to 7 percent would seem to be appropriate and easily justified under those circumstances at that time.",118
-fomc-corpus,1985,"Well, how many like 4 to 7 percent? How many like 4 to 8 percent? That encompasses the range, unless somebody else has some other feeling.",35
-fomc-corpus,1985,"Not knowing what we're going to do this year, but assuming we might rebase with 4 to 7 percent, I like 3-1/2 to 6-1/2 percent [for 1986]. I think a lot of people are going to say when we rebase that in fact we have eased. And if we don't wave the flag and show some determination to deal with inflation down the road, then I think we've got a problem there. That's why I'd put it a little lower than whatever we select for [this] year. It might be merely a statement of pious intention, but I think it might be important.",132
-fomc-corpus,1985,"It would be a very [specious] thing, though, to say we don't know what M1 is doing and now we're going to change the range by 1/2 point. I would try to convey the sense that M1 is in suspense, and that is best done by an unchanged range for 1986.",66
-fomc-corpus,1985,"Mr. Chairman, in response to President Balles' question, we really do change the ranges at the February meetings from what was adopted tentatively. Only in one year, 1982, were all the ranges tentatively adopted maintained. In four other years--this is going back to 1981--there were substantial changes.",67
-fomc-corpus,1985,Oh yes?,3
-fomc-corpus,1985,"Sometimes there were changes in M1. The most spectacular, of course, was in February 1983 when M1 was deemphasized to a monitoring range and that monitoring range was raised substantially from the one that had been adopted the previous July.",50
-fomc-corpus,1985,I take it all back!,6
-fomc-corpus,1985,"Well, I find it difficult to work up a great deal of emotion in assuming what the language is going to be; it's quite tentative anyway.",29
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,I think we probably ought to do the short run and come back to this.,16
-fomc-corpus,1985,"This gets back to your point, Bob.",9
-fomc-corpus,1985,"The situation we have is that the economy looks pretty sluggish and there is not much sign of a breakout on the up side, apart from looking at the M1 figure. If you look at the M1 figure you might say that maybe we are going to have a great increase [in GNP]. I don't know where that's coming from. But as a practical matter, if you wanted to stimulate, where can you stimulate? You can stimulate housing, which is already high, and maybe consumption and you would get more distortions in the economy and more imports. It's hard for me to see, particularly in the midst of this, that we should tighten up, barring evidence that the economy is expanding [too fast] or further evidence on Ml. So, I conclude that we [should] stay about where we are.",165
-fomc-corpus,1985,No argument here.,4
-fomc-corpus,1985,I have no argument with it.,7
-fomc-corpus,1985,"I suppose what that means, just in terms of setting forth specifications, is that we do something like alternative B, with a clear understanding that everybody would be delighted, I'm sure, if July and August suddenly had a jump downward in M1. We would not take that as a sign for great easing unless it were accompanied by very clear evidence that, say, the dollar was strong and the economy was weak. Conversely, I certainly would agree, if M1 continued high and there were pretty definite signs--or some signs anyway--that the economy was expanding more rapidly, we might have to react. Even then I'd be a little more tentative about that if the dollar turned out to be very strong. I don't think the dollar will turn out to be strong during this period. Hypothetically, I think we could get a combination of a declining dollar, a little more evidence of business firmness, and a high M1, and then we would tighten up. Except we don't make that decision today. We would make the decision to do that if those circumstances arose.",213
-fomc-corpus,1985,"I would support alternative B, Mr. Chairman. I think that makes a lot of sense in view of all the uncertainties we're wrestling with here. I think the other alternatives would be putting up too big a bet. One of the things about alternative B that I like is that it's more or less an explicit admission--at least I interpret it that way--that we're prepared to go along with the overshoots in the first half of the year and we have no intention of trying to get M1 back within that original range. I think that would be a terrible mistake in view of all the uncertainties we've heard around this table the past two days. Therefore, I think alternative B would make a lot of sense.",143
-fomc-corpus,1985,"When you say alternative B, you are also encompassing something around the borrowing target that's in there?",19
-fomc-corpus,1985,"Oh, yes.",4
-fomc-corpus,1985,Which is what?,4
-fomc-corpus,1985,$350 million.,4
-fomc-corpus,1985,Around $350 million.,5
-fomc-corpus,1985,"The principal argument in favor of ""B,"" it seems to me, is that it is clearly and definitively inaction. Any action that is possible here is very small relative to the distortion in M1 that has taken place. So, one would seem to be making a half-hearted gesture trying to deal with M1. ""B"" seems to say we're not taking M1 seriously and we're suspending judgment.",83
-fomc-corpus,1985,"You're in favor of ""B""?",7
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Me too.,3
-fomc-corpus,1985,"Corrigan is in favor of ""B.""",9
-fomc-corpus,1985,"Mr. Chairman, I would support alternative B also, for many of the reasons given. I think stimulation of any kind at this point, as you've indicated, would get us exactly where we don't want to be--stimulating the side of the economy that doesn't really need it and not doing much for the areas that are really, really distressed. I think it's too early to make a move one way or the other without further economic indicators. So, I would support alternative B with the borrowing at around $325 to $350 million.",107
-fomc-corpus,1985,"I myself, just in the area of fine tuning, would say $350 million played somewhat cautiously. In other words, it might be more likely to be higher rather than lower, depending upon how market conditions develop.",43
-fomc-corpus,1985,$350 to $400 million?,7
-fomc-corpus,1985,"Well, that's getting a little narrow, considering what we've gone through. Basically, I would aim at $350 million but not put funds in there if the market is very easy and--",37
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,"I would be in favor of that. I'd be a little clearer in my judgment if I knew what we were going to do with regard to the rebasing of ranges. But basically, I'd be in favor of ""B.""",45
-fomc-corpus,1985,"Well, let's make this all tentative until we come back and look at the package as a whole. And we have to consider the language too. But you're basically ""B""?",35
-fomc-corpus,1985,"Right, with a trending up in the borrowing along the lines you described.",15
-fomc-corpus,1985,I wouldn't say trending up. Trending up if the economy gets stronger.,14
-fomc-corpus,1985,Tolerance of--,3
-fomc-corpus,1985,"Tolerance, okay.",4
-fomc-corpus,1985,Then does that tolerance include a little on the down side if the economy turns out weaker?,18
-fomc-corpus,1985,"Well,--",2
-fomc-corpus,1985,"You know, there's not much difference between them.",10
-fomc-corpus,1985,"Well, if the economy turns out weaker, then we have different circumstances. Then, I presume we would write a directive that says if everything comes out weak we would ease and if everything turns out tight, we would tighten. But I'm talking about apart from that now; I think the word ""tolerance"" is for a little higher [borrowing] depending upon market circumstances. It's what we have been doing, basically.",85
-fomc-corpus,1985,"I would support ""B"" with the caveat on the borrowing. It would appear, just looking back at the historical numbers, that the $350 million is pretty low. And we have had the federal funds rate dropping below the discount rate for some short period of time. Whatever the number is, I'd start at $350 million as kind of the base--",72
-fomc-corpus,1985,Okay.,2
-fomc-corpus,1985,--and accept something a bit higher than that providing the funds rate is trading around the 7-3/4 percent level.,26
-fomc-corpus,1985,"If we got 5-1/2 percent [M1 growth] from June to September, and then to December, that would mean for the year as a whole it would be something in excess of 9 percent. That seems a little too rich for me. I just don't think we need quite that much liquidity.",65
-fomc-corpus,1985,"The problem is that July is rather high and we can't affect July; it may be the wrong number but we are not going to affect it. And then it drifts right down; by September the point estimate is 4 percent or something, isn't it?",52
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"I think that's about as sharp a dampening as one would want, Bob. And what we would then look forward to is a lower fourth quarter than the third quarter.",34
-fomc-corpus,1985,"Well, on a quarterly basis, the second quarter to the fourth quarter would be 7.6 percent.",22
-fomc-corpus,1985,That's continuing in the fourth quarter what the third quarter--?,12
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,I could accept that.,5
-fomc-corpus,1985,"I would like to see some gesture in the direction of less M1 growth, but I don't want to tighten up the interest rates.",27
-fomc-corpus,1985,"I think that's where I am, Emmett.",10
-fomc-corpus,1985,"So, I could go for alternative B, keeping in mind that at the next meeting it might be necessary to do something to tighten.",27
-fomc-corpus,1985,"Well, under certain conditions, it may be necessary to do something before then. That would not be to get a lower M1, I guess, but in response to a still higher one. Who else?",42
-fomc-corpus,1985,A minor gesture for public relations reasons might not hurt.,11
-fomc-corpus,1985,"You have different public relations in mind than I do, Emmett.",14
-fomc-corpus,1985,I support alternative B with $350 million of borrowing for reasons already given.,15
-fomc-corpus,1985,Governor Seger.,4
-fomc-corpus,1985,"I guess I'm more concerned about the health of the economy than most of my colleagues. The sluggishness in some areas is actually almost to be described as a recession, if you look at certain parts of the industrial sector. And Mr. Guffey's farm area I would almost call a depression. Looking at the strong dollar and the effect that it's having on the manufacturing sector, I would really like to push for something that is considered easing; if that's alternative A, then that's what I would vote for.",102
-fomc-corpus,1985,"That's alternative A by golly. Does anybody else have anything? Well, it looks like the center of gravity is at B. Is the coffee out there?",32
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"Why don't we have our coffee? We'll come back and consider what the directive should say for the near term and consider the longer-run alternatives, working around alternative B.",33
-fomc-corpus,1985,"I think we might return to this issue of the targets for the year. If I am correct, I think the sentiment is to change the targets. Let me assume that for the moment, one way or another. If we change it to 5 to 9 percent for the year as a whole, that is roughly the same as rebasing it at 4 to 7 percent. Is that correct, Mr. Axilrod?",88
-fomc-corpus,1985,"Yes, that is right. The upper limits would be roughly--",13
-fomc-corpus,1985,"It's not quite the equivalent, I suppose. If we change it to 4 to 8 percent or 5 to 8 percent with rebasing, what's that equivalent to? That's equivalent to 5-1/2 to 9-1/2 percent?",54
-fomc-corpus,1985,"Well, 8 percent is roughly 9-1/2 percent and 5 percent is roughly 8 percent for the year.",27
-fomc-corpus,1985,"I assume we're going to do something in that area with some language fuzzing up M1 to some extent. Those are arithmetic equivalents, so I think it's purely a presentational difference. Let's talk about the substance for a moment, which I will say whichever way you [want me to] present it: Is it 5 to 9 or 5 to 9-1/2 percent, which are the equivalents of 4 to 7 and 4 to 8 percent, [respectively]. Is it the lower or the higher of those that we're talking about?",116
-fomc-corpus,1985,"It's the higher, to give ourselves operating room when the expectation, I think, on balance still is for a higher rather than a lower rate of growth in M1, even given the decisions made in the short run. I don't think we should set ranges that we feel have a higher probability that we can't obtain them.",64
-fomc-corpus,1985,I'm confused.,3
-fomc-corpus,1985,I'm not discussing whether we rebase or not.,10
-fomc-corpus,1985,"Oh, I know. I'm confused because you've lost me on the numbers.",15
-fomc-corpus,1985,"Looking at it in annual terms, the issue is whether we make the high number--which is the relevant one--9 or 9-1/2 percent; they are equivalent on rebasing to 7 or 8 percent.",47
-fomc-corpus,1985,"I'm arguing for 8 or 9-1/2, Mr. Chairman, depending on which way the Committee goes. It's operational; I'll join the pragmatists. We heard from a pragmatist.",43
-fomc-corpus,1985,"Well, as another pragmatist, I'll take the other side on that because I think that that 9-1/2 percent, even with all these things going on, might be a little too much liquidity.",44
-fomc-corpus,1985,It's the same amount.,5
-fomc-corpus,1985,"No, you see--",5
-fomc-corpus,1985,"The symbolism is tremendous, it seems to me.",10
-fomc-corpus,1985,"Yes, but it's not--",6
-fomc-corpus,1985,"Do you want to talk in terms of the rebased numbers so we don't have to keep talking in terms of both, without in any way prejudging that decision? Let's just refer to the rebased number or the other number.",46
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Let's do that. Rebased.,7
-fomc-corpus,1985,"Let's use the rebased number, which gives us two round numbers. We're talking about 7 percent or 8 percent.",25
-fomc-corpus,1985,8 percent. SPEAKER(?) 7 percent.,10
-fomc-corpus,1985,7 percent. MR. BOEHNE(?). 7 percent.,14
-fomc-corpus,1985,How many do we have? One 8 percent--,11
-fomc-corpus,1985,7 percent.,3
-fomc-corpus,1985,7 percent.,3
-fomc-corpus,1985,7 percent.,3
-fomc-corpus,1985,7 percent.,3
-fomc-corpus,1985,Who am I hearing 7 percent from?,9
-fomc-corpus,1985,The problem is that 7 percent is very tight.,11
-fomc-corpus,1985,"Very, very tight.",5
-fomc-corpus,1985,That's the trouble with rebasing.,7
-fomc-corpus,1985,Not with 8 percent.,6
-fomc-corpus,1985,"Well, it's the same--",6
-fomc-corpus,1985,"That's no tighter than 9 percent if we don't rebase. It's the same; well, it's 1/10th of 1 percent different, if I read it right.",37
-fomc-corpus,1985,"I think if we're going to rebase that we ought to have a figure that we can have some reasonable presumption of hitting, so I'm for 8 percent.",33
-fomc-corpus,1985,I'm for 8 percent also.,7
-fomc-corpus,1985,"If we rebase, we may as well make it 8 percent.",15
-fomc-corpus,1985,"I'm assuming people want to be consistent arithmetically whether or not we rebase. So, I'm automatically assuming anybody that says 8 percent is for 9-1/2 percent on M1 if we change [the range] for the year.",52
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"Well, I would take 9 percent. I'd skip the 1/2 point.",18
-fomc-corpus,1985,"No, no.",4
-fomc-corpus,1985,"Well, that puts you back down to 7 percent then, Chuck, I think.",18
-fomc-corpus,1985,The 1/2 point does?,8
-fomc-corpus,1985,"Yes, it does.",5
-fomc-corpus,1985,"To repeat: The arithmetic equivalents, I think, are 9-1/2 and 8 percent and 9 and 7 percent.",29
-fomc-corpus,1985,I can live with 8 percent.,8
-fomc-corpus,1985,"Now, cosmetically, people may think it's different. They may be happy to do 4 to 8 percent but not 5-1/2 to 9-1/2 percent, even though they're the same thing.",47
-fomc-corpus,1985,"The media will talk about the top of the range; the media will talk about 8 percent. They've done it again and again. I think, cosmetically, we will have them talking about rebasing for one day and it will be forgotten.",50
-fomc-corpus,1985,I'm not sure I've heard from everybody here. Mr. Balles.,14
-fomc-corpus,1985,"Oh, I guess to give us a little room I'd go for 8 percent.",17
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"7 percent for me, Mr. Chairman.",9
-fomc-corpus,1985,Well I've heard from all the Committee members. Do I want to hear from anybody else?,18
-fomc-corpus,1985,It depends on what they want to say!,9
-fomc-corpus,1985,The Committee members didn't do a particularly good job; maybe you ought to listen to them.,18
-fomc-corpus,1985,Any non-Committee members have a strong feeling that they want to affect this narrow balance here?,19
-fomc-corpus,1985,"They both seem unrealistic to me, Mr. Chairman. One is growth of 1/2 to 1 percent June to December and the other is 2.8 percent; and both of those seem improbable. No, that's not right.",49
-fomc-corpus,1985,5 percent.,3
-fomc-corpus,1985,It's 5 percent.,5
-fomc-corpus,1985,I thought you were talking about 7 or 8?,12
-fomc-corpus,1985,This is quarter 4. We're talking about rebasing.,12
-fomc-corpus,1985,"This is if we rebase, which is the equivalent of 9 or 9-1/2 percent if we do the full year.",29
-fomc-corpus,1985,That's a little more than 5 percent.,9
-fomc-corpus,1985,I could take it; I was looking at the wrong numbers.,13
-fomc-corpus,1985,"If we're going to take the heat of rebasing or upping the range, it seems to me we ought to go far enough to give us some breathing room. I wouldn't want to go six months and every week get hit on the head because we have gone over target.",55
-fomc-corpus,1985,Rebase again!,4
-fomc-corpus,1985,"Well, I'll just add that we're going to start off high and we're just stuck here. Unless we rebase on the first week in July, we're going to start out above. I don't know that we start out above the parallel lines, but the parallel lines close up pretty fast; we've only got six months. But we're going to start off well above the cone simply because the trajectory was so sharp in June. It's not going to look appreciably different whether we pick 7 or 8 percent because it doesn't make any difference when we're that close to the origin.",114
-fomc-corpus,1985,"What about 3 to 8 percent, Paul?",11
-fomc-corpus,1985,That's a little sneaky.,6
-fomc-corpus,1985,At least that says that--,6
-fomc-corpus,1985,"If it comes back down, why, we'll accept it.",12
-fomc-corpus,1985,"Yes, that they're not taken to be quite so weighty.",13
-fomc-corpus,1985,"There are so many permutations and combinations. What we have is a slight majority for 8 percent at the moment. Now, let's see whether this has affected where you are on rebasing or not. Let me just ask the Committee members; we'll probably be 50/50. Now, all of this is going to have some kind of language that depresses the importance of M1, probably somewhat short of calling it a monitoring range, if I understand this [discussion] correctly. It won't be demoted all the way to a monitoring range but it will be deemphasized a bit.",119
-fomc-corpus,1985,"With a certain amount of diffidence. CHAIRMAN VOLCKER. That's right. Who wants to rebase? One, two, three, four, five, six. [Secretary's note: Messrs. Balles, Black, Forrestal, Keehn, Martin, and Ms. Seger.] Did I count that right? Yes, just what I figured.",75
-fomc-corpus,1985,"Well, you could break the tie, Mr. Chairman.",12
-fomc-corpus,1985,We don't have a tie.,6
-fomc-corpus,1985,Now ask about the other one.,7
-fomc-corpus,1985,Ask about the other one.,6
-fomc-corpus,1985,Do you mean: Who doesn't want to rebase?,11
-fomc-corpus,1985,If you want [to be] certain.,9
-fomc-corpus,1985,You definitely want to rebase?,7
-fomc-corpus,1985,You think that some are indifferent.,7
-fomc-corpus,1985,Probably.,2
-fomc-corpus,1985,"There are 6, and if the Chairman is going with it, there would be 7.",20
-fomc-corpus,1985,Who doesn't want to rebase?,7
-fomc-corpus,1985,"Well, I'd go with rebasing provided we stay with the 4 to 7 percent.",19
-fomc-corpus,1985,"The reason I asked is that I'm going to vote with you. I would prefer not rebasing; but if you want to rebase, I'll rebase.",32
-fomc-corpus,1985,I don't think this is the most crucial issue in the world. Let me ask the question somewhat differently. Who feels strongly that we should not rebase?,31
-fomc-corpus,1985,"I'm not a voting member, but I would prefer not to.",13
-fomc-corpus,1985,You could hardly be strong about this.,8
-fomc-corpus,1985,"Who feels strongly that we should rebase? That was 3 or 4 members. We have more qualitative strength of feeling on that side. Now, we'll lose them all when we put the numbers on. The majority was for 4 to 8 percent if we rebased. Or we could make it 3 to 8 percent. Does that help? Would people like to make it 3 to 8 percent?",86
-fomc-corpus,1985,That might give a little more room to tolerate much slower growth toward the end of the year.,19
-fomc-corpus,1985,Does anybody object to saying 3 to 8 percent?,12
-fomc-corpus,1985,It gives you a little better average too.,9
-fomc-corpus,1985,I don't object to the 3 percent; I object to the 8 percent.,17
-fomc-corpus,1985,"Who's in favor of 3 to 8 percent, rebased?",14
-fomc-corpus,1985,That's a landslide!,5
-fomc-corpus,1985,"Yes. Well, I don't think we're going to get any combination that's better than that, but the floor is open for anybody who wants to try another number.",32
-fomc-corpus,1985,"I said 4 to 7 percent originally, but I don't feel strongly enough about 3 percent on the down side; it seems to me to be fairly unimportant given the state of M1 at the moment.",44
-fomc-corpus,1985,"Well, a way we could face that, I suppose, is if the dollar were weak, quite weak, and we felt it necessary to respond to it. If we began getting low money supply numbers, we might want to say that's fine--with that big increase we had in the first half of the year and the dollar weak, the economy is going to get better. That's the kind of conditions. It may be a very outside [chance], but I don't think it's absolutely impossible.",98
-fomc-corpus,1985,[Unintelligible] on the high side.,11
-fomc-corpus,1985,"If this May-June increase is reversible, we could get--",13
-fomc-corpus,1985,"Yes, just as a kind of natural reflux plus something else. As soon as we want to be pretty restrictive we might run into a low number.",30
-fomc-corpus,1985,What's the message that moving the band from 3 points to 5 points conveys to the markets?,20
-fomc-corpus,1985,Some uncertainty.,3
-fomc-corpus,1985,"I think that probably is fair enough, isn't it, given all the uncertainty we've expressed? That seems to be consistent.",24
-fomc-corpus,1985,It's a fairly heavy change.,6
-fomc-corpus,1985,That gives you approximately 7 percent for the year.,11
-fomc-corpus,1985,For what?,3
-fomc-corpus,1985,"It makes it approximately 7 percent, 6.8 percent, for the year.",18
-fomc-corpus,1985,What does?,3
-fomc-corpus,1985,The 3 percent lower limit.,7
-fomc-corpus,1985,If we happen to get 3 percent.,9
-fomc-corpus,1985,"Yes. Therefore, this involves no change--",9
-fomc-corpus,1985,I could buy the top with a 3 percent [lower limit].,14
-fomc-corpus,1985,"Well, there have been an awful lot of double-digit months followed by zero months.",17
-fomc-corpus,1985,"I think it's very unlikely we would get 3 percent, but I don't--",16
-fomc-corpus,1985,I do too.,4
-fomc-corpus,1985,"If we had a combination of a desire to tighten some plus a kind of natural reflux, I don't think it's absolutely impossible. I don't think it would be very hard from a June base, but it's awfully hard from a second-quarter base, given how high we start out.",56
-fomc-corpus,1985,But with only a 6-month horizon we ought to have a wider band. A 3 to 8 percent range would be a--,28
-fomc-corpus,1985,"I agree with that. I don't know what the arithmetic is, but to get 3 percent for the year we'd have no growth from now on, I guess.",33
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,That's pretty low.,4
-fomc-corpus,1985,It means after July it would be negative.,9
-fomc-corpus,1985,Then what do we do about the range for next year if we have 3 to 8 percent for the rest of this year?,27
-fomc-corpus,1985,3 to 7 percent.,6
-fomc-corpus,1985,"It was 4 to 7 percent that we were talking about, wasn't it? Well, is there a preference for 3 to 8 percent as opposed to 4 to 8 percent?",40
-fomc-corpus,1985,"Yes, I have a preference. SPEAKER(?) Yes.",12
-fomc-corpus,1985,"Well, I've found a fair amount of support for 3 to 8 percent, all things considered. Does anybody have a proposal that they think will attract more support? We were going to keep the other aggregates unchanged, right? Well, let's try some language. Let me suggest something like this--and this is surely not written in concrete--looking at the language on page 20 [of the Bluebook]: ""In furtherance of these objectives, the Committee at this meeting reaffirmed ranges for the year of""--whatever they are for M2 and M3. What is it, 6 to 9 percent--?",126
-fomc-corpus,1985,6 to 9 percent for M2 and 6 to 9-1/2 percent for M3.,23
-fomc-corpus,1985,"--""and 6 to 9-1/2 for M3. The associated range for total domestic nonfinancial debt was reaffirmed at""--",30
-fomc-corpus,1985,9 to 12 percent.,6
-fomc-corpus,1985,"--""9 to 12 percent."" Now, if we change the base we would say: ""The base for the M1 range was moved forward to the second quarter of 1985.""",39
-fomc-corpus,1985,And the range.,4
-fomc-corpus,1985,"""--was moved forward to the second quarter of 1985 and established at 3 to 8 percent, tentatively, in the expectation of a return of velocity growth toward more usual patterns, following a sharp decline of velocity during the first half of the year."" I would insert something like ""the appropriateness of the new range will continue to be reexamined in the light of evidence with respect to economic and financial developments, including foreign exchange markets."" That is an attempt to say that we'll look at this with some flexibility but not use the term ""monitoring range."" And then I would leave that last sentence, I think: ""The Committee agreed that growth in the aggregates generally may be in the upper parts of their ranges, depending on continuing developments with respect to velocity and provided inflationary pressures remain subdued."" How does that package--",168
-fomc-corpus,1985,Would you read that last part about--,8
-fomc-corpus,1985,"Well, let me read the whole thing again. This has some preliminary boilerplate sentences, if you go back to get the whole thing, to the effect that the Federal Open Market Committee wishes to do wonderful things. ""In furtherance of these objectives the Committee at this meeting reaffirmed ranges for the year of 6 to 9 percent for M2 and 6 to 9-1/2 percent for M3. The associated range for total domestic nonfinancial debt was reaffirmed at 9 to 12 percent. With respect to M1, the base was moved forward to the second quarter of 1985 and a range was established at 3 to 8 percent in the expectation of a return of velocity growth toward more usual patterns, following a sharp decline in velocity during the first half of the year. The appropriateness of the new range will continue to be reexamined in the light of evidence with respect to economic and financial developments, including foreign exchange markets. More generally, the Committee agreed that growth in the aggregates may be in the upper parts of their ranges, depending on continuing developments with respect to velocity and provided that inflationary pressures remain subdued.""",235
-fomc-corpus,1985,"""At an annual rate"" [should be added] after the 3 to 8 percent.",20
-fomc-corpus,1985,"""Established at an annual rate of 3 to 8 percent""? It sounds awkward. That's the way to make it sound lower: ""established at 1-1/2 to 4 percent""! I guess we say ""at an annual rate.""",52
-fomc-corpus,1985,I guess so.,4
-fomc-corpus,1985,It might take some a while to pick that up.,11
-fomc-corpus,1985,"Obviously, if we change the range for the year we have to have a somewhat different sentence here, taken off from the other sentences in the directive. But how does that sound?",36
-fomc-corpus,1985,"That would be followed I assume, Mr. Chairman, by that paragraph that we didn't repeat on the top of page 20? ""The Committee understood that policy implementation would require..."" and all that.",40
-fomc-corpus,1985,Where is that?,4
-fomc-corpus,1985,It's on the top of page 20. That's the next paragraph in the structure of the directive.,20
-fomc-corpus,1985,Why do we need that?,6
-fomc-corpus,1985,"We had that, didn't we?",7
-fomc-corpus,1985,We already have it.,5
-fomc-corpus,1985,You can take it out with the new wording.,10
-fomc-corpus,1985,"Yes, I should think that--",7
-fomc-corpus,1985,It's in the short-term part. Why can't we just take that out?,15
-fomc-corpus,1985,"I think the way this is reworded, you certainly can.",14
-fomc-corpus,1985,"Well, the way I've just written this sentence, what I inserted has some of that sense. The appropriateness of the new range just applies to M1. If that general language seems all right, this of course assumes that we rebase. It also contains some numbers. I don't think there's any dispute with the numbers for M2, M3, and debt. I don't know that anybody has any better number to put in for M1. Does anybody have anything further to say about whether we rebase or not? If not, maybe we better vote on this.",115
-fomc-corpus,1985,This is for the 1985 ranges: Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Black No President Forrestal Yes President Keehn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,51
-fomc-corpus,1985,Let us go on to the 1986 ranges; I'm not sure I remember what we decided on before.,22
-fomc-corpus,1985,Could be good reason for that!,7
-fomc-corpus,1985,"I think there was agreement on M2, M3, and debt. It would be: ""The Committee agreed on tentative ranges of monetary growth measured from the fourth quarter of 1985 to the fourth quarter of 1986--"". Well, the first question that arises is whether we want to leave M1 in that same sentence or deal with it separately. The numbers anyway are: 6 to 9 percent for M2; 6 to 9 percent for M3; and the associated range for debt was 8 to 11 percent. I think we pretty much agreed on that part. Now, whether we leave M1 in this sentence or not, I think we probably would want to say something separately about M1. Wasn't that the sense of where we were? Or we can just leave it. I don't know. What do you think? There was some disagreement about whether it should be 4 to 8 percent or 4 to 7 percent, with a majority at 4 to 7 percent.",209
-fomc-corpus,1985,"Well, all of these are tentative. Is there some word like ""tentative"" in there?",20
-fomc-corpus,1985,"It starts out by saying ""tentative ranges."" I think that's the question: whether we somehow want to try to indicate that M1 is even more tentative than usual.",34
-fomc-corpus,1985,Especially tentative.,3
-fomc-corpus,1985,"""Agreed on tentative ranges for M2 and M3 and an even more tentative range--""",20
-fomc-corpus,1985,"I think there's something to be said for staying with 3 to 8 percent and carrying that forward. But if we don't, then at least the midpoint should be preserved so that 4 to 7 percent is the logical thing.",47
-fomc-corpus,1985,"Well, 3 to 8 percent was not in the ballpark when we discussed it earlier. I'm not saying we can't do it now. I just have the feeling, in light of the earlier discussion, that if they're all left in the first sentence that way, which may be all right, we should put in a sentence saying that the Committee recognized that the behavior of M1 velocity was subject to particular uncertainties that would require reexamination at the beginning of the year or something. Does that thought make sense?",104
-fomc-corpus,1985,"Yes, that makes sense; and then preserve the 3 to 8 percent.",17
-fomc-corpus,1985,It cuts the other way.,6
-fomc-corpus,1985,Or we can say 4 to 7 percent.,11
-fomc-corpus,1985,"But I want to go from 3 to 8 percent to 4 to 7 percent, you see, eventually. And I want to start at 3 to 8 percent.",38
-fomc-corpus,1985,"Again, this is preliminary. What if we did go to 3 to 8 percent now and 4 to 7 percent but use some caveats that if the normal relationships didn't reemerge, we might consider a wider band?",48
-fomc-corpus,1985,But they haven't reemerged. Why start backwards?,11
-fomc-corpus,1985,"Well, they might.",5
-fomc-corpus,1985,"They might, and then we can narrow the range. That's when you narrow the range--when you know something.",23
-fomc-corpus,1985,"But in the interim, don't you think it would be useful to have a message out there that we intend to continue moving toward price stability? This is a way we can accomplish that.",37
-fomc-corpus,1985,"Well, if we use 3 to 8 percent, it seems to me that it ought to be picked out of the first sentence and put in the second sentence.",34
-fomc-corpus,1985,I agree.,3
-fomc-corpus,1985,"Yes, I agree.",5
-fomc-corpus,1985,I must say that I think there's some merit to that argument that we need a little more certainty before we collapse the range.,25
-fomc-corpus,1985,"Yes, but we're not really collapsing it. The backdrop of even a tentative range for 1986 is going to be very, very rapid growth in 1985. I do think that in a context in which we emphasize uncertainty, the direction of the M1 range and the time to [unintelligible] should be set a notch lower.",71
-fomc-corpus,1985,"The fact of the matter is that if we need the 8 percent in M1 to keep the economy going, we're going to have 8 percent in M1 as a practical matter.",38
-fomc-corpus,1985,I agree.,3
-fomc-corpus,1985,But we [unintelligible] going to read the papers with interest.,16
-fomc-corpus,1985,"Well, I just wrote a sentence here. We could leave M1 in the same sentence at the beginning but then say: ""With respect to M1 particularly, the Committee recognized that uncertainties surrounding the recent behavior of velocity would require careful reappraisal of the target range at the beginning of 1986.""",62
-fomc-corpus,1985,Good.,2
-fomc-corpus,1985,"Whatever number we put in there--. If we put in 3 to 8 percent, we can just say: ""With respect to M1, the breadth of the target range reflected the uncertainties surrounding velocity, which would require--",47
-fomc-corpus,1985,"We could preface it, Mr. Chairman, by saying in the light of the fact that in 3 out of the past 4 years we have set aside or rebased the M1 target.",41
-fomc-corpus,1985,I don't think we want to say that.,9
-fomc-corpus,1985,That's right: '82 and '83.,9
-fomc-corpus,1985,'84 is the only one--,7
-fomc-corpus,1985,"Unless there's been a [unintelligible], that doesn't help.",14
-fomc-corpus,1985,"In '81, we sort of ignored it.",10
-fomc-corpus,1985,"Well, what number do you want to put in for M1?",14
-fomc-corpus,1985,3 to 7 percent.,6
-fomc-corpus,1985,3 to 8.,5
-fomc-corpus,1985,3 to 7.,5
-fomc-corpus,1985,3 to 7.,5
-fomc-corpus,1985,3 to 8.,5
-fomc-corpus,1985,3 to 7.,5
-fomc-corpus,1985,3 to 7.,5
-fomc-corpus,1985,"3 to 7 percent, let me note, is [unintelligible] low.",19
-fomc-corpus,1985,"4 to 7 percent, then.",8
-fomc-corpus,1985,4 to 7.,5
-fomc-corpus,1985,3 to 8.,5
-fomc-corpus,1985,4 to 7.,5
-fomc-corpus,1985,"I think the choice is between 4 to 7 percent and 3 to 8 percent. Who's for 3 to 8 percent? One, two, three, four. [Secretary's note: Messrs. Martin, Partee, and Wallich, and Ms. Seger.] Who's for 4 to 7 percent? And we'll see how many are indifferent here between them. One, two, three, four, five, six. [Secretary's note: Messrs. Balles, Black, Corrigan, Forrestal, Keehn, and Rice.] I guess that says we make it 4 to 7 percent. Do we leave it in the same first sentence?",143
-fomc-corpus,1985,Particularly if it's 4 to 7 percent.,11
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,I'd rather see it treated special.,7
-fomc-corpus,1985,"It's partly special now because we put in a special sentence. It's a great subtlety as to whether it's doubly special or half the same and half special. I don't detect any ground swell to take it out of the first sentence. So it would read: ""For 1986 the Committee agreed on tentative ranges for monetary growth, measured from the fourth quarter of 1985 to the fourth quarter of 1986, of 4 to 7 percent for M1, 6 to 9 for M2, and 6 to 9 for M3. The associated range for growth in total domestic nonfinancial debt was provisionally set at 8 to 11 percent for 1986. With respect to M1 particularly, the Committee recognized that uncertainties surrounding recent behavior of velocity would require careful reappraisal of the target range at the beginning of 1986."" We better change that last sentence. ""Moreover, in establishing ranges for next year, the Committee also recognized that account would need to be taken of experience with institutional and depositor behavior in response to the completion of deposit rate deregulation early in the year."" Does anybody want to suggest any modification of that language? Well, I'll get the question: Does that mean it's a monitoring range?",254
-fomc-corpus,1985,I should say the whole thing's up for grabs given the two sentences. They both suggest to me that it's possible that [unintelligible] things could be done for--,36
-fomc-corpus,1985,I thought we were going to stop short of a monitoring range.,13
-fomc-corpus,1985,One way is to say that it could become one but it is not.,15
-fomc-corpus,1985,"I don't think you need it. I don't think you need the word ""monitoring.""",18
-fomc-corpus,1985,I don't either. No.,6
-fomc-corpus,1985,"Oh, you don't need it here, but I will be asked. That's pretty fuzzy, so I will be asked: What do you mean?",29
-fomc-corpus,1985,It's pretty muddy. It might be one of those options.,12
-fomc-corpus,1985,It's too early to form a judgment.,8
-fomc-corpus,1985,"If nobody has any improved language to propose here, I think we have 4 to 7 percent, 6 to 9 percent, and 6 to 9 percent.",36
-fomc-corpus,1985,And 8 to 11 percent.,8
-fomc-corpus,1985,8 to 11 percent [on debt].,9
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Martin No Governor Partee Yes Governor Rice Yes Governor Seger No Governor Wallich Yes,43
-fomc-corpus,1985,"All right. Now we get to the operational part. Forgetting about the language for the moment, what we were saying I think fits this definition of ""maintaining the existing degree of pressure,"" to be interpreted arithmetically, I suppose, as $350 million plus. We have a week this week that started out with a high level of borrowings and we're saying we won't drive the average level of borrowings down to $350 million and push a very easy money market simply to meet that target. We make allowances on the up side more than on the down side, depending upon market developments. That's what we're doing initially. Heaven knows what happens from now on. If the money supply continues to rise fast, that certainly is a factor pushing us toward a tighter direction. That's easy to say, but suppose that is combined with a tone of worse business news; we'd be pretty cautious about it, I suppose. What we may have is a decided weakening of the dollar here. We may have broken through this three mark level of the dollar and we may see a continuing decline, which sooner or later probably has to come. But if it begins getting momentum, I think that's a factor on the tightening side. It's easy to say any one of these things singly. When they go in opposite directions at the same time--",265
-fomc-corpus,1985,Which they will.,4
-fomc-corpus,1985,"They probably will. I don't think we can say much except that if this gets extreme enough, we will have a consultation. We get a nice clear picture if the dollar is weak, the economy is strengthening and M1 is high; we clearly would be leaning on the tightening side. But if things don't all go in that direction, we have a bigger mess. I don't know what more we can say about it, really.",86
-fomc-corpus,1985,"That kind of description precludes easing, except when everything runs in the opposite direction that you just described.",21
-fomc-corpus,1985,"Well, it's a matter of degree. If the economy looks soft, the other aggregates are behaving, and M1 is within the general range here, we might ease, particularly if the dollar were strong. Apart from that, we don't have a lot of room for easing anyway, on reserve pressures. [The Board] can easily make a change in the discount rate, but we can't get borrowings a heck of a lot lower.",87
-fomc-corpus,1985,We can reduce the discount rate.,7
-fomc-corpus,1985,"Does this mean you would say somewhat lesser reserve restraint ""might"" be acceptable rather than ""would,"" Mr. Chairman?",24
-fomc-corpus,1985,"In the end of the second part of the sentence I'd be tempted to say ""would"" instead of ""might.""",23
-fomc-corpus,1985,"Yes. I usually like ""would"" on both of them, but this time I--",18
-fomc-corpus,1985,"Do you want to say ""might"" and ""would""?",12
-fomc-corpus,1985,That's what I would prefer.,6
-fomc-corpus,1985,"[Unintelligible] change the order. ""In the implementation of policy for the immediate future the Committee seeks to maintain the existing degree of pressure on reserve conditions. This action is expected to be consistent with growth in M2 and M3 at annual rates of""--what is that?",58
-fomc-corpus,1985,"7-1/2 percent and 7-1/4 percent, I think.",18
-fomc-corpus,1985,"Yes, but we don't want 7-1/4 percent in there.",16
-fomc-corpus,1985,"Yes, make it 7-1/2 percent.",12
-fomc-corpus,1985,"Continuing: ""of around 7-1/2 percent during the period from June to September and with a substantial slowing of M1 to a rate of 5 to 6 percent."" We could put that first, if you wanted to.",50
-fomc-corpus,1985,"Consistent with what we've been saying, put it second.",12
-fomc-corpus,1985,"All right. Well, I just changed something. Instead of just putting that number in parallel [with the others], I said ""with a substantial slowing of M1 to a rate of 5 to 6 percent."" And then the rest of it would be ""might"" and ""would."" There's nothing else there that needs to be changed particularly, is there?",73
-fomc-corpus,1985,Would you like to change that funds rate range to 9 percent at the top?,17
-fomc-corpus,1985,"We could. But where are we now? We're not quite at the midpoint of a 6 to 9 percent range; well, we're pretty close to the midpoint. We could if you wanted to. I don't--",44
-fomc-corpus,1985,"Certainly people would be getting excited if it ran over 9 percent, wouldn't they?",17
-fomc-corpus,1985,"Yes, they surely would. I might even get a little excited if it went to 6 percent, too.",23
-fomc-corpus,1985,"Well, it seems to me some evenness--. I dislike [unintelligible] of the extreme numbers.",24
-fomc-corpus,1985,"I think the only argument against that--and I don't even know that it's against it--is that a month from now when this is published the press will play that as an easing, despite what we said earlier. I don't know if that's a big deal.",52
-fomc-corpus,1985,Better leave well enough alone.,6
-fomc-corpus,1985,It was okay last month; it ought to be okay now.,13
-fomc-corpus,1985,6 to 10 percent.,6
-fomc-corpus,1985,We will have a telephone call if it gets to 10 percent?,14
-fomc-corpus,1985,I think I would have one somewhat before that.,10
-fomc-corpus,1985,"If it gets to 10 percent, Chuck, you won't need the telephone!",16
-fomc-corpus,1985,Some other people might be calling!,7
-fomc-corpus,1985,"If it gets to 10 percent, I may not be here to make the telephone call! If nobody has any further comments to make, we will vote.",32
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles No President Black No President Forrestal Yes President Keehn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger No Governor Wallich Yes,43
-fomc-corpus,1985,"Well, we seem to have worked our way through this. Maybe you ought to get some clean typed copies of this [directive], Mr. Secretary, and we'll leave the record open for any editorial changes.",41
-fomc-corpus,1985,Would you like us to reconsider our projections?,9
-fomc-corpus,1985,"Just in the normal course of events, you ought to reconsider the projections at this point. I would remind you that these are explicitly projections of members of the Committee and are presented on that understanding to the Congress. These projections are closer than they usually are, I think. There is usually an array of different numbers. Under the assumptions made, some of these inflation numbers look high to me. I think we have a substantial risk of inflation and worse when and if the dollar goes down, but that's not the assumption of these projections. And we will have a real mess on our hands if the dollar goes down sharply. We will have a real mess on our hands if it doesn't, which is unpleasant, and which is the measure of our difficulty. But I don't know how we turn around this trade balance without overtaxing at this point the industrial side of the economy, apart from the direct effects of the lower exchange rate on higher prices. We haven't got 10 percent of spare capacity and that's what it takes--probably more than 10 percent --to produce a trade balance in the course of three or four years.",224
-fomc-corpus,1985,2 percent of GNP.,6
-fomc-corpus,1985,2 percent of GNP. And manufacturing is 20 percent of the GNP; it's more than that value added.,24
-fomc-corpus,1985,We're presuming we'll get some of this out of agriculture as well.,14
-fomc-corpus,1985,3 percent of GNP.,6
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,"Three, or more than three. We face the prospect of some indefinite number of years ahead of having lower domestic consumption than GNP, lower domestic demand than GNP. I don't know how you manage that except by budgetary policy and even then it's not very happy. Barring an equally violent shift in fiscal policy from what we've had, I literally don't know how it gets managed. If you try to do it by monetary policy, you tighten money and you hit the investment side of the economy--which is precisely the side that has to expand to meet the foreign demand. The tax reform bill hits the investment side of the economy and not the consumption side of the economy. And you say some of it is in agriculture; I think part of the problem is agriculture. The major part of the problem is that people aren't eating enough or the crops are too good in the rest of the world, depending upon which way you want to put it. In a residual supply you have a little difficulty in selling to a surplus market.",205
-fomc-corpus,1985,"Not necessarily on quantity, but you might get something on price. That will help you too.",19
-fomc-corpus,1985,That's a ways off too.,6
-fomc-corpus,1985,"Mr. Kichline, have you heard anything about these normal GNP revisions--the historical revisions that come up later in the year--pointing in the direction of a substantial downward revision in the deflator over the past several years?",48
-fomc-corpus,1985,"Well, the whole national income accounts structure will be revised in a major way in December. The last major one of this significance was in 1975.",31
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"And they will be rebasing the deflators to 1982 instead of 1972 dollars. That will make major changes. One area where they are struggling, of course, is in the computer area where for the last decade they held the price at $100 and the assumption is that the right price is something like one-fifth of that. But when they rebase, a lot of these things will disappear. There is a hint that they'll probably find more output along the way. There have been some upward revisions to income. The IRS has had a program trying to track down income growth and it appears that the numbers that IRS has come up with are much higher than incorporated in the national income accounts. So it appears at the moment that there will be some upward revisions to income in this set of revisions coming out. But it's going to be so major, any of the numbers you now remember will disappear as a result of the base changes and other things.",194
-fomc-corpus,1985,"When does the next GNP, or whatever they call it, number come out?",17
-fomc-corpus,1985,"The first preliminary? It comes out July 18th, a week from tomorrow.",17
-fomc-corpus,1985,"The day before I testify, so I'll know what that is.",13
-fomc-corpus,1985,What date do you testify?,6
-fomc-corpus,1985,July 19th.,5
-fomc-corpus,1985,The 19th?,5
-fomc-corpus,1985,I thought it was the 17th.,9
-fomc-corpus,1985,"The 17th. Oh, it's the day after I testify! I'll get asked what that figure is and I'll have to take a stab. Who does that now? Who's the head of that?",41
-fomc-corpus,1985,At BEA Allen Young is Acting Director.,9
-fomc-corpus,1985,Allen Young.,3
-fomc-corpus,1985,That's a terrible day. I'll say I think it's really going to be low and then they'll raise it. They'll testify the next day with it.,29
-fomc-corpus,1985,Is it the House side first or the Senate side?,11
-fomc-corpus,1985,House side first. I don't know whether the sandwiches are out there. Will somebody investigate?,18
-fomc-corpus,1985,They are out there.,5
-fomc-corpus,1985,"Well, I guess the Open Market Committee meeting is over. I declare it over.",17
-fomc-corpus,1985,"Mr. Chairman, the Board is scheduled to review drafts of this Humphrey-Hawkins report on Friday morning, so if there are revisions to projections we really would need them by tomorrow evening.",39
-fomc-corpus,1985,Here's one.,3
-fomc-corpus,1985,Thank you.,3
-fomc-corpus,1985,We need to approve the minutes of the last meeting. [Secretary's Note: Approved without objection.],20
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Comments or questions?,4
-fomc-corpus,1985,"The drop that you described, which goes back to the peak, has been quite substantial--I think 20 percent against the mark and 16 percent [overall]. Do people regard that as a very rapid slide in the market?",46
-fomc-corpus,1985,"Well, I don't think it has been a dramatic slide. It has been on average about 17 percent or so, and against the European currencies it has been more than that. So, it is certainly enough of a decline in the period of six months or less that it has attracted attention. It seems that the dollar has made this rather substantial adjustment, but I don't think there is a lot of expectation that it is necessarily going to fall off the table. Certainly, there is a generally bearish tone to the dollar and to the market's attitude toward it. And to the extent that these things can be generalized, there seems to be an expectation of possible continuing softness unless our economy changes.",138
-fomc-corpus,1985,"You put quite a bit of emphasis on the Treasury refunding as an indicator that foreigners, including the Japanese, are not going to rush to sell their U.S. securities. I am not quarreling with that implication of your comment, but can you broaden that analysis a little? Are foreigners tending to shorten their maturities as they roll securities over? What kinds of, for want of a better term, leading financial indicators are we getting out of the Euromarkets with regard to holdings of dollar-denominated versus otherwise denominated securities--these securities, whatever you call them, on which the interest is paid in one currency and the principal in another? Can you expand on that a bit?",140
-fomc-corpus,1985,"Well, it is difficult to say very much because we really don't have enough information. Before the last refunding, which of course was a substantial one, there had been concerns expressed that [foreign investors] might stay away from that particular operation and that it would be in difficulty as a result. That didn't seem to happen. It was more the case of a nonbarking dog.",77
-fomc-corpus,1985,"But of course we didn't have a special offering to foreigners either, right?",15
-fomc-corpus,1985,"That is correct. What we do know--or what we see and hear about--is that the Japanese, at least beginning in June, have tended to start doing more hedging. They continue to have substantial long-term outflows into dollars and U.S. securities, but they have tended, for I think the first time, to be doing more hedging. Also, we hear at least anecdotally, but it is very difficult to know how much attention to pay to these things, that one of the factors that has tended to keep sterling somewhat strong has been the tendency of investors to diversify a little toward sterling, which has been paying very high interest rates. But these [reports] are anecdotal; you can't really get a very sound understanding of something as large and as complicated as this market on the basis of a relatively small number of conversations and what you hear.",177
-fomc-corpus,1985,Not even a shortening in maturities?,8
-fomc-corpus,1985,"I could add a little comment on that too. Governor Martin. What we are hearing anecdotally also suggests a lesser pace of foreign buying, but continuing interest in the intermediate and long-term area. I don't get any sense, particularly from the dealers who have active Japanese operations, of a shortening of maturities. They are taking a little less but are continuing to look at the 10-year and longer area.",84
-fomc-corpus,1985,"If I may comment on this: The idea of shortening [maturities] is that they are more liquid and investors can get out more rapidly, which is a concern. But the investors who believe that they can ride out a substantial fall of the dollar presumably look at the long end and they probably would be right.",64
-fomc-corpus,1985,"Sam, the price of gold has increased significantly over this period that you are talking about too--that is to say, the dollar has dropped relative to gold. Gold wouldn't have changed much in price in terms of marks or Swiss francs, I don't suppose. Is that all that is being reflected here: that the market is made in Switzerland and Germany? Or do you think there is something else behind this move in gold?",84
-fomc-corpus,1985,"Well, I think the interesting thing about gold is that the price has risen somewhat as the dollar has weakened, as you suggested, but it hasn't risen all that much. And in terms of the Swiss franc, it has been reasonably stable.",48
-fomc-corpus,1985,"Yes, I think that is probably right.",9
-fomc-corpus,1985,"One of the interesting things has been that the difficulties in South Africa do not seem to have caused a greater increase in the price of gold. Now, there are all kinds of questions about that. There is a feeling that substantial supplies are being withheld from the market by the main producers, the South Africans and the Russians in particular. As the price moves up, then they tend to sell a little more and then it goes back down again. That seems to have been the pattern. One might have thought, with the concerns in South Africa and the possibility being talked about of mining strikes and other potential supply disruptions, that the price might have risen more than it has. It's now about $336 today, and that's not up all that much from where it was before so much attention was being paid to this. What has happened is that the price of platinum has gone up. I gather that South Africa is more critical to the platinum market than to the gold market, and platinum has moved up much more rapidly. But gold in a sense has shown relatively less buoyancy, in light of all these factors, than one might have expected.",226
-fomc-corpus,1985,I see.,3
-fomc-corpus,1985,Mr. Sternlight.,5
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Questions?,2
-fomc-corpus,1985,"Peter, was there any particular reaction to the Bank of America dividend action?",15
-fomc-corpus,1985,"Well, we were following their funding operations closely on the heels of that, and they did experience a slight widening of spreads--maybe by 0.5 or something like that. It was not a big reaction. They have a quite liquid operation; they have an enormous local deposit base. They generally are sellers rather than buyers in the overnight fed funds market. They have had a little erosion of the commercial paper funding of the holding company but, based on our observations, I would say they are weathering it pretty well.",105
-fomc-corpus,1985,What are the current spreads on the Farm Credit Agency--?,12
-fomc-corpus,1985,"The current spreads would range from about 5 to 15 basis points on maturities up to one year--and those had been just about even with Treasuries earlier--to maybe 40 or 50 basis points on some of the longer maturities, which earlier had spreads of maybe 20 to 25 basis points.",66
-fomc-corpus,1985,Did they defer a long-term issue within the last week or so?,14
-fomc-corpus,1985,Not that I am aware of. I think the market is looking for them to announce a term issue within the next few weeks.,26
-fomc-corpus,1985,"Peter, how would you characterize dealer positions right now?",11
-fomc-corpus,1985,"Given all the hedges on positions that are taken these days, it has become very difficult to make sensible comments about where dealer positions are. My impression is that there has been a pretty good distribution from the refunding that was just paid for a few days ago. I'd say they are on the moderate side.",62
-fomc-corpus,1985,"Peter, you mentioned the Japanese firms. I have always felt quite strongly about national treatment but I see in the press a statement that Karl Otto Poehl made after the last Bundesbank meeting that he takes a very different line. He refers to Japanese firms that want to come into the German market to assume this lead role; [the German authorities] have told them ""no"" until something is worked out with German banks in Japan. That's just a sidelight on that.",94
-fomc-corpus,1985,"Yes. I think in the UK also there has been more of an attitude of looking at it as reciprocal--looking for specific olive branches and reciprocity before Japanese firms are welcomed into the developing gilt market in London. We have been following the situation and I'm still collecting impressions of just what the situation is in Japan; but my impression so far is that at least a respectable number of U.S. firms--8 or 10 or something like that--have quite good access to Japanese investors, in terms of selling U.S. securities in the Japanese market.",111
-fomc-corpus,1985,"Peter and I discussed this a little because I think this is a bigger issue than just the Open Market Desk in that how we deal with Japan has general public policy interest. We have so few levers to use on them, and people I know on Wall Street tell me [the playing field] is not even. Maybe it is in a narrow government dealer sense; I don't know. But certainly, looking at the financial markets across the board, we treat them a lot better in this country than they treat us. I think we ought to consider a lot more angles than whether or not the dealer in securities is well capitalized and does a big volume of business. I am a competitive person, and I think it is only fair that it go both ways.",152
-fomc-corpus,1985,"[If no one else has] any comments, we might as well turn to Mr. Kichline.",22
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,You depend on a levelling out of net imports to get this improvement in GNP?,18
-fomc-corpus,1985,That is right. Was that a question to me or to Ted?,14
-fomc-corpus,1985,"Well, you made the presentation.",7
-fomc-corpus,1985,"Well, there are two parts that really are important. We have very clearly much slower growth in final sales; instead of numbers in the 5 percent area, we are talking about numbers much less than that--something in the 2-1/2 percent area. So we are talking about a substantial slowing. What is going to happen in this environment for us to get 3 percent growth is essentially that inventories are not negative--that they are basically a small contributor--and that the deterioration in the trade balance comes to a halt pretty quickly. Ted, maybe you want to talk a little about some of those numbers. Maybe not!",128
-fomc-corpus,1985,"Maybe not! One contributing factor clearly is that there is going to be less demand here. That certainly will be one factor slowing down the rate of increase in imports. It is also true that the rest of the world, while not booming, will be growing somewhat faster than we will. We feel that the export level was depressed, perhaps somewhat artificially, in the second quarter and that it should pick up some. I think that we have put in a relatively conservative--well, maybe ""agnostic"" would be a better way of putting it--trajectory for non-oil imports. Those imports in real terms had been running somewhat higher than the historical relationships would predict. It is not clear to what extent that is associated with structural changes in the world economy or with responses to exchange rates, which are not picked up by historical relationships. As the dollar has declined, and assuming it will continue to decline somewhat, we have chosen not to reverse that. In that sense we have been agnostic. Now, you could also say that we have not been so pessimistic as to believe that the phenomenon is going to increase in magnitude. Basically what we have on the import side is that imports are being driven by the slower growth in the United States and the decline in the value of the dollar, some of which has occurred already but much of which--basically for the projection period--is ahead of us. It is clear that there is considerable uncertainty in these numbers, as Jim indicated and as we have indicated before, because among other things they have been bouncing around quite a lot. I certainly wouldn't rule out the possibility that imports in particular could rise substantially faster than we have forecast. In fact, we have the imports in real terms continuing to rise marginally through the early part of 1986. It is also true that if they did rise more rapidly, everything else including demand being the same, then production obviously would be lower. On the other hand, to the extent that we may have been too conservative or shouldn't have been agnostic, or to the extent that more push comes from the exchange rate than we have built into the forecast, things could go somewhat the other way. There is some potential possibility that a sharper decline in the dollar, or a faster response to that, could produce more in the way of a cutback earlier than we have put into the forecast. We don't have anything really happening until early 1986 in quantitative terms.",490
-fomc-corpus,1985,You ordinarily would expect quite a lag.,8
-fomc-corpus,1985,"Yes, but you get quantity effects that begin to show through within a quarter or so.",18
-fomc-corpus,1985,Within a quarter?,4
-fomc-corpus,1985,"Yes, but again, you have to go four quarters in order to get half of the effects and a couple of years before you get all of them. There is considerable difficulty in knowing how to interpret the first quarter phenomenon where the dollar went far up and came back down. How much in the way of imports were discouraged during that period or weren't discouraged during that period? That is one of the conundrums involved here. Should you throw out that exchange rate [move] as basically not affecting anybody's decisions? Or should you include it? If you include it, then you would say that you were going to have the lagged effect of the first quarter in some sense feeding on through the remainder of the year. Since we're forced to fall back on more or less historical relationships, we have built some of that in. I think we could argue that a conservative approach to putting the forecast together can be justified on a micro or disaggregated level to the extent that we have had and will continue to have higher imports of Japanese automobiles in this new full year and that will work somewhat in the other direction.",223
-fomc-corpus,1985,"If I might ask another question: Jim, what do you make of the fairly pervasive weakness in nonresidential indicators in the last couple of months? Contracts and most of the elements there have been off quite substantially.",43
-fomc-corpus,1985,"As you know, in the office building area, we have been anticipating for a long time that it would slow down. That was the domestic [equivalent of the] exchange value of the dollar; it kept rising and we said it was supposed to go down. It has been going down now. If you look at construction put in place as well as contracts, as you noted, and permits, the whole ball of wax suggests that that indeed is slowing. Now, it slows rather slowly because of the fact that there is a long construction lead time. So it is not something that we think will collapse. The problem in that area is that other indicators of activity--even in industrial buildings, public utilities and so forth--give us a sense that basically it has been weakening. So, in this forecast we have small declines; they could be larger depending on the assumptions one wants to make. But throughout the forecast period we have some small declines. Now, I would note that some of these data are very volatile; we have been caught before where the numbers go down for two or three months and they snap back. But I think that the fundamentals in vacancy rates and other things would argue now that perhaps we are in a period where we should expect small declines in real terms. And that is what we have built in throughout the period.",268
-fomc-corpus,1985,"The main case for getting 3 percent is that the leakages from the foreign sector and inventories don't leak as much. On the other hand, there is the consumer sector, which is 60 some percent of total final demand. And there are at least some hints--income not growing quite as fast, the debt problems, mortgage delinquencies up a touch--that maybe that will not go on as it has. There is nothing dramatic, but at least there are a few straws in the wind. In the housing area, as you rightfully pointed out, one would expect some sluggishness in the multifamily area. But in the single-family area, while you would expect a drop in mortgage rates to have some effect, I wonder if you would expect a drop to have the same effect in an era when most mortgages are at variable rates compared to an era when most were at fixed rates. I guess I would expect a drop in rates to have some positive impact on single-family housing starts [but] not be as much of a stimulus in this kind of environment. I would like for you to comment some on the downside risks, two of which I pointed out: the consumer side and single-family housing.",244
-fomc-corpus,1985,"Well, I don't feel quite as nervous about personal consumption expenditures at the moment as you suggest, if our income is right--if we are generating enough income in other sectors--because I think we have basically fairly mild expectations for personal consumption expenditures. We have to get some monthly increases, however, to get the 3 percent. I think I pointed that out; it is not in the bag. What we are expecting is literally 1-1/2 to 2 percent annual rates of increase in personal consumption expenditures from now on over the balance of the forecast period. In the first half of the year we have seen 5-1/4 percent increases--just a surge. At that time the saving rate dropped and debt was being taken on in substantial volume. What we have here is essentially a fairly low saving rate, income growth just tracking along, and not really a bullish environment. But you can point to the negatives, and the debt side is certainly one. Income growth, I think, is a little risky; there is not a lot of income growth being generated and you don't have to have too much happening in other sectors to lead to slower growth. So, I don't view it as a big risk in that we really do have a much slower pace of consumer spending in store. The housing area is one where we may have the lags wrong. In thinking back, we said some time ago that we had seen a drop of a couple of percentage points in mortgage interest rates and, given the lags, we ought to be seeing some pickup. And we just haven't. I think I would abandon that story about the time the August numbers come in. Basically, our notion was that this should have happened this summer and it just has not happened yet; if the August numbers come in [and don't show a pickup], I think I will conclude that we really have miscalculated what may be driving that. We have gone through fairly carefully our sense of what ought to be happening. There is an awful lot of anecdotal evidence floating around: mortgage loan applications are up; appraisers are very busy; and existing home sales have picked up. But new home sales haven't done anything. Single-family starts haven't done anything. We have gone through and identified some of the positives. With lower interest rates, mortgages are more affordable; the demographics are strong, and household formation is good. On the other side is an environment in which expectations of major capital appreciation are not there, probably; tightened mortgage underwriting standards may be doing something at the margin; and there is uncertainty over the tax treatment of interest and property tax deductions. How you slice that is very important. If we had put this forecast together today, we would have a lower housing start number and a little lower residential expenditures. Those data came in after we put the forecast together and were weaker than we had built in.",579
-fomc-corpus,1985,"Jim, let me address Ed's question in a little different way. I don't have any problems with what you said. But isn't it true that, as the housing market has matured, there has been a shift in the direction of fixed rate mortgage originations and away from adjustable rate mortgage originations? If you go back a few months and take out the spike in the fixed mortgage rate, you really have a decrease of 100 to 150 basis points in that rate; the shift has been to using fixed rate loans. If you go along that line then, the tightening of credit underwriting can offset 100 or 150 points; it can't offset 200 or 300 points, probably. Perhaps there has not been that much improvement at the point of sale fixed rate mortgage, [given] that no appreciation in the house is looked for. So, just to complicate it further--",178
-fomc-corpus,1985,"You know too much about that market, Pres.",10
-fomc-corpus,1985,Yesterday I was reading--I think a number of us received this--a letter from the home builders. They really had quite an upbeat letter this time on traffic in the subdivisions and on sales and the outlook for sales over the next six months. For them it was as optimistic as I have seen for a long time.,64
-fomc-corpus,1985,They also had one in June; it was sort of going off the charts in terms of single-family home builders' expectations. That fits with other evidence; I'm just saying that we don't see it yet in terms of starts having picked up.,48
-fomc-corpus,1985,"I never talk personalities but that is a Sumicrast survey of home builders and the Colton projection is still 1.6, 1.7 million. Let the record not show that.",40
-fomc-corpus,1985,"Jim, now that we have a budget resolution of sorts, I am wondering what your analysis shows with respect to the revised deficit realistically interpreted for the coming fiscal year. How, if at all, would you change your forecast as a result of that Congressional action?",52
-fomc-corpus,1985,"The differences from our earlier assumptions were really quite small. We had assumed a package of about $50 billion on our basis and we interpret what actually was accomplished and our reading of what likely will be done in the following steps to amount to $45 billion. It is really quite close; we have only adjusted a little for that. The way we come out, though, is much less optimistic than some. In part, we have a weaker forecast so that there is some [difference in the] economic assumptions and less revenue. But we also have felt that many of the actions require single-year appropriations bills and that they will be addressing this year-in and year-out. There clearly are pressures now in the farm area to overrun those targets. There are some phony things, but it is stripping away the phony things. It really does take persistent action. So, in the near term we are fairly close; where I think I would be much less optimistic is in year two and year three. There we have not gone through an explicit process, but of course the CBO recently came forth with some numbers and they were considerably higher by the time you get to the third year. The Congress used very optimistic assumptions and also assumed actions that appear to us rather difficult to undertake. So I think it is a story that may have to be revisited. Our [estimate] on their basis of the total deficit is about $191 billion for fiscal year 1986 in contrast to their assumed $175 billion or so. We are in the range of $15 to $18 billion higher than Congress would be.",323
-fomc-corpus,1985,Mr. Axilrod.,6
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Now it's all very clear!,6
-fomc-corpus,1985,I didn't know he had stopped! Don't you have another paragraph?,13
-fomc-corpus,1985,"Could we pursue this issue of a shift in the demand for money a little more, Steve? What is your best guess? Is there a shift going on? There is that possibility, as you talked about. If that is not it, what is causing the drop in velocity of Ml?",58
-fomc-corpus,1985,"I think it is semantics as to whether you call it a shift or not. I suspect at the moment that there is a change simply in the distribution of savings flows. And it could have a relatively simple explanation. If time deposits that are now maturing were put in a year ago--we don't have adequate data on when they were put in--they were earning 10 percent. Now they are earning 7 or 7-1/2 percent; I have forgotten the exact rate. And people may just simply out of psychological disappointment say: ""Well, I will just put my money in this account where I can get at it rapidly and maybe rates will be a little higher later. I am used to earning a higher rate."" There may not be any actual sense of real uncertainty or doubts about the economy in that context. I tend to think something sort of simple like that may be occurring at this point. And there is no way that the models pick up something like that--whether you call it a wrong elasticity or a demand shift. The surveys of consumer confidence are not so weak as to make you think that people are making a big broad shift in their pattern of saving. I don't know whether that kind of money behavior will in the future lead to the kind of strength of GNP that these models--this rather simple look at lagged money versus GNP --would lead you to think. One would say ""no""--that that kind of saving behavior doesn't necessarily entail strong growth.",300
-fomc-corpus,1985,"Would it be fair to say, based on that explanation or view of yours, that we could at least expect this overshoot of M1 from our new midyear targets not to carry with it the usual inflationary implications that it might otherwise have?",50
-fomc-corpus,1985,"Well, I think it wouldn't so far. If you were to ask me after it had gone on for four to six months, I would have to say that I think there is enough in monetarism to say that the risk is very strong that it would. And I am not so sure that I wouldn't think that there is a little risk at this very moment.",74
-fomc-corpus,1985,That's the $64 question!,6
-fomc-corpus,1985,"Steve, your projected money growth for August is 14.3 percent, which is [a month-end level of] about $602.8 billion and we are at $601.9 billion. What do you think the risk is in that forecast? Obviously, it implies very little additional money growth over the month of August.",66
-fomc-corpus,1985,"A drop from what we had assumed. Well, we are going to get some data very soon and it is hard to say before that; but I guess the risk is probably that August might be a little lower and September higher. That's how I would tend to guess it, but my instinct is that we could be there or a shade higher as of now. I don't expect any great weakness. This NOW account behavior seems to me a little difficult to explain. The rate spreads are widening and are making time deposits a little more attractive and market rates a little more attractive, so I expect some shifting away from that soon. It is hard to say exactly when that will occur, but that ought to occur. Whether it will occur now or in September or October is hard to say.",156
-fomc-corpus,1985,"By the way, on your point about the psychology of single digit rates, my feeling would be that there is some validity to that--that people have a very hard time accepting committing their money over a longer term for less than 10 percent.",49
-fomc-corpus,1985,"If you did a survey of 40 banks with a large expansion in NOW accounts, you might stop those the way you stopped demand deposits in your surveys!",31
-fomc-corpus,1985,We did the survey after the demand deposits stopped.,10
-fomc-corpus,1985,Are you suggesting that as a new control device?,10
-fomc-corpus,1985,He seems to have discovered one.,7
-fomc-corpus,1985,"Old M1A, or old M1--currency and demand deposits--in July rose 3.3 percent, so it is much less. And if our projections are right for August--we still have [data for] less than half the month--it would be rising 5-3/4 percent. So it has dropped [from the rapid pace in the spring]. The quarterly average, given that and a very reasonable September, would be about 8 percent. It grew 6.8 percent in the first quarter and 8 percent in the second; and on a quarterly average basis it has [unintelligible].",129
-fomc-corpus,1985,What has the old M1A done through this year so far?,14
-fomc-corpus,1985,"Well, it was 6.8 percent in the first quarter and 8 percent in the second quarter--a couple of points below current M1. But it is much more below in July and August; it is decelerating more at this moment. Old M1 was 13 percent in May and 18-1/2 percent in June.",72
-fomc-corpus,1985,"Steve, some time back you were experimenting with the predictive qualities of M1A. Have you played around with that lately to see whether it has any promise?",32
-fomc-corpus,1985,"Well, I did for that paper that I sent to the Committee before the last meeting. I did it in an excessively simplified way and it did not look very much different one way or the other. That is the conclusion I drew from it. In another approach, looking at it since 1982--not using the sort of model that I used, but in a simple way just looking at lagged M1 and lagged M1-A versus GNP--the deviations between M1 and GNP and M1A and GNP favor M1. They are narrower in M1 than in M1A.",124
-fomc-corpus,1985,"I have a technical question, Steve. In the Bluebook you mentioned state and local government advance refunding borrowing. Are they included in the net debt number?",32
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Isn't that double counting?,6
-fomc-corpus,1985,"Well, it is one of many forms of double counting that are in practice unavoidable because there are many layerings of borrowing and lending in the accounts. They are included and they have been sizable this year.",41
-fomc-corpus,1985,"So, that is a fairly major factor inflating the debt number now.",15
-fomc-corpus,1985,There has been about $20 billion worth of refundings thus far this year.,16
-fomc-corpus,1985,"Since interest rates are down, what they do is fund municipal issues and invest the proceeds in government [securities] and pick up the differential. Or, I guess maybe the Treasury doesn't let them do that anymore.",43
-fomc-corpus,1985,"No, there is a special issue.",8
-fomc-corpus,1985,They usually have to take a special issue from the Treasury.,12
-fomc-corpus,1985,"Of course, a corporation can do the same thing and call it defeasance.",17
-fomc-corpus,1985,"Yes. So, I should think those should be netted out of the number.",17
-fomc-corpus,1985,It is a little hard to know where to stop.,11
-fomc-corpus,1985,That is right.,4
-fomc-corpus,1985,"Presumably, we don't include bank liabilities and also include bank investments in short-term securities. So we have tried to net where we can. It seems to me that if we have an area where clearly we have double counting and can identify it, that it ought to be eliminated.",56
-fomc-corpus,1985,I think we did mention it the year before last as one of the factors causing credit to be strong along with the mergers and the drop in equity.,30
-fomc-corpus,1985,What does $20 billion amount to--1/4 of one percent?,15
-fomc-corpus,1985,"Let's see. The [monthly] flow is about [$1700 million]; if it ran [$20] billion for the year, it would be about 1/2 of a percent.",38
-fomc-corpus,1985,Did the lagged study that you did differentiate between the impact of M1 on inflation and on the real?,22
-fomc-corpus,1985,"No. I was just doing what some people do in town here. It was the short run, looking at M1 versus nominal GNP with various quarterly moving averages--3, 6, and 9 months. It was not a very scientific study of looking ahead through models. No, the price effect, we still think, would take longer; this was just to nominal GNP.",79
-fomc-corpus,1985,"All these charts here would suggest that we are about to launch into a sizable boom, if you believe that.",22
-fomc-corpus,1985,In the third quarter; we're right there.,9
-fomc-corpus,1985,"Well, you could argue, depending upon what lag you put in, that it could be delayed to the fourth quarter.",24
-fomc-corpus,1985,The question is: Does anybody see it?,9
-fomc-corpus,1985,"Well, that is the question that I raise.",10
-fomc-corpus,1985,"I don't think that there is anything out there now, but I think it is going to be out there some time, with a later lag. In 1982-1983, velocity behaved very unusually and yet we had a very strong pickup in 1983 and nobody expected that. The only thing that predicted it was M1. So, I am a pragmatist, and my faith is being shaken to some extent, but I still believe I am going to be vindicated on that somewhere down the road. It would be very unusual if it didn't happen.",115
-fomc-corpus,1985,Laffer says that's the first effective date of the supply-siders' tax cuts.,17
-fomc-corpus,1985,"Well, I'll have to [unintelligible] and find when that went in. I don't remember exactly.",23
-fomc-corpus,1985,"The leading indicators showed a little firming pattern in May and June, but what sort of depressed me is that the July numbers for the leading indicators that we have don't look all that great. They reflect a definite weakening from the May-June number.",50
-fomc-corpus,1985,This is the figure that hasn't been published yet?,10
-fomc-corpus,1985,"No, I'm just looking at the individual [components that we have].",14
-fomc-corpus,1985,"It seems to me that the only way that we could get a major increase in economic activity would be if suddenly there were a change in the trade account, and that just strikes me as being unrealistic. We already have gross national expenditures, if you look at it from the expenditure side, probably rising 4 to 5 percent; if you take out the leakages, you get down to this 2 percent. So unless one can say we are going to have a big turnaround in the trade accounts in the near-term horizon, it is awfully hard to say that we are going to have a major increase in economic activity.",126
-fomc-corpus,1985,A characteristic of the forecast you alluded to earlier is that we are going to have--I hate to call it major--a significant change in the trade trend and a weakening of the gross national expenditures of some magnitude. That is what the forecast is anyway.,52
-fomc-corpus,1985,"Lyle is already pumping us for information! He asked me last night if I thought we would still get 8 percent in the fourth quarter, and I told him that it might be as late as the first quarter before we got that.",48
-fomc-corpus,1985,There is not anything down our way that leads to a whole lot of optimism. Just about everything--,20
-fomc-corpus,1985,Your directors don't seem to think so.,8
-fomc-corpus,1985,"That's for sure. The major thing, of course, is uncertainty in energy. We talked about that. Texas A&M University is predicting a 40 percent drop in farm income for this year. The Bureau of Business Research at the University of Texas is saying that Texas is already in a recession. There are uncertainties developing. Our unemployment rate has matched the national average, which is not all that bad, but it is rather bad compared to what we are used to. The whole sense, in an anecdotal way, is for not very much--",109
-fomc-corpus,1985,What is happening in the energy area? Is there anything new?,13
-fomc-corpus,1985,"No, nothing that I am aware of, other than [lingering] concern and predictions, at least, of further softening in oil prices. I don't think we are hearing quite the same scary scenario of [a decline to] something less than $20 a barrel, but we still are expecting some further decline.",64
-fomc-corpus,1985,Drilling activity is doing what?,7
-fomc-corpus,1985,"The drilling activity is down. The rig count is down about 25 percent from what it was a year ago, I believe. It's approximately that in Texas.",32
-fomc-corpus,1985,But isn't it up in the most recent period?,10
-fomc-corpus,1985,"It's up slightly, but for the nation--",9
-fomc-corpus,1985,Not for Texas?,4
-fomc-corpus,1985,For Texas--,3
-fomc-corpus,1985,It's up slightly for Louisiana.,6
-fomc-corpus,1985,"I was thinking we were still running about [the same as] last time, which was about 25 percent--",23
-fomc-corpus,1985,"I don't have any quarrel with the comparison to a year earlier, but I somehow got the impression that within the last couple of months the rig count had climbed.",33
-fomc-corpus,1985,"Well, that's a 25 percent drop from a pretty low number.",14
-fomc-corpus,1985,"From a pretty low number, yes.",8
-fomc-corpus,1985,"Well, does anyone have a different economic outlook?",10
-fomc-corpus,1985,"If it were helpful, partly for purposes of understanding the process, I could offer a scenario coming off of this money supply that would lead to maybe not much increase in real GNP but more in nominal and prices. Assume a little further decline in interest rates, which probably would be needed to start it, and suppose the natural rate of unemployment is more like 7 to 7-1/4 percent and that the productivity growth over time isn't going to be much more than 1/2 to 1 percent--taking some extreme assumptions--and that the Committee makes a strong effort to have real GNP grow 2-1/2 to 3 percent in that environment. Assume further that foreign countries loosen up a bit--and interest rates have declined in a few. It may very well be under those circumstances that the present good behavior of wages would begin to unravel as people would have to bid a little harder to get some decent labor. Commodity prices around the world, instead of dropping, could begin rising a bit more and we could get some rise in inflationary expectations in that environment. Because the restraint is being undone in other areas, we could at some point begin to get more upward pressures on prices and maybe a little real GNP, but not as much as many think is potential. It would be reflected more in the price element than in nominal GNP somewhere in the fourth quarter or in the first or second quarter of next year; that wouldn't be terribly inconsistent with the strong money growth that we have had, assuming that continues for a couple of months ahead. But all that is predicated on very weak productivity growth and attitudes in the labor market that would say the present rate of unemployment is something like the natural rate, plus an effort to push the economy beyond what its productivity would permit.",362
-fomc-corpus,1985,"On the economy, the mood in my part of the country is better than in Bob's, but I think that has to do more with the regional comeback than with anything of national significance. There are an awful lot of [help] wanted ads or signs in the windows about jobs available, but I don't see any boom. Again, I don't attach a great deal of national significance to this, because I think it is just a regional correction from the kinds of things that we saw in the other direction in the 1970s.",107
-fomc-corpus,1985,There is a lot of evidence that the Northeast is doing better than other areas of the country.,19
-fomc-corpus,1985,Could I just ask Steve a question? Do you think there are good reasons for expecting that a slight decline in interest rates would stimulate the economy significantly?,30
-fomc-corpus,1985,I don't know that a slight--,7
-fomc-corpus,1985,"Well, within a range of 1/2 to 3/4 of a point.",19
-fomc-corpus,1985,"Well, I would think that if short rates came down 1/2 point or so with some definiteness, in the short run the long rates could come down. It would be helpful in the mortgage market and would probably be on the stimulative side. Whether it would be sufficient to get more than 1/4 or 1/2 point on real GNP over time, I don't know, but it is certainly in that direction.",90
-fomc-corpus,1985,My guess is it wouldn't.,6
-fomc-corpus,1985,"Well, Mr. Chairman, I don't have a very positive scenario. I think the staff work was careful and conservative. It seems to me that if you look at the sectors in which they are picking up that increase in real growth from 1.7 or 1.5 percent--or whatever the revised figure is going to turn out to be--to 3.0 percent, you get federal spending, residential spending, inventory change, a bit of business fixed in the producer durable equipment area, and a little increase in consumption. But as I look at those categories and think of the downside risk in most of them, it seems to me that it is not too much like Cassandra to look at the chance of a recession. I will take the other end of the spectrum from Steve. Certainly, we have the imbalances in this expansion. They are not the usual imbalances that we are used to: it isn't capacity utilization pressing against a threshold; it isn't rising interest rates. But goodness knows, there are imbalances: the foreign trade side, the farm situation, and all the rest of them we know about. I think that the mortgage backed security market is extremely vulnerable, and that is an $80 billion a year market. On the federal spending side, could we have a real cutback there or a real expansion for that matter? I think neither. The procurement criticisms, the resignation of one procurement officer, and the hearings in the Congress are all constraints on Weinberger and company. So it is quite unlikely, even if they wanted to, that they could give a big push to the economy by saying they have all of this [spending] authority, now let's spend it. Nor is it likely, given the philosophical [mind] set of Mr. Weinberger and his boss, that there would be the opposite--a real cutback in that area. So that's probably a small contribution on the plus side. We have spoken of the consumer. Employment is still going up a little, unlike the Europeans. The debt burden looks like it has adjusted a little. With tax refunds coming in, those credit card credits have dropped a little, so maybe the debt burden can be handled. In the residential area, I think we are very vulnerable in our forecast. Jim, this will come as absolutely no surprise to you: I think the talk about a 16 percent spurt in residential spending is overly optimistic. It might be half that. That's a couple percentage points off the growth increment maybe. I already made a comment with regard to the importance of the fixed rate mortgage, but there are the TICOR mortgage-backed security losses and private mortgage insurance companies are already talking about $50 to $100 [billion] in loss exposure. I don't know whether the Swiss reinsurance process is going to work here; it has never been tested in this particular kind of insurance. I don't know whether REITs, as they are called, will come in and make the settlements and back up the private mortgage insurance companies so that you can get that $80 billion continuing as funding for the residential spending.",624
-fomc-corpus,1985,"They won't do it willingly, that's for sure.",10
-fomc-corpus,1985,"No, they won't do it willingly--not when you are talking $50 million at a clip per company. So I think there is a real exposure there. As for inventories, goodness, what swings there are: We can get a $50 million help or we can get a $50 million hurt. The inventory situation is puzzling all of us, in terms of its swings. It could help or not. So it seems to me that there are vulnerabilities with regard to the very careful forecast of Jim and his associates for an increase up to 3 percent real GNP. The risks are on the down side in every one of those areas and in other areas that we all know about. The risk of recession, though, seems to turn on some kind of systemic financial--well, not collapse--but real troubles that are hard to handle. I'm talking not just about the ag banks and the thrifts and all of the things that we have talked about so many times, but systemic--[all] financial institutions [unintelligible] private mortgage insurance companies don't pay. And the mortgage-backed securities side of the market--I am stretching to get the biggest figure I can--may be in the widest sense a $350 billion market. I don't think that is the most probable occurrence, but the risks are on the down side. We need to keep those in mind as we set policy.",281
-fomc-corpus,1985,Do you also have double counting in the mortgage backed securities in the debt number?,16
-fomc-corpus,1985,"No. Mortgage pools are not in the domestic nonfinancial debt aggregate. The mortgages themselves--that is, the mortgage originations--are.",28
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Thank you, Mr. Chairman. I normally have a fairly optimistic outlook on most things in life, but I must say at the moment that it has been damped somewhat. In our area of the country there has been a great deal of discussion about agriculture and what may happen. At the moment, as I think most of you know, we will have an outstanding wheat harvest and the prediction on corn, soy beans, sorghum, and so forth is very, very good. On the other hand, there already has been a 20 to 25 percent drop in prices for those commodities; for each of them the price is now below the break-even point for production. At the same time, red meat prices, hogs and cattle, have dropped roughly 20 to 25 percent over the last 60 days. And those producers now are either at a break-even or a loss position. The energy problem somebody has mentioned--the rig count is indeed down by 25 percent from a year ago, but it is flat or going on down in Oklahoma, Wyoming, and Colorado. Mining is flat on its back. Aircraft sales, which are a fairly large component of the output in the Tenth District are flat--flat being no sales at all unless to the military. As a result, there is not a great deal of happiness outside of the metropolitan areas, where economic activity is still going fairly strong in terms of auto production and other activity. Let me say further that I take no comfort in the budget resolution that has been passed by Congress, because if you look at the history of what has happened in this so-called new budget environment, the budget resolution has not meant very much in the past. Indeed this time, if you look at the agricultural sector, whether you like it or not, the government is going to end up with about 2/3 of all of the production this year as a result of the sign-ups for CCC; the producers simply are going to walk away because the target prices are higher than the commodity price in the market. And that all is a direct tap on the Treasury.",425
-fomc-corpus,1985,Is that a potentially big number?,7
-fomc-corpus,1985,"That's a very big number--somewhere in the $24 to $30 billion range. It is something like $18 billion above what otherwise would have been projected. So in my own view, the budget deficit problem is far from resolution and it is going to get worse rather than better. It seems to me that with respect to monetary policy, we have one of two choices. One is in some way to get real interest rates down, which will help marginally in agriculture and some of these areas; and to me the only lever we have to pull is lower [nominal] interest rates and that implies monetization of the debt. As a result I am gloomy and not very optimistic.",139
-fomc-corpus,1985,It doesn't sound like a highly inflationary report.,10
-fomc-corpus,1985,Not with farm commodity prices dropping.,7
-fomc-corpus,1985,"What do you sense land prices are doing now? I was talking to some farmers the other day who claimed that they were going down faster, if anything.",31
-fomc-corpus,1985,"Well, it is very difficult to tell what land prices are doing simply because there are foreclosures but there are no sales. And as a result, you can get the survey--as we do and I think Minneapolis and Chicago do--and it shows that they are still declining. But those are numbers that are not based upon sales. The amount of land now being held by the Farm Credit Bureau is large. The numbers that I know come out of Wichita and Omaha and they are very large numbers. Most of the agricultural banks that have been deeply involved, and indeed are in trouble, are holding considerable amounts of real estate and simply have hired somebody to try to farm it because they can't sell it. The question, I guess, involves not only the gloom that already has spread, but there is a systemic problem in the financial area that evolves out of the agricultural banking problems that I think is very great.",181
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Well, I am certainly in no way disagreeing with Jim's forecast and there really is very little I can add to previous reports that I have given at other meetings. Weak sectors in the Midwest are continuing to be very weak, with no particular signs of improvement. And I think at this point some of these very heavy industries really won't experience a significant change this cycle. But offsetting that, those parts of the economy that have been doing better continue to do well, and from that perspective the current outlook is pretty good. In autos, for example, the people I've talked to say that despite some aberrations in the current numbers, the underlying demand continues to be pretty good. Construction activity is relatively strong and consumer spending seems to be okay. But perhaps for emphasis, I would echo Roger's comments about the agricultural situation. Land values as we look at them continue to decline. In Iowa, for example, in a statistical sense land values are down almost 30 percent from last year and some 45 percent from the peak. I agree with Roger that this is a statistical look at land values; the transactions that are occurring, are in fact [at prices that are] substantially under that. And given the pressure on commodity prices, I would think that land values are going to continue to come down. Whereas in the past we have had the view that this is all containable and not systemic, I do think it is beginning to back up--both from the banking sector as well as from the farm credit situation. In sum, with the passage of time and with continued deterioration, it begins to take on some systemic implications.",326
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Well, Mr. Chairman, in the Southeast we continue to experience some moderation in the economic growth. I think what is happening there is basically an adjustment to a less boom-like atmosphere than we had previously. While there are some areas of weakness, I think the strengths in our local economy outweigh those weaknesses at the present time. Louisiana is clearly a very weak area at the moment because of the energy sector, agriculture, and nonresidential building. And while nonresidential building is continuing in the rest of the District, it is a source of concern; I think the absorption rates are not going to be good enough to take this glut of office space that we are getting in most cities of the Southeast, and I think that is going to catch up with builders and financial institutions before too much longer. The recent decline in the dollar has given some hope to the textile and apparel people, although I think most of them realize that it is going to take quite a long time before they feel any particular impact from that. Just a parenthetical observation: I have been very, very surprised at the strength of the protectionist sentiment that I am hearing around the District. In fact, it is not really just from around the District. For example, I had a meeting with the board of directors of a local corporation that has directors from all over the country and the virulence of the protectionist sentiment and the anti-Japanese sentiment was really remarkable to me. I thought we were back in World War II. If this is true around the country, when Congress returns I think we are going to hear a good deal more about this. The virulence and the ""them against us"" sentiment was really quite remarkable. I had no idea it was that strong. As I look at the economy as a whole, I guess I would revise my forecast down somewhat, although basically I would agree with the Greenbook forecast both for the rest of 1985 and for 1986. My concerns would be that the dangers are on the down side. I think we might be lucky if we get 3 percent growth. And I say that because I am not very sanguine about consumer spending. Given the level of consumer debt and the lower personal income that has come in, I am not so sure that the consumer--although consumer confidence appears to be high--is going to spend at quite the levels that the forecast implies. I am also not so sure about the inventory buildup. I think that there is a feeling among many people that they don't have to build their inventories because of the [excess] capacity that we have in the system--that production times are lower and, therefore, they don't have to have as much inventory. Also, I think the uncertainties about the economy are causing some people to reconsider their inventory buildup. So given all of that, Mr. Chairman, I too am not terribly optimistic, although I don't fear a recession. And people I have talked to don't fear a recession, but nobody that I have talked to sees any particular boom for the rest of the year and nobody sees any greater danger of inflation either. So in terms of monetary policy, we are in the usual dilemma in light of the sluggishness of the economy and the growth of the money supply. My hunch would be that we ought to stay about where we are; I will talk about that a little more later when we get to the specifications.",686
-fomc-corpus,1985,Any other comments?,4
-fomc-corpus,1985,"I don't have anything to add on the regional side other than to say that in June we had an increase in manufacturing employment at a 2 percent annual rate, which was an encouraging sign. But some of the other indicators are flat to down. One comment I would make is that I appreciate the risks on the down side in the forecast as well, but I think there really is something to be said in terms of addressing the long-term imbalances in the economy arising out of the trade deficit and a moderate rate of growth at this period of time. I know that has implications for how the budget deficits are ultimately financed, but I think in the longer term enduring a lower rate of growth for a period of time could be very constructive in terms of addressing some of these imbalances.",156
-fomc-corpus,1985,"Enduring what, these slower rates?",8
-fomc-corpus,1985,Lower rates.,3
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"I have very little to add but maybe a little balance on the up side. The case for a resumption of growth at any rate of speed certainly has diminished. Still, I think the predominant view outside this room is that [the expansion] will accelerate a little to the 3 percent--and some people think more--range. I don't think anybody is concerned about a cumulative downturn that in retrospect, if we hadn't done anything, would have required us to take immediate stimulative action. Even if the economy weakens a little further and then turns around, it would be a great mistake to have done a great deal and found ourselves having to backtrack. So I'd exclude from my thinking doing something expansionary. Now, on the expectation of a stronger economy, I think we have something to look forward to in the longer run as the main cause of our troubles. I think as the trade deficit begins to mend--at first stabilizes and then, God willing, is very substantially diminished--that that will have some expectational effects, though nothing very decisive in the short run. But in regard to the possibility of an acceleration, which doesn't seem to be fitting very well into this conversation, the danger that it will run too far I think is also not very great because we have enough leeway. In my view we are well above the natural rate of unemployment and if it were to happen that the economy speeded up, we could accept that for awhile. But that is evidently not the main risk that is being discussed here. I just want to argue that the risk of a significant slowing seems not very strong and the consequences of falsely assessing that seem to be quite great.",336
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"Well, in order to counterbalance you, Henry, I guess I would have to say that I think the possibilities of a recession are distinctly there now. The way I would visualize it occurring is that we have had enough sapping of the strength of the economy through the net imports, which I don't think will level off in the immediate future, that income growth will slow to very little. The saving rate is as low as it can get. The best forecast the staff can give us is for really very little final demand. And with that very small final demand, I think the credit system will start to unwind. We have this disaster awaiting us in income properties and it is getting closer every month than it was the month before. In addition, as the Chairman and others have pointed out, in the last two years the equity buy-backs and mergers and so forth have added to debt, and [firms] just have to have increased revenue in order to support those quantities of debt. Without the increased revenue that is associated with rising sales, we are going to have more and more trouble in that category of finance also. And the farm credit situation is so bad that it is really hard to see what could happen now that would do other than get us into a crisis. I realize that this is a very quiet period, but that is just because the fall has not come and these notes have not come due yet. When they do, there are going to be very few people who are going to have any money to service their debt. I think the fundamental source of [the problem] is the imbalance caused by the import situation, but where [the crisis] is going to occur, if it does occur, will be in the credit area as we get into the fall and winter--in the credit quality problems that the economy now faces. I don't know that there is anything much that policy can do about it. Indeed, it might be a mistake to follow strongly with expansion to try to deal with it because I think the ultimate result of that would be more inflation in the country. And I guess I have a little streak of monetarism in me too, or at least I do believe that in the long run money matters and that if you get a lot of money out there, sooner or later it is going to bring inflation. So I say this hesitantly because I don't have a solution to deal with it; but I do think we must recognize that recession is a distinct possibility.",501
-fomc-corpus,1985,Ms. Seger.,5
-fomc-corpus,1985,"I hate to make this a bias of the Supervision and Regulation Committee, which I think is the way it will look since--",26
-fomc-corpus,1985,"Well, if it is the right bias--",9
-fomc-corpus,1985,"--since I am on that Committee with Governor Partee, but I agree that there is a risk of recession. I think the real vulnerability is the financial system; I just don't know what will be the specific trigger to ring the bell there. I don't know whether it will be in farm credit, whether it will be some fallout from what is now going on in Maryland, or whether it will be something more in the mortgage-backed securities area, but my stomach tells me that [the financial system] will be the trigger that will cause the unwinding. I had a couple of conversations recently with some people about the import situation, since imported cars from Japan are a very big portion of that total number. You might find it interesting that Detroit, at least, does not see any big fall-off in imports. In fact, they are surprised that the Japanese reacted so quickly to the ending of the ""gentlemen's agreement"" or whatever you care to call it that had been on the books for four years. Apparently, they would have sent more cars over faster but they could not get them on the ships. Now they are [on the ships] and the sales of imports would have been still stronger except for the strike of the car haulers; the import dealers are far more impacted by that than the domestic dealers because they have to get the cars from the ports to the dealer lots. Anyway, I don't see this import issue going away. I see it getting a lot worse. And the ""big decline in the dollar"" is in terms of weighted averages; if you look at the dollar vis-a-vis the Japanese yen, the decline isn't that much. These people out in the trenches do not expect the Japanese--even if the dollar were to decline further--to quickly adjust the prices of the autos upward. In fact it would not surprise them to see the Japanese cut car prices to get a much bigger chunk of our market. That did not make me feel terribly good. I don't care what the theory is, but what may go on in a business strategy sense is very, very key to this in my judgment. Also, a couple of people I talked with are in the process of cutting their total sales expectations figure. Before, they had a decline of 300,000 units between the expectations for 1985 and for 1986; I don't know what they will come out with when they get through the revision process. This is something that already is a big drag on the economy and I think it is going to get worse. Maybe I am just being a parochial Midwesterner, but I think that this is a really significant sapping of economic strength, and when the foundation gets termites in it the house eventually feels it. So, that is my concern, and I do think that lower interest rates help in these particular situations.",575
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"I don't think there is any doubt that we have a sluggish economy on our hands but nevertheless one that is continuing to grow. I think the sluggishness is due to the imbalances that we all have been discussing, and those stem in large measure from the foreign trade situation. I am not sure there is very much that monetary policy can do about that. As best I can judge the situation in our District, this rather sluggish pattern is likely to continue because the sectors or areas that are doing well are continuing to do well and those that are in trouble are going to remain in trouble. I think we are kind of stuck here without a lot of good options. If I take the Greenbook forecast as a starting point, the one question I have about the outlook is the inventory situation, in part for some of the reasons that Bob Forrestal mentioned but also in part because I don't know what it means when we are satisfying as much final demand as we are from abroad and what that means for domestic inventory accumulation. I have a concern that maybe it means that more inventory is going to get held abroad relative to what one would expect otherwise and that that is going to filter into domestic production and domestic inventory levels in a conservative way.",245
-fomc-corpus,1985,Governor Rice.,3
-fomc-corpus,1985,"I really don't have much to add to what has already been said. I don't see a high risk of recession over the forecast period, but I agree with the views that have been expressed that the risks to the forecast are on the down side. I think the probability that we will be able to see 3 percent real growth in the second half is probably less than 50 percent. And I think the rate of growth we get in the second half will not be satisfactory. But just as I see nothing to encourage me to believe that we are going to get some significant acceleration, I don't see anything that is going to push us into recession; I think we are just going to bump along with slow growth. And I agree with Chuck that there is probably very little that monetary policy can do about that at the present time without making things worse.",169
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"Well, I feel as comfortable with the forecast in the Greenbook as I can feel, and I don't at the moment see a recession looming immediately in front of us. In terms of developments in the last 6 or 8 weeks, the thing in the economy that probably has surprised me most is housing. I certainly did expect that we would see a little more spark there than we have seen, which led me to believe that maybe this rise in delinquency rates that we have seen in the home mortgage sector was telling us something. But even that doesn't seem to hold up because, for example, on closer inspection we find that the delinquency rates are higher in the Northeast than they are in the South and the West, even though the reverse pattern seems to apply in terms of where the housing shortages are versus the surpluses. So I am at a complete loss to rationalize that. More generally, I sense a much more acute dilemma growing out of the dollar situation than a number of the comments around the table would seem to imply. For one thing, barring a recession in the United States, which would obviously raise havoc with the LDC situation, I see more risk in the possibility of some kind of sudden tumble in the exchange rate, notwithstanding all that the exchange rate implies in the current situation for the trade account. But more importantly, when you look through the exchange rate situation and the trade account, barring that precipitous drop in the exchange rate that would create its own problems, it seems to me that we are looking at a quite real possibility for at least a couple--or maybe even three, four, or five--years of having trade and current account deficits of $100 billion, which in turn--",347
-fomc-corpus,1985,To be optimistic.,4
-fomc-corpus,1985,"I think that's probably right. As a matter of fact, we did an exercise that suggested that even if the exchange rate fell 25 percent over the next two years from where it is now, the current account and trade deficit would tend only to stabilize at around $100 billion. I might add that that was with faster growth in the industrialized countries than is now being projected. But regardless of what number you put on it, the fact of the matter is that any kind of scenario like that implies clearly a willingness on the part of foreigners to continue to accumulate dollar-denominated assets at a pretty rapid rate. And as far out in the future as we considered, it also implies that foreigners are going to be continuing to finance a big chunk of our budgetary deficit. So that situation in itself has worked itself into a classic Catch-22 problem that, in my judgment, aggravates the policy dilemma to a very considerable degree. Now, I would associate myself with the comments that Martha and Chuck made on the financial situation. I too cannot quite shake the feeling that something, someplace there could pop in an unfortunate way at any moment. But there too what to do about that from a policy perspective is not at all clear. One could make an argument that the whole situation, notwithstanding the problems in the economy and the problems on the international side, could point more easily in the opposite direction from a policy perspective than what the economy itself would say. You raised a question, Mr. Chairman, about this energy situation. Just by way of a quick anecdote: told me the other day that when they had to bail out that energy bank up in this spring, in the process they acquired some oil rigs which at that time they valued at about 35 cents on a dollar. They now think they are worth a nickel to a dime on a dollar. Now, is not the universe, but I think that is symptomatic of the general situation. So I can't find much to celebrate about here, to put it mildly. But the policy dilemmas implicit in all of this, I think, are as acute as they have been perhaps for a while.",429
-fomc-corpus,1985,Maybe we better celebrate with a cup of coffee.,10
-fomc-corpus,1985,"I would judge from the comments I heard earlier that there isn't much stomach for dramatic new initiatives at this stage of the game, in terms of our own [policy] behavior. I think that is a correct conclusion. Let me just add a few comments to what was said earlier to summarize and to put some different light on them. I think that we are operating in a worldwide situation and sometimes we focus too much on an uncertain outlook for the domestic economy. What happens over a period of time, I think, is very dependent on a larger setting. Bob Forrestal mentioned being shocked by the protectionist sentiment that he heard. That gives an accurate picture of the extent to which that sentiment has built and may be still building. And we are going to have quite a different economic situation, I suspect, here and around the world over the next year to 18 months, if we have big protectionist legislation in the remainder of this Congressional session. I have felt myself a relative optimist in Washington in believing that this can be held off this year. I don't have any illusions that it can held off next year, if things don't improve. Many many people think that I am unduly optimistic in saying that it can be held off this year; we shall see. My optimism is not based on any great analysis other than such things as the fact that the [Congressional] Committees mainly involved that have to originate the legislation fortunately are tied up in tax reform and so forth. That is a political excuse for fending off some of this; I don't know whether it will hold. Some reference was made to the dollar this morning. I think this is a very sensitive area. We can all argue that the dollar should be down for the trade balance and in time it may well have to be. But if we achieve that lower dollar in a way that undermines confidence in where we are going, I think we are going to have lots of problems. As Jerry Corrigan said, we depend on that inflow of money to finance the budget and maintain reasonably low interest rates. And when I look ahead, this clearly is the overwhelming threat on the price front. We are going to have to swallow a decline of the dollar over time. But how it comes is going to make a big difference as will how fast it comes--whether it is manageable or not. I don't know whether it is going down, but just to draw a policy implication: It is an interesting conversation when we can talk about whether the dollar has come down very much when it has come down 17 percent or whatever it is in about three months. By any historical standards, except the last three or four years, that is an enormous change in the value of the dollar in that period of time. Of course, it followed a period during which it went up 17 percent, I suppose, in the previous six months. It is a very unstable situation. I have a feeling that we are teetering--that is maybe stating it a little too strongly--but we are beginning to run some risk of a loss of confidence in the area. We have managed a 17 percent decline without, I think, raising a lot of concerns so far on the confidence front. I think we have to be cautious about that. We face the situation in terms of the price front where the prices of commodities--many of which are produced in other countries rather than here and not all of them are down here, I guess, but I can't think of a [unintelligible] one--are just terribly low in terms of historical experience relative to other prices. [They are below the cost of] American production anyway; I don't know whether they are below the cost of foreign production. Some day they probably will have to go up somewhat; but they don't seem to be moving in that direction now. There are deflationary forces in certain contexts of the economy; there is no doubt that the prices of services are still going up. I think this is a long-term problem; we can't cure that in the short run. I don't have anything to add on all the domestic financial strains that were mentioned by a number of people earlier. I would just report that I think the international debt situation is in a period of some fermentation and if we have a break it could easily come there. It's not that it would put us under any greater economic strain at the moment but it certainly could put us under greater political strain. There is a great deal of restiveness in that area; whether people are going to jump the [unintelligible] and follow the more aggressive interpretations of the Peruvian situation is very much in doubt. Finally, looking at the growth in industrialized countries, there may be some room for feeling a little better. They have taken some easing measures, largely in response to the weakness of the dollar. I think that is one of the constructive repercussions of the decline in the dollar, but those measures have come pretty late. If you just look at the outlook there, it is hard to build up a great feeling that there is going to be great support for the world economy; it may not be a deterioration but you don't get any sense of great exuberance abroad. I don't think we ought to get in the mood that these problems are all unsolvable. They are going to take a lot of work, even in the monetary policy area, and in the regulatory area and other areas. Monetary policy has something to do with how it comes out. My interpretation of your views is that this isn't the time for strong new tightening or easing, and I share that view. We have edged insubstantially tighter in this intermeeting period, reflecting primarily the more rapid growth in M1. I think our discussion last time suggested that that would be appropriate. We started out with a notional $350 million borrowing level and never hit it in fact--not always deliberately. As the period went on we became more cautious in the provision of reserves but only slightly so. So, I think something like an unchanged approach would imply $400 million plus on borrowing. I could conceive of a little more substantial tightening if people thought that was appropriate, but I don't know how other people feel about that. So let's proceed and get more precise. I don't have any feelings about these various [draft] directives, not having read them until about 10 minutes ago. I might just say as a preliminary thought that I am not sure these directives--depending on what we do--are very accurate reflections anymore of what we think. We really ought to think about rewriting them in a more basic way, but I don't think we can do that in the next--",1346
-fomc-corpus,1985,We have had a sort of informal desire not to change the directives in the mid-quarter meeting. It will be pretty hard to avoid that.,28
-fomc-corpus,1985,"We will have to change M1. I would like to say that the latest figures that we have on M1 are not terribly different. They don't suggest any [big change] in the M1 estimates. If anything, they are consistent with a less optimistic view--if that is the way to express it. They are slightly stronger but growth is not substantially different from the very high August number we were talking about.",84
-fomc-corpus,1985,"Mr. Chairman, I would favor moving a little insubstantially in the direction of--I wouldn't say tightening, but of trying to rein in M1 a bit more. The main reason I feel this way is because the credibility of the Federal Reserve and its targeting procedures may well be at stake at some point soon, and I wouldn't like to see us lose that credibility. So, I would like to indicate some perceptible move or effort toward bringing M1 back toward the top of the band by the end of the year. I don't want to do anything substantial, as I said; I just want to indicate that we want M1 to move back. So I would be in favor of doing a little more than alternative B and possibly a little less than alternative C, if that could be done. And I would even be prepared to see borrowing around $500 million. But my main concern would be to show some concern for what has been happening to M1. There is a lot of liquidity out there now and I don't think that a slight rise in interest rates will have any perceptible effect on the economy at this point any more than I feel that a slight decline in interest rates will have any effect on the economy.",247
-fomc-corpus,1985,"Mr. Chairman, I pretty much agree with the economic outlook as discussed here earlier. In the West it is essentially flat or down in most traditional areas: mining, manufacturing, and agriculture. Those things that are going well are a number of the service industries, whether financial services or telecommunication, and of course defense is going through somewhat of a boom. But by and large it is hard to see anything that is going to push the economy up with any real vigor and our staff forecast is essentially the same as the Greenbook forecast. I would agree with Jim Kichline that, if anything, the 3 percent real GNP growth in the second half has more risk on the down side than the up side. While I, too, have a streak of monetarism in me, I am prepared to ignore this overshoot of M1 as long as we have this peculiar and unusual, and hopefully not permanent, behavior of M1 in terms of the decline in velocity--whether it is a shift in money demand or different elasticities than we thought existed. I would be prepared to overlook that overshoot because of the risk of possible recession, although I think the risk is more toward sluggish growth. Therefore, all things considered, bottom line I am essentially in agreement with the position you expressed: that this is not the time to make any significant moves, either easing or tightening. I think that alternative B pretty much expresses the sort of policy I would like to see between now and the next meeting, with a borrowing target somewhere in the range that was specified in alternative B of $350 to $450 million, probably centered on $400 million.",331
-fomc-corpus,1985,"My view would be very consistent with Emmett's comments. It does seem that we want to be very careful of what we do. But we have a high trajectory of the aggregates, particularly M1, and I also think that we need to begin to scale down as we come toward the end of the year. So I would end up being in favor of alternative B. I'd also move up the borrowings just very slightly to about the $500 million range, as a way to begin to take these initial steps.",104
-fomc-corpus,1985,Let me interrupt the flow here because I forgot to get confirmation of the transactions of the domestic Desk. It occurs to me now and I raise it now or I will forget about.,36
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. Mr. Black.,7
-fomc-corpus,1985,"Mr. Chairman, I am very close to Emmett Rice on this. Even if we are in the midst of a one-time downward shift in M1 velocity such as apparently occurred in 1982-83, or if we have a one or two percentage point drop in the long-term trend of velocity, still I think by any measure that a rate of increase of 11.5 percent since last October has to have provided plenty of financial underpinnings for expansion. I am concerned that we will run into this credibility problem that Emmett outlined very clearly, so I think we ought to take an unequivocal action to try to bring M1 down somewhere near at least the top of its long-term range. Alternative C seems about the right sort of alternative to me. But in addition to selecting this path, it is important that we also think about our methodology a bit, because merely choosing that path doesn't insure that we will hit it. I think that we ought to be prepared to take some kind of action to hit this. The relationship between the level of borrowed reserves and the growth of M1 is very tenuous and we keep getting fooled by that. I think it is going to be exceedingly difficult, if not impossible, to predict that, so I would like to see us insert in our operating instructions to the Desk something a little more explicit. We have provided that actions will be taken in the light of what is happening in the economy, what is happening in the domestic markets, the foreign exchange markets, inflation, and the like. And I would like to pass on firm instructions to Peter that we would raise our borrowed reserve target if we start exceeding that unless the economy shows decided signs of weakening beyond what we now expect. It has been very hard, at least for me anyway, to know what was going to be done once we left this meeting in the way of actions in the intermeeting period. And I would like to see us tighten up those procedures if I can persuade you to do so.",404
-fomc-corpus,1985,"Well, Mr. Chairman, as seems to be the consensus of this Committee, I don't find any reason to argue for much change today in the way we are conducting policy. So I would come out wanting more of the same, which would be alternative B in my mind. However, I would associate myself with some previous speakers who said, with a background of a pretty reasonable forecast in the Greenbook and a background of quite a bit of liquidity in the economy, that we can't go on at this rate forever. So I would like to suggest that some more insubstantial tightening, as the period progresses and as we see events unfold, might be appropriate. And it might be appropriate--more than accomplishing something substantive in terms of the growth rate of money--just as a small signal to markets that in fact we think it can't go on forever and that we are waiting for the right time to take further action. I suppose that would be reflected in the directive, based on the same kind of language we used the last time--that is, the ""would"" and ""might""--that we would react in the event of higher-than-expected growth and might on the lower side.",237
-fomc-corpus,1985,"My view would be very similar to what Governor Rice expressed at the beginning. I think we have an opportunity here possibly to slow down the rate of reserve growth without a substantial impact on rates. I was struck by the fact that banks apparently have been running off some of their term liabilities, the Fed has snugged perhaps imperceptibly here over the last period, reserve growth has slowed down, and yet in terms of the impact on the funds rate really all we washed out probably was an unwarranted expectation that there would be a further cut in the discount rate. We really have not firmed beyond the equilibrium level we thought funds might trade at with a slightly easier borrowing target. I asked Peter before about dealers' positions; they seem to be in pretty good shape. So I think there is an opportunity here possibly to slow down the rate of growth of reserves somewhat and perhaps buy a little more flexibility for the future, particularly against the backdrop of 14 percent money growth expected in August. We don't have a lot of flexibility in terms of credibility in foreign exchange markets and so forth to ease reserve positions without damaging that credibility. So I think there is an opportunity here, as I say, to buy some flexibility for the future without a dramatic impact on rates. I would say that ""C"" is too dramatic a shift, but I would position myself somewhere between ""B"" and ""C;"" perhaps a target of $500 million is about appropriate.",290
-fomc-corpus,1985,"Mr. Chairman, to adhere at this time to an emphasis on the monetary aggregates, which has been [our approach] since 1979 or at least from 1979 to 1982, is not justified by what we know about them or what we can predict in terms of the pattern of change in the aggregates, particularly in M1. Well, let me correct myself: the narrow aggregate is still behaving in a pattern outside the modeling of projections plus or minus some standard error. I think there is increasing merit to the thesis that there has been a shift in the demand curve. It seems to me that there's a cumulative effect on the public of financial crises in state after state and in type of institution after type of institution. I am not just talking about Ohio and Maryland and thrifts in California and industrial loan companies in Utah and institutions in Texas and so forth; I'm thinking of the cumulative effect on the public's consciousness of this constant news about failed financial institutions following a multi-decade period in which nobody failed. Take Chicago--pardon me Silas--where the two biggest S&Ls and the two biggest banks, the four dominant financial institutions there, are on sufferance. There's Bank of America, Seafirst, Financial Corporation of America, Texas Commerce--you could go on and on. [There are problem] maritime loans, energy loans, and now real estate loans. I think we will see more evidence as time goes by that there has been a shift in the demand curve. And for us now to gear our policies around bringing M1 down simply is not warranted given the extreme degree of uncertainty. So I would not support any move which would raise interest rates at this time. Think of the leverage--I use the term badly--that interest rates have in the foreign exchange markets, in less developed countries, in debt coverage servicing, and on and on. While we should not dismiss M1 entirely, of course, we don't know [what drives] M1 at this time. Eventually we will; ex post we will look back on this period and say it was quite obvious that X, Y, and Z were the reasons why M1 behaved in the way it did. So, do we lose credibility if we continue to treat M1 the way we have? No one knows. But we have a Chairman who communicates pretty well with the financial community. After all, we have sublimated or at least set aside to some degree the narrow aggregate to date; we have two other aggregates and we have the debt number and other measures; and we have an able spokesman here. What I am trying to say here is to some extent heresy and that is that I think in this six-week period we should concentrate more on the fed funds rate in the execution of policy. I would mean by that that we would keep the rate exactly where it is now. We would not let it drift up or push it up as some have advocated. I believe we can maintain credibility by maintaining the rate. While I would go for ""B,"" I would hope that in the implementation by the Chairman and the staff that we would keep rates relatively stable. I think stable interest rates might be a contribution to this short-run period. We have heard of stable rates; we have experienced those--it is hard to remember--and I think that might add to our credibility and to some measure of stability in an unstable world. It might even add stability to the decline, and hopefully the gradual decline, in the dollar. I would hope in that regard, Mr. Chairman, that in the [wording of the directive] we would move the [reference to] foreign exchange markets up in position and/or have language indicating that we are paying considerably more attention to that part of the directive.",760
-fomc-corpus,1985,"Just in the interest of clarity, where do you interpret the federal funds rate to be?",18
-fomc-corpus,1985,"Well, I was going by the report of our Staff Director who said 7-5/8, 7-3/4, 8 percent. I would hope that the Chairman wouldn't see fit to go above 8 percent, and I would think that would be consistent with about $350 to $450 million in borrowing and whatever excess reserve path goes along with a cap of 8 percent. I wouldn't want to see 8 percent in the directive but I would hope--failing some gyration in the dollar, which I think is the thing that would be a more important factor now--that we could keep it at 8 percent to 7-1/2 percent.",139
-fomc-corpus,1985,"Having had this strong endorsement of Ml, I think it is appropriate that we turn to Mr. Morris.",21
-fomc-corpus,1985,"Well, Mr. Chairman, I agree with everything that Governor Martin said. The outlook is extremely uncertain. I don't think there is very considerable risk of a recession developing, but I think there is a considerable risk of a sub-optimal [economic] growth rate, more of the same that we have had in the first half. And it seems to me that there is no need for even a moderate upward movement in interest rates until we have some conviction that the economy really is strengthening, and I don't see that in the numbers yet. I see it in the forecast, but I don't see it anywhere else. As to this credibility issue, it seems to me that if we were in a position where the credibility of the Federal Reserve was rather shaky, one could make a case for moving--despite the uncertainty about the economic outlook--simply because a loss of credibility would have very important consequences in the foreign exchange market, for example. But I don't see that as I observe the foreign exchange market. I don't see participants in that market worried about the Federal Reserve following inflationary monetary policies. So I don't see that there is a need, in order to maintain our credibility, to do something that we don't think necessarily has to be done because of the state of the economy. So it seems to me that a stand-pat policy is an appropriate policy here.",273
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Well, Mr. Chairman, Governor Martin made my speech for me as well. Given the state of the economy--the sluggish nature of what is going on and an outlook not all that marvelous--I think money market conditions are about where they should be. I don't really see any case for tightening except if one wanted to concentrate on the narrow money supply. I think that would only exacerbate the trade problem. Equally, I don't see a great need for any significant easing. I would be a little concerned about the effect of any appreciable easing on the foreign exchange market. The dollar needs to come down but, as you indicated earlier, a free-fall is certainly not what we want. Given all of those factors and all of the uncertainties that we have in the markets, I would think that staying where we are is right. And if that means letting M1 run over the target, I think we just have to let that happen and explain it as best we can. So, I would opt for a stand-pat policy, and that to me translates into alternative B with a directive that would be asymmetric leaning toward alternative A. I think the borrowing level of $350 to $450 million, centering around $400 million, is about right.",253
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"Well, this certainly is a time that separates the sheep from the goats! I am not enough of a monetarist to be able to bring myself to do something because of the behavior of the monetary numbers that has absolutely no confirmation in the real economy or in the outlook for the real economy as we can see it. Indeed. I would be in favor of easing if it were not for the monetary aggregates--",82
-fomc-corpus,1985,So would I. MR. BLACK(?). I would too.,13
-fomc-corpus,1985,"--because I think we are going through a very difficult period in which a little ease in rates might not hurt. It might be pushing on a string and it might not accomplish too much, but it certainly would not hurt. I am also quite bothered by the foreign exchange market. I think that Jerry and Paul are right: that we could get quite a drop in that. And I suppose a material move toward easier rates would increase the odds that that would be true. I think also that there is a little question about the credibility of the Federal Reserve developing out there. I have seen quite a few reports and heard from quite a few people who say: ""Well, we don't see any inflation immediately but you really are setting the stage for it--you are providing all of the liquidity--and we think the result of this is going to be inflationary in the long run.""",176
-fomc-corpus,1985,It is not showing up in the bond market or the foreign exchange market.,15
-fomc-corpus,1985,"I think it's showing up in the foreign exchange market and I think it's showing up a little in the precious metals market. And I believe that is something that we have to be somewhat concerned about. But, as I said, I just cannot bring myself to tighten interest rates--to be specific about what tightening means--on account of this behavior in M1. Therefore, I guess I am stuck pretty much where the Chairman was, except I would sort of like to see the funds rate drift back to about 7-1/2 percent, where it was when we started out, rather than see it cruise along in the high 7s--at 7-3/4 to 8 percent. I think there probably has been a little questioning out there in the market as to whether these numbers mean that there has been some [slight] tightening that has been planned by the Federal Reserve, so I guess that would mean that I would lean toward the low side on this range of borrowings. A $500 million level certainly seems too high to me; $350 to $400 million I think would probably do it and I hope that M1 comes back [within its range]. That certainly is not a plan to bring M1 back; that's a hope that M1 will come back while we continue what is, in market terms, an unchanged policy.",274
-fomc-corpus,1985,"Well, I feel most comfortable with staying where we are with alternative B--not because I think it is the right place to be, but because I just feel uncomfortable about either tightening or loosening. The more interesting question, as we go past the initial couple of weeks after this meeting, is: What kinds of circumstances would cause one to want to change that to either tightening or loosening? Someone earlier brought up the point that we ought to harden up the procedures. I don't see how we can do that. I think that we are just in a highly judgmental period. However, my own bias is that we ought to have a significant burden of proof [before moving] in either direction at this point. I would go into the period with pretty much an open mind--a symmetrical mindset as far as the directive goes. I could foresee circumstances in which loosening would be the better way or, conceivably, tightening, but I don't think we can nail down those procedures in any meaningful way. But I would not want to see a substantial change in reserve provision unless there were some really pretty good reasons and not just somewhat marginal changes.",231
-fomc-corpus,1985,"Governor Wallich. No, Mr. Stern first.",11
-fomc-corpus,1985,"I would favor alternative B with a slight tilt toward alternative C; that, in my mind, is associated with borrowing of perhaps $400 to $500 million. This credibility issue seems to me to be a troublesome one because in the abstract it can cut both ways. There are risks in ignoring M1 and there are also risks in reacting to an aggregate whose behavior we don't seem to understand very well. At least in my mind the foreign exchange market is perhaps decisive at this juncture and it seems to be expressing some doubts about the kind of disciplined policy that is being pursued in this country. Largely for that reason I would tilt in the direction of ""C,"" as I indicated.",138
-fomc-corpus,1985,"Okay, Governor Wallich.",6
-fomc-corpus,1985,"I would not want to see a great change in policy. I would like to lean toward the harder side just to demonstrate our good faith with having rebased and then set a new range. I agree that M1 is very dubious; I think there has been a demand curve change. Nevertheless, I think credibility is an objective fact. It's not what people think; it's the way they are going to forge expectations and the way they are going to react to other things we do. So there is an investment there and something is at stake. I think ""B,"" if I read the Bluebook correctly, would by the fourth quarter or the end of the year get us back close to the cone. Is that right, Steve?",146
-fomc-corpus,1985,"That's the projection, but the projections have been consistently wrong.",12
-fomc-corpus,1985,"As of now, one could say that we aim to bring M1 back on track by the end of the year. That, I think, is a respectable reaction to the overshooting of a not-very-reliable variable.",46
-fomc-corpus,1985,It takes a small fourth quarter to do that. MR. BLACK(?). It sure does; it's moving away. MR. RICE(?). He doesn't give it a very high probability.,38
-fomc-corpus,1985,It's his best guess. It has a probability of 10 percent!,14
-fomc-corpus,1985,"I would not invest a great deal in the effort to bring it back. I think there have been a great many challenges from sensible people to our credibility and I would like to establish a record of having tried, without doing any serious damage by doing so. So, I think ""B"" and going to $500 million with the funds rate where it is now--it could be 8 percent--and the same funds rate range that we have now.",91
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"For reasons I stated before, I'm in the ""B"" camp with a little tilt toward the ""C"" camp as well. I think there is something at least at the margin to this credibility question right now, so that reinforces my own thinking. As far as the specifics are concerned, I would have borrowing of $400 to $450 million going perhaps as high as $500 million if we got into trouble on the exchange rate. But barring that, I think $400 to $450 million should do it. I would have a very modest preference--certainly nothing I would go to war about--for specifying the aggregates at 8-1/2 and 6-1/2 percent. But that's symbolic.",146
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"I would also look at ""B,"" obviously for all the reasons that have been stated. My tilt--and it would be a very slight tilt--would be toward ""C,"" which would be a very slight increase. I do have concern about the credibility problem; what is happening to M1 is extremely difficult to explain. I think some stability, if you will, in interest rates would not be bad. I start getting a little nervous when I hear words that seem to say that we need to peg the fed funds rate. I get uncomfortable with that. That would not be the objective, but some stability would be good. Borrowings of about $450 million would be all right with me.",140
-fomc-corpus,1985,Governor Seger.,4
-fomc-corpus,1985,"I was thinking about the objectives set at the last meeting and the fact that a position of no change in reserve pressure produced borrowing going from $350 million up to about $800 million in one of the maintenance periods and an average above $500 million in the other periods, and short and intermediate rates crept up something in the neighborhood of 35 to 50 basis points, depending upon which series you look at. So, if that is what no change produced, then I guess today I would like to vote for alternative A, which is an easing. My thinking is that maybe an easing position or less pressure on reserves will produce no change in rates, which is what I think is really needed. In fact, I would like to see the recent uptick unwound or undone and the borrowings back to the target mentioned last time. So I guess I will vote for alternative A with a borrowings target of about $300 to $350 million.",191
-fomc-corpus,1985,"Just in the interest of clarity, the decision last time was something like $350 million tilted toward the high side, with the directive saying that we might move higher if the money supply was higher.",39
-fomc-corpus,1985,But I thought it was in the context of some other--,12
-fomc-corpus,1985,"In the context of some other things as well. But the dollar was down and the economy [unintelligible]. Now, we had an odd week in there.",34
-fomc-corpus,1985,"If I understood Mr. Black correctly, we didn't tighten enough, given the aggregates.",17
-fomc-corpus,1985,But I dissented in May because I thought 6 percent was too much; we got twice that much and so--,24
-fomc-corpus,1985,"Mr. Guffey, I guess you're the only one left out.",15
-fomc-corpus,1985,"That may have been intentional, Mr. Chairman. I think that everything has been said. In my view, we are neutered with regard to policy at the moment.",34
-fomc-corpus,1985,We are neutered?,5
-fomc-corpus,1985,"We are neutered to the extent that we don't know what is happening in M1 and we don't know what is going to happen to the economy and, as a result, I don't see any reason to change policy. Thus, if ""B"" represents no change, that's my preference.",58
-fomc-corpus,1985,"I would rather describe it as a well balanced, astute, careful--. We have a great predominance, obviously, for ""B"" with some shadings as to what that means. Now, in what way should that be tilted? A range of $350 to $500 million encompasses almost everybody's view; that's a wider range than we normally talk about. I want to be ecumenical in this exercise. What are borrowings running this week?",94
-fomc-corpus,1985,"We are using $400 million in the path; it has been averaging, through yesterday, slightly over $500 million.",24
-fomc-corpus,1985,Where were we last time?,6
-fomc-corpus,1985,The last full two-week period was $480 million.,11
-fomc-corpus,1985,Well?,2
-fomc-corpus,1985,No change from where we are now.,8
-fomc-corpus,1985,That's $400 million.,5
-fomc-corpus,1985,"No, we were a little over--around $500 million.",13
-fomc-corpus,1985,"No, they're targeting $400 million.",8
-fomc-corpus,1985,"That's where you can read it one way or another, depending.",13
-fomc-corpus,1985,"Governor Partee, we have to write down a number, so we wrote down $400 million. But I think, in essence, it has been $350 to $450 million.",37
-fomc-corpus,1985,"Well, my point is that this doesn't say where it happened to have come out; the [issue] isn't where we are now. It's what we were planning, targeting, expecting to do. That is where we are now.",46
-fomc-corpus,1985,Even if we aren't there.,6
-fomc-corpus,1985,It's always either above or below.,7
-fomc-corpus,1985,"Mr. Chairman, I wonder if we could consider some flexibility as we look out, along the lines suggested by Ed Boehne. If growth in the aggregates should slow markedly, we could move toward ease rather promptly. But if they continue to grow at current rates, we could tilt in the other direction.",62
-fomc-corpus,1985,"Well, that's one variable. We would have to define that a little more. Given what we have now on the money supply, it would be awfully hard to get that down over the next three or four weeks to a figure that to many people seems low for the quarter. I guess this doesn't answer your question. It just raises the question of what you mean by weak.",76
-fomc-corpus,1985,I would say the rate of growth is weak if it slows to the 8 percent area.,19
-fomc-corpus,1985,For the quarter?,4
-fomc-corpus,1985,For the quarter.,4
-fomc-corpus,1985,"Well, I'm not objecting to what you say, I'm just saying that as a practical matter--",20
-fomc-corpus,1985,It's not going to do that.,7
-fomc-corpus,1985,"Well, it might. But we're not going to know until shortly before the next meeting. That doesn't say we shouldn't do it. But since we are going to get a high August, to get down to 8 percent we would have to have--. The projection already is for a lower September. I don't know when we next meet; it's the first of October. It might become apparent along about September 20 unless something very surprising happens. I'm not saying you're wrong; I just wanted--",99
-fomc-corpus,1985,"Yes, I understand.",5
-fomc-corpus,1985,"If we put it in that kind of number, there is no substantial prospect of easing purely on the M1 number for a month. That may be all right, but I just want to make clear the implication of what you're saying.",47
-fomc-corpus,1985,We had specified 5 to 6 percent.,10
-fomc-corpus,1985,"For the quarter, anyway.",6
-fomc-corpus,1985,"The only way it could be different would be if we had a $5 billion drop or something like that right away. It would have to happen in next week's figures. If I were to write down a number, I would say $400 to $500 million, depending upon the aggregates and the dollar. If the economic news clearly weakened, we would have to say that we may go below it. If the money supply remained very strong, or if the combination of a strong money supply and a declining dollar produced a progressive loss of confidence or loss of credibility, if that's the right word--I'm very chary of the credibility argument for all the reasons that have been stated. [We could have] a great increase of credibility with the monetarists in the short run and if the economy plunges into recession or we have a great financial crisis, we will suffer an enormous loss of credibility in a more basic sense. MR. RICE(?). An insubstantial change, though, is unlikely to do that.",204
-fomc-corpus,1985,"Well, I don't expect that to happen. I think there is something to this credibility issue as appreciated by the markets. Whether or not it's dependent upon M1, I am not so sure. But I think there's something to it. It's not the only factor. It depends upon what's happening to bond prices, the gold price, the dollar, and the economy. Well, I have to get some expression of consensus here. I'd say $400 to $500 million; $450 million is not much different. A lot of people just said $350 to $450 million, a little lower than what we have been running.",125
-fomc-corpus,1985,"How about $350 to $500 million and a funds rate of 7-1/2 to 8 percent? CHAIRMAN VOLCKER. That $350 to $500 million is a wider band than we have been expressing, but I don't think it's unrealistic. The starting point or the center of gravity is $425 million, if I average the $350 and $500 million.",78
-fomc-corpus,1985,"Well, I wouldn't want to specify the funds rate.",11
-fomc-corpus,1985,I don't think that Governor Martin is suggesting that; he's thinking that's the center of gravity of the funds rate with this.,24
-fomc-corpus,1985,I wouldn't want to specify it.,7
-fomc-corpus,1985,"Let me just try that, in the interest of evoking a response. I don't know what the $350 to $500 million means, except where we start. It's kind of an acceptable range within which borrowing would be varied--nothing much different happening from what we have now--depending upon short-term tactics. It says that the number that Mr. Axilrod would write down would be $425 million. If things changed enough so that we deliberately would go above $500 million or below $350 million, it might be a point where we would have an intermeeting consultation anyway.",117
-fomc-corpus,1985,"If, say, M1 in September came in on the low side, the way that Steve suggested in the Bluebook, does that mean that in fact we would move the borrowing down to $350 million, whereas if that expectation does not come to pass--if we have a higher number--we would aim toward the $500 million? Is that the operative translation?",74
-fomc-corpus,1985,"Well, I am afraid I cannot translate it quite that simply. You have to tell me some other things that are going to happen too. It would certainly go in that direction, if you were just looking at M1. But, if you were telling me that M1 growth was going down at the same time housing starts were coming in at 2 million a year and leading indicators were shooting up and everybody was feeling ebullient about the economy, it might or might not.",97
-fomc-corpus,1985,I was assuming all other things might be equal.,10
-fomc-corpus,1985,"All other things equal, I would tend to agree with you. But if the economy looked as sluggish as it did and all the rest--. I would also remind you: We have worried about the dollar falling in an atmosphere of lack of confidence, but if the dollar for some reason were very strong in this period--I don't think we expect that--that would be a factor I'd put certainly on the side of taking my chances with M1. It wouldn't be an atmosphere suggesting lack of confidence and credibility and all of the rest.",107
-fomc-corpus,1985,Did we contemplate buying foreign [currencies] in a situation when the dollar is rising?,18
-fomc-corpus,1985,"Well, if it rose exceptionally I would. I'm not [sure] the Treasury would even though it would seem to make lots of sense. MR. MORRIS(?). Has anyone talked to the Treasury in that forward-looking sense?",46
-fomc-corpus,1985,"I have not found that terribly productive but I think if that happened, the question would be raised.",20
-fomc-corpus,1985,"Hearing the way you described that range, certainly from my point of view that would be an acceptable approach.",22
-fomc-corpus,1985,Anyone else like to respond to that?,8
-fomc-corpus,1985,"Well, the range is fine; the midpoint is not.",12
-fomc-corpus,1985,You want an assymmetrical midpoint.,8
-fomc-corpus,1985,The midpoint being $425 million?,7
-fomc-corpus,1985,The midpoint being $425 million.,7
-fomc-corpus,1985,It is a little high.,6
-fomc-corpus,1985,A little low.,4
-fomc-corpus,1985,It must be about right!,6
-fomc-corpus,1985,"That is what makes a horse race. Well,--",10
-fomc-corpus,1985,"Of course, if something happens: say, the money supply comes in stronger than has been projected or other things happen in the economy, you would expect borrowing to run above that. We are talking about a beginning range, aren't we, for the--",50
-fomc-corpus,1985,"Well, I would interpret this ordinarily as where we are. As I said, we just start at $425 million here. And you are right, within experience. But I guess I would interpret this wide margin as saying that something outside of that--not necessarily [unintelligible] obviously--might be the occasion for a little mid-meeting discussion.",72
-fomc-corpus,1985,"So, unless something pushes it rather strongly in one direction or another, it does become the operating range for the period. It is different than what we have done before.",34
-fomc-corpus,1985,"I think this will be a little different twist. There is some mistake, I guess, to reading this [unintelligible] as you tell me. But I think this is a little different from saying, for instance, $425 million and then raising it a little or [lowering it] without specifying the reasons. Excuse me, did somebody have something to say down there?",79
-fomc-corpus,1985,"Well, I am a bit puzzled. We are in the middle of August now, and if the projections for the money supply in August are somewhat correct, there would have to be a very dramatic movement it would seem to me from the projected 4 percent in September for us to move off the $425 million.",63
-fomc-corpus,1985,If you are only looking at the money supply.,10
-fomc-corpus,1985,Okay. I am satisfied with the answer then.,10
-fomc-corpus,1985,"Mr. Chairman, just to clarify one thing: I am not sure what the Committee feels or what you individually believe about the dollar. My own personal view is that continuation of a gradual unwinding of the dollar from the excessively high value probably would be for the good of the country--just thinking of the import-export situation. I hope that it will continue and that a gradual orderly drop in the dollar would not trigger our moving up toward the upper end of the borrowing range. I'd like to hear what your views are, though.",106
-fomc-corpus,1985,"Well, if I could blink my eyes and wake up tomorrow with a lower dollar and no accompanying change in attitudes [as a result of] that, I might argue that that is a good thing. But that is an impossible scenario. The question is: How do we get a lower dollar if that is what we inevitably have to get over time, without throwing inflation off course, interest rates off course, and without overshooting on the down side, in some short-term sense anyway, and if that would bring more pressure on the industrial sector than we can stand because we are so far behind the eight ball there? And we do have to shift literally--it is going to happen. It's not going to happen in the [unintelligible] but it may happen expectationally and in terms of prospects. What does it come to now, Mr. Truman, with a $150 billion trade deficit--maybe 15 percent of our manufacturing output? If we went from where we are now to balance in two years or three years we wouldn't have the capacity to meet [the export demand] without a lot of inflationary pressures, I am afraid, assuming the economy generally isn't otherwise in recession.",240
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Yes. It depends on how you think capacity would be going otherwise. But it is clear that demand depends on what else is going on.,28
-fomc-corpus,1985,We are at what [on manufacturing capacity] --roughly 80 percent--if you believe these figures?,22
-fomc-corpus,1985,"We have done a crude calculation that would suggest on one scenario that, in fact, we would be over 100 percent on the capacity utilization index, if--",32
-fomc-corpus,1985,"That is not going to [happen]. It is another way of saying it is impossible to correct the trade balance in that timeframe. But if we had a set of conditions that went in that direction and put in that kind of potential demand on our capacity, even though we could not meet it in three years, we would have a [difficult] circumstance in the manufacturing sector of the economy in terms of sustainability, inflationary pressures, or whatever. Looking at this more broadly here, we are importing 3 percent or more of the GNP. We are consuming 3 percent more than we are producing. If we correct that, we are going to have to have some period of time when consumption is rising by 3 percent less than GNP. Countries don't find that very easy to do. It means lower real incomes. If productivity were rising by 3 percent a year, which it is not--. Let's be realistic about it; it could be rising by 1 percent a year; so it takes three years' growth of productivity to do that without increases in real income.",219
-fomc-corpus,1985,"On John's question, Paul: I think that is a reasonable question. He was talking about the exchange rate, not the rate of change in the balance of trade.",33
-fomc-corpus,1985,"Well, I got off the question a bit but--",11
-fomc-corpus,1985,Was it a 4 percent decline since the last meeting?,12
-fomc-corpus,1985,A little more than that.,6
-fomc-corpus,1985,It was a little over 4 percent.,9
-fomc-corpus,1985,A little more than that. Is that too much?,11
-fomc-corpus,1985,It's not too much if it doesn't--,8
-fomc-corpus,1985,The problem is that there is a threshold level in there someplace.,13
-fomc-corpus,1985,"Yes. One would hope to get it down as fast as when it first began coming down and get it over with and then have a feeling of greater stability. Could we take another 4 percent [decline]? That depends, really. If people thought we were concerned about 4 percent and concerned about the inflationary impact, we would get a different situation. What I would fear the most is a feeling that we were driving it down, that we were easing policy to drive the dollar down, saying ""Let's get this thing going."" That, I think, is fraught with danger.",119
-fomc-corpus,1985,"Well, I would certainly agree.",7
-fomc-corpus,1985,"The situation with that 4 percent may be that it's the first 10 percent of a 40 percent drop. So long as there is a feeling that it's not getting out of hand, I think--",41
-fomc-corpus,1985,"It's very unrealistic, isn't it, to think that we could really have a soft landing that people talk about? Gradually moving the dollar down and having this not generate all kinds of responses that would accelerate it and make it happen in 10 minutes--",50
-fomc-corpus,1985,"That's my problem. We may just have an impossible problem. But to the extent the dollar is declining because people feel genuinely better about let's say, Germany and Japan--. Or it could decline against sterling. Sterling got very low and to the extent that people feel that was overdone and sterling went up, one result would be a decline in the dollar exchange rate. But I don't think that is the kind of thing that sets off great expectational movements in the rate; it is much less likely to. I don't know how to quantify it.",109
-fomc-corpus,1985,"Mr. Chairman, I wonder if I could ask Sam to explain a bit further why he thinks that a soft landing for the dollar is a very unrealistic possibility.",32
-fomc-corpus,1985,"Well, if you are really talking about a soft landing, a continuing steady decline, it seems to me that all the people who are sitting there holding dollars are going to be influenced by what they see going on. And I think they will either anticipate it continuing or take other steps, and it just won't go like that.",65
-fomc-corpus,1985,"Yes. Just in conceptual terms: If there were a firm feeling in the market that the dollar was going to decline gradually, I assure you it would decline suddenly.",33
-fomc-corpus,1985,It would happen overnight once they--,7
-fomc-corpus,1985,"Now, it might not be the worst thing in the world if it happened--if, as I say, you woke up tomorrow and the dollar was 10 percent lower and people said: ""That is the end of it. We are down there now. We have great confidence in the dollar at this lower level."" That would be great, but I--",72
-fomc-corpus,1985,It is not going to happen that way.,9
-fomc-corpus,1985,The question is whether they think the first 10 percent is--,13
-fomc-corpus,1985,It's hard to get from here to there.,9
-fomc-corpus,1985,It is impossible.,4
-fomc-corpus,1985,Long before we got any of the benefits on the trade side we would get the financial effects of that kind of sudden drop. It would be very messy.,31
-fomc-corpus,1985,"Oh, it is not even the suddenness. I think we are getting along within limits. If it were sudden and people thought it was over, that's fine. But I don't know how you arrange that particular scenario. What you want is a little constructive uncertainty in the market concerning all the ways it could go.",63
-fomc-corpus,1985,You would have to have it move [down] and go up a little and then sideways and then everybody would wonder [which way] it is going. That is the only way you can get there.,41
-fomc-corpus,1985,"I think we have been pretty lucky so far, that is, with what the dollar has been doing in a very compressed time period. But it is so compressed that markets are not going to forget that this trend is pretty clear and sharp. Even though we may get stability for one week, it may go down 2 percent the next week. So far we have been able to play that quite nicely--again by luck, lots of luck. Whether we can continue that, I don't know; it is the best scenario we could have.",108
-fomc-corpus,1985,You get stories even from the Japanese people who theoretically are in longer-term Treasury securities that they have this calibrated down to the tee in terms of what set of expectational circumstances with regard to the decline in the dollar would make them move and move fast.,50
-fomc-corpus,1985,What if today's levels of exchange rates are consistent with still higher deficits in the balance of trade?,19
-fomc-corpus,1985,"That may be, and that is a reason why the dollar has to come down. But that does not tell you how to get there easily. We cannot cure the underlying problem that we are borrowing $150 billion a year abroad.",46
-fomc-corpus,1985,Or $200 billion at home.,7
-fomc-corpus,1985,And that you can't dispense with that without it having other consequences.,13
-fomc-corpus,1985,"Well, the American banks would buy government securities and make less consumer loans and tighten up their standards there. Is that all bad?",26
-fomc-corpus,1985,And never sell them.,5
-fomc-corpus,1985,You'd have less consumption.,6
-fomc-corpus,1985,"Within limits it is probably not all bad. But you are saying tighten up on consumer loans, tighten up on all other kinds of loans. What you are saying is higher interest rates. That is one consequence, I agree.",45
-fomc-corpus,1985,"Well, at this level of capacity utilization what would it do? Three percent of GNP would be about 4 to 5 percent on capacity utilization.",31
-fomc-corpus,1985,I don't know. You have to look at manufacturing capacity. That is where? You say [85] percent?,23
-fomc-corpus,1985,"Well, you have to look industry-by-industry too.",12
-fomc-corpus,1985,Manufacturing.,3
-fomc-corpus,1985,Mr. Truman has a subtotal of 100 percent capacity utilization.,13
-fomc-corpus,1985,"Yes, but that's with no give.",8
-fomc-corpus,1985,I think that is probably exaggerated a little.,9
-fomc-corpus,1985,That is simply the counterpart to your [85] percent.,12
-fomc-corpus,1985,"That's not going to happen that fast. But the tendency, with a sharp enough decline in the dollar, would be in that direction.",27
-fomc-corpus,1985,"Well, it would have to be more than that because you would have to compensate for the oil imports; you wouldn't be able to stop those.",29
-fomc-corpus,1985,"Well, let us return to an operating decision here. We had a proposal on the table.",19
-fomc-corpus,1985,$350 to $500 million.,7
-fomc-corpus,1985,"What we are saying in traditional terms is $425 million with a band of flexibility around there that is significant but not huge. It's barely significant, I suppose, in terms of its flexibility. If we got much beyond that, conditions probably would justify some discussion. That, I guess, is fairly obvious.",61
-fomc-corpus,1985,"And the specifications of ""B""?",7
-fomc-corpus,1985,I haven't looked very carefully at these. Has anybody thought or felt some strong predilections? We have a couple of alternatives here. Which alternative do we start with?,34
-fomc-corpus,1985,Mr. Corrigan put some specifications on the table.,11
-fomc-corpus,1985,"Well, apart from the specifications, we have some language labeled alternative I and alternative II. Is there any feeling between alternative I and alternative II, apart from what numbers we pick?",36
-fomc-corpus,1985,Pres does.,3
-fomc-corpus,1985,"Alternative I spotlights the overshoot on M1; that's the substance of the difference in approach. It may be appropriate. Having not read it carefully yet, I will express an opinion that the fact that M1 is kind of out of bounds would lean me toward II just in terms of format, not substance, here.",65
-fomc-corpus,1985,"It seems to me, Mr. Chairman, that alternative II is a somewhat fuller discussion of M1 growth--what we expect and what its implication is--than alternative I.",35
-fomc-corpus,1985,That's my offhand feeling. Shall we work from alternative II?,13
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,I would prefer it.,5
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"All right. Let's for the moment work from alternative II. I think we are saying ""maintain"" basically, but that does leave a question in my mind. Either here or in the discussion [in the policy record]--maybe we can do it just in the discussion--we might say that we did have an insubstantial firming.",70
-fomc-corpus,1985,We would put it in the policy record.,9
-fomc-corpus,1985,"We could say here ""maintain the degree of pressure on reserve positions sought in recent weeks"" and then explain in the policy record that that is very slightly tighter than when we said maintain last time.",40
-fomc-corpus,1985,It would be characterized as a little tighter?,9
-fomc-corpus,1985,"I would be very delicate in what words we use. ""A somewhat more cautious provision of reserves"" I think is about--",25
-fomc-corpus,1985,It requires extreme delicacy this time since the level of borrowing unfortunately has been dropping as we have gotten slightly tighter.,23
-fomc-corpus,1985,"We would have to explain the aberration in the one week and say we approached it a bit more cautiously. That's enough. Now, what numbers do you want to put in here on M2 and M3?",43
-fomc-corpus,1985,I had suggested--,4
-fomc-corpus,1985,"9, 8-1/2 and 6-1/4 percent.",17
-fomc-corpus,1985,I don't like to use the quarters.,8
-fomc-corpus,1985,I had suggested 6-1/2 and 8-1/2 percent.,18
-fomc-corpus,1985,What did we say last time?,7
-fomc-corpus,1985,"You had 7-1/2 percent last time, Mr. Chairman. And our present estimates are 8-1/2 percent for M2 and 6-1/2 percent for M3, so--",45
-fomc-corpus,1985,Suppose we said 7 to 8 percent for both of them? One is slightly lower and one is slightly higher but--,26
-fomc-corpus,1985,That is fine with me.,6
-fomc-corpus,1985,Seems reasonable.,3
-fomc-corpus,1985,Rates of around 7 to 8 percent.,10
-fomc-corpus,1985,Expecting to miss both of them. An average--,11
-fomc-corpus,1985,The average guesses.,4
-fomc-corpus,1985,8-1/2 percent and 6-1/2 percent.,15
-fomc-corpus,1985,"Well, I don't feel strongly about it but--",10
-fomc-corpus,1985,"That 8 percent sounds pretty high for M3, Mr. Chairman. That is above anything shown in the alternatives here.",25
-fomc-corpus,1985,I'd rather pick 6-1/2 and 8-1/2 percent. I'd take the point estimates. That happens to average to 7-1/2 percent; I don't know that that means anything. Have we ever said that we average the aggregates?,55
-fomc-corpus,1985,Geometrically or arithmetically!,9
-fomc-corpus,1985,"I would have some preference, or more than a slight preference, for not changing the numbers if we don't have to. That is the only advantage of 7 to 8 percent, but I will not press the point. Would you rather say 7 to 8 percent or 8-1/2 and 6-1/2 percent?",71
-fomc-corpus,1985,8-1/2 percent would be good.,10
-fomc-corpus,1985,8-1/2 percent.,7
-fomc-corpus,1985,"Well, we'll just be wrong on both.",9
-fomc-corpus,1985,With a point estimate you don't expect it to be exactly right.,13
-fomc-corpus,1985,I didn't realize they did when you said--,9
-fomc-corpus,1985,You could have lucked out.,7
-fomc-corpus,1985,"I should change my definition of success in projecting, Mr. Chairman, because I always thought within a percentage point was success.",25
-fomc-corpus,1985,So did I.,4
-fomc-corpus,1985,Even with the period half done.,7
-fomc-corpus,1985,[Unintelligible] third quarter.,9
-fomc-corpus,1985,"8-1/2 and 6-1/2 percent. ""M1 growth is expected to slow markedly--""",25
-fomc-corpus,1985,"How about that word ""markedly""?",8
-fomc-corpus,1985,Yes. How about omitting it?,8
-fomc-corpus,1985,"Well, it has gone from 14 percent to 4 percent; that's quite a slowing.",19
-fomc-corpus,1985,"Yes, but it is subject to judgment, and people will interpret it one way that may not be appropriate. I'd eliminate it.",26
-fomc-corpus,1985,"Why don't we say ""given relatively rapid growth in recent weeks."" What number do you want to put in there?",23
-fomc-corpus,1985,I'd want to put 8-1/2 percent.,12
-fomc-corpus,1985,6 to 10 percent.,6
-fomc-corpus,1985,Come on! You wanted to put in a precise number on the others.,15
-fomc-corpus,1985,I'd suggest 9 percent.,6
-fomc-corpus,1985,How about 7 to 9 percent?,9
-fomc-corpus,1985,"Let me make the case for this 8-1/2 percent. I don't feel that strongly about it, but the only reason I'm attracted to it is that I think it does lend a little to the point of view that suggests we are not totally indifferent about being outside the tunnel, or whatever the heck we call it, for the second half of the year that we just adopted 6 weeks ago. That's the only thing that leads me to that number as opposed to the 9 percent. But I--",103
-fomc-corpus,1985,You prefer 8-1/2 percent to the 8 to 9 percent?,18
-fomc-corpus,1985,"Yes, but I am somewhat agnostic.",9
-fomc-corpus,1985,Where does the sense of the meeting lie?,9
-fomc-corpus,1985,That it matters less than it used to.,9
-fomc-corpus,1985,"If we use the 7 to 9 percent, it is centered on 8 percent but it does give us some flexibility to go one way or the other without having to make any policy move.",40
-fomc-corpus,1985,"The trouble that I see with that is the 7 percent; it is realistically less than most people think it is going to get to, I guess.",31
-fomc-corpus,1985,"Well, it should be.",6
-fomc-corpus,1985,"But to use 7 to 9 percent, centering on 8 percent, seems to me to provide flexibility that would be desirable.",28
-fomc-corpus,1985,We need a decline in September to get 7 percent.,12
-fomc-corpus,1985,"Why do we say ""relatively rapid growth""? That sounds like it wasn't really very rapid growth at all--that it was sort of rapid growth. And it was a heck of a lot bigger than that.",42
-fomc-corpus,1985,"Well, take out the ""relatively.""",9
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,That's acceptable?,3
-fomc-corpus,1985,"""Given the rapid growth in recent weeks"" is what we say?",14
-fomc-corpus,1985,What number do you want to put in?,9
-fomc-corpus,1985,"9 percent is the expectation, isn't it? Why don't--",12
-fomc-corpus,1985,9 percent is what I'd like to see.,9
-fomc-corpus,1985,9 percent is what I want.,7
-fomc-corpus,1985,I'd prefer 8-1/2 percent.,10
-fomc-corpus,1985,I'd like to stick in some way with the range that we set; maybe we can straddle it with 7 to 9 percent.,28
-fomc-corpus,1985,"Well, this is an expectation and not a policy statement. Maybe--",14
-fomc-corpus,1985,"In terms of a policy statement, we'd accept [unintelligible] depending upon what we do and given this uncertainty. It sounds like the right thing is 8 to 9 percent, but I'm not sure. If we have a consensus for 8-1/2 percent, that's fine.",61
-fomc-corpus,1985,That's fine.,3
-fomc-corpus,1985,8 to 9 percent?,6
-fomc-corpus,1985,No problems with it.,5
-fomc-corpus,1985,"Now, on this next sentence it strikes me that we don't need that ""although"" part. It sounds awfully precise.",25
-fomc-corpus,1985,That's the second next sentence?,6
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"I'd prefer ""might"" instead of ""would"" in the first sentence.",15
-fomc-corpus,1985,"Since that's what we seem to have done, I think that's what we ought to put in.",19
-fomc-corpus,1985,"What do you want to put in? Well, we'll go to the ""woulds"" and ""mights."" First of all, forget about the clause at the end; we'll take that up separately. Just on this standard phrase about somewhat greater or somewhat lesser restraint, the issue is: Do we want a sentence like that?",66
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"In the absence of any objection we will have a sentence like this. Now we have to discuss whether to put in ""mights"" or ""woulds."" Is there some expression for ""mights""? What's the--",44
-fomc-corpus,1985,"It was a ""might"" and a ""would.""",11
-fomc-corpus,1985,"It's not a strong preference, but I would prefer ""would.""",13
-fomc-corpus,1985,We're just talking about the first sentence.,8
-fomc-corpus,1985,On the first sentence?,5
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"Didn't we have ""would"" last time?",9
-fomc-corpus,1985,I think we did.,5
-fomc-corpus,1985,"If the thought is to lean a little firmer this time, I would think we'd stay with ""would.""",22
-fomc-corpus,1985,But we didn't do it.,6
-fomc-corpus,1985,"Well, we did it slightly. On this basis too I--",13
-fomc-corpus,1985,I guess so.,4
-fomc-corpus,1985,It's not very substantial.,5
-fomc-corpus,1985,"I'd say ""would.""",5
-fomc-corpus,1985,"Well, how many opt for ""would""?",9
-fomc-corpus,1985,"I prefer ""would.""",5
-fomc-corpus,1985,Six.,2
-fomc-corpus,1985,"How many are for ""might""? I suppose 5; I count 4; somebody is not voting.",22
-fomc-corpus,1985,There are 11 voting members.,7
-fomc-corpus,1985,"Tentatively, we have ""would,"" [not] I guess by an enormous majority. Now, the next sentence. We had ""might"" last time.",32
-fomc-corpus,1985,"I'd say it should be ""would.""",8
-fomc-corpus,1985,"Let me propose that we put in a ""would"" here too but leave out the bottom part.",20
-fomc-corpus,1985,"Yes, the ""although""--",6
-fomc-corpus,1985,I would support that.,5
-fomc-corpus,1985,Is the last part of that sentence off?,9
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"Somebody suggested that in this next sentence we move up ""foreign exchange markets.""",16
-fomc-corpus,1985,"Yes. Given its importance today in all markets and the vulnerability of the financial system, I think we should give evidence that we are indeed more concerned about that sector.",33
-fomc-corpus,1985,"How would you do it specifically? I don't disagree with the sentiment, but that's--",17
-fomc-corpus,1985,"Well, if we really wanted to change it, we could put the reference to the foreign exchange markets in the ""somewhat greater restraint"" sentence: ""somewhat greater restraint would be sought in the event of substantially higher growth of the monetary aggregates in the context of exchange rate developments"" or something like that.",62
-fomc-corpus,1985,"If the Chairman had just made a presentation to Congress or a major address on that subject and given a signal, I'd be for putting it up there. But since that has not--",36
-fomc-corpus,1985,This is the kind of thing I had in mind: I don't know whether we can make this any more substantial and I don't know whether--,28
-fomc-corpus,1985,"These other factors are really quite important: the business expansion, inflation, conditions in domestic credit markets and--",21
-fomc-corpus,1985,"Yes, that's the problem with changing it. In substance, I don't know whether we should do it for the reasons Governor Martin suggested but in a short-term tactical sense it belongs there. But these other things are very important and provide the general background. I guess it would be--",56
-fomc-corpus,1985,"Put it in after ""strength of the business expansion"" now, and then when you have made such a presentation move it up.",26
-fomc-corpus,1985,"We may not be able to do it now, but I'll tell you: The more I think about it, it makes a heck of a lot of sense because it also allows us in that context to get back to this damn budget deficit question. That thing is just going out the window on us and, ultimately, that's what is driving the whole conundrum.",73
-fomc-corpus,1985,"Paul, I think we might say simply ""the movement of foreign exchange rates"" or something like that after ""the business expansion."" But then the last phrase ought to be revised to say ""domestic and international credit markets."" We don't want to drop out the international credit markets.",56
-fomc-corpus,1985,"No. ""In either case such a change would be considered in the context of appraisals of the strength of the business expansion and--."" What's the word: ""conditions""?",36
-fomc-corpus,1985,"I said ""movements"" but--",8
-fomc-corpus,1985,"""Patterns.""",3
-fomc-corpus,1985,"""Developments in foreign exchange markets.""",8
-fomc-corpus,1985,"--""developments in foreign exchange markets, progress against inflation and conditions in domestic and international credit markets.""",21
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"""Changes in developments in foreign exchange markets.""",9
-fomc-corpus,1985,"Mr. Chairman, I just want to point out that a difference between alternative II and alternative I was that the two sentences are reversed. At the last meeting the lesser restraint sentence was first and the greater restraint sentence was second. In alternative II, I reversed them; I don't know how that will be read by the market or how the Committee would feel about that. Also the words ""somewhat greater restraint would be sought"" in the previous directive were ""would be acceptable,"" but for better English language I changed that because I used ""acceptable"" in another sense later on.",115
-fomc-corpus,1985,"Where is this ""acceptable""?",6
-fomc-corpus,1985,"Where it now says ""somewhat greater restraint would be sought in the event of..."" last time it said ""would be acceptable in the event of....""",31
-fomc-corpus,1985,Why don't we leave that.,6
-fomc-corpus,1985,You're leaving the other out?,6
-fomc-corpus,1985,Also take it out.,5
-fomc-corpus,1985,"I took it out because I had another ""acceptable"" in there.",14
-fomc-corpus,1985,[Unintelligible] acceptable and--,9
-fomc-corpus,1985,I'm hung up on--,5
-fomc-corpus,1985,"Oh, we just took that out.",8
-fomc-corpus,1985,"Yes, that's right. So you can put the ""acceptable"" back in. That's what I'm pointing out.",22
-fomc-corpus,1985,"Yes, the ""acceptable"" we can.",9
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,"Do we put the ""acceptable"" back in? SEVERAL. Yes.",16
-fomc-corpus,1985,Does anybody have any other comments or suggestions on the whole package?,13
-fomc-corpus,1985,Can you tell me what you've done with that last sentence with respect to the foreign exchange markets?,19
-fomc-corpus,1985,"""In either case such a change would be considered in the context of appraisals of the strength of the business expansion, developments in foreign exchange markets, progress against inflation, and conditions in domestic and international credit markets.""",43
-fomc-corpus,1985,"And the ""although"" clause in the previous sentence is out?",13
-fomc-corpus,1985,"Out. They are both ""woulds"" and ""acceptable."" Well, we're going to vote unless somebody has a--",24
-fomc-corpus,1985,"It's 6 to 10 percent, I guess, Mr. Chairman.",15
-fomc-corpus,1985,"6 to 10 percent at the bottom and borrowing of $425 million, which is about where we are now and with flexibility around there in either direction depending on the money supply and other circumstances.",39
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Black No President Forrestal Yes President Keehn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger No Governor Wallich Yes,43
-fomc-corpus,1985,We're having a luncheon for Governor Gramley.,9
-fomc-corpus,1985,They all got unwound in an orderly way?,10
-fomc-corpus,1985,"Those extra loans were unwound, yes sir.",10
-fomc-corpus,1985,Any comments or questions? We need to ratify the transactions.,13
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Without objection. Mr. Kichline.,9
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,"Where is the dollar today, roughly, compared with the second-quarter average?",15
-fomc-corpus,1985,Down about 12 percent.,6
-fomc-corpus,1985,Any other questions or comments?,6
-fomc-corpus,1985,"I just wanted to make sure of what I heard, Jim. For the projection of the dollar, you assumed down 20 percent by the end of 1986 from where?",36
-fomc-corpus,1985,The Q2-1985 average.,8
-fomc-corpus,1985,From which you've already had a 12 percent decline?,11
-fomc-corpus,1985,Correct.,2
-fomc-corpus,1985,So it's about the same rate of decline as previously.,11
-fomc-corpus,1985,From now on out. I think that really is an accident.,13
-fomc-corpus,1985,"What did you think of the NABE forecast of a recession late next year or early 1987, since they're having their annual convention right now?",30
-fomc-corpus,1985,"Well, I guess it's somewhat fortunate that we don't have to forecast into 1987 at the moment. It's rather cloudy, I think, in terms of trying to look into late '86 and '87. There are questions about lots of things. What do you assume about policy and the dollar? One of the things that is happening--and I can lay this on Ted in the sense the dollar forecast is giving us some help--is that as we go on into '86, if the dollar follows the path that we've assumed, we ought to be getting some benefits from that domestically in terms of increased production. So, at this moment I wouldn't necessarily come up with a bearish forecast and assume that the economy comes to a grinding halt in late '86 and early '87. Certainly, our forecast as we have it now would not give one the sense that we begin Q1 1987 and fall off a cliff; we have a sense of the economy growing in the 2-1/2 to 3 percent area pretty much throughout the period, but being helped by the foreign trade sector later on in 1986.",228
-fomc-corpus,1985,"May I follow up on this dollar outlook question because that's a very key one? If I understand your numbers correctly, your expectation is that the dollar will be down another 8 percent between now and the end of '86. It's already down 12 percent from the second quarter of '85.",59
-fomc-corpus,1985,"Another way of looking at it, as Jim said, is that this forecast is built on the assumption that in the 4th quarter of 1986 the dollar will be 5 percent lower than in the last forecast. And most of that downward adjustment occurred between the time of the August meeting and today.",62
-fomc-corpus,1985,"Previously, the assumption had been a very gradual decline throughout the period; this assumption is essentially front-loaded in September so that we would anticipate a bigger impact on the economy in terms of exports, imports, and prices than we had earlier because it doesn't occur very gradually throughout the whole period.",57
-fomc-corpus,1985,"Thank you, Jim.",5
-fomc-corpus,1985,"No more questions or comments on the business situation? If not, we'll turn to Mr. Axilrod.",22
-fomc-corpus,1985,There aren't any comments on the business situation?,9
-fomc-corpus,1985,"Well, I assume that they're going to come later.",11
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,"Now, who would like to comment? We've run out of staff; it's up to the Committee.",20
-fomc-corpus,1985,"I would like to ask for a little further clarification in Steve's view of these so-called portfolio shifts as a possible partial explanation of the surge in M1. Looking back to May, as we all know, we have seen absolute declines in some of these term deposits like large-time deposits, term RPs, term Eurodollars, etc. You and your staff study this, Steve. To what extent is that a significant factor in this surge in Ml?",92
-fomc-corpus,1985,"Well, we think it's largely behind the strength of the NOW accounts over the past several months--that is, the strength above what ""normally"" occurs. At the same time, of course, we have had large increases in old M1A, the currency and demand deposits component. It's conceivable that some of that money could be flowing into demand deposits, but I don't think much. Or it could be flowing in for a very few days as people make up their minds what to do with it. So I'd say it has been a strong element, but I can't put a percentage on it. I'd say it's not 80 or 90 percent dominant, but maybe a little less than that. From June to September, for example, old M1A moved [up] around 8 percent while the present M1 grew 13.7 percent. It's not as if it's all in the NOW accounts; a substantial part is in currency and demand deposits.",192
-fomc-corpus,1985,"Well, that's what I recall. In the May-to-August period, which is what I was looking at, the increase in demand deposits was just about as big as the sum of the increase in NOWs and Super NOWs. So, I'm a little confused as to whether the portfolio shift out of these term deposits was in fact directly connected with the rise in old M1A.",78
-fomc-corpus,1985,"Oh, I doubt that it's very much in there. I could conceive of some going into demand deposits for a while but not for very long.",29
-fomc-corpus,1985,"Yes, that's about my view.",7
-fomc-corpus,1985,Why would you take money out of an interest-bearing deposit and put it in a demand deposit? That's--,21
-fomc-corpus,1985,Yes. I would say that it's only conceivable for a transitional period while one is making up one's mind what to do with it.,26
-fomc-corpus,1985,Very short.,3
-fomc-corpus,1985,That's why it could affect the average for a very short while.,13
-fomc-corpus,1985,And currency has gone up quite a bit too.,10
-fomc-corpus,1985,"Well, it has. It has its ups and downs.",12
-fomc-corpus,1985,I know.,3
-fomc-corpus,1985,"But starting in May, we had growth rates in three months that were 10 percent or more and in two months that were 6-1/2 percent. It's on average a little faster, but I don't think it's extremely noticeable.",48
-fomc-corpus,1985,"Well, one could make a case that we're seeing some backsliding in the demand for money. If you think about the increases in velocity over the last 30 years and the various reasons for that--higher rates, inflation, increased use of credit cards for cash--now we're finding less inflation and more of M1 bears interest. There could be some backsliding in a number of local markets. Credit cards aren't what they used to be; service charges are being applied from the date of purchase rather than giving that grace period of a month. It's nothing we can measure very precisely, but it seems to me that in the '80s there has been some backtracking in the very same kinds of forces that led to an economizing of money in the '60s and '70s. And there just could be some backsliding.",170
-fomc-corpus,1985,"I don't know about the credit card explanation but I have a couple of charts in front of me depicting just a very simple part of velocity, M1 velocity, with various lines. And it just stands out in these charts that--well, just how it looks depends upon the lag--there has been a flatness or a downward tilt for four years now. This chart shows a break in trend, not just this year, or not just in '83. It has been flat for four years.",100
-fomc-corpus,1985,The same period that we've had a very rapid increase in credit relative to GNP.,17
-fomc-corpus,1985,The same period--,4
-fomc-corpus,1985,"Well, this began before that I think, but I don't know what the connection is.",18
-fomc-corpus,1985,Did it? In 1982? I don't [know] either.,15
-fomc-corpus,1985,Mr. Morris.,4
-fomc-corpus,1985,"Mr. Chairman, I'd like to make two comments. One is that we have been seeing, really since the beginning of the year, a divergence between the growth rate of M1 and the growth rates of all of the broader aggregates. If you look at total liquid assets, debt, M3, and even M2, you'll see a deceleration in growth rates since early in the year. M1 is the only one on the chart that we show accelerating. I wonder if you would look back in earlier history, Steve, and find the periods where we had this kind of divergence in the past. I don't think there were very many, actually. But given that divergence, what weight should we apply to the M1?",146
-fomc-corpus,1985,"That's the exercise we engaged in, actually. This was a three-quarter period of an acceleration--these are accelerations not levels of growth rates--in M1 that has occurred through the third quarter of this year; it's an acceleration of 9 percentage points, essentially, at an annual rate. At the same time the nontransactions component of M2 has decelerated by 3 points. And M2 itself measured over the same period [decelerated] by about two tenths; it certainly has not accelerated. Now, when we looked back, the other period of exception in some sense was back in the first quarter of 1966. Then the nontransactions component dropped 1 percent and M2 went up 1 percent--small increases relative to M1, which had gone up 4-1/2 percent. There were some other periods where there were similar drops in the nontransactions component and small increases in M2. In a couple of them money and nominal GNP went up together. But by and large where M1 has been strong and nominal GNP has been correspondingly strong, M2 also has been relatively strong. And the only thing I can make out of that is that we were getting shifts into M1 and out of the nontransactions component of M2, which doesn't affect M2 as a whole but does affect M1. And in that case, M2 might be given some weight because of the conflict of the two; and it was tending to say that nominal GNP isn't going to move quite as much. The simplistic formula would be that if M1 is strong and M2 is strong, the odds are better that nominal GNP is going to go up than if there are conflicts between the two [aggregates]. And I think that's--",361
-fomc-corpus,1985,You didn't look beyond M2?,7
-fomc-corpus,1985,"Well, I have a whole list of variables here, like the rate of change in commodity prices, the dollar. None of them worked--",28
-fomc-corpus,1985,You didn't look at M3 and liquidity and debt?,11
-fomc-corpus,1985,"I have, yes. I have the nontransactions component of M3, but not M3 itself. And that doesn't do very much for you. I have debt as a whole here. And that isn't consistent enough; it has scattered minuses and pluses.",53
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"I have another point, Mr. Chairman. I'd like to propose that a presentation be made by the staff at some future meeting on this whole issue that Steve raised in his presentation of what we're going to do if we're faced with a precipitous decline in the dollar. To what extent do we let the pressure be borne by the exchange rate and to what extent do we let it be borne by interest rates? It seems to me it would be helpful, if we get to that point, to have had a thorough thrashing out of what all of the consequences would be. I could tell you that my own bias at the moment would be to have a policy geared to letting the exchange rate take the pressure. But I'd like to be better educated on that subject.",152
-fomc-corpus,1985,We may need some.,5
-fomc-corpus,1985,We have some work in process.,7
-fomc-corpus,1985,"Well, is it the exchange rate versus interest rates or is it interest rates versus prices?",18
-fomc-corpus,1985,"Well, why don't you just review this little frightening exercise you did yesterday, Mr. Truman.",19
-fomc-corpus,1985,"I have a paper here to look at. With much hesitation, we have run estimates--with the help of models, rules of thumbs, judgments--and looked at what would happen if we had a 40 percent decline in the dollar over a very short period--18 months, roughly.",58
-fomc-corpus,1985,"That was 40 percent you said, Ted?",10
-fomc-corpus,1985,"Yes, 40. [The specific number] doesn't matter; basically, it's a very large decline over a short period of time. And then we looked at where the economy would be three years later--another 18 months after this decline had happened. We looked at two extreme assumptions: one was that you don't change money growth, or at least what the models tell you money growth is; and the other was that you don't let interest rates change. In the first case the models tend to tell you that the nominal GNP won't change at all.",111
-fomc-corpus,1985,The first case meaning let interest rates go up but--,11
-fomc-corpus,1985,Let interest rates go up; take it on interest rates.,12
-fomc-corpus,1985,That's your extreme assumption?,5
-fomc-corpus,1985,That's an extreme.,4
-fomc-corpus,1985,Very extreme.,3
-fomc-corpus,1985,"The level of real GNP, while it may go up initially, comes back down as the interest rates--",22
-fomc-corpus,1985,It doesn't go up beyond what it otherwise would.,10
-fomc-corpus,1985,"Right. But the composition changes because gross domestic purchases go down by about 5 percent. That is about enough to change--well, it gives you $140 billion on the current account and essentially wipes out the current account deficit. So, gross GNP is unchanged, gross domestic purchases go down by about 5 percent, making--",67
-fomc-corpus,1985,From what they would otherwise have been.,8
-fomc-corpus,1985,"From what they would otherwise have been, yes sir.",11
-fomc-corpus,1985,And prices?,3
-fomc-corpus,1985,And the price level goes up by 7 percent.,11
-fomc-corpus,1985,Seven?,2
-fomc-corpus,1985,Above what it would otherwise go up.,8
-fomc-corpus,1985,"Above what it would have gone up. At the other extreme, real GNP goes up by around 10 percent compared to what it otherwise would be. Gross domestic purchases, since you have a sympathetic effect from the addition to net exports, go up above what they otherwise would be. Capacity utilization you might not believe: that goes up by 6 percentage points. The unemployment rate drops by a somewhat unbelievable 3 percentage points. The consumer price level goes up a total of 12 percentage points. Governor Partee commented that he didn't believe that number would be so small; I think I agree with him. And because you have these sympathetic--or unsympathetic--income effects, you get half as much mileage on the current account deficit.",150
-fomc-corpus,1985,"I don't want to get involved with the particular numbers, but what these exercises illustrate is that if you take extreme--I hope extreme--assumptions and you're going to correct that $150 billion current account deficit, you have a helluva relocation from domestic consumption to the external sector. You would have what's going on in Latin America where they have had no increase in domestic consumption while they are putting all [their expanding production] in exports. And unless events force some of it out of domestic consumption, you have a helluva inflationary impact and capacity problems and employment goes up and unemployment goes way down.",121
-fomc-corpus,1985,"From another perspective, Mr. Chairman--and this supplements Mr. Truman's data--we've been working on this also, partly using the quarterly model and partly using some judgment. And with the same assumption that we get the current account balanced, the question is whether interest rates go up and whether it reduces fixed investment and all that. But the model ended up with a very high personal saving rate in that process, which we judgmentally reduced over a four-year period. By the time it was all done we were ending up with a personal saving rate of very close to 8 percent which, as you know, is very high historically. That sort of cast into doubt the practicality of all this short of other measures, such as a weakening economy, which themselves would bring the current account in balance. And that same exercise, to verify it in the sense of capacity, did require capacity utilization rates in manufacturing rising--depending on [an assumption of potential] capacity growth on the order of 2-1/2 to 3 percent--to the area of 85 to 87 percent. If you thought [potential growth] was 3-1/2 percent, it'd be a little lower than that. But it certainly is on the order of 5 percentage points added--",257
-fomc-corpus,1985,"In your little exercise where you kept the GNP where it otherwise would have been, Mr. Truman, what kind of interest rates did you get?",30
-fomc-corpus,1985,"They go up initially, as Steve was commenting earlier, but then they come back down as they begin to bite or constrain the economy. I think at the peak these exercises generated [rate increases of] something like 500 or 600 basis points.",50
-fomc-corpus,1985,You have to cut the domestic demand 5 percentage points. That's a lot.,16
-fomc-corpus,1985,"Well, I think--",5
-fomc-corpus,1985,"But on the other hand, why would you want to cut demand all that much? Where we have a lot of excess capacity is in the manufacturing sector and that's just exactly where you would have the substitution with imports. So it would seem that while we'd have to rearrange domestic consumption, reallocate it somewhat, we still do have a lot of excess capacity concentrated just where we need it because it's largely manufactured goods that we are importing.",87
-fomc-corpus,1985,"Well, you see more of that excess capacity, I think, than I do. It's arbitrary.",20
-fomc-corpus,1985,"Well, I could take you on a trip through parts of Pennsylvania where they claim they have a heck of a lot of excess capacity. If they had the demand for some of these manufactured goods that they say are now [being imported] from abroad rather than being produced here--",55
-fomc-corpus,1985,"Ed, if you give those people income they're not just going to spend it on products, they're going to spend it on services too.",27
-fomc-corpus,1985,I understand that.,4
-fomc-corpus,1985,And there is a macro effect.,7
-fomc-corpus,1985,I understand that. My only point is that we don't have to be anywhere near the extreme of this; we can be somewhere in the middle. And we might be able to be on the side of the middle that gives us a little more growth largely because of where this [capacity] is. We have areas in Pennsylvania where unemployment is 10 to 12 percent. These are largely people who have been displaced by the imports.,86
-fomc-corpus,1985,"I raise the same question on the capacity. For example, the automobile industry domestically is operating about flat out currently. They are trying to speed up their lines and they are adding shifts. But fundamentally, the people I've talked to are saying that never again will they add another dollar's worth of capacity on the domestic side. If there is any shift, they will begin to bring in more products from Mexico and Korea. They are not going to add to their capacity. So, I think there are an awful lot of industries that have quietly--and some not so quietly--taken capacity off the line. So, if we get a resurgence of demand for domestic output, the capacity would really--",139
-fomc-corpus,1985,"I would note that our trade deficit, largely in manufactured goods, is the equivalent of something like 16 to 17 percent of manufacturing output.",29
-fomc-corpus,1985,So I guess the only thing we can do is pray for a gradual adjustment.,16
-fomc-corpus,1985,That's probably right.,4
-fomc-corpus,1985,Either that or we're in trouble either way.,9
-fomc-corpus,1985,"Well, we're in trouble politically the way things are now and I think it's unsustainable. That's a pretty good definition of trouble in terms of the overall performance of the economy, employment--",37
-fomc-corpus,1985,That was based on a radical assumption about the dollar. I would like a little elaboration from Steve or from Ted as to how market participants have viewed the G-5 announcement so far.,38
-fomc-corpus,1985,"Well, I could add that one example we were working out would imply the dollar would go down, but I don't know by how much. But suppose you said you're going to move to current account balance over a four-year period--and this is relevant to what Mr. Boehne was mentioning in a lot of ways. Just say you're going to do that, but if you do it you've got to press. So, apart from what happens to the dollar, you have to have over that period gross domestic purchases--consumption plus investment plus government expenditures--growing less than GNP. And there has not been a four-year period [like that] in the postwar period. There have been some periods where it has grown less but not [for so long]. On one estimate we've worked out, if you went to current account balance and GNP was growing 3 percent in real terms--yes, your potential may be a little more because you had a little slack in unemployment--you would have had to had gross domestic purchases growing 2 percent over that four-year period. So, it's 1 percentage point less year after year. The public has to be willing to sacrifice output, in effect, to abroad.",246
-fomc-corpus,1985,Not sacrifice output.,4
-fomc-corpus,1985,I mean to sacrifice their consumption relative to output.,10
-fomc-corpus,1985,Which could most logically come by cutting the federal budget deficit.,12
-fomc-corpus,1985,"Yes. To make it difficult, we were assuming that didn't happen. That's not the experience of the postwar period. It has been less than that, but not for so long. I don't think--and Mr. Cross and Mr. Truman [may think differently]--that the market has yet moved to the point where they think the dollar is going to drop 40 percent. But that's the danger, I think.",85
-fomc-corpus,1985,I imagine it would be falling a lot sharper if the market thought that.,15
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Could you supply us with a written statement of these simulations you ran so that we could take a look at them at a more leisurely pace?,28
-fomc-corpus,1985,Why don't we have a little presentation at the next meeting? I hope that's not too late. But I think these issues are clearly at the heart of our problem.,33
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"We have a disequilibrium in the economy. How do we correct it? Frankly, how to correct it--to produce a nice smooth correction--is not all within our power, I'm afraid. There are certain extraneous forces that are going to foul us up. Well, I think we better have a doughnut after this.",68
-fomc-corpus,1985,"I think our discussion [about the exchange value of the dollar] needs further elaboration, because the problem is evident in what was said. The success of countries in the past of pushing their own currencies down without creating problems is extremely limited. In fact, I don't know of any case where any country has done this and been happy about the end result. Just to sharpen the dilemmas a bit, the funds rate has been up the last couple of days over the course of the [quarter-end] statement date. Ordinarily, we would think that [rise] would have a strengthening effect on the dollar; the dollar is weakening quite a lot today. The latest money supply figures are down rather significantly, so the possibility of a minus in October is not remote, given the [September] average that we start with. These are very fragmentary data; I hate to even mention them on this unfortunate day, Tuesday, when we get this fragmentary information. [The weakness] may loom larger tomorrow and remain. We do not have a weekly figure but a fragmentary indication of a weekly figure. But September looks lower than was projected and October may be starting lower.",234
-fomc-corpus,1985,"That's surprising. With September growth I presume at least 10 percent, I would think that the end of September would be higher than the average for September.",31
-fomc-corpus,1985,"We had projected about equal, given the ups and downs in the month. The latest figure would suggest that the month-end is quite a lot lower; but that figure revises.",36
-fomc-corpus,1985,September started higher.,4
-fomc-corpus,1985,It started quite high.,5
-fomc-corpus,1985,"Well, there hasn't been much discussion of the straightforward business scene or the inflationary scene or anything else while we, I think usefully, were preoccupied with the basic [dollar] adjustment problem. I think we can proceed and go around the table. Mr. Black.",56
-fomc-corpus,1985,"Mr. Chairman, I held up my hand right before we got into the discussion of these foreign exchange simulations and we were trying to grapple with the idea of what accounts for the strength of M1. Everybody has been searching for that, even those of us in Richmond who don't always take that [aggregate] completely at face value, as you may assume we do. I guess we reached the conclusion that this had to spell trouble for us unless one of two things has happened. One would be that there has been a downward shift in the long-term trend of velocity--and I think there probably has been something of that as a result of financial innovation. But it seems to me unlikely that this decline in velocity will be of such a magnitude that we can stand growth of anything like the 10 to 12 percent we have had over the bulk of this year without running into problems. The second way in which it would not be inflationary would be if these sharp drops in nominal rates have been accompanied by a corresponding decline in either inflationary expectations or the real interest rate as a result of some autonomous weakening in some part of aggregate demand. Actually, what little information we have on inflationary expectations suggests that there really hasn't been much of this. One can't rule out these two possibilities at all, but on balance it seems to me that these two explanations--if indeed they are the only two, as we think they are--are insufficient to justify [M1] expansion of anything like what we have had. So, we need to do something to get back to more normal growth rates. It may be, as you said, that we are going to do that without any effort on our part. But I do think that it is imperative that we slow this down to some extent because we just cannot explain away that much growth, in our judgment. When we get to specific policy points, I would be glad to make some later; but I sense that it's probably not the best time to do it now.",401
-fomc-corpus,1985,"Well, time is passing, so if you want to be more specific, you can.",18
-fomc-corpus,1985,"Well, I would think that it is important that we go ahead and move the borrowed reserve target up some. This may prove to be totally unnecessary, but I would think something like $650 to $750 million would be appropriate. That might, of course, cause some increase in the federal funds rate--to 8-1/2 percent or so. If [money] is still growing fast, I would be prepared to accept that. If it isn't, then I would want to back off from it. But I don't think that we ought to be so over-zealous in our efforts to get the money supply back on target that we aim even at the top of the range that we revised at midyear. I think that clearly would be overkill in view of the rapid expansion we have had thus far. But something like this 8 percent quarterly rate that is projected for the third quarter would seem to me to be reasonable in light of the kind of growth we had before the second quarter.",201
-fomc-corpus,1985,The third quarter is pretty well determined. Are you talking about alternative C--5-1/2 percent for September to December?,26
-fomc-corpus,1985,"Well, I am talking about the quarterly rate.",10
-fomc-corpus,1985,"On the quarterly, it's that high from the 3rd to the 4th quarter.",19
-fomc-corpus,1985,The third quarter--if I don't have my figures wrong--would be about 8 percent. It's 8 point something or other--8.3 percent. I am just talking about the quarterly rate there.,42
-fomc-corpus,1985,"These new numbers, if they stand up, will reduce September by about 2 percentage points or more.",21
-fomc-corpus,1985,"Of course with our procedures, we always have a risk that we are not going to get what we think because there's a pretty loose connection between the rate of growth in any of the aggregates and the borrowed reserve target.",43
-fomc-corpus,1985,I think we can stipulate that.,8
-fomc-corpus,1985,But I think we maybe ought to err a little on the side of tightness to make sure that we get some progress toward decelerating M1. But I would not push it so terribly hard that we get into--,45
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Mr. Chairman, looking at the general business situation, I have changed my forecast very little from the last meeting. I think we are beginning to see the kind of numbers we hoped for and that we wanted to see. I feel more confident about the economic situation than I did a month ago, and I find that that impression is shared pretty much around my District by the business people I talked with. There seems to be much less uncertainty about the course of events. The people I talked to are seeing some forward momentum in the economy that they think is going to carry over into the fourth quarter and, indeed, into the first half of 1986. Now, that view of the economy may be influenced a little by conditions in the Southeast, which are relatively better I guess than in some other parts of the country. While we have some weaknesses, particularly in export-related areas such as textiles and so on, those weaknesses are being offset by strengths otherwise. On the aggregate picture, I would agree pretty much with the forecast of the Greenbook, although on the composition of that forecast I would differ marginally. I would think that perhaps we are going to have a little less strength in housing than in the Greenbook, but otherwise I am generally in accord. I think consumer spending is a real question mark here. My staff is telling me that they expect consumer spending to increase, especially in durables. I am not sure that that's a correct assessment, given the high debt level and the personal income situation that we have.",305
-fomc-corpus,1985,And a very low saving rate.,7
-fomc-corpus,1985,"A very low saving rate as well. The inflation picture looks pretty good. Everyone I have talked to doesn't see any price pressures at all. There are certainly no wage pressures in my area. Altogether, I think that the situation, while not dramatically great, is certainly better than it has been. And I think the outlook is reasonably favorable for the economy to grow at about the trend rate of 2 to 3 percent for the year as a whole. As far as monetary policy is concerned, we have all of these imbalances that we talked about considerably this morning and I don't think that there is very much we can do about those imbalances. So my feeling, Mr. Chairman, is that we should stay pretty much where we are in terms of policy. The dollar, of course, is something that we obviously will want to watch very carefully. If there were extreme changes in the value of the dollar one way or the other, I think that we ought to move aggressively. But as I see the picture at the moment--given the economic growth, the declining dollar, and the absence of inflation [pressures]--I would stay where we are. I guess that means alternative B, although that perhaps suggests a slight uptick in market conditions. M1 is a lingering concern; I am nervous about that. On the other hand, I wouldn't take any positive action to try to bring its growth down appreciably. I hope it will come down on its own accord in October. But particularly in light of what has happened in the G-5 meetings, I don't think we ought to be doing anything to run interest rates up. In terms of the specifics, I would stay about where we are, maybe about $450 to $550 million in borrowing and that probably means a federal funds rate of 7-7/8 or 8 percent. I don't think it makes a lot of difference which of those we come out with. Just to complete the specifics: On the question of the variants, I would like to use variant I.",412
-fomc-corpus,1985,"Just in terms of the discussion, I think we should leave that until the last because, on the face of it, that's not substantive. Mr. Corrigan.",33
-fomc-corpus,1985,"Just a brief comment on the business situation: My own view is similar to Mr. Forrestal's in that I do draw more encouragement from the collection of latest statistics--not that they lead to anything different than the staff forecast, but I think that they raise the chances that that, or maybe a tad better, in fact is what will happen. But I must say that in and around New York City anyway, the people associated with the very large multinational companies [unintelligible], notwithstanding the recent business statistics, are still very distinctly on the bearish side of things. I am not quite sure whether that's just a further manifestation of the way in which those companies are being affected by the external side. There may be some of that, but I detect in the time frame of the past six weeks or so a higher level of concern in that community about the underlying policy situation. There is even, as I said before, some whispering to the effect that sooner or later that underlying policy situation is going to lead to more inflation--not that anybody sees it right now, but that there's a sense of inevitability about it.",226
-fomc-corpus,1985,Some of them may even want it.,8
-fomc-corpus,1985,"I think that's true. But again, I think the combination of things, including realization of a budget resolution and all of the rest, has given rise to a renewed sense of cynicism if not outright hopelessness in terms of the budget situation. And in terms of monetary policy, there is a sense that the constraints are growing--constraints in terms of financial fragility, of the M1 problem that everybody wants to pretend isn't there but can't quite get themselves to pretend that it's not there, and more recently a net feeling that this G-5 [agreement] works in the direction, at least in the short run, of more of a constraint on policy. As I said, it's hard to judge that; but I think more attention has been paid to the policy dilemma in that segment of the business community in the recent past than I, at least, had detected earlier. Now strangely enough, attitudes outside of that community of the Fortune 500, including even places like Buffalo and Rochester, are distinctly better. I can't quite figure out why that's true, but we have had a couple of meetings upstate recently and I was really struck by the very sharp difference in perceptions about the business situation, even in the Buffalo area. We have an auto worker, and he's dancing in the aisles. He is not buying this notion that all of this [improvement in the] auto situation recently is just financing-related. He seems to think that they are really getting back into a groove. That's strange, but true.",303
-fomc-corpus,1985,It certainly would be desirable for him.,8
-fomc-corpus,1985,You have the vote protecting money?,7
-fomc-corpus,1985,"I don't know if it has quite progressed to that point. It wasn't just either. I was amazed at the attitude among a group of about 25 business people up there two weeks ago. It floored me. I thought I was back in Minneapolis, Gary. Anyway, extracting from the vagaries of the business situation, however one judges it, my own view on policy is that we should stay where we are, which means alternative B pretty much as sketched out in the Bluebook. In the immediate here-and-now situation, on top of all of vulnerabilities that have been there all along, I must say that I personally think the major vulnerability is a downside break in the dollar in the near term. I am not predicting that, but I think the risks are there. I am not sure what one does about it, but I would be prepared to tilt the thrust of policy in the context of alternative B in the direction of trying to mitigate against that vulnerability in any little way that we can.",201
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"Mr. Chairman, I note that much of the positive news recently has to do with housing sales and the leading indicators. When you take autos out of consumer spending and analyze the [rise in the] leading indicators, which has been in the financial [components] up until the very last month, I am not sure that there has been such a turn in the leading indicators as to point to much more strength in the period we are going through. I note and support the Fed staff revising the growth downward in some of their projections at least. It seems to me that when the labor force resumes its growth, we well could have that two- or three-tenths improvement [in the unemployment rate] disappear, as I think Jim hinted at. As the labor force resumes growth and we remain on a 2 percent [real GNP] growth line rather than 2.7 or 3 percent or whatever, unemployment could well begin to creep up again, given the continued layoff news. It seems to me that protectionist tendencies are obvious in the Congress. The price situation already has been alluded to: wholesale prices, the CPI, and the deflator are all looking reasonably good. Commodity prices generally are down. OPEC and the Saudis are having their [annual] charade. When you look at the revised third-quarter data, you find that CCC purchases are very important as are the purchases of autos by consumers. I don't get a very secure feeling about the fourth quarter on that. I note in the staff projection that while the inventory buildup, the restocking, is not the whole [explanation] for another quarter of 3 percent real growth, it is most of it. We have been disappointed, if that's the word, in the inventory buildup in recent months; we previously were projecting inventory being a [plus] factor for the third quarter. I would make the same comment about the [projection for] inventories for 1986. I think that we may be a little too positive in that. I feel we are quite optimistic in our analysis of the trade balance and how quickly that is going to help us and how quickly import prices are going to change. We are talking about changes by the second quarter of next year. So, we well could have 2 percent real growth for the fourth quarter and for the first and second quarters or perhaps for the whole year next year. Once again, that gets me to the problems of unemployment and protectionism. In terms of monetary policy, I would go along with alternative B, but given the way the markets have perceived our policy until very recently, the funds rate has been trading down below what might be expected. Add the borrowings and the excess reserve position to the federal funds trading range and it looks as though the market really hasn't detected the slight movement toward more borrowing and slightly higher rates from the last FOMC [meeting]. Therefore, I would like to see us go back to $425 million as the starting borrowing level and to 7-1/2 to 7-3/4 percent on the federal funds rate, to give ourselves a little action space in interest rates, in case we do have the dollar giving us even more of a problem than we have already. If we have to kick the funds rate up 1/2 point, that keeps it closer to 8 percent than to 8-1/2 percent. I'd give ourselves a little space there. So, I am for alternative B, previous FOMC meeting fashion, of $425 million and 7-1/2 to 7-3/4 percent on the funds rate.",734
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"In a broad context, certainly, our outlook for the economy would be very consistent with the forecast that Jim gave earlier in the meeting. But as has been the case, we have had in the Midwest this terrible unevenness, and that certainly has continued. Some of the areas are doing very well. We've already commented about the auto sector, but I've just been staggered by how effective the price incentive has been. It is surely causing some imbalance in sales. Nonetheless, looking ahead to next year, the people I talked to expect--and I think our forecast suggests--a very, very good auto year of, say, 10.4 to 10.6 million in sales or something like that. So the high sales level this year isn't taking too much from that. In retail sales, the people I talked with say that year-to-date sales are running 6 to 7 percent ahead of last year. That outlook looks pretty good. Looking ahead to Christmas, even though it's awfully early to see that far ahead, I think they are looking for a 4 to 5 percent increase, even though there is a shorter selling period. Commercial construction, particularly in Chicago, continues to be very, very strong. I am afraid a lot of it is tax-oriented, but buildings are going up at a pretty rapid rate. On the bad side, there is agriculture. There is nothing new I can shed on that particular problem other than to say that, as these harvests are beginning to come in, the news is very very bad; I think we are going to see a continued deterioration in that whole sector. On the inflation front, I really continue to be very impressed by how good the news looks. The people I talked with, even those who have businesses that are doing pretty well, are negotiating contracts with annual increases as low as 2 percent, with 3 to 3-1/2 percent fairly typical for under-3-year contracts. They are getting very good changes in work rules and, therefore, have high confidence that productivity will enable them to overcome even those modest increases. And materials costs continue to be very, very tight; 1 or 2 percent increases in materials costs are pretty typical; 3 to 4 percent would be very much on the high side. So everybody I talked to is very optimistic, really, on the inflation front. All of that, of course, is excluding our comments earlier this morning. Moving to monetary policy, it does seem to me that we are in a period when, because of the various circumstances, we have a buildup--both in terms of number and magnitude--of problems that are at the least very, very worrisome. Given that array of problems, I think frankly that we have to be very rate sensitive; I don't think that we can afford to change the status quo too much. M1 is going through an erratic period and we ought to recognize that it is very erratic. Therefore, I would be in favor of maintaining the status quo in terms of the borrowing level and the fed funds rate and I think alternative B addresses that objective. I would suggest a borrowing level of, say, $500 million and a fed funds rate at the current level without tolerating much of an increase.",661
-fomc-corpus,1985,Mrs. Horn.,4
-fomc-corpus,1985,"Mr. Chairman, in the Fourth Federal Reserve District business conditions remain sluggish. We have price weakness across a wide range of activities; wheat, aluminum, coal, and steel come to mind on that front. Conditions are not noticeably improving and they are not really getting worse either. A bright note in our District would come from the retail side; retailers are happy with the pace of sales and they are happy with the mood of consumers. I will be very interested in assessing the reactions to the G-5 announcement in our District, since I think we are a hotbed of protectionist sentiment. I think that the G-5 announcement will be successful in blunting protectionist sentiment and that the efforts will bear fruit in a reasonable period of time. But there is an interesting twist there in that just from the very people who have the most to gain from a falling dollar we hear the concern that if it's not accompanied by either the spurring of growth abroad or the reigning in of our deficits that, in fact, it won't do them the good that they so desperately need from it.",216
-fomc-corpus,1985,I hope you encourage that discussion.,7
-fomc-corpus,1985,"Yes, indeed. But I do think there is a real understanding in the more sophisticated business public of the dangerous game [the G-5] are playing; and we see that time and time again in our District. Having said all that, I think that if we do manage to play this dangerous game successfully and don't have a precipitous drop in the exchange rate, there is room in the short run for optimism. We have really good news on the inflation front. I don't see inflation starting from any other cause except an exchange rate decline or a real spurt in economic growth, and we may be seeing a little pickup in economic growth. So, in the short run I think there is room for optimism. I add all of that together and say that we should stay about where we are on monetary policy. That would be $500 million of borrowing and the federal funds rate where it is-- up nudging the 8 percent level.",189
-fomc-corpus,1985,"Mr. Chairman, in the Eleventh District, we are probably a little more pessimistic, and certainly more pessimistic than is traditional for us. I just completed a swing around the District and found the following: in Houston, no optimism given the energy and real estate situation; in San Antonio and in Austin, a little more optimism; and in Midland Texas, where our El Paso Branch Board met--and that covers eastern New Mexico--all of the uncertainties on energy prices have them quite worried. Si mentioned agriculture. I heard one report up in the Panhandle area of cows coming out of the feed lot at a loss of $125 to $150 a head, so it's going to take a lot of volume to make that up. In Dallas, I guess there is probably a little more optimism, although I worry about it. I've talked about the commercial real estate situation to the point where you all are tired of hearing about it. But the Chamber of Commerce did a report a couple of weeks ago which said that there is more vacant office space in Dallas, Texas than there is office space in Philadelphia. And that has to be a big problem down the road. In a broader context, my own view is that there is a little improvement in the economy. I would pretty well agree with Jim's forecast. On the policy side, I guess I have some sympathy for what Bob Black was saying; I would probably be somewhere between ""B"" and ""C"" myself.",296
-fomc-corpus,1985,"In terms of the business situation, both around the country and around the West, it appears to us that it's a touch better than the last time we met. I would say that the risk of recession--which I never judged to be very big in any event, but it was a risk--if anything, has receded since the time of our last meeting. Having said that, there is nothing that has changed fundamentally in the fabric of the economy, certainly not in the West. We have this big contrast between things that are going well, like defense and aerospace and most services, and weakness in the fields we all know about, such as agriculture, lumber, and many lines of manufacturing. Translating that into policy, we like many others are puzzled by the behavior of M1. The bottom line is that we, at least, can't explain it satisfactorily by any different hypothesis--that it's an increase in the demand for money and a shift in the demand function for money upward, or simply money demand moving downward along a given demand function as interest rates have come down. While you can explain some of it possibly by portfolio shifts, that does not get the whole answer either. That leaves me, net, a bit nervous about the continuing strength of M1 that we have seen and I hope that we can slow it down a little before it translates into some sort of resurgence of inflationary expectations in the market. I don't know how long market participants and investors will go along, seeing virtually an unprecedented surge in money, without beginning to wonder what lies down the road in a couple of years in terms of the inflation rate. So it is really a matter of the feedback and the impact that is having on investor expectations. So far it has been quiescent, but I wouldn't bet on that continuing too long. Were it not for the G-5 program, I would be between ""B"" and ""C;"" but given the G-5 program, I suppose the better part of wisdom is to aim for something of an even keel right now. Thus, I favor alternative B but tilting a little toward the tighter end of the specifications--going up to the maximum level of about $550 million on the borrowing range specified there and wanting to keep that federal funds rate up to about 8 percent.",463
-fomc-corpus,1985,"In economic terms, very little seems to have changed. Some non-economic factors have changed. As far as the situation of the exchange market is concerned, I note your fears, Mr. Chairman, but my impression is that some people in the market say that this is just another of a series of interventions that isn't going to get anywhere. They are going to wait and see what happens. If we don't follow it through, then they will just move the market back to where it was before, and we will have a defeat instead of an element of strength. That could be regarded as a reason why a softening of rates would help to support the intervention. There are other arguments on that side--the deteriorating LDC position, protectionism --but these are all very short-run developments, and what the movement of the dollar is likely to be doesn't seem to me to have much immediate influence. On the other side there are two factors that are more longer term and that do seem of concern. One is the seeming misbehavior of M1. I too make these calculations: Is it interest? Is it innovations? What can it be? Nothing seems to give an adequate explanation except the explanation that the demand curve has shifted, which it has done several times before so one shouldn't preclude it. The second is an even longer-run development. If now the dollar does go down and over time we get an improvement in the current account and we do not get an improvement in the budget, then we are building up inflationary pressures, including ultimately higher interest rates, which will be quite a negative [factor]. I think that is the most likely course of events: that we will find ourselves from meeting to meeting hoping that the current account is improving and that it will begin to improve and, meanwhile, nothing else major in the economy will have changed. I think that would be a very dangerous proposition. So unless we can get [relief] from that situation, I don't think we should put additional stimulation into the economy. But the end of all this is that I would go with alternative B because I see rather strong forces on both sides, which I can't resolve.",433
-fomc-corpus,1985,"At the last meeting I was in favor of leaning toward somewhat greater restraint, which has since been realized. And the numbers we have gotten on the economy overall and what I am hearing in the District would tend to make one feel moderately [positive], anyway, about what is going on in the economy. On the other hand, I did not come here today with any strong feelings that greater restraint was necessarily called for. One of the reasons why I think that is the moderation we have seen in the rate of growth of money, particularly that which is expected looking forward. One thing that gave me concern immediately after the G-5 accord was the reaction of the government yield curve, specifically the coupons, where we had a steepening of the yield curve of about 10 basis points. At this juncture I would say that is something I have taken note of but at the current levels of those spreads it is not something that concerns me terribly. But I think that market, and probably to some extent the foreign exchange market as well, feels that the Fed is sitting here with its hands tied and may not be able to respond to improving numbers on the real side and rapid money growth. Because of the G-5 agreement and so forth, I don't think it would be particularly politic to consider greater restraint at this juncture; however, if things don't unfold as we expect them to with respect to lower rates of M1 growth and if we continue to get good numbers on the real side, I would certainly be leaning toward greater restraint in the intermeeting period. I have one or two anecdotal comments. First of all, among retailers in the District there seems to be a feeling that car sales are definitely sapping the general strength of retail sales. Secondly, corroborating what Si said about inflationary expectations, I picked up the same [tenor] in a luncheon we had at the Bank: no increased inflationary pressures on costs; no perceived ability to raise prices substantially; and, to the extent that there were wage pressures, strong feelings that those could be offset with productivity gains.",417
-fomc-corpus,1985,"Let me just make an observation on this price situation. The recent figures look pretty good and promise that we will have overestimated [the rate of inflation] for the fifth consecutive year in our projections. But I don't think there is any doubt that inflationary expectations in the longer-run sense in some anemic way are increasing. The survey evidence--what we have--says that. But I feel it in my bones too that fooling around with the dollar and questions about the dollar may restrict Federal Reserve freedom of action. It tends to go in that direction. It is not an abrupt or major thing, but I think it is quite clear--just when you go out and make speeches--that people are much more open about saying that than they would have been six months ago.",157
-fomc-corpus,1985,"With regard to the business situation, I certainly recognize that one or two months don't make a trend, but I must say that I am impressed by the latest statistics. I think the economy is clearly doing better, picking up some momentum, as probably was expected by a lot of us. My own view is that we may do somewhat better than the Greenbook forecast, at least for the next several quarters. That certainly would be welcomed, other things equal, in my judgment. On the financial side, as several have mentioned, I can't quite bring myself to dismiss M1 altogether. And in any event, it seems to me that growth in the other aggregates certainly has been adequate and that liquidity in the economy is certainly ample. So, I am not sure that we are getting terribly mixed signals from the collection of statistics on that side. My major concern is that we may have a monster on our hands in the foreign exchange markets--not immediately, judging by the way things have been going, but I am concerned about the potential weakness in the dollar and the inflationary implications of that. I certainly am struck, as I travel around our District at least, by the fact that one of the origins of the problems that are evident in the District is the rapid inflation of the late '70s and early '80s; obviously, we still are suffering the hangover effects of all of that. And that is one of my principal concerns, both at the moment and looking ahead, in terms of economic performance and the thrust of policy. For the immediate period, as far as policy is concerned, I am a little concerned that if the dollar weakens more than would seem to be appropriate or desirable, or if money growth turns out to be more rapid than we expect, we may not be in much of a position to respond to it. And what that implies to me is that, while I certainly can accept the specifications of alternative B, I would like to make one modification because of my concerns about both money growth and the dollar. And that is, I would make the borrowing range $500 to $600 million, starting at $500 but leaving us a little more leeway on the up side in case what I judge to be some of the risks here materialize.",455
-fomc-corpus,1985,"I don't think a lot has changed in the economy; I think it is a touch better in my District. The feeling is generally positive, but I'd say that positive feeling is expressed in unenthusiastic words. I am struck by the disparity just in something like the unemployment rate. There are a number of areas in my District where you can find unemployment at 5 or 6 percent. You can drive 50 or 75 miles and it is 10 percent. That kind of difference is striking. On the inflation side, I would agree with what has been said: I don't think there is a real problem. Wage settlements generally have been good; however, I would point out that wages are rising, as they typically do, considerably faster in the service sector than they are in the manufacturing sector. I have been surprised at some of the increases that are planned in banking and insurance for next year in our area and particularly by the professional and managerial pay increases. So, generally I agree; but there are pockets in the service sector where we are seeing some large increases. I think the risk to the economy is largely from the financial side--the whole litany of things that we have talked about many times before at this table. On monetary policy, I don't see that we have very much room for maneuvering given the cross-currents of events, and I would find alternative B generally to be acceptable.",284
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"I agree that the business outlook looks better than it did a couple months ago. I realize you can find difficulties with all the statistics, but that is frequently true as you begin to see some strengthening. You can say that there is an oddity here and an oddity there, or it is concentrated in this or that. But in fact it is coming out quite uniformly on the stronger side. A comment was made about new car sales. Well, it seems to me that this endeavor is not costing the auto companies all that much. The present value is something under 10 percent. They have raised prices significantly, so they can very easily afford to continue to do the same thing or something similar with the '86 models. Their problem will be that they may run through a backlog of demand, not that they can't easily afford the kinds of promotions that they have been giving in this period. Also, I think technically the business situation looks better because we have a quite moderate inventory level--in fact no inventory accumulation--and good final demands. I would expect that we will see inventory accumulation and that will give us a stronger economy. Even so, the staff forecast is for 3 percent growth in the fourth quarter and on the order of 2-1/2 to 3 percent in the first half of next year. Say it runs stronger than that by a percentage point; it's still not anything excessive. So I don't see that there is an upside risk of excessive growth in the near term, and I happen to agree with NABE, Martha: I think there will be a recession by this time next year. So we are talking about a fairly short-run outlook and I don't see any reason to say that the performance of the economy looks to be such that we ought to be making financial conditions tighter than they now are by any significant amount--unless the dollar breaks very strongly or something like that, which will change the nature of things. I note that not only has money been growing relative to GNP so that its trend looks different, but that is also true of debt relative to GNP, which is up very sharply in the last 4 years from 1.4 times GNP to 1.65 times GNP. It looks as if, for some reason that I can't quite understand, it takes both more money and more credit to keep the economy moving at all well. I think there are great pitfalls in this in the long run on the credit side; I worry about servicing the debt. That may get to be a very great problem at some point in the future. And on the money side I worry about having pumped all this liquidity in, which we won't be able to neutralize if something should touch off the desire to use it actively. But these are not questions for today; they will become perhaps very big problems later on but not for today. I think we ought to leave policy just where it is. I disagree with Pres. I don't think we ought to ease up any because I think that is something the market is looking for and would also associate with the G-5 accord and would be really more confining on us than not to do it. But I don't think we ought to tighten at all either. So I guess that's alternative B, with $500 million on borrowings as the initial estimate.",670
-fomc-corpus,1985,I am confused about the things you are worried about: an increase in money for four years and an increase in investment for four years. When does it become timely to do something about it?,38
-fomc-corpus,1985,"I don't think that you can do it, if the evidence is that we have to have [such growth] in order to keep the economy moving at all well. I think you just have to live with it until the crash.",46
-fomc-corpus,1985,Until the crash comes: a passive approach. Mr. Morris.,13
-fomc-corpus,1985,"Mr. Chairman, I too think that the evidence suggests that the economy is picking up a bit but I certainly don't sense in the numbers any strong forward thrust. I think it is entirely compatible with the kind of modest growth that the staff is projecting. In my area, I run into the same comments from business people that Karen did: they don't see things getting stronger; they don't see them getting weaker. I think that reflects the fact that we are a capital goods producer essentially and the weakest part of the economy right now is the capital goods sector. New orders for capital goods are no higher than they were a year ago. But I think the uptick in the economy does suggest a no-change policy. I was concerned that this might conflict with the G-5 program in the sense that I thought there was a possibility, anyway, that we would need somewhat lower interest rates to reinforce that declaration. But at least so far the evidence is that we don't; we are getting a response at current rates and I am hopeful that a nice and orderly response will continue. So I would propose no change, alternative B.",223
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Thank you, Mr. Chairman. I would agree with those around table who suggest that an uptick in the national economy is probably in train--that the Greenbook forecast is very reasonable. That, however, is only from a national view. From a regional view, in the Tenth District things have not gotten better; they have gotten worse. And the projections for the fall and winter, particularly in the agricultural and energy areas, hold out no great hope. As a matter of fact, the financial strain simply rolls back into the financial institutions; the outlook for banks, savings and loans, and others looks to be devastating. From strictly a national viewpoint; I would agree with those who say no change in policy. From a regional viewpoint, I guess I would have to urge perhaps some relaxation of interest rate levels. I will just note that on the inflation front, much of the contribution to stable inflation in the short run is a contribution by food and energy. And that impacts my District rather dramatically. There has been a good deal of talk about M1 and I would agree, in view of what I have just said, that we shouldn't pay very much attention to it in the very short run. Although I would hate to give it up as a part of policy, over the next intermeeting period and perhaps over the fourth quarter as a whole I don't see M1 as a major player in policy decisions, unless other matters such as the dollar come into play and we may want to use it. On the other hand, the dollar and the G-5 arrangement are a bit puzzling to me. That is to say that there's been a great deal of talk here and I think you, Mr. Chairman, expressed the concern of a precipitous drop in the dollar. I think that is a real risk, obviously. But if you look at it in another way the fundamentals haven't changed, as far as I can see. As a result, it seems to me that the dollar has come down relative to the other currencies but I would expect that in the short run the traders will test the United States, for example, and will try to push the dollar back up to see how far the United States really will go to participate in the G-5 agreement. So with that in mind, and with the background of the economy, particularly queuing off of my own region, I would prefer alternative B. But I am troubled a little by the language describing alternative B and that is that the staff would project a funds rate of 8 percent or a bit higher. I would object at this point, if it were up to me, to having a rate of 8 percent and pushing on up unless some of these other exogenous forces, such as the dollar, come into play. As a result, I would modify that and be someplace between ""A"" and ""B"" and start out with a borrowing level, say, of between $400 and $500 million, centering on $450 million. I am hopeful that that would be enough latitude and flexibility, if the dollar did start to drop, that there wouldn't be a [conference] call and the policy prescription changed as a result of that call.",645
-fomc-corpus,1985,Ms. Seger.,5
-fomc-corpus,1985,"Many of my points have already been made, but I would just like to emphasize that I believe the risks are on the down side. The consumer spending numbers that look very robust and retail sales that look good are being supported by very generous use of credit cards and other kinds of credit. I picked up some numbers from the treasurer of one of the captive auto finance companies and the terms of auto credit really did something to me: 45 percent of their August contracts were for 60-month loans. Almost half of the contracts were for five years, which means that they needed that incentive plus a very low rate of 7.7 percent to get a monthly payment that was low enough to drag these people in off the streets. I don't read that as a terribly, terribly strong demand situation. Also, Si and I may talk to different people in the auto industry, but I haven't found anybody out there who doesn't think that this temporary burst of sales is going to be reversed, that in fact they are borrowing from the future, and that later in October we will see a very big and significant drop in sales as they pay the price for moving these '85 models out very rapidly. So I think we are going to see some distortion in the numbers here for a while that will make it very difficult to get a handle on what is really going on. But I think that there isn't as much strength basically as one might conclude. Secondly, on the housing matter, as the standards of the mortgage lenders and of the mortgage insurers are tightened, I think we are going to see that show up eventually in [a drop in] new housing starts. I admit it hasn't happened yet, but I think it will and, therefore, starts may come in a little below what the staff is now estimating. On plant and equipment spending, here again I think more and more companies are having profit problems, and that does feed back into their capital spending decisions and doesn't make them very positive about it. So, I think there may be some downside risk there. On the inflation front, like most of the others here, I think the numbers look pretty good. I also would like to emphasize that there are sectors of the economy where there is actual deflation, which doesn't seem to get mentioned much. Also, I certainly would read the M1 numbers, but I would be much more concerned with what's going on with M1 if M2 and M3 also were going off the top of the chart, which they aren't--particularly M3. Having just met with the Decatur Chamber of Commerce yesterday and the National Association of Manufacturers, you would need to give me a bullet-proof vest if I suggested any policy change that would lead to higher interest rates or a tightening, because both of those groups are very sensitive to the financial side of the economy. They are tying that to their own problems. So I am torn between supporting ""B"" with a tilt toward ""A"" or just going straight to ""A."" I would be very, very concerned about any uptick in interest rates at this point for the reasons I mentioned--the impact on agriculture, the other areas that have big debt problems, and furthermore the possibility that that would undermine the recent G-5 agreement. So I guess I am somewhere between ""A"" and ""B"" with the borrowing down to the level we were talking about at the last meeting.",682
-fomc-corpus,1985,Governor Rice.,3
-fomc-corpus,1985,"Well, Mr. Chairman, I have no new observations to make that have not already been made around the table. I, too, see the economy picking up. I think that the staff forecast is right, and I particularly agree with it for the short term--that is, for the current quarter and the fourth quarter I think we'll get growth in the area of 3 percent. Given this outlook and given the other noneconomic developments that Governor Wallich referred to, I agree with those around the table who say that we really don't have much policy scope, or very much room for maneuver from a policy point of view. We certainly would not, or at least I would not, want to do anything that would reduce the chances of reaching a moderate 3 percent rate of growth. And while I would have preferred to have seen in this period after the last FOMC meeting a funds rate somewhat higher than it did in fact average and certainly less money growth, I don't think that there is anything we can do now either to tighten or to ease policy; I think that we are in a very narrow range for policy decisions. So, I think this calls for maintaining the existing degree of reserve pressure and that would be alternative B with borrowing around $500 million and the funds rate around 8 percent.",261
-fomc-corpus,1985,"Well, I don't know what I can add to all that discussion since every contingency and every threat has been mentioned by somebody. There are a lot of contingencies. In the broadest sense, we are constrained by circumstances. I wouldn't put all that much emphasis on the G-5 matter; we're constrained by more fundamental contingencies on either side. But I wouldn't interpret that too strictly in the short run. I don't know what is going to happen in a number of dimensions. A lot of people talk about the economy being a little stronger in tone. I think that's probably right, but against the background of the money supply figures in particular--Governor Partee said he could imagine [real GNP growth] going to 4 percent--I could imagine it going to a lot more than 4 percent under a certain set of circumstances. All you need is a kick in those inventories and a downward movement in the trade balance at the same time and you could get quite a little kick. I'm not sure I would predict that, but I don't think it's out of the bounds of possibility. And that makes those money supply figures look more in accordance with historical experience, and everybody has expressed uneasiness about what that means. I do think that everybody--well, not quite everybody--but it's clear where the center of gravity lies. I don't disagree with that at all. I think the most likely risk we face--or the one I worry about the most, let me put it that way--is that the dollar may decline too far too fast and create inflationary expectations and eventually inflation. If it does pass some point of undermining confidence, it's going to be very hard to manage and it's going to produce higher interest rates. That's the real threat of a sudden drop in the dollar: decidedly higher interest rates as well as inflation. Worrying about 1/8 or 1/4 point on interest rates now will pale in significance compared to the kind of direction Mr. Truman was alluding to if those kinds of conditions ever arose. That would really throw a lot of things off course, beginning with the debt situation and recession and possibly agriculture; you name it. That's the one threat that gives me nightmares as I look ahead. For that reason, I think it's counterproductive to give any signals that we are easing at the moment. It would just create additional risks of that happening. I'm not talking about a month from now or something. If the money supply gets weaker and the economic news is weak--if we had a clear basis for easing--we should ease. I don't think we have that clear basis right now. I would also say that if we had a clear basis for tightening, we should tighten. If that arises it's going to arise, I suspect, more from the dollar side. But if we continued to get big increases in M1 combined with a real strengthening in the economy, I don't think we would have much choice, whatever the G-5 says. There are no commitments made there. But for the moment, I think we are in the area of what is loosely called ""B."" I would also suggest that a certain amount of unusual maneuvering room is needed in the short run, within a narrow range, because I think a lot does depend on almost day-to-day psychology in the exchange markets. We can lean a little toward the easier side if the dollar is strong and we're having a great test on the up side, and we can lean on the other side if the dollar decline appears to be building up momentum there. At the moment that's where the momentum is, if it has any momentum. That could change any day, I well recognize. But I would come out about where most people are in terms of something like a $500 million borrowing level as a center of gravity, but I'd be prepared to go moderately above that or potentially moderately below that in day-to-day or week-to-week tactics, depending particularly upon the dollar; but as the weeks go by it also would depend upon the money supply and the economy. We are now in a period where I think within a limit--I don't know whether I'd call it $425 to $575 million or $400 to $600 million, or something in that area--we could use a little maneuverability. And I think that is consistent with a federal funds rate somewhere around 8 percent or a bit higher or lower; I'm thinking about 8 percent or a shade below 8 percent.",900
-fomc-corpus,1985,The aggregates would play a relatively small role?,9
-fomc-corpus,1985,"Well, relatively small. I don't know if it's any smaller in some sense than they have been playing. I am a little influenced at the moment, inevitably, by the fact that the odds on a slowing in the aggregates look a little better to me now than they might have a week or two ago. We had a big decline last week and little change this week. There may be a sizable decline in the following week: three weeks in a row of decline. I think it's so high that I wouldn't respond immediately by easing; I would be more inclined--",112
-fomc-corpus,1985,"If you happen to get a negative month, say, that wouldn't cause an easing?",17
-fomc-corpus,1985,"It certainly would be a factor in saying we would be less eager to tighten if other things are pointing in that direction. It's simple if everything is pointing in the same direction. If the dollar were rebounding, with M1 softer and the economy looking rather weak, it's easy--ease. The problem arises when these signals are not all in the same direction in a specific period. On the contrary, if the dollar were softening, with M1 continuing high and the business picture looking better, tighten. That's too easy when all of them are moving that consistently. I think that's what the directive ought to say, whatever the particular form: that if all these things--or the weight of them--are moving in one direction or the other, we would ease or tighten. It's perfectly reasonable.",159
-fomc-corpus,1985,"And you are implying a symmetrical view here, essentially, or a little on the tightening side because--",20
-fomc-corpus,1985,"Well, I see it as symmetrical in an analytic sense. My gut feeling is that it continues to--. Well, the one thing I really worry about is the dollar getting out of hand on the down side. It's--",45
-fomc-corpus,1985,So you would be guided more by what happens in the foreign exchange market?,15
-fomc-corpus,1985,"Well, I am talking about very short-run tactics. At this moment you get the impression that we're a ""captive"" as some people put it, and we have to ease to get the dollar down. The dollar has come down quite a lot. I am very sensitive to the psychology going the other way, based upon all we have experienced here and abroad as to what happens sometimes when the market gets to expecting ease. Maybe everybody is ready. We will have a great test on the up side. I would much rather have a test on the up side and do a lot of intervening and maybe ease a bit, than I would a test on the down side. The upside test is much more manageable than the downside test. There is no catastrophe if the dollar gets a little stronger than it has been and we have to do a lot of intervening and we even have to ease a little. I don't see any lasting damage from that scenario, except that politically it undercuts the anti-protectionism [position] but I don't know how much weight to put on that in terms of sensitivity to day-to-day developments. It's a question of what and where. When I look at the broad strategy down the road--inflation, and all the rest--I am more worried, though I don't know which is more probable, about the risks we run from a deteriorating dollar if it got out of hand than the others. I'm not worried about the current level but I don't know how much longer [unintelligible]. I would say with all the hoopla this thing gets that there is a lot of sensitivity to this point. I see it was in the papers that there was some insistence in the G-5 meeting that they redo the language of the statement to get the word ""orderly"" or the wording ""orderly decline or orderly rise"" in there. That was a Latin American inspiration; they among others were sensitive to this point. Nobody pays any attention to it, but it reflects that concern that this could get out of hand. I'm not saying anything different here about the [borrowing] numbers than anybody else was saying. But I am suggesting some tolerance of some day-to-day, week-to-week maneuvering, influenced by the dollar but against a background of these other things.",464
-fomc-corpus,1985,That's fine with me.,5
-fomc-corpus,1985,I agree.,3
-fomc-corpus,1985,"You have no problems with the funds rate beginning to trade at 8 percent or a little higher in view of the most recent background of something less than that--that is, coming out of this meeting and seeing it trade at 8 to 8-1/4 percent?",56
-fomc-corpus,1985,"Not particularly during a period when the dollar is weak. I would if the dollar were surging up; I would not under today's conditions in the market. If we were having a great test on the up side, we would not choose those days for making any tightening move. If anything, we would resolve our doubts in the other direction, if that's the direction we think we are going.",78
-fomc-corpus,1985,"Well, since funds haven't traded above 8 percent in recent times, moving above 8 percent may provide a message of sorts.",26
-fomc-corpus,1985,"Well, I'm not saying we aim above 8 percent. I would accept something like, say, $500 million, which is the figure most people picked one way or another as the center of gravity. And that's where we would aim as a kind of starting point.",54
-fomc-corpus,1985,And that ought to be about 8 percent?,10
-fomc-corpus,1985,"It would be 8 percent or a little below, I would guess. We don't know; we often get caught in just implementing policy during the week that things do not turn out the way we expected because of a bad projection or for some other reason. How frozen are you to pushing toward $500 million if it is above $500 million and the market is already easing or vice versa? I don't think this is a period when we want to give these day-to-day signals that may be contrary to our basic intention, in an effort to get a lower or a higher [borrowed] reserve figure because that is mechanically what we are supposed to be hitting. I guess what I am saying is that this is an operating technique. The basic point remains. We meet fairly soon, of course, for our next meeting. But if everything or the great weight of evidence was in one direction or another, these directives always call for changing the center of gravity either in an easing or a tightening direction. I say an easing or a tightening direction, but my own suspicion is that I wouldn't expect either, outside of that range I talked about. Given how high the money supply already is, given that the dollar is moving lower, given a little better feeling about the economy, I would be prepared to tighten if all those things came down in that direction. Well, I don't think we'd do anything drastic in the next 5 weeks but we could lean more consistently toward the $600 million than less.",298
-fomc-corpus,1985,It is just five weeks before the next meeting?,10
-fomc-corpus,1985,So I am told by the Secretary.,8
-fomc-corpus,1985,"Yes, this is the shortest interval of the year.",11
-fomc-corpus,1985,Good. Good timing.,5
-fomc-corpus,1985,"Of course, we could always have a consultation in between, and I would presume we would if we were going to make a really big change. It's hard for me to conceive of--I shouldn't be so flat-footed. I should say I would be surprised if we wanted to go below $400 million or above $600 million as the center of gravity, as opposed to in a particular week in the next five weeks.",85
-fomc-corpus,1985,"There is going to be quite a bit of difference, Mr. Chairman, between the lower end and the upper end of that range in terms of the tone of the markets.",35
-fomc-corpus,1985,I don't know. We went from $400 to $500 million with no change in the tone of the markets.,23
-fomc-corpus,1985,It's a pretty wide range.,6
-fomc-corpus,1985,"If Mr. Corrigan's banks have computer problems, or at least alleged computer problems, they borrow more for a week than we do with all our open market operations.",34
-fomc-corpus,1985,Maybe we can sabotage computers! That would be worse.,11
-fomc-corpus,1985,They have enough potential on their own; we don't need to help!,14
-fomc-corpus,1985,"In that connection, I'll make an ad hoc comment--not about computer problems in particular. This happens mostly with a handful of very large banks: They waltz in at 5:30 on a Wednesday afternoon when the funds rate has been 7-1/2 or 7-3/4 percent all day and it gets to 9 percent at 5:30 on Wednesday afternoon and they say very conveniently ""Whoops, we're in overdraft and we want to borrow from you."" I think they ought to be told to go shove it.",113
-fomc-corpus,1985,Certainly couldn't be more descriptive!,6
-fomc-corpus,1985,They are just profit-maximizers.,8
-fomc-corpus,1985,"I will modify that comment; I'd tell them the next time they can go shove it. But, we have this question of the directive. What we are talking about in terms of the numbers in the directive is alternative B. I think we are saying ""maintain."" There is this question we need to deal with about whether we say that we expect M1 to exceed the range for the year. Obviously, that seems highly probable although less certain this minute. I don't think it's absolutely certain--highly probable but not absolutely certain--if we get a big decline in October. I think some are in favor of changing that if we are [positive]; maybe we should face up to that if we are. It raises the question of whether we should say so publicly. I haven't any very convenient occasion to do that right now; I would hate to go out and make a special announcement just on this. If we do, it lends itself directly to the interpretation that we picked this particular time to ease policy because of the exchange market situation, which I think would be unfortunate. I don't think we want to give that impression. So we're caught in a dilemma. We may face this as a fact, but it's a bit awkward. We may have a probable occurrence, but is it that much more apparent this month instead of last month, let's say. that we are compelled to make an announcement? It's almost bound to be misinterpreted, simply because it will be interpreted in the light of this exchange market.",302
-fomc-corpus,1985,"I think we could hold this for five weeks, Paul, by which time we will know whether October--",21
-fomc-corpus,1985,"That is certainly true, and that would take care of this announcement.",14
-fomc-corpus,1985,I for one would agree that this would be a bad time to make an announcement.,17
-fomc-corpus,1985,"Well, let's leave this out then. But if we are even more convinced 5 weeks from now, then we ought to decide it. Now, I'm not sure I looked at all these variants that closely, but the main theme is what: not sticking M1 in the same sentence with the others?",61
-fomc-corpus,1985,"I think variant II is a little more direct. It's a considerably more direct expression of what we actually have been doing, Paul, and I think it commends itself because it is direct. And it starts off with the aggregates; it doesn't leave them out.",52
-fomc-corpus,1985,"I think it's a more accurate description of what we have been doing, but the old one gave the aggregates more primacy and I'd hate to see that lost. But I sure agree with you that it's more [descriptive of] what we've been doing.",51
-fomc-corpus,1985,"I like the first variant. Whether [or not] it's what we have been doing, I think it points to what we should be doing.",29
-fomc-corpus,1985,I think variant II is so much more honest that we ought to--,14
-fomc-corpus,1985,"Yes, we ought to take a chance and--",10
-fomc-corpus,1985,Let me have a short recess for 15 seconds to understand what the difference is between these variants. The first sentence is the same.,27
-fomc-corpus,1985,"The first sentence is meant to be the same, yes. There may be typos; that's different.",21
-fomc-corpus,1985,"I guess there is no difference between them, but shouldn't it say the degree of pressure on reserve positions ""sought in recent weeks""?",27
-fomc-corpus,1985,"Well, I assumed--",5
-fomc-corpus,1985,Didn't we have this small change?,7
-fomc-corpus,1985,"Well, I assumed we hit the $500 million. In the past we have used ""sought"" when we didn't get what we were aiming for. But whichever way, it doesn't matter.",39
-fomc-corpus,1985,"Well, let me just see where the changes are. ""This action is expected to be consistent with--""",22
-fomc-corpus,1985,"The next two sentences may be expressed differently, but they are meant to be the same in that there is an M2 and M3 sentence and an M1 sentence. The difference comes after that.",40
-fomc-corpus,1985,"Well, you have no differences between them in the first three sentences.",14
-fomc-corpus,1985,"That's right. The difference is that the ""somewhat greater or somewhat lesser restraint,"" instead of being confined only to the monetary aggregates and viewed in the context of everything else, pertains to the monetary aggregates and everything else all the same. And there is a little change in the last sentence.",58
-fomc-corpus,1985,We're combining in one sentence what we said in three sentences.,12
-fomc-corpus,1985,"Yes, that's right.",5
-fomc-corpus,1985,"I think people would read that second variant as saying that we are targeting nominal GNP, which is what I'm afraid we're doing. I wouldn't want to be accused of dishonesty, since Chuck said this is more honest, but--",46
-fomc-corpus,1985,[Unintelligible] the exchange rate too.,11
-fomc-corpus,1985,The aggregates are listed first in the sentence.,9
-fomc-corpus,1985,"Yes, but they sure are downgraded from where they were.",14
-fomc-corpus,1985,"Well, I think one can exaggerate the difference between these two variants. The fact is that the second one is somewhat less cumbersome.",27
-fomc-corpus,1985,That's what markets do when we change--,8
-fomc-corpus,1985,"I took the words ""monetary objectives and related reserve paths"" out of the last sentence and substituted ""reserve conditions"" since that's what the Manager is operating on.",34
-fomc-corpus,1985,It says you're going for them.,7
-fomc-corpus,1985,"Well, it seems to me either of these versions ought to say ""sought in recent weeks"" in sentence number one since we did change it, however modestly, during the last period. And we're talking about ""maintain"" I think. What are we putting in here in either version? What do we say--",65
-fomc-corpus,1985,6-3/4 percent.,7
-fomc-corpus,1985,6 to 7 percent? Is that--,9
-fomc-corpus,1985,That's fine.,3
-fomc-corpus,1985,"Annual rates of ""about 6 to 7 percent"" or ""6 to 7 percent""? With 6 to 7 percent, does anybody want an ""about"" or ""around"" in there?",42
-fomc-corpus,1985,"Use ""about."" in case we get lucky.",10
-fomc-corpus,1985,", ""About 6 to 7 percent"" for both of them.",15
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"""M1 growth is expected to slow--."" Heavens, I don't know whether it is going to slow.",22
-fomc-corpus,1985,"No, it's expected to slow and then--",9
-fomc-corpus,1985,"6-1/2 percent in ""B.""",10
-fomc-corpus,1985,Do we really want to say a marked slowing of M1 growth is expected?,16
-fomc-corpus,1985,Sure.,2
-fomc-corpus,1985,It leaves it plenty open there.,7
-fomc-corpus,1985,That's variant II.,4
-fomc-corpus,1985,That's variant II.,4
-fomc-corpus,1985,"It's certainly ""marked"" compared to where it has been.",12
-fomc-corpus,1985,Down 11 or 12--,7
-fomc-corpus,1985,My version doesn't say anything about marked.,8
-fomc-corpus,1985,I think it's in variant II.,7
-fomc-corpus,1985,I thought you wanted variant II.,7
-fomc-corpus,1985,"In variant II, it's the sixth line from the top.",12
-fomc-corpus,1985,He's on variant I.,5
-fomc-corpus,1985,"Oh, I'm sorry. Okay.",7
-fomc-corpus,1985,"Couldn't we say something like ""It's entirely possible that M1 growth might slow""?",16
-fomc-corpus,1985,But then again it may not.,7
-fomc-corpus,1985,"On the one hand, we hope so but--",10
-fomc-corpus,1985,"Okay, I guess we really are expecting a marked decline.",12
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Even 11--,4
-fomc-corpus,1985,Even I think it will be a marked decline.,10
-fomc-corpus,1985,What do we want to say here: 6 to 7 percent or something? Everything is 6 to 7 percent.,26
-fomc-corpus,1985,It will be all right or all wrong.,9
-fomc-corpus,1985,"We took out this sentence. What do people think about that? ""Slower growth would be appropriate--""",22
-fomc-corpus,1985,"""Would be acceptable.""",5
-fomc-corpus,1985,"""Acceptable."" MR. PARTEE(?). It would be acceptable to me.",17
-fomc-corpus,1985,I agree.,3
-fomc-corpus,1985,You want to put it back in?,8
-fomc-corpus,1985,It applies to Ml?,5
-fomc-corpus,1985,"Yes, just M1.",6
-fomc-corpus,1985,"I kind of like that, if the word ""acceptable"" were put in place of ""appropriate.""",20
-fomc-corpus,1985,We meant that to apply to both variants; that was the--,13
-fomc-corpus,1985,"It would have a semicolon or something. Let me ask you the question: I wouldn't say ""even""--",22
-fomc-corpus,1985,I wouldn't either.,4
-fomc-corpus,1985,"So it's ""slower growth over the next three months would be acceptable""--",15
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"--""in the context of satisfactory economic performance."" Do you want that phrase ""given the recent rapid growth"" in?",24
-fomc-corpus,1985,I like it.,4
-fomc-corpus,1985,"I'm not hearing any dissents on that, so that phrase goes in either version. Now, we have ""somewhat greater or lesser reserve restraint would be acceptable"" with a number of alternatives here. Who prefers variant II?",45
-fomc-corpus,1985,It's more direct.,4
-fomc-corpus,1985,"Only two people, Governors Martin and Seger. Add Governor Partee.",15
-fomc-corpus,1985,"Well, ""somewhat greater or lesser reserve restraint"" is in both of them.",17
-fomc-corpus,1985,"Well, I'm just skipping from that to simply who wants to combine three sentences into one sentence.",19
-fomc-corpus,1985,I'm indifferent.,3
-fomc-corpus,1985,"Mr. Keehn, did you have your hand up?",12
-fomc-corpus,1985,"No, I'm having a very difficult time determining the differences between these two.",15
-fomc-corpus,1985,"I'll rephrase it. I would declare there is no difference in substance, as near as I can see. But the change is considered by some, and I think it's probably true, more accurate and a better [representation of] what we're actually doing.",51
-fomc-corpus,1985,It's certainly more economical.,5
-fomc-corpus,1985,"I think that might be fine. But I really do have a bit of a problem with this phrase, ""marked slowing of M1 growth"" in variant II.",33
-fomc-corpus,1985,That's out.,3
-fomc-corpus,1985,"No, no. It's in.",7
-fomc-corpus,1985,"Oh, that's right. Yes, that is in.",11
-fomc-corpus,1985,Why are you troubled with that?,7
-fomc-corpus,1985,"I suppose what you're saying is that even if it goes from 20 percent to 15 percent, 5 percent is a significant amount. But that, I think, has a kind of improper implication. I just think it would be better if we were a bit vaguer on that, say, ""It's entirely possible that Ml""--",67
-fomc-corpus,1985,"Mr. Chairman, one reason for taking variant I is that the Fed watchers are going to be looking for the slightest clue that we're somehow stuck or are precluded from tightening up or even are on an easier money kick. For the very reason that you didn't want to change the announced ranges for the second half of the year, I would argue against moving away from that traditional language, even though there may be a more accurate [description] of what we're doing.",92
-fomc-corpus,1985,"Well, I think that's a fair consideration. I'm not sure they can read too much into this except less emphasis on the aggregates. What do you have besides the [unintelligible] variant II? I'm not hung up on this because we've gone too many months in which there has been the proviso that [unintelligible] has been operative since 1979.",76
-fomc-corpus,1985,"But if we have that sentence that says ""a marked slowing in M1 growth to a 6 percent annual rate is anticipated"" with the clause that says ""somewhat more of a slowdown would be acceptable,"" technically that finesses not having to announce abandoning the ranges here either because it leaves open that possibility. So I think that we need both the sentence and the semicolon phrase or else we're really cheating on not saying anything about the paragraph that we already agreed [not to consider] until five weeks from now.",104
-fomc-corpus,1985,"Well, I asked how many preferred variant II. Maybe a lot of people are neutral here. How many have a distinct preference for variant I? [Secretary's note: Messrs. Balles and Black.] About as many votes as for variant II. How many--",54
-fomc-corpus,1985,How many people don't give a whit?,8
-fomc-corpus,1985,That's another way. How many people don't care? That's a majority.,14
-fomc-corpus,1985,The Chairman's choice.,5
-fomc-corpus,1985,I think John Balles has a good point on the market's reaction to any change. Partly I think it's a good point because I tried to make that same point earlier and--,37
-fomc-corpus,1985,You were the two who held up your hands.,10
-fomc-corpus,1985,I think it's better to say to the market what they already know we're doing rather than hang on to what [unintelligible] short-run picture.,31
-fomc-corpus,1985,"I must say that at this point it doesn't make any difference to me. I guess I'm with all those who stuck up their hands in the middle, but I-",33
-fomc-corpus,1985,Let's have a variant III.,6
-fomc-corpus,1985,Credibility is something of believability. Why not say what is?,15
-fomc-corpus,1985,This is subject to the interpretation of--,8
-fomc-corpus,1985,We need one of those fancy electronic gadgets that people can squeeze so they can measure the intensity of feelings.,21
-fomc-corpus,1985,"Long term, we've advanced from pragmatic monetarism to full-blown eclecticism.",17
-fomc-corpus,1985,Maybe we can weight the votes by the intensity of the feeling and come up with an algebraic average of it.,23
-fomc-corpus,1985,"Well, that's what I'm trying to do. Who feels intensely about this? [Turning to Mr. Black] You're going to vote against this, anyway, so--",33
-fomc-corpus,1985,"Well, Mr. Chairman, this is an argument I don't want to win, obviously, because if I'm right we have done the wrong thing. My objective is to do the right thing. So I hope I'm wrong. Usually I don't hope I'm wrong on arguments, but I do on this one.",60
-fomc-corpus,1985,"Well, okay. Just let me get an expression --I realize it's no big deal--[of preferences]. How many would have some preference for I? One, two, three, four. [Secretary's note: Messrs. Balles, Black, Forrestal and Rice.] How many would have some preference for II? Four. [Secretary's note: Messrs. Keehn, Martin, Partee and Ms. Seger.]",89
-fomc-corpus,1985,You get to decide it.,6
-fomc-corpus,1985,Maybe I should read it more carefully.,8
-fomc-corpus,1985,He acts this way when the Board splits on something!,11
-fomc-corpus,1985,"I've observed it myself once or twice, Governor Partee.",12
-fomc-corpus,1985,"Run it by Joe Coyne and let him tell you how the news media would or could react, and I guess--",24
-fomc-corpus,1985,I don't think they'll see any difference.,8
-fomc-corpus,1985,"Well, hush! That's the wrong answer!",9
-fomc-corpus,1985,But you have to understand that the staff spent all day Thursday and Friday making these variants look different!,20
-fomc-corpus,1985,Until we've made them look the same.,8
-fomc-corpus,1985,"Do you have any comment about this subject, Mr. Axilrod?",15
-fomc-corpus,1985,"Well, Mr. Chairman, a technical reading of the first variant says that the Committee will tighten or ease depending on what happens in the aggregates and they'll assess that in the context of the other things. The only slight substantive difference I can see is that a technical reading of the second variant says you could tighten or ease even if the aggregates were on track, depending on what happens to other things. I think that's what the Committee pretty much has been doing recently and this was just a sentence that attempted to say that. You have to stretch your reading of the first variant a bit to have that in, but of course it encompasses it. The only other difference was that in the last sentence it says ""pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with a funds rate..."" and I short-circuited that to just ""reserve conditions"" because the monetary objectives were cast in with other things--for obvious reasons.",197
-fomc-corpus,1985,"Well, I just thought of adding three words here that make them maybe exactly the same, but more condensed. Leave it variant II, but after the first comma--after ""depending on the behavior of the aggregates"" add ""taking account of"" before ""appraisals of the strength in business expansion, developments in foreign exchange markets,"" etc.",69
-fomc-corpus,1985,That would be better.,5
-fomc-corpus,1985,Does that strike anybody as an improvement?,8
-fomc-corpus,1985,"Sure. Yes, I think it does.",9
-fomc-corpus,1985,Right; that takes care of it.,8
-fomc-corpus,1985,"All right. Let's just do it that way. Add these words ""taking account of."" Does that make it--",23
-fomc-corpus,1985,That does make it very much like the first variant.,11
-fomc-corpus,1985,"And then for the federal funds rate I guess we're sticking with 6 to 10 percent, right?",21
-fomc-corpus,1985,"But you have that phrase in there that says that ""slower growth of M1 is acceptable""?",20
-fomc-corpus,1985,"Yes. What we have is take out the word ""existing"" and say ""maintain the degree of pressure on reserve positions sought in recent weeks.""",30
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"""This action is expected to be consistent with growth in M2 and M3 over the period from September to December at annual rates of 6 to 7 percent. A marked slowing in M1 growth to a 6 to 7 percent annual rate is also anticipated; slower growth over the next three months would be acceptable""--not appropriate, but acceptable--""in the context of satisfactory economic performance, given recent very rapid growth in M1. Somewhat greater or lesser reserve restraint...."" That's right, we didn't discuss that. Do we just leave in the somewhat greater or lesser reserve restraint respectively?",120
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"Okay, take out the parenthetic phrase and continue: ""Somewhat greater or lesser reserve restraint would be acceptable depending on behavior of the aggregates, taking account of appraisals of the strength of the business expansion, developments in foreign exchange markets"" and so forth. Then ""The Chairman may call for consultation if it appears that reserve conditions...are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent."" Now, I take it that's a common denominator. We have this little discretion of day-to-day or week-to-week operational flexibility around $500 million influenced--not solely--but influenced by exchange market problems in the context of these other developments. And certainly, if we were really aiming in a semi-permanent way as high as $600 million or as low as $400 million--as opposed to a weekly decision to go to one of those numbers--we would just have a consultation. Understood? I guess we can vote.",197
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Black No President Forrestal Yes President Keehn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,43
-fomc-corpus,1985,"Okay, thank you. I guess we're finished. We meet again in five weeks. Lunch is over in the other building.",25
-fomc-corpus,1985,Dining Room F.,4
-fomc-corpus,1985,In Germany?,3
-fomc-corpus,1985,I think the idea is that the Bundesbank So I assume that most of this will get back into Germany.,22
-fomc-corpus,1985,"You talked earlier about selling dollars in markets outside New York as well as in New York. My general sense is that the extent to which you're intervening in markets overseas is a good bit more than has been the practice in recent years. I wonder if you could comment on the pros and cons of that and how you would judge the effectiveness of being more active in markets in the Far East, for example.",81
-fomc-corpus,1985,"Well, I think it can be helpful at times. For example, at times when the Japanese were intervening rather heavily in the yen we were intervening in the Far East, kind of following their action, to keep some action with respect to the mark. It showed evidence of a somewhat coordinated approach. And since we hadn't done that sort of thing very much, as you said, certainly in quite a while, that certainly can have an impact in the proper circumstances.",94
-fomc-corpus,1985,Have you been as open in these markets as you are in New York? Is it as obvious to people in the market?,25
-fomc-corpus,1985,"It's certainly known. We have tried different approaches in our own market and elsewhere, at times operating through agents, at times trying to operate as openly and as visibly as we could--dealing with a whole bunch of banks at once--in order to make clear to all the participants that we were there and that we were acting in a firm way. But it depends on the particular circumstances and the time of day and things of that sort.",88
-fomc-corpus,1985,"Any other questions? We have a recommendation to renew the swap arrangements. [Secretary's Note: Motions to renew the swap arrangements and to ratify the transactions in foreign currencies were made, seconded, and approved without objection.]",46
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Any discussion?,3
-fomc-corpus,1985,"I have a question. You said November 15 is ""drop-dead day"" or whatever.",20
-fomc-corpus,1985,"Yes, ""drop-dead day""--when they have to trot out some gimmick.",18
-fomc-corpus,1985,Right. Are there gimmicks there that can be used?,12
-fomc-corpus,1985,"They did some disinvesting of trust funds a few days ahead of the normal schedule in order to make benefits payments to Social Security and other pension recipients just in the last couple of days--last Friday and today. Conceivably, they could do some disinvestment of trust funds even further ahead of time. But that's something they have talked about in their inner circle discussions at Treasury but have no intention, as far as I know now, of doing. There was mention, I think, in one of the letters that went up from Secretary Baker to the Congress about the possibility of selling gold but they said that the Administration is totally set against doing something like that. There are probably half a dozen other things that are conceivable but that they have said they just don't want to do.",156
-fomc-corpus,1985,Have they used up the Federal Financing Bank?,9
-fomc-corpus,1985,It will be just about used up by the $3 billion cash management bill that they announced early this afternoon and will carry through tomorrow. I think that will leave about $1 billion.,37
-fomc-corpus,1985,"Peter, would you say that the somewhat firmer and more volatile funds rate is associated primarily with this uncertainty surrounding the Treasury's financing requirements? Or are there other factors that are operating now?",38
-fomc-corpus,1985,"Well, the firming of the funds rate has been rather minuscule; it has changed from a 7.90 percent average to an 8 percent average, approximately. It is conceivable that some of the changing pattern had to do with low Treasury balances in the money center banks, which may have put them under a little more pressure to buy in the fed funds market, but I'm not sure it was very significantly that. I think it may have been more a carrying through of the slight adjustment that had been made in our degree of borrowing pressure before the last meeting that was achieving its maturing effect in the recent period.",126
-fomc-corpus,1985,Did the intervention activity create any difficulty for implementing domestic--?,12
-fomc-corpus,1985,"I don't think so. We had a good handle on what it was. Typically, that takes place in terms of the actual reserve impact with a couple of days' lag, and we were totally on top of what was happening there.",47
-fomc-corpus,1985,"Any other questions? If not, we have to ratify those transactions.",15
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. We can go home unless you want to hear an economic report. Mr. Kichline are you prepared to give an economic report?,30
-fomc-corpus,1985,Sure.,2
-fomc-corpus,1985,You want to go home?,6
-fomc-corpus,1985,I think we ought to have Mr. Kichline's report in the morning.,17
-fomc-corpus,1985,I do too.,4
-fomc-corpus,1985,We'll see you all in the morning.,8
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Comments?,2
-fomc-corpus,1985,"Jim, in what kind of shape are inventories in general?",12
-fomc-corpus,1985,"We think really quite good. Obviously, part of what is going on in the aggregate numbers is this auto story: stocks were run off substantially in the third quarter and are being rebuilt now. As we go through the various sectors, in putting together what we know, we think that inventories are about in line in the aggregate, and in the forecast we just have them rising with sales. So they don't really run off any more and they don't contribute to growth; they're a neutral factor. There are a couple of areas that I think are important. I have seen some figures for Sears, for example, which presumably is pretty close to the industry in planning. They still feel that inventories are a little on the high side, are banking on decent Christmas spending, and expect that will take care of it. But if indeed consumer spending turned out to be a little weak, I would think retailers might not be very happy as they enter the new year. Still, in that general merchandise area, particularly with respect to apparel and some soft goods, it depends on decent sales prospects coming along.",216
-fomc-corpus,1985,"Jim, that is an extraordinarily low saving rate in the third quarter. Would you attribute that mainly to the surge in car sales and the credit associated with it, or what?",35
-fomc-corpus,1985,"Well, it is two things: one is the surge in car sales; the other is that income growth was weakening and consumer spending outside of autos was still pretty good--not that weak. If you want to take a percentage point or so off for auto sales, you might do that. But even so, what we have been looking at is fairly good consumer spending and weakening real disposable income growth, so that consumers really have been in a position of reducing their saving rate, borrowing a lot and so forth, to fund expenditures. So, I think it is more than autos.",116
-fomc-corpus,1985,"We did a calculation on that point that is kind of interesting. It is not an entirely valid calculation because you can't hold everything else equal, but with that limitation it is a valid calculation. If you use a benchmark of, say, 5 to 6 percent as the average for the preceding quarters and work off that, the combination of two things--the reduction in farm income and higher net interest payments by consumers--appears to be worth a little more than a percentage point on the saving rate itself.",102
-fomc-corpus,1985,Higher net interest payments?,5
-fomc-corpus,1985,Net.,2
-fomc-corpus,1985,"Oh, net interest; so, payments minus receipts.",11
-fomc-corpus,1985,"The combination of both of those things. Again, given the limitation of the way you do your arithmetic, farm income and interest payments are about a half a point each.",34
-fomc-corpus,1985,I assume farmers aren't spending any money?,8
-fomc-corpus,1985,Some farmers are. Some farmers in New Jersey and Pennsylvania and Delaware are going out to places like Iowa and buying up machinery that is on the block out there cheap and hauling it back.,37
-fomc-corpus,1985,Hauling it back?,5
-fomc-corpus,1985,"Hauling it back. They are buying implements that might cost $50,000 to $60,0000 and picking them up for $15,000, $20,000, or $25,000. It is worth the trip out.",50
-fomc-corpus,1985,"That isn't recorded as consumer spending though, is it?",11
-fomc-corpus,1985,No. But some farmers are spending. That's my point.,12
-fomc-corpus,1985,Does anyone have any more comments on the business scene?,11
-fomc-corpus,1985,"I myself just can't see anything out there that is going to get growth up into the 3 to 3-1/2 percent range as opposed to the 2 to 3 percent range. For a long time I thought housing could make the difference in terms of that marginal contribution, but I can't see that now either. Looking across the sectors of the economy at this point, it is just awfully hard to find sources of marginal growth that would get us to a bit more respectable range on a forecast basis. On top of that, the anecdotal reports that I, at least, am getting from business people and directors and so on--for what they are worth--are distinctly on the sour side.",143
-fomc-corpus,1985,Mrs. Horn.,4
-fomc-corpus,1985,"Looking around the District I find, much as is the case for the national outlook, that the incoming data are not conclusive. I see no evidence of accumulating weakness nor signs of stronger growth in the months ahead. The business investment picture has come in consistently weaker than I had expected, both in the District and of course nationally as well. But I wouldn't see a change in that outlook. Housing, which Jerry just spoke of, has responded to the lowering of interest rates with less strength than I and many of us had expected, and that is in the District as well as nationally. The real question is with the consumer, and in our District retailers are encouraged about the Christmas season. Also, in talking to people in the business community I have noticed what I think is a change in attitude toward their formerly optimistic feeling that the fiscal impasse might be resolved. I have long thought that it probably would not but in that I differed with the business community that I talked to; they had been optimistic up until the last couple of months but I think now their view is that the fiscal impasse will remain an impasse. I am not sure that I can take the next step and say how that will change their planning for the future, but I think there has been a distinct change in attitude there. I would say that the business people I talk to continue to be guardedly hopeful about efforts to reduce exchange rates. While they realize the dangers connected with an overly fast reduction of the exchange rate, I think they view what has happened perhaps as being maintainable. And if exchange rates were to back up, I think their reaction would be disappointment and that might affect their future plans. My view of the economic outlook is about the same as the staff's forecast--I don't know whether to describe that as moderate expansion--in the next couple of quarters. As I look at the 2 to 3 percent number, which may [turn out to] be closer to 2 percent, and ask myself if that is a good or bad number to be looking at in the forecast, I am not sure I come to a conclusion. If I talk to my directors and others and look at the gaps in the economy, I see a lot of room to say it is not a good number. On the other hand, when I remember the difficulty of reducing inflation and the high price we paid, it looks better in that context.",485
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"Jim has given us a ritualistic comment that there has been no change in the forecast and I am going to give the ritualistic response to that and say that there has been a change in the forecast in a direction with which I concur--that is to say, it is more realistic in that the numbers are down a few tenths for the next five quarters and unemployment is constant or creeping up a bit, depending on how well the forecast tracks. Like others, I [have reservations] about the assumption of the saving rate staying at a little over 4 percent, but we explored that pretty thoroughly and there is no point in going over that further. It is interesting that the forecast contains a shift in government spending in the full employment budget deficit sense, which should be a matter of some interest with regard to what Jerry Corrigan has indicated as a very cautiously optimistic outlook with no sector particularly giving a push. It does not look as though [stimulus] is going to come from the federal government sector. I am delighted to see the housing forecast revised downward a little. I like that old joke about the people who lived in [unintelligible] and everybody knew everybody's story, so their stories were numbered. I am going to number my comments, so I will simply say ""number 17"" rather than make you listen to my ritualistic housing comment. I warn you, however, that tightening of credit standards by lending institutions has yet to have its full effect and that is coming. That is down the road and I think it will be in 1986 but that--in other words, ""17.""",326
-fomc-corpus,1985,Does that mean that you agree with the forecast?,10
-fomc-corpus,1985,"No, I said ""17"" already, Chuck. That means I think it is a little too optimistic.",22
-fomc-corpus,1985,The tightening of lending standards doesn't seem to have hit the commercial construction market. How do you account for that?,22
-fomc-corpus,1985,"No, I am talking about housing. I am talking about that 1.8 million housing figure and that $5.6 billion residential spending number, neither of which we will ever reach.",39
-fomc-corpus,1985,What I don't understand is why the lending institutions are still lending for office buildings at the rate they are. I don't quite comprehend.,26
-fomc-corpus,1985,It's the lags.,5
-fomc-corpus,1985,"I got the answer to that the other day, Frank. We had the chairman of one of the largest commercial construction companies in the world into the bank for lunch and I asked him that same question. I said ""How come you're still building all these buildings in Dallas and so on?"" He said; ""It is very easy; the banks keep giving us the money. As long as they give us the money we will keep building.""",87
-fomc-corpus,1985,"The banks, the thrifts, the life insurance companies--",12
-fomc-corpus,1985,Why are the banks extending the money?,8
-fomc-corpus,1985,They don't have any other place to put it!,10
-fomc-corpus,1985,"I think the reason is different. I think it is because there still is, from the '70s, the expectation that those office rents and that percentage lease income from the commercial property are going to increase with inflation down the road--in three, four years, whatever. I think that's built in. These people have equity positions and they feel that the office rents and the percentage returns off the commercial property will [provide a good] return. In conclusion, I don't think the major issue here is downside risk. Let me break another rule and say that I think this is a courageous forecast. I think the staff was willing to revise it in a downward direction and take the risk that they might be pessimistic. It has implications, of course, for our next round of discussion with regard to monetary policy. There is that assumption of somewhat lower interest rates over the 5- or 6-quarter period--a drop of 150 points in one case and 100 points in the fed funds rate in the other case. We have to consider whether the forecast results are appropriate--whether the monetary policy we adopt here is consonant with that 150 basis points decline over this period of time. I think it's a good forecast.",246
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"Mr. Chairman, I can't bring in any great amount of optimism to this discussion. Our part of the country, I think it is fair to say, is pretty sluggish. It is uneven; it depends on where you happen to be sitting. We had an unemployment rate for Texas last month of 8.1 percent, which is very unusual. The unemployment rates in Louisiana and New Mexico are even higher. In the various sectors of the economy, there is really not anything positive that seems to be happening. We continue to feel that the energy situation will remain [poor] even though there has been some firming in the price. We think that is temporary and that the price will start sliding as we get through the winter. In our latest survey of our agricultural banks it is fairly obvious that the tone has changed and that some of those problems now are starting to materialize. From that last survey, the decline in land values now is estimated to be about 10 percent, which doesn't sound like all that much compared to what is happening in the Midwest. But that is the first time that I have seen a number that large from our respondents. The only thing that is really happening, and this was mentioned earlier, is in non-residential construction. We just had another major office building announced in Dallas by Republic Corporation; it is going to be a 60- story building that they are going to build with a developer--Vantage Company--and in the process they are going to reduce their occupancy costs; they have really made a very nice scenario on how all that's going to work out. I was reading in the paper coming up on the plane yesterday that Prudential, which now owns the second tallest building in Dallas, one of the newer ones--InterFirst Tower II, which InterFirst sold--is going to spend $50 million putting a new facade on that building so it will look prettier. I guess that is a good business decision; I don't know. But it just keeps on. We set new records in August in terms of the amount of commercial construction. Even in Houston--and I think I mentioned this before--there is a $250 million building coming out of the ground in downtown Houston. But that developer is going to catch the curve right; he is going to come on stream just at the right time. I am inclined to agree with Pres in terms of the outlook 3 to 5 years out: that there still seems to be the conviction that you can catch the turning point and it will pay off.",509
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Mr. Chairman, the Sixth District is seeing a definite tapering off of economic activity. Unemployment is up somewhat. The same sectors that have been suffering over the last several months are still in difficulty, basically textiles and apparel. Agriculture, while not as bad as in the Midwest, is still in the doldrums, and energy is pretty bad. On the other hand, we have this continuing activity in the commercial real estate sector, which I find very, very difficult to understand. I get the same answer that other people get: They're going to continue to build as long as they have the money to do it; I guess that's the way developers usually think. But it does seem somewhat irrational in that I think they are going to pay the price for it along the way. Housing, on the other hand, has been fairly decent in the Sixth District. All of the statistical information shows a downturn, but I must say that the attitude of directors and business people that I talked to is fairly optimistic. Again, I find it a little difficult to understand where this optimism is coming from. Even in New Orleans and in Louisiana generally, which are really in the pits as it were, they seem fairly sanguine about the situation and are looking for some uptick in activity. Going to the national scene, I don't have any strong disagreement with the staff; I think they are about right. I think that Jim is quite right to put out some of these warning signals, particularly with respect to the consumer. Housing is definitely something that, if it continues, is going to be a source of strength to the economy. There really isn't much else that one can point to in the near future that's going to be a positive force. But I'm a little concerned that housing may not be as strong as the forecast. On the other hand, I don't really see that we're going to have any appreciable decline in activity. So, I think the staff's forecast is about right. I should add--and I meant to note this in my District report--that people are talking about beginning to see some price pressures building up in some businesses. They say it's related to the value of the dollar, which surprises me a bit, because that would suggest that the effect is occurring a little faster than we would have expected. But they are definitely reporting some increase in prices coming from abroad.",475
-fomc-corpus,1985,Who is?,3
-fomc-corpus,1985,"""They"" are basically in textiles--shirt manufacturers and people like that. Their raw material is increasing in price.",22
-fomc-corpus,1985,"What are the chances, Jim, that you're too conservative on the net exports side? You don't show net exports as being a drag anymore but, certainly, we're not seeing any significant response to the fairly sizable decline in the dollar that has taken place. Now, is this the normal--?",58
-fomc-corpus,1985,"I think what we have built in here is a fairly normal historical response. I'll let Ted answer. I might say that question catches me a little by surprise because the usual question we get is: Why do you have net exports rising? So, I haven't thought about this one recently.",57
-fomc-corpus,1985,"I think that's the right answer; that's my reaction as well. We do have some increase. In fact the percentage change on the export side we have is an increase of 7 percent in real terms for goods and services and 9 percent for goods alone. The import side is essentially flat or a very small decline--less than a percent in the imports in goods and a small increase in services, which would depend on more debt. So it's basically in line with what we have tended to say--this is the same question about the price question on the other side. If you don't think prices are going to change as much as some people argue, then import prices aren't going to reflect it as quickly or as fully as with past exchange rate changes. It also follows that you shouldn't get the response to the exchange rate changes as fully or as fast as in the past. So the two things are sometimes linked together. We have tended a little toward the conservative side on prices for various reasons, at least in the short run. Until we know what is underway, we feel we shouldn't put a large number in the forecast. Therefore, we also don't have a large number on the other, [real, side]; it's somewhat attenuated. But I think it's not far from what we believe is historical experience, given the quality of information on trade data at this point, which is not very good.",279
-fomc-corpus,1985,"I might say that the net export sector contributes about a half percent to growth next year. So, we would have essentially 2 percent real growth fourth-to-fourth quarter if you held net exports constant. That's the impact of these numbers Ted is talking about.",52
-fomc-corpus,1985,"On your gradual depreciation path, at what point will we expect to get a real upward kick from net exports? Obviously, it's not in 1986.",31
-fomc-corpus,1985,"Well, I think that's a pretty big kick: 9 percent.",14
-fomc-corpus,1985,"Well, you get a kick early on from service receipts in the reevaluation in the current quarter. But looking ahead, where we think this begins to kick in is at the very end of 1986; presumably 1987 is the important year and it's beyond the forecast horizon. But it's late '86 at best where we see some particular strength and then we see it carrying on.",78
-fomc-corpus,1985,That's essentially a delayed reaction to the very steep decline because from here on out we have a gradual move.,21
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"Mr. Chairman, I wonder if I might ask Jim a couple of questions. Jim, you made some passing reference to the introduction of IBM's new Sierra mainframe computers. I was struck by this weekly publication of Citicorp the other day that estimated there are 400 or 500 already on order to be delivered in the fourth quarter. That would cause a pretty sizeable increase in total producer durable equipment expenditures; it seemed huge to me, just looking at it. I wondered if you had made any estimate of what that might do. The second thing is that I'd taken some encouragement from the nonfarm payroll employment figure and you suggested that ought to be averaged with September, if I understood you correctly. Do you think that is a seasonal adjustment problem there or what?",153
-fomc-corpus,1985,"Yes. Let me comment on the employment figures first. The problem occurs particularly in manufacturing and construction. In manufacturing, employment dropped 110,000 in September, which we really didn't believe; and it rose 60,000 in October, which we don't believe either. And neither does the BLS. There are a couple of things going on. One is that the survey week in October was the earliest possible that could have occurred. The seasonals are thinking in terms of declining employment in October, and it is thought that the survey week was so early it didn't pick up all of the decline; hence, seasonally adjusted, you get a larger increase. Now, that's one part, particularly in manufacturing. We have some other evidence in terms of physical product and other information that leads us to think there are some distortions. But I would still say it's a good number in that it is very clear that those two months together look better than earlier in the year. With regard to the Sierra, we have seen [shipments] numbers that range from an impact of $3 to $10 billion annual rate in the fourth quarter. We have talked to IBM and we have talked to others. So they are trying to build up what was a dismal year for IBM's earnings expectations and make it all up in the fourth quarter, or do the best they can. Other manufacturers, being one, are just not doing very well at all. So we think some offsets are occurring there. In addition, in the fourth quarter we expect a very sharp decline in business purchases of autos since some of those autos sold in the third quarter were business purchases at cut-rate terms. So the Sierra effect is a little uncertain. In our own thinking we picked a low-end number and used a positive $4 billion annual rate attributable to that, largely offset by autos and to some extent truck sales, which we think will be down. But it is a big impact. If we're wrong--. As I say, the numbers outside [forecasters are using] range from $3 billion to $10 billion annual rate and it depends in part on what you assume is happening elsewhere in the computer industry.",437
-fomc-corpus,1985,And also partly offset by declining shipments of others.,10
-fomc-corpus,1985,"That's right, yes.",5
-fomc-corpus,1985,"What they must have done in that Citicorp report, which was not clear to me, was to look just at the gross effect.",27
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"It was surprisingly large; I wish I could remember that percentage because it shook me. I ought to remember it, but senility has overtaken me and I can't.",34
-fomc-corpus,1985,You need a computer!,5
-fomc-corpus,1985,I may be too old for that!,8
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"There really is very little to report in the way of change in our District since the last meeting. Those businesses that have been showing some strength continue to do reasonably well. But there is certainly no noticeable improvement for the beleaguered. The steel industry and most lines of mechanical equipment remain awfully weak. On the steel side, the import restraints have had some effect but they have been far from perfect. And pricing conditions in the industry are very intense. Agriculture, I think, speaks for itself. The harvests have been late because of wet weather. Nonetheless, the crop estimates are being increased a bit, so that the pressure will continue on commodity prices. More positively--we've commented on the construction industry--certainly commercial construction in Chicago is very strong. I saw a presentation the other day showing that Chicago is going through a building period that has been unsurpassed since the great fire. An awful lot of buildings are going up. Just to add a comment to what Jim said earlier, the auto inventories really are very low; when they finished this big sales program they were down to 24 to 26 days' [supply], which was the lowest inventory level in some 20 years. So, for the rest of this quarter and going through January, one manufacturer at least is going to be running absolutely flat out including their maximum overtime schedule. They will be running their plants at the absolute maximum at least through January. Their outlook for '86 with regard to car sales is pretty good--a bit lower than ours but nonetheless the recent sales program hasn't had as big an impact on the '86 volume as one might have expected. On balance, as we look at conditions in the District, the staff forecast would be rather consistent with the way that we see it.",357
-fomc-corpus,1985,We haven't had the last 10 days' auto sales yet have we?,15
-fomc-corpus,1985,"No, it comes out this afternoon.",8
-fomc-corpus,1985,Mr. Melzer.,5
-fomc-corpus,1985,"To pick up on what Bob Forrestal said, I heard the same thing from a major retailer in St. Louis: that in the Far East the Japanese and others already are beginning to jack up prices on apparel and other textile goods. One other thing I've noticed in talking to people around the District is that there seems to be an interest developing now in bidding on farm land. People have talked about it before but I sense now that there is some very serious expression of interest, along the lines of what Ed Boehne was saying in terms of equipment, for putting together groups to bid on the land, which I think is a constructive development.",129
-fomc-corpus,1985,The first I've heard.,5
-fomc-corpus,1985,That's at very low prices. This would be in Arkansas and northern Mississippi and I'd say prices are probably down 40 to 50 percent from their highs.,31
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"Well, on the one hand, it appears that the spillover effects of the agricultural problem in our District are growing in the sense that recent gains in employment in the District states, to the extent they have occurred at all, have been sluggish. Unemployment rates in most District states have been on the increase. On the other hand, if you get away from the agricultural sector, the tone of the anecdotal comments that I've been hearing is that the situation isn't great but it isn't bad either. I take that to be roughly consistent with the kind of forecast reflected in the Greenbook. And I think the Greenbook forecast is largely consistent with the incoming evidence that we've been seeing in terms of employment as discussed, the strength in final demand, relatively acceptable levels of inventories, and so forth. I guess it's fair to say that we do have an ongoing construction boom in the Twin Cities. In both Minneapolis and in St. Paul vacancy rates have been rising, although they haven't kept up with the Sun Belt, so they don't look too bad relative to some of the national numbers. Developers that I've talked to give roughly the explanation that you've heard: that basically it's an equity play for some financial institutions who feel they missed out in the late '70s and early '80s and don't want to miss the next opportunity. Finally, I have not been disappointed, to date anyway, by the performance in housing. At least in terms of the level of starts, the first half came in somewhat stronger than I had expected. The fact that the last few months have been weaker doesn't really surprise me. I don't think we're very good at timing these things precisely and I suspect that just as we did maybe a bit better in the first half, we're now going to do a little worse. But, net, I don't see any reason to think that anything terribly unusual is going on so far in the relationship between rates and housing activity.",384
-fomc-corpus,1985,Mr. Balles.,5
-fomc-corpus,1985,"From the Twelfth District, there's a combination of good news and bad news that we have had now for some long time. The areas which have been weak and continue to be weak are the traditional ones that I have talked about so many times: forest products, agriculture, and oil. And now more recently, somewhat to our consternation, the electronics industry is in something of a slump, at least for the time being. On the other hand, there is considerable strength in defense spending and in the kinds of companies that benefit from that. I suspect we are on the receiving end of an unusually big share of that in the West. My staff tells me that two of our states taken together, California and Washington, have about 28 percent of defense contracts, so that's obviously a strong plus in terms of the tone of business, at least in those two states. Retail trade figures seem to be going very well; most stores have been reporting year-over-year sales gains of 5 to 10 percent. Auto sales are going well in most of the states. And of course the service industries, which are not nearly as identifiable as anything like steel or whatever, are reporting pretty good news in terms of their performance. Our staff reports that the market for single-family housing appears to be relatively healthy, which I was pleased to see. Whether it's permits, sales, or prices, all seem to be holding up in most markets, although it differs quite a bit if one moves from state to state. We do have nine states, but as a generalization this does not appear to be an area of great weakness at the moment. In terms of the outlook, our view is not much different from the Board staff's with respect to the balance of this year. Our staff is a little more optimistic as we look into 1986, simply in the sense that we expect somewhat greater shrinkage of net imports--that there won't be as big a drag on the economy as there has been in 1985. Of course, this is a judgmental difference, but we think we ought to get a little more kick out of the improvement in our foreign trade position coming from the expected decline in the value of the dollar. That's the thumb-nail sketch from the West.",454
-fomc-corpus,1985,"John, I don't know whether I should ask you or Bob Forrestal, but do you know if Boeing is expecting great things, particularly in the export side, from this new model 747 that they are beginning to market?",45
-fomc-corpus,1985,Do you mean the 757?,7
-fomc-corpus,1985,"No, they have a new model, a very highly fuel efficient 747.",16
-fomc-corpus,1985,"Gee, Jerry, I am not familiar with what that is, unless it's a 747 SP.",20
-fomc-corpus,1985,"No, no, it's a new generation of--",10
-fomc-corpus,1985,I haven't heard about that I am sorry to say.,11
-fomc-corpus,1985,Northwest ordered a bunch of them--I don't remember how many--as part of the $2 billion capital spending program that they have just initiated. But that's all I know about it.,38
-fomc-corpus,1985,"Do you know anything about it, Jim?",9
-fomc-corpus,1985,"No, I don't. I'm sorry.",8
-fomc-corpus,1985,What are you assuming in your budgetary projections about a farm bill?,14
-fomc-corpus,1985,We have a $45 billion deficit reduction package for next year. That's about $8 billion less than the Congressional estimates. They expected $53 billion or so for fiscal 1986.,37
-fomc-corpus,1985,Not real?,3
-fomc-corpus,1985,"Well, what I am trying to tell you is that we didn't accept the $53 billion figure. We think there will be overruns in a number of areas. The farm area is a prime one; we don't have the specific number on the farm bill, but we think that it is going to come in higher than the Congress had expected.",69
-fomc-corpus,1985,[Unintelligible] pretty optimistic--that's [unintelligible]. Why did you lower prices in your forecast?,25
-fomc-corpus,1985,"Why did we lower them? They are not reduced by much, a couple of tenths.",19
-fomc-corpus,1985,One half percent. MR> KICHLINE. Which price measure are you looking at--the deflator?,22
-fomc-corpus,1985,"Well, I'm looking at any of them--gross domestic business product deflator.",16
-fomc-corpus,1985,All right. That's .4 down.,8
-fomc-corpus,1985,Excluding food and energy.,6
-fomc-corpus,1985,"A couple of reasons: One is that the incoming information in a couple of areas was a little better than we had thought in the third quarter. That's the case for the gross business product deflator. On compensation and wages, we went through that again and that continues to look really quite good to us, or indeed maybe a little better. And with weakness in economic activity, we now have a little more slack in labor and product markets than we had before. In addition, taking another look at what we were doing on import prices, we felt that perhaps there was a reason to say it will come along a little slower--that is, rising prices from the dollar would occur later on in the year--so we pushed that back a bit. And all of those things together add up to .4 on the index.",164
-fomc-corpus,1985,Governor Seger.,4
-fomc-corpus,1985,"I just had two comments. One involves housing and the comment is that the tightening of terms and lending standards is there and that it is going to get more prevalent. We haven't seen much of it yet in the statistics but that doesn't mean it won't show up in 1986. I just hear too many comments from specific lenders about either tightening on their own or being forced to by the mortgage insurers; so I think that that may knock 100,000 to 200,000 off the numbers we are showing. Also, a comment on office building financing: If you get into some of the details, what you find is that the banks are doing the construction financing and they are willing to do it because there is permanent financing being supplied by the life insurance companies. Also, there is still a lot of syndication going on. There are rich doctors, lawyers and dentists who haven't adjusted to the new economic realities of a less inflationary environment and, also, they view this kind of investment as a good tax shelter. If tax reform measures actually get passed and the marginal rates are cut, I think that will kick that in the head real well. So, again, the combination of the financing facts and the agency rates suggests that sometime this is going to peak out, although I am not smart enough to know when. One final comment about the value of the dollar: The business people I talked with in the Midwest are certainly not sitting there worrying about the inflationary impact of further declines of the dollar because they long ago ceased believing their economists' forecasts. But one thing they do know is that the appreciating dollar nearly killed them and they are making decisions right now on things such as closing plants or moving production abroad. So time is of the essence here to get the dollar down, because these are decisions that are not going to be reversed quickly if they ever are reversed. Somehow or other I don't think that we necessarily appreciate that fact. They are not that concerned about what the declining dollar will do to inflation, but they are very concerned about what will happen in terms of their survival if it doesn't decline.",421
-fomc-corpus,1985,Do you ever find a businessman worried about his ability to raise prices when--. They like that.,20
-fomc-corpus,1985,"They also buy supplies, though, that are imports, It's a very competitive world out there.",19
-fomc-corpus,1985,They prefer to buy low and sell high.,9
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"Well, I tried to have a very optimistic view of the economy all through the summer, thinking that there would be a pretty good resurgence in the fall. There were some pretty favorable indicators at our last meeting, but I must say that this recent set bothers me. I am most affected, I guess, by the McGraw-Hill survey which is down one percent--and nobody mentioned that--in nominal terms. Now that's a pretty good survey. It's the oldest, and we always thought the best, of the private surveys. That's a pretty poor, unrespectable survey result to be occurring in the fall after boards have met and plans have tended to firm up for the next year. That did shock me. The other thing that I worry about is that personal saving rate; the only thing you can do really is assume that it won't come back very much. But it's so low that one wonders whether there hasn't been some kind of a spending desire on the part of consumers associated with the use of credit that will disappear, and that in fact the automobile producers are wrong about their forecasts for next year and it won't be as good as Si, I guess it was, suggested. I don't know; that bothers me. I am not sure, but it's a very mysterious thing to have a saving rate that low. After all, there was supposed to be an environment that would encourage saving in connection with supply side economics. It's totally the wrong answer that has come out of the data from that point of view. It's very difficult for me to incorporate the net export/import picture because we have had so little experience with that being a large factor. It might be that there could be a bigger increase in exports than the staff has forecast, but the fact of the matter is that for the next year they have a contribution coming from net exports--that is, smaller net imports. It's the first time since 1980 that there has been any contribution to the economy from that source, so it is a rather radical change in GNP effect that they have already put in there. As far as office building is concerned, I think the longer it goes on the worse it is going to be. I don't know when it is going to break, but it is going to break pretty big; and the longer it goes on the bigger the break will be when it occurs. So, I'm starting to lose my optimism; I figure at best we will get the staff forecast for the period to come and it could be a good deal worse. There is a possibility of a recession and we need to recognize that. I said that last time, thinking of it as sort of a remote possibility. My feeling is that the possibility is a little stronger now that there will be a recession some time in the next nine months. It's a distinct possibility. In any event, I would want to point out to you--and I think this is what Pres Martin did--that the staff forecast is well below our bogey for the performance of the economy. We [as a group] forecast 4 percent for the second half of the year, I believe, in real terms. Apparently, it is going to be well below that. We forecast a pretty good 1986, and it looks as though it is going to be below that by an appreciable percent or so. So we are below our bogey; that seems to be increasingly clear as the months go by, and I think we will need to take that into account in determining what the monetary policy ought to be.",711
-fomc-corpus,1985,You have made our forecast a bogey.,9
-fomc-corpus,1985,"I thought it was a minimal acceptable performance of the economy that we predicted in July. That's the way it was presented in the Humphrey-Hawkins report, I thought: as a satisfactory performance. Otherwise, we would have needed a change of monetary policy to get a different economic result. So it was acceptable, but now we have fallen more below that.",72
-fomc-corpus,1985,You seem to be a GNP targeter.,10
-fomc-corpus,1985,"I think I am, yes.",7
-fomc-corpus,1985,I am not sure that the Committee has accepted that. Mr. Boehne.,17
-fomc-corpus,1985,"As far as the District goes, I continue to think that the tone is a little better in my part of the country than it is in many of the other Districts. Even in the District, though, it is usually described as not great but not terrible. But I think it's generally above the national average. As far as the economy across the nation goes, I think we are very much in the hands of the consumer and that gives me some pause at this stage of the recovery, because I would have hoped that we could be getting some help from some of the other sectors, notably investment. But as Chuck pointed out, that doesn't seem to be there; in fact, it seems to be a drag. Therefore, [the economy] pretty much is riding on whatever momentum there is that the consumer is going to provide; and looking at that one can avoid extreme pessimism, but it is awfully hard to get very upbeat about it. If you look at what drives the consumer, the job income side is moderate, but it seems to me the consumer is held back by the debt situation. Inflation has been another factor that has either helped or hindered consumer spending. That seems to be about neutral: it doesn't seem to be getting any worse and it doesn't seem to be getting any better. But in a kind of static dynamic view of the situation, we are not getting any help from there anymore. And that leaves interest rates, which also have a major impact on what the consumer does, and I suppose the outlook there is flat to down. We do have some constraints on the international side [in terms of] what we can do there. But I just get the feeling that the expansion is much like a person entering his senior years. He can go on a while longer, but I get the feeling that he could fall over any time. And while I wouldn't predict a recession, I get the sense that sometime out there in the forecast horizon this recovery is just going to fall over.",401
-fomc-corpus,1985,He's a lot younger than the average age.,9
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Thanks, Mr. Chairman. I don't think I shall burden the Committee with reciting again the problems in our regional area, other than to tell you that the latest survey we have done at the banks suggests that farm land prices have fallen another 5 to 6 percent.",55
-fomc-corpus,1985,In what period is that?,6
-fomc-corpus,1985,"That's in the third quarter; they are down in the 40 to 50 percent range now below the high of 1981. But there is another activity that I would like to bring to the Committee's attention. Because of the rather depressed conditions in our region, and based on the resourcefulness of the people who live in the Midwest, they do turn to other activities to provide food for the table. As a result, game wildlife hunting is a big activity this time of the year and I can tell you that, at least in the immediate area around the Bank, there is some optimism for the Thanksgiving holiday because the hunting season opened early. You will find four out of seven Bluejays and four out of seven Cardinals will be served!",150
-fomc-corpus,1985,I thought you were going to say that they got a couple of bankers to serve.,17
-fomc-corpus,1985,That's an upbeat report.,5
-fomc-corpus,1985,Let's turn to Mr. Axilrod.,9
-fomc-corpus,1985,"Mr. Chairman, I can be quite brief. It seems to me that the alternatives presented--not alternative C, but alternatives A and B at least--are generally consistent with the growth path adopted by the Committee for the fourth quarter at its last meeting. One is toward the bottom end of that range and one, in a sense, is toward the middle or upper end. I should point out a technical point: that M1, for example, under alternative B we have 5 percent; the Committee said 6 to 7 percent or lower. The hurricane effect raises M1 growth in September by 3 percentage points and reduces it in October by about the same amount. So in some sense that 5 percent under alternative B could be construed as 6 percent with the hurricane allowed for. That's a minor bit of expertise. It does tend to buttress the point that the differences between ""A"" and ""B"" relative to the growth path adopted by the Committee are small. The only other point that perhaps one might make in a general way, Mr. Chairman, is that the weakness in the economy is in those areas most susceptible to long-term rates, and one could advance very gingerly a proposition that in providing reserves as they will have to be provided over this period perhaps there is some usefulness in providing them through acquisitions of coupon issues, at least to a degree, to do whatever could be done to keep pressures on long rates from going up or encouraging them to go down even while short rates might need to be sustained for international reasons or for reasons of monetary growth rates.",318
-fomc-corpus,1985,"Steve, let me ask: You pointed out some of the similarities of ""A"" and ""B"" with regard to the aggregates. Could you help me understand the differences--and I am talking forward now--in alternative A for the next short-run period versus alternative B? You have borrowings on page 8 [in the Bluebook] of $450 to $550 million for ""B;"" you have borrowings of $200 to $300 million for ""A"" on page 10. That seems to me a rather substantial difference. Can you help me rectify this?",116
-fomc-corpus,1985,"Well, that was essentially a difference we thought was roughly consistent with a drop of a half point in the funds rate, and presumably to a degree in other short rates. The--",36
-fomc-corpus,1985,"And with no drop in the discount rate, I take it?",13
-fomc-corpus,1985,"No. But I feel absolutely certain that if the Committee leaned in the direction of alternative A, expectations of a discount rate decrease would shortly begin to dominate the market. And I think the risk, as we tried to indicate, would be that short rates--at least in the short run--would fall more than is specified.",65
-fomc-corpus,1985,"From midpoint to midpoint, that would be $500 million for borrowing for ""B"" and $250 million for ""A."" So that's 50 basis points?",32
-fomc-corpus,1985,"Well, one model gives you 25 basis points per $100 million [on borrowing], and we tend to think judgmentally more like 20 basis points per $100 million. These relationships are quite loose, so I think that is consistent with what we have there.",54
-fomc-corpus,1985,You suggest a little operation twist.,7
-fomc-corpus,1985,"Well, I didn't mean to be very--",9
-fomc-corpus,1985,"As long as we have some time, would you like to discuss that a little more? That's an unusual recommendation.",23
-fomc-corpus,1985,"We are coming to a period of reserve need, and I guess I was bitten by fears of the dollar dropping sharply. Working through that chart show, I think that the dollar is probably sensitive to both short-term as well as long-term rates in some degree. So in providing reserves over this period, I was trying to think of a way that would minimize the possibilities of adverse expectational effects on the dollar. So I didn't really mean a substantial operation twist, but that when the opportunity came it might be desirable to think about buying coupon issues rather than bills, depending a little on the circumstances at the time and how people were thinking in the markets.",130
-fomc-corpus,1985,"Well, there will also be a bunch of Treasury issues, I assume. Will any of those be coupons?",22
-fomc-corpus,1985,"There are likely to be. Yes, there is the normal 3-, 10-, and 30-year issues that would have been up for auction this week that have been postponed. They just did last week the 4-, 7- and 20-year issues that had been postponed by about a month because of debt limit problems.",68
-fomc-corpus,1985,The only long-term fixed rate borrower we have is the U.S. Treasury. I think there is very little in that idea.,26
-fomc-corpus,1985,You see that was not checked with the Chairman!,10
-fomc-corpus,1985,Is that because you think long-term rates have as much effect on exchange rates as short-term rates?,20
-fomc-corpus,1985,"First of all, I don't think the difference in their rate levels will be visible to the naked eye; and I think yes, that is a possibility.",31
-fomc-corpus,1985,"We did study that operation twist at some length, and I can't recall that there were any findings of significant difference.",23
-fomc-corpus,1985,"In fact, I don't think there are many private borrowers out there in the long-term markets.",19
-fomc-corpus,1985,"Well, you have the mortgage borrowers: there are a lot of those. And they prefer fixed rates if they can get them.",26
-fomc-corpus,1985,It's probably related more to the short-term rates.,10
-fomc-corpus,1985,There's [unintelligible] at least in the home mortgage market. Consumers have a very distinct preference for fixed rates.,25
-fomc-corpus,1985,Some of it is fixed rate and some of it is floating rate.,14
-fomc-corpus,1985,"I am attracted to the idea of trying to do a little something in the coupon end--not because I think it's going to have any great effect on relative rates--but just because the thought runs through my head every now and then that at some point down the road we may feel that we have to do something in coupons for other reasons, and if we get so removed from that segment of the market the mere fact of doing something for a particular reason has much more signal effect to it than we might otherwise want.",103
-fomc-corpus,1985,"If we want to do it for a particular reason, we presumably want to signal.",17
-fomc-corpus,1985,"Well, I am not sure of that.",9
-fomc-corpus,1985,You mean we may need the twist somewhere down the road?,12
-fomc-corpus,1985,We may need something.,5
-fomc-corpus,1985,"What do you mean: because the Treasury will have so much difficulty financing? If so, why would they continue to issue coupons?",26
-fomc-corpus,1985,I don't know what the precise circumstances might be. I think preserving some flexibility--,16
-fomc-corpus,1985,I understand.,3
-fomc-corpus,1985,--in our market presence is desirable.,8
-fomc-corpus,1985,"You don't extend that view to agencies, I take it.",12
-fomc-corpus,1985,Like Farm Credit?,4
-fomc-corpus,1985,"Well, I didn't want to mention any particular--",10
-fomc-corpus,1985,"It would narrow that spread, if they knew the Fed was in buying the Farm Credit ones.",19
-fomc-corpus,1985,"The only argument I hear for buying long-term issues is that the market expects us to buy long-term issues in some [unintelligible] or that we expect ourselves to buy long-term issues and, therefore, we ought to buy them.",49
-fomc-corpus,1985,"Oh, it might be kind of fun!",9
-fomc-corpus,1985,"But we buy them once in a while, you know. For what reasons, it's not quite clear to me.",23
-fomc-corpus,1985,"Steve, you have [forecast] a pretty calm M1 behavior for the remainder of the year. You are not expecting any year-end surge or anything like that?",33
-fomc-corpus,1985,"Well, it's calm, largely because of the averaging of the zero to minus one that we are projecting for October. Growth would have broken out--whether it's ""A"" or ""B""--in between 8 and 9-1/2 percent over that last two months of the year. Those are fairly substantial growth rates in and of themselves and, as we mentioned, if rates went down and particularly if expectations carried them down more, we could get a powerful surge in M1 as rates moved closer to these NOW account ceilings. So there is a considerable risk of a very substantial growth, particularly under ""A,"" I think.",127
-fomc-corpus,1985,"M1 is very high. Well, I think our problem on that is relatively simple and difficult at the same time. I don't attach a lot of weight to small changes in this forecast, whether it's prices or GNP within the ranges that are set. I don't think that we know what GNP is going to be in this quarter. Things have somewhat less than an ebullient tone to them, so I think: ""Fair enough; one might think of easing slightly if the dollar gave one room to do that."" I am not sure it does right at the moment, but that's [unintelligible] a shorter-run perspective. I am considerably concerned that a continuing sharp decline and a real change in sentiment there, which I think we're on the edge of, would give us more difficulties than we bargained for. And whatever we do has to take that into account. The stronger the dollar is, the more we can ease; the weaker it is, the more stuck we are.",200
-fomc-corpus,1985,But the amount of intervention that has occurred most recently would suggest that there are still some strong upward pressures.,21
-fomc-corpus,1985,"Well, it's all a matter of judgment. The intervention that took place when we were intervening heavily is what: two weeks old? The big intervention was what: ten days ago? Since then the markets definitely have been on the other side. How much of this is short term? It could go back the other way; I don't know. I wouldn't be unhappy if it went back the other way; it will give us a little more room. But this is all a fairly narrow focus. Mr. Morris.",103
-fomc-corpus,1985,"Well, I agree with your analysis, Mr. Chairman, because I don't think we have much room to maneuver here. If we had some evidence that the economy was softening, then I think we could go ahead and move to lower rates, despite the growth in the aggregates. But I don't think we have anything to tie an easier posture to at this moment.",73
-fomc-corpus,1985,"I think there is another element that could arise. I don't know what the odds are, but if Congress really passed one of these budget resolutions that calls for a sharply lower deficit than I think is at all probable in the current fiscal year, it necessarily follows that within weeks after they passed this bill, I presume, they would have to do something to cut expenditures in a big way. I might point out that the way some of those bills are written, it could include the Federal Reserve. Then I think we have a kind of platform, and maybe a necessity, for seeing that interest rates go down. I don't know how much easing that would take; they might go down by themselves.",138
-fomc-corpus,1985,That's exactly the kind of thing--something to hang our hat on--that we don't have now.,20
-fomc-corpus,1985,"I don't know what the odds are on something like that happening. I am totally confused by this process; I don't know whether it is all a game, whether there is any chance that they are going to get together, or whether they are carefully making positions that are mutually inconsistent so [unintelligible]. They may end up with a bill that is vetoed. If it happened that we got a dramatic difference in the budget, in one sense it would be constructive and in another sense it may be rather chaotic if they do it in a hurry. Then I think we have a new ingredient that we'd have to take into account.",127
-fomc-corpus,1985,"Well, Frank, I don't know. If we have a continued sub-par performance of the economy, it would seem to me that that would be a reasonable justification. On Friday of this week we will get the McGraw-Hill survey, which I think is going to be a big news item. In addition, I think the retail sales figure, just because of car sales if nothing else, is going to be very poor.",86
-fomc-corpus,1985,I personally think that McGraw-Hill survey will reflect the decline in exchange rates. That certainly has to be a plus for domestic investors.,28
-fomc-corpus,1985,I don't think that it's going to make much of a difference--maybe in the short run. I don't know how good that survey is. Retail sales are assumed to be down because of auto sales; I guess you look at the rest of it.,50
-fomc-corpus,1985,Yes. I have no idea what that will show.,11
-fomc-corpus,1985,"I take it your basic proposition is to stay where we are now but be alert for opportunities to ease, and that those opportunities may come from the international side or the budget side or wherever. I think that makes a lot of sense.",47
-fomc-corpus,1985,That's sort of where I am.,7
-fomc-corpus,1985,I think that general proposition is quite sound.,9
-fomc-corpus,1985,I certainly agree with that proposition.,7
-fomc-corpus,1985,Maybe we can get the post FOMC questions pre-lunch today.,15
-fomc-corpus,1985,"Well, let's not assume too much.",8
-fomc-corpus,1985,"I just said ""maybe."" I didn't--",9
-fomc-corpus,1985,"Well, looking at operational policy in our usual format, I didn't hear anybody talking about anything that sounded like alternative C. I suppose it's impossible that the monetary numbers would come out that low. Who knows? But I don't think anybody wants to drive them there, if I heard the conversation correctly. The difference between ""A"" and ""B"" in the actual numbers I'm not sure is big enough to send anybody very much. We had 6 to 7 percent last time. We're in one of these mid-quarter periods when, just as a matter of form, I prefer to make fewer changes rather than more in these targets that we don't meet anyway. But--",133
-fomc-corpus,1985,"We might as well leave it the same, right?",11
-fomc-corpus,1985,"Well, that is my inclination unless somebody--although where we had them was 6 to 7 percent and that may be a little high.",29
-fomc-corpus,1985,That was for Ml?,5
-fomc-corpus,1985,I think it was--,5
-fomc-corpus,1985,M2 and M3.,6
-fomc-corpus,1985,"-- 6 to 7 percent for all of them. We can easily say around 6 percent for all of them without it being a substantial change. But in terms of the borrowing and our actual operations, I heard more worries about being too tight than too easy purely on the domestic business outlook, which is not the whole equation, certainly. From the standpoint of the international debt situation and a lot of other things if interest rates came down, it would be nice. On the other hand, I continue to be impressed by the amount of credit that this economy is dealing out, including in the real estate construction area. I'm not sure that inviting it to spew out a little more is in the long-term interest of anything. But there we are. Right now, as I suggested before, I would look toward not making any very startling changes; but if the dollar really gave us the opportunity or--more remotely but conceivably--if the budget gave us more opportunity, I'd be alert to go down in the absence of any new striking news in the other direction. There's a slightly peculiar situation in the market right now. We have had borrowing low all week but the federal funds rate is higher than one would expect, presumably in reaction to Treasury financings. I presume that's just a passing phenomenon and that the market doesn't seem to be taking it seriously. Well, let's see what others have to say.",282
-fomc-corpus,1985,"It's going to be hard to evaluate the budget thing isn't it, Paul?",15
-fomc-corpus,1985,"Well, I don't know. I have no idea what's coming out. I don't particularly expect this, but I suppose one possibility is that they could pass something that virtually demanded expenditure cuts pretty quickly. I don't know how you avoid them if they pass something. The budget is clearly running above what they say. I can see how they might ignore this law next year if they pass it; it's a little hard to see how they ignore it three weeks after they pass it. I have no idea what's going to come out of this. I would think from the Administration's standpoint, Congress has managed to screw it up enough that the bill would end up being vetoed, so you have nothing. I would think that may be the most likely scenario--or that they just never agree so they finally pass the debt ceiling bill and they give in on the thing.",171
-fomc-corpus,1985,"Yes, that's possible.",5
-fomc-corpus,1985,"Or they could pass it in the Senate version and could say that it has no implications for this year so they'll think about it next September, in which case it would not have much implication for us either, I guess. Any one of the above [is possible], and I have no idea how it's going to come out.",65
-fomc-corpus,1985,"Mr. Chairman, would that argue for a bit wider range in the borrowing without having to consult with this group, considering the wide range of both that uncertainty and the dollar uncertainty and so forth?",39
-fomc-corpus,1985,"Well, I think we ought to leave ourselves a little range on the dollar side. I don't mind consulting when the change gets significant in any event, but a little week-to-week flexibility or two-week flexibility is useful.",44
-fomc-corpus,1985,Or aiming for the lower side of the range more so than the upper.,15
-fomc-corpus,1985,Or changing the range.,5
-fomc-corpus,1985,"Oh, I wouldn't go that far.",8
-fomc-corpus,1985,"Well, what do have now: $400-$600 million?",13
-fomc-corpus,1985,We could talk about $400 to $500 million.,11
-fomc-corpus,1985,$300 to $500 million.,7
-fomc-corpus,1985,Aiming at being more comfortable? Or is it as close to--,14
-fomc-corpus,1985,$350 to $550 million. I think we're in that neighborhood someplace.,15
-fomc-corpus,1985,$350 to $500 million.,7
-fomc-corpus,1985,"We're now at $450-$550 million, and saying we would like to err toward some ease--if there is an opportunity--and widening that band on the low side is a good idea.",39
-fomc-corpus,1985,"Just in case we get too involved in the numerology here: These are always starting points and if something else happens, we can go below it or above it. SEVERAL. Sure.",39
-fomc-corpus,1985,It's clear enough. Mr. Melzer.,9
-fomc-corpus,1985,"One thing that struck me, really, is the volatility of expectations about the economy around the table. This month they tend to be negative, while last month they were very constructive. Before that I think they tended to be negative. That only leads me to the conclusion that there is still a lot of uncertainty with respect to what's going on in the economy, and I personally wouldn't be inclined to overreact to that. The other thing I would say is that there was mention yesterday of expectations in the market about the possibility of a concerted action among the G-5 countries to get the dollar down. So any easing that is undertaken in the near term here could be misconstrued in a sense, in the context of that, and could be potentially very damaging in terms of that thought. It could cause a more dramatic fall in the dollar.",169
-fomc-corpus,1985,"I might say in that connection, just in case there's any uncertainty around the table, that this move of the Japanese to increase their rates came out of the clear blue sky as far as I am concerned. I still don't quite comprehend it. I'm not sure, but in the larger scheme of things I assume they did it--maybe it will affect the yen in the short run--given that the Japanese economy is not showing much pep and that they just absolutely are blocked on the fiscal policy side. It's not the move that I would have chosen.",109
-fomc-corpus,1985,It's certainly not consonant with the action plan: the notion of stimulating housing and infrastructure spending.,19
-fomc-corpus,1985,It goes I think in the wrong basic direction. Excuse me.,14
-fomc-corpus,1985,"The other thing that I have been turning over in my mind, in reaction to yesterday's presentation, is a feeling that in terms of responding to a rapidly declining dollar my instincts lead me to feel that the right national policy response to that is probably for interest rates to rise somewhat. Easing in response to a weaker dollar had some implications that I didn't particularly like. What I've been thinking about is that we already have had a fairly significant decline of the value of the dollar and that possibly some of the general dynamics that were talked about in the hypothetical presentation yesterday may be coming into play here. We may be dealing with a sort of natural increase in interest rates and I don't know, frankly, whether it would be appropriate to lean against that too heavily. Now, I know there are other considerations. Net, based on those several considerations, I would be inclined to stay where we are, with some degree of reserve restraint, and not be looking for the next opportunity to ease at this juncture.",199
-fomc-corpus,1985,"Well, let me introduce another small refinement, given where the dollar is now and given the greater hesitancy in the market and all the rest. It is given that there are risks on both sides. But given the risks of this thing getting a little out of hand--in terms of speed anyway--I guess I don't see much point in intervening aggressively to push the dollar down or to hold it down. If the dollar is all that strong, in the short run it might be that the proper response is through a modest monetary policy change rather than trying to do it by intervention. It takes a little flexibility to get it on the monetary policy side. So, intervening very heavily increases the risk you are talking about: it freezes us; it has the opposite effect.",156
-fomc-corpus,1985,I get awfully uncomfortable with the idea that we should put the dollar as the centerpiece of policy. I think the economy is the centerpiece of [policy].,31
-fomc-corpus,1985,I am not sure I see that distinction.,9
-fomc-corpus,1985,"I don't disagree that the dollar is a significant variable, but I would point out that the objective was to get the dollar down. That was a program to which you agreed: to get the dollar down. And it has come down and, I think, has behaved extremely well. I thought for the whole period between meetings that the dollar had a lifting tendency and that's why we had to do the intervention. If it doesn't lift, we don't do the intervention. It was just very recently that we got a little weakness. And I think the weakness has come because of the Japanese raising their rates, which is certainly a contra-economic policy from a world point of view--not because of anything we did. So, I don't disagree with what is being said about the dollar, but I would again want to emphasize that I think what we need to have is a decently performing domestic economy. That's the primary objective of monetary policy.",185
-fomc-corpus,1985,"I can see the case for moving to somewhat lower interest rates, but I don't see that that necessarily means we shouldn't intervene also.",26
-fomc-corpus,1985,"It seems to me--I don't know whether Tom would agree with this--that we're talking about the immediate 2 or 3 weeks of the 5- or 6-week intermeeting period. I would think by the end of 5 weeks we might have enough feedback from the markets and from our own economy to change our position, which I would certainly agree to. We don't need to ease this moment but that doesn't say that 5 weeks from now we might not.",96
-fomc-corpus,1985,That's right. Sure.,5
-fomc-corpus,1985,Where do you see the natural tendency of interest rates--to rise right now?,16
-fomc-corpus,1985,"I guess it's relatively minor, but some weeks back we were running borrowing levels that were well in excess of the somewhat lower target and funds were trading below 8 percent. Now we tend to be running at borrowing levels that are somewhat below the target and funds are modestly above 8 percent. It's relatively minor: 15 to 20 basis points.",71
-fomc-corpus,1985,"Chuck, I agree with your point about the primacy of the economy, but I come out a little differently in terms of emphasis at the margin. With that primacy in mind I say to myself: What are the things that are on the table in the very near term that could really louse up the situation with the domestic economy in a major way? And the one that just leaps out at me is the risk--and everybody puts his own arithmetic on this--of the dollar breaking out on the down side. If that happens, the one thing we're sure of--or at least I'm sure of--is that that would do considerable damage to the domestic economy and the world economy.",138
-fomc-corpus,1985,"If it broke down sharply, yes. We have had a great big program to bring it down and we have gotten it down a little. The evidence hasn't been that it is tending to rush away. Maybe it will. I agree with you that that would be a bad thing.",56
-fomc-corpus,1985,It is down,3
-fomc-corpus,1985,I don't know.,4
-fomc-corpus,1985,I know.,3
-fomc-corpus,1985,"Nobody ever told me what the program envisaged, so I don't have any sense [of that].",20
-fomc-corpus,1985,If you attribute it solely to the program.,9
-fomc-corpus,1985,I'm not talking about the long run--,8
-fomc-corpus,1985,We have had a bigger response than I would have expected solely from the program.,16
-fomc-corpus,1985,"Oh, we certainly have. I think the timing was excellent in terms of making the program look effective. Anyhow, having been worrying about a high dollar for the last year and a half or two, I find it a little odd that we're now talking about how serious the possibility is. And there is a possibility that it is going to break all the way down; [I don't know] how clear and present the danger is. I suspect that some of Gov. Seger's manufacturers wouldn't mind a little further drop.",104
-fomc-corpus,1985,They would like the yen at about 120 and--,11
-fomc-corpus,1985,"The fact is, Chuck, that the markets that have a high level of speculative activity tend to overshoot, both on the up and the down side. And that makes this not something to be concerned about in a [unintelligible] way.",51
-fomc-corpus,1985,"Are you suggesting that after I have left here, the Committee is going to keep the interest rates very high to keep the dollar from falling? And thus put [the country] in a major recession that the rest of the world is in--",48
-fomc-corpus,1985,No.,2
-fomc-corpus,1985,With the same bad policy?,6
-fomc-corpus,1985,No. I would think that one would describe what we are talking about now as hoping to avoid the necessity for that.,24
-fomc-corpus,1985,Precisely. The dollar going down isn't a free ride. That's what the people were supposed to demonstrate yesterday. It may have to get down over a period of time; it probably does. How it gets there and what the accompanying policies are makes all the difference.,53
-fomc-corpus,1985,"Again, go back to that chart nine in yesterday's presentation. We sit here and we have a situation, which we have had for a long time, where we have a simply lousy fiscal policy. Monetary policy is trying to out-muscle and out-maneuver that, and there is a point here where it just can't be done.",68
-fomc-corpus,1985,"Let me play devil's advocate for just a minute. We have been talking about what I think is the real risk of a precipitous decline of the dollar. We had a good staff presentation yesterday on the same subject. On the other side of this issue is the lack of real action by our trading partners of any kind of coordination of policy, fiscal or monetary. And the Japanese contradiction is exhibit A. Now, suppose the market players feel that there is not going to be any change in fundamentals--we all know the limitation of intervention policy--and the market moves the other way. Is that of some probability? It may not be the most probable outcome.",132
-fomc-corpus,1985,I think that's possible.,5
-fomc-corpus,1985,"Then if domestic business looks somewhat on the softer side, then it is an opportunity to ease--to lower interest rates.",24
-fomc-corpus,1985,That strikes me as a possibility as well. And that probably would provoke some natural upward pressure on the dollar.,22
-fomc-corpus,1985,"Well, then we're in the dilemma that we have been in for years. You have a simple choice: What sector of the economy takes the rap for inflation?",32
-fomc-corpus,1985,Then they all take the rap.,7
-fomc-corpus,1985,"This is all very useful, but I detect that we have a rather more limited range of possibilities. I think this conversation is very relevant, but I don't know whether you want to extend the general conversation or focus on just what we put down here for a directive.",53
-fomc-corpus,1985,"As far as policy itself is concerned, I'd be quite comfortable with alternative B as in the Bluebook. That had borrowing of $450 to $550 million, but I could go with the $350 to $550 million range that Governor Martin suggested.",50
-fomc-corpus,1985,"Making it 5 to 6 percent [unintelligible], I guess--that's one possibility. We could just reduce it from 6 to 7 percent to 5 to 6 percent.",41
-fomc-corpus,1985,"I'm somewhat agnostic on that. I think the [unintelligible] to me at this point isn't so much whether it's 5 to 6 percent or 6 percent, it's the framework that we described: that given the domestic economy, if the opportunity were there to try and nudge things down a bit we would grab it. I don't know how you can articulate that in a very precise way. So, I would lean toward the 5 to 6 percent.",97
-fomc-corpus,1985,"What this will be, I suppose, is ""maintain the existing degree...."" It has fluctuated a little.",24
-fomc-corpus,1985,"We wouldn't want to say ""decrease slightly""?",10
-fomc-corpus,1985,"If you take the most recent week, it's down below $400 million, I presume. The most recent 2 weeks--",25
-fomc-corpus,1985,"I don't think we can quite say that. We might be able to jiggle ""woulds"" and ""mights.""",25
-fomc-corpus,1985,But all these words imply more precision than we have had in the last 4- or 5-week period in terms of a precise level of borrowing. Most of the time we have been below what we are talking about.,45
-fomc-corpus,1985,"Since we are having a wider borrowing range, wouldn't it make sense also to have a wider range for the aggregates--maybe 5 to 7 percent?",31
-fomc-corpus,1985,"Well, it wouldn't bother me. But I'm just wondering whether there is some word in that first sentence that implies something consistent with the existing degree but also implies a little broader interpretation of what the existing degree is.",42
-fomc-corpus,1985,"""About""?",3
-fomc-corpus,1985,"We could say ""about the existing degree"". We could say ""seeks to generally maintain about...."" Do we put in 5 to 6 percent or 5 to 7 percent?",39
-fomc-corpus,1985,5 to 6 percent.,6
-fomc-corpus,1985,I would think we ought to put in 6 percent or around 6 percent.,17
-fomc-corpus,1985,"Do we still say ""a marked slowing of M1 growth""? It depends. It's certainly true for the quarter. But it is not exactly true if you take October as the base. I guess it's over the period there as a whole.",48
-fomc-corpus,1985,It's certainly true that we already have had the number that makes the 3 months slower. I wonder whether we should leave it out and make it around 6 percent in all three [aggregates] in the previous sentence.,45
-fomc-corpus,1985,"Well, I don't feel strongly about this but that implies that we drop out the other part of the sentence that says we don't mind if M1 comes in quite low. Do you want to drop that out or not? As I look at it, it might be useful to keep that.",58
-fomc-corpus,1985,"That's right. We could keep that the way the staff has it here in brackets and still not have that previous phrase, Paul.",26
-fomc-corpus,1985,"We could just say ""Growth in M1 over the period at an annual rate of around 6 percent is also anticipated.""",25
-fomc-corpus,1985,Yes. I think that's good.,7
-fomc-corpus,1985,That's not what's anticipated in the Bluebook. It's 7 percent.,14
-fomc-corpus,1985,It is if you go with--,7
-fomc-corpus,1985,"5 to 6 percent is what's anticipated. Well, I am not sure how much that captures what we are talking about: ""The Committee seeks to generally maintain about the existing degree of pressure."" Then it is ""6 percent,"" ""6 percent"" again, and ""slower growth would be acceptable.""",61
-fomc-corpus,1985,"And ""somewhat lesser would"" and ""somewhat greater might.""",14
-fomc-corpus,1985,The way it is written now there is one verb for both of them. How do we split it? We used to split it. Now it seems to take a radical change in language.,38
-fomc-corpus,1985,"You could say ""somewhat greater reserve restraint might and somewhat lesser restraint would be acceptable, depending on"" behavior. That makes it very clear.",29
-fomc-corpus,1985,The juxtaposition would delight the Fed watchers.,9
-fomc-corpus,1985,"Boy, I tell you! That really emphasizes it.",11
-fomc-corpus,1985,They would count the words in prior directives.,9
-fomc-corpus,1985,"I think we create less problems if we always keep them as ""woulds"" so it is symmetrical in both directions.",24
-fomc-corpus,1985,We don't want to be symmetrical.,7
-fomc-corpus,1985,I know you all don't. But symmetry is one of my favorite attributes. You can't tell by looking at me!,23
-fomc-corpus,1985,"Well, it's just a matter of language. We say: ""generally;"" ""about 6 percent for M2 and M3;"" and ""6 percent for Ml."" Then ""Slower growth of that aggregate would be acceptable in the context of satisfactory economic performance, given the very rapid growth in M1 over the summer. Somewhat greater reserve restraint might and somewhat lesser reserve restraint would be acceptable."" We leave the range of 6 to 10 percent [for the funds rate]. Now, does anybody have improvements on that language?",108
-fomc-corpus,1985,"Make them both ""woulds.""",7
-fomc-corpus,1985,"We have one vote for both ""woulds."" The borrowing range we're talking about is roughly $400 to $600 million; the possibility of making that $350 to $550 million has been broached. I don't think there is an enormous difference between those two. Mechanically, it's $50 million.",61
-fomc-corpus,1985,"It's more important to me where we start off. Is it anticipated that we will start at $500 million? That was sort of the tenor of the discussion, as I read it.",37
-fomc-corpus,1985,"Well, I think that depends a little. You say start off at $500 million; I don't think we will want to go to $500 million this week when the federal funds rate is high, although the dollar is [weak]. Even with the dollar weak, with the federal funds rate as high as it is, we weren't anxious to go to $500 million this week. It may have been what we had in the path but we--",89
-fomc-corpus,1985,I am really talking about the path. I recognize that those points you make are very valid points.,20
-fomc-corpus,1985,"I would say consistent with $350 to $550 million, the center of gravity would be a little less than $500 million but not much. I would say something like $475 million, which is right in the middle. No it's not; it's $450 million. I can't do my arithmetic right!",61
-fomc-corpus,1985,"I would like to see the funds rate drift down, maybe an 1/8th of a point.",22
-fomc-corpus,1985,"If the dollar was not weak, I see nothing the matter with that; certainly, you wouldn't expect it to stay where it is now. And I think there is no expectation in the market, as near as I can see, that that's the appropriate funds rate.",53
-fomc-corpus,1985,"Mr. Chairman, what do you have in mind when you speak of the dollar being weak, in terms of this intermeeting period? Are you talking about stringing ten days together all on the down side of some magnitude? Or are you going to let it--",53
-fomc-corpus,1985,I don't have that mechanical a test--that it takes ten consecutive days of decline.,17
-fomc-corpus,1985,"I guess when you talk about the implementation of this policy, I don't know what ""weakness in the dollar"" really means.",26
-fomc-corpus,1985,"I am not sure I can describe it purely in exchange rate terms, although obviously a weak dollar means that the exchange rate is tending to weaken. However, when you try to quantify that, I don't know. Sometimes it doesn't feel good.",48
-fomc-corpus,1985,A good test is how much intervention.,8
-fomc-corpus,1985,"If we were actively intervening on kind of both sides, that would be a good test. Two weeks ago, or whenever it was that the dollar had a little strong feeling to it, there was a lot of intervention to keep it from going up. It was clearly, in that time period, strong. I would say in the last week it has been a bit on the weak side.",79
-fomc-corpus,1985,The weak side with respect to the yen largely?,10
-fomc-corpus,1985,"That would be one of my measures. If it was just the yen and it wasn't infecting the psychology generally and rates generally, we would have a different situation. But that's not what we had in the last week. I guess the movement was greatest against the yen, but it was clearly affecting the others too. I suppose the preferable thing, if the yen really got weaker, is that the Japanese might ease up a bit, but I don't think they'll do it. That might be the better way to do it.",104
-fomc-corpus,1985,"My point is that I would like to see rates come down a bit, but it isn't clear to me how that occurs. If the dollar is a constraint and the measure of the dollar's weakness is feel, how do you get there?",48
-fomc-corpus,1985,"If the dollar is weak, you can see it in the market, but I don't think you can measure it by the extent of a mechanical measure or movement.",32
-fomc-corpus,1985,I find your description too subjective also. I guess I would just have to vote for an easier money policy instead of accepting something as fuzzy as you described.,31
-fomc-corpus,1985,One way of getting out of it is to have a bad policy.,14
-fomc-corpus,1985,"Well, I think it's a private policy. I'm trying to bow a little toward you internationalists, but I can't bow too much because I think we need to be easing up a little.",38
-fomc-corpus,1985,"Well, so we divide it up. What borrowing level are we talking about? Who prefers $350 to $550 million?",25
-fomc-corpus,1985,"What is the alternative, Mr. Chairman?",9
-fomc-corpus,1985,I think the alternative can be anything anybody thinks of.,11
-fomc-corpus,1985,"I don't have any problem with that, considered asymmetrically, but I just don't know on which side the other one is going to be. I guess it is going to be a lower level, isn't it?",43
-fomc-corpus,1985,"Somebody expressed an opinion of $400 to $600 million, staying right where we are. That's slightly higher but others may be lower.",28
-fomc-corpus,1985,"If we have the choice of staying right where we are, that's the one I would prefer rather than this one. If this is the higher--",29
-fomc-corpus,1985,"At this point, you have any choice at all, but I don't know if anybody's going to join you.",23
-fomc-corpus,1985,"Well, if we're reasonable about it, I think I'll join the majority this time. That's what I am trying to do: get something I can agree with.",32
-fomc-corpus,1985,"Well, who wants it higher? Who prefers higher than that? Well, do you prefer slightly higher than $350 to $550 million?. I don't hear anybody expressing that. These differences are very small. The other alternative, I guess is: Who prefers slightly lower than that?",56
-fomc-corpus,1985,I do.,3
-fomc-corpus,1985,"We have one on each side, so I--MR. BLACK(?). We sit next to each other and balance it out.",26
-fomc-corpus,1985,I think $350 to $550 million is the closest we're going to come to a consensus.,19
-fomc-corpus,1985,I think of $450 million as being the starting point. I don't know whether that puts me on Governor Seger's side.,25
-fomc-corpus,1985,That's the midpoint.,4
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,I have no problem with $450 million being the center of gravity. But--,16
-fomc-corpus,1985,"Just as an added bit of information, could we ask Steve and Peter to give us some idea of what they think the federal funds rate associated with that might be?",33
-fomc-corpus,1985,"Well, I think at that level that the funds rate would tend to be around 7-7/8 to 8 percent. My thinking with $500 million is right around 8 percent, maybe 8 to 8-1/8 percent.",52
-fomc-corpus,1985,"An illustration of that, if I am not wrong, is that when we were above $500 million the funds rate was below 8 percent and now that we are at $375 million, it is above 8 percent.",45
-fomc-corpus,1985,"One little thing that has happened is that seasonal borrowing has come off some recently, and I think that tends to make the given level [unintelligible] a tiny bit more.",37
-fomc-corpus,1985,"My guess is that it would be a federal funds rate slightly below 8 percent--or maybe even more than slightly --depending upon expectations in the market. It isn't very reliable from week to week. If people think rates are going down, the federal funds rate will probably go down; if they think they are going to go up, it is going to go up. It sits there for several weeks until people change their minds.",86
-fomc-corpus,1985,I think it is generally about unchanged and it will be generally about unchanged.,15
-fomc-corpus,1985,"We have a situation where in the past few days it has been above 8 percent. If the statistics are right, the market is going to be quite easy tomorrow, but that will show up maybe at 4:30 in the afternoon. In the previous two-week period, it was below 8 percent most of the time and showed up in a tight money market what--at 5:30 in the afternoon? For a whole day it was above 8 percent on that Wednesday. I think we are at the center of gravity as nearly as I can see. We are left with what flexibility there is around it.",126
-fomc-corpus,1985,"Peter, are you more sensitive to rate movements again? I know we are not targeting them, but are you more sensitive to what happens, say, the first day or two after an FOMC meeting because every Fed watcher in the world is hanging over his or her telerate and over the various machines?",63
-fomc-corpus,1985,I think there's--,4
-fomc-corpus,1985,"But the plan gets a little tricky here. I think we have been avoiding, except in more extreme cases--well, not that extreme, but 1/4 percent, 3/8 percent above where we would expect it to be--just intervening on the basis of the federal funds rate, because then you really feed this notion that we are going to guide the federal funds rate within an eighth or within a quarter. We got in trouble in the past with that and I want to avoid it if I can.",105
-fomc-corpus,1985,"Well, what if tomorrow at 11:00 a.m.--the day after the FOMC meets--the fed funds rate is at 10-1/4 percent?",36
-fomc-corpus,1985,"It's also the final day of the reserve period, and I think that's--",15
-fomc-corpus,1985,"At 10-1/4 percent, we'd probably put some money in, even if it is contrary to what the statistics seemed to show.",29
-fomc-corpus,1985,Even if it is the final day of the maintenance period.,12
-fomc-corpus,1985,"Yes, if it's 10 1/4 percent in the morning, I think that might suggest something is the matter.",25
-fomc-corpus,1985,I think I would even advocate.,7
-fomc-corpus,1985,"But that's an outside [case]. If it were 8-1/2 percent or something, it's a more difficult question. It may well happen tomorrow that the federal funds rate is 8-1/4 percent, even though the borrowings are running whatever they are running now--$375 million. Then we have a much more difficult decision to make. We may not do anything, but 8-1/2 percent begins getting marginal; I wouldn't like to do it at 8-1/4 percent or 8-1/8 or 8 percent, just because we theoretically thought that the funds rate should be 7-7/8 percent--or the reverse when it got lower. A few weeks ago it was rather consistently lower. We might do it earlier or later in the week, depending upon how the funds rate was going. I would be less than forthcoming if I did not say those judgments as to whether to anticipate or delay action a little bit partly would depend upon what the dollar was doing on that particular day.",212
-fomc-corpus,1985,"I wonder whether the borrowing level shouldn't be in the directive. It seems to me that that's what we are concentrating on now and it's not even specified. It used to be that we said the aggregates, which were in there; then we said the reserve pressures, which were in there. But the fact of the matter is that this discussion of policy for the last hour has been almost entirely on the question of what the initial borrowing level will be and it is not even mentioned in that directive.",98
-fomc-corpus,1985,"Not mentioned apparently, that's right.",7
-fomc-corpus,1985,The emperor has no clothes.,6
-fomc-corpus,1985,"It might not be a bad time to introduce it, since we have a pretty wide range: $350 to $550 million.",26
-fomc-corpus,1985,"I don't know that we want to take such a radical step this morning at this late hour, but--",21
-fomc-corpus,1985,I'm just struck by it.,6
-fomc-corpus,1985,"Well, the problem with it is that it pins us to a very precise number. You are right that it is a wide range, but we don't always have that kind of a range. Our ability to hit that consistently is not overwhelming.",48
-fomc-corpus,1985,"Well, that's true of the other things mentioned in the directive.",13
-fomc-corpus,1985,"Well understood. After you put the borrowing level in there for a while and don't meet it, then you will be looking for something else.",28
-fomc-corpus,1985,One more target to miss!,6
-fomc-corpus,1985,We will put in next quarter's GNP--this is Mr. Partee talking! I don't know whether he wants the flash or the preliminary or the final revised figure 10 years from now.,40
-fomc-corpus,1985,I want an average for the next four quarters.,10
-fomc-corpus,1985,"That's what Mike Keran says our target is, now that he is out of the Federal Reserve System.",21
-fomc-corpus,1985,I really thought he was right until this morning when the Chairman denied it.,15
-fomc-corpus,1985,"If we are forced by Humphrey-Hawkins to talk in terms of GNP growth and unemployment and inflation, it seems to me, though, that sometime it has to be tied into what we do, whether we are targeting it precisely or not.",51
-fomc-corpus,1985,I used to think that way when the bill was written [unintelligible]. I even thought the Congress might ask: Why don't you get a better outcome?,33
-fomc-corpus,1985,"Well, I think the difficulty with that approach is that it rather promises more than we can deliver.",20
-fomc-corpus,1985,That seems to be true of everything.,8
-fomc-corpus,1985,"That's right. That's precisely it. It is true of most things. If it were as simple as that, we'd never have a recession or inflation. Well, maybe we're prepared to vote. Are we prepared to vote?",44
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Can you repeat the specifications so we will all be singing from the same hymn book.,17
-fomc-corpus,1985,You do that and we may not get unanimity!,11
-fomc-corpus,1985,"Well, the numbers are all clear in the directive and the language. They are all 6 percents with a ""would"" and a ""might"" worked in there. It's 6 to 10 percent, I presume, on the federal funds rate. And we are talking $350 to $550 million, with $450 million the center of gravity and with some flexibility of going up or down depending upon the aggregates and all this other evidence, including the exchange market.",95
-fomc-corpus,1985,And a slight bias toward a little more accommodation.,10
-fomc-corpus,1985,"Which is expressed to some degree in changing the range itself and in the ""would"" and ""might"" language.",23
-fomc-corpus,1985,But the monetary growth numbers are cut back from what we talked about at the last meeting.,18
-fomc-corpus,1985,Because we have had that low October.,8
-fomc-corpus,1985,They are at the bottom end of the range.,10
-fomc-corpus,1985,They don't matter when they are over; they shouldn't matter when they are under either.,17
-fomc-corpus,1985,"We have to discuss this other paragraph too, but if we know enough to vote on this one, let us vote.",24
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Balles Yes President Black Yes President Forrestal Yes President Keehn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger No,39
-fomc-corpus,1985,Now we have this other paragraph. Some people's consciences suggest that something like this is appropriate.,19
-fomc-corpus,1985,"Mr. Chairman, since the market seems to be largely disregarding large swings in M1, I think to add this paragraph that is on page 12 of the Bluebook would call attention to something in an inappropriate way. We had some language in this direction six weeks ago; I think the same logic applies today.",64
-fomc-corpus,1985,"You are right; we had some language in the discussion six weeks ago; we could sharpen that and say something like this in the general discussion as an alternative, if that's desirable. Now, the question that was raised was whether we have to make an announcement of this. I don't mind saying this: Since everybody anticipates it anyway, it looks a little odd to go out of one's way to find the special occasion to say it. I might be testifying later this week. If I do, I could just plant a question; that's easy. But if I don't, I need some natural occasion to--",122
-fomc-corpus,1985,"If we say it this way, isn't there a slight implication that we're leading up to putting M1 in the future into a monitoring range or something of that sort? If we go out of our way to say this, aren't we saying: ""Next week, folks, we are going to put M1 on a monitoring--.""",66
-fomc-corpus,1985,I would hope so.,5
-fomc-corpus,1985,"If you are right, Pres, you have just changed my whole view.",15
-fomc-corpus,1985,I'm asking. Is that the implication of stating this?,11
-fomc-corpus,1985,"It seems to me the word is ""acceptable"" instead of ""appropriate."" If you use the word ""acceptable,"" it doesn't imply anything as to the future. I wonder what a reading of the Congressional history of the Humphrey-Hawkins [legislation] would suggest. There used to be the idea that if the targets were changed, the Congress would be notified that the targets were changed. We have never utilized that, but I recall that as being characteristic of the Humphrey-Hawkins--",100
-fomc-corpus,1985,"I don't think there's any doubt. If we were making a change in targets and that implied some change in the way we're approaching things, the implication is that we'd announce it. Now, this has kind of crept up on us--well, [not] crept up; it started out with a burst when we did it. But the point of interpretation is that we haven't said we had to announce it when we thought we were going to miss a target. We have missed lots of them. Is this missing a target or is this a change in target? That's the question.",117
-fomc-corpus,1985,"To me, it's changing the targets because we clearly are not attempting to hit the targets.",18
-fomc-corpus,1985,"On Friday, when the directive of the previous meeting comes out, it will be clear, as everyone knows, that the Committee was not aiming at hitting this target, given the September-to-December [figure]. I believe we could put it in the policy record as you suggested, Mr. Chairman, and just say that the Committee, in its discussion, recognized that given the--",76
-fomc-corpus,1985,"Well, I think that takes care of it in substance, but that's not announced for a month; that's the only real problem. Are we forced to make an announcement here? We probably are dancing on the head of a pin, but I don't know whether you can find some previous time where we missed a target--I suspect that you could --whereby this late in the year it was evident that we were not going to hit it and we weren't aiming at it.",94
-fomc-corpus,1985,"If we were missing M3 or debt, we wouldn't be considering this, it seems to me; and I don't think we should for M1. I wouldn't raise the question: ""Why is M1 more important than M2 or M3 in the context of policy?""",55
-fomc-corpus,1985,People think it is.,5
-fomc-corpus,1985,"I understand that, but to the extent we could diminish that perception, I think it's important. Therefore, I wouldn't do it.",26
-fomc-corpus,1985,"I recall in October 1982 we specifically stated that we were setting aside the M1 targets for the year, and that was in the minutes.",30
-fomc-corpus,1985,Was it in the minutes or did we do that in this business of--,15
-fomc-corpus,1985,"Oh, I think that was announced. The substantive difference is that then we weren't so far off. We were off, but not so far off, and it was meaningful to say we were not [aiming to hit it]. This time people know we're not going to hit it, I think.",60
-fomc-corpus,1985,"Well, as I recall, it would have taken a zero growth rate in the last quarter to hit the target in '82.",26
-fomc-corpus,1985,This time it would take a minus.,8
-fomc-corpus,1985,"Mr. Chairman, do you think there are any expectations or fears in the markets that we might actually take actions to get back close to that 3 to 8 percent range? If there are, I think it would be well if we eliminated those fears or expectations, and putting this paragraph in would be a way to do it.",67
-fomc-corpus,1985,"I don't think there is that expectation, but the question may be there. It's a question of how hard we're trying to come closer; I think that is the practical question. If they did their arithmetic, I don't think anybody really would think we are going to hit it or even are trying, because we would have to say we are aiming for a minus figure in the fourth quarter like we achieved in October.",82
-fomc-corpus,1985,"If you look at what we say here about the M1 range, we say that there are a lot of uncertainties surrounding it including velocity, etc. When you testified back in July, you wrapped it in a lot of uncertainties. I would think we'd be smarter to treat this as simply a miss of a target and say: ""We pointed out last July when we set it that this was a very fuzzy target, given all the uncertainties, and we missed it."" My sense is that's the way people on the outside read it now.",107
-fomc-corpus,1985,I feel under no pressure to make such an announcement on this.,13
-fomc-corpus,1985,"And I wouldn't want to put the spotlight on this picture. CHAIRMAN VOLCKER. Well, I have no trouble with doing it if an occasion arose to do it in the next few days very simply. My little trouble is what do we do--put out a press release or something? I don't know what the heck people would--",68
-fomc-corpus,1985,I wouldn't do that.,5
-fomc-corpus,1985,"Well, your speech in Toronto was interpreted by some--",11
-fomc-corpus,1985,"I'm sorry now in retrospect that I just didn't say that. I wasn't thinking about it, but I could have easily said that we're not going to meet the target a little more directly. I'm sorry I didn't because that would have taken care of it.",50
-fomc-corpus,1985,"I think we should say something like this myself, in part because we're not under any pressure to do so, and yet coming forth with some additional information or clarification under those circumstances strikes me as a plus.",41
-fomc-corpus,1985,"The issue, it seems to me, is do we put it in here? What would you do as a practical matter apart from what we put in here? Go out and make an announcement tomorrow?",40
-fomc-corpus,1985,I wouldn't make an announcement. I would wait for a very natural occasion and simply say that the uncertainties surrounding M1 continue and the range is--,29
-fomc-corpus,1985,I do have a speech on the 19th or some time.,14
-fomc-corpus,1985,"Yes you do, in Los Angeles.",8
-fomc-corpus,1985,"Yes, but that's two weeks off.",8
-fomc-corpus,1985,It doesn't seem to me that time is of the essence here. Two weeks from now is fine; it wasn't as if we decided something at this meeting relative to M1.,35
-fomc-corpus,1985,I think if we put out an announcement--,9
-fomc-corpus,1985,"If it's two weeks from now, it's fine just to say it a little more clearly than you did in Toronto.",23
-fomc-corpus,1985,"If we put out an announcement along these lines now, I think it will be interpreted as the Fed is about to ease.",25
-fomc-corpus,1985,"Yes, I agree with that.",7
-fomc-corpus,1985,I don't think we want to convey that at this point. We may want to ease but I don't think we want to convey that.,27
-fomc-corpus,1985,"Well, if that's the way you feel about it, I'll couch it in appropriate words in Los Angeles if I don't find a suitable occasion when I'm in public to say it before then.",37
-fomc-corpus,1985,And leave it out of the directive?,8
-fomc-corpus,1985,"Well, what do you want to do? I would leave it out of the directive but say it pretty clearly in the discussion.",26
-fomc-corpus,1985,"Yes, I think that's a good way to do it.",12
-fomc-corpus,1985,I do too.,4
-fomc-corpus,1985,"Well, given the record that will be published on Friday this week, it will be no surprise that we're not going to make the 3 to 8 percent target. And I don't see any reason to make any announcement at all, unless you're asked the question.",53
-fomc-corpus,1985,"Well, I can put it into a speech easily enough. I could just put in some sentence saying of course we're not going to meet this--that given what has happened, we don't have any expectation that we're going to be within the range. That's not difficult.",53
-fomc-corpus,1985,"We have had commentary from both the House and the Senate on the summer Humphrey-Hawkins [report], haven't we? And the House specifically recommended that we not. But the Senate I think--",40
-fomc-corpus,1985,"Well, I haven't answered those yet, have I? That's another thing we can do. They send a letter and say: What comments do you have? I could just put it in the answer. That's what I could do: put an answer in that letter.",53
-fomc-corpus,1985,"That, it seems to me, would follow the procedure.",12
-fomc-corpus,1985,"I think those are on my desk, aren't they?",11
-fomc-corpus,1985,This letter?,3
-fomc-corpus,1985,These are on the two reports. I have copies; I'm sure all Board members have.,18
-fomc-corpus,1985,It's the Fauntroy report.,7
-fomc-corpus,1985,I think I have those letters on my desk.,10
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,You have the Fauntroy letter; I don't know about the Garn letter.,16
-fomc-corpus,1985,It doesn't make any difference--one or the other.,11
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"Yes, that's a good idea--just to have it in that letter.",15
-fomc-corpus,1985,"Okay. We'll word it in the answer to: ""What do you think of our report?"" I can say that we take your report so seriously that we are not going to meet the M1 target. I think that's quite a natural way to handle it, if I can get it out in the next couple of days, although one can argue about the timing and so forth. Okay, that's the way we'll do that. Do we have anything else to do?",93
-fomc-corpus,1985,No. We're scheduled to be in Dining Room E at 1:00 p.m.,18
-fomc-corpus,1985,The Open Market Committee meeting is over then.,9
-fomc-corpus,1985,How about that!,4
-fomc-corpus,1985,And we agree that the next meeting is--,9
-fomc-corpus,1985,December 17.,4
-fomc-corpus,1985,How much do you have in government securities now?,10
-fomc-corpus,1985,We have some in government securities.,7
-fomc-corpus,1985,How much?,3
-fomc-corpus,1985,A modest amount.,4
-fomc-corpus,1985,$1-1/2 billion.,8
-fomc-corpus,1985,"Well, not so modest. We have $1-1/2 billion out of the total of $12 billion of Treasury and Federal Reserve holdings.",30
-fomc-corpus,1985,"Are they mostly deposits, Sam?",7
-fomc-corpus,1985,A lot are in one form or another. There are some in BIS deposits and some in,18
-fomc-corpus,1985,"Basically, you don't get so much of a currency relative to the size of the market that you have to go away from publicly issued debt or government debt?",31
-fomc-corpus,1985,We have a lot in I am not sure I understand your--,13
-fomc-corpus,1985,"We, in fact,",5
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,I don't know to what extent we are in public markets at all.,14
-fomc-corpus,1985,"Well, most of these countries do not have the kind of short-term instruments that are available in the United States--Treasury bills that you can invest in--except for Switzerland, which has a small amount. Neither Germany nor Japan has a Treasury bill market in the sense of a short-term government paper market such as we are used to in the United States. As a consequence, we the deposit facility of the BIS, which essentially goes into the Euro-market.",92
-fomc-corpus,1985,"It might be worthwhile, just to see what you are doing with our money, for you to send out a little memorandum.",25
-fomc-corpus,1985,"I would be happy to submit a memorandum showing where all of these assets are but, as Mr. Truman said, we do have them in short-term investments; the aim is to get a market rate and to keep them very liquid.",47
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,I would like to change the focus toward policy reactions and interest rates in other countries. Suppose that U.S. interest rates dropped further--that there was an easing in U.S. monetary policy. Would that likely show up as a weaker dollar or would you think that the Japanese and West Germans might be inclined to let interest rates ease in their own countries?,71
-fomc-corpus,1985,Or both?,3
-fomc-corpus,1985,Or both?,3
-fomc-corpus,1985,Both.,2
-fomc-corpus,1985,How much of each?,5
-fomc-corpus,1985,"Sam, related to that, what kind of [mood do] the markets have regarding the fundamentals, excluding intervention? Before, we had worried very much about a precipitous decline in the value of the dollar. In certain circumstances, is there still a pervasive feeling about that or do circumstances--",59
-fomc-corpus,1985,"I think at the present time the attitude is generally more that there has been a substantial decline in the dollar and that the central banks are reasonably satisfied with the range in which the dollar is now trading. So, there is not the same kind of fear that it might tumble very, very rapidly as there was some weeks ago. But obviously, it's still a possibility.",73
-fomc-corpus,1985,"Well, excluding the policy changes or activities on our part, such as intervention--the issues Ed was talking about--is there any sentiment out there that we could see a stabilization and a rise in the value of the dollar?",45
-fomc-corpus,1985,"Well, there are certainly some people who think that after a time the authorities will either lose interest or not continue this operation and that fundamentally the dollar has some strength to it. So, there are some [views] on both sides. Of the amount of investments that we have, $1.7 billion are in government securities.",66
-fomc-corpus,1985,I think what you have just said is that foreign considerations are at least somewhat less of a constraint now than they were several weeks ago.,27
-fomc-corpus,1985,"Well, I think what I said was that with the dollar declining at that time, there was quite naturally concern that that would continue or that [the pace] would increase and it would fall very, very rapidly. Now, there is certainly some possibility of a further fall, depending on a whole lot of things. But the fact that the dollar [has been trading in] these ranges for some period of time has given a little more breathing space--a little more feeling that maybe it has stabilized, since it has tended to be a little more stable around these levels.",114
-fomc-corpus,1985,At the last meeting you expected that the market would test the resolve of the central banks. Do you think that attitude has passed? Do you think the danger of a rising dollar is behind us?,39
-fomc-corpus,1985,"Well, I am not sure whether it was the last meeting or the one before that. But certainly I don't think we had as big a test on the up side as we might have expected in those circumstances. There was a test during that period around the middle part of October; and the response of the central banks was rather forceful but it was not a massive operation nor really major pressure. We spent amounts that were certainly a lot larger than we had been spending, but it was not a massive operation. Since September 22, all the G-10 countries together have spent around $13-$14 billion. During the February-March operation intervention was around $10 billion or so. But this is not all [dollar related]. There have been some pressures within the EMS and a substantial amount of intervention relating to EMS pressures, particularly against the Italian lira and some of the other European currencies which might be expected to devalue.",188
-fomc-corpus,1985,"There is another way of looking at it, too, just in terms of institutional sources of demand for dollars. A lot of that demand has come from Japan, of course, and in Japan there are two sets of institutional factors that tend to cut the other way. One is that most of the pension funds [and] insurance companies have a 10 percent limit on the percent of their portfolio that can be in any non-yen currency, and almost without exception they are crowding up against the 10 ten percent. Now, that won't keep them from buying dollars completely, but it means that they can only buy dollars prospectively to the extent that their overall asset base grows. Secondly--and I think this is particularly relevant in the case of Japan--according to the reports that we get, through much of the second and third quarters Japanese corporations, of course, were spinning off a tremendous amount of excess cash and were making very short-term dollar investments in very large quantities. And the reports that we get have begun to suggest that, partly because of the changed economic situation, that very large supply of short-term demand for dollar-denominated assets may not be there prospectively in anything like [the way] it was retrospectively. I don't know how all that fits in, but it is one of the factors that tend to work on the other side of the equation.",274
-fomc-corpus,1985,"I would say, just as a general comment--I am not closely in touch with the psychology of that market--that the fact that there might be a perception that we have reached target levels and that we have achieved some kind of stability actually could increase the vulnerability to a precipitous decline because those that were short dollars and riding it down very likely have covered those [short positions]. So that takes a bit out of the market. Now, I don't know whether that is the case, Sam--whether you feel positions are pretty well squared off--but if those short positions are out of the market, there could be a chance for a more precipitous decline.",132
-fomc-corpus,1985,"That certainly is possible. It is also argued, at least by the Japanese, that there may be some heavier investment demand--that some are waiting to make sure that they get the bottom [price] for the dollar and are going to be coming back in to push it the other way. So, there are the cross currents.",66
-fomc-corpus,1985,Let me ask a naive follow-up question. Let us suppose that these negative factors that Jerry and Tom are talking about do come to center stage. What direction would that enormous capital outflow take then? What are their alternatives?,45
-fomc-corpus,1985,You mean if they do not invest in the dollar?,11
-fomc-corpus,1985,"If they want to switch away from dollar investments very substantially, where do they go?",17
-fomc-corpus,1985,"Partly it is not a matter of switching away from dollar investments; it is whether one comes into the dollar investments with or without cover. One can still be investing in these dollar investments and covering, and that would offset much of this.",48
-fomc-corpus,1985,"Would that be possible in the case you were talking about, Jerry, where they are limited? As long as they are covered, are they okay?",30
-fomc-corpus,1985,"Either way, it doesn't take all that much of a shift in terms of the very short run. I think part of what is going on here is people putting a great deal of emphasis on these psychological threshold levels of 200 yen and 2.50 marks. If it moves away from those on the up side, I think people are prepared to do something about it. If it moves away on the down side, that is pretty hard to deal with.",92
-fomc-corpus,1985,"I was just thinking about these institutional pensions having a 10 percent limit on their dollar [assets]. But if that is covered, that limit is not--",31
-fomc-corpus,1985,"I think the limit does apply even if it is covered. Doesn't it, Sam?",17
-fomc-corpus,1985,I think it is 10 percent of the [unintelligible].,15
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"It is certainly true that for now they have been convinced that the central banks are serious and they see some resistance on the up side, whereas there are still statements in one form or another which can be read by the market as suggesting that maybe some further downward move is expected and desired by some. So I would say--",64
-fomc-corpus,1985,"I will make a profound statement: If they really have some assurance that it's not going to go up, it will go down.",26
-fomc-corpus,1985,"That is profound and sums it up. I think that concern about how long is the staying power is a longer-term consideration, but for now they're reasonably confident that there will be resistance on the up side but not on the down side.",47
-fomc-corpus,1985,"Having explored our uncertainties in that area, we will ratify the few transactions since the last meeting.",20
-fomc-corpus,1985,So moved.,3
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,Without objection. Let's turn to domestic open market operations.,11
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Questions?,2
-fomc-corpus,1985,"Peter, is the Treasury back on schedule now with its auctions or do they have some backlog still?",20
-fomc-corpus,1985,"They are just about caught up now. They were backed up and had to follow the passage of the debt ceiling bill with an immediate same-day auction of 3- and 6-month bills, and they already had announced some of that month-end batch of coupon issues--the 2- and 4-year issues. Those will be coming along, I think, later this week and next week and that puts them pretty much back on schedule.",89
-fomc-corpus,1985,"Also, you mentioned Texaco and their being closed out of the commercial paper market. Are they picking that up through bank lines or--",27
-fomc-corpus,1985,"For the moment they are paying off paper. They have bank lines that they really do not consider will hold given the material changes that have occurred in the company's prospective fortunes. And they have alternative plans for achieving the liquidity to continue meeting their paper maturities which [involve] that they are just in the process of developing, we understand.",68
-fomc-corpus,1985,Other questions? A question occurred to me as you were talking: Would you judge that we are engaged actively in monetizing the Treasury's deficit?,29
-fomc-corpus,1985,We do our usual thing: increase our holdings to offset currency in circulation and rising required reserves.,19
-fomc-corpus,1985,Would anybody like to ratify our usual thing?,10
-fomc-corpus,1985,"The answer, for the record, is: No, we are not monetizing the Federal debt. I move to ratify.",26
-fomc-corpus,1985,Second.,2
-fomc-corpus,1985,"Without objection. Now we'll turn to Mr. Axilrod, who will introduce Mr. Lindsey.",20
-fomc-corpus,1985,"Thank you. To provide background to the Committee's discussion of the role the monetary aggregates might play in policy formulation, Mr. Lindsey will summarize the analysis of the aggregates and their characteristics contained in the recently distributed staff paper of which he was the chief author. I will then briefly outline the possible implications for the usefulness of the aggregates in policy implementation next year.",71
-fomc-corpus,1985,"I will be referring to the package of charts entitled ""Materials for Staff Presentation to the FOMC"". [Statement--see Appendix.]",27
-fomc-corpus,1985,Mr. Chairman--,4
-fomc-corpus,1985,"I think maybe we ought to stop you now and ask for any questions we might have of a quasi-technical sort. I have a question. Maybe I'm wrong, but when I look at this velocity change that you're projecting for this year [unintelligible] focus on GNP for the first part of '86. When is the last time we had such a change in the velocity of M1?",82
-fomc-corpus,1985,"Well, in 1982 velocity of M1 fell 5.6 percent. This year it's falling at 5-1/4 percent. That was an unprecedented decline in 1982 and there wasn't anything--",44
-fomc-corpus,1985,Literally unprecedented? Go back to the 1930s.,13
-fomc-corpus,1985,"Well, that was a fair statement. I was thinking post-war period.",15
-fomc-corpus,1985,"If that decline was all that big in '82 and surprised us, that quarterly model didn't come in very far off in that period.",27
-fomc-corpus,1985,"Well, the quarterly model has an interest elasticity that rises as market rates rise. And market rates started out in 1981 at pretty high levels. So the quarterly model, as rates came down, picked up a good bit of that increase [in M1]. You are correct. That's less the case in 1985 when rates started out at lower levels.",73
-fomc-corpus,1985,"If you look at that quarterly model, it looks like '81 was way down but '82 and '83 not so much. Presumably, in '81 it was the transition to NOWs.",40
-fomc-corpus,1985,That's right; nationwide NOWs were introduced at the first of the year.,15
-fomc-corpus,1985,[Unintelligible.],6
-fomc-corpus,1985,My recollection is that we were very surprised at the strength of M1 in '82. I don't--,22
-fomc-corpus,1985,"Well, we were surprised at how low interest rates got. If we had known in advance that that was going to happen, we would have been less surprised.",32
-fomc-corpus,1985,[Unintelligible] centered around [unintelligible]. Governor Partee.,18
-fomc-corpus,1985,"I was just going to refer to chart 2 here too, Dave, which is the lagged relationship. It certainly doesn't look very good. Indeed, it looks to me as if these last four quarters have been just about as bad as it can get if one assumes that the only reason we follow M1 is for its predictive relationship to GNP. Did you try other kinds of lags and more complicated lags or anything like that in your effort to make sense of this?",97
-fomc-corpus,1985,"We did, in several respects. I plotted velocity relationships for 1-quarter lags as well, but I also plotted moving averages for money growth and for GNP growth--say, 2-quarter moving averages--and then tried different lags on that. I had a whole set of charts there. Averaging growth over two quarters, it turns out that the connection between M1 and GNP is best with a 1-quarter lag over the '80s, though it isn't great. But it's better than the other alternatives we tried. In a sense that relationship was reflected in the chart I showed you with the 2-quarter lag in M1's velocity; that gives it a chance to pick up [the relationship], in effect, over the two-quarter period. The leading relationships in the '80s, which I am not at all sure are as systematic as the monetarists would have us believe, show up best for M1 and less so for M2. I think part of the reason for a leading relationship there is because when interest rates change, the demand for money gets affected sooner than does spending. So, when interest rates change--which some might argue is what really is driving the process--money growth adjusts first and GNP growth adjusts subsequently. And it looks as though there's a leading relationship from M1 to GNP even though in some sense the fundamental cause, some would argue, could be the change in interest rates.",292
-fomc-corpus,1985,"Interest rates, yes.",5
-fomc-corpus,1985,"More than some, I would imagine.",8
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"When you weight the components of M1 by some transactions measure or in some more esoteric and wonderful way and you use a 1-quarter or 2-quarter lag, how is the predictability of velocity of this--whatever you call it--weighted aggregate measure? How does that track? Is it any better or any more predictable?",67
-fomc-corpus,1985,"We have been doing some work on two different kinds of weighted aggregates: the divisia aggregates originated by Bill Barnett; and more recently, a Fisher weighted index that in effect uses the turnover rates to weight the various components of M1, or in fact, all transactions deposits. So with a very low weight, MMDAs which are checkable and money funds which are checkable are included. If you examine that measure's growth in recent years relative to M1 and M1A it cuts the difference almost in half. Maybe the best way to summarize the results is that since both M1A and M1 suffer problems over this period, it's also true that this new measure suffers some problems as well. We have done work on this. I'd be glad to send some of it along in more detail.",163
-fomc-corpus,1985,You're multiplying through by the velocity?,7
-fomc-corpus,1985,"In effect, the growth rates of the various components are weighted by their share of expenditure in GNP; that is the precise way it's done. And that, in turn, is related to their debits divided by their stock or by their turnover. You have to make some adjustments to take out financial transactions and currency exchange transactions to get to the GNP transactions that you need. But that's the basic idea.",82
-fomc-corpus,1985,"Thank you. Well, we have been examining these various weighted measures--Barnett's measures, Paul Spindt's measures, and this one that Dave just mentioned that is in effect velocity weighted rather carefully. And we are trying to think of ways we might be able to get even more academic input into the process, although some of this material has already been published in the academic press, and a rather large literature is developing. It has a certain appeal as a way of at least supplementing the unweighted measures of the aggregates because there are various ways of taking varying degrees of liquidity or moneyness into account. One thing to keep in mind--and these are the early days--is that it doesn't really tend to solve economic problems. That is, it might help in the way things look. If, for example, there is going to be a big shift out of market instruments or some lesser kind of money-type deposit into other deposits, that shift is going to appear in more rapid money growth relative to what the Committee said or what it expected. In an unweighted average, growth will be even more rapid growth; in a weighted average, it will be a little less rapid. But the economic problem in interpreting the deviation will still be there. You're not going to change the necessity of interpreting the aggregates [by using] a weighted average. Instead of the difference being between 6 and 10 percent when there is a shift, it might be a difference between 6 and 7 percent. So [the explanation] will seem easier, but in effect the economic issues are the same: Should you offset the 7 percent? Should you offset the 10 percent? But, there is something to be said for the weighting--in my view in any event.",355
-fomc-corpus,1985,"Well, if there are no more particular questions, you can proceed.",14
-fomc-corpus,1985,"Well, Mr. Chairman, I fear the conclusions that I have will be gravely anticlimactic. I believe one of the clearest conclusions from Mr. Lindsey's analysis is that the aggregates are still in a state of flux--",47
-fomc-corpus,1985,"Yes, I'd say that!",6
-fomc-corpus,1985,"--in the sense that there has not been enough time to get a reasonably certain handle on the impact of past deregulation and on the behavior of depository institutions and their customers under varying economic and financial circumstances. And, of course, there will be an additional and final deregulatory step early next year that will provide even more flexibility and choice for banks and depositors. Thus, it is very difficult to suggest at this time that more weight should be given to the aggregates as a whole in policy implementation next year than was given this year. On the other hand, I would tend to argue that we do not have compelling evidence that even less weight should be placed on the aggregates as a whole. We do, I think, have some evidence that under current circumstances the weight on the aggregates should be redistributed in some degree among them--or at least that M1 should be judged in light of what's happening to M2 and M3. While uncertainties abound, it does seem to me that we're in the process of moving toward an M2 with an interest responsiveness that is low relative to M1, as Mr. Lindsey has pointed out. That in itself would tend to argue for giving the broader aggregate a bit more weight than it has had in the past, particularly in periods when market interest rates may be changing substantially. In those circumstances, there could be large effects from interest rate changes on the demand for narrow money, given the sizable amount of savings funds now in that aggregate that shift readily between M1 and other components of M2. I certainly do not mean to suggest either ignoring M1 or quickly reacting to small changes or large potentially short-lived changes in M2 relative to path. M1 cannot be ignored because it does, of all the aggregates, contain the highest proportion of transaction balances and to that degree is sensitive to future GNP. I think that was borne out in Mr. Lindsey's analysis of the difference between the concurrent velocity and the lagged velocity, which is smoother than the concurrent. M2 cannot be relied on completely because it contains large elements of savings that in turn depend on attitudes toward wealth and other factors affecting the propensity to save. The relationship between M2 and GNP thus is not all that tight or predictable either, as compared with M1. Perhaps I'm really suggesting no more than what the Committee has been doing implicitly, under one interpretation at least, over the past year. Over that period the relative moderation in M2 growth--at least its moderation relative to path--as well as in M3 can be viewed as having been a significant, but not necessarily decisive, counterforce to the strength of M1 in the implementation of policy. In that sense, policy responds more to the aggregates when all are relatively strong or all are relatively weak than when any single one goes off course. If it is right that M1 is in process of becoming subject to significantly more interest sensitivity than M2, at least at around current market rate levels, then it may be desirable for the Committee to consider adopting a 1986 range for M1 that is wider than for M2. The tentative ranges currently have the same width; a wider M1 range would allow for larger swings in M1 in response to potential interest rate changes over the year. It would also be consistent with our view that forthcoming deregulatory changes, apart from their long-run structural impact, would affect M1--either up or down--mainly depending on bank strategies with respect to NOW, savings, and money market deposit accounts, if indeed they have any significant effect at all. Whatever the numerical specifications of the ranges, though, and whatever the weight of the aggregates relative to each other, it's hard to see that the Committee can implement policy next year with any less judgmental interpretation than in recent years. Uncertainties about the aggregates are inherent, given the rather long period over which banks and depositors adapt their behavior to a deregulated environment and given the perhaps longer period it may take before the new regularities in their behavior can be detected and relied on with confidence for policy purposes.",820
-fomc-corpus,1985,"Steve, first of all, I want to express what I think is the consensus around the table--don't smile--that you and your associates have done a commendable job in laying out the experience and in doing a certain amount of statistical analysis and being forthcoming with regard to the difficulties of using the monetary aggregates at this time. The message I take from this is that we're talking about various components of the several aggregates in terms of varying degrees of moneyness--varying degrees of savings characteristics versus transactions characteristics. And that suggests to me that the work that you've already begun to do, and that you said you have considerable academic comments and literature on--namely, some kind of weighting of the components of the aggregates--would have the merit of continuing our ability to communicate what we know and can surmise about the behavior of these various balances. It seems to me that if you have in train a set of presentations that you've done work on, which you've alluded to, that would be a logical follow-up to a good piece of work on the existing aggregates to communicate with us what you know and are finding out about weighted aggregates. I wouldn't have made this little comment a year or maybe even six months ago or maybe not before I read the work that you've done here. But it seems to me that this presentation argues for another presentation which would inform us about the weighting that you alluded to on a transactional basis and on a turnover basis of the components. If we are to communicate our findings with the Congress and with the public, it seems to me that (a) we have a duty to communicate once this group is comfortable with some weighting of the components and the production of such an aggregate; and (b) that it could give us--admitting all of the drawbacks that Steve has alluded to--some kind of an aggregate in addition to the ones we have or perhaps in replacement of M1 down the road. So, I'm encouraged by what you've done. I strongly support your hint that we could have other presentations with regard to weighting. And I think a transaction weighted component aggregate M1 might be easier to communicate than one weighted by some more intriguing interest-differential [unintelligible], from what little I understand about [the divisia] approach.",456
-fomc-corpus,1985,"We will do this work and, of course, present it as it develops, Governor Martin. I would like to stress that the work is really quite experimental in the sense that the statistical basis for the weighting is not that strong. We have done surveys in the Research Division to develop data and, while it's as good as we think we can make it under present knowledge, the statistical basis is not that strong. Secondly, I would like to stress that, at least in my own view--and it's probably important to get more input from others in the profession--I don't think it solves the policy problem. It may have certain presentational advantages but I don't think it solves the policy problem of whether or to what degree the aggregates are a good guide to [the Committee]. That, I think, is not solved by this.",165
-fomc-corpus,1985,I would just attack one thing: I must say that I'm bothered about this business of making a shift from turnover to something related to GNP because of the fact that we have so many debits related not to GNP but to financial transactions. And it seems to me that that's an unsolvable problem.,61
-fomc-corpus,1985,"Yes, that's among the issues.",7
-fomc-corpus,1985,"I rather prefer the interest rate differential approach. It would measure the degree of liquidity, you might say, in the mind's eye of the public in looking at the various aspects--I suppose partly because you wouldn't have that difficulty. It would be a straight reading of the interest rate differentials and the weight.",62
-fomc-corpus,1985,A straight reading of the interest rate differential between a demand deposit and a market rate.,17
-fomc-corpus,1985,"Well, that index has a problem, Governor Partee. That's why I really would stress again the experimental [nature] of both of these. The way that was initially measured--and one has to try to deal with it--when interest rates got to 17 percent the degree of moneyness in the RP became less than when they were at 5 percent.",74
-fomc-corpus,1985,"I see your point, yes.",7
-fomc-corpus,1985,"And that seems counterintuitive. So that was a big difficulty in that particular measure. So, both these measures have certain statistical properties in them that are difficult, as well as the fact that the analysis of the economics is just barely beginning.",49
-fomc-corpus,1985,"Well, I don't think it would hurt any--I started to say just for the heck of it, but it may be a little more than just for the heck of it--to show what some of these weighted measures look like at the next meeting.",51
-fomc-corpus,1985,We will do that.,5
-fomc-corpus,1985,"I think Pres is onto something and I agree with what he said. I think there is a broader point to be made here. Substantively, I think what you said is that the aggregates are probably no worse, but they are certainly no better--and from an analytical point of view I think that is right--than they were a year ago or six months ago. Maybe they are a little worse, but--",84
-fomc-corpus,1985,They have been terrible indicators for the past year.,10
-fomc-corpus,1985,"But I think they are worse in another way, aside from the analytical, and that is from the communications aspect of [policy]. M1 was very useful at one time to help us rationalize and defend what needed to be done several years ago. But it has fallen from grace on a pretty wide scale. And while I think there are advantages to hanging on to the hope that it could somehow be rehabilitated, it seems to me that it has been wounded so badly that it would be very difficult for a considerable period in the future to base any hard medicine on something like M1. Therefore, it seems to me that it goes beyond the analytical problems that we have with M1. It just would be very difficult from a public relations and a political point of view ever to base--no, ever is too long--in the foreseeable future to base any kind of bitter pill on something like M1. We ought to continue the work and I think the suggestions that Pres made are worth pursuing. But I think we are dealing with something that is much bigger than just analytical work. Generally, I find that whereas a year ago people still asked about M1, it is not even asked about very much anymore.",243
-fomc-corpus,1985,Its burial may be a bit premature; it depends upon what happens to the economy over the next few months.,22
-fomc-corpus,1985,I think it is on a sick bed.,9
-fomc-corpus,1985,"I would agree with that. We'll see whether it has had a partial recovery; I'm not sure it will return to full health. We would have to have one heck of an increase in the economy in the next 3 to 6 months, which is contrary to the projections we have before us.",60
-fomc-corpus,1985,12 percent nominal.,4
-fomc-corpus,1985,Mr. Black can defend it.,7
-fomc-corpus,1985,"No, I'm going to admit, Mr. Chairman, that it has been rather sick; I guess in retrospect I should have recognized that it was sick sooner than I did. But I don't think that's the key issue. I think you just put your finger on the key issue: What it is going to do from now on. We have been through a very unusual period. We have had a sharp decline in inflation and inflationary expectations; we have had extensive deregulation in the depository markets; and we may have had a decline in real interest rates. This certainly has done something to change it for the time being but it may be the case that in the future it will resume some of its former characteristics. It may be that it will proceed at a lower rate of secular growth. For example, if we have had an element of savings introduced into the NOW accounts and other checkable deposits, as I assume we have, and if this has brought about some improvement in cash management policies, as I think it has, then that may mean that all we are really going to have after we are through this period--which is largely behind us, I think--is a slower rate of growth in velocity on a secular basis. And if that is the case, then that can be as predictable as it has been in the past. The paper certainly implies that just because it's slower, it doesn't mean that it is worthless. The truth of the matter is, of course, no one knows for sure what it is going to do. So that suggests that we ought at least to weigh with caution the idea of throwing it out completely, because for long periods of time in the past it has been a rather useful thing to look at. I agree with Pres that a divisia index makes sense conceptually; I have always felt that that made more sense than anything else since obviously M1 is not the only thing that has some characteristic of money. There are a lot of things that do. And if we could somehow or another get the right weighted average, conceptually, that to me is the kind of thing that we want. Because if we don't target something of that sort, then all we have left is interest rates and that involves a necessity of saying what the appropriate level of interest rates is. That is very difficult for anybody to do and there is nothing in theory or in empirical studies that suggests what the appropriate level ought to be. But when we get to these divisia indexes I guess there is going to be a problem of data availability and also probably a problem of control of these--although I am hopeful that we can move in that general direction because that's what all my instincts tell me is really the best way for us to go.",549
-fomc-corpus,1985,There are a few other guidelines that one could have other than interest rates.,15
-fomc-corpus,1985,"Well, they would be very akin to that. You could have free reserves, you could have borrowed reserves, but--",24
-fomc-corpus,1985,"Exchange rates, prices--",5
-fomc-corpus,1985,"Well, but to achieve a given price level, you have to have some way of moving the economy one way or another; I think that ought to be our goal ultimately, but you have to have a handle to move it in the right direction. The exchange rate certainly would be one; I probably should not have not oversimplified to that extent.",71
-fomc-corpus,1985,"I am not quite sure that I followed all of this complex analysis delivered to us orally. Looking at these interest rates, it's clear that super NOW rates are more sluggish than Treasury bill rates. But before we had super NOWs and all of these [deposit] rates were zero or when we had ceiling rates, movements in market rates were sharper relative to the transactions rates. Therefore, one would have thought velocity would now be steadier relative to history rather than less steady.",94
-fomc-corpus,1985,"The difference, Paul, is that the old M1 was transactions balances; it's because people had a strong incentive to minimize the amount they held in non-interest bearing form. The incentive, if not completely gone, is seriously impaired. Therefore, if there are savings balances in those accounts, they are going to be much more sensitive to changes in interest rate differentials than pure transactions balances.",77
-fomc-corpus,1985,"One other way of looking at it, Mr. Chairman, is that a lot of these NOW accounts are simply, in effect, the old savings accounts re-designated. And all of this volatility that we are observing as interest rates go up and down, would have occurred only in M2 and not at all in M1. So it is simply transferring--",72
-fomc-corpus,1985,That raises the question of whether M2 used to be more volatile.,14
-fomc-corpus,1985,"Well, that was the disintermediation time. I haven't checked back, but my impression is yes. In the last two years M2 has been reasonably stable while M1 has been quite volatile. I stopped myself short of saying directly [that the Committee might want to] put a little more weight on M2. I thought I was implying it very indirectly.",74
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"There are a couple of straws in the wind, but not much more. One thing that I think is true that bears on all of this is that today even compared, say, to 1980, the public at large is much more sensitive to interest rates and relative interest rates in managing their financial asset portfolios. That's just a hunch, but it does look that way to me. The second thing that may be true is that in terms of general liquidity characteristics of financial assets held by the public that are not bank-issued--in other words institutionalized savings such as thrift-plan type savings, pensions, IRAs and so on--a good deal more of the nonbank-related financial asset holdings of the public may be perceived by the public to be less liquid than bank-issued financial assets. Again, I don't know this to be true, but my hunch is that it is. And if both of those things are true, that also may help to explain why the public, including the business sector, does seem to be on the one hand more aggressive in shifting among classes of bank-issued financial assets, while at the same time increasing their holdings of nonbank-issued financial assets. The problem with that, if it is true, is that it brings into sharp focus in my mind the point that Dave mentioned in terms of what it implies about the interest sensitivity even of M2 but especially of M1. If you argue that M2 in some sense is less interest sensitive and, therefore, is a better ""indicator"" than it used to be or even better than M1 is, but you also accept the point that Dave made that it really isn't the quantity that matters, it's the price that matters, then it seems to me that you can get yourself into a real box, if it turns out that M2 is less sensitive but yet the economy itself is in some sense more sensitive. That to me makes this question of what you look at more difficult in one sense but maybe easier in another sense. That's because if the public is more sensitive and if there is anything at all to this question of liquidity of bank-related instruments versus nonbank instruments, it's another reason to believe that money growth relative to GNP is going to be permanently higher than it was in the past and velocity growth is going to be smaller at least than it was in the past. The other point that has been made about drawing some consolation from the fact that the broad aggregates, M2 and M3, look more respectable and can help us interpret, or at least roll with M1 in this recent period, I am not very sure about. For example, in the case of M3, I cannot help but think that M3 is as weak as it has been at least in part because of the way banks are financing things these days. They are issuing standbys and all these other off-balance-sheet instruments. Somebody else is doing the financing and the bank itself no longer has to issue the large CD until something goes wrong and the borrower comes to the bank to execute a standby. I think if you make any allowance for the tremendous explosion of off-balance-sheet contingent financing by the banks, as opposed to the traditional bank financing of business credit through issuance of large CDs, one at least has to question whether in fact M3 is telling us the same things it used to tell us insofar as that broad measure of bank liabilities is concerned.",686
-fomc-corpus,1985,If you compare [it with] credit growth?,10
-fomc-corpus,1985,"Well, it reinforces the view that credit growth is telling us something other than that the number is big. I think it is telling us that the growth of credit is not some kind of statistical aberration. This widening out of the spread between both--",50
-fomc-corpus,1985,What is it telling us about the economic outlook?,10
-fomc-corpus,1985,What it tells me is that we probably are putting a lot of bad debt on the economy. I don't know.,23
-fomc-corpus,1985,"If the debt is so high, and that is what we should be looking at, does that say that the economy is going to begin expanding after two years?",32
-fomc-corpus,1985,I don't see any burst in the economy. What worries me is that if the economy doesn't expand--,20
-fomc-corpus,1985,Then it seems to me that credit isn't telling you anything in the way you look at these monetary aggregates as telling you something about the future of the economy.,31
-fomc-corpus,1985,I think it is telling you that in the course of a not spectacular economy you are seeing a further deterioration of balance sheets in the economy.,28
-fomc-corpus,1985,That's different; it's not a leading indicator.,9
-fomc-corpus,1985,"The point though, Paul, is that M3 doesn't tell us anything either.",16
-fomc-corpus,1985,"Well, a simple factual question is: What would a new aggregate--M3 plus commercial paper--look like?. That must pick up most of the off-balance-sheet financing.",36
-fomc-corpus,1985,"No, it doesn't. Not anymore.",8
-fomc-corpus,1985,How else--Euromarket?,7
-fomc-corpus,1985,"For example, yes.",5
-fomc-corpus,1985,"Mr. Lindsey has some data on L, which is M3 plus commercial paper plus Treasury bills.",20
-fomc-corpus,1985,"We ran the L measure through a St. Louis-type so-called reduced-form equation that uses current and lagged quarterly growth rates along with a fiscal variable to predict the current growth in GNP. If you look at 1985, the error there in predicting GNP was 3.3 percentage points; it predicted faster GNP than actually transpired. If you look in the paper at the results for some of the other aggregates, though, that [result] is better. For example, M1's error was 7.9 percentage points. Interestingly enough, though, debt did almost as badly as M1 in 1985. It missed by 7 percentage points on the growth rate of GNP.",145
-fomc-corpus,1985,"Since 1982, M3 and L have had a better performance than the other aggregates.",19
-fomc-corpus,1985,Anything that grew less than M1 is going to have had a better performance.,16
-fomc-corpus,1985,"There is another point one can make about M2. If you take small time deposits out of M2 and put them in M3 on the grounds that they do not have overnight liquidity, and you take the remaining institutional money funds out of M3 and put them in M2, then M2 grows by 14 percent rather than 7 percent. That's the idea.",75
-fomc-corpus,1985,They were in the zero growth area; you put in all that has been growing.,17
-fomc-corpus,1985,"Which is the point I was trying to make: If you look at these things all these different ways, you can make at least a plausible case that the ""moderate"" growth of M2 and M3 maybe isn't so moderate in its own way.",51
-fomc-corpus,1985,"Maybe. If you take that line, why are all these aggregates rising so much faster than the economy?",21
-fomc-corpus,1985,"That was the thrust of my first set of comments. I said they were straws in the wind. But it gets to this point about whether there is a difference--in addition to what we know about inflation having come down and all the other things--that would traditionally point to velocity growth being slower. Given that, is there any plausibility to the argument that financial assets issued by banks and held by households are now perceived to be that much more liquid than financial assets not issued by banks? In the current circumstances that would mean that the public would want to hold more of those relative to the less liquid nonbank issued financial assets.",127
-fomc-corpus,1985,I think that argues for a further study of the turnover of components of each of the aggregates. I will broaden my comment here as--,27
-fomc-corpus,1985,[Unintelligible] got a lot of Treasury securities.,13
-fomc-corpus,1985,"Mr. Chairman, a slightly impressionistic answer--",10
-fomc-corpus,1985,That doesn't really help because a lot are held by pension funds. Plenty of cash deposits as far as the households are concerned--,25
-fomc-corpus,1985,"I think the answer is in the opposite direction of your assumption. We have been looking at total financial assets as a percentage of GNP and that ratio has declined from the 1960s and reached a bottom around 1978; it has been rising since then, although it's still below the level of the 1960s. But the percentage of financial assets comprised by checkable deposits and currency is lower now than it was in 1978, 1979.",95
-fomc-corpus,1985,"That's because of the stock market, though, isn't it?",12
-fomc-corpus,1985,"Yes, but the percentage of total financial assets held in deposit form has not been rising.",18
-fomc-corpus,1985,You're including stock at market value.,7
-fomc-corpus,1985,It has been shrinking.,5
-fomc-corpus,1985,At market value. But it's not just the holding of the stock too. The point I am trying to get at is that the way that the public holds stock I would guess that much more of the household sector's holdings of stock equity is now through things like savings plan and pension plans. They are institutionalized as opposed to John Doe calling up his broker and saying that he wants to buy 50 shares of whatever. I assume that must be true.,91
-fomc-corpus,1985,"Well, all I know is that we should have started this discussion some months ago because at the next meeting we have a law which says that we have to set forth some monetary and credit aggregates and we have to decide which ones to set forth and--",50
-fomc-corpus,1985,And what kind of a range.,7
-fomc-corpus,1985,What kind of a range. I think Jim Kichline has the answer to all of these things because he put in an M1 consistent with the business outlook.,33
-fomc-corpus,1985,That's why we have such a low growth rate for next year.,13
-fomc-corpus,1985,"Could I, Mr. Chairman, offer one hypothesis to your question of why the velocity of everything has declined, which it has. Velocity of M3, debt, and liquid assets all declined in the period since the early '80s. One thing you could think of is that in a deflationary period, financial assets become more ""valuable"" than physical assets, whereas in an inflationary period it's vice versa. And in addition to the outstanding amounts of financial assets going up, of course, you are evaluating stock at a [spurious] rate, so in terms of market values those prices are going up. Although it is an impressionistic view, it strikes me that there is something to that. There is just no hurry at the moment to dispose of paper and to get into physical tangible assets that are going to go up in value like a house or plant and equipment. That will eventually come. It explains all the velocities.",188
-fomc-corpus,1985,"What did you mean by that comment that it ""will eventually come""?",14
-fomc-corpus,1985,"Well, when the interest rates go down and the stock prices go up to a point where it is cheaper to build the plant and equipment than it is to buy it, then it seems to me that we ought to begin getting the normal expansion. I didn't mean inflation; I meant a normal expansion in plant and equipment. It seems to me that you have to get that kind of ""equilibrium."" At the moment it seems to me much cheaper to buy a piece of plant and equipment--",98
-fomc-corpus,1985,"If you're right, I think you would have to get very low levels of plant and equipment and housing expenditures and I am not sure that they have been all that low.",34
-fomc-corpus,1985,"We do have a decent economy, but probably if what I said is right it's implying at some point [unintelligible] as prices go up to a point where it becomes economic, given the low level of inflation, to invest in physical assets--assuming inflation isn't going to revive.",58
-fomc-corpus,1985,Mr. Morris. You already made your comments. [Mr. Boehne.],17
-fomc-corpus,1985,"As for the issue of 1986, it seems to me that we don't want ranges any narrower or any lower than we have had this year. And the ranges should be couched in the same way as was done in 1985: that we have to look at M1 in terms of M2 and M3 and those have to be evaluated against movements in velocity and the economy.",79
-fomc-corpus,1985,"Well, I have been assuming that. If we are not going to assume that, we better do a lot of work in a hurry. Governor Seger.",32
-fomc-corpus,1985,"I just wanted to ask Steve a question about the likely moves by financial institution managers once the deregulation is completed. Would there be any chance at all that they would try to radically simplify their deposit structures? It has gotten pretty expensive to keep all of these different permutations and combinations of accounts. As I was sitting here listening to your explanation of some of these other changes, it occurred to me that there might be some rationale for simplification. I am old enough to remember when they had checking accounts and savings accounts and time accounts, period--not 17 varieties of other things. I just wondered if there might be some move in that direction.",129
-fomc-corpus,1985,"Well, we have tried to get a handle on that by surveys of what they intend to do and I think the results are rather diverse. There may be simplification; I wouldn't doubt that there would be some. But there seems to be a view that they are still going to try to pay relatively low rates to smaller accounts and then move more to market rates with larger accounts, which was the basis of some of our analysis. Maybe some will begin tying them to demand deposits. That has happened a lot more slowly than we would have expected some years ago, but maybe now this will develop more. Perhaps Dave could add a little more to that; I don't have any sense of it beyond that.",140
-fomc-corpus,1985,"There is a little of that reported in the New York District--of tying demand accounts for households to savings and other accounts, such as MMDAs, so that minimum balance requirements are satisfied by the MMDAs and deposits in demand accounts can be minimized. I am not sure if that is simpler exactly, but it is a kind of change involving these different accounts.",74
-fomc-corpus,1985,It would be an effort to capture a larger share of the business of the transactor.,18
-fomc-corpus,1985,I have a vague feeling that a certain amount of complexity will tend to make people feel that they can maximize their profits a bit.,26
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"Well, we did some of the same kind of work that Dave and Steve have reported on, with some different techniques. But not surprisingly, we came to about the same conclusion since the underlying data are the same. From the point of view of the targets--and this is a way of reiterating what has already been suggested--that suggests that given what appears to be a secular change in M1 velocity, we are going to need a higher M1 target for 1986; and because of the breakdown in the relationship with GNP it appears we are going to want a wider range at the same time. I would only add that maybe some serious thought should be given to giving somewhat greater weight to M2 in this configuration of aggregates--not because it is without problems, but just because at least for 1986 it looks as if we can avoid some of the problems created by shifts between M2 and M1 if we simply look at the broader aggregate and give it somewhat greater weight.",200
-fomc-corpus,1985,Governor Martin.,3
-fomc-corpus,1985,"Mr. Chairman, I would think with regard to M1 that both this study and our own experience in 1982 and 1983 and 1985, coming so close together and being so much a function of the changing instruments, suggest that there is a learning curve that financial institution managers are going through as they learn how to price these things and be more au courant with the market. We don't know if we are trying to share our ignorance among ourselves. We don't know how consumers are learning to react, although Jerry had some very cogent things to say with regard to attitudes toward these various instruments. All that adds up to me to relegating M1 to a monitoring or information variable, without setting a range. I am hopeful that, as the Chairman has indicated, we would have a chance to review the work that has been done on various weighted M1 components or perhaps M2 components. We could have a justification for M1 being put on the shelf temporarily in that we are making a substantial effort to provide new data in the form of a weighted M1 or weighted M1s while it is on the shelf--that we are devoting resources to producing a better M1, if you will, just as we went from M1-A and M1-B and shift-adjusted M1 to today's M1 as basic underlying characteristics of the instruments changed. They have changed and the behavior of both the offeror and the user is changing. It seems to me that we could couple [a statement] that we don't have a target for M1 with [an indication] that we are producing new data--a new M1, if you will.",334
-fomc-corpus,1985,"Just in the interest of nomenclature, when we had M1 on a so-called monitoring status before, we had a range, didn't we?",29
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"If I understood you correctly, you said we didn't.",11
-fomc-corpus,1985,"I said I would propose that we not have a range this time. I admit that, yes, we had a range before. But we didn't have as much uncertainty then as we have [now].",40
-fomc-corpus,1985,I'm not talking about substance. When we called it monitoring before we had a range. You are going beyond that and don't even have a range.,29
-fomc-corpus,1985,"This time, yes sir.",6
-fomc-corpus,1985,"Legally, do we have to have a range?",11
-fomc-corpus,1985,Not for M1; legally we have to have some ranges. I think there might be a certain amount of disappointment--though maybe not so much after our recent experience. But a couple of years ago we wouldn't have gotten by without having an M1 range.,52
-fomc-corpus,1985,I think the range ought to be 2 to 12 percent and [unintelligible] if it's any good.,25
-fomc-corpus,1985,"I remember a comparable experience in the past when we said it was premature to have ranges for the following year; I guess we said that for all of the ranges, didn't we? [Congress] kicked that back to us in about 2 seconds [and told us] the law says we have to have a range. Mr. Griffith.",68
-fomc-corpus,1985,"Mr. Chairman, I am going to pick up on Governor Seger's comments about simplification and maybe some mechanical problems that will make M1 worse. I think the reason that banks have not simplified is very simple: For the most part, most banks have little or no internal cost controls and don't know what [a deposit] costs them. I know for the West Coast [banks] I can say that. They have zero idea what it costs them to run a savings account. Those that have looked at it recently have come up with staggering numbers: I am talking about a hundred dollars a year to run a 5-1/2 percent savings account. If you take that number on a $5000 deposit and you went up to 5-1/2 percent on an MMDA rate, up to 5-1/2 percent you would be better off; it would be cheaper to offer a higher rate of interest and get rid of the overhead cost to run a savings account.",200
-fomc-corpus,1985,Does that imply that it is cheaper to run an MMDA?,13
-fomc-corpus,1985,"It's cheaper to run any type of account than a passbook savings account by virtue of some of the anomalies--for example, sending out quarterly statements, the mailing costs, and the fact that some still require passbooks, etc. Yes, you can achieve some real economies of scale as far as trying to get one account that will enable you to have trailing balances. I'm saying 2 or 3 things for information. All I am suggesting is that the reason we haven't seen simplification is not because it won't occur, but when it does occur it will further complicate M1. It's simply because banks haven't figured out how much it costs them. But probably more important than that: In the 1980s banks, particularly the large banks -- [unintelligible] the East Coast banks, the large money center banks in the West--have not had the earnings necessary to spend the dollars, the millions of dollars, for automation redesign. So I am just saying that I think this is going to occur and it's going to further complicate M1. The only other comment I have has to do with the staff paper, which we in San Francisco enjoyed reading and thought was well done also. We take one exception, and we may be totally wrong, but would just point it out for Committee consideration. The staff here says that they believe that the large debit risk overdraft program will have little or no impact upon M1. That's on page 18 of the staff report. We have trouble with that. If you look at the total dollar amount of daylight overdrafts that are currently in existence, I in particular have trouble with a statement that it is not going to alter payments. Our analysis would indicate in our own District--in any event, the first four or five banks that we have looked at who are pretty good performers from the staff point of view--that overdrafts are really caused by international payments. Jerry could probably speak to this better than I, but the overdrafts are not caused by funding needs; they are primarily caused by the participation in CHIPS and things like that. And we say, yes, it will affect things in either one or two ways. Either somehow there will be fewer payments made per day or some alteration in the payments scheme of things or--what we think is much more likely and what we are hearing from our banks--there will be a real push, frankly, by the commercial banks to get their depositor to pony up overnight liquid dollars to hold down these payments.",505
-fomc-corpus,1985,Are you saying that as it stands today or as we press on?,14
-fomc-corpus,1985,"As it stands today, I believe there will be some impact; as we press harder, and I am assuming pressing harder is sometime in later 1986, I think it is going to be significant. But also I think we have to take into consideration that as yet we have no formal data for those banks that will come in with, let's say, self assessments of not anyone being unsatisfactory and therefore are given zero caps. From the data we have there is going to be a considerable number of those across the country. You are talking about a significant degree of either a slower payment system or causing corporate customers to pony up the liquid dollars. I know it's early and we don't have the data; it's just intuitive. And I am not knocking the staff report; I'm saying this as just a warning signal--",162
-fomc-corpus,1985,I've wondered about that too. Mrs. Horn.,10
-fomc-corpus,1985,"Mr. Chairman, I think that Pres' suggestion about a limited range for M1 has considerable merit. I think M1 is a very important number, as you know, and because of its transactions component may become very important to us again in the future, either in its current form or perhaps in a new form. But the transactions component makes it, I think, very special. And in one sense it seems to me that we discredit it by setting a range for it that we not only do not intend to bring it within but that we don't even think it will come in within. So I think we should consider the idea of not setting a range for M1 since the jury is really out on a lot of these matters.",148
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"I am not really quite sure why I feel this way, Mr. Chairman, but I have a completely different point of view from the one that has just been expressed and that Press Martin expressed. I think it is really premature to give up on M1. I realize that monitoring is not really giving up on it and that M1 is a sick patient, to be sure; but I am not sure that it is ready to die. I think we ought to give it a little more time. Some of these portfolio shifts to which we are attributing the difficulty of M1 may slow down. According to the staff, and I have to agree with them, we apparently are not going to see the effects of further deregulation. So, I think we ought to give it a little more time, and I would like to see us continue with a range for M1. But because of the difficulties that we have had with it, I think that the range needs to be wider than we traditionally have had. So for 1986 I would like a wider range perhaps at about the level that it is. The other thing that troubles me a little about putting M1 on a monitoring range is that I am not sure the markets are going to interpret that in the right way. I think they might very well feel that this is our way of abandoning further efforts against inflation.",276
-fomc-corpus,1985,I think it is going to be a little hard to really abandon M1 just in terms of the law. It doesn't mention M1 but it talks about monetary ranges and nothing is more monetary in the public mind than M1. I think that we can deemphasize it--I'm just talking in terms of the law--all we want. Actually not presenting it is going to raise a little ruckus.,83
-fomc-corpus,1985,"I think we have to prepare the Congress and the public for that; we can't do it suddenly this time. If we think we are moving in that direction we need at least six months' preparation, and probably a little longer than that. The last time we set targets we seemed to [unintelligible].",63
-fomc-corpus,1985,I don't think we ever set a target we didn't think we were going to meet. [We thought] M1 was going to slow down from this great burst in July; we didn't say it with great confidence.,43
-fomc-corpus,1985,It says it again right here.,7
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Given the results of M1 this year, I certainly think abandoning the range would have some appeal. But other than the legal aspect, it seems to me that there are public perception aspects that would be difficult. By saying that we are not going to establish a range and that we have a lot of work going on to try and get a better understanding of what has been going on gives me the impression that we have a bunch of engineers in the back room busily cranking away and at some early point we'll come up with an ideal model that might work. It might indeed work, but we would have to have a considerable period of time to feel comfortable with that. Clearly, in my mind, we're going through a period of considerable uncertainty. But given that, I would be inclined to use ranges as broad as possible, perhaps at least as broad as this year or maybe wider and certainly not narrower. I'd just put in the testimony a lot of judgmental comments as to how we are going to end up in those ranges as the year evolves.",210
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"Mr. Chairman, it seems to me that we are talking in terms of widening these ranges much more than they would have to be widened under any set of reasonable circumstances. For example, if we should say that 4 percent real growth next year is a reasonable target--and I think we would all be very pleased with that--if M1 [velocity] should resume its historical rate, 3 percent being the normal rate, then a 4 percent rate of growth in M1 would be enough. In the past if we had no trend in velocity at all, if it was zero, then 7 percent growth in the money supply would be enough to finance that 7 percent rise in nominal GNP. So 4 to 7 percent would encompass a pretty broad range there.",158
-fomc-corpus,1985,But velocity can drop.,5
-fomc-corpus,1985,"Well, I was going to say: In the case you cited, Chuck, where you talked about 12 percent, that would imply an 8 percent drop in velocity--which might happen for a year--to give you a 4 percent rate of GNP.",54
-fomc-corpus,1985,Or a 5 percent drop off.,8
-fomc-corpus,1985,I got [the 12] by adding 5 + 7.,15
-fomc-corpus,1985,"If you had a 2 percent--well, there's no use running through all this arithmetic. But 4 to 7 percent with zero percent [velocity growth], which seems about as low as you could possibly have it, is what I meant to say a while ago.",55
-fomc-corpus,1985,How can we assume that zero has to be the floor?,12
-fomc-corpus,1985,"I am not saying that it has to be; I am just saying that it seems like a reasonable floor. You can certainly go beyond that, but to go to 12 percent as Chuck suggested awhile ago, facetiously I think, implies an 8 percent drop if you have to--",58
-fomc-corpus,1985,You could argue that the norm for M1 velocity is going to be negative.,16
-fomc-corpus,1985,"It could be, but I don't know what the reason for that would be.",16
-fomc-corpus,1985,"Bob, the trouble I have with that is that the monetary policy assumption in the Greenbook carries a 125 to 150 basis point decline in interest rates next year. That means you're throwing in another big variable, the same big variable again--a big drop in interest rates.",56
-fomc-corpus,1985,NOW accounts could get pretty popular.,7
-fomc-corpus,1985,It's anybody's guess as to what those rates are going to be.,14
-fomc-corpus,1985,All I'm saying is that that is one of our assumptions.,12
-fomc-corpus,1985,"Pres, they are also talking about a much lower rate of growth in real GNP than the 4 percent I said might be reasonable. I am just saying that you can get 4 percent real growth with comparatively little M1 unless it really is misbehaving, which it may be.",59
-fomc-corpus,1985,"We have a problem here. When I listen to this conversation we have a law that says ""monetary and credit aggregates."" The only credit aggregate that we have is as far off as M1.",41
-fomc-corpus,1985,That's the problem I have. I think one can make a case that all of these aggregates are way off.,22
-fomc-corpus,1985,"That is the thing, Paul. The public seems to buy the concept that credit growth could be as much as 12 percent a year. I think that we have had around 12 percent, the top end of the range, for each year at a time when obviously nominal GNP has been much less than 12 percent. And infinitely extended that would mean an infinite debt burden. But nobody seems to comment about that rapid growth in credit; they seem to accept that.",95
-fomc-corpus,1985,"Nobody knows what to do about it. The implication is to tighten up, but nobody wants to tighten up.",22
-fomc-corpus,1985,Mr. Annunzio said to cut up your credit cards.,13
-fomc-corpus,1985,Should have done it a year ago!,8
-fomc-corpus,1985,"It still intrigues me that the previous incident we had of debt rising so fast relative to GNP was in 1928-29. I've been assuming that we would have targets of more or less the traditional type with a lot of [explanatory] language, maybe put M1 on a monitoring basis the way we did before, with a target. That is clearly within the scope of what we can do. The same thing is true for credit; that could be a monitoring--",98
-fomc-corpus,1985,"I'd use them all. We've got to play one against the other. I think if we scrap one or two of them we would really have a problem. At least if we keep the traditional framework, with perhaps a variation on a definition of a monitoring range, I think we are in a better position. If we scrap one or two of them, I think we could get into a terrible box.",80
-fomc-corpus,1985,"At a minimum, we can use these sometimes to justify what we want to do.",17
-fomc-corpus,1985,That's what I have in mind.,7
-fomc-corpus,1985,"Mr. Chairman, you mentioned that no one wanted to tighten.",13
-fomc-corpus,1985,I meant the general public.,6
-fomc-corpus,1985,I think that is true. But the thought strikes me--you referred to 1928-29--and I just wondered if we're not rationalizing ourselves into an even more difficult situation.,38
-fomc-corpus,1985,"We may be. That's the problem. Ex post, after 1928-29 [it's clear] that the Federal Reserve should have been tighter.",30
-fomc-corpus,1985,"The practical problem in terms of ranges and so forth is what several others, including Gary Stern, have said. To do a complete change to me would throw even more uncertainty into a very uncertain environment.",40
-fomc-corpus,1985,"Just by instinct, I don't think we are prepared to throw out much of this without at least a very careful consideration of replacing [what we throw out] with something else. Outside these ranges we could say, well, we're going to stabilize exchange rates or move interest rates or commodity prices.",58
-fomc-corpus,1985,"At midyear we tried to make some adjustment in recognition of what has actually happened--rebasing, widening the ranges. It is true that the behavior of M1 has not improved, but it seems to me that keeping the M1 range--downgrading it through words or monitoring it or whatever you want to call it--and widening the range some would be the only prudent thing to do right now, until some of this other work could be done and we know a lot more than we do [now]. I don't think I could say with any assurance that things might not return over the next six or eight months.",125
-fomc-corpus,1985,"I am tempted to ask--it is so late in the afternoon I won't press for an answer--what you may want if you have targets and you can't have monetary and credit aggregates in the sense in which it is called for by law. What would you use a year ahead, midyear, 18 months ahead?",64
-fomc-corpus,1985,M2 and M3 and monitor M1 and nonfinancial debt.,14
-fomc-corpus,1985,I'm throwing out those things.,6
-fomc-corpus,1985,"Oh, I see.",5
-fomc-corpus,1985,There was a conference just held that would suggest the price of gold.,14
-fomc-corpus,1985,Are you prepared to suggest that?,7
-fomc-corpus,1985,"No, I didn't say that. I just said that there was a conference just held that would suggest the price of gold.",25
-fomc-corpus,1985,There are those who would say that; it is a small but hardy band.,16
-fomc-corpus,1985,Commodity price people are close to the gold people.,10
-fomc-corpus,1985,Take a basket of commodity prices; stabilize the general accounts.,12
-fomc-corpus,1985,Talk about missing [a target]!,7
-fomc-corpus,1985,"If you choose prices, you still have to have some mechanism that you play around with to do that. You have to have some tool or handle.",30
-fomc-corpus,1985,Interest rates or exchange rates. What other alternative do we have?,13
-fomc-corpus,1985,"That or some aggregate. Exchange rates, interest rates or aggregates, or some combination. I think that is exhaustive.",23
-fomc-corpus,1985,What would happen if we were to publish the monetary aggregates less often?,14
-fomc-corpus,1985,We'd be accused of withholding useful information.,9
-fomc-corpus,1985,"The more you ask us to focus on this, the more apparent it becomes that we should be hesitant about moving away from the aggregates too quickly. The alternatives seem unsatisfactory.",35
-fomc-corpus,1985,"I don't hear anybody arguing. It's practically impossible in the time that we have--without creating a revolution--to move away from some combination of these aggregates, as bad as they are.",37
-fomc-corpus,1985,It seems to me that what we really need to do in the short run is to lean a little further in Governor Partee's direction of nominal GNP.,32
-fomc-corpus,1985,"Well, of course, the same complaint can be made of nominal GNP that Bob made about prices. How do you get there? It used to be that you could get nominal GNP by changing interest rates.",43
-fomc-corpus,1985,I am just saying that in the context of having aggregates in more or less traditional form you just make more general noises about looking through the aggregates at the GNP.,33
-fomc-corpus,1985,You may be promising more than you can deliver.,10
-fomc-corpus,1985,I'm just grasping for straws.,8
-fomc-corpus,1985,"You may put the straw on the camel's back, if you keep grasping!",17
-fomc-corpus,1985,How about a range for GNP?,8
-fomc-corpus,1985,I'm not hearing great inspiration. I think we ought to adjourn for the day.,17
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,Would you repeat or amplify what you said about energy prices?,12
-fomc-corpus,1985,"They have risen in the last couple of months, but for all of 1986 we are forecasting essentially flat energy prices.",25
-fomc-corpus,1985,You're not assuming a big decline in oil prices?,10
-fomc-corpus,1985,"Well, I was referring to energy prices more broadly. We have a decline of about $2 in the imported value of oil. But there are also service fuels, natural gas, electricity, gasoline, home heating fuel, etc. For the whole ball of wax, we essentially have flat or a couple of tenths higher in 1986.",69
-fomc-corpus,1985,Comments?,2
-fomc-corpus,1985,"Jim, if one is looking at the net export sector for a kick upward in the economy next year and is worried that that might not happen until the second half, let's say, what more specifically are the outlooks for some of the economies abroad--the developed countries. We're beginning to hear some good news on that.",64
-fomc-corpus,1985,Why don't I let Ted answer that question.,9
-fomc-corpus,1985,"Contrary to the good news you hear, our outlook for the industrial countries as a group in 1986 is that [growth] will be on average the same as it has been this year. Western Europe may be a bit stronger; I assume the stories you particularly are referring to have come out of Germany on this score. But Japan is expected to be substantially weaker, and we ship much more to Japan than we do to Germany. So, on balance, we're looking for something in the 2-1/2 to 3 percent growth, fourth quarter over fourth quarter, for these countries, which is about what we think they had in 1985. It is, as this year, somewhat faster than the growth in the United States. And in that sense, it is redressing the balance of the previous three years when we were growing faster than they were. But we don't think we're getting any substantial additional stimulus from that source. Our forecast for the German economy itself is at the upper end of the range of the forecasts that one finds coming out of Germany--3 percent year over year and 2-1/2 percent fourth quarter over fourth quarter. I think it's the other way around, [2-1/2] percent year over year and 3 percent fourth quarter over fourth quarter. That is basically at the upper end of the range of the German official and private forecasts.",282
-fomc-corpus,1985,"What about the tax bill, Jim? If that were passed, what impact do you think that would have? And have you taken anything into account for that?",32
-fomc-corpus,1985,"We haven't taken anything explicit into account. The way it stands now is that if it were passed, it clearly would raise the cost of capital with respect to the business sector--especially for equipment, given that all the proposals get rid of the investment tax credit and change depreciation schedules as well as corporate income taxes. It's less clear that it would have as large an effect on nonresidential structures. But for the equipment side we think it would be a negative. One of the problems we have is that, given the uncertainty over what's going on in tax reform, a case can be made that in some areas businesses are just holding off and waiting. So it may be having somewhat of a depressing effect now in business planning. And it's unclear whether we're going to get another slug when something really comes along. In financial markets, clearly, one of the areas where tax reform is having a role is in the municipal market where we're having this surge of offerings that may be cut off if tax reform is passed. But we think the major effect as it now stands would be in the business sector.",217
-fomc-corpus,1985,"Jim, what's your impression of the George Gilder argument that the lower top bracket rates in one or another version of the tax revision would actually stimulate the entrepreneurs--the proprietorships, the smaller firms, the Silicon valley types and the Boston railroad people and what not? [He argues] that all the fuss in the Halls of Congress is coming from General Electric and people like that and that actually this might have a positive effect on business fixed investment coming from a different source. Is that--",99
-fomc-corpus,1985,"Well, I think it's possible. The smaller firms of the type you are talking of, especially in some of the service sectors, often are not that capital intensive, and such firms really are not affected in a major way. Perhaps the corporate income tax rates play a more significant role. I don't know how to sort that out. I think that is probably a longer-term kind of argument and the issues on tax reform as they would affect major capital expenditures probably are shorter-term kinds of arguments.",98
-fomc-corpus,1985,"Governor Martin, I might mention that venture capitalists in various paper surveys have indicated that the relatively low capital gains rates are very important to them. With these tax reform proposals, the capital gains taxes would not be as relatively low as they are now, so that some shift--according to these views--might be in store in terms of that kind of entrepreneurship.",72
-fomc-corpus,1985,"Jim, on the face of it I would have thought that the lower interest rates that you're projecting would have given more stimulus to the economy than you have. I take it from what you said that you're seeing an offset in the Gramm-Rudman Bill. But aren't there government spending plans in the pipeline that are going to carry through to the first quarter and perhaps into the second quarter? The second thing I'd like to have you comment on, if you would--if you said it, I didn't hear--is the effect of inventory investment on the economy.",111
-fomc-corpus,1985,"Okay. With respect to inventories, we have inventories as essentially a neutral force in 1986--basically running close to final sales. Our perception was that inventories currently probably are about in line and that businesses would tend to add to their stocks only as sales rose. So, the change in inventories is basically not very much. Certainly, it wouldn't be affecting 1986 as a whole. As I noted in my briefing, there are some questions currently--that is, in the fourth quarter--as to what's going on; we may be seeing somewhat larger accumulation than we have forecast, which would tend to give us somewhat stronger growth. With respect to the federal purchases, you're quite correct. There is a lot of spending in the pipeline. That's one of the reasons why--in putting this together and looking at Gramm-Rudman and saying that something happens March 1 to the tune of about $12 billion--we see lots of offsets and lots of slippage in various programs, both defense and nondefense, so that our net cut is about $5 billion. In addition, some of these financial transactions don't really show up in the GNP accounts as cuts. They wouldn't be cutbacks in federal purchases as such, so some of the cuts will not appear in the GNP accounts. It's very hard for us to parse out in our minds precisely what happens between cuts and how much is a reaction in some other sectors to interest rates changing. But on balance, we took something out as a result of the Gramm-Rudman package [and put in] a little more consumption in housing and a shade more in business investment as a result of lower interest rates. But the net effect boils down to, roughly, a couple billion dollars out of 1986 because of that, and that amounts to roughly 3 or 4 tenths [on GNP]. It's not a big net effect. But the issues, it seems to me, are very important--especially as you look forward to the summer of 1986 when this major problem surfaces for fiscal year 1987. And we have not assumed that come October 1, things just come to a halt. Rather, we have continued sort of along the path of having mild further cuts late in 1986.",459
-fomc-corpus,1985,If we didn't have Gramm-Rudman--if it were declared unconstitutional--would your forecast be where it was before or would you see greater strength than your previous forecast?,34
-fomc-corpus,1985,"I think it would have been about where it was. Since the meeting in November I don't think that things have changed in a way that would have induced us to have made major changes. Interest rates have come down, especially in the long markets, more than we had thought. But, sorting through some of the other sectors, I would read them as about the same or maybe a shade weaker. So, I would say we took something out of the forecast for Gramm-Rudman. I would have had a higher number if we didn't have Gramm-Rudman.",113
-fomc-corpus,1985,"But the main thing, Jim, that has happened since the last meeting is the increase in financial asset values, which is pretty big.",27
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"You would include that in the forecast as a positive element but with a considerably muted weight, is that right?",22
-fomc-corpus,1985,"The quarterly model now would say that, given the increase in asset values in 1985, there is a lag in the impact on spending, which appears over 4 to 6 quarters. We have had something like equity prices raising market values by $350 billion or so in 1985. But that would add about a quarter of a percentage point to personal consumption spending in 1986. So it's a limited effect.",86
-fomc-corpus,1985,A quarter of a percent?,6
-fomc-corpus,1985,"Well, keep in mind that a lot of those values show up in pensions.",16
-fomc-corpus,1985,"Yes, I know that a lot of them are not possessed directly by households; they're in pensions and--",21
-fomc-corpus,1985,"Even indirectly, to the extent that corporations can recapture some of that. So it's a murky area.",22
-fomc-corpus,1985,"In a way, though, given Gramm-Rudman the way you have it in here and given OPEC and oil prices, I'm surprised there isn't a bigger change in the inflation forecast--that it would have slower growth. It seems to me we've had some positive developments in commodity markets generally and so forth.",62
-fomc-corpus,1985,"On the oil price side, the OPEC announcement came sufficiently late that we did not change the forecast that we had before. So this $2 a barrel, roughly, further decline in the price of oil is basically predicated on the assumption that the pressure that is built on supply is coming from non-OPEC sources. It assumes, and there is a lot if uncertainty in this area, that OPEC will be trying to produce essentially in '86 what they produced this year in oil terms--16 million barrels a day. It's a little uncertain what they mean by fair market share in this context. If, contrary to that assumption, we had them trying to produce more, then we would have more oil price decline than we had built in. Because of the timing as well the uncertainty we haven't put in an additional oil-price decline because of an interpretation of what OPEC did.",176
-fomc-corpus,1985,"On the risk side, I didn't mention that, but I think it is important. There are some arguments that this market may well collapse by next spring. Some of the work we've done suggests that if you took, say, $5 off the price of oil and got closer to $20 a barrel, that's worth about 1/2 percent on the GNP deflator and adds almost the same amount to real growth. So it is a major factor.",92
-fomc-corpus,1985,"What kind of impact would that have on our trading partners--Germany and Japan, for example? Would that--",22
-fomc-corpus,1985,"On average, for the industrial countries you get about the same impact. You'd have maybe a bit more positive impact from Japan and Germany, but you'd have an offset in Canada and the UK and those countries that are oil producers. So, on average, you would get about the same order of magnitude in those countries as a group as you get in the United States with a $4 to $5 dollar [per barrel] cut.",87
-fomc-corpus,1985,"Jim, I understand there's going to be quite a full-scale revision on the GNP around the end of the year or early next year.",28
-fomc-corpus,1985,Friday morning.,3
-fomc-corpus,1985,"So, we're in fact going to be dealing with different numbers next year. Now, that includes a rebasing that changes relative weights, doesn't it? My question to you would be, since it will be an issue, I believe: What kind of hazard would the changes in weights and all that goes with rebasing present for the Committee in making a projection?",72
-fomc-corpus,1985,"Well, this is going to be a massive revision. As you know, in many of these numbers significant changes will be made from 1959 to date. There are some definitional changes and they've discovered an error they've been making for the last 5 years that influences something. These numbers will come out Friday. I think one of the areas that is important is the fact that on the oil price side, when you rebase to 1982 oil gets a much lower weight. It has much lower prices and a much lower weight. If you want to say these numbers would give you a deflationary impact, as of Friday they will give you a smaller deflationary impact when you rebase. So, there will be lots of things happening.",152
-fomc-corpus,1985,It gives oil a lower weight?,7
-fomc-corpus,1985,It will have a lower weight based on 1982 dollars.,13
-fomc-corpus,1985,Because the physical flow of oil has not done as much as other things?,15
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,I see. So you get less deflation because it is based on '82 than you would by remaining with '72. Somebody told me that they thought it was going to moderate the growth rate throughout the period for some technical reason.,47
-fomc-corpus,1985,I don't know.,4
-fomc-corpus,1985,"One reason, as I understand it, is that they had been assuming that the price of computers has not changed over this period. And they're substituting an assumption of a 10 percent per year decline.",41
-fomc-corpus,1985,You'd think that would raise the growth rate.,10
-fomc-corpus,1985,It's going to raise the growth rate [unintelligible]. And that's fairly significant.,18
-fomc-corpus,1985,But my understanding is that the whole effect would be a moderated growth rate.,15
-fomc-corpus,1985,There are a number of other changes beyond that computer [change].,13
-fomc-corpus,1985,What factors would moderate that?,6
-fomc-corpus,1985,"I don't know. I understand that it has to do with the rebasing, fundamentally.",18
-fomc-corpus,1985,"Yes, it is the rebasing. There are two things going on here. In the computer case it's not just that they are trying to get an appropriate price index where they have arbitrarily held the price since 1982 to date at 100, but that they are going to rebase from 1972 to 1982 and that effect will run in the other direction. So it's not clear to us at this moment how large an impact it will be. But you're quite correct; if you didn't rebase you'd have a substantial increase. There are other things going on, on the income side in particular, where they have tried to account for some underreporting of income. It's questionable at this point as to what impact that might have on the saving rate and other things. But certainly from what they have already published, in 1977 the saving rate is up about a percentage point from the now-reported numbers. In any event, the world will be remade on the 23rd and will bear little relationship to what we're [seeing] now.",215
-fomc-corpus,1985,The 20th.,5
-fomc-corpus,1985,"Fortunately, we only have to look ahead instead of back.",12
-fomc-corpus,1985,"Except, unfortunately, we don't know where we are.",11
-fomc-corpus,1985,Does anyone want to comment on where we are and where we're going?,14
-fomc-corpus,1985,"I think events since the Group of 10 meeting have been amazingly good in the sense that we have had a pretty sharp decline in the dollar and that has been accompanied by a decline in long-term interest rates. And that is the combination that must be desired and I must say it's a little surprising. It seems to me that we're still rather vulnerable, despite this, to any loss of confidence on the part of the foreign investors in the United States. I think it's quite impressive that, despite the size of the decline in the dollar, I haven't been able to detect any nervousness on the part of foreign investors in the United States. And that is a big plus for us. But I think we still have to be alert to the possibility that that kind of thinking could change.",156
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"Mr. Chairman, I don't know where we are and I don't know where we are going, but it didn't stop me from talking before so I don't expect it to stop me this time! I think Jim and his group have done a usually good job in dealing with a very difficult period. Their position is certainly plausible, particularly when you consider Gramm-Rudman, but I think it's a little more likely that with the kind of decline we've had in long rates, particularly mortgage rates, the surge in stock prices that Chuck mentioned awhile ago, the decline in the dollar, the substantial recent growth in money and liquidity, and the prospects of further declines in oil prices, that the errors will be on the high side of their forecast rather than on the low side. I just have to conclude that the economy has to respond at some time--I would think in the not too distant future--to this convergence of favorable factors. I don't have any great confidence in that view, but that's my best guess.",200
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"In terms of the Midwest perspective, our feelings both currently and prospectively are very much unchanged from the previous meetings. As we look ahead we think the expansion will continue, albeit modestly and certainly unevenly. Therefore, our outlook is certainly consistent with the staff's forecast. Indeed, perhaps there is an opportunity for somewhat improved results next year as opposed to what the staff is suggesting, as the risk of coming in weaker is diminishing, I think. I have a couple of specific comments. I almost hate to mention it, but the agricultural situation does continue out there. And I think the situation is, if anything, more serious. The crop harvest is about completed, on normal schedule, but the production is going to be very significantly higher than last year. That will continue to put pressure on commodity prices, and I think we're in a period in which production loans are going to have to be paid off. It will be interesting to see how the production values come in relative to the loans. There is also, of course, the issue of land values; the rate of decline certainly is diminishing but values are down very substantially whereas the debt has not come down. So we have this very difficult gap between debt and land values, which has to be dealt with. As a consequence of all this, I think the stress on the agricultural banks is continuing in a very significant way. Their charge-offs this year are going to be substantially higher than was the case last year. A very significant number of them are going to show losses this year as compared to last year. So the agricultural problem continues to be very important. My second comment is on the tax bill. I must say that the people I talk with say this continual uncertainty is extremely difficult from a planning perspective. They just are having an awfully tough time figuring out what to do. There are a lot of people who say cynically that a bad bill would be better than this continuing uncertainty that they are dealing with. Also, as kind of an editorial comment: Those in the manufacturing sector do feel that the bill as it has been proposed by the House is, at least from their point of view, a very bad bill. I think the most significant change that I've seen over the last few weeks is related to this exchange value of the dollar. The attitudinal change that I sense out there is just very important. No one will say they got this deal or that deal because the value of the dollar is down; but everybody says it just is a much better environment in which to at least negotiate. They'd like more. In terms of the yen, they would like 180 or 190. But most importantly, they are pleased with what has been accomplished and are very hopeful that the rate will not go back up. The whole change of attitude based on this I find very, very positive.",573
-fomc-corpus,1985,"On this farm situation, I don't know whether you or anybody else had any comments, but we've had quite an increase in agricultural prices from a very low level in the last month or two months. Does that make anybody feel any better? MESSRS. KEEHN & GUFFEY. No.",61
-fomc-corpus,1985,"The bankers are getting very afraid out there. Attitudes and emotions, particularly in Iowa, are getting very, very frayed. There have been some bad incidents. I don't think that is necessarily symptomatic of the economic circumstances, but I don't sense any improvement at all.",54
-fomc-corpus,1985,I wasn't thinking of the bankers so much as whether anybody has any more hope for--,17
-fomc-corpus,1985,"Well, if you're in the livestock business, I think attitudes really have improved. If you are in grain and barley or corn and so forth, that's a different matter. Livestock people are much more optimistic. Jerry knows: Our livestock people are optimistic almost all of the time.",56
-fomc-corpus,1985,They wouldn't be in the business.,7
-fomc-corpus,1985,"Well, the price changes mainly have been in livestock.",11
-fomc-corpus,1985,"It has been by far the sharpest, indeed; but it's also significant in corn and wheat, though from a very low level.",27
-fomc-corpus,1985,"Still, comparatively, it's awfully low as you go back the last few years.",17
-fomc-corpus,1985,There is no question that they are lower in the longer-term perspective. Governor Martin.,17
-fomc-corpus,1985,"Mr. Chairman, it seems to me that as we enter the fourth year, if that's what it is--if anyone can measure the beginnings and ends of these expansions--the risk elements continue to build. The Chairman mentioned agriculture. There is some miracle kind of farm bill, which looks like it has made some progress, that begins to change the game a little--and perhaps in a positive direction--with regard to world prices and targets and other prices from the U.S. government. That bill would require a bit of change of format by agricultural producers and traders in the commodity markets, if it passes in that way. I think that's characteristic of the export area on which we are depending for late-in-the-year support for the economy. What's different about that to me is the much more assertive --I won't say aggressive--stance and approach taken by Clayton Yeider and by this administration. I am not criticizing that approach but it complicates the [effort to] increase U.S. exports in that there are [potential] retaliatory actions in Europe and elsewhere. I haven't seen anything that really clearly lays out how in this assertive, almost adversarial, atmosphere we get that additional export help in the GNP sense. Probably we will, but it seems to me that there is a risk when you approach these negotiations in a somewhat different way. As far as housing is concerned, I am usually the pessimist in that area. I think the staff forecast in the housing area is reasonable at this time, but it is reasonable because of the monetary policy assumptions. A decrease of 125 to 150 basis points in rates is really necessary if we are to get this more or less modest improvement. There is a down side in this too, of course, in that as the regulators put pressure on the originators and servicers of mortgages, there is a risk that this plus in the GNP won't come about because the credit standards will be higher, because they won't be able to qualify the borrowers, and because there have to be more write-offs. They are getting to this talk about good banks and bad banks and splitting the mortgage originators into the good institutions and the bad institutions. Well, that's another factor to cope with, another bit of uncertainty. Uncertainty means risks in that area. The risk of a collapse in non-residential spending is obvious. We have gone over practically every molecule of that risk in our meetings here, and rightly so. There is a slight decrease, 0.7 percent or something like that, in the model results here. And I understand that. Jim warned me that he built some other slow growth rates in there before and the markets raced on ahead. But there is a risk, isn't there, of a collapse--of a really sharp negative in that area? One could go on to examine the risks in the financial institutions; 113 banks have changed the name on the door. In most cases, it's not a calamity, but the risk goes on. And banks really haven't addressed the write-downs that they are going to have to do with the Perus of the world, have they? Some have started, but relative to banks in other countries and relative to so-called tax reform, now characterized as a revision treatment of the bad debt reserves, that certainly is a risk--in terms of facing that question and in terms of bank credit growth (not off-balance-sheet but on-balance-sheet bank credit growth) and the funding of continued economic growth. We are only talking about another four quarters of around 2 percent. We certainly have had enough quarters of around 2 percent with the downside risk what it is. So what I want to stress this morning is the need to keep in mind the monetary policy assumptions in this projection. I support the projection but I also support the monetary policy assumptions, which go to a rather prompt--I almost said a bad word--a rather prompt accommodational posture and carrying that on out for the balance of the year.",805
-fomc-corpus,1985,Prompt accommodational?,4
-fomc-corpus,1985,"Yes, I didn't want to say ease.",9
-fomc-corpus,1985,[Unintelligible] 4 to 7 percent projection in the long-term M1.,20
-fomc-corpus,1985,"Well, I think that projection for M1 may be a little on the low side, Mr. Chairman, and given the interest rate--",28
-fomc-corpus,1985,You like part of the monetary policy assumptions.,9
-fomc-corpus,1985,I just noted that we get a 7-5/8 percent funds rate pretty quickly and that it's at 6-1/2 percent by the end of the year. It seems to me that's a vital part of making 2 percent growth next year with all the downside risk.,58
-fomc-corpus,1985,Governor Rice.,3
-fomc-corpus,1985,"Well, Mr. Chairman, it appears to me that we are depending on the modest growth in employment, some pickup in housing, and favorable consumer attitudes to get us to a moderate 2 percent rate of growth over 1986. If we look at the uncertainties in the forecast, particularly the uncertainties with regard to consumer capacities to continue spending, and if we also take account of our expectations that there will be some movement toward fiscal restraint, it seems to me that the risks to the forecast are on the down side. Now, obviously, some very good things have happened. In very general terms, interest rates have come down and the dollar has come down. But when you try to evaluate what the impact of these generally favorable developments would be on specific sectors, it's very hard to see how this is going to get us more growth than is forecast for 1986. So, far from seeing the risks on the up side as Bob does, I see them rather on the down side. So to me, the main question that is raised is whether a moderate 2 percent rate of growth for 1986 is acceptable, all things considered, in the current circumstances, particularly in light of the inflation outlook.",242
-fomc-corpus,1985,Which is what?,4
-fomc-corpus,1985,"Well, it's less than 4 percent. That's the outlook, and it could be [less]. Most of the considerations surrounding that would suggest that, if anything, it would be more likely to be lower rather than higher. There are oil price possibilities. So, I would say that the inflation outlook is rather more favorable than unfavorable.",67
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Mr. Chairman, form the perspective of the Sixth District, things are looking considerably better than they did a month ago. We have had a very sharp decline in unemployment--from a little over 8 percent to about 7.3 percent--and even the employment in manufacturing, textiles, and apparel has tended to stabilize. The textile and apparel people, as well as some manufacturers, even have seen some increases in their orders over the last month. This is not reducing the protectionist sentiment, I might say. They are not really attributing this [improvement] to a fall in the dollar, although they recognize that there might be some of that. But they are still looking for protectionist measures like the Jenkins bill to make some fundamental changes in their situation. Construction continues to be very good in most areas. To be sure, we have weak spots in the District, such as Louisiana, but construction in most states is doing pretty well. Retail sales have been very, very good, particularly in the post-Thanksgiving period. And from an impressionistic point of view the business people that I talked to really are exhibiting a good deal of confidence about 1986. They think that growth is going to be not marvelous, but fairly moderate, and perhaps a little better than in 1985. People I talked to, like those Si Keehn mentioned, are very discouraged about the tax bill. They would like it either to be passed or to be taken off the table so that they can make their plans. If the bill is revived, as perhaps it might be, that is going to cause additional uncertainty, and I think that business people might very well defer some business decisions in 1986, which might be a negative for the economy. So, extrapolating from that kind of local experience, it would seem to me that maybe the risk is slightly on the up side. I would think that the effect of interest rates would perhaps be more of a stimulus to the economy, notwithstanding Gramm-Rudman, than in the Board staff's forecast. So I continue to look for a little stronger economy, perhaps somewhere in the area of 2-1/2 to 3 percent for GNP. I guess the difference between my forecast and the Board staff's forecast is not so much in the numbers. Rather, it's in my feeling that I can accept the 2-1/2 to 3 percent growth rate, while the Board staff's forecast would be unacceptable. If they're right, I think that perhaps the time has come to make some move to bring that up a little. But again, I believe we are probably going to see 2-1/2 to 3 percent growth.",546
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"Well, Mr. Chairman, the economy in Texas and in the Eleventh District has continued to grow at a sluggish pace. That's due in large part to a further deterioration in the energy sector. For example, the rig count is at its lowest level in ten years. The District's construction activity in 1985 has shown more rapid growth than that for the nation as a whole, but that relationship is expected to flip-flop in the year ahead. Even the growth of the service sector is like that of the nation, and no turnaround is in sight. Both the economy and the economic mood have continued to deteriorate, and I am hard pressed to find any sources of potential optimism. In short, the District's economic problems are pervasive and extend far beyond those attributable to the energy sector. Having said that about the Eleventh District, our view of the economy as a whole for next year is that we would anticipate probably a little better year than we had in 1985. Our GNP number probably would be closer to 3 percent than to 2 percent.",215
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"Just looking at forecasts--for what they are worth, which is probably not a lot--our forecast for 1986 is one that has GNP in real terms growing at about 3 percent or a shade more. In that sense, it looks more like the consensus of private forecasts than it does the Board staff's forecast. There is another important difference in that our forecast basically assumes that short-term interest rates are unchanged from roughly where they are today rather than having a decline already built in. But like Governor Rice, I don't have a lot of conviction about that forecast because when you go through sector by sector it's hard to find concrete evidence that would suggest that there is any real marginal growth on the up side, and there are the risks on the down side. We are at a point, in my judgment, where we have 3 or 4 very, very major factors that transcend the sectors. I am not sure anybody has really digested these factors, and I am not sure one can. One is the decline we have seen in the foreign exchange rate itself. I think we had some surprises on the up side of that phenomenon and I think one could argue that we may get more bang out of that than is being allowed for in the conventional kind of forecast. Just as one example: If the so-called Baker plan works as designed, that in itself could end up financing a very [robust] increase in import growth in the developing countries and Latin America, and we would be presumably the major beneficiaries of it. But leaving aside that particular aspect of it, I think that one at least has to allow for the possibility that we may get a little more help there than we are counting on. The second area that seems to me to transcend individual sectors is this recent run-up in stock and bond prices. I can make a case that if those gains are roughly sustainable, they could very easily provide more of a kick to the economy than the quarter point that Jim mentioned, particularly when you recognize how late in this year a major part of that gain, particularly in the stock market, has occurred. Of course, the big question is sustainability. I think one could argue that there is some danger, especially in the stock market, that it already has overshot the mark in some fundamental sense, in which case what looks like it could be a plus for the economy right now could turn out to be a minus. I also think that there is at least a good chance that we do not really know how to build the oil price, and more generally commodity prices, into an economic forecast--especially the oil price implications. We don't know what will happen to the oil price. That too strikes me as a variable that could have a larger effect than is being allowed for now, simply because nobody has a way to take account of it. I think the fiscal situation now presents some real uncertainties: the combination of Gramm-Rudman, whatever it turns out to be, and the tax bill. Again, if you look at them in a rather conventional way, I think one is powerfully drawn to the conclusion that if they play out as scheduled, their effects on the economy--at least in the timeframe of 1986-1987--are going to be to reduce growth, net, and possibly even to increase prices a little. But, again, I don't think we know enough about what in fact will happen; we certainly don't have a good fix on the kinds of anticipatory behavior, both in the market and in spending decisions, that have already been built into the equations so to speak. And finally, there is this whole money and credit problem that we talked about yesterday. As I mentioned yesterday, when you make what seem to me to be some reasonable assumptions about definitions and so on, I think you have to come to the conclusion that money and credit, however defined, have been growing very, very rapidly--whether you look at that in terms of debt accumulation or any way you slice it up. Now what does that mean? As a number of people, including myself, suggested yesterday, you can argue that velocity trends have changed. Nevertheless, even if you make that argument, that phenomenon still sits there and it has to be something of a concern. So, back to the question of a forecast: As I said, ours is 3 percent or so; but I don't think we can quite capture the dynamics of this situation we face simply by looking sector by sector, because I think these four of five things I have mentioned transcend that. And it's not clear to me how they're going to play out.",927
-fomc-corpus,1985,"Just a factual question, Jim. Is DRI still sticking to a 1.9 projection of GNP for next year?",26
-fomc-corpus,1985,I think that's the latest.,6
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"Jerry, do you expect the Baker initiative to have an important impact before the end of 1986?",21
-fomc-corpus,1985,"I think that's asking a lot. As I said, we have gone through the numbers and if everything panned out reasonably well over the three-year period as a whole, it could support a very, very robust increase in imports.",46
-fomc-corpus,1985,I would agree with that. I just wouldn't expect to feel the impact before the end of 1986.,22
-fomc-corpus,1985,"We won't get that much, but we could get some. And when you take into account Mr. Keehn's comments about some of the anecdotal responses he picked up in terms of changes in the foreign exchange rate, there may be a little more there. I'm not projecting a humongous swing in the trade account in the first quarter, but there could be a little more there than the conventional wisdom is allowing for.",85
-fomc-corpus,1985,Mr. Guffey.,6
-fomc-corpus,1985,"Thank you, Mr. Chairman. With respect to the staff's forecast, it has been fairly well detailed that there is uncertainty on either side that could affect that forecast, and as a result the forecast seems to be quite reasonable. The news from the Tenth District is [no] better than it has been before. Indeed, the outlook is dominated by the problems in agriculture and energy and the now-surfacing real estate problems that are fairly well known in Denver, Oklahoma City, and some of the other larger metropolitan areas. If you talk to individuals in the various areas, you will find mixed comments if they are not dominated by the agricultural and energy [industries]. If they are in the urban areas, they think things are going very well. But overall, I think the attitude is more negative than positive. There is great uncertainty about the retail sales in the Christmas season, simply because we have had very cold weather that started right at the Thanksgiving holiday and it's uncertain whether or not there is enough time left to have good Christmas sales. Having in mind that the staff forecast may be as good as any other, and looking ahead to 1986--with 2 percent growth, a fairly high unemployment rate of 7.3 percent at year-end, inflation being down or in check if you will, and the hope that it will be even less than the forecast because there are no decreases in energy prices built into that forecast, as I understand it, and with capacity utilization projected to be at fairly low levels--I think it would be unacceptable in even the fourth year of recovery that we should be concerned about an upside risk, frankly. I would like to see something greater than 2 percent; something in the 3 to 4 percent range would be quite acceptable. And to the extent that monetary policy has a part to play, particularly against the background of some, albeit imperfect, deficit reduction package out of Gramm-Rudman, I think we ought to be on the side of doing what we can do; and that in my view is to bring about somewhat lower interest rates fairly quickly.",422
-fomc-corpus,1985,Mr. Boehne.,6
-fomc-corpus,1985,"Well, I think the Philadelphia District is a stronger area--particularly in New Jersey, Delaware and the Philadelphia part of Pennsylvania--than many other parts of the country. There are still many depressed areas in other parts of Pennsylvania, but I think the District generally is doing better than the rest of the country. As far as the national economy is concerned, we are talking about roughly 2-1/2 percent real growth, give or take a little, and I think that's a reasonable forecast. One can make a case that it will be somewhat stronger or somewhat weaker depending on the dynamics that take place. But I ask myself this question: Is 2-1/2 percent satisfactory? I don't think 2-1/2 percent is satisfactory. Suppose the dynamics lead us to 3 or 3-1/2 or even 4 percent. I think that would make me happy. I think it would move the economy in the right direction: it would help us get around some of these financial problems. So, if we erred in that direction, I think it would be a plus. On the other hand, suppose we erred in the other direction. Suppose we end up with 2 or 1-1/2 or 1 percent. I think that would bring forth a number of negatives in the economy. So, even though it is a good forecast, and I think that the risks are probably about even as to whether it will be up or down from that, I would much prefer if I could do it to be on the high side, at about 2-1/2 percent. And that has some implications for monetary policy, which I think are appropriately dealt with later.",345
-fomc-corpus,1985,Mrs. Horn.,4
-fomc-corpus,1985,"We had some events in our District recently that might have some implications for the investment outlook. We have had an unusual number of write-offs of properties in some of our industries. Olgivie Norton wrote off a major part of its iron ore assets. Sohio wrote off major amounts in both copper and Carborundum. There are some big write-offs from U.S. Steel as well. If one were to generalize from these few situations, I suppose one could say that in basic industries and in basic materials within those industries we have a situation that would not be consistent with investment strength next year. That also goes along with my view of the investment outlook for next year.",136
-fomc-corpus,1985,Mr. Griffith.,4
-fomc-corpus,1985,"The Twelfth District staff forecasts a 3 percent GNP growth, but I would note that some of the assumptions used in that have been described this morning as fragile. In our forecast we give a lot more credit to the depreciation of the dollar as [a factor stimulating] the trade account next year--a $15 billion improvement versus, I think, the Board staff's $6 billion. We assume that there in fact will be a 50 to 70 basis point decline in the commercial paper rate. But most importantly, thinking back to some earlier comments, we assume that whatever reduction of interest rates occurs will be front-loaded--that it will have to occur in the first part of the year to achieve any of this growth. And, although less important, another assumption made in our staff forecast is that the price of oil will get to a low of $21.50 by year-end 1986. As far as the Twelfth District is concerned, it is relatively unchanged from our report last time. Unemployment is staying around 7.6 percent and we are continuing to experience significant [weakness], as you are well aware, in the wood products sector as well as in electronics, semi-conductors, and agriculture.",249
-fomc-corpus,1985,Governor Partee.,4
-fomc-corpus,1985,"I think it's extraordinarily difficult to have a forecast of the economy at this time. I could see the economy being stronger or weaker than the staff projection. I really don't have any idea how it is going to turn out. In a situation like that, I think it's best to look at the forces--as Frank did and as Jerry talked about--without line-by-line projections, to see which way these various forces are moving. I am very impressed by two assumptions. One is that the decline in the dollar that we have had, which seems to be extremely satisfactory, has to be for the good as 1986 goes on. I don't want to put a number on it, as you just did, because I think it's awfully hard to say. We have so little experience to [help us] know what responses in buying patterns will occur with changes in the exchange rate. And I am impressed by Pres' comment that there is a more bellicose attitude in the foreign trade [arena] by us and others than there has been before, so that in fact we might not get the full effect [of the dollar decline]. But it is certainly to the good. Also, both the decline in long-term interest rates and the rise in stock prices, which I never really dreamed would occur in the last month, are desirable outcomes from the standpoint of increasing confidence and reducing to some degree the debt service burden that's involved in our very, very heavy debt load. So, those are both quite favorable developments; I agree with Frank on that. I think there is a heaviness in the economy that is probably due to uncertainty and the fact that it's getting to be a pretty old expansion now and there is not much momentum that anybody can see in plant and equipment that would carry this expansion any appreciable degree upward in the period to come. And there is this housing situation, which I think is quite extraordinary. I really thought last month's housing start number was the right number and that the previous number had been too low. Now, with November, we are back where we were with the previous number. Something is apparently going on there that is making that sector less responsive to changes in interest rates than it historically has been. I also think that regardless of whether we get tax reform or not next year there is going to be a letdown in the economy, because I believe a lot of things have gone on--particularly in the second half of this year--in anticipation of some tax action next year, which won't be worth the candle once we get beyond 1985. So, whether or not there is tax reform, the incentive to spend or to speed up spending commitments in the hopes of getting out of the increased taxation has already occurred and there will be a letdown. I conclude, as I did last time, pretty much as Ed Boehne did: that it doesn't look like very much growth in the economy next year. I am not sure whether it's 1 or 2 or possibly 3 percent, but it doesn't look like very much. So, any erring should be on the side of ease, I think, in order to try to encourage a little more expansion in the economy if we can get it. I am particularly impressed that there hasn't been that much movement in short rates as the whole rest of the structure has adjusted downward. So I think it is probably time to [lend] a little helping hand and go on down a notch in short-term rates.",698
-fomc-corpus,1985,Mr. Melzer.,5
-fomc-corpus,1985,"First, on Jerry's comments about the responses to the lower dollar: I think I mentioned last time that I talked to a major national retailer based in our area about price responses, and I had an opportunity to ask that question again just a week or so ago. In terms of textiles and apparel, in particular, what they are being told in Japan is that unless they are prepared to pay price increases of 10 to 15 percent on those goods, delivery can't really be assured. Now, that's not at all the case in areas such as electronics where there is a lot more softness in the markets; but I think we could see some relatively rapid responses both in terms of shifting business activity and prices as a result of that. The second comment is that, particularly in view of the response in the long-term bond market to Gramm-Rudman, I was somewhat intrigued a couple of weeks ago with the idea of that somehow providing some room for more accommodation on the part of the Fed. But I guess I would have to say I am from Missouri on that: I would have to be shown. I think that the amount of actual reduction we could get in fiscal 1986, as reflected in Jim's forecast, is next to negligible. And who knows what conditions--in terms of new legislation or an outlook for a recession or whatever--might interfere with it down the road? So, I think it's very positive that it has had the effect of apparently reducing inflationary expectations amongst long-term bond holders. But I guess I would say that more accommodation on the part of the Fed could actually run counter to that trend, particularly against the background of what some might view as an already very accommodative policy. So I think it's important that we not interfere, in a sense, with the process of that reduction in long-term inflationary expectations.",369
-fomc-corpus,1985,Governor Seger.,4
-fomc-corpus,1985,"Well, I think the economy has grown too slowly in 1985. I went back and looked at the information we put out at the time of the February Humphrey-Hawkins meeting and the July Humphrey-Hawkins meeting. Looking at the central tendencies that we published [in February] for real GNP growth for 1985, we had 3-1/2 to 4 percent. So it looks as if there are some other people who must be disappointed also in the performance. By July we had cut it back to 2-3/4 to 3 percent, but again that's above what we actually seem to be achieving for this year. Then I look at 1986 and the staff forecast of a rousing 2.1 percent growth rate and again compare that to the central tendency for 1986 as published in the July Humphrey-Hawkins Report. That was 2-1/2 to 3-1/4 percent. So again, it seems to me that we are running short of a number of our expectations. I guess what concerns me is that even to get this 2.1 percent in 1986 we have to assume additional monetary ease, a significant decline in interest rates. And we also assume--I think I heard Jim say--that about half of the improvement in real GNP next year will come from net exports. That means to me, anyway, that we will need further declines in the dollar. We all have our pet samples of people we talk to, and the group that I check my ideas with suggests that they have noticed the decline that has taken place, but they are not going to be in pig heaven without still further declines. I am also concerned about the impact that the tax reform proposals are having on the economy. I think it has created a lot of uncertainties and I am afraid, as Chuck said, that at some point the activities that had been based on beating the tax reforms in certain areas are going to evaporate and that will yank the rug out from under certain sectors of the economy. So having said all this, what I would like to propose is that we get going with this additional monetary ease and that we try to get interest rates moving down, in line with what the staff forecast is assuming. I would like to suggest that one reason why short rates haven't come down is that the discount rate is preventing them from moving down. That's just like an anchor, and I would hint that a one half percentage point cut in the discount rate would do great things to move a number of short-term rates down, including the prime rate.",531
-fomc-corpus,1985,Anybody else who wants to be heard from? Why don't we get Mr. Axilrod.,19
-fomc-corpus,1985,[Statement--see Appendix.],6
-fomc-corpus,1985,[Unintelligible.],6
-fomc-corpus,1985,"May we ask some technical questions or are we going to break? Our borrowing assumptions are a little complicated by the air of uncertainty that hangs over the table concerning the discount rate. I am trying to get [it straight] in my own mind. Suppose we had a discount rate of 7 percent versus the current discount rate of 7-1/2 percent. What in your judgment are the equivalent borrowing and discount rate assumptions in terms of their money market effects? In other words, is a $200 million borrowing assumption with a 7-1/2 percent discount rate roughly the equivalent of a $400 million borrowing assumption and a 7 percent discount rate? Or how does one trade that off?",141
-fomc-corpus,1985,"With a $400 million borrowing assumption, under current discount rates--I would not put too fine a point on it--it would take a funds rate somewhere on the order of 7-7/8 percent or a tick higher, something like that. So that's just [over] the discount rate. And at least in my judgment, the funds rate has not reflected expectations of a discount rate cut to any significant degree yet in the sense that other market rates have. I'd expect that if the discount rate were 7 percent, the funds rate would be almost, but not quite, half a point lower than that 7-7/8 percent.",131
-fomc-corpus,1985,At what borrowing levels?,5
-fomc-corpus,1985,"Given the same borrowing. It's hard to say, but I would put it at 7-3/8 or 7-1/2 percent--in that range. I defer to Mr. Sternlight.",43
-fomc-corpus,1985,"Well, I think you are right. I think that a half percentage point move on the discount rate would bring funds down about that same half percentage point. It could be a little less because maybe a move has been discounted to a tiny degree. But if it set expectations going of things being on the easy side, you could get that full half point on the funds rate.",75
-fomc-corpus,1985,And that's with borrowing at the current level?,9
-fomc-corpus,1985,I think $400 million is a little more assured of getting a rate under 8 percent now than $450 million.,24
-fomc-corpus,1985,"And if we have alternative A as presented in the Bluebook, assuming a 7-1/2 percent discount rate, that would give a funds rate of what?",34
-fomc-corpus,1985,"I would think very close to 7 percent, if the market sensed there was an easing. No, I mean right around 7-1/2 percent--roughly equivalent [to the discount rate]. I don't think that you can ease bank reserve positions without setting up considerable expectations on the discount rate. I am not sure where but I think the interaction would drive rates down; it could drive the funds rate pretty sharply at first.",88
-fomc-corpus,1985,"If I can just follow on that question a minute. If we were to take ""A"" without a discount rate decrease and we got a 7-1/2 percent funds rate with $200 to $250 million in borrowing as projected in the Bluebook and then we had a discount rate decrease, that would be a double whammy if you will, and the rate would get down to 7-1/4 to 7-3/8 percent, I assume. Is that--?",102
-fomc-corpus,1985,"Well, I would think it would get down. If the discount rate were reduced to 7 percent--depending on the timing and direction of these--you would get the fed funds rate pretty much down from the discount rate. You would get not the minimal but close to the minimal.",57
-fomc-corpus,1985,"I think if you went for something like $200 million, the easier reserve conditions, there would be such a strong expectation of the discount rate following that you would get that very strong expectational effect. And you could tend to get funds even below 7-1/2 percent before the discount rate moved.",62
-fomc-corpus,1985,And then a full half point after that?,9
-fomc-corpus,1985,"Well, close to the half point after that.",10
-fomc-corpus,1985,"In that context, President Guffey, it might be useful to add that a combination like that--again, depending on how it's done--would have, in my view anyhow, a rather powerful effect on exchange rates.",45
-fomc-corpus,1985,"Well, the practical alternatives would be ""A"" with a discount rate change or ""B"" without a discount rate change, I guess. No, ""A"" without a discount rate--",38
-fomc-corpus,1985,"No, ""A"" without a discount rate change, or ""B"" with one.",18
-fomc-corpus,1985,"If you have ""A"" without, you would set in motion expectations that [a discount rate move] would be forthcoming.",25
-fomc-corpus,1985,We'll go eat a donut.,6
-fomc-corpus,1985,"Well, indeed, we have to arrive at a little decision here. I listened very carefully to what you all said this morning. I'm not sure it eliminated all the confusion that might exist or the differences in views around the table. I must say I think we're in a rather strange situation historically: Three years of expansion and nobody's very happy. The economy, from one point of view, seems to be stumbling a bit. There is not a very good growth trend in the gross national product, but I remind you that the unemployment rate has been trending down very slightly and not up. When we look at those gross national product figures it mesmerizes us. I put it in the perspective that unemployment has been edging down and not up. Our productivity has been rather dismal. When I look at what we're doing in terms of stimulus or spending it's pretty good. Gross domestic purchases for the last three quarters have risen 3.9, 3.2, and 5.3 percent. Domestic final purchases have risen 4.1, 6.4, and 4.1 percent--not exactly an economy that is starved on the spending side. We have a decline in the trade balance, which arithmetically accounts for the low gross national product. There is a lot of speculation about whether that's going to be changing or not or to what degree. I guess nobody knows. There seems to be a consensus that it is not going to continue to get worse. One question is how fast the economy should be growing. I don't think I know the answer to that, but I would express a little skepticism, given the productivity performance, that a 4 percent rate is sustainable for all that long without creating inflationary problems. Maybe the higher growth will help the productivity, but I don't know how much. It should help it in manufacturing [unintelligible] but manufacturing is far from the whole of the economy. [Unintelligible] expansion in the rest of the economy and no productivity growth; I guess it's practically zero outside the manufacturing area. Is that right, Mr. Kichline?",427
-fomc-corpus,1985,For the current quarter?,5
-fomc-corpus,1985,"No, for the past year or so.",9
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,Zero?,2
-fomc-corpus,1985,"Well, it's 2/10ths or something.",11
-fomc-corpus,1985,It may even be negative outside manufacturing.,8
-fomc-corpus,1985,"It isn't high, whatever it is.",8
-fomc-corpus,1985,It's 1/10th in our forecast.,10
-fomc-corpus,1985,Is that for the whole economy or just--?,10
-fomc-corpus,1985,"No, the nonfarm business sector.",8
-fomc-corpus,1985,So even with the increase--. So it's minus outside of manufacturing.,14
-fomc-corpus,1985,"You can't really couple the two series that directly, but it sort of looks that way.",18
-fomc-corpus,1985,The total is zero and manufacturing is up; it must look that way.,15
-fomc-corpus,1985,But it's a different statistical basis.,7
-fomc-corpus,1985,"Well, maybe so.",5
-fomc-corpus,1985,You don't measure output properly in trade and services.,10
-fomc-corpus,1985,"Well, that may be right too, but--",10
-fomc-corpus,1985,Or input.,3
-fomc-corpus,1985,"--it isn't very good. And we sit here debating whether to ease some more. In a way, that's not an uncomfortable position to be in. Usually 3 years after an expansion we worry about how much to tighten because we don't see any capacity out there and unemployment is too low, or appears to be too low, or we get inflationary pressures. None of those things exists. It's not the worst situation in the world. On the external side, I feel a little better about Europe. I might foresee a little faster growth there, or at least it's tending toward the more optimistic side; but it's certainly the reverse in Japan, where things look kind of sour. Everything that has happened recently makes the Japanese economy look less favorable. We have a lot of problems in particular sectors of the economy. You all know that. We have problems with the LDC debt. None of these problems is going to be cured by easy money, but all of them might be assisted at the margin by an easing in money. The greatest dichotomy is [monetary growth]. I jumped when I saw this Bluebook and the list on monetary and credit growth. If you look at the November figures, we're talking about: M1, up 13 percent; M2 and M3 rather moderate; domestic debt, up 16 percent; bank credit, up 16 percent; total reserves, up 20 percent; the monetary base, up 10 percent. If you just looked at those figures and you came from Mars you'd say ""Geez, it's mildly expansionary."" If you look at the bond markets, we have had a rally of--I don't know whether it's of record proportions, but it couldn't be going more nicely in terms of lower interest rates in that market; [the lower rates] may not affect much except U.S. Treasury borrowing costs and the mortgage market. Just a sidelight on this housing start figure: I heard a hypothesis from some major homebuilders of small houses who were in town about a month or six weeks ago. They said sales went dead in October, and we may be seeing some reflections of that in this current housing start figure. Why did they go dead? Well, they didn't fully understand it, but part of their reasoning was that people bought so many cars in August and September that they couldn't afford the downpayment on a new house. That was one reason. Another reason was that mortgage rates at that time were going down and everybody was anticipating further declines, and nobody wanted to go house hunting until they saw how much further mortgage rates were going to go down. They said if that was the reason, it was a pretty good forecast on the part of those potential home buyers. I don't know whether--",551
-fomc-corpus,1985,Maybe that's their only floating rate. That's not so difficult to counter.,14
-fomc-corpus,1985,What?,2
-fomc-corpus,1985,You sell and close at whatever rate is then the lower rate.,13
-fomc-corpus,1985,You put them in ARMs.,7
-fomc-corpus,1985,[Unintelligible] in today's technical--,10
-fomc-corpus,1985,"It's typically done, isn't it, Pres?",9
-fomc-corpus,1985,"Three or four months from now [unintelligible]. I don't think they gave you a very good reason, Paul.",25
-fomc-corpus,1985,"Oh, I don't know. It's the difference between seeing the bird in the hand and saying how you feel. If my forecast is so correct I'm going to [unintelligible]. With respect to why sales should go dead in October followed by [unintelligible] the builders apparently concluded that. In any event, we have this situation where interest rates are going down very rapidly in the long-term markets and the stock market is going up at the same time. It's a rather strange--well, maybe it's not a strange combination--but it's kind of strange when you put into it that gold prices and silver prices are going down at the same time. Leading indicators have been up for a while. It is a situation that does not give me a great sense of urgency about the necessity to make drastic moves in policy at this stage, unless this clarifies itself one way or the other. The only other point I would make is that in terms of overt moves, and given the risks on the dollar side, I think it would be important to try and get some coordination with our trading partners. I'm not sure how easy that is or how difficult. It may be easier with some than with others at this stage, but that would need a little exploration. I don't hear anybody talking about any tightening. I presume the center of gravity is toward some easing so we can get these money and credit figures really moving! [Laughter.]",287
-fomc-corpus,1985,They're perverse; they might turn around the other way.,12
-fomc-corpus,1985,Maybe so.,3
-fomc-corpus,1985,"We tighten, then they move up.",8
-fomc-corpus,1985,"So, who would like to say something? Mr. Morris.",13
-fomc-corpus,1985,"Well, Mr. Chairman, if ours were a closed economy, I would support some lowering of interest rates at the moment. The forecast may be reasonable, but I don't think it's acceptable as a good target. I would share your concern about a 4 percent pattern of real growth, but it seems to me that 2 percent is not acceptable as a target; 3 percent would be more in line with what I think we ought to shoot for. But we're not a closed economy. We have overhanging us a necessity to continue to finance a $140 billion current account deficit. So we have to keep in mind what the gnomes of Zurich are thinking about us. I hate to alarm, I hate to recognize--",147
-fomc-corpus,1985,All of us have a little gnome in the back of our heads.,15
-fomc-corpus,1985,"I think the gnomes would look at our situation and would say: ""Well, the dollar is going down; the economic news is mixed but certainly not weak; and the perception is that monetary policy is very accommodative."" What we actually have in the monetary numbers is a split decision: M1 and debt suggest a very expansionary policy; M2, M3, and total liquid assets suggest a moderate policy. If we could arrange to publish an M3 figure weekly and only publish M1 once a month, I think that people looking at the M3 numbers weekly would get a perception that U.S. monetary policy is not terribly accommodative and that might be helpful to us. But it seems to me in this situation that we ought to stick to a status quo policy until we get a trigger that will permit us to lower interest rates. One trigger would be a sustained upward turn in the dollar in the exchange markets. The gnomes, I think, would find it acceptable if we were to check that with a decline in short-term money rates. The other trigger might be a serious weakening in the economic news, which I don't think is terribly likely; I think we'll float along in this continued mixed situation without any serious weakness. I'm not thinking of that as a very great trigger. And the third trigger would be if the monetary aggregates, and particularly M1 because of it's signal value, should start coming in on the weak side. So until then, it seems to me that it's a little hazardous for us [to ease]; I don't think we can really make a very strong case that a move at this time is compatible with continued emphasis on inflation control. So, I think we ought to go with alternative B. But there's a long time until the next meeting; and if the dollar should start strengthening in the exchange markets, I would lead off with a cut in the discount rate.",382
-fomc-corpus,1985,"You reminded me of a couple more comments I wanted to make. When I talk about 4 percent [GNP growth], obviously, I would not be concerned about a 4 percent growth in some quarters for a period of time. My skepticism is really that if growth were sustained there for very long whether it would be desirable. Maybe we can do it and maybe we can't. But I think it would depend upon a considerably better productivity performance than anything we've seen lately or anything the figures give us hope about at the moment. You say it is a long time until the next meeting. I think a lot could go on here, including the possibility of a discount rate change, which may require a consultation--even fairly promptly. We just have to assume that, in terms of that [intermeeting] action and how it could be integrated conceivably with some foreign moves. I don't think we can sit here and sort out every permutation and combination of possible developments over the next whatever [time period] it is.",203
-fomc-corpus,1985,Eight weeks.,3
-fomc-corpus,1985,"Eight weeks. So, I would think that's quite likely: that at some point, with shorter or somewhat longer notice, [a consultation] would be necessary. Mr. Boehne.",38
-fomc-corpus,1985,"Well, I think we do have a window of opportunity here for some amount of modest easing and I think we ought to take advantage of it. There is room on the up side: As far as economic growth, I don't sense any real risks that the economy is going through the roof and will jeopardize the progress that we have made on inflation. It's true that foreign concerns are a constraint, and more of a constraint than we would like, but it strikes me that the climate is improved to make an easing move compared to where the situation was just a few weeks ago when the dollar seemed poised to drop; in contrast to that situation of several weeks ago, it has stabilized. The drop in the value of the dollar has shifted more to Europe rather than concentrating on Japan. So, the tone strikes me as being better. I think it would improve the chances of [not getting] a negative reaction if there were some kind of international coordination [on rate reductions]. I think that would be very helpful. But it seems to me that the basic climate has improved; it seems to me that we have a window of opportunity in financial markets. Many of the good things--the long bond rally as well as the stock market--I think have built into them some anticipation of an easing of monetary policy. If we do not follow through with some easing of monetary policy, I think we're talking about a backup in interest rates, and I think we don't want a backup in interest rates. As far as Gramm-Rudman, there are an awful lot of negatives and criticisms one can say about it. I don't know whether it would do a lot of good or a little good. But it seems to me that it is a nod in the direction of a policy mix that most of us have advocated: that is, a somewhat tighter fiscal policy and some easing of monetary policy. And without in any way expecting a whole lot in that area, it does seem to me that the passage of the bill does give us a bit of an opportunity. So, I think we have that window and I would take advantage of it. My preference would be for a drop in the discount rate, with alternative B and around $400 million as a borrowing specification. If a discount rate were not forthcoming, it seems to me that we might want to move toward something like an ""A"" minus to ""B"" plus in terms of the open market specifications, which might be, say, $200 to $300 million for borrowing. But I think it would be preferable to coordinate a discount rate cut with open market operations.",520
-fomc-corpus,1985,Let me just make a comment on something you expressed. I'm not sure about your interpretation of long-term rates in the bond market. Maybe I read into it what I hope. I think it certainly has been influenced by Gramm-Rudman and the prospect of the oil price moving lower. Everybody has been talking about that for a year and it hasn't happened. But I would like to think that reflects partly a feeling about inflation--that it is less of a threat now--rather than [expectations of] an imminent monetary policy easing. If I thought it was mostly the latter--if much of it was based upon monetary policy easing--I'd have to ask myself why short-term rates haven't moved lower. [Unintelligible] my interpretation would be that it's very constructive in terms of inflationary expectations. I would hate to upset that; it would be counterproductive. Mr. Guffey.,180
-fomc-corpus,1985,"Thank you, Mr. Chairman. Ed Boehne has already said what I wanted to say, I think. I believe also that we have a window of opportunity and we should take advantage of it. With respect to the international situation, it seems to me that the threat of a precipitous drop in the dollar has perhaps not disappeared, but it certainly is much less than it was at the time of the last meeting. And I would ask you, Mr. Chairman--perhaps you can or cannot comment--with respect to some lower interest rates here, what is your best guess as to what Germany and Japan, for example, might do in terms of following us down? If they're satisfied with the current [exchange rate] levels of 2.50 and 200. for example, it would seem to me that there would be some leeway for them to move their interest rates down and thus become a bit more expansive in their own monetary policy and thus have some impact that would flow back to the United States over time by permitting them to attract more of our export markets. But having said all of that, it just seems to me that [we have a window here] with inflation not being a high visibility concern, though not at an acceptable level to be sure, and the Gramm-Rudman bill. And with the passage of that bill we may even have a bit of an obligation to give a nod to that by easing interest rates, if you consider that fiscal policy will be somewhat more restrictive than it has been in the past. And Gramm-Rudman will really have some impact. If there is a window, in view of the financial strains not only in the Midwest but throughout the United States and internationally, I think we ought to take advantage of it. Like Ed Boehne, I would prefer to coordinate it with a discount rate decrease rather than some easing through the Desk's actions and then a discount rate decrease that might have to come thereafter. So, I would do the discount rate decrease, leave borrowing at the $400 million level, approximately, and move interest rates down in that fashion rather than the other way.",429
-fomc-corpus,1985,Mr. Forrestal.,5
-fomc-corpus,1985,"Mr. Chairman, given my view of the economy, I don't think we really need to do anything at the moment. I think the economy is going to be somewhat better in 1986 than it has been in 1985. Certainly, my forecast is that it's going to be better than the staff's projections. So given that, I'm not concerned about the economy at the moment. I am concerned, however, that if we were to ease we might begin to lose some of the gains we've made in terms of inflationary expectations. Now, if the economy in the shorter term were to begin to turn down, or if we lost some of the gains we've had with respect to the foreign exchange value of the dollar or long-term rates--that is, if either of those began to back up--then I would support some easing in policy. As has been pointed out, we have been accommodative with respect to the monetary aggregates. I don't think anyone can say we haven't been. Of course, the question is how effective that has been in terms of moving the economy. But all things considered, I would prefer that we take a wait-and-see attitude; and that means, I suppose, alternative B with a borrowing level of around $400 to $450 million.",255
-fomc-corpus,1985,Mr. Martin.,4
-fomc-corpus,1985,"Mr. Chairman, I think you were quite right in directing our attention to the growth in bank credit and total reserves and other factors. They are labeled here the key monetary aggregates. I think, though, particularly in terms of Ml, what has come out of our discussion yesterday, which spills over to some of these other aggregates, is that given deregulation--given the pricing and the consumer reaction to new instruments and new spreads and new opportunity cost relationships--we really don't know what those figures mean. At least we don't know as much as we used to know about them. Secondly, it seems to me that the staff's forecast has not been demolished in our discussions earlier today. Therefore, with the forecast, which would be extant if we kept conditions as they are today with the adjustment and seasonal borrowings running $633 million in September, $558 million in October, and $672 million in November, it seems to me that we run a risk of recession--to get that word out in the discussion--rather than a 2 percent growth. It seems to me also that your comments with regard to coordination are certainly in order. I believe in the technical information we've had with regard to a discount rate cut that what has been assumed here is 50 basis points. I haven't heard anyone mention 25 points; 50 points seems to have been implicit or explicit in the discussion. Plus a move to a configuration such as alternative A might be: (a) risky as far as the dollar falling; and (b) over-stimulative relative to what little we do know about these monetary aggregates anymore. So, I would like to see the Chairman and the staff use the alternative A course in conjunction with a future discount rate cut. I think there is merit in removing what appears to be the floor under short-term rates vis-a-vis long-term rates. I would hope that we would have an alternative A which would merge in the direction of alternative B down the road. I would hope that this Committee would give the Chairman an unusually wide band for the borrowing. I don't know what the band should be--perhaps $300 to $500 million or something rather wide so that this operation could take place. By this operation I mean to start easing in the market, moving toward $300 to $350 million so that the fed funds rate begins to come down, and to adjust the discount rate by 50 basis points and continue to work the Desk operations so that the borrowings firm up a little within that range, depending on the Chairman's judgment at that time, back to $400 million, let's say. At any rate, [I favor] a start toward providing a 50 basis point change at the short end. I think the market expects that and that we run the risk of its backing up on us, including in the short-term rates. That, as the Chairman indicates, is certainly a desirable direction. But as we all know rates are still at a very high level in real terms. And the staff was indicating this morning that the high real level of long-term rates helps produce 2 percent growth for another four quarters which, as has been commented here, is insufficient. We should do what we can to bring growth up some. Therefore, I vote for alternative A with a wide band around the borrowings; and I'm looking forward to a discount rate cut and some adjustment of the borrowings accordingly.",685
-fomc-corpus,1985,Mr. Black.,4
-fomc-corpus,1985,"Mr. Chairman, I was very close to what I take to be your position and that expressed by Bob Forrestal. And I thought for awhile that I might make history by agreeing with Frank Morris, but he went a little too far for me! I was very much encouraged by the slowing we thought we saw in the aggregates at the time of the last meeting. But I'm equally discouraged by what has happened since then, and in particular by the rapid growth in currency and demand deposits as well as OCDs--the M1 target. And that really scares me, as far as the implications for down the road. So I think ""B"" is as easy as we really ought to think about being at this point. As the Bluebook points out and as we all know, of course, it's particularly difficult to judge what's going to happen to the aggregates with a given borrowing level. So I am more interested, I guess, in what our response would be to deviations in the any of the aggregates in the event that they don't come in on target. For example, if M1 should come in at 12 or 13 percent instead of the 7-1/2 percent projected under alternative B, then I would hope that we would move the borrowing target up. Similarly, if M1 came in weak, I'd be glad to lower that [target] somewhat. And I would prefer ""would,"" obviously, in the directive wording rather than ""might,"" although I know you don't see a lot of difference in those. As long as you would interpret ""might"" to mean that you would move the borrowing target up I could go along with ""might,"" but perhaps it--",337
-fomc-corpus,1985,"Honesty compels me to say that we have not been terribly sensitive to small changes in Ml, but higher concern--",24
-fomc-corpus,1985,"I'm aware of that. But you did paint a picture of a lot of liquidity that we had pumped into the economy, or so I interpreted your remarks. So I would hope there would be a bit more sensitivity to additions in liquidity on top of that.",51
-fomc-corpus,1985,Mr. Stern.,4
-fomc-corpus,1985,"It seems to me, as we discussed earlier, that there have been a lot of significant developments over the past 5 or 6 weeks, including the run-up in stock prices, the decline in long-term rates, developments with regard to OPEC, and Gramm-Rudman. With regard to OPEC and to Gramm-Rudman even with all its blemishes, the implication, at least to me, is that inflationary expectations have been reduced. And in the current setting, that's a significant development. It leads me to the view that the proper specifications for policy at this time now are somewhere between ""A"" and ""B."" I come to that conclusion largely on the consideration that lower nominal rates would be associated with essentially the same real rate in this environment, if inflationary expectations have diminished. So, that's where I would go. With someplace in between ""A"" and ""B"" I think we will get an acceptable economic performance in 1986, as best I can judge the situation. I kind of put aside the discount rate for the moment although, obviously, that's another way of going--depending, I suspect, on your comments about coordination.",235
-fomc-corpus,1985,Mr. Keehn.,5
-fomc-corpus,1985,"Well, I tend to support the position laid out by Messrs. Boehne and Guffey. I do think there have been some important changes over the last few weeks and, as a consequence, that we have something of an opportunity here that we ought to take advantage of. The economic outlook, I think we agree, is positive. I don't think I heard anybody talk about a recession near term. But also I must say I don't have any sense that there's a significant risk of--",100
-fomc-corpus,1985,"I'd be prepared to talk about it, Si.",10
-fomc-corpus,1985,I would too.,4
-fomc-corpus,1985,"Well, as I heard the comments, at least near term, I didn't hear that risk. But on the other side of that coin, I don't think I heard anybody suggest that we are significantly at risk of an overheated economy, at least near term. With regard to inflation, notwithstanding the Chairman's comments, people I talk to in terms of labor contracts, for example, are still negotiating very, very favorable contracts with good work rule changes. And in terms of pricing, the competition out there is just very, very rough. As a consequence, I have a positive outlook on the inflationary side. As for the exchange rates, it's always dangerous to talk about exchange rates because you have to be on the Desk to know what is really happening. But I have some fear, as I said yesterday, that while earlier we were concerned about a precipitous decline, maybe we are getting into an area of at least stability. The declines that we have had had such an important and positive effect here on those who were most affected, I'd like to try and provide an environment in which we could continue at least to stabilize and hopefully continue to get something of a decline. But it is the interest rate side where I think there is the biggest change. Yes, medium- and long-term rates have been going down for quite some while and short-term rates not so much. But, frankly, I think the discount rate at this point is something of a barrier to a further decline in short-term rates. As a consequence of all this, I think that the discount rate becomes terribly important in our considerations. If I had my druthers, I'd opt for alternative B with a reduction in the discount rate and the borrowing level maintained at, say, $400 to $450 million. But if timing were a complicated consideration and, therefore, if the discount rate were going to remain at its current level, I'd go for alternative A and reduce the borrowing level to the $200 to $250 million range.",400
-fomc-corpus,1985,Governor Seger.,4
-fomc-corpus,1985,"Well, as I indicated earlier, I am concerned about the slow growth in the economy that we've had this year and the staff forecast of a continuation of that next year. While I'm not one of the recession crowd at the moment, I think as we stagger along at a slow rate there is a vulnerability to a recession. I don't know what would push us in: a major financial institution failure or something. I don't know exactly what. Anyway, I think there is an underlying vulnerability there. Also, I agree that the short-term rate decline came to a halt some time ago and that it is not going to resume until the discount rate is cut. I would hope that we could take that step sometime soon. I think that this would help the dollar to drop somewhat further. I don't want it to drop 30 percent over a week's time, but I think it would help our basic industries tremendously to have some further decline in the dollar. Also, to the extent that we cut our interest rates, I think it would allow some of our trading partners to cut theirs. I don't know if it has to be absolutely coordinated, but I think it would at least give them the opportunity to do so, particularly the Japanese. So, my preference in terms of the alternatives would be something on the order of alternative A with a 1/2 point discount rate cut sometime soon, and the borrowings specifications in some fairly broad range because I'm not that impressed with my ability to identify specific narrow ranges with monetary growth outcomes.",303
-fomc-corpus,1985,Governor Rice.,3
-fomc-corpus,1985,"Well, Mr. Chairman, I find the outlook for a 2 percent rate of [GNP] growth for 1986 unacceptable in the current circumstances. So I find myself in sympathy with the observations that have been made around the table by Messrs. Boehne and Guffey and also Mr. Stern. I would prefer an alternative somewhere between ""A"" and ""B"" for now. I tend to separate the reduction in pressures on reserves from the discount rate decision. I would prefer to ease pressure on bank reserves somewhat now and see what effect that has, and then make a discount rate decision in light of what happens when we ease somewhat. So for now I would come down somewhere between ""A"" and ""B,"" holding in abeyance the discount rate reduction.",159
-fomc-corpus,1985,Mrs. Horn.,4
-fomc-corpus,1985,"Mr. Chairman, as a number of people have pointed out, a lot of things have happened since the last meeting and maybe in one sense that does give us a bit of a window on monetary policy. Among the many things that have happened since the last meeting, one that I focus on particularly is the euphoria in financial markets combined with something that hasn't changed since the last meeting--the financial strains in the economy. Yesterday, there were a few brief comments exchanged about 1929 that I thought were quite interesting and it brings up the whole subject: If the Federal Reserve were in the business of trying to deal with the speculative mood in the economy, what would we do? I guess one could argue the financial strains issue either way on monetary policy: One could say that the strains are so great that we have to be careful and ease--we have to be careful always, of course--or that the way to take the speculation out would be to tighten. Altogether it comes down to the fact that monetary policy is a very big and heavy tool to use in this respect; I'd say our hands are kind of tied. I find myself, in addition to thinking a lot about discount rates at this meeting where they are not on the agenda, also thinking a lot about supervision and regulation, which is not on the agenda, because in order to deal with financial strains I suppose we're reduced to other tools besides monetary policy. In any case, with all of those considerations, on monetary policy I come down on the side of saying that I wouldn't change much from where we are today. I'd favor something like alternative B, and I think we do have room to go in the ""B plus"" direction.",341
-fomc-corpus,1985,"Is ""B plus"" toward ""A""?",9
-fomc-corpus,1985,Yes.,2
-fomc-corpus,1985,"Toward ""A.""",5
-fomc-corpus,1985,"I guess after all of these two hands--[on the one hand and on the other hand]--it's hard to know. Toward ""A.""",31
-fomc-corpus,1985,Mr. Corrigan.,5
-fomc-corpus,1985,"Well, I have a rather strong preference to work within the framework of alternative B. I certainly am not as sanguine as some are on this foreign exchange rate situation. I think we've done very, very well to date. I'm not uncomfortable with where we are, but I must say that as I read the situation I think the downside risks are still very much there. One could quibble about whether they're a shade less or more than they were a month or six weeks ago, but I certainly feel that they are there. Also, as I said yesterday, when I look at these financial aggregates and make some rough adjustments for what I think is really happening with M2 and M3, I come to the conclusion that in an underlying sense they all are growing very, very rapidly. And if I can take a little poetic license, when we talk about easing policy what in some sense we are saying is that we want people to go out and borrow some more. And when I look at what's already there, I'm just not quite sure that that's the right response. I think Karen has a point. You can almost, at least somewhat more abstractly, raise the question of whether given what is already there we should in some sense be looking at policy from a different vantage point altogether. But I don't think that's in the cards. In sum, I would want to work in the framework of alternative B. I think the nicest outcome that I could imagine would be one in which we could lower the discount rate in concert with other countries doing the same thing and end up with the borrowing sticking around the $400 million level. Now, I don't have the authority on either side of the coin to say whether that reduction in the discount rate should be 25 basis points or 50 basis points, but I think the question of 25 basis points is one that is at least worth serious consideration. On the question of what I would do if there were no prospect for some kind of a parallel movement in policy elsewhere--and, of course, that we won't know today--I think my druthers would be to stick more or less with the framework of ""B"" as is. But, again, if there were some opportunity for movement elsewhere in tandem with something by us, I think that would be fine. That would be the best of all possible outcomes, from my perspective.",476
-fomc-corpus,1985,Mr. Boykin.,5
-fomc-corpus,1985,"Well, Mr. Chairman, just briefly going back to the recitation you made in your opening comments, they indicated to me at least that we certainly have been accommodative any way you want to look at it. In terms of what is going on now--speculation, if you will--in the stock market and possibly some other areas, I would be very concerned to further fuel what [seem] to be the excesses. Certainly the debt side of it is excessive, from my view point at least. Every meeting is a critical meeting, but it seems to me this is probably one of the more critical meetings because the wrong turn right now could have very far reaching consequences. My view, as I expressed earlier, in terms of what I see for the economy for 1986 is slightly more optimistic than the Board staff's forecast. Having said all that, I would much prefer to stay right where we are which, if I read it right, would be alternative B. The ability to bring the discount rate down, if that should work out, I would find acceptable provided that that type of action wouldn't lead to too much euphoria otherwise. But I think that's manageable from the Desk side. So I would stay right where we are; I would stay with ""B.""",258
-fomc-corpus,1985,"There have been a lot of comments made about a speculative feeling in the financial markets. I guess I would look at it slightly differently now. I think there's excessive debt creation there; whether it's speculation or other motives, I don't know. It's certainly excessive in some very long-range perspective. So far as the bond and stock markets are concerned, I would like to interpret that constructively. I would hope that a 9-1/2 percent long-term Treasury bond rate is sustainable or normally reflects a reasonable appraisal of the outlook; it may still be high indeed. A 1,500 level on the stock market ought to be sustainable with a reasonable outlook. I think that's partly because people have changed their views on inflation, which is constructive. And I wouldn't want to undermine that by undermining what underlies it. That's my perception of it, myself. Mr. Melzer will tell us what the real attitudes are in the financial markets.",189
-fomc-corpus,1985,"Well, I think the long-term bond market was discounting essentially nothing in terms of hope or progress on the fiscal side for quite a long period of time. We had a little flurry last May and then some of that was washed out. So I would be inclined to agree with what you said before: that even if the expectations of a discount rate cut that are in the market now were washed out, I don't think we'd give up the gains in the long end of the market. They may back up a little but they would not give up nearly as much as, say, the front end of the market might give up. I guess I'm a little reluctant to get caught up in that euphoria. As I said before, I think it could conceivably be a mistake to have a discount rate cut and easing of policy--or however an easing might take place--somehow tied to Gramm-Rudman. And I think people would try to do that based on what is on the table right now on that score. I also have a feeling that I'd like to see a little more evidence on what is happening in the economy right now because of these forces we've discussed and what I sense is going to be a pretty good Christmas season for retailers and so forth. I have a general reluctance to get caught up in a [view] that this just has to happen--that it's a one way bet and that's all there is to it. I would certainly be responsive down the road if foreign exchange market conditions or current evidence on the economy and other considerations indicated that there was room. But I'm not sure that this is the time. I have an aversion to, in effect, jumping on this bandwagon. So in terms of policy, I'd favor alternative B and might be sensitive to leaning toward alternative A under the right circumstances down the road.",372
-fomc-corpus,1985,Mr. Griffith.,4
-fomc-corpus,1985,"I am personally totally uncertain as to what should happen. But having discussed this with John Balles and no one else, and having listened to this conversation, I think we want to be on record as just a little concerned that the forecast that our staff is making for 1986 on growth, as I indicated earlier, depends upon lowering the short rates very rapidly--front-loading early in the year to offset what may be sluggish spending in the last half of the year. So for that reason and other discussions that have gone on here about concerns that 2 percent growth may not be what we want to happen--or at least not sufficient or desirable--we find ourselves in the Guffey-Boehne camp at somewhere between alternatives A and B, with some ease. I think we would feel a little more strongly that there ought to be a discount rate cut to get the short rates moving downward.",180
-fomc-corpus,1985,"You're missing, Governor Partee.",7
-fomc-corpus,1985,"Well, I hadn't wanted to take any lead in this because it's you people who will suffer the consequences.",21
-fomc-corpus,1985,We'll just blame whatever goes wrong on Mr. Partee!,12
-fomc-corpus,1985,"Remember, you're going to be on a fixed income!",11
-fomc-corpus,1985,I indicated before that my preference would be to ease up a little in terms of a somewhat lower level of short rates. I think we do have a window of opportunity. There is a good deal of expectation that this will happen in the market. I think the budget balancing bill--I doubt too that it's going to materialize as a serious move--but it gives a basis or reasoning that I think even foreigners could understand. And so--,88
-fomc-corpus,1985,[Unintelligible.],6
-fomc-corpus,1985,"Well, it might happen. After all, this is the most serious effort that has been made in a great many years to move consistently toward a balanced budget. And I think it will have a psychological effect so far as new programs are concerned.",49
-fomc-corpus,1985,You said [unintelligible] that it wasn't serious.,13
-fomc-corpus,1985,"I suspect that there will be great difficulties with it. It is something that has occurred; it has been very much in the press and I think it gives us an opportunity. I also agree that it has been helpful to have a decline in long rates and that we probably will not hold the decline in long rates unless there is some move in short rates to help bolster what has occurred. So my preference would be for some easing. I think it's proper, as a number of you have done, to talk about this in the absence of a discount rate change because this is not a meeting in which the discount rate is considered. I can appreciate that there would have to be some negotiations and consultations and so forth with other parties abroad to see how everything would coordinate if that were to occur. So I would think that the best way to go, if the Committee wishes to move somewhat toward ease, would be--as Emmett and Gary suggested--between alternative A and alternative B with maybe $300 to $400 million in borrowing, which would be enough to begin to move the federal funds rate down. Now, I had expected that the federal funds rate was going to move down this last time between meetings. I thought that, other things equal, that is what we had rather agreed to do. It didn't move, at least enough so anybody could notice it in the market. But now I think it could move down 20 to 25 basis points without much trouble; and that could be consistent with either a 1/4 point cut or 1/2 point cut in the discount rate when the time comes to consider that. It would sort of set the stage for where I would have liked to have seen the meeting come out today.",348
-fomc-corpus,1985,"The discount rate is not a matter for this Committee, as you technically point out, but I would [be interested] nonetheless if anybody wanted to express any great feeling about a 1/4 or 1/2 point cut. We haven't done a 1/4 point for a long time--since '79 or '78. It's certainly getting down in a range where it has been done before. I don't know if anybody wants to comment on that.",93
-fomc-corpus,1985,"If those are the only two alternatives, I'll take the 1/4 point. If there's a third, I have another thought.",27
-fomc-corpus,1985,I'm not quite thinking of it in that perspective--that those are the only two alternatives. But I just [wondered] in general if there is anything to be said strongly one way or the other.,41
-fomc-corpus,1985,"Well, I would prefer 1/2 percentage point. I can't remember how long it has been since we used the 1/4 point but that implies some precision that I believe we shouldn't try to demonstrate in the market. As a result I would object to a 1/4 point. If we're going to make a move, we ought to do 1/2 point.",78
-fomc-corpus,1985,"They have moved more in a week than they used to move in a presidential term! I think 25 basis points is almost--what is it that the advocates call it?--""de minimus"" or some phrase.",45
-fomc-corpus,1985,Small--,2
-fomc-corpus,1985,[Unintelligible] use that term to be--,12
-fomc-corpus,1985,"The last 1/4 point [discount rate change] I see was September 22, 1978 when we increased it from 7-3/4 to 8 percent.",38
-fomc-corpus,1985,"Well, the base is lower now than it was then.",12
-fomc-corpus,1985,"Yes, we're talking about a level of long rates that goes back to 1979.",18
-fomc-corpus,1985,A 1/4 point move might also be perceived as saying that we want to keep some order in the bar.,24
-fomc-corpus,1985,You mean that we don't have any courage.,9
-fomc-corpus,1985,"Keep--what did you say, Jerry?",9
-fomc-corpus,1985,[Unintelligible.] Order in the bar.,11
-fomc-corpus,1985,I think when it's not clear what we expect to happen we should do a 1/4 point; but when things are pretty clear we may as well move in 1/2 points.,39
-fomc-corpus,1985,It depends on whether things are clear to you or not.,12
-fomc-corpus,1985,Right.,2
-fomc-corpus,1985,"Emmett thinks they're clear. Well, I don't want to--",13
-fomc-corpus,1985,I suppose it's anybody's bet. But I do not believe the long-term rate structure is dependent upon whether we change the discount rate or not. I think it is readily arguable that it would be perverse. I think the short-term rate structure is.,52
-fomc-corpus,1985,"Yes, I think it could use a little help.",11
-fomc-corpus,1985,"It goes up a point a day, including today, I take it. Well, nobody else wants to comment about the appropriate size of a discount rate cut I take it? So far as the international implication is concerned, there are two [countries] involved. One I think would be extremely reluctant to do anything. The other may be less reluctant.",70
-fomc-corpus,1985,"Hopefully, the second one is Japan. They certainly ought to move their rates down.",17
-fomc-corpus,1985,"Well, that's what I had in mind. From our standpoint that obviously would be very helpful. The economics seem to dictate it, but in a way I think we're psychologically more vulnerable on the other side. But the Germans are feeling quite content with themselves.",51
-fomc-corpus,1985,"Well, if we took the lead that would suggest then that they might follow U.S. rates down. Is that--",24
-fomc-corpus,1985,I think across the Pacific they're much more likely than across the Atlantic.,14
-fomc-corpus,1985,So you're pessimistic about coordination in Europe?,9
-fomc-corpus,1985,I'm 50 percent optimistic.,6
-fomc-corpus,1985,The Pacific.,3
-fomc-corpus,1985,"I think you can get one side; I'm not sure about the other side. I'd be very skeptical on the other side. You may get an exchange rate realignment in Europe; I don't know whether that's good or bad. There's considerable pressure over there now. Well, it's hard to read this as a great consensus. And since there are too many variables in the equation, it is neither a consensus nor by and large an enormous difference. The tactics make it very difficult. This is a little messier than I would like to make it, but let me try to suggest something. For the moment we have a somewhat lower level of borrowing, but not so far that we couldn't reverse it without being too obvious about it, if the discount rate went down. If the discount rate doesn't go down, we might want to press that further. If it does go down, we might adopt this strategy that a number ofpeople have suggested of reducing the discount rate but not the borrowing, which means something like--particularly taking into account a minor point, but nonetheless one that is there, that seasonal borrowings are running very low--$350 to $400 million or $300 to $400 million at the moment, and going to the upper side of that or maybe above it if the discount rate went down by a half. If it doesn't go down, depending upon the aggregates and other things, we would push toward or beyond the low side. If the discount rate goes down, or if it doesn't go down, we could reconsider or fine tune that after New Year's Day. I will be more specific: Assuming the discount rate doesn't go down, I think a borrowing number of $300-$400 million or something like $350 million would be the mechanical number the staff puts down [in the path] for the next week or so.",366
-fomc-corpus,1985,Do you expect that to bring the funds rate--of course this is a very difficult period with the funds rate--,23
-fomc-corpus,1985,"Well, the funds rate is coming down, I think. It has a lot of psychology in it; it surprised me a little. If the discount rate expectations are all that strong, why has the funds rate stayed so high? I'm not sure that they have been all that strong. But it seems to be coming down a little now. I don't know whether that's lasting or not, but I would guess that we are talking about no more than 7-3/4 percent and maybe a lower discount rate, depending upon the anticipation. You fellows down the end of the table can refute that if you want.",124
-fomc-corpus,1985,That seems reasonable.,4
-fomc-corpus,1985,"You made a comment earlier that if expectations of a discount rate cut really became strong, then short-term rates will go down before the discount rate cut.",30
-fomc-corpus,1985,Do you agree that $350 million sounds like 7-3/4 percent?,17
-fomc-corpus,1985,"Yes, but that to me would mean as a practical matter that it would be under $350 million most of the days of the 14-day period. It's a funny business. You can't quite tell where--so I think you just have to be guided by the interaction of the funds rate and the movement of the borrowing.",65
-fomc-corpus,1985,I agree with the approach. I just wonder operationally if that's a wide enough band for you to operate with or whether you ought not to have a little more--,33
-fomc-corpus,1985,"Well, I figure it's wide enough for the moment. But, as I said, I might consider a wider band in opposite directions [depending on] whether or not the discount rate changes: wider on the up side if it did change, particularly by a half; and wider on the down side if it didn't change.",64
-fomc-corpus,1985,"That was my point. If, say, you pick a range of $250 to $450 million, you might accomplish that.",26
-fomc-corpus,1985,"Well, that's consistent with what I said, if you conceive of the upper side as an after the discount rate cut [level] and the lower side as a no discount rate cut [level] over the space of the next two or three weeks.",50
-fomc-corpus,1985,But starting out at the $300 million level until this all unfolds?,14
-fomc-corpus,1985,"$350 million, I think I said.",9
-fomc-corpus,1985,I meant $350 million.,6
-fomc-corpus,1985,"Assuming no discount rate cut, $350 million and possibly moving lower, depending upon developments. It's $350 million, possibly moving higher, if the discount rate is cut--again depending on developments. And we will explore the discount rate possibilities abroad. MR. GUFFEY(?). Are we at $450 or $400 million now?",68
-fomc-corpus,1985,"We've been using $450 million in the path. Actually, so far in this period, which ends tomorrow, borrowing has averaged just $200 million because, as Steve said, we tend to get low levels until the very end of the period.",49
-fomc-corpus,1985,The federal funds rate is close to 7-3/4 percent today?,16
-fomc-corpus,1985,It was 7-13/16 percent the last I heard.,14
-fomc-corpus,1985,It's pretty close. I don't know whether these numbers on the aggregates mean anything in any of these.,20
-fomc-corpus,1985,M1 doesn't.,4
-fomc-corpus,1985,Do we give December-to-March or November-to-March [figures]?,16
-fomc-corpus,1985,Use November to March.,5
-fomc-corpus,1985,Is that what we have usually done at this time?,11
-fomc-corpus,1985,"Yes, the Committee has mostly used the November-to-March rates; it did last time. One thought that the staff had was that if the November-to-March period wasn't used, in some sense the aggregates look ignored in the last part of December. But the Committee may wish to do that.",60
-fomc-corpus,1985,"Do you feel strongly that M3 is going to be a little lower than M2? Given the uncertainties surrounding all of these figures, it's nicer to use one figure.",34
-fomc-corpus,1985,"I don't feel strongly at all about that, Mr. Chairman. The special circumstances are that we think there might not be many municipal issues suddenly after the beginning of the year and banks may not participate, therefore, as actively. But for all we know they could start buying governments instead.",57
-fomc-corpus,1985,"Just given the vast amounts of uncertainty in these numbers--. We had the same number [for both] last time, didn't we? For several times? Wasn't it the equivalent of 6 percent?",41
-fomc-corpus,1985,"To me, Mr. Chairman, it would be sensible to give a small range for both.",19
-fomc-corpus,1985,The same small range?,5
-fomc-corpus,1985,I think that that would be reasonable.,8
-fomc-corpus,1985,"I wonder if we have to say something indirectly or directly about the discount rate in the directive. It's a little misleading, whatever we say, to leave it out.",33
-fomc-corpus,1985,They certainly expect it. The media discussion has been revolving around the area of the discount rate and policy.,21
-fomc-corpus,1985,But they won't see it for a while; we would have done something or not.,17
-fomc-corpus,1985,It's a little artificial to look as though we ignored the discount rate.,14
-fomc-corpus,1985,"It will be February before anybody knows what we said anyway, so I think we ought to go ahead and mention it.",24
-fomc-corpus,1985,"Well, if we mention it, it's a question of where to mention it, I guess. Consistent with what we said, we presumably say we decreased ""somewhat"" or ""slightly"" the existing degree of pressure on reserve positions. I'm just thinking. ""Somewhat greater reserve restraint--""",61
-fomc-corpus,1985,"Since we don't mention the borrowing target, it's kind of hard to mention the discount rate, since the two are linked, and I think--",28
-fomc-corpus,1985,"Well, ""degree of pressure on reserve positions"" is our euphemism for the borrowing target.",20
-fomc-corpus,1985,"What if in lines 79-81 [of the draft directive], where we have ""taking account of appraisals"" etc., we just have a comma and a fifth item ""taking into account possible actions on the discount rate"" or something like that. Just say ""conditions in domestic and international credit markets, including a possible change in the discount rate.""",72
-fomc-corpus,1985,"How would that be read if we did it that way? It might be read that if the discount rate were decreased, we would decrease reserve pressures further, and we are saying the opposite.",38
-fomc-corpus,1985,That's not as clear.,5
-fomc-corpus,1985,"You could put it on the line after the first sentence, Mr. Chairman, saying ""taking account of the impact of the a discount rate action should one be taken,"" or something like that.",39
-fomc-corpus,1985,"Yes, it goes there better.",7
-fomc-corpus,1985,"""The existing degree of reserve pressures, taking account of--""",12
-fomc-corpus,1985,I think that is better.,6
-fomc-corpus,1985,It doesn't exactly clear up that ambiguity.,8
-fomc-corpus,1985,It indicates the area.,5
-fomc-corpus,1985,"I don't reject that suggestion, but I suppose if we said ""In the implementation of policy the Committee seeks to decrease somewhat the existing degree of pressure on reserve positions, particularly should the discount rate be maintained at current levels""--",44
-fomc-corpus,1985,"""Particularly in the absence of any change in the discount rate""? It seems a little odd.",20
-fomc-corpus,1985,"It's a little strained. I think we have to have a more general statement than that. We comment on something that might not happen, and we have control over it.",34
-fomc-corpus,1985,Why didn't you do it?,6
-fomc-corpus,1985,"We are talking here about ""may""--",8
-fomc-corpus,1985,It's prospective.,3
-fomc-corpus,1985,"We just put in there ""taking account""--",9
-fomc-corpus,1985,"I really think, Mr. Chairman, the better way to do it would be to go without it, and then adjust this if there is a discount rate, which we have done before.",38
-fomc-corpus,1985,We could adjourn this meeting and the Board could adjust the discount rate and clear the whole thing up.,21
-fomc-corpus,1985,"Actually, Roger, I don't think we're talking about anything quite that immediate. Well, I think--",20
-fomc-corpus,1985,"Well, I think if we don't mention it here [in the directive] we should say something about it in the policy record discussion. If the discount rate is changed, we could have a consultation and follow that by a paragraph--",46
-fomc-corpus,1985,And it even becomes a part of the same minutes.,11
-fomc-corpus,1985,"That would be cleaner, I think.",8
-fomc-corpus,1985,"All right, we will put something in the record--as it should appear anyway, because it has been in the discussion--that would make this point clear as to what direction we are talking about. So then we just say ""decrease somewhat.""",50
-fomc-corpus,1985,"And we are going to say ""this action is expected to be consistent with"" targets--",18
-fomc-corpus,1985,"It's hard to call what we have ""pressure,"" but- -",13
-fomc-corpus,1985,"If we just say growth, it doesn't have to specify the amount for M2 and M3. ""This action is expected to be consistent with growth in M1, M2 and M3."" Forget any number.",44
-fomc-corpus,1985,The trouble with these very low levels of borrowing is that we get that level of borrowing from computer breakdowns sometime.,23
-fomc-corpus,1985,"I think that the Committee ought to recognize, Mr. Chairman, that a lot of those high numbers of $600 and $700 million do come from that sort of thing. Even a $2 billion breakdown can--",43
-fomc-corpus,1985,"""Seeks generally to decrease somewhat the existing degree of computer-adjusted pressures on--""",18
-fomc-corpus,1985,"Really ""seeks to increase somewhat the reliability of the computers!""",13
-fomc-corpus,1985,"Well, we keep this ritual of saying ""is expected to be consistent with""--. Shall we demote M1 a bit by taking it out again?",31
-fomc-corpus,1985,Let's demote it as much as we can.,10
-fomc-corpus,1985,"""This action is expected to be consistent with growth in M2 and M3 over the period from November to March at annual rates of about--"". If you really wanted a wide range, I guess you would say--",43
-fomc-corpus,1985,5 to 10 percent?,6
-fomc-corpus,1985,6 to 9 percent.,6
-fomc-corpus,1985,6 to 8 percent.,6
-fomc-corpus,1985,That's true?,3
-fomc-corpus,1985,6 to 7 percent?,6
-fomc-corpus,1985,"6 to 7 percent is a little thin, isn't it, considering the differences in these projections?",20
-fomc-corpus,1985,"6 to 8 percent takes in the full range, then.",13
-fomc-corpus,1985,How does the sentence read as you have it?,10
-fomc-corpus,1985,"""This action is expected to be consistent with growth in M2 and M3 over the period from November to March at annual rates of about 6 to 8 percent.""",34
-fomc-corpus,1985,"I don't see any great harm in that. It's an acceptable range. M1, I guess, [may be] about 9 percent.",29
-fomc-corpus,1985,"Well, on M1 we don't know.",9
-fomc-corpus,1985,9 percent plus or minus 6 percent.,9
-fomc-corpus,1985,"How about a sentence that said that the Committee expects the action to be consistent with growth of all of the monetary aggregates at rates of 6 to 8 percent and then a phrase something like ""recognizing that there continues to be especially large uncertainty about M1.""",53
-fomc-corpus,1985,"It's hard to get [M1] down to 6 to 8 percent. I feel that anything could happen. Right now, the staff is expecting a large December.",35
-fomc-corpus,1985,"The latest estimate for December, for what it is worth, isn't all that much. It's what: around 10 percent?",25
-fomc-corpus,1985,"Yes. It gives a little more credibility to our 8 percent under ""B.""",17
-fomc-corpus,1985,"It's more like 7 to 10 percent, isn't it? Seriously.",15
-fomc-corpus,1985,We have a little more confidence that M1 might make the top of the 6 to 8 percent range over the four months.,27
-fomc-corpus,1985,It already has. December was--,7
-fomc-corpus,1985,[Unintelligible] it and missing it all the time.,14
-fomc-corpus,1985,"But December was at 15 percent for purposes of the Bluebook, wasn't it?",17
-fomc-corpus,1985,14-1/2 percent--something like that.,11
-fomc-corpus,1985,But that shows [the uncertainty]. We are dealing with an aggregate that three days ago the staff estimated at 15 percent and now they are estimating it at 10 percent for a month that's half over. I don't know exactly what we should write down. We can take something like 7 to 10 percent. Anybody have an inspiration?,68
-fomc-corpus,1985,"I like what Jerry said, Mr. Chairman.",10
-fomc-corpus,1985,"What's wrong with that? ""The action is expected to be consistent with growth in the three aggregates in the range of 6 to 8 (or 6 to 8-1/2) percent keeping in mind that Ml in particular still is subject to great uncertainties."" Have a single range for all 3 aggregates rather than having a specific number for any one of the three.",77
-fomc-corpus,1985,"We could start off the sentence by saying ""While recognizing that particular uncertainties surround the behavior of M1--."" Well, that's all right with me if people are willing to live with 6 to 8 percent. I guess we take the curse off the 6 to 8 percent for M1 by the initial clause.",65
-fomc-corpus,1985,"Again, it's in a framework where I am assuming that the borrowing arrangements are as you described before.",20
-fomc-corpus,1985,"Well, I'm just referring to the fact that the range for M1 for what it is worth--and I don't think it's worth much--is running below any of the numbers for M1 except for those in alternative C.",45
-fomc-corpus,1985,I don't care if it's 8 or 8-1/2 percent [as the top].,20
-fomc-corpus,1985,"I really think that phrase ought to be at the end of the sentence, Paul.",17
-fomc-corpus,1985,"But Jerry, I thought the staff number for borrowing was $200 to $250 and they had 9-1/2 percent on M1. No?",32
-fomc-corpus,1985,That's right.,3
-fomc-corpus,1985,Okay--then we start off missing it.,9
-fomc-corpus,1985,"Well, we wouldn't have changed--or I wouldn't have, in any event--our December-to-March estimate given the more recent December figures. I would view that not entirely but slightly independently. It would be lower under alternative [C]; our December-to-March estimate was around 8 percent, with December 14-1/2 percent. I wouldn't be tempted to change that because of this number.",82
-fomc-corpus,1985,"""The Committee expects...although it recognizes that there has been unusual volatility and uncertainty in the behavior of M1."" Just because the first one says ""consistent with that action"" in the second one, where it started out with a parenthetical phrase, I think we say what we would expect.",58
-fomc-corpus,1985,"Well, I think the basic trouble is whether it is really worth trying to get M1 in that same range. I think it's a little tough.",30
-fomc-corpus,1985,I would rather take it out.,7
-fomc-corpus,1985,You could use the prior structure.,7
-fomc-corpus,1985,"You could use 7 to 9 percent for M1, Mr. Chairman, which would not be too inconsistent with all of this--indicating it's slightly higher.",34
-fomc-corpus,1985,I would rather take it out. Treat it separately; it's a separate behavior. This is the one that hasn't been near the middle or top of the range; it has been off the charts. People know it has been off the charts.,48
-fomc-corpus,1985,"I think that's probably better too [unintelligible]. Go back to the second [sentence] and say ""expected to be consistent with growth in M2 and M3 of 6 to 8 percent."" Semicolon. Do we need this phrase ""assuming little net impact on the aggregates""? It implies a degree of knowledge we don't have anyway.",71
-fomc-corpus,1985,"Well, you don't absolutely need it. We could put it in the policy record, perhaps. It's just a little safeguard, since we don't quite know what's going to happen.",35
-fomc-corpus,1985,"Just put a semicolon and then ""while M1 is expected to grow between 7 to 9 percent, the Committee recognizes the exceptional range of uncertainty surrounding that aggregate.""",35
-fomc-corpus,1985,7 to 10 percent?,6
-fomc-corpus,1985,10 percent isn't even on the charts.,8
-fomc-corpus,1985,Neither is M1 on the charts.,8
-fomc-corpus,1985,7 to 9-1/2 percent?,10
-fomc-corpus,1985,"""M1 behavior continues to be subject to unusual uncertainty but may grow in a range of 7 to 9 percent--."" The half is--well, 7 to 10 percent is a lot better than 7 to 9-1/2 percent, but 10 percent is a high number and if it says may grow in a range of 7 to 9 percent we get--",80
-fomc-corpus,1985,May or may not grow?,6
-fomc-corpus,1985,"You would say ""may not""?",7
-fomc-corpus,1985,"How about ""will likely grow at some unknown speed""!",11
-fomc-corpus,1985,It's important to say M1 behavior is subject to unusual uncertainty.,13
-fomc-corpus,1985,"Put a semicolon and ""while the behavior of M1 has been subject to unusual uncertainty, growth of 7 to 9 percent over the period is anticipated."" Is that all right?",38
-fomc-corpus,1985,Would you care to review it the way you have it now?,13
-fomc-corpus,1985,"It says ""decrease somewhat"" in the first sentence. ""This action is expected to be consistent with growth in M2 and M3 over the period from November to March at annual rates of 6 to 8 percent; while the behavior of M1 has been subject to unusual uncertainty, growth of 7 to 9 percent over the period is anticipated.""",73
-fomc-corpus,1985,"Better stick an ""annual rate"" in there, I guess.",13
-fomc-corpus,1985,Things aren't that bad.,5
-fomc-corpus,1985,"Instead of ""has been subject to"" why don't we make it ""continues to be subject to""? [Unintelligible.]",27
-fomc-corpus,1985,"Let's look at this next sentence. Do we want after the ""be acceptable"" to take out the ""taking account of""?",25
-fomc-corpus,1985,The foreign exchange markets part--,6
-fomc-corpus,1985,We must still be affected by the domestic business situation.,11
-fomc-corpus,1985,"But in reality I'd be putting foreign exchange markets [first] if I were doing it. Not that I'd argue this, but from an operational standpoint that's much more likely to have an important change in a matter of weeks than the business situation. There is some merit in that.",55
-fomc-corpus,1985,Conditions in domestic and international credit markets also may have more operational significance.,14
-fomc-corpus,1985,I would agree with that too.,7
-fomc-corpus,1985,If there's a collapse someplace that would probably affect us.,11
-fomc-corpus,1985,"Well, I wouldn't be allergic to putting business expansion and progress against inflation last. In an operational sense, probably, that's the order in which they come. We probably won't get a sharp change in the inflationary situation in the next few weeks either. In the first place, do we take out ""taking account of""? It's probably a little more accurate, but I wouldn't bleed or die [over it].",81
-fomc-corpus,1985,We'd be criticized if we didn't have it in there.,12
-fomc-corpus,1985,"No, I don't think so.",7
-fomc-corpus,1985,"We would still have them in there; we just take out the phrase ""taking account of.""",19
-fomc-corpus,1985,That's really elevating those things.,7
-fomc-corpus,1985,It elevates them slightly.,6
-fomc-corpus,1985,"Yes, I think it does. It puts them on an equal plane.",15
-fomc-corpus,1985,Now what do you have?,6
-fomc-corpus,1985,"""...be acceptable depending on behavior of the aggregates, appraisal of the strength of business expansion, developments in foreign exchange markets,"" etc.",26
-fomc-corpus,1985,"You do not have a reference to the discount rate in the directive, then?",16
-fomc-corpus,1985,"We agreed not to. ""Taking account of"" is out.",13
-fomc-corpus,1985,"Do you want to take ""appraisals"" out?",12
-fomc-corpus,1985,I don't think it makes any difference.,8
-fomc-corpus,1985,The difference is the perception.,6
-fomc-corpus,1985,"Oh! But you are probably right; the ""appraisals"" now refers to all of them. It might be better to take out ""appraisals of"" to avoid distinctions between appraisals of the strength of the business expansion and developments in foreign exchange markets. Does anybody else have any suggestions? Does everybody know how it reads? ""In the implementation of policy for the near term the Committee seeks to decrease somewhat..."" Is ""somewhat"" the right word?",95
-fomc-corpus,1985,"Yes, that's right.",5
-fomc-corpus,1985,"""...the existing degree of pressure on reserve positions. This action is expected to be consistent with growth in M2 and M3 over the period from November to March at an annual rate of 6 to 8 percent; while the behavior of M1 continues to be subject to unusual uncertainty, growth at an annual rate of 7 to 9 percent is anticipated. Somewhat greater reserve restraint..."" What do you want to do with these ""woulds"" and ""mights""?",96
-fomc-corpus,1985,"Rephrase it ""might"" and ""would.""",10
-fomc-corpus,1985,"Leave it ""might"" and ""would""? SEVERAL. Yes.",15
-fomc-corpus,1985,"""...be acceptable depending on behavior of the aggregates, the strength of the business expansion, developments in foreign exchange markets, progress against inflation, and conditions in domestic and international credit markets."" When I look at this I really wouldn't mind changing the order of those last things.",53
-fomc-corpus,1985,I wouldn't change it from that structure.,8
-fomc-corpus,1985,"Operationally, I think it's more accurate that way. Do you want to change it?",18
-fomc-corpus,1985,I would rather not.,5
-fomc-corpus,1985,Don't change it.,4
-fomc-corpus,1985,It isn't a big point. Do you have any overwhelming sentiment one way or the other?,18
-fomc-corpus,1985,No.,2
-fomc-corpus,1985,Take a show of hands.,6
-fomc-corpus,1985,You'd put foreign exchange first?,7
-fomc-corpus,1985,"Yes, ""depending on the behavior of the aggregates, developments in the foreign exchange markets, conditions in domestic and international credit markets""--that way we could reverse those two--""and the strength of the business expansion and progress against inflation.""",47
-fomc-corpus,1985,I would prefer to see it stay as it is. People will be trying to figure out what we are trying to tell them. I don't want to tell them that because that's not how I see it.,41
-fomc-corpus,1985,We leave it unless there are strong feelings and somebody wants to press the point.,16
-fomc-corpus,1985,One less thing for market watchers.,7
-fomc-corpus,1985,Possession is nine-tenths of the directive.,11
-fomc-corpus,1985,And leave the funds rate at 6 to 10 percent. [Unintelligible].,19
-fomc-corpus,1985,This is all in a framework in which the initial borrowing is $350 million.,16
-fomc-corpus,1985,"Initial borrowing in a $300 to $400 million range, starting at $350 million.",18
-fomc-corpus,1985,And hope the funds rate will come down.,9
-fomc-corpus,1985,"If the discount rate were down, we presumably go toward the upper end of that range or even beyond, say, up to $450 million. If the discount rate doesn't go down, depending upon these other things, we might get down below the $300 million. The outside range is $250 to $450 million with an inside range of $300 to $400 million. Is that all comprehensible?",81
-fomc-corpus,1985,Remember that man from Mars!,6
-fomc-corpus,1985,Any further elucidation? I guess we will vote.,11
-fomc-corpus,1985,Chairman Volcker Yes Vice Chairman Corrigan Yes President Black No President Forrestal Yes President Guffey Yes President Keehn Yes Governor Martin Yes Governor Partee Yes Governor Rice Yes Governor Seger Yes,40
-fomc-corpus,1985,All right.   We're going to leave for sandwiches.,11
-fomc-corpus,1986,Comments or questions?,4
-fomc-corpus,1986,"Sam, are there any other explanations that you know about, other than the [reaction to] statements of foreign central bank and government officials, to explain the movement in the exchange rate after the lowering of the discount rate in Japan? As you said, after the Japanese lowered the discount rate and their interest rates generally moved down, the dollar weakened further and the yen went up. I gather, as you said, that the explanation related to the statements of government officials. But was there anything other than that?",101
-fomc-corpus,1986,"Many people saw this just as part of some underlying weakness of the dollar. There was some view at that juncture that there might be a move by the United States and others very short after the Japanese action. Some people attributed some of the attitude to that expectation. But as I said, during this period--and this is seen somewhat as a sign of the weakness in the currency--the fact has been that when events which in other circumstances might have been expected to cause the dollar to show some strengthening, it doesn't seem to have happened.",108
-fomc-corpus,1986,Very puzzling.,4
-fomc-corpus,1986,"Steve, or Sam, or Ted--somebody: Where are the exchange rates today?",18
-fomc-corpus,1986,The rates are down a little: 2.37-1/2 was the last DM quote we saw and about 187 [yen].,29
-fomc-corpus,1986,"They're roughly where they closed yesterday, so they have been essentially flat this morning.",16
-fomc-corpus,1986,Any other questions?,4
-fomc-corpus,1986,"Do you think the long-term effect of lower oil prices will be negative for the dollar? Can a case be made that longer term it could have favorable effects, particularly in relation to sterling and the Canadian dollar?",42
-fomc-corpus,1986,"Well, this question of the effect of oil prices is very, very complicated. I guess anybody can come to his or her own view. Certainly, I would think that over a long period of time a declining price of oil is going to be of great value and importance to the United States and has to be helpful. But I don't know when or how that comes about or in what kind of time period. But right now, as I said, the [market's] concentration seems to be on the fact that it is of greater help to those who suffered most when the oil price went up and to those who had a greater reliance on imports--in particular the Japanese. For the Japanese, it's an enormous part of their total imports and it has an enormous benefit.",154
-fomc-corpus,1986,One view used to be that higher [oil] prices helped the dollar because the people who were accumulating assets had a stronger preference for dollar-denominated assets in terms of accumulating wealth. One argument would be that you could run that view now in reverse and say that that would be one explanation for the dollar's weakness. Given the fact that most of those countries have been decumulating assets for a fairly substantial period of time--several years now--that argument probably has less weight than it would otherwise. That asset preference argument probably has less weight than if the oil price decline over the last several years had happened all at once.,126
-fomc-corpus,1986,"If there are no other questions, we'll turn to Mr. Kichline and company. MESSRS. KICHLINE, PRELL and TRUMAN. [Statements--see Appendix.]",39
-fomc-corpus,1986,"That was an exhaustive, comprehensive, and analytically complete briefing. Now, what questions can anybody ask?",21
-fomc-corpus,1986,"Jim, on the current services budget, it dawned on me that maybe the reason the market hasn't reacted so badly in the long end to this unconstitutionality aspect of Gramm-Rudman has to do with the thinking that is evolving with respect to the current services deficit. Looking out to 1991, as I understand it, with nothing further done than what is already on the table, and that would include the fiscal 1987 actions, I guess--no it doesn't; it's just the fiscal 1986, right? You probably wouldn't agree, but I would be interested in your view: Is that a viable scenario? Seeing the CBO come out with similar numbers is what caught my attention.",142
-fomc-corpus,1986,"Right, I think that's an important feature. And that's very different from the last four or five years, as you know, with current services estimates shown to grow substantially into the $300 billion plus range five years out. We do not have all of the details available on the CBO estimates. I must say that one might assume that there is some agreement on what current services estimates mean but that turns out to be very wrong. This year is a classic case. For example, the Administration's current services number assumes that the defense baseline is 3 percent real growth. Well, after the Gramm-Rudman March 1 cuts, they jump up spending but assume that the spend out rate is very slow. CBO assumes that no Congressional action is zero real growth, but recent experience has defense spending much faster than the Administration [assumption]. The net result is that in 1991 there is a mere $35 billion [difference] between the two on defense alone, but there are offsetting changes. Interest rates are different; they are worth $20 to $25 billion. Inflation rates are substantially different, with the Administration having inflation drifting down to 2 percent in 1991 and hence indexed programs grow at the much slower rate; under the current services estimates, that's worth something on the order of $25 billion or so by 1991. So, if you want to mix and match all of these things in your own way, instead of 1991 numbers that drift down essentially to $100 to $110 billion without further action you probably could have anything from $50 to $200 billion and be perfectly consistent with all of these numbers. The problem, I think, is that there is a great deal of emphasis on the notion that it's very different even without further action--that the budget will be improving--and I think that's probably faulty. Hidden behind this, there's a lot more going on.",384
-fomc-corpus,1986,"I would like to ask Ted Truman about his vertical bar chart, chart 16, on the changes in consumer prices in foreign industrial countries and in the United States. Could you disaggregate that a little for us? What are you and your people projecting for the Federal Republic [of Germany] and for Japan? I was at a European conference recently and there was a lot of talk about zero inflation in the Federal Republic and I wonder what you are--",90
-fomc-corpus,1986,"We are projecting very low rates for both those countries: 1-1/2 percent for Japan; and 0.9 percent, if you want to be inappropriately precise, for Germany.",41
-fomc-corpus,1986,At [a per barrel price of] $10 for oil?,13
-fomc-corpus,1986,"With a $20 oil price. That doesn't take quite as much off, as I explained, because there are high taxes. So, although the dollar component of it helps, the fact that they halve the [rate] of consumer price--",48
-fomc-corpus,1986,Where oil was yesterday could easily have given you a negative--a small outright decline in consumer prices in Germany and Japan.,24
-fomc-corpus,1986,I heard that too.,5
-fomc-corpus,1986,"Well, one percent for the year measured from the fourth quarter over the fourth quarter is the number I have. Obviously, within anybody's forecasting range, that could mean that in a given quarter there could well be a negative number. For other European countries like the Netherlands and Switzerland we also have less than 2 percent.",64
-fomc-corpus,1986,"What are you assuming about policy in the Federal Republic and Japan vis-a-vis their interest rates? When you get to the capital flow, what are you assuming--no change, whatever change we do?",40
-fomc-corpus,1986,"Little change, I think is a fair [description], or maybe some slight drifting down of interest rates. We have not made any abrupt assumption of change; for the average of these countries it's maybe something like 50 basis points over the forecasting period.",50
-fomc-corpus,1986,"So the totality of that analysis wouldn't be particular downward pressure on the dollar, just from matters such as the interest rate spreads and inflation spreads.",29
-fomc-corpus,1986,"Well, in some sense, the fact is that their inflation rate is coming down more than ours and interest rates are not coming down as much as ours. In fact, implicit in this forecast is that real interest rates will be going up slightly in those countries. Depending on what you think is going to happen to real interest rates here, that could be viewed as somewhat negative to the dollar.",78
-fomc-corpus,1986,"Why should that be negatively viewed, in the case of negative interest rate [spreads]?",18
-fomc-corpus,1986,"I am just saying that if Germany cuts its inflation rate from last year to this year in half--by 100 basis points or more--and you don't think German interest rates are going to [decline] by 100 basis points, then that would tend to depreciate the dollar or appreciate the yen--I mean the deutschemark. I had the wrong currency there!",75
-fomc-corpus,1986,"Two strong currencies, anyway. They were referring to chart 16; I had a small point on chart 15. That Economist index looks like it went up all last year. You said, if I understood you correctly, that in the last two months it has gotten higher than a year ago. It sure doesn't look that way on the chart.",70
-fomc-corpus,1986,This is zero. So those are year-over-year changes; anything above those--,16
-fomc-corpus,1986,These are year-over-year changes?,7
-fomc-corpus,1986,"I thought the index flattened in October, but if you are using year-over-year figures, I don't know how it works out.",26
-fomc-corpus,1986,It was decreasing at a slower rate of speed. Now it's right.,14
-fomc-corpus,1986,"In fact, on this index there's about a 6 percent increase against the lows in the summer. Now, this is a broader index because it includes food, particularly coffee, than just an industrial supplies index. The industrial supplies index, instead of this positive number here, shows something on the order of a 3 percent decline.",66
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"Yes. Ted, I am asking a question around chart 16, but I don't see what I am really looking for. It has to do with the LDC countries; you slipped in a rather quick comment about the Baker plan and what it would do for those countries. But I would think that since the announcement of the Baker plan last year the funding needs of those LDC countries, particularly Mexico, would have been altered rather significantly. My question is: Does that have implications for real growth, for stability? How does that feed into your analysis?",111
-fomc-corpus,1986,"I think the answer is yes, in some. In fact, when we started to put this forecast together we were inclined to have a somewhat more [upbeat] outlook in the non-OPEC developing countries than is shown in this chart. By looking at such considerations as the oil price and how that might affect them and some of the uncertainties that might be associated with that, we were led to scale back somewhat; it was sort of a netting factor that we wanted to put in there. The Baker countries themselves, which include Mexico and several OPEC countries like Venezuela, Ecuador, and Nigeria, on balance, are hurt by lower oil prices. We have maybe something like $7 billion, based on the price decline, built into this forecast. It is also true, however, that the decline of the dollar does, on balance, tend to help these countries. To the extent that they have followed flexible exchange rate policies, their exchange rates more often than not are biased toward the dollar, or [move] relative to the dollar. That's especially true in Latin America. A number of them--Brazil is a good example--are gaining in competitiveness vis-a-vis the other industrial countries, as we do. Korea is another example. You may have seen a lot of stories about that: how the rising yen has put Japan at a competitive disadvantage vis-a-vis Korea. Well, Korea is one of these non-OPEC developing countries; therefore, you might expect that, to some extent, to give them a somewhat better picture.",306
-fomc-corpus,1986,I expect this is a non-collapse scenario?,9
-fomc-corpus,1986,This is certainly a non-collapse scenario.,8
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"Jim, for the past couple of years, we have had a lot of financial structure problems. Now today, if not before, we'll certainly add to that list the potential problems that the oil price could cause. Looking back over the shape of the U.S. recovery, where is it that we see these problems reflected in the recovery? Do we see them in housing, business investment, balance sheets and so forth? Do the sectoral problems just all wash out by the time it all gets to the national average process? What has been the effect?",110
-fomc-corpus,1986,"Well, that's rather broad. We can start with Ted's comments, because I think part of the problem that we are facing --and it certainly influences our thinking--is reflected in what has been happening in the Third World countries and the debtor nations. And that, in part, is a reflection of what has happened to the dollar, which we think basically relates back to some structural developments over the course of the recovery with respect to the deficit and the way our economy has grown and our relatively high interest rates compared to the rest of the world. Mike referred to some debt problems in the consumer sector. We have taken what I think is a moderate picture there and have assumed that there are going to be some problems but that they will be manageable. At the same time, we know we are generating a great deal in the way of additional financial assets and wealth; and we assume that consumers as a group will be willing to run with relatively low interest rates. But I think hidden there in the consumer sector is a substantial problem that could be magnified as this [expansion] goes on. For example, in the Southwest we see the oil pressures evolving. We know that there already are some debt problems in the Texas and Louisiana areas. Both consumer debt and mortgage debt in the nonresidential structures area [could present problems]. So I think that the problems are there. But, in our view, continued economic growth in the aggregate will help us go through that process without a great deal of strain. The corporate sector is a bit more difficult because there are tremendous problems in that sector, if you look at individual balance sheets. Again, some of them on the energy side I think are quite risky. And some who a few years ago paid a heavy price and went into debt essentially to diversify their interests by moving into energy have a big problem. But again, we have assumed that those problems are essentially manageable. I think it is important to consider that we have a growth environment and relatively unchanged--certainly not substantial increases in--interest rates. And in that context, we don't think the micro problems will escalate into big macro problems over time. But throughout all of the major sectors, it would be very hard to think that there are not problems for certain groups and individuals or individual firms or countries. I don't know if I have answered the question.",470
-fomc-corpus,1986,It's a good start.,5
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Jim, on chart 21 where you talked about the impact of lower oil prices, it seems to me that the pattern of effects is a little puzzling. Wouldn't one expect, for example, that the impact of lower oil prices on real GNP would be felt more in 1987 than 1986--that it takes time for these oil prices to work their way through in terms of increased income for people to spend and lower costs for corporations to increase their spending? I would say the same thing, but maybe with not quite the same lag, about the deflator. It isn't only the direct effect of lower oil prices on inflation; there are many indirect impacts that probably would show up more in 1987 than in 1986.",151
-fomc-corpus,1986,"I think that's right. We have rounded these numbers and you caught the right direction in which things were rounded; actually, on the lower oil price side the effect is about .35 or so and I rounded it up to a half and for 1987 I rounded it down. But the sense really is that the real impacts will take a while to feed through. That's true on the prices too, except that there is a bigger question on prices. The Board's quarterly model that we used here has a much larger impact on prices in 1987 and very little in 1986; we judgmentally adjusted some of these because we think there will be substantial pressure and the direct effects will come along in a major way. So, in effect, we fiddled with the numbers there. Our best sense is that we will get some of the direct effects [in 1986] but that the important feedback effects will filter through on into 1987.",192
-fomc-corpus,1986,I like your model forecast.,6
-fomc-corpus,1986,"Ted, could you go over chart 17, the agricultural export chart, again? Apparently, you're forecasting an increase in export volume in the first half of 1986, then a decline, and then back up in 1987.",48
-fomc-corpus,1986,"Again, that's partly because these charts are done on a year-over-year basis; that reflects the fact that the first half of 1985 was so weak. In fact, looking across the 1986 patterns, we do not see the kind of increase that is presently [unintelligible] while this decline in the first half of this year from the last half of 1985 has assumed some fairly large shipments; and that's basically the explanation for the dip shown in the second half of 1986. I wanted to be consistent in the numbers used, but in this case I think it generated more in the way of wiggles for the agricultural picture than our forecast suggests is likely to be going on.",143
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"Jim, I have a similar question back on chart 21 with regard to the response to further declines in the oil price. My question is more a question of magnitude than of timing. When I look at another $5 a barrel drop, which is I guess the alternative assumption here, I'm surprised at the relatively small magnitudes one gets from that. Some work we have done suggests that the magnitude could be a lot larger. The direction I would agree with; it's just that our research suggests that the magnitude could be a lot larger, even allowing for some errors around the range. I am rather puzzled by this response.",124
-fomc-corpus,1986,"This is our general sense. Basically, it boils down to a rough rule of thumb that for a dollar change in the price of oil the response is a tenth on real GNP and a tenth on the deflator, in opposite directions. If one is talking about prices, it is very clear that the impact on the consumer price index is much larger--roughly double. Our thought is that a $5 change in the price of oil would translate into a percentage point after four quarters in the rate of change in the CPI. But I think this is fairly standard. I have seen a DRI forecast--",122
-fomc-corpus,1986,[Unintelligible]; maybe I don't understand it. You have one percentage point lower prices; it just takes two years to get it. You have 1/2 percentage point in each year.,41
-fomc-corpus,1986,"That's 1/2 percentage point off the rate of change in each year from what it otherwise would have been. If prices had been running at 3 percent, when you change the oil price, prices are then running at 2-1/2 percent in each year--minus 1/2 percentage point. So that is the marginal impact of that change.",74
-fomc-corpus,1986,It's not an additional 1/2 percentage point the next year?,14
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,So it's 1 percentage point over two years.,10
-fomc-corpus,1986,"Yes, that's right.",5
-fomc-corpus,1986,But consumer prices will be--,6
-fomc-corpus,1986,"Prices would be down one percentage point in the first year. Essentially, our view on the CPI is double that effect in the first year. I don't know how to answer the question. Basically, there are lots of alternative views on this, but I think this is one that is fairly standard.",59
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,Just an informational question with regard to the debtor oil-producing nations such as Mexico: Is most of that debt denominated in dollars so that they are getting a double whammy with respect to the drop of the dollar as well as the oil crisis?,50
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"But the drop of the dollar helps them to the extent that they export--well, Mexico is mostly a dollar exporter. If a country has some mix of non-dollar exports, that helps them.",39
-fomc-corpus,1986,But the debt is denominated in dollars.,9
-fomc-corpus,1986,Not entirely; that's the problem. A large fraction of it has been shifted--or will be shifted in the context of this arrangement--at the bank's option. Many of the European banks have switched back into their own currencies.,46
-fomc-corpus,1986,"And will it carry a LIBOR? If it carries their interest rate, the repayment will be in their currency which could have a--",27
-fomc-corpus,1986,It depends on whether you think the dollar is going to decline more or less rapidly than the interest rate differential.,22
-fomc-corpus,1986,Mr. Johnson.,4
-fomc-corpus,1986,"Jim, I have a question about chart 21, too. This is an exciting chart.",19
-fomc-corpus,1986,I had some questions about whether I should include it!,11
-fomc-corpus,1986,You have a somewhat asymmetrical treatment of real output and inflation under the assumption of 1-1/2 percent higher money growth. That 1-1/2 percent higher M1 growth feeds through as a 2-1/2 percent change in the deflator by 1988 whereas the effect on real output up front is only 1-1/4 percent. The net effect is really a strong effect on prices. That 2-1/2 percent seems awfully high given the 1-1/2 percent--,110
-fomc-corpus,1986,"What happens in the model here--and I guess I wouldn't blame this on the model because [our forecast reflects] a mixture of some staff judgmental adjustments to a model result--but basically in answer to your question, if I had extended this over a longer time period we would get back on track. It's simply that the price impact would be smaller in later years so that you are going to retreat to path. You will note that the unemployment rate under that policy is down about 1-1/4 percentage points from its starting level, so it would be in the mid five percent range. In the model and in our thinking, the natural rate is believed to be around 6 percent or a shade under. So what is happening here is that in the second year the unemployment rate starts to plunge below the natural rate and stays there; and that generates intense upward pressures on prices and wages. Now, if you continue this year after year, the model would turn right back to a nice sensible path and everything would work out.",207
-fomc-corpus,1986,"But--if I understand the chart--you are saying that in 1988 in this hypothetical example the money supply would be 4-1/2 percent higher than otherwise, right? And only 2-1/2 percent of that shows up in prices.",54
-fomc-corpus,1986,"No, you have to cumulate.",8
-fomc-corpus,1986,"Oh, okay.",4
-fomc-corpus,1986,"I would like to point out to Mr. Kichline that in 1985 we had a 5 percent greater rate of growth in M1 than we expected, which was associated with very slow growth and a declining inflation rate.",47
-fomc-corpus,1986,"This is, all other things equal [unintelligible].",13
-fomc-corpus,1986,I assume that has an assumption of no change in velocity.,12
-fomc-corpus,1986,Right.,2
-fomc-corpus,1986,"If we don't have any more specific questions, we're at the point where people can express their opinions about the general economic situation. With the wide range of opinions in what was distributed, I am sure we will have a lively discussion.",46
-fomc-corpus,1986,How long has the [economy been growing] at this steady rate of 3-1/2 percent--maybe four years?,27
-fomc-corpus,1986,3-1/2 to 4 years. Are you suggesting that is a long time?,19
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Would you care to speculate whether this steadiness will likely be interrupted on the up side or the down side?,22
-fomc-corpus,1986,"Well, if it stops on the way down, it stops itself. If it becomes a continuous reduction, I think we could get excessive movements from that. I think that that could be dangerous.",39
-fomc-corpus,1986,We are hoping for steadiness. I guess what we are supposed to be debating now is the likelihood of that. Mr. Morris.,27
-fomc-corpus,1986,"I think the course of 1986 is not likely to be as steady as the quarterly projections [indicate]. Looking at the numbers that we have gotten in the past months, it seems to me that we are likely to start out the year stronger in the first quarter--at least stronger than the 3.3 percent [forecast]. The breadth of the strength in the numbers suggests to me that the economy is starting out stronger.",87
-fomc-corpus,1986,These forecasts were made up before the latest numbers?,10
-fomc-corpus,1986,Before the January unemployment numbers were available.,8
-fomc-corpus,1986,"Presumably, you would have revised the first half.",11
-fomc-corpus,1986,"Well, the first quarter, anyhow. Our best guess at the moment is that we would be more inclined to have a 4 percent number for the first quarter.",33
-fomc-corpus,1986,You wouldn't want to expound beyond the first quarter?,11
-fomc-corpus,1986,"Well, as I said, 4 percent seems much more likely for the first quarter. Beyond that, I don't have any strong conviction. I think 3 percent for the year is probably still about right. I think what we may be seeing is the end of the inventory adjustment, as you mentioned; and that could lead to a stronger first half unless there is more inventory rebuilding than we're expecting at this time.",83
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"As far as the forecast goes, my own forecast is a shade stronger in real terms than the staff's forecast--3.4 percent versus their 3 percent. As best as I can recall, there is no one difference that accounts for that--just a bit here and there across the board. My inflation number is also a little stronger, although I might be inclined to shade that down at least a little, simply because the oil price has fallen further--and I think is likely to [move down] further--than I would have guessed 10 days ago or whenever that forecast was made. As I said a month or six weeks ago, we can play around with these forecasts until the cows come home but I think there is a variety of factors that transcend the forecast, which Mike and Jim and Ted referred to in various parts of their commentaries. On the exchange rate side, for example, we have seen something that smells to me like a basic change in market attitudes towards the dollar, partly because of some of the official announcements and all the rest. I think that has been reinforced by the combination of the oil price situation and perceptions as to how that will affect the LDCs, and in turn how that in combination with some of the other problems that are perceived at least to be there in the banking system will affect [the situation]. I think those considerations, at least at the margin, do have a decided influence on the attitudes toward the dollar right now. So, I view the dollar as not only lower by 5 to 7 percent from when we last met but I guess I consider it a good deal more vulnerable on the down side than it was six weeks or so ago. What will happen to the oil price is anybody's guess. It could stabilize in the $18 to $20 range; it could go down further; or, if the Saudis are able to reach a meeting of the minds with the British or somebody else, the problem is that it could go up--particularly if it got down to, say, the $15 or $13 range. In some ways the worst of all worlds is to have the oil price go down that low only to come back up, even if it only came back up to $22 or so. I don't think one can rule that possibility out. How that will play out is an enormous uncertainty; but almost regardless of how it will play out, I think it has caused the LDC situation to deteriorate significantly. Mexico's problems are clear; to me the great danger is if Mexico gets so out of control that it forces other things to become unglued a bit. So, I think that situation is also a good deal more tender, to put it mildly. I remain concerned about this whole debt issue, which again, Jim and Mike touched on. I don't see it getting much better. If I look at Mike's flow-of-funds forecast for 1986--and I know how hard it is to forecast the flow of funds--in an underlying sense I don't see anything that constitutes a real improvement there, particularly when you take account of the special blip in state and local borrowing at the end of this past year growing out of tax considerations. On the inflation side, I guess I am a little more concerned. I think the probabilities lie on the side of an inflation rate that looks like the ones that are more or less represented in the forecast in front of us. But it is not hard for me to see how the inflation picture could be worse, notwithstanding the oil prices. Productivity is lousy. I don't see that getting any better. The exchange rate has already come down 20 to 25 percent. I don't see any hard evidence of any feedthrough on prices coming from that, though I don't rule it out. I don't know what the natural unemployment rate is either. Some people say 6 percent; it might be higher than that. The fact of the matter is that, looked at it in that light, the unemployment rate isn't all that far from the point where it could put some pressure on the price level. Beyond that, just in a behavioral sense, the kind of unit labor cost/price behavior relationships that are in the staff's forecast and my own basically have profit margins sitting still in a context in which it is very clear to me that businesses are going to grasp at every straw they can find to try and raise prices. So while I agree with the price forecasts that are on the table, especially in the context of the oil price situation, I must say that I do have some concern that by the latter part of the year we could get an unfortunate surprise on inflation.",942
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"Mr. Chairman, I always feel very nervous at times like this since I don't have much confidence in anybody's ability to forecast. And with the Gramm-Rudman effects upon us and a [potential] drop in the oil price of unknown magnitude, we have two additional complications. Our reading of the tea leaves is very close to what Jerry Corrigan has just described. We're guessing that we'll be a little higher on real growth and inflation than the staff has projected, and I guess we have more confidence in our projection of real GNP than we do in prices. We have a figure of 3.4 percent for real GNP; essentially, we think that the rapid growth in M1 last year, the recent declines in interest rates and in the dollar, the substantial recent increase in employment in January, and now the drop in oil prices are all going to combine to give us greater real consumer spending and greater business fixed investment than the staff has projected. Indeed, I think the latest monthly data suggest that this could be upon us right now. On the price side, we put in a figure of 4 percent for 1986, 4th quarter to 4th quarter; we are basing that upon this exceedingly large rise in Ml the acceleration in real activity that we seem to have had recently, and now the declining dollar, which is going to put increased pressure on prices. Of course the drop in oil prices would have a mitigating effect on this but nobody knows how much. If it persists for a long time, it could well be that the staff's projection is going to be closer than ours. From the standpoint of policy I think we have to realize that this oil price decline is a one-time effect in a sense and is likely to be short-lived. And all the other factors that I see out there suggest that the pace of inflation is apt to be up somewhat from where it has been. So, we are getting a little more nervous about that than we have been. CHAIRMAN.VOLCKER. Governor Martin.",411
-fomc-corpus,1986,"I appreciate the timing of my turn, getting to debate with my friend, Bob Black. It seems to me that the indications for future prices are quite the other way. I see no turnaround in the commodity price situation around the globe. It seems to me that there still will be almost a dumping behavior and that in some cases the LDCs will be [induced] in various situations by oil price declines and necessity to dump something else into the markets. In terms of the oil price change, I think it is more fundamental; I respectfully differ with you in that regard. I consider the faint possibility that some day the Iranians and the Iraqis will stop the killing of each other and there will be an augmented supply from that part of the world. It seems to me that gluts beget shortages down the road, but it takes many years. We have experience from the two oil shocks that we have been through and now we are in a glut situation. I believe the inflation outlook is positive from those points of view. I don't know, Jerry, about productivity; I am as puzzled as anybody else. I certainly missed forecasting that over a period of time, but I don't share your negative approach to productivity. It seems to me that we have yet to realize our trend rate of growth. I think 3 percent is too low a guess with regard to potential GNP; the gap could be a couple of hundred basis points that we are falling short by. And I am not comfortable with the staff's projections of export growth. There is a table in the Greenbook in current dollars that shows an increase--I don't remember the percentage anymore and I've scratched over it once--of about 25 or 30 percent in five quarters. I don't think we are going to make that for the very reasons that this special report detailed. I won't take the time of this rather large Committee but you may remember the 7 or 8 points made in that report, which added up to a delay of the impact: the long-term contracts, fixed investments, special factors and so forth, that we all read in that report. I don't think we are going to be able to take market share back; I try to [unintelligible] my experience with Sears World Trade, which goes back a few years, but I just don't see our being able to compete in the manufacturing area with the Koreans and others around the globe. I don't think we are going to get that share back, and I think we still are going to be struggling with the difficulties of competing with imports. I think the fiscal drag situation is spelled out very nicely in two of the line diagrams in the staff's presentations: we're swinging from a growth in real federal purchases of about 12 percent in 1985 to a decline of almost 8 percent in 1986--and then you add on to that state and local government, as the chart graphically displayed. Will that be offset by some of the more positive factors that have already been reviewed? I suppose it will, but I don't think we are going to get rates of growth of 4 percent past the first quarter. I go along with Frank Morris' estimate of something more like 3 percent. When the Chairman polled us not too many months ago as to what we thought about 3 percent growth, I said it's inadequate. It is particularly inadequate when you think of the debt that we have to service in this country; every sector is this country has a huge debt. Add to that the less developed country situation and the Germans and Japanese headed for a 1 to 2 percent inflation posture. It seems to me that if we are erring in any direction in terms of the economy, it is that we are understressing the risk of even more inadequate growth after the first quarter. The first quarter is fine; but once again we are all so impressed with two months' data, not all of which were positive, yet we are talking about monetary policy that is going to impact the third and fourth quarters of this year and the first quarter of next year. The first quarter of next year will be the fifth year of expansion, as Governor Wallich has already reminded us. It is a pretty old expansion. Whether or not it is obvious where the structural imbalances are, we know they are built in there. Goodness knows we have had enough changes in the economy sector by sector, as Karen pointed out, and in industry by industry--in manufacturing, the thrifts, nonresidential construction and so forth. I don't think we are going to achieve the numbers that are in the Greenbook for business fixed investment. Looking at the fourth quarter and all the shipments and contracts on Sierra--well, IBM is a fine institution and all that, but you can certainly get distorted data from one quarter's move there. I don't think we are going to have big upswings in business fixed investment and nondefense durable goods orders. The Defense Department finally seems to be waking up a little with regard to what they are about over there. It just seems to me that the risks are on the down side and that we have an opportunity here because there is some disinflation in the totality. We have an opportunity to look at monetary policy with a little more action space than in a different economic situation.",1076
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"Thank you, Mr. Chairman. I generally agree with the broad outlines of what I thought was a first rate report [by the staff]; I might lower my original unemployment figure a bit. But it does strike me that this is a rather paradoxical macro forecast that we have here. It is the fourth year of a recovery. We have a litany of micro problems that we all have recited many times. Texas is becoming a micro problem. And yet I think the macro outlook in this forecast--and, as I say, I agree with it--is a good bit better than we probably deserve, adding up the micro pieces. In my District, and it is one of the stronger Districts in the country, I find that while people generally are optimistic about 1986 the expectations don't run very deep. I don't think they run very deep around this table either, because in November and December a number of us were looking at the numbers coming in and thought the risks were on the down side. Today I gather that most of us feel that things are a good bit better; and I think the numbers have been better. My point is that as we formulate policy--I am getting a bit into tomorrow's agenda--there is this paradox. These expectations are not very deep; our mood can change. I think we need to allow ourselves some room for maneuvering as we set these long-term targets tomorrow. We have some room on the bottom but I think we also need some room on the top because we could very well be sitting here in March or May and our expectations could change again in the other direction just as they changed from Thanksgiving to now. So, I accept this forecast; I feel a little uneasy about it because somehow the parts don't add up to the whole, even though I agree with the macro numbers that the staff put out.",372
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Our forecast of real GNP is really quite similar to that of the Board staff's; it's just a couple of tenths higher. There are significant differences in the composition, however. When I look at the differences that we have in residential investment, I actually think that I would be more comfortable with the Board staff's forecast; consequently, we might even conclude that our forecast would be even stronger relative to the staff's than I first thought.",89
-fomc-corpus,1986,"Let me just interject for a moment to remind people that you get a chance immediately after this meeting to revise the forecasts [you have submitted]. You all have made some comment, but I don't know when you look at them whether you'll change them or not. What unemployment rate are we talking about here? Are we talking about the civilian or the total?",71
-fomc-corpus,1986,"The civilian rate is what I think we have been getting in the numbers given to us. The difference is a tenth and when push comes to shove, to be consistent with the Administration, at the end of the report we will just add a tenth to whatever anybody gives us.",55
-fomc-corpus,1986,The Administration projects the total?,6
-fomc-corpus,1986,The total.,3
-fomc-corpus,1986,So you subtract a tenth from theirs. I just wanted to remind you as you talk about the outlook that you may change your forecast after this discussion if you want to. Excuse me for interrupting you.,42
-fomc-corpus,1986,"One other point I would make is close to that made by Frank Morris. Given recent developments, I think there is an excellent chance that growth in the first half will be stronger than indicated by the Board staff's forecast--and for that matter, by our own. But I have a feeling growth is going to be more in final sales than in inventories because I don't think there is much indication that inventories are going to grow at a very rapid pace in the first half of the year. There is a fairly significant difference between us and the Board staff on the rate of inflation; actually, we are almost a point higher in 1986 and somewhat lower as it turns out in 1987. That mainly reflects the differences in the way we see the interaction of the effects of a lower value of the dollar and oil prices. As I mentioned before, we see lower oil prices having their major impact on inflation in 1987 whereas the dollar's major impact on inflation is centered more toward the end of 1986. In any case, if one looks out to the price level at the end of 1987, I don't really see much that would differ. If I may make a few comments about the Twelfth District: It appears to us that the District's economy is expanding at a faster pace than the national average. Geographically, it seems that the strength is centered in California, Arizona, and Hawaii. One of the more striking numbers that we received on Friday was that California's unemployment rate fell to 5.8 percent; that's a huge drop in the last two months. I wasn't able to get the numbers on where all of the growth in employment was but I would suspect that it was in services, where it always is strong, and in addition to that in construction since the weather has been quite good. By industry, the strength is in consumer spending, particularly for services and durables; we see good growth in residential construction and in addition, defense-related aerospace and electronics. The weakness centers in nondefense electronics, where there is so much foreign competition; in agriculture, which continues to suffer from some of the same ills that it has for the past two or three years; and in mining and oil drilling and forest products, although one can make a case that there is a slight light at the end of the tunnel with regard to forest products. Our expectation is that for 1986 the District will outpace the growth of the rest of the nation by probably 1 percentage point; if one were to focus just on California, I think it could be even greater.",521
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Mr. Chairman, our forecast is marginally different from the Board staff's forecast both with respect to growth and inflation. We think that growth in 1986 is going to be somewhat higher, about 0.3 of a percentage point. It is not in any particular area but pretty much across the board. On the inflation side, we think inflation is going to be a little higher than the Board staff's forecast. I am not really as convinced about that personally as my staff is, but what is driving that forecast of higher inflation basically is the unemployment numbers, which would seem to point to pressure on wages and prices later in 1986. And that combined with lower productivity would certainly indicate a higher inflation rate. The effect of the lower dollar and the drop in the oil prices obviously work in different directions in terms of the effect on inflation, if you leave out the timing question. I don't know how that washes out; maybe those two factors tend to net out to not too much effect on inflation. But one thing that I am concerned about from time to time is the drop in the dollar in terms of our trade-weighted index, which is pretty well weighted toward the European countries. Obviously, the drop of the dollar doesn't affect trade with some of our other trading partners, particularly Canada, where the dollar actually has appreciated. So I think that does have--",275
-fomc-corpus,1986,Canada does have a big weight in that index and that's why it doesn't go down very much.,19
-fomc-corpus,1986,"Its weight is multi-lateral, so it's less than its weight in our trade. I think I'm supporting your point, Mr. Forrestal.",29
-fomc-corpus,1986,"I focused particularly on Canada because people in my District--the lumber people, for example--took some comfort originally from the decline in the value of the dollar until they realized that it doesn't have any effect on their trade with Canada.",47
-fomc-corpus,1986,"No, there is no effect on those lumber people.",11
-fomc-corpus,1986,"That's right. In fact, it's the opposite effect. In any event, our forecast gives somewhat more weight to the unemployment number than the Board staff's forecast, so we are higher on growth and a little higher on inflation. If I were to take out that unemployment situation, I personally would be less concerned about inflation. One concern that I have, which others have alluded to previously, is the less developed country situation and particularly the effect of the drop in oil prices on Mexico. I think that is going to be a very, very serious problem for that country, not only for its economy but socially as well. Already it is having that effect, and it certainly is going to have an effect on banks around the country, particularly the money center banks. Having said that, I am not sure what monetary policy can do to help that situation; but it certainly is a problem.",177
-fomc-corpus,1986,I want to remind you all that these forecasts in the last analysis are yours; I'm reporting to the Congress that they are personal forecasts. Mr. Stern.,31
-fomc-corpus,1986,"With regard to the outlook, I too have a stronger forecast than that depicted in the Greenbook. Statistically, across components, it's broadly based; it's simply shared among a wide range of sectors of the economy. A couple of interesting things are going on, it seems to me. It's not just that the latest statistics looked pretty positive, although they did. I have talked in the past about a two-tiered economy and the distinction between what has been happening in the metropolitan areas as opposed to the rural areas. At least in our District, I am afraid now that I have to talk about a three-tiered economy. The metropolitan areas continue to do pretty well. The problems in the agricultural part of the rural economy are still there, of course, but in the non-agricultural rural economy I think there are some signs of improvement in our District. This is evident most vividly in terms of re-openings or expansions or building of new plants, particularly in the mining and the pulp and paper areas. There are new pulp and paper plants in Duluth and in the Upper Peninsula, and copper mines in the Upper Peninsula have reopened. Some may well reopen in Montana. Taconite plants are reopening in Northern Minnesota and there are some new processes being developed there that may lead to some expansion in taconite output. It's really rather remarkable.",270
-fomc-corpus,1986,I am nonplused by the copper mine opening.,11
-fomc-corpus,1986,"The White Pine Mine, which is largely worker-owned, reopened several months ago in the Upper Peninsula. They seem to be doing all right, and they are going to add employment shortly--another 300 workers. I have forgotten what the original base was but it was probably at least that size. There are plans afoot to reopen the big [unintelligible] at the former Anaconda operation.",81
-fomc-corpus,1986,You are kidding?,4
-fomc-corpus,1986,Who is working on this?,6
-fomc-corpus,1986,"The man behind that is a guy by the name of who has been a building contractor; he is looking to get some breaks from the state in terms of tax legislation and so forth. I don't know what he is going to work out with the unions. I presume he intends to work out something. That plan is not signed, sealed, and delivered; I don't want to suggest that. But they clearly are working on it in a serious way. As I say, it's a rather remarkable turnaround and that's why I am talking about this three-tiered as opposed to two-tiered situation, at least in part of the District. But I guess the real reason I am more optimistic about real growth has to do with things like the decline in energy prices and what that means for production and productive capacity, wealth effects stemming out of the rise in stock prices and bond prices, and the other side of that coin, of course, the somewhat lower interest rates we have relative to a year ago. On the inflation side, I must admit to being quite uncertain, as I guess others are also. I am concerned that the favorable effects of the decline of energy prices may be offset to some appreciable degree by the weaker dollar. I have a sense that labor markets are tightening certainly and that labor attitudes are getting a little more aggressive as well. And that gives me some concern. But beyond that, I would not be inclined at this juncture to change my inflation outlook much one way or the other. I am just concerned that perhaps some of the good things that are falling in place are simultaneously being offset.",320
-fomc-corpus,1986,"Minneapolis certainly did improve when Jerry left, didn't it?",12
-fomc-corpus,1986,As soon as I left!,6
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"Our forecast for the year is in substantial agreement with the Board staff's forecast. We have a little less in terms of real GNP; that may reflect a Midwestern prospective. We are a touch higher on the deflator, primarily because we have not forecast such a significant decrease in the price of oil. Within that broad sense of agreement, though, we have some differences. Our housing start numbers are a bit lower than the staff forecast, based primarily on the input of 2 or 3 of our directors who have had a pretty good track record on that in the past. For commercial structures we are significantly higher; we think that the level of starts will taper off very considerably and significantly, but there are enough projects on the drawing boards that are committed to at this point that that ought to carry us through this year. Turning now to a couple of comments about the District: Since the last meeting I think there has been a perceptible improvement in tone and attitudes, at least among the people I talk to. I talked to a large retailer who just had an excellent January--16 percent over January of last year and the best month they had ever had. They will have given a lot of it back in February, but they have a very ambitious objective for the year and they think they are going to make it. On the auto side, people I talk to in Detroit are forecasting a slightly lower auto year than we are--10.3 to 10.4 million units. But the production schedules for the first quarter are a bit heavier than was the case last year and the production schedules for the second quarter are about level, despite the fact that GM has this enormous inventory on its hands. In heavy manufacturing there is some improvement, with backlogs up just a bit. They are nowhere near the peak levels reached before and they are never going to get back there; nonetheless, the attitude is somewhat better there. On the agricultural side, I can't suggest that we are going to see any improvement necessarily in 1986, but I think at least the rate of deterioration is moderating. Land values have got to be getting down to some point of stability; and certainly, we do see a decrease in the rate of decline in land sales. Farm [unintelligible] improved farm liquidity, and I think the work that has been done with the Farm Credit System at least clarifies an area of significant uncertainty. A couple of negatively pervasive comments that I hear are Gramm-Rudman and tax reform. Tax reform was described by one man, a [corporate] chairman, as the worst piece of legislation he had seen in twenty years. On the positive side, [my contacts are] very pervasively positive on inflation. I am talking to people who still are negotiating wage contracts three years long which tend to be in the 3 percent range commonly, or even 2 percent on the low side. And I do think that there is something of a sea change out there on the part of organized labor; their attitudes as they go into the contractual process are entirely different now than in the past. Pricing--",627
-fomc-corpus,1986,"Wait a minute; let me understand that comment. It depends upon what ""past"" you are talking about. Are you suggesting it is lower than it was in the past or higher?",37
-fomc-corpus,1986,I am saying it's lower than it has been in the past. Whereas people in the past have had--,21
-fomc-corpus,1986,It's a sea change from the '70s and a continuation of the recent '80s.,19
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Okay. I just wanted to make sure I understood you.,12
-fomc-corpus,1986,"Again, three-year contracts are being negotiated at a 2 percent annual cost on the low side and 3 percent as a common tendency but importantly with good work rule changes also; therefore, productivity prospects are improved. I think pricing [unintelligible] continues to be very, very tight. The margins are holding and there seems to be very little room for price increases, so that aspect of the inflationary equation ought to be pretty good. As we look at the year, we think it will be a positive year, pretty much in line with the Board staff's forecast.",117
-fomc-corpus,1986,"Si, if I just could ask: What does Detroit think their effective production capacity on automobiles is these days?",22
-fomc-corpus,1986,"Jerry, the number for the second quarter--sorry, I don't have the numbers here. It was about 2.2 or 2.3 million, I think, for the first quarter, and that was about flat out. Ford is running flat out; GM has pulled back a bit.",60
-fomc-corpus,1986,"It depends on the composition, though, doesn't it? At any one time, they will be short of capacity for a certain model or a mini-van or something and have space to accommodate other kinds of cars.",43
-fomc-corpus,1986,Ford attempts to be pretty general throughout their line. They are running very rapidly. They are increasing the line speed and they are working Sundays.,28
-fomc-corpus,1986,"Mr. Boykin, we all remember those bumper stickers about freezing in the Northeast!",17
-fomc-corpus,1986,"Well, Mr. Chairman, I guess I am wearing two hats. On the broader picture, I have just a couple of comments. We see the economy generally pretty much as the Board staff does. We see a little more strength than we first thought because of the oil price developments; my own guess is that if we are wrong, we probably are not seeing it quite as strong as it's going to turn out to be. On the inflation situation, while that has been doing very well and looks like it is going to do very well, I have a little problem about becoming very complacent because that could change, and I think it could change fairly rapidly. Reference already has been made to the fact that we have a micro problem, so I will take just a minute and talk about that. In the Dallas District, [business conditions] continue to deteriorate; while the steep decline in the price of oil is on balance beneficial for the U.S. economy, it's depressing economic activity in parts of the Eleventh District. I should add, however, that while the price declines are unprecedented in modern times, they are not as great yet as is usually alleged by the media, which typically focuses its attention on spot and futures markets where only a small fraction of oil is traded and where prices tend to be highly volatile. Most oil is traded at prices posted by refineries; and that market, while a lot more stable than the spot market, is still disorderly. For example, posted prices on West Texas Intermediate last Friday ranged from $18 to $23.85 a barrel. Posted or contract prices have fallen by 25 percent from November levels, in contrast with more than a 50 percent drop in spot prices over the same period. Adjusted for inflation, oil prices are probably about where they were in 1974. Adding to our District's economic difficulties is the overhang of office and other commercial buildings. We had expected construction activity to decline for some time. The volume of new construction contracts plunged by 25 percent in the fourth quarter; it's down by 40 percent from August 1985 and this downtrend is expected to continue. The weakness in construction and energy, of course, is causing financial strains on our District's financial institutions. Manufacturing activity, especially that related to energy and construction, has been declining. Retail sales growth is weak. Furthermore, the agricultural outlook is dim in some areas and even foreboding in others. In spite of all of the negatives I have just outlined, we have experienced some employment growth in the District, perhaps about one percent. That [could be maintained] if oil prices remain at current levels. Any further drop in oil prices would produce zero or negative employment growth in the District. Mr. Chairman, that concludes my rather gloomy report on what's going on in the Eleventh District.",570
-fomc-corpus,1986,You had a one percent increase in employment over what period of time? Over a year?,18
-fomc-corpus,1986,"Just in early 1986, looking year over year.",12
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"Mr. Chairman, my forecast is for 3 percent real growth and 4 percent prices, so I wouldn't characterize myself as being unduly worried about the strength of the economy or future inflation right now. Nonetheless, in terms of my feelings of discomfort with the forecast, they tend to be on the side of looking at that list of things that mean the economy is stronger than we have seen it and might get even stronger than we are forecasting. The list has been given by several people around the table and it includes the fact that whatever the margin of excess capacity in the U.S. was, it's lower today. The sharp decline in oil prices will mean stronger economic activity in countries such as ours. The resource shift implied by the exchange rate decline also will strengthen business economic activity. So, that list of changes that have brought about a stronger economy is very much on my mind. Turning to the inflation outlook, again there has been a list given; I would add one more item to the list of areas of potential concern about the inflation outlook and that is the labor calendar for this year. There is quite an active labor calendar this year and from the point of view of size, maybe it's a chance to make more gains. I really don't want to analyze it except to say that.",257
-fomc-corpus,1986,I forget: Is the auto industry up in this calendar year?,13
-fomc-corpus,1986,"No, steel. In the Fourth District, there hasn't been much change in activity, but I think there has been a perceptible change in mood. The mood is one of growing confidence and growing optimism though, as I say, without any changes in order books or production schedules to back it up. That may be what is characterized as a shallow attitude of confidence, but we do have that in the Fourth District.",83
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"I am generally not that far off from the staff forecast either. I have about the same number for nominal GNP growth --about 7, 7-1/2 percent--although I too am a little more optimistic about the real side. I see the economy moving closer to the 4 percent range for real growth, since I had the advantage of factoring in some of the recent information from the last month of two. I do think things are looking a little better. I don't expect any great inventory buildup but that should play into the situation, certainly for the first half of the year. So, I see the mix more toward 4 percent real and I am really optimistic on the inflation side. I see most of the spillover from the lower dollar maybe filtering more into 1987 than into 1986; so I see inflation closer to the 3 to 3-1/2 percent range for 1986 partially because of the oil price decline, [the effects of] which I think will show up fairly strongly later in the year. In addition to that, the budgetary situation looks very promising. Although I am not betting a lot of money on Gramm-Rudman targets being met perfectly, I think we are seeing a change in the budgetary environment that we haven't experienced in the last few years. Everybody has been waiting for this turning point on the budget situation, and I think we see it. We are seeing it now as a consensus among budget estimators; CBO and Fed staff as well as the Administration and many other private forecasters are now seeing the structural budget deficit at a turning point. I am not expecting this to do fantastic things but, given no further change in policy--locking in the [unintelligible] in outlays for 1986 alone--the CBO estimates show the budget deficits getting down to the $100 billion range toward the end of the planning period. Relative to the size of the economy in that period, it's quite a different debt/GNP ratio than we have been expecting in the past. I think that's going to have quite an effect on inflationary expectations. Some of that already has been discounted; but even if this process doesn't work its way out completely, there is additional optimism being built into the inflationary expectations side. One of the major factors creating concern in the past was the potential for the budget and political environment to pressure this organization into partially monetizing the deficit and then inflation might result from that. I think some of that pressure is starting to subside and I am fairly optimistic about that. Now, that doesn't mean that issue is no longer with us; it's going to be with us for awhile. But I think the oil price situation along with reaching a turning point in the budget is promising, and that's why I see a little brighter inflation picture. I do worry a bit about the progress on productivity growth; that has been fairly discouraging. I may be wrong but, if you look at that closely, I think one of the major reasons behind that is obviously the employment growth. But you have to ask why we have gotten such a strong employment growth. A company doesn't just go out and hire because it's fun to hire. Obviously, the relative cost in this component of production is relatively cheaper. If you look at the growth of wages at this stage of the economic expansion and compare it to all other postwar periods, you will find that unit wage costs are relatively cheaper than they have ever been in the postwar period at this stage of the cycle. And I think that's one of the reasons why we are seeing a lot of substitution toward the employment side, despite some of the advantages to capital purchases [unintelligible], especially in the equipment area. One of these days we are going to see all these computer purchases show up in productivity, I hope.",776
-fomc-corpus,1986,I'm waiting--within the Federal Reserve.,8
-fomc-corpus,1986,"But still, I'm fairly optimistic. We are only at about 80 percent industrial capacity, and I think we still have a ways to go before we see that full employment unemployment rate pressure set in. I don't know how far that is because I have no idea what the full employment unemployment rate really is. But it's hard to match up 80 percent industrial capacity with 6.7 percent unemployment and say that we are there. It just doesn't look like it to me, compared to anything I have seen in the past. So, I think we have a fairly promising year ahead but I do worry about the dollar situation. Most of the effects of that probably are going to show up in 1987 and I think we really have to watch that situation carefully and [determine] what the lags look like in terms of commodity prices and how that filters all the way into other production prices.",180
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"Mr. Chairman, very briefly I want to say that my forecast is very similar to the staff forecast, deviating marginally with respect to the projection for prices; our projection is a bit lower than the staff's. Picking up on what Governor Johnson has just noted, I think there will be a greater impact on prices coming from the decrease in the oil price than there will be from the effects of the dollar, and I think the dollar effects will [begin to] show up later in 1986 and have a greater impact in 1987. Therefore, I would look for inflation to be somewhat lower than the staff forecast. With respect to the Tenth District, I am delighted to hear that there is some brightness being exhibited in the Ninth District. Maybe it will flow with the cold air down across our part of country!",167
-fomc-corpus,1986,Did you find a copper mine in Colorado?,9
-fomc-corpus,1986,"We have several copper mines; I am afraid the Ninth District may have a jump on us. Talking to people in the urban areas of the Tenth District after Christmas, I would characterize the outlook as fairly optimistic because of a fairly good Christmas season, though retail sales were up only modestly on a year-over-year basis. Secondly, throughout our District the month of January has been very warm and as a result that increased the optimism, I guess, of virtually everybody. But outside of the urban areas the major activities are agriculture, mining, energy, and aviation industry and very little has changed except for lower asset prices with respect to the agricultural sector, for example. There have been some new orders in aviation that should have some positive impact on the Tenth District, but not a great deal. So, I don't see any real change from that very low level. There is very little optimism outside the urban areas, and I am not sure that the Tenth District is going to share in this nice forecast of 3 to 4 percent growth that the nation may enjoy in 1986. I will just make one observation with respect to the energy situation and how it may impact my District. Energy is made up in the District not only of petroleum crude but also natural gas and coal. Natural gas prices have not reacted to the [drop in] crude prices; coal is in less demand and perhaps over time will be fairly severely impacted. But overall, I think there will be less of an impact in the District just from a reduction in crude prices simply because of the various kinds of energy resources that are found there.",324
-fomc-corpus,1986,Were coal prices down earlier? Has there been any downward movement in coal prices?,16
-fomc-corpus,1986,"Yes. As a matter of fact, one or two of those open pit mines up in Wyoming actually closed because of [falling] demand. There is one being opened momentarily, but they don't think they can go on into production.",48
-fomc-corpus,1986,"I am out of [names on] my list here. There are a few people who haven't commented. We should finish up this discussion this evening and then start afresh in the morning with everybody having made some initial comments. If Governors Angell, Rice, Seger, or Mr. Melzer want to say anything, this is your chance or forever hold your peace until tomorrow.",77
-fomc-corpus,1986,"I will just say that I go along with the staff forecast with all the caveats and uncertainties. Accordingly, I am raising my forecast for real GNP by 1/4 of one percent and I am lowering my price number by 0.1 of one percent.",55
-fomc-corpus,1986,"My word, 3.9 percent! Governor Seger.",13
-fomc-corpus,1986,"One nice thing about being last is that so much of what I was thinking has already been stated; but I will just make a couple of points. One is that my forecast for this year's real GNP growth is a touch below the staff's. The main reason is that, although I would like to see exports respond very rapidly to the deteriorating dollar, I am not convinced that they will. Also, I would like to think that imports would respond negatively to the deteriorating dollar but, unfortunately, I am not convinced that that is going to happen either. So, I don't think that we are going to have net exports contribute as much this year as our staff numbers suggest. Also, I am a little more negative about plant and equipment spending. I am concerned that questions about tax reform and what the proposals will do to business tax bills will discourage a lot of investment of that type; as long as those proposals are out there and as long as they look as negative as they do, that's going to happen. So, those are the two places where my numbers deviate from the staff's. On the inflation side, I am a little more encouraged about the impact of the deteriorating dollar on inflation. I just don't see these higher prices being passed through quickly. I am very convinced that the foreign competition, having gotten their toe or foot or whole body in this market, rather love it here, and I think that they are going to want to maintain market share and are not going to do themselves in through hasty price adjustments. That's what my sense tells me; I hope it's not just wishful thinking.",325
-fomc-corpus,1986,"Whether you are going to be last, I guess, depends upon Governor Angell.",17
-fomc-corpus,1986,"I hesitate to make Governor Seger incorrect on that point. I feel as if I am the boy from the farm. After listening to all of these big city reports, it makes me aware of the fact that places like Boston, St. Louis, and even Minneapolis are big places when you come from the farm. There is a different perspective in the rural areas that [stems from] the immediate emotional impact of all that has happened and continues to happen. Those forces tend to affect people's willingness to take on debt because the entrepreneurs all have run for cover and besides that the lenders don't want to lend. So a really different mix is occurring and I suppose that gives a different perspective. However, I must admit that I have been very impressed by Jim Kichline and Mike Prell and their staff and the reports they gave. Looking at my forecast and comparing it to theirs, I come back with a question that I want to be sure that I am right on before I proceed. Jim, I understand that your projection has built into it a decline in interest rates over the year of what--75 basis points?",223
-fomc-corpus,1986,"That's about right. Our thought was that the bill rate will get into the area of 7 percent, with the funds rate drifting down to about 7 percent. But heaven knows what will really happen on the funds rate.",45
-fomc-corpus,1986,"With that kind of projection on interest rates, then, I guess my forecast wouldn't be so different from yours. I must admit that I made my forecast based upon a continuation of the present level of interest rates. If we get that kind of movement in interest rates, the timing of that certainly would have something to do with what the forecast might be. I admit to having probably the lowest inflation prediction of anyone here; I'll claim the 2-1/2 percent inflation number. I don't mind doing that because I've been around economists for some time and they all told me how inflation was going to be higher than it turned out to be; so I don't mind having been on the right side of this issue for the last five years and continuing to be on that same side. I think Governor Seger is correct in analyzing the foreign sector in regard to the competitive level there. Their economies are very price and wage flexible and, consequently, they are going to take the steps necessary to continue, or maybe to add to, their position in our markets. But the impact of the deflationary environment is certainly there, and I just don't see any signs of any change in inflation psychology. Now, I see the expectations there; but if the inflation expectation remains above the actual rate of inflation it seems to me that we are going to see that in such areas as inventories. The forecast of the inventory accumulation that might occur is not going to be very plausible if the actual rate of inflation is lower than the anticipated rate. In the area of oils and chemicals and farm products, it seems to me that with the declining price scenario one would want to hold fewer inventories, not more inventories. So I have some questions in that regard. I am also somewhat hesitant to believe that equipment is going to do as well in this kind of environment as some might expect, but that might be influenced in part by my own perspective in regard to equipment in the farm sector. I don't know when John Deere has their wage negotiations, but they probably coincide with the auto industry and it seems to me that they are a long way from re-entering that market. My last comment is in regard to the natural rate of unemployment. I don't know what it is, by the way; but whatever it is, it seems to me that it's falling faster than unemployment is falling. In fact, it may be dragging the unemployment rate down so that any margins that we had are still there. I do not see any wage negotiations that indicate we are getting closer to the natural rate of unemployment than we were.",514
-fomc-corpus,1986,"First of all, I would say that on the real side I tend to be among the more [unintelligible] camp. I think monetary policy was generally stimulative last year, so we are coming into this year with a good deal of momentum in terms of employment gains and how that will spill through to income and retail sales and so forth. On the inflation front, I would be among those who are somewhat more concerned about it. I am concerned about the change in psychology toward the dollar that was referred to earlier and what the impacts of that are going to be over the course of the year. I also react to the fact that we have record employment levels and we have this question of what the natural rate of unemployment is. In some areas, financial services in particular, we are going to see pretty hefty wage increases. For example, one executive of a large insurance company mentioned to me that they are looking at 6 to 7 percent wage increases in the coming year. Basically, I guess I am at the extremes in both camps. I think we will have a pretty good year on the real side but I am concerned about the rate of inflation we could be looking at. Apart from some of the effects of oil and so forth, I think the behavior of some of these other indices is something that ought to be watched. There are some special effects in terms of food prices in there, but we see this Economist index has shifted as well.",293
-fomc-corpus,1986,"Well, I think we are at the end of today's agenda. Let me give you some materials that will be presented to the Board on Gramm-Rudman, if you would like them. It'll come up at lunch tomorrow. We will have some discussion there but it has to be a discussion not leading to a decision. I don't know how we will manage that but we will not be in the sunshine and we will manage it somehow. This Open Market Committee meeting is over--not over, in suspense. We have the meeting scheduled to start at 9:30 a.m. tomorrow morning. It might be a little safer if we moved it up a bit, if that doesn't bother anybody. Do you want to move it up at least to 9:15 a.m. or to 9:00 a.m.? Does everybody want to move it up to 9:00 a.m.? All right, we will move it up to 9:00 a.m.",196
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,"One small point of clarification, Mr. Axilrod. You referred on a number of occasions to ""further"" declines in the price of oil. I don't know what you are looking at in terms of ""further"" declines as opposed to declines that have already taken place.",57
-fomc-corpus,1986,"Well, as you know, we have a $20 per barrel imported oil price. The spot price varies but it has been around $16.75 or $16.60 recently. I was assuming a little further decline from that spot price and the spot price itself getting reflected finally into the imported price of oil. So, I was thinking [of a decline of] $4 or $5 more on the imported price of oil.",87
-fomc-corpus,1986,"If there were a further decline in the imported price of oil, that would be a reasonably safe bet I would say.",24
-fomc-corpus,1986,"Mr. Chairman, could I just ask Mr. Axilrod if he thinks that alternative I would be consistent with an expectation that there is no threat of slow [M1] growth in the first half of this year but there is some danger of slow growth in the second half of the year?",60
-fomc-corpus,1986,"I think so, depending on how slow a growth you anticipate in the second half. We might begin to get relatively rapid M1 growth if interest rates were to decline substantially in the second half and that would begin pressing the upper end of this range more, unless it was widened a little. Generally the answer would be yes, but it depends a little on the pattern of rates one expects to be consistent with that kind of projection.",86
-fomc-corpus,1986,"Let me make two small observations and see whether they will command support. First of all, you have very small changes between all your alternatives here. It's hard for me to see the significance of these changes other than pictorially and psychologically. Therefore, I don't think any of these necessarily imply one thing or another in terms of very current policy. The other observation is that your changes are almost minute on the M2 and M3 categories and there is nothing that says the Committee has to be bound within the bands of your hypothetical examples here. But just in the interest of perhaps slightly simplifying our discussion I want to ask a general question. Are there really significant questions among members of the Committee about the M2 and M3 tentative ranges? Obviously, I think, there will be questions on what weight to put on M1 and what the M1 range should be. Is that all we have to concentrate on this morning at this stage? I don't want to forbid anybody from talking about M2 or M3 if any of you really want to, but I just thought in making comments, people don't have to make a point about M2 or M3 and don't have to keep repeating their ranges unless there is really a disagreement. It seems to me hardly worthwhile to horse around with a half percentage point on those ranges, unless somebody has a bigger concern about that.",272
-fomc-corpus,1986,"If we are off on velocity as we were last year, should we have [higher] ranges for all of them--Ml, M2 and M3--to allow for that?",37
-fomc-corpus,1986,"Well, that's a question you can raise. Of course, we were within the ranges, so velocity didn't look bad last year.",26
-fomc-corpus,1986,"Well, we were in for M3 and we just barely got in for M2, didn't we, by the end of the year?",28
-fomc-corpus,1986,"It depended on whether you were using the parallel line or the cone. We were pretty much in the range all the time using the parallel lines. Of course, it was toward the upper end; there's no question about that. Well, I couldn't if I wanted to, but I don't want to [unintelligible] not discuss the wider aggregates. But the principal concern, I suspect, is on the weight to be given to M1 and on the ranges for M1. Perhaps we could concentrate more on that, anyway. Does anybody want to say anything?",114
-fomc-corpus,1986,"I would support that view, Mr. Chairman. It seems to me that our experience last year using the parallel lines that you alluded to, as well as the various projections, are consonant with M2 and M3 ranges of 6 to 9 percent, even. On a pragmatic basis, I don't think there's a big argument to go to 6 to 10 percent or something like that. Ml is different.",86
-fomc-corpus,1986,"Well, why don't we proceed and talk about Ml; but if anybody wants to make some [unintelligible] comments about M2 and M3, obviously, you are free to do so. What do we do with Ml next year?",50
-fomc-corpus,1986,"I have had a proposal for a number of years about that: [I would get rid of the M1 range]. I think it has been a bit embarrassing that in three of the past four years we have not been able to set a range for M1 that is compatible with a reasonable nominal GNP outcome. That doesn't seem to have hurt our credibility in the marketplace too much; but the fact is that we keep on setting targets that we don't meet. And I think last year was particularly difficult because we rebased in the middle of the year and then we still couldn't bring Ml within the range. Now, it may well be that M1 is going to be well behaved in 1986 and that we can get through the year and be within one of these ranges; but I don't have any confidence that we can be sure of that. The other thing I would get rid of is the debt measure, but for a different reason. I think it is pretty clear now that if we are going to use a debt measure, we better have some adjustments to eliminate debt that is clearly not related to economic activity--that is, the substitution of debt for equity which has been very big in the last couple of years. There is this practice by state and local governments of putting out debt and investing the proceeds in government securities; we count both of those. It seems to me that if we are going to use debt, it has to be an adjusted debt concept to take account of these things. If we can't make that adjustment, I think we ought to drop the debt aggregate. So I would propose, Mr. Chairman, that we set a range of 6-1/2 to 9-1/2 percent for M2, M3 and total liquid assets.",357
-fomc-corpus,1986,You are going [unintelligible] the M2?,13
-fomc-corpus,1986,"I am a little concerned about our practice of continually picking upper limits with the expectation that that's where we are going to end up. It seems to me that it would be prudent to have a little margin, and if we say 6-1/2 to 9-1/2 percent for these three measures I don't think we would get any negative feedback from the marketplace.",76
-fomc-corpus,1986,"This is not where we would expect to end up this year, is it Mr. Axilrod? Your projection doesn't put us at the top of the M2 and M3 ranges, does it?",41
-fomc-corpus,1986,"Yes, for debt we would be projecting--",9
-fomc-corpus,1986,I am not talking about the debt--[just] M2 and M3.,17
-fomc-corpus,1986,No. For M2 and M3 we are very close to the middle of the ranges.,19
-fomc-corpus,1986,"But it does for Ml, right? 7 percent?",12
-fomc-corpus,1986,Yes. Our forecast for M1 is between 6-1/2 and 7 percent. Jim says near 7 percent. In the model we rely on most it is literally 6.8 percent. We have others that are a little lower and one that is higher.,57
-fomc-corpus,1986,But M2 and M3 are not expected to be so near [the upper limits].,18
-fomc-corpus,1986,I don't think the half percentage point is [critical]; 6 to 9 percent would probably work out all right. I just like the idea of having a little extra margin.,36
-fomc-corpus,1986,We'll get the rebuttal from Mr. Black.,10
-fomc-corpus,1986,"What led you to that conclusion? I do think it's good at the time we set these long-run targets to take a longer-run look at this and the reasons we are setting these ranges. We have been at it now for 10 years and I don't think anyone would claim that they work perfectly. But I do think they have helped us focus our attention on our long-run objective of trying to return to price stability. The remark that Steve made a while ago about the importance of avoiding signals to the market suggests that the prudent thing for us to do at this point probably is to reaffirm the ranges that we had adopted tentatively at the middle of last year. Now, even though Steve made a very excellent case for using all of the aggregates, I still believe--rightly or wrongly, and maybe just on the basis of blind faith--that, of the three that we look at, M1 is going to end up over the long-run being the best one to use. A lot of these institutional changes are behind us and I don't think we have the same sort of change in inflationary expectations that we had in the past that affected the behavior of the aggregates. I am well aware that the velocity of Ml may behave the same way it did last year, maybe even worse; but I think it's also reasonable to think that at some point it's going to resume some part of its normal behavior and I think that we ought to bear that possibility in mind, at least, in setting our targets. And I think the 4 to 7 percent range does encompass those possibilities. We have language in the Bluebook on the long-run objectives that I think gives us enough flexibility to take care of that if we do have this aberrant behavior of Ml velocity. If we want to recognize it explicitly, then I think we could use something like the 3-1/2 to 7-1/2 percent range suggested in paragraph 10 in the Bluebook. I would be opposed to using the 4 to 8 percent band because that would involve widening the range only at the top, which I think would be noted by the markets and probably interpreted by them as some weakening of our anti-inflationary resolve. So, I would stick with what we did at midyear.",459
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"I decided not to go last today. One other aspect of M1 that I would mention is that it bears the closest relationship to what we do, and for that reason I think it's important to maintain it as a target and not just as a monitoring range. Also, as I expressed yesterday, I tend to be among those who are more concerned about possible inflationary developments--what Steve cited in the first instance. And in that context it may be desirable to have M1 as a target. If we find ourselves in a position where we might have to exercise a greater degree of restraint during the course of the year, an M1 target could add to that argument. At the same time, I recognize the uncertainties about the behavior of velocity and for that reason I could be persuaded to expand the band at the upper end somewhat. I don't think there would be adverse market reactions to that. In fact, if we found ourselves in a position where we continued to have very aberrant behavior of velocity, we could deal with that in the same fashion we did [last] year without losing a tremendous amount of credibility. In any case, I do think it's desirable to have the M1 target. I could settle for a 4 to 7 percent range, although I think the chances are that we would be running near the upper end of that. I wouldn't mind providing more room. In fact, it might be inappropriate to shoot for, say, the middle of the 4 to 7 percent range, given the rate of money growth we had in 1985; but I do think we ought to lean toward slowing that down and, under certain circumstances, I wouldn't necessarily rule out aiming for the lower part of a 4 to 8 percent range--if other factors led us in that direction.",362
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"I approached the question of the annual targets in terms of the likely contingencies that we might have to face and what they mean. I don't think we can anticipate everything but, for example, if the economy is weaker or if velocity continues to run badly astray, I agree with Mr. Melzer that policy can respond to either of those two developments without a great deal of difficulty. I don't want to say regardless of the targets, but policy can respond within a fairly broad framework. On another front, if something goes wrong on the LDC side or in the financial sector, the response inevitably is going to be dictated by circumstances, and I don't think we could build that kind of thinking into the targets themselves even though situations could arise that might require some response. So, I don't think we can deal with that directly. On the other side of the ledger, if the dollar falls further--and especially if it falls significantly further in the face of what surely will be the very sizable, persistent, savings gap that we have--it seems to me that interest rates will tend to rise on their own. But in those circumstances, we might be faced with a need to tighten, even though it would be very, very difficult to explain that when the dollar is seen by so many people from a trade perspective as the boogie man. That would be a much more difficult situation to deal with from [a policy] perspective than either of the first two examples. If the economy is stronger--or even worse, if inflationary pressures do begin to materialize--the policy response would be even more difficult, keeping in mind that over the long run I think the thing that would be the most difficult, both for policy and the economy, and for the LDCs and the financial system, would be a build-up in inflation and the inevitable response that would have to come to that no matter how delayed the response might be. So, I find that from a policy perspective, either a fall in the dollar or a rise in inflation or a very strong economy are much more difficult to deal with than the other sets of circumstances I mentioned. Now, as I said yesterday, I don't see that a rise in inflation especially is inevitable. But I think that we have to be careful, so I approached the question of long-run targets with the need for an insurance policy, if I can put it that way, in mind. To me that means keeping M1 as a target because I think it does serve a useful purpose. I think one can plausibly argue also that there is a possibility that velocity will be at least more normal, given the fact that the sizable declines in interest rates that have produced part of this aberrant behavior in velocity are probably behind us and that the institutional factors should not be as big. So, I would keep Ml. I would have a preference for 4 to 7 percent but I could live with 3 to 8 percent. But if we're going to raise the upper end, I would also favor dropping the lower end and ending up with something like what we had for the second half of last year. I think that sends two signals. It says that we know M1 is still a little funny looking, but that there might well be circumstances in which we would be comfortable with Ml growing at quite a modest rate, even though we don't perceive those circumstances right now. I am happy with M2, M3; I am not happy with debt at 8 to 11 percent, but I don't think that we can do anything about it. So, I would keep M1 as a target; I have a slight preference for 4 to 7 percent but could live with, and in some ways I guess favor, 3 to 8 percent. The only other point I would make, Mr. Chairman, is that I would at least raise the question of whether somewhere in the verbiage that goes with the policy statement about the long-range targets, it might not be a good idea to have a phrase in there saying that we would indeed be prepared to resist any build-up in inflationary pressures, even though we don't see them on the horizon right now. It's not formally in the record; it's on page 16 or 17 in the Bluebook. There is a long, long set of words that we have used in the past in the operational part of establishing the '86 ranges, all or most of which has been crossed out. Somewhere in that I wouldn't mind seeing a phrase that would indicate that in the unlikely event that inflationary pressures do in fact begin to materialize we would be prepared to resist them.",936
-fomc-corpus,1986,"Mr. Chairman, it seems to me if there's one term that applies to the difficult forecasts that were so well done by the Board's staff and so widely supported yesterday, it is ""uncertainty."" We do face a degree of uncertainty that even for a forward-looking group of economists is notable. It seems to me that this is epitomized by a comment on page 6 below the alternatives for the long run as we futilely define it here: the reference to the substantial portion of the rapid demand deposit growth of last year, which is unexplained by any concept of interest elasticity. Of course, we could experience that again this year. I join President Corrigan in the expectation of not putting a great deal of weight on it, but expecting that we probably won't have that continued growth. But we don't understand it. And if there are difficulties in the Southwest and in some of the oil-exporting developing countries, certainly that phenomenon or something like it could return. But we don't understand the very interest elasticity that now characterizes M1, or at least components thereof. Therefore, adding these two factors together, I would favor a 3 to 8 percent range around M1 to give the Committee flexibility and to reflect the uncertainty generally--not just the demand deposit uncertainty, but our lack of ability to forecast Ml right now in this context. I would not favor taking the 1984 approach, though, of putting M1 too deeply out of the show because I do feel that the money managers in banks will learn reasonably shortly--the market is going to force them to learn--how to price various instruments and what the interest elasticity in their submarkets is. That aspect of the interest elasticity, in the institutional sense, will tend to be more understandable over time, I think. So, I would favor keeping M1 in the pantheon, widening the range because of the uncertainty with regard to velocity and other aspects of it, and giving us the flexibility in implementing policy to deal with the unexpected. Think of the unexpecteds we have before us right now. In the last 10 hours the flow of news [has included] that: the Conference Board's consumer confidence index is down; Minister Takeshita again is hinting about a further discount rate cut by the Japanese; and of all things, IBM is substantially cutting the price of its brand new CPU mainframes just as their deliveries are taking place. I think we really have to expect the unexpected. We need wide ranges. With regard to President Corrigan's comment about the language, Mr. Chairman, I would like to see symmetrical language indicating that if economic growth falters very substantially--and I think there is a real risk of that occurring--we would be prepared to adjust even our targets but certainly the way in which we implement our monetary policy, regardless of what aggregate or aggregates we were focusing on. I think Steve's comment about the triumvirate is impressive. And I would join Frank Morris in wondering why we still cite the debt [aggregate], which we can't control. We can affect that only marginally; there's no way to hit any kind of target or any kind of monitoring number on the debt range.",641
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Mr. Chairman, it seems to me that the risks of slower growth or higher inflation that Steve alluded to are fairly well balanced. That makes it particularly difficult to make a choice on these longer-term targets. Because of that, and because of the uncertainties that several people have alluded to, I think what we ought to strive for in 1986 is flexibility. Flexibility also is important, given the staff's projections for M1 growth in 1986, because of the experience that we had with M1 during 1985. It would be very nice if we were able to come within the targets or reasonably close this year. I would keep M1 but, because of the need that I perceive for flexibility, I would opt for the 4 to 8 percent range specified in alternative II--although I could support a 3 to 8 percent range as well. I think it is important to move from the tentative target of 4 to 7 percent to provide some additional flexibility, particularly on the top side of the range.",211
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"I too would favor retaining a range for M1 and treating it at least equally with the other aggregates. When I think about what we did in 1985, it seems to me that Ml played a very valuable role--not in the operational sense, but in the sense that at least on several occasions it caused us to stop and take a very careful look at what was going on and to make a determination about what we wanted to do from there. Those exercises were quite valuable and we didn't get that [message] from the other aggregates. So, for that reason, I'd be inclined to retain Ml. For many of the reasons already cited, I think that some widening of the range is a good idea. We just are more uncertain than we typically have been about the relation between M1 as a policy instrument and economic performance. I'm relatively indifferent between widening the range to 4 to 8 percent as opposed to 3 to 8 percent; either one is acceptable to me.",198
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"I would emphasize the continuing uncertainties with regard to the demand for money and that leads me to argue for a wider range; I would recommend 3 to 8 percent. I think we ought to keep in mind that Ml, even with a 3 to 8 percent range, is likely to grow at the upper end of the range. Since the Board staff's forecast calls for 6.8 percent growth, I think it's important to keep in mind that nominal growth in our forecasts seems collectively to be a bit above that and, therefore, growth in the upper end of even a 3 to 8 percent range would be likely. Finally, I would favor retaining Ml as a target for 1986 for the reasons expressed by quite a few others and particularly by Mr. Melzer.",159
-fomc-corpus,1986,Governor Angell.,4
-fomc-corpus,1986,"I prefer to keep M1 as a target. I think the range should be maybe 3 to 9 percent. With velocity at a negative 3 percent, the staff's dollar nominal GNP forecast gives a 9.7 percent rate of growth in Ml. I believe the marketplace would have a better understanding if we really communicated the range that we think is plausible. That would give us the opportunity on the quarterly short-range targets to specify [our objective] more clearly as economic events develop and as the velocity of M1 becomes better known. I keep being reminded of the events of 1917 to 1946 when Ml's velocity fell from approximately 4 percent to approximately 2 percent. So it seems to me that it is entirely possible that velocity may not always have a long-term rising trend and we should accommodate that [possibility].",171
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"I support a range of either 4 to 8 percent or 3 to 8 percent for the reasons that have been given. I also support the retention of Ml, not because it has been a very good intermediate target in recent years--and I doubt very much that it will be useful in 1986--but I think we ought to limp along with it because it may be useful in the future. I think Governor Angell's point is well taken. In having a range of 4 to 8 percent or 3 to 8 percent, I would couch it with all kinds of caveats and would not hesitate very long to dump it, in effect, as we go through 1986, because I don't think it's a very reliable guide. But I do think it could be useful for a variety of reasons out in the future.",172
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"I think we agreed yesterday that the economic outlook is certainly positive, but I also heard an unusually long list of uncertainties that seem particularly serious. So I would favor adopting a policy that gives us reasonable maneuvering room; I hope that would convey that [uncertainty] to the market. We certainly want to avoid any unintended signals and just possibly changing the tentative ranges might do that. I also think that continuing the ranges that we have had in place this last year could, in fact, convey a continuation of our policy. So I would join those who suggest using last year's M1 range of 3 to 8 percent and continuing to view M1 as a guide in careful coordination with M2 and M3, as Steve has outlined. It seems to me that the broader range deals with some of the uncertainties and gives us some maneuvering room and that under the circumstances that would be the appropriate choice.",182
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"Mr. Chairman, for all the reasons already stated, I would join those who would retain M1 as a target and treat it much as we did in 1985 because of the uncertainties. Secondly, it's attractive to me to adopt what Si Keehn has just proposed: to retain the ranges for all the aggregates, including debt, at the [unintelligible] positions we had in 1985. That incorporates the 3 to 8 percent [for Ml] and retains the debt range of 9 to 12 percent. Although there is some real concern about what debt means, the fact that it is monitored and that we have to take a look at it and try to determine why we missed the range is an important exercise. As a result, I would keep debt and retain the 9 to 12 percent monitoring range that we had in 1985.",177
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"Mr. Chairman, like almost everybody else, I would favor retaining M1, with its weight similar to that of the other monetary aggregates, for the reasons that have already been mentioned by several people. I would favor that not so much because M1 should be a rigid guide to policy but because, as Jerry and Ed pointed out, we may need it in the future to explain some policy moves that we might want to take. I would favor a 3 to 8 percent range, but I suspect that probably would be seen as too wide and might be interpreted as a signal that we are moving away from targeting M1. So, perhaps a narrower range of 4 percentage points would be better received. I would both lower and raise the range a bit to 3-1/2 to 7-1/2 percent but I would be perfectly willing--in fact I would prefer it if most people feel we could get away with it--to go with a 3 to 8 percent range. On debt, I have a good deal of sympathy for the point Frank made; I think we ought to look seriously at the feasibility of an adjusted debt range. I would urge the staff to look into the feasibility of moving in that direction. However, until they do, I would favor expanding the range a little to take into account what we expect to happen. We expect that debt will grow a little faster than 11 percent, so why not move the range out to 8-1/2 to 11-1/2 percent?",312
-fomc-corpus,1986,Governor Wallich.,4
-fomc-corpus,1986,"I would like to keep my [comments as brief] as I can. I hope you'll [understand] my difficulty in expressing my intentions, which I think will be resolved in a month or two. I would take the M1 range lower limit to 4 percent [unintelligible].",60
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"As I went over these various alternatives in the last couple of days, it seemed to me that there were really very narrow differences between them.",28
-fomc-corpus,1986,You had difficulty in discovering the difference?,8
-fomc-corpus,1986,"That's right. I kept going over the alternatives and then I would reread the expected outcomes from the various alternatives. They suggest to me a degree of precision in forecasting that in my 20 months here I'm sorry to say I just haven't seen. So, I think the way we retain credibility with the financial markets is to level with them. I think the way we do that is to say that we don't hit both sides every time. We are not perfect forecasters, as no one is even on Wall Street. So if we set wide bands, that really would be a positive factor for our credibility; it would not be viewed as our turning into inflationary ""wackos."" It just would be a more honest indication that we're impressed with the uncertainties in the economy, with the changed relationships between the various monetary aggregates and nominal or real GNP growth, and all the things that we discuss here regularly. Whatever we do, if it's explained in this way--and, of course, the Chairman has a good opportunity next week to go through all the explanations--it can be handled. Therefore, I would like to suggest that we use all the information we can and present everything we can so it will not look as if we're holding back any information, whether it's on Ml, debt, or whatever. I think we should present [the ranges] but have very broad bands and not suggest that we can [be precise by using] 1/2 percentage points. I think that's ludicrous. For Ml, I could live with either 3 to 8 percent or I could live with 2 to 10 percent. Today I just don't want to suggest that any sort of nice bull's eye targeting is possible. For M2, I could even go 6 to 10 percent. Again, these are ranges; that's not saying that we're shooting for 10 percent. For M3, I'd favor 6 to 9 percent or thereabouts. I would keep some sort of debt measure, but clean it up as Frank Morris suggested for these various events that are going on in corporate and state and local government finance that really are not tied to economic activity. So, that would be my preference.",444
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"I think all of the important things have been said. I agree with what seems to be a consensus that there are a lot of uncertainties around M1 velocity, that we need to keep our options open, and that the best way to do that is by a symmetrical widening of the bands. I support something generally in the range of 3 to 8 percent for Ml; I think that's satisfactory. But I think it's very important that we have language associated with this that makes it clear that the options available within the 3 to 8 percent range are not options for more or less inflation but in fact a range of possibilities that we think [appropriate] and that the need to move to the upper end of this range is still a non-inflationary alternative. In other words, it depends on what happens to monetary velocity if we can detect it; and if we move to 8 percent M1 growth during some point during the year, or even well along the top of that range, that has no implications for price stability. We simply would be moving the [unintelligible] associated with what we perceive to be continued abnormal performance in M1 velocity. To me language like that is important because I think we experienced recently what a change in policy rhetoric can do with respect to the dollar. I don't think the fundamentals associated with the dollar have changed that much, although they have some. But there is a different attitude out there about the dollar simply because a lot of people who are in charge of policy are saying things differently. We certainly don't want to create any impressions that we're leaning toward an easier policy and that that means we're trading off inflation for real growth. It's very important to point out that we would not be making those kinds of trade-offs; we simply would be pursuing an easier policy toward 8 percent money growth because of velocity conditions and demand for money. The closer we can come to language like that, the better off I think we'll be.",395
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"Mr. Chairman, because of the uncertainties I favor wide ranges, and for M1 a 3 to 8 percent range would be appropriate. I think the words that you use in your testimony perhaps will be more important than the ranges we choose. And I think where we come in with respect to Ml, and for that matter with regard to the other aggregates, will have a lot to do with the conditions in the economy and perhaps some financial conditions as well. Some words on the type of reaction we might have if the economy comes in stronger than expected I think would be very helpful.",118
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Mr. Chairman, I also would keep M1 and give it the attention that we have been giving it. On the Ml range, I share a lot of the uncertainties--",35
-fomc-corpus,1986,"When things start happening, how do you interpret that?",11
-fomc-corpus,1986,I beg your pardon?,5
-fomc-corpus,1986,How do you interpret--,5
-fomc-corpus,1986,"I don't know [unintelligible] different. But I still think that M1 is important and that we ought to look at it. As Gary Stern said, when it's not behaving at least that causes us to rethink periodically, so I would pay attention to it. As for the range, I share all of the uncertainties [alluded to by others], and moving the upper end to 8 percent would be acceptable to me. [For the lower end] either 3 or 4 percent is okay.",104
-fomc-corpus,1986,"Just as long as it doesn't get to the point that everyone tells you the same thing about Ml, you'd be pleased!",24
-fomc-corpus,1986,Right.,2
-fomc-corpus,1986,"Well, the band of disagreement isn't particularly wide; it's rather narrow. I'd just raise a couple of points based on listening to this. I'm not sure we know what we're doing. I guess the psychology of this is that most people talk about widening the range for M1 for obvious reasons and then we end up with something like 3 to 8 percent or 4 to 8 percent. I'm not necessarily opposed to that but I just raise the point that we will be asked the question: Why did you do that? It makes a 1 percentage point difference on the up side. Does that mean that we're really going to get the 8 percent this year and that we have reduced the option for doing what we did last year, which is say it's not confirmed by other factors in the economy but it's running a little slow? I don't get the sense that that is what you want to do but I'm asking: Is that what people are going to read into it--that there's going to be more importance attached to Ml? [Will people think that] we went to the great trouble of changing the range to 8 percent and that's a more liberal number, so we better stay within that 8 percent? In some sense and in some conceivable conditions that has the opposite intent of what I detect the sentiment is. That's one question I raise. On the debt issue, which is a lesser question, I do think there probably is a difference given what is essentially double-counting in the state and local area. I don't know what the magnitude of that is; I asked the other day [unintelligible] the answer. I probably have one, but they didn't see it. You go up against them--",344
-fomc-corpus,1986,"It depends on how you do the accounting. Our rough estimate is that the impact of the accelerated financing activity last year that was attributable to the concerns about tax reform would tack on roughly a percentage point. If you wanted to include all advance refunding activity, much of which was stimulated simply by the fact that interest rates were lower or by other technical considerations, that would move in the direction that President Morris was talking about and you would get a slightly larger figure; it might move toward 1-1/2 percentage point.",105
-fomc-corpus,1986,"Don't forget, it's not just the advance refunding but all this mortgage financing is double-counted too, isn't it?",24
-fomc-corpus,1986,"Well, yes; I think there's no end to this. And that's the problem, ultimately, in having an adjusted measure. All sectors of the economy tend to borrow and build up assets at the same time. Sometimes we can identify special financial strategies that are peculiar, like advance refundings or seasonal debt by corporations, where if we had the data we could chop those amounts off. But the fact is that homeowners may borrow more than they need to when buying a home and use that extra cash to build up their liquid assets. So if you start taking all these things out, you get down to fundamental sectoral balances which you really can't identify with growth of a debt aggregate.",135
-fomc-corpus,1986,"Well, I'm not sure; theoretically I think that's right. In practice I'm not sure that there isn't a difference between an advance refunding by a state and local government and some consumer--",37
-fomc-corpus,1986,It's hard to choose where the lines should be drawn.,11
-fomc-corpus,1986,"It's hard to know where the line is, that's for sure. But I think there is a difference. And it might affect our judgment at some particular time, whether we lean in one direction or another. I think it is a question of whether it would be useful--and a couple of people made this point--to have some kind of a benchmark out there [against which to judge whether] it is excessive or not. In those terms I rather like it, but in fact the numbers that we have here seem rather excessive, even as a benchmark of excessivity. We start out with very high numbers, but that is a relatively minor point.",130
-fomc-corpus,1986,"Mr. Chairman, since it is almost a duty of your office to express the policy and views of the central bank, how could we drop it? I am speaking now from a political point of view, not from an economic point of view. From an economic point of view I think we ought to drop it, but politically how could we when it is your role, and properly so, to indicate that the leveraging of America has gone too far--that there are dangers and risks in it. How can we then turn around and drop it out of the pantheon?",114
-fomc-corpus,1986,"I could argue it the other way. I just argued against not keeping it. One could argue that these numbers are so high anyway that we can comment on the excessiveness of it without having that benchmark. So, I guess you could argue it either way; it's not all that critical. On the M1 range, I'm not arguing substance here but I just want to make sure we really think about whether we would be ahead of the game or behind the game by changing the upper limit. We are going to have some language in here--language that we may want to take a little time to play with--indicating that we are not going to be locked into this Ml figure, depending upon a lot of other developments. Given that kind of language which is not yet defined, unfortunately, if we change the range I think there is at least a risk of it getting read as if 8-1/2 percent, let's say, really is bad. To make my case in extreme form--I'll make my case but I don't feel all that strongly: Suppose M1 were running at 9 percent and all things considered we didn't want to do anything about it. That's a modified example of what we had last year, which wasn't very troublesome. Is that more troublesome if we have just raised the upper end of the range to 8 percent? Does that raise more questions about why it's running at 9 percent than if we haven't raised the upper limit of the range from 7 percent? That is my simple question.",305
-fomc-corpus,1986,"It seems to me that that may be the best argument to readopt the range for Ml that we had for the last half of 1985, that is the 3 to 8 percent, as no change. It is a wider range, and from the 4 to 7 percent that we gave tentatively for 1986 in July we've widened it on both ends.",77
-fomc-corpus,1986,"You can argue that we're doing the same thing that we did for the second half of last year; but it means changing what we said for 1986, which is what most people will be looking at, I think. But you can argue that point.",52
-fomc-corpus,1986,"It doesn't seem to me that enough certainty has come into the ability to forecast M1 growth that we should adopt what we thought might be appropriate in July of 1985 for 1986. Indeed, the track record suggests that we are still uncertain and that the wider range is more appropriate.",59
-fomc-corpus,1986,"I think we need to be able to finance 7 percent nominal GNP growth. An upper limit of 7 percent means that if velocity continues negative, we are going to miss the target again.",40
-fomc-corpus,1986,My presumption is that the 7 percent wouldn't be a real upper limit any more than it was last year under those circumstances.,26
-fomc-corpus,1986,"When I spoke about this earlier and said that I had a slight preference for keeping 4 to 7 percent, it was partly for the reason that you mentioned. To me it's a question of these contingencies. If the economy is soft and so forth, I think we can deal with that much more easily than the opposite. I don't think it is just a question of the signal of the upper limit of 8 percent versus the upper limit of 7 percent. That is why I think the language is very important.",105
-fomc-corpus,1986,"Maybe we ought to think a bit about the language we should use. Unfortunately, I don't have a good suggestion to put before you. I wasn't crazy about what was in the [draft in the Bluebook], although that is the minimum we would have to say--that there are great uncertainties about Ml. We can say more. Should we say more than that?",73
-fomc-corpus,1986,"Mr. Chairman, my preference for the 9 percent was strictly in response to your query. That is, it seems to me that if we raise the limit and don't mean anything by the new limit, we haven't accomplished much. We've increased market uncertainties. I would prefer to go to the 9 percent because I think that's enough room. I do not believe as much financial innovation change will occur in 1986 as we had in 1985. So, it seems to me that 9 percent will provide us reasonable opportunities to stay within the range and then we could take the language out, which I believe is confusing and could have adverse effects upon [market] views of the dollar. I would prefer [providing] some more certainty to the market. If a real emergency occurs and is recognized, that would have to be dealt with.",170
-fomc-corpus,1986,You put my point in extreme form; you raised it even higher. But then you really get tied to it.,23
-fomc-corpus,1986,"You really get tied to it. But if we want to express to the markets what we mean, it seems to me that that is the least risky path for us. But it would be a mistake--",41
-fomc-corpus,1986,Unless you get velocity like last year.,8
-fomc-corpus,1986,"Well, I think velocity like last year is rather unlikely. I don't see why money demand would be apt to increase at a rate faster than last year, and it would seem to me that financial innovation changes ought not to contribute as much as they did last year. Mr. Prell, do you have any idea what proportion of our growth rate last year was due to the deregulation?",78
-fomc-corpus,1986,"Mr. Axilrod may want to speak to this, but there were no major deregulatory steps last year that had the immediate effect of shifting funds from one category to another. The more cosmic issue in this context is what the cumulative effect of deregulation has been on the character of the aggregates and the associated interest elasticities. We think it has altered the character and may explain why there was such an apparent sensitivity to the declining interest rates.",90
-fomc-corpus,1986,"In a large sense, Governor Angell, the unknown portion last year was basically the demand deposit behavior. And I don't think that had anything to do at all with deregulation. The question in our minds was whether it had something to do in a broad way with the aftermath of E.F. Hutton, with banks and corporations beginning to look much more carefully at their cash management practices and banks their overdraft practices. A question also was whether it had to do with some of the failures that occurred in terms of clearings and whether banks began looking at overdraft practices and began to take the Board's policy seriously in terms of daylight overdrafts. All those things together could have added a bit to demand deposit growth--that which we can't explain through normal interest rate and income relationships. And that is the sort of thing we were thinking might not be repeated this year. Of course it may, but we think it will not; therefore, we were thinking demand deposit growth would be considerably less than the 8-1/2 percent [in 1985], absent a very sharp drop in interest rates. Those are our conjectures on that.",230
-fomc-corpus,1986,"May I remind you that a year ago at this time we were sitting around this table talking about the fact that there had been a one-time adjustment in the demand for M1 which was behind us. When Steve talks about M1 in 1970, he's talking about a different animal. We [now] are talking about an M1 that bears a market rate of interest. It is an entirely different phenomenon and yet we keep on deluding ourselves that what we call M1 today is the same thing it was in the '70s. It isn't. And it seems to me that's the fundamental source of argument about how to forecast Ml.",129
-fomc-corpus,1986,"I am reminded that there is a side issue that we had a little discussion about. I don't even know what we call these things. Do we call them weighted monetary indexes? I don't think they helped us very much, but I thought it might be a contribution if we had a short appendix to our report describing this work. We would intend to add it to the Humphrey-Hawkins Report, if that is agreeable, just as an explanation of the work in progress. It would not be long, but would describe the characteristics and tell the world that we are looking at these indexes anyway. I take it there is no objection to that.",129
-fomc-corpus,1986,I think it would be very appropriate.,8
-fomc-corpus,1986,"I scribbled down a couple of sentences here dealing with this M1 issue. I don't know whether I like them myself, but let me try this out on you. Substitute for what's there: ""With respect to M1, the Committee recognized that based on the experience of recent years the behavior of that aggregate was subject to substantial uncertainties in its relationships to economic activity and prices depending upon, among other things, its responsiveness to changes in interest rates. It agreed that an appropriate target under existing circumstances is--whatever we make it--but it intended to evaluate movements in M1 in the light of its consistency with other monetary aggregates.""",126
-fomc-corpus,1986,"It would be appropriate to have language which would say ""and therefore a wide range has been set""--if we set a wide range.",27
-fomc-corpus,1986,"This would explain the wide range, I think--well, assuming whatever range we decide [is wide].",21
-fomc-corpus,1986,It would rationalize a narrower range too.,9
-fomc-corpus,1986,"I think it is independent of the range. Maybe I ought to get this typed and we can look at it. Nobody can read my writing, I suspect; I have it scribbled here. We clearly need some language. A range of 6 to 9 percent seems to represent the consensus on M2 and M3. I don't know what the consensus is on debt; most people thought we ought to keep something. We had scattered views as to what it should be if we kept it. If we want to avoid half percents, we could use 8 to 11 percent or 9 to 12 percent. Can we dispose of that one? Was it 9 to 12 percent last year?",144
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,What is wrong with half percents?,8
-fomc-corpus,1986,"Well, nothing.",4
-fomc-corpus,1986,If you think it is going to come within the half--,12
-fomc-corpus,1986,"Let me just ask for preferences. How many prefer 8 to 11 percent? Seven; we have a majority already. How many prefer 8-1/2 to 11-1/2 percent? We have one, anyway. Let me just get preferences of Committee members at this point. Who prefers 9 to 12 percent? Four. Well, there is a clear preference for 8 to 11 percent. Can we live with that? The compromise is Mr. Rice's [8-1/2 to 11-1/2 percent].",115
-fomc-corpus,1986,"Well, we have reason to believe that we are going to miss the 8 to 11 percent.",21
-fomc-corpus,1986,We have reason to believe that we might miss it. But those estimates last year were off by 2 percentage points or so.,26
-fomc-corpus,1986,We haven't anything to do with whether or not we miss it. What difference does it make?,19
-fomc-corpus,1986,"I think the point is that if we put in something like Frank Morris' caveats about mismeasurement, nobody will care about 8 to 11 percent.",32
-fomc-corpus,1986,I am denying we missed it last year.,9
-fomc-corpus,1986,"Nobody pays great attention to this as an operational variable. I think ""monitoring"" is absolutely the precise word to describe it. We look at it in a general way but it doesn't have much policy significance. This is no federal issue to me. We have a majority for 8 to 11 percent; we have a substantial minority for 9 to 12 percent; the obvious middle course is 8-1/2 to 11-1/2 percent, but that looks like fine tuning. What do you want to do?",109
-fomc-corpus,1986,"As one who voted for 9 to 12 percent, I think the half points do imply a precision that we are never going to get. And people really don't look at this very much anyway. So, I would be just as happy to go with 8 to 11 percent.",58
-fomc-corpus,1986,"Why not widen the range on that one, if there are so many uncertainties?",16
-fomc-corpus,1986,8 to 12 percent?,6
-fomc-corpus,1986,Sure.,2
-fomc-corpus,1986,That's another way to compromise.,6
-fomc-corpus,1986,That's fine.,3
-fomc-corpus,1986,I could go with 8 to 12 percent.,11
-fomc-corpus,1986,"This is really a small point, but there is this tremendous concern about debt in the economy. I don't care what adjustments you make for advance refundings or anything else, it is a tremendous concern. The numbers don't mean a darn thing, but we have a published target on the record of a monitoring range of 8 to 11 percent. Given all the concern in the marketplace about debt and given the concern abroad about debt accumulating in the United States, what signals does it send to raise it from the tentative target of 8 to 11 percent to 9 to 12 or something like that? I'm not going to go to war over it, but I think it is sending the wrong signals.",141
-fomc-corpus,1986,But we don't control it. I think that is the point.,13
-fomc-corpus,1986,That is beside the point. I'm thinking of it in this benchmark sense.,15
-fomc-corpus,1986,I agree with Mr. Corrigan.,8
-fomc-corpus,1986,I do too.,4
-fomc-corpus,1986,"Tentatively, it looks like 8 to 11 percent. On Ml, I expressed my only concern about Ml; I think we have--",29
-fomc-corpus,1986,"You made an important point, I think. If it's just slightly above target, we run the risk of having the markets take it very seriously--much more seriously than if it were running way above and it was fairly clear that it would be impossible to try to get it back into the target range as well as that it obviously was not a major concern. I do worry about financial market uncertainties when M1 is hovering a percentage point or so above target and there is a lot of uncertainty about whether the Fed is going to try to take action to get back within the target or let it go. I think it is important; how important--? There is a July hearing, right? Is it often changed then? I really can't remember.",148
-fomc-corpus,1986,Three or four times.,5
-fomc-corpus,1986,The Committee has changed M1 quite a lot.,10
-fomc-corpus,1986,We did it last year.,6
-fomc-corpus,1986,"I think it is not typical, but it is not really unusual either.",15
-fomc-corpus,1986,"My point is that most of this is a forecast, but at least the data for 1-1/2 months of the first quarter don't look too bad. Of course this could turn around quickly in one quarter, but if we are going to set a target, a wider path, we ought to take it seriously at least until midyear. And if we have reason to change it then we can change it--unless we are going to put out some statements along the way that make it clear to financial markets that a slight amount of excess above target does not imply policy action. There are uncertainties around not meeting it during this intermediate period. I don't know what is going to happen either, but if we are going to set a target we ought to take it fairly seriously and then take some formal occasion to adjust it. If July is a formal occasion for doing so, that might be a good time.",182
-fomc-corpus,1986,"There is nothing to say that we can't change these targets other than in July. I don't know that we ever have. But we have announced other than in July or February that we were not observing--. There was some rigamarole that got some attention when it shouldn't have last October/November when we tried to say in an unobtrusive way, because people were conscience stricken, that we clearly weren't going to meet the targets. We thought we ought to tell people that we weren't really trying to meet the targets and we did tell them. It got a lot of attention at the time and had a little market effect for a few days. We obviously weren't [going to meet them] anyway. But we do that if we make a decision that we are, in effect, giving up on the target.",163
-fomc-corpus,1986,"Well, maybe that's the best way to do it: to provide information carefully along the way about how seriously to take the level of M1 relative to the target. We don't have to say anything if it is on target, but obviously we need a lot of communication if it is not.",58
-fomc-corpus,1986,"If in May or June or something like that, M1 is growing at 9 percent and the economy is lousy and velocity is either empirically or otherwise declining, I don't think the market is going to worry at all. As a matter of fact, I was amused reading a memorandum that one of Mr. Sternlight's people gave me yesterday, by some fellow--I don't know who it was--who said that [at his firm] they don't even stay around on Thursday afternoon until 4:30 any more to get the money numbers so that they can trade on them; they go home at 4 o'clock. The problem is on the other side. If we get out there in 1986 some time and, just to take an example, money has grown at 8 percent and velocity is increasing and nominal GNP is rising by 10 or 11 percent, you are darn right the market is going to worry about that. The question is going to be how we respond to that. That is the tough one.",209
-fomc-corpus,1986,They ought to know how we'll respond: that we've got to do something about that.,17
-fomc-corpus,1986,"After listening to all of this, the initial preference of most people--but not everybody, for sure--was 3 to 8 percent. We have one 3 to 9 percent and some at 4 to 7 percent or 4 to 8 percent. You heard my reservation, but I don't feel all that strongly about it. Whatever range we have, we need some [explanatory] language. Does 3 to 8 represent the best consensus we have? I don't hear any opposition to that. You want to change the tentative range, with caveats. Well, that sounds like where we are tentatively. I guess we can vote, but I don't know whether we should vote without seeing the language. Why don't we turn to the language for the ranges and see what other comments people might have? This draft language takes out all the business saying that we might be in the upper part of the ranges. I don't think we are saying that, if I understand correctly, with respect to M2 and M3--or at least I need guidance on this. We have at times in the past, not infrequently, said that we expected to be in the upper part of the ranges. We are not saying that this time; the estimate says that we ought to be roughly in the middle of the ranges, right?",271
-fomc-corpus,1986,"Or thereabouts. We had put some language in that said [the Committee would] continue to examine it in light of velocity, which by implication would take care of the need--",36
-fomc-corpus,1986,"I think Steve makes a good point, Mr. Chairman. The language says M1 is subject to substantial uncertainties. I wonder if it wouldn't be better to say the velocity of M1.",38
-fomc-corpus,1986,"Well, I'm looking at the earlier version, the part that's crossed out. At midyear sometimes we have said that we expect to be in the upper part of the range. We're not saying that this time.",42
-fomc-corpus,1986,We substituted.,3
-fomc-corpus,1986,[Unintelligible] we take that out.,11
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,I'm not saying that's inappropriate; I just want to understand. We're not saying that.,17
-fomc-corpus,1986,We tried to cover it by implication on both sides on the--,13
-fomc-corpus,1986,"Yes, that covers it on both sides. Now, my language is a substitute for that capitalized language in the first sentence, but not for the second sentence. It's pretty standard boilerplate or close to it: ""The Committee understood that policy implementation would require continuing appraisal of the relationships among the various measures of money and credit, their velocity trends, and indicators of economic activity and prices""--this is apart from smaller grammatical errors--""depending among other things on its responsiveness to changes in interest rates. It agreed that an appropriate target would be,"" I suppose.",112
-fomc-corpus,1986,"""Target"" or ""target range""?",8
-fomc-corpus,1986,"""Target range"" it should be. I'm not sure that last phrase quite captures what--",18
-fomc-corpus,1986,"How about if in that last part we said ""in light of its consistency with the monetary aggregates, developments in the economy and financial markets, and the need to resist any buildup in inflationary pressures"" or something like that?",45
-fomc-corpus,1986,That is all right with me. I guess if we did something like that it almost replaces the next sentence too.,23
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,It tilts it toward the inflationary pressures--,10
-fomc-corpus,1986,"No, the first thing is developments in the economy.",11
-fomc-corpus,1986,There's disinflation in the economy with the oil price [decline]. Does that sound consistent with all we've just heard--that oil prices may go down another $5?,35
-fomc-corpus,1986,"Well, the point is it's contingent. It doesn't say that it is going to happen.",18
-fomc-corpus,1986,"Yes, I appreciate the contingency so long as it is symmetrical.",13
-fomc-corpus,1986,"I envision it as symmetrical. That's why I would put ""the developments in the economy"" first.",20
-fomc-corpus,1986,What did you say?,5
-fomc-corpus,1986,"""It intended to evaluate the growth of M1 in light of its consistency with the other monetary aggregates, developments in the economy and financial markets, and the need to""--maybe ""resist"" is too strong a word--""be mindful of any buildup in inflationary pressures that might materialize over the course of the year.""",65
-fomc-corpus,1986,"""Developments in the economy that might indicate weakness""?",11
-fomc-corpus,1986,"That is fine because, as I said, I had in mind to be symmetrical about it.",19
-fomc-corpus,1986,That makes it symmetric. That was your intention.,10
-fomc-corpus,1986,All things to all people. What I really contemplated in doing this--and maybe you don't want to do it--was not to cite M1 in the first sentence of the targets. We could start out by establishing ranges for monetary growth measured from the fourth quarter for M2 and M3. And then this would cover the M1 target.,69
-fomc-corpus,1986,"If we don't make that amendment, then we really are featuring Ml; we are starting with M1 and finishing with Ml.",25
-fomc-corpus,1986,Do you have in mind that they are of roughly equal weight? You don't have in mind a monitoring range?,22
-fomc-corpus,1986,"No, I don't have in mind a monitoring range, but in some sense I think this doesn't give it equal weight.",24
-fomc-corpus,1986,Good; it shouldn't have equal weight. That is all right with me if we can avoid specifically denoting it as a monitoring range.,27
-fomc-corpus,1986,"Yes, I wouldn't.",5
-fomc-corpus,1986,"No, I wouldn't do that. But another way of doing it is to put a sentence like this in first.",23
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,And then follow with the--,6
-fomc-corpus,1986,"Yes, I would prefer that.",7
-fomc-corpus,1986,"Let me see how this flows here. How does the first paragraph start out? We need another transitional sentence if we put it first, I guess. ""In furtherance of these objectives, the Committee agreed to establish ranges for monetary growth measured from the fourth quarter of 1985 to the fourth quarter of 1986. With respect to Ml--""",71
-fomc-corpus,1986,"--""the Committee agreed on the following ranges"" period. ""With respect to--""",18
-fomc-corpus,1986,"If we take this other tack, I think I would say ""The Committee agreed that an appropriate range in the existing circumstances would be"" whatever that is. ""It intends to evaluate movements in M1 in light of its consistency with the other monetary aggregates, developments in the economy and financial markets and potential inflationary pressures."" That is a simpler way of saying it and covers everything, it seems to me.",81
-fomc-corpus,1986,"It is a little weighted toward fear of inflation whereas if it said ""[developments] in the economy that might indicate weakness""--",25
-fomc-corpus,1986,We are going to be responsive ultimately to developments that indicate excessive strength.,14
-fomc-corpus,1986,Sure.,2
-fomc-corpus,1986,"I think this is kind of neutral. What about the number? Is 3 to 8 percent what we want it to be, after due consideration?",31
-fomc-corpus,1986,There seems to be a consensus.,7
-fomc-corpus,1986,"Then I guess what we'd say is: ""In furtherance of these objectives, the Committee established the following ranges. With respect to Ml, the Committee recognized that based on experience in recent years the behavior of that aggregate was subject to substantial uncertainties depending on, among other things, its responsiveness to changes in interest rates. It agreed that an appropriate target range under existing circumstances would be 3 to 8 percent. It intends to evaluate movements in M1 in light of its consistency with the other monetary aggregates, developments in the economy and financial markets, and potential inflationary pressures. It adopted a range of 6 to 9 percent for M2 and 6 to 9 percent for M3. The associated range for growth in total domestic nonfinancial debt was--"" What did we say?",159
-fomc-corpus,1986,8 to 11 percent.,6
-fomc-corpus,1986,"--8 to 11 percent."" Then I guess we don't need that other sentence at all and that's the end of the paragraph. What we don't say specifically is that we'll evaluate those other target ranges depending upon velocity. I'm not sure that's necessary. Do we know what we are voting on? Does anybody have anything else to say? If not, [let's vote].",74
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Johnson Yes President Keehn Yes Governor Martin Yes President Parry Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,46
-fomc-corpus,1986,We can turn to the discussion on the short term or whatever else we are going to do.,19
-fomc-corpus,1986,"Mr. Chairman, in light of the discussion on the long run and the narrowness of the ranges I should mention, as the Committee members surely know, that the width of the alternatives is narrower than the likely range of error in the outcome.",49
-fomc-corpus,1986,That's usually true.,4
-fomc-corpus,1986,"The Committee at its last meeting had established wider [short-run] ranges for Ml, M2 and M3 than had been the practice for some time. Because of the width of the ranges, and given the fact that December turned out to be pretty close to projections and January is coming in low--lower than we had projected --two of the alternatives, A and B, are consistent with those ranges that had been established. As you can see, alternative B is predicated on no further change in bank reserve pressures from what had been adopted at the last meeting. Under Alternative B, we expect growth rates to be close to the lower end of the 6 to 8 and 7 to 9 percent ranges adopted--",145
-fomc-corpus,1986,What did we have? We had 7 to 9 percent for Ml and 6 to 8 percent for the two others?,27
-fomc-corpus,1986,"Right. And that assumes that January growth in fact will be about 1-1/2 percent by the time we put out the new numbers, which are virtually completed. Alternative A assumes some further easing of bank reserve pressures and would have an accelerated growth, we think, in Ml and M2 in February and March. But over a four-month period, the average would still be at growth rates within the ranges adopted by the Committee at the last meeting. I think alternative C is not particularly relevant, if the Committee accepts the staff view that that was predicated on adopting a tighter alternative long-run target than that adopted. Although, of course, in some sense, those ranges are not inconsistent with the long-run ranges that the Committee has adopted--except possibly for M2; [the aggregates] just move down in those ranges faster. Mr. Chairman, I really don't have much more to add. I should mention that, in the past, the Committee has sometimes moved to a December base at this point in the first quarter. We have suggested leaving the November base because the likely growth is not too far out of the ranges that the Committee already has adopted. So there is a possibility of simply leaving [unchanged] the directive and the ranges covering the period through March whether or not the Committee decides to keep reserve pressures unchanged or to ease them. The alternative would be to move to a December base; but in that case I think some of the numbers would have to be lowered from what had been adopted.",303
-fomc-corpus,1986,"Let me just deal with that pictorial question. Ordinarily we would change to a December base at this point, but there is the peculiarity this year that we had a very high December, at least for Ml, and a low January. So, presumably, if we moved to a December base, we'd have to lower all these figures quite significantly just to reflect the fact that when we leave out December we start off with an exceptionally low figure. Arithmetically, you arrive at the same result; it is just a question of whether we want to stay close to or the same as what we had [in the directive] last time.",131
-fomc-corpus,1986,"I should say in that context, Mr. Chairman, that generally we attempt to review at the mid-quarter meeting whether the targets set at the beginning-of-the-quarter meeting are feasible. Our general feeling was that they seemed feasible; it is just this matter of the November or December base. We didn't see a great need to change it.",67
-fomc-corpus,1986,Do we accept that method of proceeding?,8
-fomc-corpus,1986,I would. SEVERAL. Yes.,9
-fomc-corpus,1986,Why don't we take a break right now and come back and resolve this issue?,16
-fomc-corpus,1986,"Let me just make a couple of comments with respect to this decision; these all relate to the operational decision, which I presume will be on the level of borrowing. I think that most people are [not] going to want to change our approach radically at this meeting. The setting that we are in--Governor Martin used the word ""uncertainty"" and that is one way of putting it. The synonym is ""confusing."" That is what I got from listening to all of you yesterday. You have varying views about the outlook. You emphasize quite different things, and that is quite understandable. All of the individual views are quite persuasive, but they are not all consistent with each other, which I think is the confusing aspect. Obviously, we have had stronger data recently; the employment data in particular have been very strong. One is left with this uneasy feeling that that is not matched by equal strength currently or prospectively in a number of the key sectors of the economy. It is a little hard to piece [together] just where the strength will come from through the year. We have had a lot of monetary expansion and a lot of debt expansion, and from that standpoint there seems to be ample liquidity. But I hesitate to believe this recent good data or to believe the part that states there are potentially weak sectors out there, looking ahead a year or so. I am reminded of the old adage of Charlie Kindleberger: In this kind of situation, just don't do anything; stand there. I suspect that may be good advice in this circumstance. I get more concerned as time passes about an underlying factor here. I had assumed that we were at least a year, or maybe 2 years, off from any concern about general pressures on the economy or capacity, looked at very broadly. These productivity figures sure look pretty sour. And that raises a question about what our growth potential really is. We have had unemployment declining something like a half percentage point over the last six months, if one believes this last figure. Maybe we will get a reversal of that in February so that will look different. But where we are now, getting a sizable decline in unemployment with the economy growing--I don't know what it has averaged over the last 6 months--less than 3 percent hasn't it? Well, that looks low; it makes you wonder. On the other hand, you wonder how much we can take without pushing the unemployment rate pretty fast. None of the projections suggests that, but the projections are not consistent with what has happened over the last five or six months either in the relationship between economic growth and unemployment. Maybe it is a fluke; maybe it will all go away in the figures over the next couple months. But it leaves me with more questions in my mind than I had before about what our growth potential is. And, of course, that bears on the inflation picture over time. I don't know who Governor Angell was referring to [in his comment] that people are overestimating the inflation rate. I think that has been generally the case among economists and others surveyed on inflationary expectations; people pretty consistently over the past few years have overestimated inflation. We have an unblemished record as a Committee of overestimating inflation collectively for 5 consecutive years. I don't know if that is going to change; the expectations have been reduced somewhat in this latest set. I think we are seeing some good things in reference to a change in the labor bargaining situation. I suspect a lot of credit for that has to go to deregulation. I think the air controllers' strike five years ago had something to do with changing this trend. From my viewpoint, it is a very healthy development in the manufacturing sector and in some other big labor union sectors. The situation has never looked so great on the financial side. Si or somebody referred to one insurance company anyway, but that has been fairly typical of the service side of the economy. That is, I suspect, where we are getting on balance particularly poor productivity performance. My own bias is that once we lose that favorable inflationary [climate] it is the devil to get it back again. I don't think we have lost it yet, but these underlying factors raise some questions. The biggest threat is clearly from the dollar side. Can we absorb this kind of a reduction in the exchange rate and have just a temporary influence on inflation without affecting the whole climate, which has been improving? From that standpoint, I suppose we should count ourselves very lucky that we may have this decline in oil prices coming. It may not be at the superbly right time, but it's about as good a time as one can ever imagine in terms of offsetting the potential--and I think they will be actual--effects from the exchange rate side of the equation. Here we are getting a tremendously lucky break. Because of the oil situation, can we get through some of the exchange rate adjustment effects without the same degree of impact that otherwise would have occurred? The oil situation, on the other hand, obviously raises all those questions of financial fragility--questions like Karen Horn raised yesterday. I guess the only answer is that while there is in fact a lot of fragility, it has been contained and diffused; so we really haven't had a test of what happens to the economy if something really happened in a way that was not controlled. We have the clear and present danger in that respect internally, but I think in terms of the general risks--if one looks for the one place where things might break down with unknown consequences--just because of the sheer magnitude, it is still in the area of the LDC problems. On top of that are a lot of continuing domestic struggles. We can't handle all that with the monetary policy. I guess the challenge continues to be to keep monetary policy on track while those things get handled primarily [in other] directions, although they obviously could affect the tone of monetary policy at times. We have to continue to do so. But it all adds up to me that we are about as easy as we can be without actually forcing excess reserves on the market. There may be a bit of margin there, but we've been pretty accommodative. The most recent business news looks a lot stronger, but we get fooled lots of times. The most recent monetary news doesn't look disturbing, at the least in a very short time perspective. So it doesn't seem to me a situation where we want to make any very violent changes. With that much introduction, what have you got to say? Mr. Black.",1320
-fomc-corpus,1986,"Mr. Chairman, I agree with you completely on that. I would also like to agree with Pres on something. He talked about the need for symmetry a while ago, and in view of what you have said, I think we ought to put a ""would"" instead of a ""might"" in that last part of the clause. I know you don't think this makes any difference. It does to me. We now have a ""might"" and a ""would,"" and the emphasis of your comments suggests to me that a ""would"" ought to be where ""might"" was.",117
-fomc-corpus,1986,"Okay. We don't want to do all the drafting [of the language] right now, but your point is noted. [What] way do you come out on these numbers that we have to put down because of this?",45
-fomc-corpus,1986,"I would go with ""B.""",7
-fomc-corpus,1986,"Let me just make an immediate comment. Presumably, we don't want to go with short-term targets down to the 1/4 of a percentage point. When I look at ""B"" I would assume that we don't want to go with 5-3/4 or 6-3/4 percent.",64
-fomc-corpus,1986,"As I understand Steve's earlier comments, ""B"" is roughly consistent with what we had initially specified.",21
-fomc-corpus,1986,"Well, we said 6 to 8 percent then, so it is fine for M3 and it is okay for Ml. It isn't okay for M2, just talking--",36
-fomc-corpus,1986,That's what I was [thinking]--rounding in my head a bit.,16
-fomc-corpus,1986,"I would normally interpret these as saying 7 percent, 6 percent, and 7 percent, [for Ml, M2, and M3, respectively]. Is that what you mean, Mr. Black?",43
-fomc-corpus,1986,"That would be fine, Mr. Chairman.",9
-fomc-corpus,1986,"On the borrowing range, what currently is our objective?",11
-fomc-corpus,1986,"Theoretically, we are aiming at the lower end of the range which, as we discussed last time, is $350 million or so. But we have been taking chances on coming in somewhat below that. You get to comment on that point for the sake of completeness.",55
-fomc-corpus,1986,"I would stick with that ""Volcker $350 million,"" although if we run into these problems with the federal funds rate not being what we expected, we get the borrowing that you are talking about. I think people very properly understood the context of the Committee's remarks the last time, saying that the Desk should give a low preference to the federal funds rate and it did so. What is the borrowing related to that? What has it been coming to?",91
-fomc-corpus,1986,"Well, for just these last two weeks--we are all finished but one day and--",18
-fomc-corpus,1986,It is averaging just a little under $200 million.,11
-fomc-corpus,1986,"The market is acting peculiarly today so I hesitate to say what it will be. All the numbers say there are lots of excess reserves out there, but the funds rate went up today. So, I don't know whether that means we are going to get a lot of borrowing on the last day of the statement week even though statistically we should get none. But, in fact, the [funds] market is on the firmer side today. Did we drain again today?",97
-fomc-corpus,1986,"No, we didn't. Statistically [unintelligible], but funds were high.",18
-fomc-corpus,1986,"If you believe the projections, and there is only one day left, [reserves] are $400 million above the target with an allowance of $800 million for excess reserves. Excess reserves should end up at $1.2 billion, so the market is firming. It is probable that we will end up with borrowings below $350 million, but that assumes the market eases this afternoon again.",82
-fomc-corpus,1986,That's with an expected federal funds rate of around 7-3/4 percent?,17
-fomc-corpus,1986,"You can ask the staff but it used to be, historically, that when you had borrowings this low you would get the federal funds rate at the discount rate or below. But it's not happening now.",41
-fomc-corpus,1986,That is what I am getting at. Projected borrowings on alternative A are around $150 million. It sounds like we are actually close to that at the moment in reality. I just wondered--,40
-fomc-corpus,1986,"When [unintelligible] are low--assuming you are aiming that low--unless you are very active, even then you run into all sorts of quirks. Once in a while there is some miss on guesses by the banks on their reserves or something comes out that you don't expect and you get high [borrowings] on one day. And because the target is so low, you can't go below zero but you can go high on a particular day, and it is hard to get borrowings consistently to average that low.",107
-fomc-corpus,1986,There is no economic incentive.,6
-fomc-corpus,1986,"In the two weeks ending January 29, Mr. Chairman, we had borrowings of $374 million and in the preceding two-week period they were $143 million. And, as you mentioned, for this period they probably will be somewhere between $200 million and $300 million or so by the time we are done. For the latest week that was published, the first half of this two-week period, borrowing was $240 million in that one-week period.",93
-fomc-corpus,1986,It sounds like what we really have is something below the $300-$400 million range you are suggesting.,21
-fomc-corpus,1986,"Yes, on balance, I think it is. We have been a little below because the market has been a little tighter than one might otherwise have expected. Mr. Melzer.",36
-fomc-corpus,1986,"I would be in favor of alternative B. I might just say that down the road my tendencies possibly would be to lean toward a somewhat firmer policy. I am, as you expressed before, concerned about the behavior of the dollar and the change in psychology there. One interesting manifestation of that recently was on the unconstitutionality of Gramm-Rudman. The bond markets here very quickly looked right through that; I am not sure the foreign exchange markets did. There are other factors there, such as how the low oil prices have differential impacts and what the credit implications are for the United States and so forth, but along the lines of the argument that bigger deficits are more stimulative. Maybe that would be positive for the dollar; maybe that subtle shift indicates that the dollar is starting to get to the point where there is concern about the inflationary implications of the deficits and the financial problems and what that might imply for monetary policy at this time. So in any case, for the moment, I would be in favor of ""B."" I would lean possibly, depending on future developments, toward a somewhat greater degree of restraint down the road. Given that I think there are difficulties in projecting money looking forward, I don't take a lot of comfort in the low projections looking out over this period. That doesn't make me say that maybe we ought to be tipping [policy] toward somewhat greater ease. I think we probably have been accommodative. In general I would tend to recognize this penchant I have of leaning a little in one direction toward trying to get to $350 million as opposed to being overly sensitive to the funds rate.",324
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"I think the advice not to rock the boat right now makes an awful lot of sense. The economic numbers have been better; they may not last, but they have been better. The outlook for inflation seems a little better; it may last, but we are not sure. I do think the international side is, if anything, more tender, so that where we are seems to be about as well as we can do. There is a bit of trickiness with this borrowing, but I would think that $300 to $400 million makes a lot of sense, perhaps altering that as we gather in the information that the federal funds rate might tell us as to the peculiarities of the borrowing range. Basically, I'd stay about where we are.",149
-fomc-corpus,1986,"Would you technically interpret that as ""B"" or what?",12
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"I come out pretty much the same place, Mr. Chairman. I think you analyzed the situation quite cogently. The economic numbers certainly look a lot better than they did the last time that we met and inflation looks pretty good. We have some complications on the international side, but I think we ought to heed the adage that you quoted and keep running in place--maintain the status quo or an even keel or whatever it is. My tendency would be a little different from Tom Melzer's in that the inflation picture to me doesn't look all that bad, and the question I keep asking myself is: What risk would we run by giving the economy a little boost? I don't think now is the time to do it, but I think that down the road perhaps I would tend to ease up just a little. At the moment, however, I would opt for alternative B with the specifications and the borrowing as indicated at $300 to $400 million.",192
-fomc-corpus,1986,Mr. Martin.,4
-fomc-corpus,1986,"Mr. Chairman, I note that the Greenbook's quarter-by-quarter projection has the second quarter of 1986 as a weaker quarter, at 2.3 percent. Whatever the error range is around that, that is still a stepping down of growth from the first quarter which, as I read the consensus around the table here, is for a pretty strong rate of growth--stronger than the fourth quarter of 1985. But what we do here today will have some effect on the second quarter of 1986, although one can debate the time period needed to affect activity. It seems to me that almost eliminates alternative C; there is no compelling reason to raise interest rates at this time. The markets, of course, are going to start speculating or already are speculating about what we are discussing here right now; certainly, they will speculate once the monetary data are released this Thursday. That will [result in] a little headline here or there when we start talking about much lower rates of growth of Ml. We will release the record of policy actions for December in a couple of days, so we are going to release some interesting numbers one day and some interesting history the next day. And the history is going to point toward the very modest easing in that report for the December meeting. Moving to the alternatives, it seems to me that the market has been telling us something. The market has been acting through the commercial bank mechanism and has been keeping the borrowing numbers low relative to our target of $350 million. It seems to me that now would be the time to recognize the market signals and begin to move the borrowing target first from $350 million to $300 million and then see what the market response is to that. If the response is appropriate--if the federal funds rate begins to come down a little--then I'd very carefully reduce the borrowing level another $50 million. I am not in favor of alternative A either for the same reason I reject alternative C. I think ""A"" probably takes us down to below the frictional level of borrowing. I don't know whether that is $150 million or $200 million or whatever. I think we ought to move in that direction, though, in a couple of stages. That would permit the Board of Governors to respond to the 5 or 6 remaining requests--I hope they are remaining--to lower the discount rate. In other words, it would give us some room to act in a way that would aim at that second-quarter figure and at the figures the staff has provided us for the rest of the way. So, I am a ""B+"" person here with a [unintelligible].",537
-fomc-corpus,1986,"It seems to me that recent economic statistics suggest that there will be surprises on the plus side in the first half of the year. I don't know what that implies for the second half but in that kind of environment alternative B would seem to be the appropriate policy to follow. With the strength that may be present in the first half of the year, I don't think alternative A would be an appropriate policy to follow.",82
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"Mr. Chairman, looking at these alternatives, I see very little difference between ""A"" and ""B."" I discount ""C"" to begin with. There is virtually no difference between ""A"" and ""B"" with the exception that ""A"" implies lower borrowing and a discount rate cut. I might have been in favor of that six weeks ago, but it seems to me that a discount rate cut, in view of the good numbers that we have had recently and the fragility in the dollar, might [not] be appropriate. Therefore, ""B"" at a stand pat level of $300-$400 million would be an appropriate prescription for the next six weeks.",136
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"I also would favor alternative B and, with that, trying to get the borrowings back up to the $300-$400 million range, assuming that nothing too unusual is happening with the federal funds rate. It doesn't seem to me that any of the incoming information on either the economy or the monetary aggregates suggests that we should want to make any changes at this juncture. That may be somewhat of an unusual position in recent history but maybe we should take advantage of that and, as the adage you cited suggested, just stand there.",107
-fomc-corpus,1986,Mr. Angell.,5
-fomc-corpus,1986,"I am afraid I am with the consensus in regard to wanting us to stand still, provided that stand still means standing neutral. Unfortunately, we are in an environment in which we don't have M1 targeting that can really be a policy guide as it was in periods in the past. Since we don't have M1 targeting, we don't have any way to let interest rates respond to economic forces. So it seems to me that we have been pegging the federal funds rate. When I try to factor in a change in the price of oil from $28 to $18 over a period of time when the funds rate has been pegged at 8 percent, I do not get the same responses in the real sector that I would get if we had some other way of running monetary policy. I'd note that the market's judgment during this period of time has been that interest rates ought to come down. Market forces have brought rates down other than the rates that the Federal Open Market Committee controls. It seems to me that unless Messrs. Axilrod or Kichline or Prell can tell me otherwise, I would tend to view actual policy as being pegging interest rates. Now, I don't mind pegging interest rates temporarily during a period where the income velocity of money so misbehaves that we don't know what we are doing. But to run through a period, for instance, of a $28 to $18 change in the price of oil, natural gas, coal--the entire [unintelligible] of the whole economy with pegged interest rates seems to me just to be repeating exactly what happened in the 1970s when we had oil price increases and largely had a pegged and somewhat discretional policy--an adjusted pegged policy. It scares me, and I do not have enough foresight to be comfortable in this environment. If Messrs. Axilrod, Kichline and Prell can tell me that my concerns are unfounded and that the model really works--that the real growth occurs with no interest rate responses--I will feel much more at ease because I have a great deal of respect for their judgment.",432
-fomc-corpus,1986,"You may have less so for the Chairman's judgment. Let me say that I find the analysis of this oil situation a little ambiguous. Obviously, it is a plus on the price side but the famous analogy is to a tax cut on the other side and an expansionary influence on the economy. It seems to me to pull in the other direction from what you are citing. Be that as it may be, I think what you left out of your analysis is a big inflationary impact from the exchange rate which has gone down 25 percent or something like that over the same period, roughly, that the oil prices came down; I don't know how you factor that into your thinking. You are on the low side of the projections; I hope you are right. But the projections collectively, for what that's worth, don't show much change in the inflation rate.",172
-fomc-corpus,1986,I don't have more confidence in my ability to set the peg. I am expressing--,17
-fomc-corpus,1986,"I wouldn't interpret our policy as a peg, be that as it may.",15
-fomc-corpus,1986,"Well, would you explain to me what it is? I just don't understand.",16
-fomc-corpus,1986,An unchanged discount rate during this period and we've been kind of sitting there with the economy moving without much change in either inflation or growth. I am not sure objective circumstances in the market call for great changes in interest rates. And that is what we have seen for the past year.,56
-fomc-corpus,1986,But it seems to me that--,7
-fomc-corpus,1986,"I can't see getting into a long argument, but some people might say 12 percent expansion in M1 was not artificially increasing liquidity and keeping short-term interest rates lower than they would have been in an unfettered market.",45
-fomc-corpus,1986,"If oil prices were to move up from $18 to $28 and interest rates stayed the same, I would--",23
-fomc-corpus,1986,You are taking one factor.,6
-fomc-corpus,1986,It seems to me that it's a very big factor.,11
-fomc-corpus,1986,Is it bigger than the exchange rate factor?,9
-fomc-corpus,1986,I would guess so.,5
-fomc-corpus,1986,"I hope so, but I don't know. I would guess they are roughly counterbalanced; I hope they are roughly counterbalanced just on the pure inflation range. They are both expansionary in terms of the impact on activity.",45
-fomc-corpus,1986,"The models that I have run and can think of--unless someone can point out another model to me--would suggest to me that the path toward expansion in the real sector is through a reduction in interest rates. When you run a model of oil price changes and keep interest rates the same, then in that model I don't see how any real analysis is going to operate.",74
-fomc-corpus,1986,"It depends upon your model. If you use a strictly Keynesian model, you get a big increase in purchasing power from the decline in oil prices.",30
-fomc-corpus,1986,"Well, I never use such models.",8
-fomc-corpus,1986,"Well, that's why it depends upon what model you use. A popular thought when the oil prices were going up was that policy ought to be more expansionary to offset the contractionary effect of the rise in oil prices--equivalent to a tax increase. Now we get the equivalent of a tax decrease.",61
-fomc-corpus,1986,But I don't subscribe to popular views that we should have been accommodative during periods of price increases for oil. I would have thought we should not have been accommodative.,34
-fomc-corpus,1986,I guess what we are saying is that there are different models of the world. I didn't want to divert you. Did you express a judgment as to what--?,33
-fomc-corpus,1986,I cannot be satisfied with standing pat if it means that we peg interest rates at the current level.,20
-fomc-corpus,1986,What alternative do you suggest?,6
-fomc-corpus,1986,"I would hope that we might be able to have some reemphasis of Ml targeting and that we might be able to watch commodity prices and see how they behave. If commodity prices behave by moving upward due to the exchange value of the dollar, and with the commodity price impact of the oil price change, I would want to take cognizance of that.",72
-fomc-corpus,1986,"I really don't want to press you unduly, but do you have a position on these targets--borrowings or whatever at the moment? It is not compelling that you express an opinion right now.",40
-fomc-corpus,1986,I think I've expressed my view.,7
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"Given all the circumstances and the crosscurrents that we've talked about, it seems to me that at this particular moment maintaining the existing policy is appropriate. We are at a time when there is a reasonably short interval until the next meeting and, therefore, we have an opportunity fairly quickly to review what we are doing. Therefore, I would be in favor of alternative B and the borrowing range of $300 to $400 million, but with a careful eye on the federal funds rate. I certainly wouldn't want it to go over the 8 percent level. It seems to me that many of the problems we have talked about would be exacerbated by higher rates. On the other hand, we certainly want to watch the inflationary tendencies very carefully. Again, we have a fairly short period to deal with here and I think alternative B, the existing policy, is appropriate.",173
-fomc-corpus,1986,Governor Wallich.,4
-fomc-corpus,1986,[Unintelligible].,6
-fomc-corpus,1986,I think Governor Wallich supports alternative B.,9
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"I just want to take one minute to bore you with some ancient history. I was looking at some of the numbers that we looked at a year ago and, at that point, we had seen a surprisingly strong performance of real GNP in the fourth quarter. At the time of the December FOMC meeting we had been expecting real GNP growth of 1.3 percent. Lo and behold, it came in at 3.9 percent--or the Greenbook was showing 3.9 percent for the 4th quarter of 1984. As I recall, our reaction to this was somewhat like I sense our reaction is today to the strong employment numbers: Fasten your seat belts, we are about to take off. As I look back at 1985, other than that big expectation at the beginning of the year, I didn't see much of a takeoff. I read the numbers as a rather sluggish performance; I think real GNP growth for the year was something like 2-1/2 percent. I just mention that because I think it suggests that we can put too much emphasis on a current number and sort of extrapolate that, whether it is a strong number or a weak number. That is a risk. In terms of a specific vote, when I look at the actual numbers I have the same problem with these alternatives as I did with our long-range ones. We really don't have major differences between ""A"" and ""B;"" in fact, they are the same numbers, rounded, for M2 and M3. As for Ml, I don't have great confidence in our ability to control that, period. So I am looking at the borrowing target. I prefer something closer to alternative A where the borrowing target would be closer to what we actually have been achieving. If we accompany that with a discount rate cut, I think we would find that the fed funds rate would not be hanging around 7-3/4 or 8 percent but would be down probably to 7-1/2 percent or below. So that is what I would like to vote for. In terms of a specific number for the borrowing target, that would be something in the neighborhood of, let's say, $250 to $300 million.",456
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"Mr. Chairman, I think the employment numbers are not giving us a misleading signal on this occasion. If you look at the leading indicators in December, there was very broad strength in them. And, as I said yesterday, I think we are going to see a faster growth rate in the first half than we are now projecting. Sometime in the first half I think we will have to move to a firmer policy, but I think it is a little early to do so now. I would like to see the dollar come down a little further in the foreign exchange markets before we run the risk of halting that trend by moving interest rates up. So, I think the stand pat policy is appropriate for this meeting; I would support alternative B.",152
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"First of all, I don't see that much difference in the alternatives either; I also rule out alternative C. But I am a little surprised that the difference between ""A"" and ""B"" is such a large difference in borrowings. I think ""A"" goes a little too far, if that is really the kind of borrowing level that we have to go to. But I don't want to close any options. I agree with Preston Martin to some extent that we ought to edge toward the lower end of recent experience in actual borrowings and leave the option open for a potential discount rate cut based on what we might see in the near future. I would like to keep that option open. There's talk of another Japanese discount rate cut, which could make it possible to [cut our rate] without the exchange rate fallout that might result if we did it under the current Japanese interest rate structure. We have some CPI data coming out, and it is going to be interesting to see what kind of CPI numbers or wholesale price numbers we get when we start factoring in the oil price decline, which we haven't seen [in those numbers] yet.",228
-fomc-corpus,1986,"It may be too early. Just as a technical point, is that oil price decline likely to show up in either of those?",26
-fomc-corpus,1986,"It may be too early, yes. I don't know.",12
-fomc-corpus,1986,"We think there will be some effect in the CPI in January because spot gasoline prices have been dropping in retail markets. So we'll get a little, but very little.",33
-fomc-corpus,1986,When is that report?,5
-fomc-corpus,1986,"February 25, which is Tuesday.",8
-fomc-corpus,1986,"I think we may have to wait a month or two beyond this January number to see any real impact, but I may be wrong.",27
-fomc-corpus,1986,"There is some information there. Also, I think we ought to look carefully at the yield curve and how the yield curve is responding to all this information. Holding the funds rate at current levels and continuing to see the long-end rates decline and a further flattening of the yield curve--that is certainly not a warning sign of inflationary expectations. If in fact we continue to see that yield curve flatten out under these borrowing levels, then we ought to take the lead on that. And if the Japanese cut their discount rate further, I don't want to foreclose the option of another discount rate cut. So I would at least like to keep that option open and err toward the lower borrowing range in alternative B.",142
-fomc-corpus,1986,Meaning $300 million?,5
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"I think at least for now we pretty much have to stay with ""B"" as is--$300 to $400 million borrowing. I don't know what the future holds either, but trying to push it too hard now could back up on us.",50
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,I also think we should hold steady at this point with alternative B and the borrowing range of $300 to $400 million with a little bias toward $300 million.,33
-fomc-corpus,1986,"Mr. Boykin or Mrs. Horn, do--",11
-fomc-corpus,1986,"Alternative B, $300 to $400 million, would be my position.",15
-fomc-corpus,1986,I support alternative B with the funds rate in the 7-3/4+ percent range.,20
-fomc-corpus,1986,"Well, we had no trouble arriving at a consensus for alternative B, whatever that means. What I think it means in writing this directive is--. What did we say before? Did we say [unintelligible] as compared to 7 to 9 percent, 6 to 8 percent, and 6 to 8 percent? Is that agreeable? A more subtle, and I suppose important operational question, is how we play this. I don't even remember what the formal decision was last time on borrowing. Was it $350 to $450 million?",114
-fomc-corpus,1986,"It was $300 to $400 million and there was an outside range of $250 to $450 million, depending on--",25
-fomc-corpus,1986,"The outside range was $250 to $450 million and the inside range was $300 to $400 million and then it depended on all these factors, including the discount rate. Just for those who weren't there, the thought was that the higher borrowing would be appropriate with the lower discount rate rather than the reverse.",62
-fomc-corpus,1986,Absolutely.,2
-fomc-corpus,1986,"I think there are two things that bear upon how we conduct this from day-to-day; they're fairly obvious. One is that people have not wanted to encourage higher interest rates. On the other hand, I think the consensus was--though it may not be unanimous--that people didn't want to encourage a lower exchange market feeding upon itself, anyway, on the down side. As those two factors played out we ended up at least at the lower end of the range that we were discussing last time in terms of our intention. We're in a pretty narrow range here. I'm trying to sort out how to express it. I'm not sure we would capture all this if we said absolutely our lower limit on borrowing was $300 million. I'm conscious of the fact that we've been running below that. You can tell me, but I don't sense from the comments--basically the ""stand-still"" comments--that people would want to go up necessarily on the borrowing, or let's say, get toward $400 million right now, just for the sake of getting up toward $400 million if that meant the federal funds rate was moving up and the dollar was fine and all the rest. We might move up in other circumstances, but not in those circumstances. I wonder whether we capture this best with something like $300 million with some margin of flexibility higher or lower depending upon those other two factors particularly. Otherwise, maybe it could be worded as $250 to $350 million; it's the same thing, I guess.",301
-fomc-corpus,1986,Is a range of $200 to $400 million inappropriate?,12
-fomc-corpus,1986,No.,2
-fomc-corpus,1986,It's a wider range than we've been [using].,10
-fomc-corpus,1986,That might be--,4
-fomc-corpus,1986,"It encompasses where we are now, though.",9
-fomc-corpus,1986,Keep in mind that the borrowing at any time could be above even $400 million for some--,19
-fomc-corpus,1986,A day or two.,5
-fomc-corpus,1986,"--for maldistribution or expectational reasons or whatever, but not as an intention. A $200 to $400 million range doesn't bother me, if it doesn't bother the Committee.",36
-fomc-corpus,1986,Can we ask Steve what the expected federal funds rate would be? Is it still 7-3/4 percent or--,25
-fomc-corpus,1986,"I'd defer to Peter, to a degree. If you lowered it down to $300 million, I think the odds on it being at 7-3/4 percent are increased and it might occasionally fall below that.",44
-fomc-corpus,1986,"I think that's about right. In the context of, say, 6 weeks ago, when we were saying $350 million we were tending to associate that with 7-3/4 percent. But the intermeeting experience and changing market expectations about the discount rate would probably lead me to think that if you want even greater assurance of being around 7-3/4 percent, something centering around $300 million is more appropriate.",88
-fomc-corpus,1986,"$300 million did you say, Peter, would be consistent with 7-3/4 percent?",21
-fomc-corpus,1986,"Yes, something centering around that.",8
-fomc-corpus,1986,"It's a matter of taste whether you want to say $200 to $400 million or $250 to $350 million, recognizing that even if you said $350 million it might well be $400 million or $200 million.",45
-fomc-corpus,1986,I'd like a little above or a little below $300 million.,13
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"You would use $300 million to calculate the path either way, wouldn't you? If it went from $200 to $400 million or a little on either side of $300--",36
-fomc-corpus,1986,We'd use whatever the Committee told us to use.,11
-fomc-corpus,1986,"Well, I think what you'd do is probably start off at $300 million, and that might vary, but be thinking that you might shade that as the week progressed depending upon what was happening. That's, in fact, what we do.",48
-fomc-corpus,1986,What did you say the two main factors were that you had in mind?,15
-fomc-corpus,1986,"Well, on the one hand, a feeling about [not] deliberately pushing up interest rates on the one side or deliberately pushing down the exchange rate on the other side. Other factors obviously can enter in, but if important factors intervene we would have a consultation.",52
-fomc-corpus,1986,"Is there any feeling that if we moved to $300 million, that would show through and could possibly be construed as an easing in the degree of reserve restraint coming out of this meeting? As far as the foreign exchange market goes, I think that would not be a particularly timely conclusion.",57
-fomc-corpus,1986,"My assumption is no. But I would think we would express this as unchanged, given what's been happening recently within--",23
-fomc-corpus,1986,But the market wouldn't see that for another six weeks.,11
-fomc-corpus,1986,"Well, it's a relevant question. Maybe I'm wrong, but I was going on the presumption that they wouldn't see it at all, given that we've had a couple of periods when we've been below it. That is my interpretation of an unchanged posture; or that would be perfectly consistent, anyway, with an unchanged posture.",64
-fomc-corpus,1986,That's an awfully good question. Could we ask Peter and Steve what they think about it?,19
-fomc-corpus,1986,I think there has been enough variation from period to period that there wouldn't be that much notice taken if we were centering around the $300 million.,30
-fomc-corpus,1986,"That's my point. Given what we've been doing, some people could even interpret that as a tighter policy.",21
-fomc-corpus,1986,"I don't think it would be interpreted that way at all, Governor Johnson. Conditions may [unintelligible] the market to react and they don't, as Peter said. But I would--",39
-fomc-corpus,1986,"Well, I set it forward with a feeling that it is unchanged. I don't think the market would interpret it [differently], but I'm not--",31
-fomc-corpus,1986,Assuming the funds rate stayed in the 7-3/4 to 8 percent area and didn't do anything that would lead the market--,29
-fomc-corpus,1986,"It seems to me that the funds rate, at times at least, has been surprisingly high considering the borrowing. If we got a different relationship somehow and [market participants] got it in their heads that--. The funds rate in the very short run is half psychology anyway; it is where they think it should be. So I can't rule out that if we did this, the funds rate might settle down in the lower range; but it hasn't so far.",92
-fomc-corpus,1986,"It might be useful to note, Mr. Chairman, that the funds rate, which had averaged 8 percent in November and 8-1/4 percent in December, since mid-January has averaged on the weekly numbers 7.94, 7.87, and 7.83 percent. And up until very recently it has been at 7-3/4 percent. So most of the time, in a sense, it has tracked down since the last meeting.",98
-fomc-corpus,1986,"Well, just in terms of Mr. Melzer's question, at the last meeting we said we were easing a tiny bit. I think what could be happening and has happened--if somebody wanted to look at it through a magnifying glass--is consistent with that in terms of the funds rate. But my interpretation of what we're saying is that we would not be saying that this time.",78
-fomc-corpus,1986,"If that's the judgment of the impact it would have, it probably wouldn't be perceived that way. It's something you're totally sensitive to, so that's satisfactory as far as I'm concerned.",35
-fomc-corpus,1986,Do I hear objections?,5
-fomc-corpus,1986,"I would just make one point. It gets me into the zone of nervousness, I'll tell you that! The point I would make is this: I think there is a danger that even if the Japanese, for example, were to lower their discount rate again and through a process of events we were to end up lowering ours, the net result of that could very well be greater pressure on the dollar, even though the spread in some sense wouldn't be any different than it is today. And that, in the short run, is the principal focus of my being in the zone of nervousness. But I can--",123
-fomc-corpus,1986,"Well, I share that nervousness. Maybe there should be more comment in the short run. One comment on that external point: Everybody loves to sit around waiting for us to change our discount rate before they change theirs. If you look at Japan in particular--there was some mention of this yesterday--they're going to have an exceptionally favorable inflation rate this year and so are the Germans. From an already good record, they have two big influences working in the same direction: the exchange rate and the oil price. I forget just what the short-term Japanese rates are; they're 5-1/2 percent aren't they, Ted?",127
-fomc-corpus,1986,I think they're a little higher than that.,9
-fomc-corpus,1986,"Well, if anything, a little higher than that. Their real rate--",15
-fomc-corpus,1986,They're a touch above 6 percent.,8
-fomc-corpus,1986,"Okay. Their real interest rate--depending on the importance you attach to that in the short run--is something like 6 percent. It's much higher than ours; the German rates I guess are less striking, but nonetheless--",45
-fomc-corpus,1986,They are 4-1/2 percent.,10
-fomc-corpus,1986,"There is one country, Japan, with its growth prospects really pretty dead, particularly against the Japanese potential, and another country with an unemployment of 9 percent, both of which have higher real interest rates than we do. You sit around and say: Why don't they move?",55
-fomc-corpus,1986,I don't quite understand what Jerry was saying. Are you saying we should be firming up a bit for you to stay comfortable?,26
-fomc-corpus,1986,"No, no. The discussion, as I heard it--I don't know what the numbers will end up being--was in the context that we were talking about a borrowing target of $200 to $400 million or $250 to $350 million with an initial level of $300 million.",58
-fomc-corpus,1986,"Presumably, that's no change.",7
-fomc-corpus,1986,"Well,--",2
-fomc-corpus,1986,That depends.,3
-fomc-corpus,1986,"I guess I will accept that. But I'm on the nervous side because my druthers would have been to tilt a little the other way, but I can't make a federal case out of it. In other words, I would try to aim more toward hitting the borrowing target that has been in the path all along.",64
-fomc-corpus,1986,"And what I would say, just as an observation, is that if we aim pretty religiously at $350 million, that would de facto be a little tightening from where we are. That's saying the same thing in the opposite way. It's in a pretty narrow range.",54
-fomc-corpus,1986,"Mr. Chairman, it seems to me you've expressed well two of the factors that we must consider in this short-run goal setting and that is the rather overworked [unintelligible] projection of the change in the price of oil and the known change in exchange rates. But I would hope that the impact of the change in the price of oil would predate the impact of the exchange rate changes because of the contracts, the business relationships, the investment and distribution systems and all the rest of it. And, therefore, I would hope that we would have a window here--to use another overworked cliche; it's cliche day at the Board--for a brief time to move the fed funds rate down by moving the borrowing rate. We should take advantage of it.",156
-fomc-corpus,1986,"Well, let me just look at the language here. What we'd be saying is ""maintain."" And we would use whatever these numbers are for M2 and M3: ""6 to 7 percent, respectively, while the growth of M1 is expected to be at an annual rate of""--what do we say, about 7 percent?",70
-fomc-corpus,1986,"About 7 percent, right.",7
-fomc-corpus,1986,"We've come to Mr. Black's ""would"" and ""might.""",14
-fomc-corpus,1986,I thought I deserved equal time since Pres had made that charge of asymmetry.,16
-fomc-corpus,1986,We had it asymmetrical toward the easing side last time. Do you want to make it symmetrical?,20
-fomc-corpus,1986,I would.,3
-fomc-corpus,1986,No.,2
-fomc-corpus,1986,I favor symmetry.,4
-fomc-corpus,1986,Suppose we made it symmetrical by using might in both circumstances? Would that suggest that neither one is all that [likely]?,25
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,That's a posture of [unintelligible].,10
-fomc-corpus,1986,Take what you can get.,6
-fomc-corpus,1986,It's better than what we had--let's put it that way.,14
-fomc-corpus,1986,The federal funds rate is still in the middle of that range of 6 to 10 percent. What it would say is: maintain; 6 to 7 percent; might and might; and 6 to 10 percent.,47
-fomc-corpus,1986,What's the understanding on borrowing?,6
-fomc-corpus,1986,"Well, $300 million, however you want to express it: $300 million plus or minus; $250 to $350 million; I don't care. It all amounts to the same thing, I think.",42
-fomc-corpus,1986,$250 to $350 million?,7
-fomc-corpus,1986,Express it any way you want.,7
-fomc-corpus,1986,You predict that that would keep the fed funds rate in the same neighborhood as it has been. Am I reading you correctly? Is that close--,29
-fomc-corpus,1986,"Well, in the recent period it has been averaging about 7-7/8 percent; I think something centering around the $300 million ought to give us something like 7-3/4 percent or maybe a hair over that.",49
-fomc-corpus,1986,What has been the daily high on the funds rate in the last couple of weeks?,17
-fomc-corpus,1986,"Well, today it happens to be at 8 percent for reasons that are a little obscure right now.",21
-fomc-corpus,1986,"And when the Treasury balance was especially high, it was at 8 percent, too. There were a couple of 8 percents.",28
-fomc-corpus,1986,"Mr. Sternlight, what would happen to the fed funds rate if economic growth came in somewhat weaker?",21
-fomc-corpus,1986,"It would probably work on expectations; as the Chairman said, that's a big part of the daily framework in which the market participants set the funds rate. If they see economic numbers come out that lead them to think that we're going to be more accommodative, even before we do anything there could be a tendency toward a lower funds rate. Beyond that, there is the opportunity in the context of the directive you're writing to make adjustments in the borrowing level. That could have its impact on the funds rate as well.",102
-fomc-corpus,1986,"So, lowered economic conditions, lowered inflationary pressures, provide ample opportunity--",15
-fomc-corpus,1986,It would work in the direction of a lower funds rate.,12
-fomc-corpus,1986,"And in view of this policy that we're looking at, under those circumstances the members of the Committee would accept the market's sense of adjustments in the fed funds rate and the other rates that might be relevant?",41
-fomc-corpus,1986,"If we talk only in terms of a borrowing level, those conditions would produce a lower funds rate. Would we say something about the funds rate or would we adjust the borrowing level? It depends on which we emphasize.",43
-fomc-corpus,1986,There is some flexibility here in adjusting the borrowing level. But I think one would have to put a few other ingredients in here to have confidence in what we would do or what the fed funds rate would do. What are those price figures going to show? What's the exchange rate going to be doing in a couple of months?,65
-fomc-corpus,1986,"Well, I can accommodate to that kind of policy if it would appear that the fed funds rate would be sensitive to market forces, particularly if the oil price decline turns out to be as great or greater than we anticipate. I lack understanding as to how the fed funds rate has remained as stable as it has over the past seven months, given even some wording of a slight change in pressure.",78
-fomc-corpus,1986,"It's anyone's perspective. Considering how little we [have done] in changing things, the federal funds rate--even on a week-to-week basis--just strikes me as being rather volatile. That all [depends on] where one comes from, I guess. We haven't been doing much in changing this and the funds rate has been surprisingly high, considering Ml and these statistical relationships. Sometimes it aggravates you, but basically it hurts you because we're not sitting on it within a 1/4 of a percentage point or an 1/8 of a percentage point the way we used to.",119
-fomc-corpus,1986,But I haven't seen two-week averages in the 9 percent range nor at 7 percent.,19
-fomc-corpus,1986,That is correct.,4
-fomc-corpus,1986,We won't see it at 7 percent with the discount rate at 7-1/2 percent.,21
-fomc-corpus,1986,It did get up almost to 8-3/4 percent in that period when there were a lot of year-end pressures. But the market recognized that as something rather special and they weren't greatly concerned.,41
-fomc-corpus,1986,"If you used approximately a $300 million borrowing target but accompanied it with a discount rate cut, what kind of fed funds results would you expect?",29
-fomc-corpus,1986,By roughly the amount [of the discount rate cut].,11
-fomc-corpus,1986,"Well, I think we're ready to vote. I don't know if anybody wants to pin down whether we're saying $300 million plus or minus or $250 to $350 million or $200 to $400 million. I interpret them as equivalent.",48
-fomc-corpus,1986,They're all the same.,5
-fomc-corpus,1986,"I don't detect any policy difference between those ways of expressing it; I don't know if somebody else does. We can discuss it, but on the understanding that those are roughly equivalent maybe we can proceed.",40
-fomc-corpus,1986,"Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Johnson Yes President Keehn Yes Governor Martin No President Parry Yes Governor Rice Yes Governor Seger If this precludes a discount rate cut, then I will vote No",55
-fomc-corpus,1986,I don't think it precludes anything. That's a separate decision.,13
-fomc-corpus,1986,"I think I'll still stick with ""No.""",9
-fomc-corpus,1986,[Continuing the roll call on the vote]: Governor Wallich Yes,14
-fomc-corpus,1986,All right.   I guess the meeting is concluded.,11
-fomc-corpus,1986,"I haven't heard any objection. We need a Vice Chairman, too.",14
-fomc-corpus,1986,I nominate Gerald Corrigan to serve as Vice Chairman of the Committee for the year ahead. Is there a second?,23
-fomc-corpus,1986,Second.,2
-fomc-corpus,1986,"Without objection, Mr. Corrigan will be Vice Chairman.",12
-fomc-corpus,1986,"You didn't give us enough time, Mr. Chairman. We'd have objections to that one!",18
-fomc-corpus,1986,"We have a list of [proposed] officers. Do you want to read the list, Mr. Bernard?",23
-fomc-corpus,1986,"Staff Director and Secretary, Stephen Axilrod Assistant Secretary, Normand Bernard Deputy Assistant Secretary, Nancy Steele General Counsel, Michael Bradfield Deputy General Counsel, James Oltman Economist, James Kichline Economist (International), Edwin Truman Associate Economists from the Board: Donald Kohn; David Lindsey; Michael Prell; and Charles Siegman. Associate Economists from the Reserve Banks: Anatol Balbach, proposed by President Melzer; John Davis, proposed by President Horn; Richard Davis, proposed by President Corrigan; Thomas Davis, proposed by President Guffey; and Alicia Munnel, proposed by President Morris.",126
-fomc-corpus,1986,"Do we have a motion, if that's appropriate?",10
-fomc-corpus,1986,So moved.,3
-fomc-corpus,1986,Is it seconded?,5
-fomc-corpus,1986,Second.,2
-fomc-corpus,1986,Without objection. Do we have a motion on the redesignation of the New York Reserve Bank as agent [for the System Open Market Account]?,28
-fomc-corpus,1986,So moved.,3
-fomc-corpus,1986,I did hear a second someplace!,7
-fomc-corpus,1986,I'll second.,3
-fomc-corpus,1986,"Without objection. We have Mr. Sternlight and Mr. Cross as Managers, with the concurrence of the New York Bank I assume. No objections to that. You have a series of what are listed on my agenda as policy instruments. We renew those once a year. I assume everybody has had a chance to look at them and I don't know of any questions being raised. With no objections, those are approved. There's one item that may not be on your agenda. We need one member of the Committee and an alternate to serve for Freedom of Information appeals. I understand this is not terribly burdensome; there haven't been any appeals from 1978 to 1985. But there is now an appeal pending, I understand. Governor Rice serves in that function with Governor Johnson as an alternate for the Board of Governors, and it may be convenient just to have them also serve for the Committee if that's all right with them and all right with the Committee. Hearing no objections--apparently there's an appeal on which you will have to rule. Now we're through with the annual organizational work. We can go to foreign currency operations, Mr. Cross. Oh, wait a minute! I'm sorry. We have to approve the minutes [of the previous meeting]. Is there a motion on the minutes?",258
-fomc-corpus,1986,I'll move them.,4
-fomc-corpus,1986,Second.,2
-fomc-corpus,1986,Without objection. Mr. Cross.,7
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Any questions or comments?,5
-fomc-corpus,1986,Did you see the article in The New York Times Sunday by Bergsten suggesting that the yen should appreciate still further to about 150?,27
-fomc-corpus,1986,"Well, Bergsten has been saying that for a long, long time. If you look strictly at trade considerations and competitive considerations, that's what seems to be influencing his thinking. But of course, the other side of the question is that there are a lot of other elements that enter into the balance of payments other than trade--particularly these capital movements. That's why I mentioned the point about the continued narrowing of the interest rate differentials. That's the other side of the problem in this.",97
-fomc-corpus,1986,You don't think he has a very typical view then?,11
-fomc-corpus,1986,"Well, no. I would say that if you just look at the trade position and the competitive position you can come to one conclusion about where the dollar ought to be. Obviously, we still have a very substantial trade deficit. I think all the economists would agree that we haven't begun to see much of the benefits of the exchange rate changes that already have taken place. And that would provide some considerable improvement to our trade position. But we have an enormous trade deficit to deal with. If you're looking at it strictly from that viewpoint, you could persuade yourself that a [unintelligible] very substantial, and even the very large devaluations and depreciations that we've seen are not going to eliminate the trade deficit. But you can also argue that you can't expect to eliminate all of this huge trade deficit purely by exchange rate moves. There have to be other things in there, such as growth in the other countries. And you also have to watch very carefully the effects of this on capital flows and whether the kind of exchange rate movements he's talking about may lead to great problems for us on the capital side.",222
-fomc-corpus,1986,"You can quote some economists, or one anyway, who says the rate has to get down to 100 yen to the dollar.",26
-fomc-corpus,1986,Ooh!,3
-fomc-corpus,1986,"Not right tomorrow, but he kind of makes it tomorrow. That's the most extreme.",17
-fomc-corpus,1986,I thought 160 was a little extreme; 100 is worse.,14
-fomc-corpus,1986,Any other comments or questions? We haven't had any transactions.,12
-fomc-corpus,1986,"No, we haven't had any transactions.",8
-fomc-corpus,1986,Mr. Sternlight.,5
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Questions?,2
-fomc-corpus,1986,"Peter, there's no evidence in the funds market of the change to daylight overdrafts? I guess with the quarter-end--",24
-fomc-corpus,1986,"It has been smothered over by the impact of the quarter-end, as you mentioned President Melzer. But our impression, both from seeing that activity on Thursday and from a number of conversations with funds managers, is that it was no great problem. I think they saw it coming and were pretty well prepared for it. We did get the sense that some of the rise in excess reserves in the past few months was already foreshadowing this greater attention to the overdraft potential.",98
-fomc-corpus,1986,"Yes, there was some suggestion that the problems that occurred on Thursday may have been related to the caps, but that was not true. One of the big banks had a CHIPS problem that kept us up late again, but it had nothing whatever to do with caps.",54
-fomc-corpus,1986,"Peter, what's the normal spread between the funds rate and the 3-month bill rate? It's about a point now, and I just wondered.",29
-fomc-corpus,1986,"Well, it normally would be less than that. I think it's fair to say that bills are currently priced with an expectation of the funds rate being lower than the recent 7-3/8 percent--call it, on average maybe 7-1/8 or 7 percent, or something like that. I'm not sure there's any one single figure that is normal, but I think the spread now is toward the wide side of what has been a typical range. It maybe centers around 1/2 a point or something like that.",109
-fomc-corpus,1986,"If there are no other questions, we will turn to Mr. Kichline. Oh, wait a minute! We have to ratify the transactions.",31
-fomc-corpus,1986,I'll move it.,4
-fomc-corpus,1986,Second.,2
-fomc-corpus,1986,Without objection. Mr. Kichline.,9
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,"Jim, I was curious as to why you're projecting further depreciation of the dollar over the last Greenbook. Is it basically lower interest rates, or what?",31
-fomc-corpus,1986,Do you mind if I let my colleague answer?,10
-fomc-corpus,1986,"It's partly just in recognition of the fact that the dollar had already reached a lower level than we were projecting at the time of the last Greenbook. The other part of it is that, with the lower interest rates, we felt that it made more sense to assume somewhat more depreciation.",57
-fomc-corpus,1986,You assume 20 percent over the year--,9
-fomc-corpus,1986,"Most of that, or half of that, we've already had.",13
-fomc-corpus,1986,What about 1987?,6
-fomc-corpus,1986,[Another] 5 percent. In 1987 the level at the end of the forecast period is roughly 10 percent lower than we had [in the last Greenbook].,36
-fomc-corpus,1986,You are using the assumption of $16 for the oil price. It's an area where nobody knows. But what would the price of oil sold in the United States today be? Do you have any idea?,41
-fomc-corpus,1986,"The posted prices, I think, are a little less than that now; my understanding is they are in the $15 or $16 range. Mike says $12-$15. That's not the spot price but the price at which the large companies will buy.",52
-fomc-corpus,1986,"Well, this is the time for any commentary that the Committee members might want to make on the business scene. Mr. Boehne.",28
-fomc-corpus,1986,"I think this is one of those times when you have to decide whether you trust what you can see and touch here and now, or whether you trust your ability to look ahead. Normally, I come down on the side of trusting what I can see here and now. And what I see is clearly modest growth: not terrible, not great, but somewhere in between--very unspectacular. But I think this is not a normal time. Therefore, I am inclined to put more weight on what we think is going to happen down the line. Jim has ticked off the familiar reasons for that; but it does seem to me that this is a very unusual loading of the gun with a lot of economic fire power. We have a number of things coming together that are rather unusual. The drop in long-term rates just since the beginning of the year has been around 200 basis points. Now, we know that takes a lag to affect the economy. We are seeing the effect where one would expect to see it first: in the housing market. The value of the dollar has shown a big drop of 30 percent; there's not a whole lot [yet] to see there, but at least some of the people in my District say that while the orders are not coming in, certainly the interest from foreign buyers is there and they see the beginnings of that process. A factor which was not mentioned is the huge run-up in stock prices. We have had a 25 percent run-up in stock prices this year and that, to say nothing of oil prices, has to have a positive impact on consumer spending. Admittedly, we are in a sluggish period; there isn't a lot of hard evidence to hang one's hat on. But it just seems to me that we have this confluence of factors that are so large and potentially so powerful that I come down on the side of thinking that the second half of the year will be a good bit stronger than the first half.",396
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"One aspect that has not been mentioned, with respect to lower interest rates and their effect on housing, is the tremendous amount of refinancing that is going on. In terms of anecdotal evidence, I have heard of some of our branch directors talking in terms of having 6, 8, 10 people on the phone just to take names and say: We'll call you back about your request. In due course I think this is going to affect cash flow of consumers quite significantly. An interesting comment we picked up from a retailer was that he felt that was a factor that was really holding down retail sales in the short run as people incurred the front-end costs of refinancing. And, of course, the benefits in terms of the cash flow will be spread out over time. I would say in general that in the Eighth District the situation looks pretty good. We have the same mixed picture but some retailers we talked to have seen gains of almost 10 percent on a year-to-year basis in their sales. Auto sales are clearly slow, although the manufacturing that we have in our District seems to be in models that are not backed up in terms of inventories, so there is not an anticipation of big employment cutbacks there. In terms of new housing, again, that is somewhat mixed. But in the better areas, St. Louis and Louisville in particular, home builders are looking for 15 to 20 percent year-to-year gains. I would say the same thing that Ed was saying: It's strange that the data we have seen lately on the economy and how it is doing right now are quite poor, and yet I sense in just talking to people that in general there is a lot more confidence about the outlook right now than there was a month or two ago when we were seeing much better current data.",361
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"I agree both with Ed and Tom. I am puzzled as to why we haven't seen more strength in the economic numbers. If someone had told me four months ago where oil prices would be and where interest rates would be today, I certainly would have predicted a different overall level of economic activity than we find today. I continue to expect strength as I look around me in the District. I see a reasonable amount of confidence in the District; nobody is complaining, really. Both the fall in the exchange rate and the lower interest rates are expected to have some spillover into the heavy capital goods industry by the people in those industries in my District. In the steel industry we have seen an improvement in margins and orders, which may be related to labor negotiations even though they are done company by company this year. There are old habits of purchasing agents that still may be in effect, so we don't know how real that is in the steel industry at this time. Our bankers are reporting, as are Tom's, this extremely high level of activity. In the Fourth District it is more in the refinancing area than the new building area. We see that heavy refinancing on the commercial side as well. Again, the new activity in that area is not so strong where our builders are expressing more and more concern about the overhang. All in all, I guess I agree with this general attitude of confidence that I see around my District. I continue to expect strength in the economy, so I don't know whether to characterize my stance as watchful patience or watchful concern. On the concern side, I think that we will have some time to react if the economic numbers come in weaker in the future than I expect. Maybe [unintelligible] is all but the municipal sector; those folks aren't very happy with the prospect of the federal budget deficit reduction.",368
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Mr. Chairman, I would describe activity in the Sixth District as improving since the end of the year. We did have a downturn in the fourth quarter, but in general things are looking up and I think the outlook is quite promising. What perhaps is more interesting and more encouraging is the fact that growth would seem to be more balanced as the manufacturing sector, particularly textiles and apparels, get some of the benefits of a declining dollar and lower interest rates. Employment is generally up around the District, and unemployment is down except in the energy stricken area of Louisiana where I understand that the unemployment rate is now the highest in the United States. The services sector continues to be very good. The weak spots in addition to energy, which is affecting basically Louisiana and southern Alabama, are in the agricultural and commercial real estate sectors. We have increasingly high vacancy rates in the major cities of the Southeast but, interestingly, the building continues to go on. Where there has been some slackening of commercial real estate development, it seems to have spilled over into the light industry development. In a more general sense we have not changed our outlook very much; I agree with the others who said that the current information looks a little disappointing but there seems to be an awful lot in the pipeline that would indicate that activity in the second half of the year is going to be considerably better. We basically agree with the Greenbook. I think that some of the disappointment that we are seeing in the numbers is due to the cutbacks in oil-related activities and sharp price cuts before the stimulus of those lower prices gets into the pipeline. The business people that I talk to around the District are extremely optimistic, and I stress ""extremely."" I don't hear any pessimistic talk at all. Toward the end of the year, just after Christmas, people were beginning to murmur a little about a national recession. I hear nothing at all about that; people seem to be paying a lot of attention to the low energy prices, the stock market rally, and the bond [market] rally. So there is a good deal of confidence. Whether that will spill over into increased business fixed investments, I think it is a little early to tell. The other thing I hear less about these days is the impact of the declining dollar; people are not talking about that as much. We do hear sporadic reports of higher prices; we heard from someone the other day, for example, who indicated that [prices of] imports of machinery are beginning to increase. This is machinery from Japan and due to the fact that this contact is now locked into that Japanese market he finds this very disturbing. But these reports of higher prices are very, very spotty. In general, things in our area are pretty good, except for the one or two areas related to energy and agriculture. In terms of a policy prescription, all of this would indicate to me that perhaps we ought to sit back and pause for a little while.",596
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Mr. Chairman, although recent statistics certainly present a mixed picture of the economy, I believe that the fundamentals will produce a relatively strong pickup in the second half. Our forecast for the second half of the year is a little less robust than the Board staff's forecast, but I think that is due to the fact that we do not have the dollar declining as sharply as the Board staff's forecast does. Plus, we do not have the same term structure adjustment that produces as low long-term rates as in their forecast. In any case, we are expecting real growth to average roughly 3 percent for 1986 and a similar growth rate for 1987. Our inflation rates are quite similar. We don't have as much of an increase in inflation in 1987 but I think that again is probably due to the difference in assumptions about the value of the dollar between us and the Board's staff. As for developments in the District, I think there is basic strength in the Twelfth District but the picture is still somewhat mixed. We do have weakness continuing in agriculture, and energy has imparted a lot of weakness in certain areas of California and has produced very bad effects in Alaska. But in the forest products area, where we have had nothing but weakness in the last several years, we are beginning to hear more optimistic talk; and even in agricultural there is some improvement, I think, particularly in those areas such as almonds and wine where there are export markets that are of some significance. The employment picture in California, I would interpret as being relatively good. There have been steady gains in employment in California. We have seen a very erratic picture for the growth of the labor force and that has caused the unemployment rate to jump around most recently from 5.8 to 7.2 percent. But that is solely the effect of changes in the labor force and employment continues to rise. As for other areas of strength in the Twelfth District: construction is quite strong; residential construction and aerospace remain strong; and commercial aircraft orders throughout the District--Washington and California, in particular--are quite strong. One small comment on Tom Melzer's point: We are seeing refinancings that oftentimes involve a loan that is somewhat larger than the existing loan. In addition to that, there are a lot of lenders who will fold the points into the loan itself. So, I don't know how much of a cash flow bind refinancing is in the state of California.",494
-fomc-corpus,1986,It seems to me that I read something to the effect that Alaskan oil begins closing [down] when the price gets down to around $10 or so. The price is getting down to around $10 or so. Do we still fear that?,50
-fomc-corpus,1986,I think that Alaska is a disaster situation.,9
-fomc-corpus,1986,"Well, a lot of that is revenue for the government.",12
-fomc-corpus,1986,That's right.,3
-fomc-corpus,1986,At these prices is there talk of actually decreasing production?,11
-fomc-corpus,1986,I haven't heard of any.,6
-fomc-corpus,1986,"We have Standard Oil in Ohio and of course they have a big North Slope investment; they are not talking yet about decreasing production there. They have some major capital expenditures--they are halfway through a four-year program that they are considering stopping in its tracks--that they are meeting on that these days. They haven't made that decision yet. But they haven't yet talked about production cutbacks. They have certainly talked about how the state of Alaska is going; it is just like dealing with a foreign government, they say.",104
-fomc-corpus,1986,"I hate to raise disconcerting thoughts when I hear about these strengths in the second half of the year, which I can understand. It is a popular forecast these days. But what would happen if OPEC really got its act together and we suddenly found oil prices going up in the second half of the year instead of down? That is not a very popular view these days, but there are some people who hold it; I don't know what the implications are. We don't know whether they're going to do it, much less the implications, but I am not sure that we can assume lightly that there is no possibility of that.",126
-fomc-corpus,1986,"One thing that it would clearly do, if it did nothing else, is change the bond market psychology in one heck of a hurry.",27
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"In our part of the Midwest, the situation also seems to be improved for the three familiar reasons that Jim enumerated. I think the fundamentals are better and I think they have been and will be enormously helpful. As I talk to people, I have sensed a significant improvement in tone and attitudes over the last couple of months. I hate to mention the agricultural situation one more time but I guess I feel compelled to. I had hoped really that the situation in 1986 was going to be better than in 1985 but I am changing my view on that. The rate of decline certainly has slowed this year; but I think the year as a whole is probably is going to be worse than 1985. I talked to a very senior guy yesterday who told me about some land that had traded at $800 to $900 an acre, which is the lowest I have heard so far. And even at those low levels, with the present level of commodity prices, this land will just barely [unintelligible] cash flow. The exchange value of the dollar is helpful, of course, in the agricultural sector but the trade patterns are largely in place and are very, very tough to change--certainly so soon. So that won't be quite as helpful as might have been expected. The agricultural equipment business is going to be very tough this year. Inventories at the dealer level are extremely high; they're just not moving, and pricing is wicked. So the implement people are continuing to lay off [workers] and to curtail their production, and they are going to have a tough year. The government programs certainly are helpful but they are also very confusing. There is a new industry developing in the Midwest: consultants who hold meetings and try to explain the various agricultural programs, which are very confusing, to the farmers. Those programs are helpful, but when you break it down on a per farm basis, particularly in Iowa which is a corn area, the per farm assistance provided by government programs isn't as great as one might have expected. Just to add our comments about mortgage refinancings: One of our directors last week characterized this year as the year of the mortgage refinancing. He quantified the difference in monthly payments between a 14 percent loan and a 10 percent loan on a mortgage loan of some size. And in terms of the monthly payments it really does amount to a significant amount of money, which certainly ought to be helpful for consumer spending. In his view, any loan at a rate of 11-1/2 percent or over can be profitably refinanced. But there are perhaps two negative aspects of this. First, he suggested that the impact of this on the thrifts is going to be very very tough; that yield on the asset side of their balance sheets is going to go down significantly and the liability side may not be quite structured to deal with it. Secondly--and I think we are beginning to see this--because of the very heavy volume of refinancing going on, it is going to be tougher to get financing for new homes. This potentially could have a bit of an adverse effect on new home sales. But as we consider the overall situation, I think my comments will be similar to those of others: that the outlook continues to be positive and that the second half of the year ought to show an improvement over the first half.",675
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"Well, Mr. Chairman, I think the animal spirits are rising in New England. Our computer industry went through a difficult adjustment last year. We had a decline of 12 percent in employment in the computer industry in Massachusetts last year, but that seems to be turning around. The companies are hiring again, in part because they're beginning to make sales in Europe again. Asked if this is a function of the change in the dollar, the response is ""no"" because they haven't changed their prices in the European currencies; it reflects the improvement in conditions in Europe. With respect to your conjecture about oil prices, I think that we have been waiting for a long time for the U.S. bond market to begin to reflect the current rate of inflation. Expectations don't change very readily in the bond market; but once they do, I don't think they change back very readily either. I think the bond market could accommodate the kind of limited upward movement in oil prices that we are likely to see. So, while I would agree with the general configuration of the Board staff's forecast for a strong second half, if the forecast is wrong, I think it is likely to be wrong because it is too conservative. I think the errors are likely to be on the greater growth side rather than the lesser.",258
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"Well, Chairman, conditions in our District continue mixed. I won't go through the by now familiar problems in agriculture and in our small energy patch and so forth. I think those are similar to the problems experienced in those sectors elsewhere in the country. The other side of the coin, of course, is that in the metropolitan areas the economies are generally healthy. One thing that is going on in some of the smaller metropolitan areas that hasn't been commented on is the effect of expansion and refurbishment of defense installations. In places in our District, like Rapid City and Great Falls and Grand Forks, there is a fair amount of that kind of work under way and it matters in places like that.",137
-fomc-corpus,1986,They are sitting next to the copper mines.,9
-fomc-corpus,1986,"We, too, are seeing a tremendous amount of refinancing of mortgages. In fact, some of the lending institutions in the Twin Cities have stopped taking applications and have said that they may resume in the next five or six weeks; but they are just so backed up that for the moment they have stopped. The housing market in the Twin Cities generally is quite strong. Houses are moving very quickly, generally at the asking price, which may imply people are asking too little. But right now at least, things are going very well there. I do expect, as do many others who have commented already, that the overall economy is going to strengthen soon because the fundamentals seem to be positive. I would add to those fundamentals the fact that Ml has grown as rapidly as it has over the past year or more now. This would suggest to me, certainly, an amply accommodative monetary policy and ample liquidity. Liquidity, too, is boosted of course by this refinancing of home mortgages. To some extent, like President Horn, I have been a little surprised by the fact that the economy seems to be continuing to plod ahead while a lot of the financial factors--a lot of the fundamentals--have improved and have improved rather dramatically. But I expect that this separation or decoupling between what has been happening on the financial side and what has been happening on the real side will probably end soon and that we will see strengthening in the overall activity.",289
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"Mr. Chairman, this is turning out to be a very pleasant meeting for me since I frequently have been an outlier in recent months, but I think I will end up somewhere in the middle of the pack. I thought it was real interesting that Jim Kichline--",55
-fomc-corpus,1986,You changed my position!,5
-fomc-corpus,1986,"Well, I was going to say I was closer to you than anybody else, but I thought you would go into shock if I were to say that, so I refrained from it! It's interesting that Jim Kichline's forecast for real GNP is what we turned in for the Humphrey-Hawkins report. I know this will probably put Jim into a decline knowing what my forecasting record has been, so let me add that if we were doing it today, we would probably boost that to somewhere in the neighborhood of 4 percent. I think one could make a case that it could be stronger than that, but out of deference to Bob Boykin's friends in the Southwest and the problems they have, I would temper that. But I believe, like Frank Morris does, that the errors are probably going to be on the high side rather than on the low side, given all the financial underpinnings that we have for recovery: declining interest rates, dropping oil prices, and also the apparent housing boom. So I am really rather optimistic. But as you said yourself, Mr. Chairman, it's kind of based on faith because the statistics [don't show it yet]. Every time I think they are coming out solidly on the good side, they jump a little the other way; but I still believe that we are in for a pretty darn good year.",276
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"I, too, am in what I'd call the Boehne camp in the sense that I think the combination of oil prices, interest rates, exchange rates, and stock prices have to give some real boost to the economy in the second half of the year. Ironically, at least for me, I am not quite so sure about the very near-term outlook. I say that because I am not sure that we have fully factored in the adverse short-run effects of the oil situation. In talking to some of the major oil companies that are headquartered in the New York area, I did get the sense that the short-run cutbacks that they are making are very, very substantial. I don't know how you factor those into business fixed investment numbers and so on, but something in my gut tells me that the net effect of that in the very short run could be larger than is built into the consensus-type forecast--and I think the staff forecast is pretty close to a consensus forecast these days. There are a couple of anecdotal things to report. Like Frank, I am now getting some suggestion that the computer business may be firming, following a pretty soft period of three or four quarters. There is nothing hard and fast but, anecdotally, there is some evidence along those lines. The capital goods side is aggravated by this short-run oil situation and is on the lousy side. Interestingly enough, the suburban New York area is going through a housing boom. Housing prices are rising, at least on an anecdotal basis, very, very rapidly in the suburban New York area. Some of the stories I hear strike me as unbelievable in terms of the rate of price increase on existing homes. But all in all, I think the outlook is respectable. Peter Sternlight and his people take these market pulse beats all of the time, and I was a little surprised in reading some of the material they put together in the last couple of days about more than a couple of market types who apparently are taking a longer view of things and expressing some concern that the underlying inflation situation, despite all of these great numbers we are looking at, really might not be all that good. Presumably, that reflects concern about productivity--General Motors sneaking in 3 percent price increases and things like that--but I was a little surprised. It would not be a surprise for me to say that; I was surprised that other people were saying that.",488
-fomc-corpus,1986,We will resume our quest for somebody who isn't in the Boehne camp. Mr. Boykin.,21
-fomc-corpus,1986,"Mr. Chairman, I don't have a whole lot to add to the comments I made [at the dinner] yesterday evening, but I'm trying to keep it in perspective at least. It is true that things are not going particularly well down our way. On the other hand, I do think that the press might be overplaying this a little; I'm not sure that it is quite as dire as is being reflected in the press. There is overall economic growth, and it is continuing, but the gains are becoming less and less widely spread. We do have some increase in our non-agricultural employment, but not to the same extent as the rest of the nation. Of course, we picked up that 2-point jump in the unemployment numbers, which we tried to explain a couple of weeks ago --rationalizing at least that it probably wasn't all that great. What I have been reading and hearing since two weeks ago--though I'm not too sure I want to see the March number--is that that 2-point jump was in fact on the high side. We also have a tremendous amount of refinancing going on. I'm hearing of delays anywhere from 6 weeks to 2 months before one can get a refinancing done. But we also have, particularly in a couple of our metropolitan areas such as Houston and even up in Dallas, a lot of homes still being auctioned off that have been foreclosed on. We have a lot of concern about the thrift industry down our way. There are a lot of problems and, of course, having in the press the report that the Home Loan Bank is bringing in 250 examiners from around the country to help out doesn't give one a lot of confidence that there aren't problems. On the energy issue and the effects on inflation, I would agree with Jim--if I understood him correctly--that the major benefit is in this year and [what will happen] next year remains to be seen. Jerry referred to investment and at least the short-term effects of all of this cutback in energy, oil, and gas. That [sector] has been a very heavy user of investment funds. So at least in the short run, that's not beneficial. I am inclined to want to believe all of these forces that have already been identified that point to better growth in the second half of the year. I certainly hope that that comes about. I have a little reservation in terms of confidence that it's really going to work out as well as it would appear.",500
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"I certainly agree that there are these three very basic positive factors that should be helping the economy but, as Jerry and Bob have said, a couple of them can cut either way--particularly the oil price decline. Maybe when we feel good, we tend to emphasize the pluses of that rather than the minuses. Now that we actually are seeing lower gasoline prices at the pumps, that normally would be viewed as a plus for auto sales; yet in the auto market we are seeing constraints coming from the consumer debt burden. I have actually heard some bankers in the last couple of weeks--these groups that pass through town here on their circuit to visit people--say that they are beginning to pay attention to the delinquencies in the consumer credit area and that there may even be a bit of evidence that they are going to look at credit standards. So that can be an offset, or at least a partial offset, to the lower gasoline prices. Also, I certainly would expect the lower long-term interest rates to help plant and equipment spending; yet at the same time there are these questions about what is going to happen to tax reform. Until the [lawmakers] do something--either kill it or pass it or act on it decisively--many businesses are going to postpone making decisions on expansion or replacement of equipment because the tax considerations are simply too important to ignore. I can't quantify that, but I think it is a real drag and, in fact, will tend to offset some of the good interest rate news until businessmen and women get a better reading on that. Despite the lower value of the dollar, import competition is tough in a lot of countries. I hate to admit this, being from Detroit, but not everybody buys a foreign car just because the price tag is lower than the price tag on a domestic car. I don't happen to drive an import but people tell me that there is a quality matter. So, I don't believe we are going to see import competition necessarily knocked out immediately by the change in the exchange rate. It would be nice to think that that would happen, but I don't assume it. Also, in the case of machine tools, I think it was my friend from Atlanta who pointed out that there is more import competition in machinery and machine tools, and I hear that also. In addition, there is this commercial real estate problem that is even spreading into the Midwest. It's no longer just the people down in Bob Boykin's area who like to put up buildings and keep them unoccupied; there are some around the Detroit suburbs and elsewhere, where buildings are popping up like mushrooms on corners. Again, this can be a drag, I think. Therefore, while I am fairly optimistic, I am not as optimistic as I might be if I didn't think there were these somewhat offsetting drags on an otherwise very placid picture.",573
-fomc-corpus,1986,Who has a good theory as to why General Motors picked this particular time to increase prices?,18
-fomc-corpus,1986,"I have been trying to check that. What I heard is that all of his advisors told him not to do it, but that he is very bottom-line oriented and he felt that they could get this much of an increase done at this point. He thought it wouldn't cost them that much in sales, so in terms of their overall profit picture they would actually benefit slightly. They are going to reinstate the incentive programs. My personal opinion is that he probably just didn't take the advice that was being given.",101
-fomc-corpus,1986,"Well, you could have a theory, I suppose, that he raises the base price so he can have a bigger incentive.",25
-fomc-corpus,1986,The consumer might figure the financing looks so good that it offsets the price increase.,16
-fomc-corpus,1986,Except the higher sticker stays after the incentive financing goes.,11
-fomc-corpus,1986,Who pays sticker?,4
-fomc-corpus,1986,"Well, but the--",5
-fomc-corpus,1986,Dealer cost--,3
-fomc-corpus,1986,The discount [price] is the sticker.,9
-fomc-corpus,1986,"The discount [price] is the true sticker, right. I think the price hike is from sticker.",21
-fomc-corpus,1986,"I haven't been in the showrooms lately, but I am under the impression that prices of imported cars, in fact, have been rising. SEVERAL. Yes.",34
-fomc-corpus,1986,So perhaps a naive reading of this is that it's an opportune time.,16
-fomc-corpus,1986,"One dealer for Japanese cars that we talked to indicated that, in addition to the new model year increases, they have had 2 to 3 to 4 percent increases already and they expect at least one, and maybe two, more over the balance of the year.",54
-fomc-corpus,1986,"We have one foreign car dealer who puts in a $1,300 adjustment to market to push the asking price way above list--in addition to the dealer enhancements, which are far above any reasonable cost. So what appears to be the list price to every customer is about $2,000 above the suggested manufacturer's list. Everybody thinks he is getting a big discount. In fact, people are paying above list right now on many foreign cars. It's very hard to buy them at list.",97
-fomc-corpus,1986,I thought those days were gone; [unintelligible] discouraging.,16
-fomc-corpus,1986,"Well, one would think so, but that's in fact what happens. There is another dealer who gives you dealer list on one side and all of these dealer additions. There are right many of those and they add up to right much. So you are under the impression that the price at the bottom of that is the sum total of all of those, but there's about a $1,300 discrepancy there. It's just an adjustment to market that he is not really showing honestly.",95
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"Well, Mr. Chairman, I would like to join the general euphoria and jump solidly into the Boehne camp. I certainly agree that we are very likely to see strong expansion over the second half of the year. The only reservation that I have is that, as Frank pointed out, the expansion may be stronger than we now expect. We may get a higher rate of growth than is indicated in the staff forecast. What is more [likely] in my view is that the expansion may be spread out in a pattern somewhat different from that in the staff forecast. We may not feel the full impact of all of these stimulative developments until the first part of next year. And the period of fairly strong growth may extend further into 1987 than we now expect. Of course, that has some implications as to what one would be inclined to do about it. So I would say that if the mixed pattern of news that we have been seeing currently continues somewhat longer than one would expect--continues even into the second half of the year--that it is not cause for worry. I cannot remember any time in the recent past when the basic fundamentals pointed so clearly to a strong expansion. And I am prepared to sit back and wait for it and let it unfold.",256
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"Well, I will join the club too. I generally am optimistic about the situation. I also agree that the fundamentals look better than they have in quite some time, even though there are a few uncertainties out there. It wouldn't be out of the question to see OPEC make another run at trying to support the [oil] price. I don't think that they can do it with all the non-OPEC production out there, but I think that they could put some upward pressure on [oil prices]; that's always a risk. To discount that completely would be making a mistake. I do think the fundamentals look better than they have in a long, long time. But at the same time I think that the U.S. economy's future is more in the hands of our foreign trading partners than it ever has been in the last several years. We have not had to rely on that particularly over the last four years, as we had a lot of domestic capacity and we didn't mind running up a trade deficit because we had a surplus in the current account going in--or at least we had a large creditor position. Now, four years down the pike we have a $150 billion trade deficit and a depreciating dollar; so I think at this point we have to be more careful. The oil price decline is definitely very welcome. However, the oil price decline benefits our major trading partners, Germany--not Germany directly, but the EC in general--and Japan, more than it does the United States. So, if oil prices have been good for us and have helped our interest rates decline, they also have helped Japan and Germany even more. As a matter of fact, their interest rates should have seen an even more dramatic response. If you look at Japanese rates on the long end of their market, they certainly have. They have a negatively sloped yield curve right now where their long rates are actually below their short rates, indicating to me that there is tremendous pressure in Germany and Japan to pursue lower interest rates just to avoid a potential deflationary cycle in those two countries. So, their fundamentals are stronger than ours. And, unlike the staff, who I think are assuming a further depreciation in the dollar as a source of future growth in this country, I think the way it ought to be and what I would like to see is for our trading partners to move their interest rates lower and maintain the exchange rate alignment that we have now and not see the dollar have to weaken relative to those currencies. We would get our export growth from their growth in demand rather than from the exchange rate shift, and that would obviously be the preferable way to see expansion here in the United States--to see growth pick up in Japan and Germany. Since the elasticities are stronger from the demand effects on exports than the exchange rate effects, and we don't have the negative potential on the inflation side, that's really where we want the growth. I wish I were really optimistic that we would see the kind of flexibility in Germany and Japan that we really need to get that done, but they seem to be fairly satisfied to run generally restrictive policies. There is tremendous pressure, given the fact that Japan faces a negatively sloped yield curve and Germany is not much different than that, for interest rates to go lower there and the exchange rate not have to come under the kind of pressure that we might expect. I think that's what we have to have to get the really good outlook in the future. I am generally optimistic about it but it could come grudgingly; so I am not sure that I would put in the second-half growth effects as strongly as the staff has them because I think that may come a little slower.",741
-fomc-corpus,1986,"I would like to say a word about this foreign situation, particularly with respect to Japan. There is talk in Japan about some kind of stimulative action within a week or so--not on monetary policy particularly, but presumably some kind of budget action--and I don't know what it means. Whether the action is [going to be] significant or trivial, cosmetic or real, I'm not quite sure. But there's going to be something there. I do think--not necessarily as part of that package--that they are debating at the very least, and probably debating in a positive way, whether some further reduction in their discount rate is appropriate in a period of weeks, presumably before the Summit, which is some time in early May. I continue to have some concern about the rate of Japanese growth, although I guess our staff forecast has it a little faster now. Governor Angell.",176
-fomc-corpus,1986,"It seems to me that the uncertainties certainly outweigh the facts we know in regard to the future. It's important that we look at the day-to-day numbers; we may not want to believe them, but we ought to look at them and keep track of them. The monetary aggregates certainly have rebounded in March. If those aggregates continue to move at the March pace, I think that might tell us something different than if growth falls back to the January-February level. I think it's very significant that in the global economy and the domestic economy as well we have dramatic price changes. We end up with winners and losers. Before one concludes too quickly regarding the impact of these kinds of changes, we have to recognize that sometimes the marginal propensity to consume for the winners isn't always the same as it is for the losers. And it seems to me that we do have a severe danger of encountering a world trade contraction in this kind of environment. If that occurs, that's going to impact the export markets and undoubtedly put more pressure on the deflation of international commodity prices. Commodity prices are moving sideways to slightly downward with oil excluded. If those commodity prices pick up speed on the down side, I think that is a very risky pattern. It's a risky pattern not just for agriculture and oil interests in the United States; a lot of the third world countries are commodity sellers. And if we continue to thrust the third world into a position of not receiving any kind of a return on what they have to sell, they're not going to be buying as much as we might expect them to buy. But it seems to me that if we don't stumble, eventually these real balance effects will take place. I'm somewhat concerned that oil prices at some point in time might not do what we want them to do. I suppose all of us would prefer that they move up a bit and stabilize. But we don't have any guarantee of that. It seems to me that we might need some rather dramatic moves if oil prices were to rebound sharply. So, I think we have to watch things very carefully. I would indicate that I'm much more optimistic--I like to be optimistic about something--than the group now [and] as much as six months ago with regard to the inflation front. It seems to me that it's imperative that we get our inflation rates down in the 2 percent or 1 percent range during this oil price move. If we end up with our staff forecast of inflation, I think that's very bad news for the dollar and our future. So, I'm somewhat optimistic that if there's any indication that prices are going to move in another direction, we could be in for one heck of a deal.",534
-fomc-corpus,1986,I'm a little surprised on this price forecast that last quarter and this quarter the GNP deflator stays up as high as does in your forecast with the wholesale index going down and the consumer price index going down. You have it going up very narrowly. Would you explain that to me quite simply?,59
-fomc-corpus,1986,"Well, it's the arithmetic of the first shot of oil [price declines]. As you remember in the old days, if you had a commodity with a very high price deflator such as oil and it's an import, it's a negative and depresses the deflator. Now that we have rebased on 1982 and oil prices are falling, we have a low deflator and they're subtracted out. So in the first round effect you will get a higher deflator from the arithmetic.",98
-fomc-corpus,1986,This is the implicit deflator you have in this? Does that happen in the fixed-weight deflator?,21
-fomc-corpus,1986,"Well, yes. In the GNP fixed-weight deflator what you're fixing is quantity, and the price is declining so you are still subtracting both. You're still subtracting imports in the first round effects. Later on you get benefits as those prices show up, for example, in gasoline and you get an effect in the personal consumption expenditures. So, over time, you get something positive.",79
-fomc-corpus,1986,What if you looked at domestic output?,8
-fomc-corpus,1986,You get a lower deflator.,7
-fomc-corpus,1986,"Much lower, if you had that.",8
-fomc-corpus,1986,"Much lower, I guess. All right.",9
-fomc-corpus,1986,We have numbers of 2-1/2 percent instead of 3-3/4 percent for the first quarter and 1-1/2 percent in the second quarter as opposed to 2-1/2 to 3 percent. It's a big effect.,55
-fomc-corpus,1986,We can turn to Mr. Axilrod and--,11
-fomc-corpus,1986,Could I?,3
-fomc-corpus,1986,Sure.,2
-fomc-corpus,1986,"It seems to me that we hear a number of elements that are to some degree inconsistent. If we don't get a strong move, which would be to my mind deleterious, we will get a small to moderate move that perhaps will not look very strong, but at least will give us adequate growth of GNP. But the problems in Germany and Japan trouble me a great deal more than what is likely to be happening to us. We're seeing countries that are burdened with difficulties, with balance of payments that they don't want to tolerate. We seem to be willing to have $100 billion in one and another $100 billion in the other and say that it makes no difference if other countries are willing to live that way--our way. But I do not believe that they will be. And so I share the feelings that we will some day get into these problems. Those--perhaps not in terms of the numbers but in terms of where the pressures are going to be--strike me as more difficult than our own problems.",205
-fomc-corpus,1986,"As I listen to this, I come away with the view that while the second half of the year may be happy, and everybody has good reason [to believe that] provided the oil situation doesn't snap back at us, I wonder whether the uncertainties presently are being emphasized quite enough. To get this growth in the first quarter and I suppose in the second quarter, we have to have inventory and trade improvement, right? In your projection?",87
-fomc-corpus,1986,The second quarter or--,5
-fomc-corpus,1986,"Well, it's certainly true in the first quarter, right?",12
-fomc-corpus,1986,"Yes. In the first quarter we had final sales flat and 3 percent growth; half of that was imports and the other half was a switch out of CCC, a reduced runoff of farm inventories. So there isn't much there.",46
-fomc-corpus,1986,The inventory change is all in CCC?,8
-fomc-corpus,1986,"Final sales are 0.1 in our estimates. Half is reduced imports and the other half is inventories; and about three-fourths of those inventories are a smaller runoff of farm commodities. In fact, CCC purchases are declining. In the second quarter we have final sales and GNP pretty much even; so we don't have much in the way of inventories at all in the second quarter. That's a quarter where we anticipate auto inventories will be running off and we will get some accumulation elsewhere. But essentially, if you look--",105
-fomc-corpus,1986,And you have the trade balance improving in the second quarter?,12
-fomc-corpus,1986,It declines.,3
-fomc-corpus,1986,"Yes, declines means improving.",6
-fomc-corpus,1986,"Well, there's no contribution to GNP growth.",10
-fomc-corpus,1986,"Oh, it isn't? No contribution?",8
-fomc-corpus,1986,I suppose that happens in the second half?,9
-fomc-corpus,1986,"Well, you said the deficit? Excuse me, in the second quarter we have an estimate of net exports of minus $130 billion and minus $115 billion for the year. So it's the second half where we have appreciable improvement in prospect.",50
-fomc-corpus,1986,Have you taken into consideration any change in desired inventory levels due to a period of falling oil and energy prices?,22
-fomc-corpus,1986,"Well, I think we have. We actually have, in an historical sense, fairly low ratios of inventories to business sales. What has entered into our thinking, essentially, is that there is absolutely no shortage in most areas--prices are falling. Interest rates have been rather high and are still high; there are all sorts of incentives to economize on inventories. So I think in an historical sense we really have a very mild accumulation over the forecast period. There are two areas that are problems. In the short run it has been oil and coal, that whole complex of energy [products], and the desire to reduce inventories; the other area that we know about is autos. And there's a major problem there.",142
-fomc-corpus,1986,"Let me ask one thing. What would the forecast look like in the second half if you didn't assume a further depreciation in the dollar--if you had the same exchange rate and, let's say, you already had a fairly reasonable expansion abroad? Would you say about 4 percent combined EC and Japan?",60
-fomc-corpus,1986,"No, closer to 3 percent.",8
-fomc-corpus,1986,Closer to 3 percent.,6
-fomc-corpus,1986,"And that's one of the problems. One reason why the trade balance as a whole doesn't improve faster is because we have growth pretty much as fast here, especially in the second half, as we have abroad.",41
-fomc-corpus,1986,"Yes, but--",4
-fomc-corpus,1986,"As far as the dollar is concerned, in our forecast for 1986 we're assuming it doesn't have an impact in 1986 on what you're looking at now.",33
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,The way we think about these things--,8
-fomc-corpus,1986,It's purely demand.,4
-fomc-corpus,1986,"What we're seeing in the second half of this year is what we normally have in terms of the dollar, because there's no further decline I think this time--at least the magnitude is very small; you will see some maybe. It's in 1987, as Jim mentioned, that the effects of the [further depreciation]--",66
-fomc-corpus,1986,Would you have inflation the same in 1987 as in 1986 if the dollar didn't depreciate from this point?,25
-fomc-corpus,1986,"I think there are inflation consequences from this additional 15 percent, but they would be in 1987.",22
-fomc-corpus,1986,That's what I mean.,5
-fomc-corpus,1986,That's right.,3
-fomc-corpus,1986,Almost all of that increase in inflation is due to what happened to the dollar?,16
-fomc-corpus,1986,"Well, in the sense that it's already--",9
-fomc-corpus,1986,"Also, the oil prices stop going down, so you have that kind of effect.",17
-fomc-corpus,1986,"Well, I was simply going to suggest that there still are great concrete questions about capital spending, commercial construction, consumer debt load, the governmental budget, foreign growth, the impact of the oil price and other things. I think there are good reasons why the economy isn't looking all that robust right at the moment.",62
-fomc-corpus,1986,Would you regard it as being much more robust if we had this additional extension in the way the economy is growing and then a year from now it was presumably going downhill?,34
-fomc-corpus,1986,"I don't know as I see it presumably going downhill a year from now if all these nice things that everybody has been emphasizing happen. If we can get through a little--not exactly a valley, but a mesa or something--",45
-fomc-corpus,1986,Only that office construction that you point to is relatively permanent. The others are going to--,18
-fomc-corpus,1986,"Maybe that, and not the budget presumably; hopefully, not the budget.",15
-fomc-corpus,1986,"Yes, we hope the budget deficit is going to fall.",12
-fomc-corpus,1986,"I hope so, but that reduces the [unintelligible] presumably--",16
-fomc-corpus,1986,[Unintelligible].,6
-fomc-corpus,1986,"Well, we will see. Let's turn to Mr. Axilrod and then we'll have some coffee.",21
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,[Unintelligible] that you can sit there and talk about interest rates for 10 minutes and not talk about monetary aggregates. I'm not sure whether I'm less confused by the interest rates than I am by the monetary aggregates.,46
-fomc-corpus,1986,I mentioned the monetary aggregates in passing.,8
-fomc-corpus,1986,I [unintelligible] that it was in passing. Are there any questions or comments that you want to direct to Mr. Axilrod before the coffee break?,35
-fomc-corpus,1986,"I just have one, Steve. The last thing you said was that you would expect alternative B to restore some upward tilt to the yield curve. That seems pretty uncertain.",34
-fomc-corpus,1986,"It is uncertain. Also, it has risk potential but I think it is very possible. If the oil price continues to plummet down to $8 or $7--it's below $10 now already this morning--then of course long rates may continue down. But to some degree, they probably have by this time some lower short rates in the future in them than we now have in the market I suppose.",82
-fomc-corpus,1986,"It just seems to me that alternative B--not that I have any problem with it one way or the other--would flatten out the yield curve rather than have any upward tilt. It probably would put a bit of pressure on the short end of the market. In the context of current oil prices, I think maybe it would lead to further declines in the long-term yields and a rise in the shorter end.",82
-fomc-corpus,1986,Isn't that the assumption of the forecast? I thought a flat yield curve was the assumption of the forecast.,22
-fomc-corpus,1986,"Well, I think the long rates built into this forecast are actually somewhat higher than we now have in the market.",23
-fomc-corpus,1986,I mean the shape of the curve.,8
-fomc-corpus,1986,"Yes, but the forecast was made up two weeks ago.",12
-fomc-corpus,1986,That's right.,3
-fomc-corpus,1986,"Steve, where do you view the long-run equilibrium real rates to be in the long term?",19
-fomc-corpus,1986,"My view is very simplistic because when you get sophisticated the reality tends to get a little lost in this, I think. It is something like the long-term real growth potential of the economy, about which there's great doubt now. In my own mind I'd put it somewhere between 2-1/2 and 3 percent, give or take a margin of error around that. So the Treasury yield at 7-1/4 percent is very low, if you think the rate of inflation expectations, as in the Hoey survey, is 5 or 5-1/2 percent. [Unintelligible] between Treasuries and corporate bonds opened up here. If you think the rate of inflation expectations isn't properly represented by the Hoey survey--and I don't think it is--[unintelligible], then if you put the inflation expectations down lower than that 5 percent, of course, your real rates relative to corporates still look somewhat on the high side relative to the expected rate of return. It seems to me it's a very ""right on the edge"" kind of judgment.",223
-fomc-corpus,1986,"When you hear all this, it makes monetarism sound good!",14
-fomc-corpus,1986,"Well, that's why I did mention the aggregates in passing. It's a very important element.",18
-fomc-corpus,1986,"Any other questions or comments? If not, let's break for coffee.",14
-fomc-corpus,1986,"Who would like to express some more detailed policy preferences? You are looking eager, Mr. Melzer.",21
-fomc-corpus,1986,"Oh, I have been here writing away. I have been trying to figure out how to get in the word that was mentioned last night--what was it, desiderata?--but I haven't been able to do it.",45
-fomc-corpus,1986,Desiderata: We want no inflation and good growth and external equilibrium. Those are the desiderata now.,22
-fomc-corpus,1986,"Shall I go ahead? I would be in favor of alternative B, maintaining the existing degree of reserve restraint. That's based on [my view] that the intermediate-term economic outlook is generally favorable, as was discussed today, that we already have an accommodative monetary policy that I think recognizes some of the uncertainties that exist in the short run, and I guess a skepticism on my part still about Gramm-Rudman and what that's going to produce. We didn't talk about that at length today. As I look further down the road, I am concerned a little as we go through the process of adjusting to lower trade deficits and a shift from foreign investment flows or foreign savings to more reliance on domestic savings about the effects associated with that. As we get to that point in time, and it's probably a good 6 to 12 months out before the process really begins, the inflation that naturally would be associated with that process would trouble me; and presumably at that time the effects of lower oil prices pretty much will have washed through the system. It would trouble me at that time if that adjustment process were taking place against the backdrop of a monetary policy that was perceived to be too accommodative, because I think that would simply exacerbate the problem and the interest rate effects of that and so forth. That's looking a little further down the road, but to some extent we have to take that into account in terms of where we are positioned now.",288
-fomc-corpus,1986,I think that's true. Mr. Black.,9
-fomc-corpus,1986,"Mr. Chairman, a lot of the commentary one sees in the press and elsewhere suggests that this reduced inflationary rate gives us an opportunity to stimulate real economic activity without reigniting inflation. I think we might well get away with that in the short run, but I would be quite concerned about an approach such as that in the long run. The effects of the oil price decline are not going to last forever; once they are behind us we are going to be exposed to the risk that we will have a renewed outbreak in inflation, particularly if the economy is growing strongly and the dollar is still dropping. I think we need to keep that in mind in establishing our policy; indeed, I would like to propose something I think Governor Angell came very close to saying a while ago--that rather than look at the current situation as a chance to stimulate the economy, we look at it as a chance to consolidate these excellent gains that we've made on inflation in recent years in the hope that somehow or another that will give us lasting price stability and a chance for sustainable growth in employment and production over the long run. With those thoughts in mind, I would come out the same as Tom Melzer did: ""B"" with a $300 million borrowed reserve objective, with the federal funds rate expected to be in the neighborhood of 7-1/4 to 7-3/8 percent. I would be quite happy, as you might suspect, if we got the kind of M1 growth embodied in ""C,"" but I think we probably ought to leave money market conditions where they are for the time being. I think it is important, though, as we move ahead--from the standpoint of our longer-run credibility--that we try to hold M1 closer to its long-run target than we succeeded in doing last year, unless there is a definite weakening in the economy or a continued decline in the velocity of M1. For that reason and since Ml is right close to the top of its range--in fact, a little above it--I would be inclined to indicate a greater willingness toward restraint than toward easing in this intermeeting period. Just one comment: I am suggesting the $300 million borrowed reserve target on the assumption that the discount rate is unchanged. If the Board should decide to cut that, under our present operating procedures we would expect the federal funds rate to move down by roughly a commensurate amount. That to me would be an easing of money market conditions, or ""reserve restraint"" I guess is the term we use. So, if we should do that, I think we would want to take another look at that borrowing target.",532
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Mr. Chairman, you outlined some uncertainties and risks in the outlook. Uncertainties are always with us and I suppose one has to take those into account. But in spite of those uncertainties, I think there are some very significant factors at work in the economy that are going to accelerate economic activity in the second half of the year. For that reason I think we ought to take this drop in oil prices as a fortuitous event that will continue to lower inflation and we ought to seize this opportunity to translate that into some kind of permanent improvement in the underlying rate of price increases. So like Mr. Black, I would like us to take this opportunity and not dissipate it in any way by an easing of policy. And I think that an easing of policy would do just that; it would give the markets the wrong impression about how we feel about inflation. So, I would not want to see any easing of policy at this time. I certainly don't see any reason to tighten either, particularly in view of the international situation and the value of the dollar. So, I would prefer to keep policy pretty much where we are, on an even keel without a tilt in either direction. I am a little unhappy about what M1 is doing at the moment, but I guess M2's performance makes Ml's performance a bit more palatable. If market rates were, of their own accord, to back up a little--if the markets found that they had perhaps overreacted to this ebullience that is going on--I wouldn't want to resist that upward drift in rates. Again, where I would come out, Mr. Chairman, is to try to consolidate our position with respect to inflation, keep inflationary expectations damped, and keep policy about where it is. That means alternative B, in my mind, with borrowing of about $300 million.",374
-fomc-corpus,1986,"You mentioned, understandably, a concern about getting this break in oil prices converted maybe into some permanent progress or some further progress against inflation. That's a goal I suppose we would all share. The problem there seems to me to be: How does one ratchet down somehow the cost pressures in the services side of the economy? The manufacturing side is doing pretty well except for this--Martha Seger is our representative of Detroit--General Motors [price increase], which I don't like because--",97
-fomc-corpus,1986,I agree with you.,5
-fomc-corpus,1986,"--it's part of a pattern of price and wage increases reverting to normal. But in general, in manufacturing, in construction, and in some other areas--certainly, commodity prices are depressed--it all looks pretty good. How do we convert this better short-term price performance into some kind of ratcheting down for all that long series of service prices where the economy is doing pretty well and the wage and salary [increases] seem to be stuck at about 5 percent or maybe a little more? I don't know.",106
-fomc-corpus,1986,"Even if those don't go lower, if you consolidate the oil price decline and don't let other relative prices go higher than they currently are, you have a ratcheting down of the general price level. In other words,--",44
-fomc-corpus,1986,"A ratcheting down of the levels, but I don't know that you have a ratcheting down of the trend.",25
-fomc-corpus,1986,"You would slow the inflation rate. It's just that if we try and hold monetary policy constant and let the oil prices decline, one would expect other relative prices to rise and the general price level to remain unchanged. But if we stop that, if we don't let other relative prices show gains to offset the oil price declines, then I think we have ratcheted down prices.",75
-fomc-corpus,1986,"I don't think we can do much to reduce the rate of inflation in the services sector until the next recession. It seems to me that if we are successful in preventing the inflation rate in the services sector from rising while the economy is still in an expansion phase, we have done pretty well.",58
-fomc-corpus,1986,"Well, it has done something; I don't disagree with that. But ideally, if we had a better inflation performance for a year, let's say, and that gets built into salary and other behavior in the services area to a degree, that's what you would like to see happen. If the consumer price index is running 2 percent or so, a 5 percent wage increase looks pretty big given the productivity increase. I am not sure if it looks big to the people giving it or receiving it.",100
-fomc-corpus,1986,"Over a period of time, the inflation rate in the services sector is going to be much slower to adjust to monetary scarcity than it is in the commodity sector because we have too many established techniques for maintaining these rates of inflation, not the least of which is government. There continue to be areas in which, unless you put pain on government, you don't stop the wage increases in government.",77
-fomc-corpus,1986,We have stopped the wage increases in government--at least the federal government--for better or for worse.,21
-fomc-corpus,1986,"The next step is that, over a period of time, the private services sector is going to adjust those rates of inflation to the others, as soon as they believe them. But how are they going to believe them when our own staff and our own FOMC don't believe the rate of inflation is down? I don't understand how we can lead the way to lower inflation when we keep saying it's going to be higher.",84
-fomc-corpus,1986,So far it has worked. Mr. Parry.,11
-fomc-corpus,1986,"I would favor alternative B for many of the reasons that were mentioned. I think the possibility of a pickup in the second half of the year is a sufficient condition to recommend alternative B. I would make the point that the assumption under alternative B of the relationship between the economy and the aggregates basically states that we are going to see a continuation of a sharp decline in velocity. And I would just raise the possibility that given this economy, with these interest rates, we could even see the aggregates grow more slowly--which should not be interpreted as a tightening move. The second point I would make is really a question, since I am rather new at this. Under the operational paragraph, we said last time ""maintain the existing degree of pressure on reserve positions."" If we were to adopt alternative B, we would say the same thing; but shouldn't there be a parenthetic phrase inserted to say the existing degree of pressure on reserve positions that has persisted since the cut in the discount rate? Because, in effect, if we had cut the discount rate and didn't change the borrowing assumption, we actually would have eased reserve positions. And the historical record--",228
-fomc-corpus,1986,"Well, we have run into that problem before. Let's worry about the wording of the directive on the next round. I think you have a legitimate question. But meanwhile, when you say ""B,"" you are thinking in terms of something like $300 million?",52
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"I, too, would favor alternative B. As has been mentioned, there are certainly short-term risks, in terms of real economic performance. There are also risks it seems to me, perhaps looking longer term, on the price side; some of those have been alluded to. But productivity performance for the overall economy has been disappointing, perhaps to put it mildly, [unintelligible] the decline in the dollar. I am not at all sanguine about progress on inflation in the services sector, in part because I think we are facing strong and growing demand both for the services produced and for the labor to produce them. And that just doesn't strike me as an environment where we are likely to make a lot of progress in bringing down inflation in that sector. Indeed, I think if we factor those things together--the particular situation in services, the productivity side, the dollar, and so forth--looking longer term we clearly face some risks on the price side. For the time being alternative B, which I would take to be a ""don't rock the boat"" alternative, is satisfactory. I would be concerned, however, if it turned out under alternative B that the monetary aggregates grew more rapidly than is currently envisioned because, under all the circumstances, I think that might be something we would want to resist.",263
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"I would be in favor of ""B,"" but I might also tend a little toward ""A"" despite the positive tone of the comments regarding the economy earlier. Nevertheless, the current situation is a little on the weak side and though we all expect the longer run to be better, it's a little uncertain. It does seem to me that the longer-run outlook will be validated if we are able to maintain these levels of interest rates. I am just a little bothered by some of the comments with regard to rates that are incorporated in the text around alternative B. So, I would choose ""B,"" but on the borrowing I would tend to want between $200 and $300 million as the alternative.",139
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"I tend to agree with that statement. My feeling is that I don't see any reason to change sharply from the current reserve maintenance situation. But I would like to have some flexibility at least built in on alternative B with a slightly lower borrowing target, given the way the yield curve looks now and the point made by Steve Axilrod and Peter Sternlight that there has been a discounting already in the market with the spread between the T-bill and the funds rate. And if the Japanese were to cut their rates later for some reason, there might be an opportunity to let the funds rate ease some without any exchange rate implications and without any particular pressures resulting from that. The other problem I have is that I am a little uncertain about this velocity issue. Of course, my concerns are more on the down side. When we met before, we talked a little about a zero rate of velocity growth as the most likely possibility during the year. However, the way things are shaping up during the first half of this year, it certainly looks to me like nominal GNP is going to come in below our earlier expectations. If we maintain the same amount of M1 growth or reserves, I would expect the weakness in velocity to show up more severely than we anticipated. The first-quarter [velocity] looks like it's going to be minus about 2 percent an annual rate; in the second quarter it could even be more than that. I think we are going to see more softness in the second quarter than we have in the first.",305
-fomc-corpus,1986,"In alternative B, in terms of growth of the aggregates, Ml is 7-1/2 percent.",22
-fomc-corpus,1986,"Yes, the velocity was in there; I agree. I am just saying that we are getting a lower nominal [GNP], implying a more negative velocity than we had before. So I guess the issue is: If that lower nominal is all on the inflation side, that's fine; we ought to consolidate our gains to some extent. But I think we ought to be a little careful if we are still seeing the same trend in velocity that we've seen before, since we have had further interest rate declines and inflationary expectation breaks. I don't know what the right amount of reserves is to offset that. I see this as purely technical. I am not talking about an easier policy; I am only talking about a purely technical adjustment. I think we ought to be cautious and we ought to have some flexibility built into alternative B in case we see that develop.",171
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"Mr. Chairman, I think this is one of those times when we ought to gear current policy to where we expect the economy to be six to nine months from now. Quite clearly, our expectations in general are as strong as, and in some cases stronger, than the Board staff's projections. So, I think we should stay with our present policy, alternative B. I think the market has overshot the current discount rate, and alternative B probably will require some modest upward adjustments in market rates. But I don't think we should let that trouble us.",111
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"In the context of a consensus view of the economy that we talked about earlier, ironically, I find this a tough setting for monetary policy. I myself am in the somewhat uncharacteristic position of thinking that in the very short term--the next couple of months--the economy could be on the weaker side simply because I have a bigger allowance for short-run negative oil [effects] than others do. Then again, the point has been made that there are other things in the short run that can be troubling: debt burdens, overbuilding, financial problems, slow growth in the other OECD countries. But when I think about that agenda of things, it is not at all clear to me that any of them is going to be helped very much by easier monetary policy; I could almost agree in a couple of cases that they might be affected adversely by an easier monetary policy--especially if one thinks that the second half of the year is going to be distinctly stronger. That is the rock and the hard place: an economy that could be weaker in the short run and stronger in the second part of the year. I think the only thing to do in that situation is nothing; so I'd be squarely in camp ""B.""",244
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"I would vote for alternative B and if there is a shading needed, I would shade a touch toward alternative A. The positive factors we have talked about extensively; I am still impressed, though, that there are some drags on the economy that we have to be aware of. I would like to suggest that in a technical way we look for opportunities to cut the discount rate. I am not talking about fiddling with the reserves, but if foreign countries such as Japan alter their discount rates again and if our long-term rates decline a little more, I think we will have a yield structure in this country that is unsustainable. And the rate that will prove to be out of line is the discount rate. To the extent that we could cut that a bit, following market movements, I think that would help without gunning the economy. So, I would go for something like ""B"" with a range around the $300 million borrowing target, or $200 to $300 million.",198
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"I favor a ""wait and see"" posture and I think ""B"" is that posture. I think that we really do have the time to watch events unfold. As for the borrowing number, I suppose I am for $300 million, although we always seem to interpret that in the light of what happens. It has recently been running below $250 million and I'm for $300 million but would go at it carefully, which I guess is the way we do it anyway.",95
-fomc-corpus,1986,I didn't hear that last sentence. Carefully meaning--?,11
-fomc-corpus,1986,Going up from $250 million to $300 million.,11
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"Well, I am more or less in the ""B"" camp. I can, however, see the wisdom of at least allowing for a little flexibility toward the ""B+"" side. I am not sure that flexibility would be wise to use, but I could see a back-up in rates sufficient that that little flexibility might have to be used. Where I come out is ""B"" to start out with, but keep this little tilt on the shelf. If it needs to be used, it needs to be used; and if it doesn't, let's just slide through the period with a pretty solid alternative B.",122
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Mr. Chairman, I would lean toward ""B"" with a little to the ""B+"" side. I recognize that fine tuning and so forth is not overly successful, but it does seem to me that at least for the first quarter and the second quarter the economy doesn't look that strong. I recognize there are lags, but we do meet again in May; and I would just lean a bit on the high side of ""B"" until we have more information, which we will tomorrow and the next day, [or] until we meet here in May. If that subtle move were a mistake, I think it could be undone, probably subtly. I would be slightly in favor of ""B+. """,142
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"Well, Mr. Chairman, I wish I could be different from everybody else, but I can't. So I am going to go along with alternative B for all the reasons that people have expressed. We want to stay where we are, to do nothing, to maintain an even keel--steady as you go.",62
-fomc-corpus,1986,Governor Angell.,4
-fomc-corpus,1986,"There just isn't any basis for an easing policy right now. Alternative B clearly is in the right ballpark. I am a little concerned about the 7-1/2 percent [Ml] number. It seems to me that velocity may be on a different path than we anticipated. In previous periods of history it has been on a downward path for many, many years and changed inflation expectations may very well mean that we've got negative velocity. I'd anticipate negative velocity of more like 4 percent for the second quarter. And if we have 4 percent, I don't know that 4 percent nominal is too high, so I would be much more comfortable with an 8 percent than a 7-1/2 percent on ""B."" I am not concerned about the reserve positions as long as the Desk is astute, as they have been during the time that I have watched them, in regard to managing that account.",185
-fomc-corpus,1986,"Looking at these velocity numbers, what do you compute for the velocity--I think you do quarterly averages--implied by alternative B, for what it's worth? It is just arithmetic.",37
-fomc-corpus,1986,It is around 4 percent.,7
-fomc-corpus,1986,"Just looking at it, it looks like what--about a 3-1/2 percent velocity decline?",22
-fomc-corpus,1986,"That's right, compounded. The quarterly average is higher than the month-to-month.",16
-fomc-corpus,1986,"That requires believing both the M1 forecast and the economic forecast, which are two very large assumptions. Mr. Guffey.",26
-fomc-corpus,1986,"Thank you, Mr. Chairman. I would also join those--virtually everyone that I have heard around the table--who would opt for alternative B. I am a bit concerned, however, about the discussion of the borrowing level being a bit below the $300 million level. It seems to me that we are very close to the frictional level now. And to talk about $200 to $300 million and $250 million, for example--. I just feel more comfortable staying where we are; if that is $300 million, I'd opt for ""B"" with $300 million and not fool around with the borrowing level.",127
-fomc-corpus,1986,Would you want that even if that meant that fed funds rates tick back up?,16
-fomc-corpus,1986,"The answer, I think, depends on what happens elsewhere. I guess for the fed funds rate in and of itself the answer is yes. I think that the market has probably overshot a bit.",40
-fomc-corpus,1986,Are we in a period where seasonal borrowing will start to pick up now?,15
-fomc-corpus,1986,I think it has begun to pick up just slightly; and I would look for it to pick up somewhat more as we get into--,27
-fomc-corpus,1986,In that sense even $300 million is less than $300 million.,14
-fomc-corpus,1986,"$300 million, I think, becomes slightly less constraining.",13
-fomc-corpus,1986,What is seasonal borrowing now?,6
-fomc-corpus,1986,"About $70 million, I think, is the last--",12
-fomc-corpus,1986,"Around $70-$85 million on average roughly. We would expect it to pick up maybe into the low hundreds or something like that over the next month or so. Without much pressure on the funds rate, we would not expect much of a pickup.",50
-fomc-corpus,1986,Most of that seasonal borrowing may not recur this year simply because there is liquidity there and the seasonal borrowing privilege has not been used. At least that has been our experience.,34
-fomc-corpus,1986,What was the peak last year for seasonal borrowing?,10
-fomc-corpus,1986,My memory is a couple of hundred million or so.,11
-fomc-corpus,1986,About $180 million.,5
-fomc-corpus,1986,August's $221 million was the monthly-average peak.,11
-fomc-corpus,1986,Under the circumstances I think it would be less this year.,12
-fomc-corpus,1986,"Want to add something, Governor Wallich?",9
-fomc-corpus,1986,$300 million and alternative B.,7
-fomc-corpus,1986,You didn't break the pattern.,6
-fomc-corpus,1986,The first time I have ever seen that!,9
-fomc-corpus,1986,"Well, we have shadings of differences. We have some full-blooded ""Bs"" and we have some weak-kneed, but the view is generally around ""B."" We might as well see what shadings we have here and [address] Mr. Parry's point. The last two reserve periods, which means for four weeks, borrowing has been averaging just a little below $250 million. We played it a little on the cautious side and it has come out pretty close to where we intended because we didn't have any computer problems and so forth during that particular period. We came in a little under $300 million. One interpretation is we could continue doing that: seek something like $300 million, but played somewhat cautiously in the absence of other developments. I guess we could call that maintaining. I don't know whether it needs [explanation]; the difference is so small. We have sometimes done exactly what Mr. Parry suggested, if I interpreted him right. When reserve pressures have changed during the period, we put some language in saying ""the degree of reserve pressure that emerged during the previous period"" or something like that. I guess it is a matter of taste as to whether that's where the center of gravity lies or whether it's worth putting that in there if the difference is so small.",264
-fomc-corpus,1986,I wouldn't say reserve pressures eased after the discount rate; interest rates fell.,15
-fomc-corpus,1986,"Actually, it came before the discount rate lowering, as I remember it, or it began--",19
-fomc-corpus,1986,That's right.,3
-fomc-corpus,1986,"This is no big deal, because it was so high the previous two-week period because there were computer problems one weekend. We actually had $600 million one week, but I do not--",38
-fomc-corpus,1986,It was $630 million the week of the 19th and [unintelligible] the week of--,23
-fomc-corpus,1986,"The $630 million was a freak; I don't know where it would have come out without the computer problems. One or two people said they would be reluctant to see the borrowing go below $300 million and others suggested that at least there ought to be some flexibility to go below $300 million. These are pretty fine shadings. Let me jump down [in the directive]. I don't know if this language in the directive is great, anyway. Do we want to make it perfectly symmetrical in language in the third sentence? Or would we better capture [the consensus] by changing that sentence to say either ""somewhat"" or ""slightly lesser reserve restraint would be acceptable and somewhat greater reserve restraint might be""? We've used that device from time to time. I think there is a question--we've discussed this before at times, though it wasn't appropriate when we changed the discount rate this time. If for some reason, because of international considerations or otherwise, it seemed appropriate to reduce the discount rate at some point, I take it that the sense right now--other things being equal--is that we might increase the borrowing level a bit rather than the opposite. SEVERAL. Yes.",239
-fomc-corpus,1986,I don't think we can write that into the directive.,11
-fomc-corpus,1986,When do we meet again?,6
-fomc-corpus,1986,May 20th--7 weeks.,8
-fomc-corpus,1986,"Well, my instincts tell me that sentence probably should be symmetrical even though 7 weeks is a long time. I don't think we can rule out the possibility, even though I don't see it, that the economy could pick up even faster than most people are assuming.",53
-fomc-corpus,1986,I don't think we can rule that out either but it's a question of whether we bias it slightly.,20
-fomc-corpus,1986,It seems to me the most likely event that might necessitate tightening would be an oil price move; that probably would be more likely in this quarter than robust growth.,33
-fomc-corpus,1986,An oil price move upward?,6
-fomc-corpus,1986,"Well, yes. And it seems to me that if we had an oil price move upward and it appeared to some that a cartel move might be effective for a while, with the money the public seems to want to hold in transaction balances we might have some wider shift in expectations that might require some tightening. It seems to me we should be prepared for such a policy if that were to occur.",79
-fomc-corpus,1986,"Well, who knows what's going to happen? But I would be a little surprised if that happened in the next 6 weeks or so. I wouldn't be at all surprised to see it happen in a slightly longer time perspective. But suppose it happened in the next month or two. Would the right reaction be initially to tighten a bit? I don't know.",71
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"It all depends on the overall long-term inflationary expectation effects of that. If one were to view this as a permanent change back in the direction that causes expectations to have to adjust, those balances people are holding in M1 might turn more into transactions balances relative to savings. And we would want to take it out. But who knows what the behavioral effects would be--whether they'd consider it long-term or short-term? If it really is an inflationary expectation adjustment, we'd have to tighten.",99
-fomc-corpus,1986,"Certainly, over time it would go in the direction of more inflation. You can't escape that. What it would do to the business picture in the shorter run, I'm not so sure.",37
-fomc-corpus,1986,I don't think you can anticipate those kinds of things. If there is a definite change in the price of oil up or down we might want to have some consultation over the next seven weeks. It's just a little hard to judge what we'd do. We would have to take a look at the context in which it happened.,64
-fomc-corpus,1986,"Well, I don't disagree with that, and I don't think it's going to happen over this time period. But who knows? Well, let me put it this way: the straightforward thing to do is just to say ""maintain"" and keep all the wording the same, putting in whatever these percentages are. You can all [react] to that. Who wants to shoot at that?",78
-fomc-corpus,1986,I don't want to shoot at it; I'd like to do it.,14
-fomc-corpus,1986,"Where are you, line 68?",8
-fomc-corpus,1986,I'm looking at a different sheet where I don't have the line numbers.,14
-fomc-corpus,1986,"One way to accommodate this idea of a little flexibility would be to reverse the order and say somewhat lesser reserve restraint first followed by somewhat greater reserve restraint. That's very, very subtle but I think we're talking about very, very subtle differences.",47
-fomc-corpus,1986,The word is cryptic.,6
-fomc-corpus,1986,"I don't think the probabilities are symmetric in this thing. I would still be in the ""B+"" category. I realize that I'm probably in the minority on this, but I wouldn't want a purely symmetric statement that something like a borrowing target of $200 to $300 million suits me. CHAIRMAN VOLCKER. Well, it's hard to object to what Mr. Boehne suggested, and it's hard to object because I don't think it does anything but make a few people feel better. I guess the question is whether people want to go beyond that and just shade it very slightly.",117
-fomc-corpus,1986,"Well, the staff has said that the second-half's growth will be 4 percent on average, right? The question then is: Does the group think, if it's going to be on either side of that, that it's more likely to be less than that or more likely to be higher? If I recall the discussion, I think there were only one or two who said they thought growth would be greater than that 4 percent. That might give some indication of lack of symmetry, in terms of the way we discussed it.",106
-fomc-corpus,1986,"We're only talking about 7 weeks. It's a reasonably long period between meetings, but it somehow seems like a very long period. If we get March set and whatever April data we have coming in on the weak side, do we react at all? That's the question.",54
-fomc-corpus,1986,"Well, as I read that sentence as currently constructed, it allows us to do all sorts of things.",21
-fomc-corpus,1986,I think you are right.,6
-fomc-corpus,1986,"I don't see any reason to change it, other things equal. If the numbers on the real economy start coming in very weak, I think we can respond.",32
-fomc-corpus,1986,I think that's--,4
-fomc-corpus,1986,I don't have any strong opinion.,7
-fomc-corpus,1986,"Well, I don't know whether it's worth changing the order to say somewhat lesser reserve restraint or somewhat greater. The numbers we put in here--these are not very rounded numbers. We've been using rounded numbers recently haven't we?",44
-fomc-corpus,1986,"Yes, that's why I'd like to have 8 percent on the Ml. I just think that if the economy gets weak in the second quarter we're apt to see the March M1 numbers go the other way.",42
-fomc-corpus,1986,"Well, it might sound slightly more consistent, given the uncertainties expressed, to say 7 to 8 percent for Ml; it has the same midpoint as in ""B.""",35
-fomc-corpus,1986,Except that it intends to imply a range. And I don't know whether that's--,16
-fomc-corpus,1986,"We've often stuck ranges like that in here, but it's no big deal.",15
-fomc-corpus,1986,"If it really is a range, Wayne, it would have to be a lot wider than that.",20
-fomc-corpus,1986,That's what I'm saying.,5
-fomc-corpus,1986,"It's a mushy point when we go to 7 to 8 percent. CHAIRMAN VOLCKER. Well, 7 to 8 percent just sounds a little better to me than 7-1/2 percent, but it's no big deal. The difference between 7-1/2 and 8 is not very great; neither is the difference between 7-1/2 and 7.",84
-fomc-corpus,1986,"But with the staff's estimation of a negative 3-1/2 percent velocity, that means we want a self-fulfilling prophecy of 4-1/2 percent or 4 percent nominal and that's not much.",47
-fomc-corpus,1986,"No, no. This converts into a 9 percent or so quarterly average. If that's the way you measure velocity, which is the way they measured velocity, you'd get 3-1/2 percent negative velocity consistent with these numbers because the quarterly average is higher. You're starting high.",58
-fomc-corpus,1986,Consistent with 7 to 8 percent?,10
-fomc-corpus,1986,"Yes. Well, I said it comes out over 9--",13
-fomc-corpus,1986,That's right: 9 percent quarterly average as against the--,12
-fomc-corpus,1986,What comes out at 9 percent?,8
-fomc-corpus,1986,The quarterly average measured growth of,6
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,"While we're picking at these numbers, is it worth saying 7 percent for M2 and 6-1/2 percent for M3 or should we say 7 percent for both of them?",40
-fomc-corpus,1986,7 percent for both.,5
-fomc-corpus,1986,About 7 percent.,5
-fomc-corpus,1986,"About 7 percent, unchanged. Well, I would suggest that we say ""maintain"" and note in the record that reserve pressures have eased a trifle during this period. We expect this ""to be consistent with growth in M2 and M3 over the period from March to June at annual rates of about 7 percent; while the behavior of Ml continues to be subject to unusual uncertainty, growth at an annual rate of about 7 to 8 percent over the period is anticipated. Somewhat lesser reserve restraint or somewhat greater reserve restraint might be acceptable depending upon the behavior of the aggregates."" I would interpret this as $300 million [on borrowing], but play it somewhat cautiously in the actual provision of reserves. We anticipate a little more to ease than we anticipate to drain.",157
-fomc-corpus,1986,"I hate to ask this question, Mr. Chairman, but I assume that the latter implies a 7-1/4 to 7-3/8 percent funds rate or thereabouts.",39
-fomc-corpus,1986,"In the absence of other [unintelligible] I don't see why it implies any change. Although historically I think it would have implied a lower federal funds rate relative to the discount rate, it doesn't seem to these days.",46
-fomc-corpus,1986,"Well, it seems to me that if Ml and the other aggregates were on a higher path than we anticipate, we could accommodate some upward move in the fed funds rate. If it's lower than we anticipate we ought to accommodate some downward movement. I don't think we should pinpoint the fed funds. It seems like--",62
-fomc-corpus,1986,It's consistent with what this says.,7
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,The only thing I would ask is: How much weight do we put on those rather short-term changes in the aggregates compared to what information may be coming in simultaneously on the economy or whatever.,38
-fomc-corpus,1986,"Put ""together with.""",6
-fomc-corpus,1986,Pardon me?,4
-fomc-corpus,1986,Together with.,3
-fomc-corpus,1986,"Well, that's precisely what this says. Is that as close as we're going to come? We have a funds range--well, wait. I was about say 6 to 10 percent for the funds range. Is the funds rate low enough so that we want to change that?",57
-fomc-corpus,1986,"Well, the Bluebook has it a little different.",11
-fomc-corpus,1986,We're suggesting the possibility of--,6
-fomc-corpus,1986,"What did you say on ""B""?",8
-fomc-corpus,1986,We said 5-1/2 to 9-1/2 percent; that gets a little closer to centering it.,27
-fomc-corpus,1986,"How about 5 to 10 percent, since we--",12
-fomc-corpus,1986,5 to 10 percent isn't in the range of belief.,12
-fomc-corpus,1986,"Neither is 6 to 10 percent, but--",11
-fomc-corpus,1986,I have the feeling we should just leave it at 6 to 10 percent because that's where it has been for a long period of time or change it to 5 to 9 percent. I just think that--,44
-fomc-corpus,1986,Leave it 6 to 10 percent.,9
-fomc-corpus,1986,5 to 9 percent centers it on where it is now.,13
-fomc-corpus,1986,"We're not making any change, so why move it? That's going to confuse people.",17
-fomc-corpus,1986,It doesn't make a lot of difference. This has no practical significance except a month or so from now when it is published some newspaper article will say the Federal Reserve eased. SEVERAL. Yes.,40
-fomc-corpus,1986,I wouldn't change it for that reason.,8
-fomc-corpus,1986,"How many want to leave it 6 to 10 percent? Eight, and those are all Committee members. I guess the consensus is to leave it 6 to 10 percent. I don't think it will change anything. All right. With that, I guess we're ready to vote.",58
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes President Horn Yes Governor Johnson Yes President Melzer Yes President Morris Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,43
-fomc-corpus,1986,"We have this rare event.   I don't think a unanimous vote is all that rare but by 10 minutes after 12 it is pretty rare.  And the lunch is set for 1 p.m. Well, I don't know whether there are any other burning issues to be raised at this time. The Open Market Committee meeting is over.",69
-fomc-corpus,1986,Is there a motion to approve the minutes?,9
-fomc-corpus,1986,So moved.,3
-fomc-corpus,1986,Second.,2
-fomc-corpus,1986,Without objection. Mr. Cross.,7
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Any questions or comments?,5
-fomc-corpus,1986,Is there some presumption that this situation will go on and eventually--[not] immediately--that there will be continuing pressure?,26
-fomc-corpus,1986,"Excuse me, I was distracted.",8
-fomc-corpus,1986,"Sorry, I was trying to say that [the dollar] was being held up temporarily, but over time--half a year, a year--would this look toward continuing pressures on the dollar?",39
-fomc-corpus,1986,Would what look toward continuing pressures?,7
-fomc-corpus,1986,"I think the question, Mr. Chairman, is whether a resumption of downward pressure on the dollar is expected.",23
-fomc-corpus,1986,"Well, that certainly is going to depend very much on how the economic data unfold. But one thing that has been an important factor in the dollar having stopped its decline has been, if not a change in the comments and rhetoric and the statements made by a number of officials in a lot of countries, certainly a view in the market that the attitudes of the officials in those countries--here and in Japan and in Germany--are such that there tends not to be concern about the level of the dollar now. Or, at least these countries are not pressing to see it go down further. And in the view of the Europeans and the Japanese, there is the beginning of an expression of some concern should the dollar go down further. So I think we've seen in the market during this period great attention paid to official attitudes; and there is a different perception in what those attitudes are. There is a view that at least for the time being there is not felt to be any need to try to guide the dollar down further.",203
-fomc-corpus,1986,I don't think there's any safe bet as to what the market will do over the next 6 months to a year.,24
-fomc-corpus,1986,Or two weeks.,4
-fomc-corpus,1986,"Sam, are the Japanese continuing to show an interest in the government securities market?",16
-fomc-corpus,1986,"Peter can comment on that, but as far as we can tell they're showing a considerable interest in the government securities market. Apparently, they picked up quite substantial amounts of the latest issues. We did hear in the first part of April that the long-term capital outflows from Japan were declining, but the most recent information--and we talked to the Japanese a few days ago --was that the capital outflows from Japan through April and early May have continued to be very large. Now, that doesn't mean it's all coming to dollars because there are some attractions in Australian and other currencies. Also, it doesn't mean that they aren't covering some substantial parts possibly by hedging; we don't know. But certainly, from what we can tell they are continuing to buy very substantial amounts of U.S. government securities.",160
-fomc-corpus,1986,"I could add to that. As Sam said, they are certainly [active]; in this last bond auction they took roughly of a $9 billion auction. The interest does tend to be a little sporadic and one gets the impression in talking to people in the market that sometimes it's waning or sometimes waxing stronger. We have talked to some of the Japanese firms about it and we get the impression that there is more time and effort put into diversifying out of government securities into other dollar securities and into investments in the securities of other countries, but with some interest continuing in the dollar and in U.S. government securities.",124
-fomc-corpus,1986,"Sam, what has been the change in the yen relative to other countries that are competitive with Japan like Korea, Taiwan, and Hong Kong?",28
-fomc-corpus,1986,"Those currencies have tended to move with the dollar, so the yen has changed against them in the same way that it has changed against the dollar. And that is a matter that is causing some concern for them because they see the diversion of what they've been selling to Korea, being sold by Korea, Taiwan, and elsewhere. And we're seeing moves by the Japanese to shift to those currencies and to increase their ownership in output [facilities] from there.",90
-fomc-corpus,1986,"I'll ask you an impossible question, Mr. Truman. What will be the GNP increases in Japan and Germany in the first quarter? What would be your best guess at the moment?",37
-fomc-corpus,1986,"My best guess on Japan is something like 2 percent at an annual rate--very low, and maybe something about the same order of magnitude, say, 1 to 2 percent in Germany. In both countries there were declines in industrial production in the first quarter.",54
-fomc-corpus,1986,You think they were both positive anyway?,8
-fomc-corpus,1986,On the assumption that the nontraded goods component of the GNP continued to expand.,18
-fomc-corpus,1986,Is that in keeping with what their estimate is?,10
-fomc-corpus,1986,I would think in both cases it is.,9
-fomc-corpus,1986,I thought Germany had a more optimistic outlook than that.,11
-fomc-corpus,1986,"Well, it's short of what their expectations were; there's increasing evidence from--",15
-fomc-corpus,1986,"Well, they had a more optimistic outlook earlier; there's no doubt about that. Recently, I think they have been very concerned about how low [their GNP] may have been in the first quarter. MR. STERN(?). Ted, if you ranked policies around the world--at least in the United States, Japan and Germany--would we still be the most expansionary?",77
-fomc-corpus,1986,"Well, on the fiscal policy side, certainly, although it depends on what you crank in for Gramm-Rudman. But in both of those countries we're seeing a continuing move toward fiscal restraint, a continuation of a 4- or 5-year trend. On the monetary side, for Germany in any case, they are substantially above their monetary growth [objective]. They were aiming for 5-1/2 percent in April and it was a little above 8 percent. That's one of the things that Sam referred to that they are concerned about and one of the things conditioned to their position in the EMS, which is restraining them from providing more stimulus on the monetary side. It's a little hard to read the monetary part in the short run [in Japan]. The Japanese really have moved toward a more expansionary monetary posture over the course of the first five months of this year.",178
-fomc-corpus,1986,Every time they--,4
-fomc-corpus,1986,"Their monetary growth dipped down in April, but they too have been a bit concerned about the excessive monetary growth.",22
-fomc-corpus,1986,"But if you look back a little farther, Ted, you wouldn't say that they had been as stimulative as we have been, though, would you? This is just recently.",36
-fomc-corpus,1986,"Well, for most of the period up until very recently they were following a very tight monetary policy largely directed at keeping the yen from depreciating too much; there was a lot of pressure on them not to ease monetary policy because that would cause the yen to depreciate.",54
-fomc-corpus,1986,But they have changed the discount rate; they have lowered it 3 times and each time the yen has risen.,23
-fomc-corpus,1986,"How do you think Germany will respond to such low first-quarter estimates, given the fact that even they, as you said, already have made it clear that even if they wanted to do something they're sort of boxed in by the French franc in the EMS?",51
-fomc-corpus,1986,"Well, there is some talk that if it comes in low and the government does poorly in the elections in the second week of June--the second Sunday in June, I guess--that there might be some easing on the fiscal side. I think that has a low probability, but it is a possibility, I think.",64
-fomc-corpus,1986,What do you mean by easing on the fiscal side?,11
-fomc-corpus,1986,"Well, I've been told that there are some modest fiscal expansionary measures--public works projects and so forth and so on. They have a national election in January and the implications of this June election are that they have enough time to move--to ease a bit to stimulate the economy if they're concerned--which I think is a very big ""if."" One of the problems in interpreting those election results, as Sam mentioned, is that they are going to be contaminated by Chernobyl. So there would be less of a mandate than one might want in the circumstances.",113
-fomc-corpus,1986,A slightly different form of fallout!,7
-fomc-corpus,1986,We seem to have a worldwide phenomenon of rapid monetary growth associated with slow real growth; it's not purely American.,22
-fomc-corpus,1986,This is true at the moment.,7
-fomc-corpus,1986,Worldwide velocity problems!,4
-fomc-corpus,1986,In more extreme form here.,6
-fomc-corpus,1986,"Yes. These measures aren't worth much, but if you use any kind of conventional measure of real interest rates, the United States right now is probably very much on the low side of real interest rate countries around the world. If you use an ex-post measure of inflation, who knows what real interest rates are?",62
-fomc-corpus,1986,Mr. Sternlight.,5
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Any questions?,3
-fomc-corpus,1986,"Peter, do you sense that commercial banks have cashed in a lot of their paper profits in their bond holdings? Or have they just been playing it by ear and taking their time?",37
-fomc-corpus,1986,"I think there has been some move to capture profits on some longer-term investments and to move somewhat shorter in the yield curve. I think they're staying invested, though--",33
-fomc-corpus,1986,"Oh, I didn't mean that they're weren't staying invested but--",12
-fomc-corpus,1986,--especially given fairly weak loan demand. And that also would be characteristic.,15
-fomc-corpus,1986,How about their trading accounts? How are they running?,11
-fomc-corpus,1986,"Well, they have been taking their lumps recently as market prices have moved down. There are some loss situations around--nothing super heavy among the bank dealers that I'm familiar with, but there are some adverse experiences.",42
-fomc-corpus,1986,Thank you.,3
-fomc-corpus,1986,Any other questions? We have to ratify the transactions.,12
-fomc-corpus,1986,So moved.,3
-fomc-corpus,1986,Second.,2
-fomc-corpus,1986,Without objection. Mr. Kichline.,9
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Did that revision in the first quarter make you somewhat more pessimistic about the second quarter in terms of inventories?,22
-fomc-corpus,1986,"Not much. We had available all of the data except for retail trade inventories when we put the forecast together, and they came in significantly higher than we thought. The Commerce Department will release tomorrow the detail on how it fits together, so we have much of this. We really were [not] surprised, frankly. We thought, given the degrees of freedom that they have in that area, that they might not have taken all of the implied revision into account; but our reading of the inventory side was that inventories generally were lean, with the exception perhaps of some major retail trade [firms]. So, we would not want to change very much as a result of this.",135
-fomc-corpus,1986,"Jim, do you have the numerical figure on final sales?",12
-fomc-corpus,1986,"Final sales had been minus 0.4 percent. They are now minus 0.7 percent. But I should give you another number: final sales excluding CCC purchases, because they are the big mover. If you exclude the Commodity Credit Corporation operations they had been rising 2.6 percent and now they are indicated to have risen 2.2 percent. The changes in these final sales are really quite small. Personal consumption expenditures, net exports, and residential structures were revised down, each by a small amount.",104
-fomc-corpus,1986,"CCC is way down in the first quarter on these estimates, but is that still positive?",18
-fomc-corpus,1986,"Yes, it's just much less positive than before. The offset shows up in federal purchases, of course, if the accounts are kept straight. Federal purchases were up 23 percent at an annual rate in the fourth quarter and are now indicated to have declined 30 percent in the first quarter.",58
-fomc-corpus,1986,Which side of the trade account was revised? Or was it both?,14
-fomc-corpus,1986,Imports were less negative and exports were revised down a bit. So the contribution of net exports is a little less than had been projected before.,28
-fomc-corpus,1986,"Jim, with regard to the forecast, if one were to assume tax reform roughly similar to the Packwood proposal, given the difference in timing between the elimination of exemptions and the effectiveness of the lower tax rates, how would that affect your estimates of real growth in 1987?",56
-fomc-corpus,1986,I think we were asked that question yesterday [at the Board meeting] and I suggested after a long answer that I don't know. Do you want the short answer or the long answer?,37
-fomc-corpus,1986,A short one will do.,6
-fomc-corpus,1986,"Well, I guess we can take whatever comments people have on the business outlook generally. Mr. Parry.",22
-fomc-corpus,1986,"My view about the outlook is very similar to that presented by Jim, both in terms of real growth and also inflation. I would also agree that the dichotomy between what appear to be very favorable fundamental factors and the current sluggish performance of the economy clearly persists. However, in one area--the dollar--it would appear as though the favorable fundamentals for growth have improved, as Sam indicated. The dollar is now 6 to 7 percent less than it was in early April when we last met. On the other hand, I feel as though the current greater likelihood of tax reform indicates that fiscal policy may move in the direction of somewhat greater restraint than we have in our forecast and perhaps in Jim's as well. In the Twelfth District we feel as though there are convincing signs of improvement. Southern California appears to be in the midst of a broadly based expansion, with particular strength in residential construction. In the Pacific Northwest, the forest products industry is posting its best performance in several years, with prices of some products up 22 percent over year-ago levels. The semiconductor industry is improving somewhat and strengthening orders for commercial aircraft have benefited companies such as Boeing in Seattle as well as many subcontractors in California. Finally, lower gasoline prices and concerns about terrorism abroad are expected to boost tourism revenues very substantially, especially in the Northwest with the added draw of Canada's Expo. Just as an aside, we know from an Alaskan banker that there isn't a room available in Anchorage for the entire summer as a result of the pickup in tourism activity. So cancel that city from your list. Areas heavily dependent on agriculture and energy continue to suffer, however. In California, drilling and rig activity are down very sharply and Alaska has been particularly hard hit. Estimates are that each dollar decline in oil prices costs the state of Alaska about $150 million in revenue loss.",369
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"Conditions in our part of the Midwest also are very largely unchanged from the last meeting. There is that general expectation that the third and fourth quarters will be significantly improved, but I must say the current level of activity is considerably under those expectations. As always, the areas that have been strong continue to be strong. I note particularly the real estate side, which is growing very, very rapidly pretty much across the board. And that, of course, pervades all of the related activities such as materials manufacturers, suppliers, and the like. Office building in the suburban Chicago area is beginning to slow down, but in the downtown Chicago area the projects are being completed and new projects are under way; I am quite surprised by the continuation of the heavy building in the commercial office building area. On the residential side in our District--and I guess this is typical of many parts of the country--over the last three months new permits for housing starts are up by some 40 percent over a similar period last year. So housing starts are growing very, very rapidly. Alternatively, on the weak side, there is no really significant improvement in heavy manufacturing. Almost surprisingly, the decline in the dollar has not yet worked its way through in terms of a substantial pickup in orders and production. The environment is better, I am told, but in terms of actually getting deals it has not been much of a help. An exception to this is the paper board/paper box industry which is growing very, very rapidly; their order books early this year--in February, really--on the export side began to take off. So, they are exporting very heavily and that has been helpful. On the inflation side, I have two comments. First, on pricing: Everybody I have talked to says that the pricing in the marketplace pretty much across the board is very fierce. They are just unable to get price increases to stick in any significant way. The labor side is consistent with what Jim has suggested. Contracts are continuing to be negotiated on very favorable terms: three-year contracts, with good changes in the work rules and improvement on the benefits side, so that unit labor costs seem to be under pretty good control. So, in an inflation sense, the outlook looks pretty good. Net, our outlook is consistent with the staff forecast; but having said that we would be pleased to see the whites of the eyes of the third- and fourth-quarter numbers because they look a little remote right now.",494
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"Like the previous three speakers and like the staff, our forecast is for a pickup in the economy in the second half. But in fact we find the present situation disquieting. There is, of course, no evidence today of this pickup and in fact it may be postponed. I still believe that the past favorable developments will show through in the economy, but sometimes I worry that maybe they have already shown through in part in the numbers we are seeing right now and that we will see less of a pickup than we all are forecasting. I certainly would feel better if we were seeing movement in something besides the housing numbers. Like other parts of the country, we are seeing good housing numbers in our District. I remind myself that under normal conditions, if I saw these kinds of economic statistics after such a long economic expansion, I normally would not be hopeful about the future. But the incoming employment numbers keep me somewhat more hopeful, perhaps. If I have special concerns today, I think they center around the trade numbers and the inventory numbers. On the trade side we expect a turnaround, and I would say that the business community expects a turnaround. In the Fourth District the business community, in spite of flat performance, is quite optimistic on the trade turnaround side and on the overall economic outlook. I do find, however, that there is beginning to be a difference between the expectations of the business community and of some of the economists I talk to who are beginning to be discouraged, particularly on the trade number, and who are talking about the need for the foreign exchange rate to go down further. On the inventory side, of course, good inventory numbers depend very much on what business expectations are. And I am concerned that, if this positive business mood I see begins to slip, we may then be in for an inventory correction. While I think our patience will be tested over the next several months, I remain optimistic about the second half; but with each passing month I grow more uncertain about it.",398
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"Mr. Chairman, we all seem to be pretty much of like mind this morning. In view of what we know now, I guess that is not unpredictable. We wouldn't have any difference at all with the staff's forecast for the balance of this year. Our guess would be--and of course it's purely a guess--that if in fact we do achieve those figures, we might be moving a little more strongly as we go into next year than the staff has projected, but just a tad more than what they are saying. I am somewhat cheered by the feeling that inflation will be down over this period, but I do think that we might justifiably have some concern about the sharp rise in the price of nonfuel imports in the first quarter of 1986. That was not the first quarter in which that has taken place. It is pointed out in the Greenbook, page 21 in the second part, that this could be a first step in the inflationary feedback we might expect from the substantial depreciation in the dollar that we have had over the last year or so. That is something that I think bears watching.",227
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Well, Mr. Chairman, the situation in the Southeast is not very different from that expressed by other speakers. On average in most sectors of the [District] economy and in most geographical areas there has been increasing strength in the first quarter and presumably through the second quarter as well. The notable exception, of course, is Louisiana. Generally, residential construction is quite strong in the Southeast as a result of lower mortgage interest rates. Refinancing has gone on at a very, very rapid rate. Commercial construction--and I should say it's really industrial construction--also is moving ahead rather strongly. There has been a shift from commercial development to industrial park development because of the high vacancy rates in commercial developments. Tourism also has improved as you might expect; and the expectation is that that's going to continue with the canceling of trips to Europe. Parenthetically, Eastern Airlines had anticipated adding--or perhaps they already had--one flight from Miami to Madrid; but that has been cancelled completely because of the lack of bookings. Consumer spending increased in March. So, in general those sectors appear to be very good. As I indicated, the big exception is Louisiana. It now has the highest unemployment rate in the United States at a little over 13 percent. The rig count is the lowest since 1975 and the situation there is really quite serious. One of our directors reported that the only happy person in the state of Louisiana is Governor Edwards after the trial. The situation with respect to oil and energy has spread into the Gulf Coast areas of Alabama and Mississippi, which are also involved in those [activities], so that's going to be a negative area as well. In agriculture there is not very much new. It's a difficult situation and that situation has been exacerbated by the very severe drought that we have experienced--the worst drought, apparently, in over a hundred years. I have already talked about commercial real estate. On the inflation side, we still get sporadic reports about price increases due to the decline in the value of the dollar, mostly in terms of Japanese goods. But those reports are very sporadic and there really is not very much evidence that the decline in the exchange value has worked its way into higher prices at this point. Wage negotiations continue to be moderate, although inflation in a couple of our cities like Miami and Atlanta is a bit above the national average. In general, the feeling around the District seems to be one of optimism--again, with the exception of Louisiana. People are looking for a strong second half and they are looking for a good 1987. More generally, we agree entirely with the staff forecast. While the evidence is not yet in the statistics, we think that all of the fundamentals are in the pipeline--lower interest rates and all of the other things that we have talked about--to give us the kind of growth that the staff is forecasting for the second half of the year. We have no quarrel with that and we also agree with the inflation number. So in general, with the few exceptions that I noted, the Southeast looks pretty good and we think that we are going to get the kind of growth that the staff is forecasting throughout the nation in the second half of the year.",644
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Well, Mr. Chairman, our picture is a little different in that it is not looking too good. Economic activity is declining. The data for the first quarter show that while the decline has been modest it certainly is widespread. We expect the deterioration to be more severe in this quarter and also in the third quarter. The energy sector has been referred to already; of course, it has been very hard hit. The rig count is the lowest since WWII. The employment in that area, though, has not come down quite as much as one would have anticipated; it was down about 7 percent in March so our view is that we still have a lot more of that coming as we go along. Oil prices have come back a little, but it doesn't seem that the increase, at least yet, is enough to give drillers much encouragement. We would anticipate that prices probably could turn back down as we get on past summer. Construction is continuing to subside, particularly on the nonresidential side. The value of contracts has been sliding for several months. Employment has remained pretty strong and in fact is about at historically high levels in nonresidential construction; so here again we expect to see a sizable reduction in the work force as the projects come off and there are no new ones that are going to be replacing them. Other sectors of our economy are stagnant or declining. Manufacturing is affected by the weakness of energy and construction, and agriculture continues to do poorly. The financial position of many of our farmers also has been weakened further by the decline in oil prices because they are not getting the royalty payments from the oil wells that they have on their farms. Residential construction has been holding up fairly well but we would be more comfortable, as far as our financial institutions are concerned, if multi-family construction would drop off a bit. In sum, Mr. Chairman, we just are not really seeing very much on the positive side in the Eleventh District. We share part of Louisiana--the part that Mr. Forrestal doesn't have--and he reported how that state is doing. New Mexico we share with the Tenth District and that is not doing all that great either. So, we are a little negative.",442
-fomc-corpus,1986,"Mr. Melzer, you will improve the spirits.",11
-fomc-corpus,1986,"That's right. I will have to try to offset this. As was reported last month--and this is somewhat dated, but right now what we have for the District are first-quarter data--there is really strength across the board in terms of employment, construction, and consumer spending. Our District has been growing at a rate considerably in excess of the rate nationally. We have had particular strength in non-ag employment, including manufacturing employment, and also in residential construction. Also, in general in our area I think the commercial overbuilding is occurring at a later date, so we would still anticipate strength in commercial construction through this year with perhaps some slowing next year. Just talking to people in terms of what's happening on a more current basis, I sense that the tone is very good in terms of attitudes. One specific piece of anecdotal information: A retailer I talked to some weeks ago expressed some confusion as to why furniture and consumer durable sales weren't really following the strength we have seen in housing, which normally is expected. There is now some evidence in a couple of the major cities in the District that those areas are beginning to pick up. In my mind, one of the most significant developments in this intermeeting period has been the shift in market psychology. I have just focused on the government bond market, and I think there probably is some good news and bad news in that. I guess the good news might be that market participants, broadly speaking, may be somewhat more confident in their outlook about this forthcoming strength in the economy. I would agree with what has been said about this dichotomy we have had in the current outlook and looking down the road for some strength. I think there is some evidence in the bond market, anyway; I guess it's expressed in the form of concern that perhaps that in fact is going to develop. The troublesome aspect of all of this is what it might imply in terms of inflationary expectations. I think it was noted in Peter's report and in Sam's, to some extent, that there could be a psychology emerging whereby the best is behind us in terms of oil price declines. We are beginning to feel the impact of the decline of the dollar on prices, and perhaps we'll be moving into a period of cyclical recovery and have price pressures arising out of that. In connection with that we have had a steepening of the yield curve between the front end and the long/intermediate end of roughly 25 to 50 basis points. There is always the possibility that this is just congestion or indigestion from a large supply of securities, although all through this period we haven't really seen any supply problem showing through. I think it's significant to note this shift. There is one other point related to the market: I attended the meeting of the Committee on Investment Performance about a week ago and it was interesting how many investment advisers--I would say at least three, maybe four, and these tended to be more stock-oriented people--cited one of the very positive factors in their minds in terms of the outlook for the markets in general was the liquidity that was in the economy. I think they were referring very specifically in that context to what they perceived to be a generally accommodative monetary policy. The question that raises in my mind is: If the feeling develops that maybe the major move is behind us and the financial markets people start to shift some of that liquidity into spendable balances--and in fact start to spend it against a backdrop of maybe some expectation of increasing prices--we could possibly be at a point where some of that liquidity that has been going into the economy gets pulled out for spending. That's just a question at this point, though.",733
-fomc-corpus,1986,"Let me just inject a question here. There have been a number of references to what favorable wage performances are signaling, which I certainly think has been true in the manufacturing or goods-producing side of the economy. However, that's a minority of the economy these days. What do you see going on in the service side where wages and salaries have been relatively high? Is there any improvement there?",77
-fomc-corpus,1986,"I might comment on that. I think there is an expectation that the rates of increase will be lower this year than we experienced last year but still will be on the order of maybe 5 percent, down from 6 percent or something like that.",50
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"On the national level, I think the issue has been stated as the dichotomy between the strength of the fundamentals and what that says about the outlook versus the sluggishness currently. The issue is how patient we will be to wait for those fundamentals [to show through]. As I look down the list of monthly indicators, while there is no strong evidence, I see a few straws in the wind. For example: the retail sales figure in April showed an increase that was the best since December; the housing start increase was the best since January; the industrial production increase was the best since January; the nonfarm payroll employment increase was the best since January; the [unintelligible] increase was the best since December. Now, that does not make a trend but I think there is a message there that maybe at the fringes we're beginning to see some evidence that [the expansion] might be picking up and that the lull in February and March may be behind us. As far as my own District goes, we are better off than the nation. Philadelphia has an unemployment rate of 5-1/2 percent; it is lower in New Jersey and lower than that in Delaware. I was struck last weekend, as I was driving around running some errands, by the number of help wanted signs in the various store windows. So, I think the area is doing well. The attitude among business people is that they feel this lull but that the situation is really pretty good in the lull. Their attitude is positive; I wouldn't say it's robust. We feel the same boom in tourism: the Jersey shore, the Delaware shore, and the Poconos Resort areas are overbooked, if anything. As to the question about wages in the services sector, last year I think the increases were running around 5-3/4 to 6 percent generally and in the financial area they were probably 6 to 6-1/2 percent. I would think it would be a touch lower, maybe broadly in the 5-1/2 to 6 percent area or perhaps a bit lower; but those markets are still fairly strong.",430
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"Well, in the way of a description, I would start off by saying that the two-tiered economy or whatever term you want to use that has characterized our District for a long time continues to do so. Agriculture and the small part of the energy sector that we have continue to be under some significant pressures, and certainly that has spilled over into small-town retail trade and real estate, and so forth. Most of the rest of the District, though, continues to do well--unspectacular, but reasonably well. Expansion is fairly generalized in the rest of the sectors. What struck me between this meeting and the last one is that attitudes really seem quite good; they are distinctly on the positive side. I know many of you like to keep in touch with some of the more obscure parts of your Districts and we have obscure parts. One indication of the positive attitudes is that second home sales in northern Minnesota--in the Minnesota Lakes areas--have really picked up in the last few months. That business is just doing very, very well in places like Brainerd and Pequot Lakes, some of those kinds of locations.",226
-fomc-corpus,1986,There are too many people going into these areas of Alaska and northern Minnesota now. They're going to take all the fish out of there!,27
-fomc-corpus,1986,"The second homes sales report was really quite striking to me, because I think it is indicative of some of the activity and the attitudes that exist in some of the more remote parts of the District now, actually northeastern Minnesota. Despite the problems, the Iron Range is undergoing something of a renaissance at the moment.",61
-fomc-corpus,1986,We're not very good at manufacturing but we are really good at second homes!,15
-fomc-corpus,1986,"Apparently, yes. More fundamentally, I think the economy is likely to perform largely along the lines of the Greenbook forecast, although my own hunch is that we will probably get somewhat more growth, in real terms, in the second half of this year and early next year. But as time goes on, there is at least the risk--and I have some concern about it--that the mix will shift and will deteriorate in favor of more rapid price increases and less real growth. I must say that the tax reform proposal does strike me as something of a wild card, although presumably that front-loading issue--thinking about it in some form of permanent income context--ought not to be a big factor. At least that's where I come out. I do worry that as the expansion goes on--if we get the kind of acceleration in real growth that I think we will--that will in some sense start to sow the seeds, or at least raise the risks, of a pronounced deterioration in price performance over time. What is happening on the import price side right now and the state of liquidity in the economy are probably some of the straws already in the wind. As far as your question about service sector wages, I don't have any first-hand information on that. But I will say that, at least in the Twin Cities, the help wanted signs in those kinds of establishments are very prominent and have been for quite some time. I would infer from that, at least, that there will be some continued upward pressure on wages as a consequence.",310
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"I just want to make two brief [observations]. I generally agree with what has been said so far on the staff's forecast, although there are a couple of areas on which I differ a little. I am generally optimistic; I do see things picking up in the second half of the year. But I think we are going to be disappointed on the trade side. What I keep seeing in Europe and Japan indicates to me that we are going to get less growth out of the rest of the industrial world than we had been expecting and, therefore, our export markets are just not going to be there as strongly as we had anticipated. So, to the extent that we built that into our GNP estimates, I think it is not going to materialize as strongly as we might have thought. I do think things are going to look better domestically, although not as strong on our export side as we might have hoped. My other concern is that velocity, or the demand for money, still seems to be a major factor. I think a lot of this is a carryover from the sharp decline in interest rates we have had and from the oil price situation, which has broken inflationary expectations another small notch. So we're having an increase in demand for other checkable deposits as a result. Just yesterday the staff was indicating that velocity growth has been around minus 9 percent for the second quarter. That is really a hefty decline, so we're on a similar--if not even sharper--trend than last year. I expect that to turn around a good bit in the second half of the year, but it has a lot of turning around to do. My expectation would be that this velocity weakness will probably squeeze nominal GNP a little further, so I am relatively optimistic about it. I hope that comes more out of the inflation side than the real GNP side;`but given what is going on and my expectation on the trade side, I think that we probably will see a lower nominal GNP performance and maybe some sort of balanced squeezing between inflation and real GNP in the second half. But once again, I think there is reason to be encouraged. I just think we are going to be disappointed on the trade side because Japan and Germany don't seem to be willing to pursue the kind of stimulative policies that we might like. I am talking about the fact that they have slack and potential from the oil price declines because they are major importers; I am not talking about demand driven type policies. They have a lot of potential and a lot of slack. Even if they are willing, they have some problems--institutional problems that [make them] resist being more stimulative. Germany, as I said, is boxed in by the EMS; they are at the bottom on the currency [arrangement] so they are in danger of falling outside their range if they try to get rates lower unless France goes along. Japan seems to be resisting lower interest rates through their postal saving system and there are a lot of other institutional areas of resistance. I think they are eventually going to adjust; they are just going to be slow to adjust. I think political pressures will be brought to bear after the elections in Germany, but hopefully it won't be the wrong kind of expansion. I am a little troubled by the idea of a public works project as a fiscal stimulus--being the source of expansion. I think they will be slow to adjust. I think our trade sectors are going to come around slowly.",701
-fomc-corpus,1986,"You talked about the trade sector. Just looking at these figures, the staff has a pretty healthy decline in the trade balance over the next 18 months. Would you explain that, Mr. Truman?",40
-fomc-corpus,1986,That's what I was getting at.,7
-fomc-corpus,1986,"We are expecting, with the help of some growth abroad and the lagged effects of exchange rate change, to see a rather pronounced impact in terms of slowing of imports. Imports will continue to rise in nominal terms and we expect a rise in exports, so I think as far as the--",58
-fomc-corpus,1986,What kind of rise in exports do you have?,10
-fomc-corpus,1986,"Just in terms of the trade balance itself, we have nominal imports rising at a 12-1/2 percent annual rate over the four quarters of 1986 and nonagricultural exports rising at a 12-1/2 percent annual rate over the four quarters of this year. We had a 16 percent annual rate, we think, in the first quarter. So the balance is somewhat lower, 3 percent a quarter. For non-petroleum imports, we are looking for small declines--maybe in the 2 to 4 percent annual rate range for the balance of the year.",122
-fomc-corpus,1986,You actually have declines in the rates?,8
-fomc-corpus,1986,"In nonagricultural, non-oil, imports. On the oil side, we had a big drop in the first quarter and we will get quite a big snapback for three reasons: one, just the variability of the numbers and the big drop in the first quarter when they were rebuilding; second, gasoline and energy consumption are going up; and third, domestic production is going down. So there is quite a push on the quantity side of the import side in the short run--less in the way of a nominal trade balance than we would have--",112
-fomc-corpus,1986,How do you measure a decline in domestic production?,10
-fomc-corpus,1986,It is very hard to estimate these things. I'll look it up and will give you at least an accurate estimate. We have something on the order of several hundred--I am not sure whether it is [unintelligible]--,47
-fomc-corpus,1986,Are these data coming in or are they a forecast?,11
-fomc-corpus,1986,"It's a forecast. We have domestic production going down by 300,000 barrels a day over the four quarters of 1986. already in the notion of what these countries are able to do. And I think we have to begin to look more at this impact [unintelligible]. But the possible pressures that may occur in some countries, including the [major] ones--not from one year to the next but over several years--could begin to [present a different] and more difficult picture of these outcomes.",105
-fomc-corpus,1986,"Let's turn to Mr. Kohn and get the monetary side of the equation, and then have a doughnut.",23
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,"Let me just raise one question that I raised yesterday, which you probably don't have any answer for at this point. You mentioned the great liquidity in the economy; some other people have mentioned that. Yet, if you look at our liquid assets series, it hasn't been doing much. Can you explain that dichotomy?",63
-fomc-corpus,1986,"I think there are two things that explain it. If you look at the components, you can see that this must be a seasonal adjustment problem more than anything else. Short-term Treasury securities, which were very strong in November and December, have been running off on balance in this seasonally adjusted series in 1986. Now, the Treasury clearly has continued to rely on coupons for most of its financing but I don't believe there has been a change in its basic financing pattern here. So, L was stronger in the fourth quarter of last year than it is now, and it's partly I think--",119
-fomc-corpus,1986,Basically a phenomenon of how many bills the Treasury is issuing.,12
-fomc-corpus,1986,"Well, the Treasury has been paying bills down a bit, about $400 [million] an auction over the last couple of auctions.",27
-fomc-corpus,1986,Is it the number? He should have the number on the U.S. residents--,17
-fomc-corpus,1986,"Well, this would be the number of short-term Treasury securities owned by [unintelligible].",20
-fomc-corpus,1986,"Consequently, if you had an increase in foreign holdings, that would result in a reduction.",19
-fomc-corpus,1986,"If there was a big change, yes.",9
-fomc-corpus,1986,"But I think if you look at the trend in total liquid assets in the last two years, the trend is down.",24
-fomc-corpus,1986,"Yes, I know.",5
-fomc-corpus,1986,"So, I don't think you can explain those two years--",12
-fomc-corpus,1986,"No, the other phenomenon that I was going to note is the runoff in commercial paper this year. Partly we're seeing that bankers' acceptances were weak in March and partly we're seeing the shift to longer-term financing by businesses. They are issuing more bonds and issuing less short-term paper. And the public is shifting something about it now. And I don't know if I have the courage to go, in terms of tightening monetary policy, to where it ought to be tightened if that staff forecast is correct. So, I'm in a real dilemma. I just can't feel any satisfaction in being a participant in a monetary policy that might lead to those kinds of results. But I guess I want to see the whites of the eyes of this third-quarter recovery; and if it's there, then I think we might have to take some action. I'm somewhat more optimistic on prices, but I don't trust myself against the rest of you.",184
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"Well, Mr. Chairman, I'd just like to join the general agreement that has been expressed around the table that the staff forecast is right--that the current economic indicators are mixed and that the current sluggishness that we seem to be seeing will give way to acceleration in the second half. But I suppose the main question is: What would be the timing of the acceleration and the size of it? I myself would expect that we will see this acceleration sooner rather than later--that is to say, that we'll certainly see some strong evidence of it in the third quarter rather than the fourth quarter. And I would expect the acceleration to be strong rather than moderate. I also share some of the concerns expressed around the table that, with the likely increase in import prices and the acceleration that I anticipate, we may begin to see some inflationary pressures emerging but not in the near term. I would be concerned about the possibility of inflation much farther out into the second half of 1987. But my concerns would be there and I think that's a factor we should not lose sight of. On that I would see the risks pretty predominantly on the up side.",229
-fomc-corpus,1986,If nobody else has any comments--,7
-fomc-corpus,1986,"I might just go back, Mr. Chairman, to your question about wages. When I mentioned wages and prices in the Southeast I had in mind manufacturing; in the services sector we're looking at 5-1/2 to 6 percent increases, but substantially higher in the financial services area.",59
-fomc-corpus,1986,"I haven't heard a lot of concern expressed--although there has been some--about the impact of this tax bill on commercial construction, which is in a vulnerable position anyway we keep saying. A couple of people have mentioned it but they didn't put enormous emphasis on it. I don't know.",57
-fomc-corpus,1986,"It should be substantial in terms of changes in depreciation regulations. Also, for rentals I think the maximum loss one can write off is $25,000, which is not very large.",37
-fomc-corpus,1986,"There is certainly a change in the tax incentives for all these partnerships and so forth. I don't understand it all, but it's a big change.",29
-fomc-corpus,1986,"May I say a word? The [forecast for] the United States seems entirely plausible but it might be quite different from what many objective viewers think, and I think we have to take more account of [unintelligible]. If we don't, we're going to get an increase in the negative trade [unintelligible]. We're seeing it now",70
-fomc-corpus,1986,I don't know what business or who they are attracting! Governor Angell.,15
-fomc-corpus,1986,"The world economy still seems to have a fairly high saving rate. I keep thinking about the fact that the economies with the higher saving rates over the last 4 or 5 years have also been growing the fastest; they have gotten larger. In addition to that, if you take the exchange rate move in dollar terms, the Japanese saving rate gets to be a lot larger than it was when you translate it in yen terms. And then when you add the oil recycling and redistribution, that seems to redistribute income to areas where the saving rates remain high. At the same time, I keep thinking about all the investment spending that was spurred in the 1970s when oil prices were rising. Everyone was building tankers and pipelines and nuclear plants and hydro-electric facilities, and these are all long-term kinds of investment demand. It was not just one country; it was a world-wide phenomenon. But we don't have that left anymore; all we have left to do is build buildings and aircraft. So it doesn't seem to me that there's much to indicate that the world economy is going to be moving forward with all that much vigor. World prices seem to be dominated by the fact that there are people out there, particularly in the Third World, who are trying to get hold of dollars and want those dollars. I think the world may see enough supplies in agricultural commodities that I don't see much of a bright outlook in regard to the U.S. share of the agricultural world in time to do much help in this decade. So it seems to me that what Jerry Corrigan and Manley Johnson talked about in regard to the exports is rather doubtful. The United States is still the largest exporter in the world. And I think it's going to be a very difficult market to compete in. The people that had those trade surpluses aren't going to give them up very easily because they don't want to take the employment drops that would occur if they gave up their balance of trade surplus positions. So, I think there's going to be a very significantly competitive market. Maybe we will make some gains in regard to reducing our imports, but not everybody can do that and a lot of countries are trying. So, [the foreign sector] seems to be a drag as far as I can see. Corporate profits released this morning seem somewhat disappointing again. That indicates that the stock market may be more interest rate driven rather than anything else. I don't know what that has to show. I would note, when you look at housing prices in Boston and Tokyo, that it really is rather difficult in a mobile world for housing prices to get too high in one area compared to another because it does translate, eventually I presume, into higher wage rates. We hope you'll pay higher rates in Boston and drive those firms out of that area and into other parts of the United States; it would be really welcomed. I don't know that we necessarily have to move Texas to Boston, but it's really difficult to go a long time with one area of the country having a rather significant revival and other areas of the country having very bad [times]. If market forces work, we can expect land prices to adjust and housing prices to adjust and wage rates to be more attractive somewhere else. So I'm really pleased to see that. My real difficulty at this moment is that the staff forecast for the 1987 inflation rate just scares me to death. Maybe it's wishful thinking that it's not going to be there. But if it is, it's way too high. If we're going to do anything about it, we ought to do firms, even in manufacturing, are doing reasonably well to quite well. But the very, very large firms--mostly ones headquartered in New York with operations all over the country and the world--still are stumbling, with one prominent exception and that bears on the point somebody else made earlier. We do get reports from that their consumer-related appliances--refrigerators and that kind of thing--are now really very strong. ""Full-out"" is the way it's being described to me. So that bears on this feedthrough effect from the housing side. In New York City itself, office buildings are very strong. In the suburban New York areas, I think we have precisely the same situation that Frank mentioned in Boston in that there is something close to an outright boom going on in terms of the housing market and housing prices particularly. Some of that unquestionably is a reflection of the fact that for better or worse, and I guess it's for better, the financial side of the economy in New York City itself--not just banking, but the whole ball of wax--is throwing off just a tremendous amount of income. Wages and salaries in that area are growing very rapidly, but the standard wage bill doesn't begin to capture it. People will tell you about salary increases of 6 to 7 percent, but what has happened is that various forms of incentive compensation and bonus compensation are now widespread. They were once largely the domain of the investment banks but now they are everywhere. And the payouts under these various plans are truly enormous. And as I said, there's no question that in a major way that is feeding the frenzy that we see in the housing market in particular. In terms of a longer-term outlook, there are a couple of concerns that one hears about. One is the one that I think Gary Stern and Tom Melzer mentioned: that while the inflation outlook right now and for the foreseeable future is terrific, what might it be out somewhere in 1987 in a context in which the economy is very strong, import prices are feeding through, and the beneficial effects on prices of the oil situation are largely behind us? The other concern that one hears more and more about--and I guess this is a bit of a problem coming out of the closet--is a concern that basically says that maybe these go-go financial markets have gotten a little too much go-go in them. The concern is not just in terms of prices but in terms of all the exotic activities and the implied uncertainties and risks associated with these various patterns of behavior; it's a kind of nagging feeling that there are vulnerabilities there that perhaps are not fully understood. And that uncertainty, as it can bear on this financial marketplace broadly defined, I think is getting a great deal more attention. In closing, one anecdotal comment: I was poaching in Mr. Parry's territory Saturday at the [unintelligible] meeting and two things surprised me. One was that there was an article on the front page of the Phoenix paper that said that four of the highest paid executives in Phoenix were bankers and that two of them were making over $1 million a year. I then had occasion to visit one of the new communities developing way up north of Phoenix. And there around a golf course, Desert Highlands, were 70--seventy!--houses under construction. And they start at $1 million.",1386
-fomc-corpus,1986,"Yes, but they attract a lot of retired executives. machinery, and oil fuel equipment are all depressed sectors. Again, it's a mixed bag. Commercial construction in Kansas City and Omaha looks very good and suburban Denver is still going pretty strong. Downtown Denver, Oklahoma City, and Tulsa aren't [unintelligible] like Houston and perhaps Dallas will be someday. Residential construction is following that trend; that is to say, in the urban areas in which there has been low unemployment and good activity--for example, Kansas City and Denver--residential construction is very, very strong. But it is severely depressed in Oklahoma, whether it be Tulsa or Oklahoma City. One of the things I would like to call attention to, and Martha has already referred to it, is the revenue shortfalls that are coming out of this depressed agriculture/energy economy. Oklahoma, Kansas, Wyoming, and Nebraska all are experiencing shortfalls in revenues. And this is sort of a double-barreled effect in the sense that the revenues are not coming in and the states and other municipalities are looking for revenues and are increasing taxes, whether sales taxes or otherwise. It is impacting those states and will keep them largely depressed--unless some other good events such as Chernobyl happen, I guess!",254
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"Just a couple of brief comments: On the general outlook, I find myself in the same ballpark as the staff forecast. I look at the situation right now using that forecast as a benchmark and I guess it's one in which I see some downside risks and some upside risks; I think they are fairly well balanced. The big downside risk is the one that Governor Johnson pointed to: the trade side. I've looked at those forecasts for the trade accounts by product, by country, and any other way I can look at them, and I am a little skeptical that we can see the kind of improvement that I think is built into most forecasts. The other side of the coin is that if indeed we begin to see the kind of recovery take hold that is built into most forecasts--not just Jim's--I think we've got to keep in mind that it's a forecast in which on balance the growth in consumer spending is modest in real terms, business fixed investment is sluggish in real terms, and inventories generally are rather modest. And the question, of course, is if things start to roll will those rather modest increases in consumer spending, fixed investment and inventories all begin to gain their own momentum? So, there are risks on both sides and I wouldn't want to try to choose which are the greater risks. As a matter of perspective, we either just passed or are about to pass the 3-1/2-year mark in this expansion. Over the past year I think we've been a little lucky, in a somewhat curious way, in that different sectors of the economy have carried the load at various points and for various periods of time. Right now there's no question that housing is carrying the load. I think we've been lucky in some sense in the way that things have phased in and out and kept the overall momentum distinctly on the plus side, though not as robust as perhaps some would wish. Looking at the situation more from a Second District perspective, I think a couple of things stand out. Outside of New York City itself we really do get the sense that the medium-size a severe labor shortage situation because we have a number of new plants under construction, mostly in the defense/electronics area, that will have to be manned. If capital spending rises or the computer industry bounces back and if our exports in this country rise, we would gain strength from that as well because we export more of our manufactured products than any other part of the country. So, as I see the New England situation, we are heading toward a hyper fully employed situation. There is a lot of diversity in this country at the moment, particularly between Mr. Boykin's District and mine.",534
-fomc-corpus,1986,Do you think it would help to relieve the situation if you took a bunch of Texans up there?,20
-fomc-corpus,1986,I think we could import Texans if they can find a place to live.,15
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Strangely enough, in far north Dallas I was out on the weekend and went into 14 houses, brand new, that are on the market for sale at prices ranging from $475,000 to $800,000. And they think they are going to sell them!",56
-fomc-corpus,1986,Did you settle on yours?,6
-fomc-corpus,1986,"Oh no, I just like to see what they are doing. That is way out in the country.",21
-fomc-corpus,1986,"How are land prices doing, Mr. Guffey?",12
-fomc-corpus,1986,"They are continuing to fall, Mr. Chairman. As far as agricultural land values, from the survey that we take at the end of every quarter, they are down another 5 to 6 percent across the District; that would be roughly 50 percent of their highs in 1981. With respect to the agricultural sector, the winter wheat crop is in good shape; it's perhaps a very good crop. The other plantings that would take place in the spring are going forward well ahead of the usual schedule. There are about 5 to 7 percent of agricultural borrowers that will not get credit this spring and, as a result, something will have to be done with respect to foreclosure. They will not be able to put in a crop. So, there is some good and bad in the sense that the crop is good and commodity prices are up marginally, largely because of the Russian disaster. On the other side of the coin, red meat prices are down largely because of governmental programs with respect to the dairy herd buyout which depressed red meat prices very substantially. In the energy sector, the story has already been told. What has happened to Bob Boykin's District has happened to the Tenth District in spades. For example, the rig count as of January 1 in the Tenth District was at 550; in May it was 236. And that [compares with] a number of about 1700 working rigs in the District at the height of the oil boom. As far as manufacturing is concerned, again, it's a mixed picture. Missouri, as I think you know, is second only to Michigan in auto assemblies. Those plants are going full out so that in the urban areas, particularly Kansas City, things are looking very good and unemployment is lower than the national average. On the other hand, general [unintelligible] aviation aircraft, farm 1, if maybe we won't have to see some more paring back in the third quarter because they are at close to 2 million units and that is probably 400,000 to 500,000 units above where they would like to have them. Have they taken enough out of production schedules to achieve that, given the current sales pace? Again, I don't know the answers; these are just questions.",463
-fomc-corpus,1986,"It depends, obviously, on what they do with their incentives and whether they are going to gin up some more sales by doing something on the price side. In the GNP sense, in billions of dollars, the second-quarter change in the automobile sector is worth about $15 billion in real terms. We have [projected] another $3 or $4 billion in the third quarter which indicates that, yes, they are going to have to take more out. Now, that assumes that they have already [unintelligible] the working off of current-quarter production schedules; we think that they will have to do more. One of the difficulties that I might note here is that the Commerce Department uses seasonal factors that some might doubt. But using our information, they have their seasonal auto production going from 9 million units in the first quarter to 7.3 million in the second quarter. So it's a big dip. And we assume that a small further cut will occur in the third quarter.",201
-fomc-corpus,1986,"Okay. Another thing that has suddenly started to bug me is the feedback of these weak sectors on the Treasuries of various states and what that may do to their urge to spend. I understand that several states already are noticing the problems with tax collections. Is this not something else that could change and contribute to some sort of drag on the economy? Also, the revenue sharing, I believe, is continuing to be attacked here in Washington. For many states--at least the one I am from--the revenue sharing has funded many, many different activities. My final question involves what Manley was mentioning about trade and how quickly the improvement will actually show up in the data. My gut reaction is that the lags may be longer than any of us would like to see. I am not disputing your forecast at all; I am just suggesting that maybe these are some of the matters that could in fact [unintelligible] on it. Thank you.",193
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"Mr. Chairman, New England remains a fully employed economy. Our regional unemployment rate is under 4 percent, despite the sizable decline in employment in the computer industry. The decline in employment in that industry was more than offset by the rise in employment in construction and financial services. As a consequence of a fully employed state, we find that wages are rising more rapidly, as you might expect, in New England than in any other part of the country. In the financial sector, wages are rising more than are wages in general; in that sector the average wage increase this year is probably around 6-1/2 percent. Within the financial sector, the mutual fund industry is in a boom condition and much of that is centered in the Boston area. One other fallout of the fully employed state has been an explosion in housing prices. Boston real estate on average is up by 75 percent in the past two years. And companies are finding it difficult for the first time to transfer people into Boston from other parts of the country because of the cost of housing. We are now at or slightly above the San Francisco housing market. The prospects for New England in the year ahead could well be",236
-fomc-corpus,1986,Do you have any hard data?,7
-fomc-corpus,1986,"Well, there are quite a lot. The production data lag, but there is a large amount of anecdotal information about the shutting of stripper wells, which account for some 80,000 barrels a day of total production in the United States.",49
-fomc-corpus,1986,"Well, it is true that in Kansas they are shutting wells that are coming in under a half a barrel a day. But I find that--",29
-fomc-corpus,1986,The estimates range from [unintelligible]. When you say something like 50 barrels a day at $15 a barrel--,26
-fomc-corpus,1986,"On the point that you made, Mr. Chairman, about the reduced growth among our trading partners: Related to that is the fact that their currencies have appreciated even more, so that in itself is a factor that may be an offset.",47
-fomc-corpus,1986,"I agree that that is something of a favorable offset. It is just that the discussion we have had here and everything I've ever read suggest that the income effect is really much stronger up front than those exchange rate effects; and the lags are long on those exchange rate shifts. It would be some time before we got an offset from that, if the demands were to fall seriously behind in Europe and in Japan.",82
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"Well, I won't repeat the comments I have heard about the unevenness, the 2-tiered or 3-tiered [economy] or whatever it is, and the lots of tears in Dallas. I agree with the staff forecast of a pickup in growth in the second half of the year. What I would like to concentrate on are some question marks that I see--things that may prevent that pickup from happening, even though I would like to see it happen and I don't know that it won't. One thing is this whole issue of tax reform. Practically every business person that I have talked with seems to be discussing that. Last week I chatted with a homebuilders group. They had done a survey and it may be interesting to hear what they concluded--this was based on the Senate Finance bill--about the impact on the overall economy. The impact on single-family housing would be positive, but they thought that the impact on multifamily housing for sale and on rental office building and commercial and industrial construction would be negative. And a substantial group thought it would be very negative. Anyhow, it is impacting on a lot of decision-making and is causing many decisions to be postponed. I don't know how that will work out for the rest of this year--whether in fact it will bring about some extra activity late in the year. If we know, for example, that certain changes will take effect on January 1, maybe we could get a blip late this year followed by a little hole the beginning of next year. I just think it is something to look at. As Jim said, our econometric models don't give us good answers as to what this will do, but I think it is worth considering. In the auto sector, I believe Jim mentioned that the auto [production] cutbacks had cost us about 1-1/4 percentage points in this quarter. I wonder, given the size of the inventories as of May its asset holdings from short-term paper into bonds. We see this in M2 also. M2 has been depressed in part because the public has shifted into these mutual funds that President Morris has commented on.",432
-fomc-corpus,1986,Would you conclude that it had any policy implications or not?,12
-fomc-corpus,1986,"I don't think it has particular policy implications beyond what you might garner from the fact that M2 is also running weak in the range--that is, that the buildup in liquidity broadly measured isn't that large. But it's very, very concentrated at the very liquid end of the spectrum: in M1 deposits, saving deposits, MMDAs, and such.",71
-fomc-corpus,1986,"That trend is consistent with a decline in inflationary expectations I would think, so you're still left with that major question about velocity.",26
-fomc-corpus,1986,"Mr. Chairman, I'd like to just note that L rather consistently has grown a little faster than M3 over the past 3 years and that the first-quarter pattern is the same again. It was one half percentage point faster over 1983; 1.4 percentage points faster over 1984; 0.8 points faster in 1985; and 0.7 points faster in the first quarter. So the trend really isn't any different thus far this year.",97
-fomc-corpus,1986,"Well, let's have a break.",7
-fomc-corpus,1986,"I'll make a few comments, which may be more in the nature of a summary. I must say when I gaze at this table of the first quarter that Mr. Kichline gave me, if you believe the numbers--which is a big ""if"" for many of these quarterly figures--from one perspective it's quite a remarkable performance to have an increase in the GNP at a 3.7 percent seasonally adjusted annual rate during a quarter when federal purchases are going down at a rate of 30 percent and plant and equipment [spending] is going down at 13 percent. If I recall, those things are temporary; there must have been some strength elsewhere. I guess one could raise some questions about how sustainable the inventory figure is. But that doesn't seem to be in accord with what we've been thinking about the economy. However, if you average the fourth and first quarters, I guess you have a picture that's more in keeping with what we thought was going on, or is probably more accurate--a little over 2 percent. We had a description of a very mixed picture of different sectors of the economy and different sections of the [country]. Manufacturing remains somewhat in the doldrums; we have a few excesses developing in New England and elsewhere in the country in all those financial operations. When I look at the problems, generally, I'm not sure there's much that is correctable--looking at it on a world-wide basis now--by much change in monetary policy. This trade situation that has been talked about, I think, is a very serious question. But it's hard to see how it could be corrected by monetary policy in the United States; maybe it could be corrected by monetary policies in Germany and Japan. But I'm among those who are a little skeptical unless we get more growth abroad, because I think that's what's needed to improve the trade picture. I might say a word about the LDCs. I don't think that's going at all well at the moment for a variety of reasons, mainly in Mexico where the political situation has gotten very difficult--stimulated in important ways by expressed American attitudes toward Mexico with regard to drugs and corruption and all that business. The atmosphere is very foul for getting constructive changes in economic policy. And they're going to run out of money one of these days. They haven't yet; their reserve positions have been pretty well maintained, I think, probably by very tight money and exchange rate changes. The degree of the tightness of money, at least, probably isn't very good for their longer term. The economic policy mix is not very good for what you'd like to see happen constructively over time. In the political atmosphere I think there is a question as to whether they will be successful or even want to get their act together to do a constructive financing. And if they don't do it, there will be very serious problems in the rest of Latin America. Again, I don't see that this is susceptible to monetary policy at this point; a moderate change in interest rates isn't going to do anything for the political situation, which is the root of the problem. It has been remarkable, I think, that the domestic financial pressures in Texas and Oklahoma that should be there aren't very visible on the surface. We are learning--or we already have learned, I guess--how to run our savings and loan system without any assets. We're getting to the point of [learning] how to run a commercial banking system without any assets. Everything goes on faith. But again, I don't think there's anything there that's particularly susceptible to economic policy. We are getting the protectionism threat coming up again connected with the trade situation. All of this to some degree bears upon world-wide economic policy, but again, it's hard to see how it bears very much on monetary policy at the moment, given what we've done. I had a little discussion about what the threat of inflation is. I find that we pretty consistently have underestimated the progress against inflation. But when I look at next year and the possibilities, I find it entirely plausible to say at the least that the inflation rate would rise quite a lot next year. I don't think that's certain; but I just think there are a lot of persistent price pressures in the service area and that's so big. One can list a whole bunch of services where that's true, including financial services and housing. We're going to get some impact of the dollar [depreciation]; that's icing on the cake. As for the energy situation, even if [energy prices] level off, that will be a different picture. But if they rebound at all, we will get another aggravation. I think we've done remarkably well so far on the goods side of the economy, but we're not going to have agricultural prices going down forever and energy prices going down forever. The basic wage and the basic cost on the manufacturing side look fine, but it's a pretty hard [unintelligible] effort on that services side of the economy. What we could hope for is that if [inflation] did come out around 4 percent or so--I don't know whether that will be right--but if it's during a period when we're absorbing the exchange rate change we might have gotten off cheap. Maybe it will be temporary. To a degree, I think that's what we've got to work for. We can't offset that potential inflation if the economy is strong, but we could work to make it temporary rather than permanent and hope to see a little more progress over time on the service side. I think we've got to look for protection there from the budgetary action, which I hope comes forward, and not let the economy get overly exuberant if things go in that direction. But none of that is certain yet. On the monetary side I'm told that the preliminary news on the latest money supply figures is not better; in fact, it's a little worse. If anything, the May figure looks like it's going to get up toward 20 percent instead of anything lower than that. At the least it's an awkward looking figure. We have said all along, and I would continue to take the view, that the importance of all these measures has to be judged in the context of M2 and M3--to look no further than the monetary aggregates. They got stronger but they are not so overwhelmingly strong as M1 in terms of our longer-range targets; they don't look alarming at this point. If they begin leveling off--and their rapid increase is fairly recent and I guess it still doesn't look like that's going to parallel the semi-explosion in M1 in May. So I don't know. We have a few tremors; I don't think we have all the confirming signs on M2 and M3. I don't want to prejudge things but I get the sense that the comments heard around the table were not forcibly in the direction of doing anything particularly to monetary policy at the moment. As we look out ahead--and maybe not very far ahead--the question of being a little more restrictive does arise. I'm not sure that date has come quite yet. It would await further evidence on both the monetary side and on the economy. There we are. What have you got to say for yourselves?",1447
-fomc-corpus,1986,"You pretty well have said it all, Mr. Chairman.",12
-fomc-corpus,1986,You've got to be a little more specific than that! Mr. Parry.,16
-fomc-corpus,1986,"I would choose alternative B, which I feel is consistent with growth of around 3-1/2 percent in 1987 and further declines in unemployment. It seems to me that alternative A is not as desirable because of my concerns about the value of the dollar and its inevitable inflationary implications. Also, if we were to choose alternative A, it would come in the context of already very favorable fundamental factors; those that we've mentioned would include lower interest rates, lower oil prices, a value of the dollar that is considerably lower than expected, and of course, the strong growth in M1. Alternative A does not appear to me to be consistent with a goal of longer-term price stability. Also, at this point I would not favor ""C"" because I think it runs the risk of not permitting good growth in 1987. On the other hand, my concern about the future direction of inflation and also the persistent strength in Ml would lead me to favor variant III of the directive. To inform financial markets that there is concern on our part about the growth of money would seem to make some sense. The other point I'd just add parenthetically is that I can come up with a scenario where M2 and M3 may become somewhat more of a problem. Over the last 6 months to a year we've seen an awful lot of money going into mutual funds, stocks, bonds, and municipals, and when investors believe that the interest rates are going to turn those funds are going to come back to short-term assets. And if they come back short, they're going to go into M2 and M3 and we could see much faster growth in M2 and M3 at that point--primarily as a result of portfolio shifts. It would not necessarily indicate that people are going to be using these [funds] for transaction purposes. But I wouldn't derive a great deal of comfort by the well-behaved pattern of M2 and M3 at this point.",396
-fomc-corpus,1986,"Let me just say a word about these directives. One can debate the particular language but we are so far off the numbers in the directive labeled ""alternative draft I,"" which is the same as the one we had last time, that that seems to me to be a kind of bare-faced evasion of responsibility. [We should be] reac to what has happened in a somewhat more sophisticated way than just putting in different numbers in the existing directive, which raises the question of what has been happening here. Mr. Keehn.",105
-fomc-corpus,1986,"Well, I'd also favor alternative B, largely for the reasons Bob stated. I came to the meeting wondering whether we might not fiddle with the words ""might"" and ""would;"" but based on the conversation I would not. I would make it symmetrical on both sides. I'd favor the second draft alternative. That seems to me a responsible way of dealing with the aberrations that we've experienced. I just have a slight fear that if we drop the numbers altogether, as called for in the third alternative draft, it might be a bit [unintelligible] for doing anything like that. We might save that for the July meeting. So, I'd be in favor of ""B"" with the wording proposed in the second alternative.",146
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Mr. Chairman, I came to the meeting with a couple of questions in mind and one was, though I agree with the staff forecast: Do I really believe it's going to happen? I also had a question about whether I should continue to believe in the lags that everyone keeps telling me are going to catch up with us one of these days. But I guess I come out feeling, for all of the reasons that were discussed before, that I probably should believe the forecast. Given that belief, I do think we are going to get the kind of growth that we are looking for. And that leads to another question which is: If we do in fact achieve that kind of growth, should we attempt to push the economy a little further to stimulate it more? I think that there are some dangers in doing that; I think that would tend to push us beyond the long-term trend of the economy. To me the risk at the moment is an overstimulation and the reigniting of inflation and inflationary expectatio As has been noted, we already have some dangerous inflation in the service sector of the economy. So, having gone through that analysis I come out, as you would expect I suppose, for alternative B--not to change policy at the moment. I was struck, though, by the discussion around the table. We had some remarks earlier on that we are expecting this kind of growth but we are not really seeing it showing up in the statistics. It seems to me that we heard this morning that that kind of growth is perhaps beginning to surface, at least in some parts of the country. There was a lot of divergence, but at least in my own area--and I heard others say this--we are beginning to get some statistical evidence that the growth we're looking for is perhaps coming on line. So again, Mr. Chairman, I would choose alternative B with a 5 to 9 percent associated federal funds rate. And I suppose that would suggest to me a borrowing level of about $300 million. I too would like to have a directive that would take account of what has been happening to the monetary aggregates: I think not to acknowledge that overshoot would not be responsible. I had originally thought that the basic drafting of alternative I would be acceptable with the inclusion of the language about the monetary aggregates shown in alternative II.",469
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"Thank you, Mr. Chairman. I share the optimism about growth over the second half of the year and, as a result, the lack of good evidence at the moment creates an uncertainty that suggests to me that alternative B is the appropriate prescription for policy in the period ahead simply because we don't know what is happening and that alternative pretty much holds the current position. As to the directive itself, I would favor draft alternative II for the reason that there is a recognition of the rapid growth in the aggregates that has already taken place and that we would expect through the second quarter. And it places M2 and M3 first, with simply a recognition following that of the M1 growth. Lastly, it does suggest or maintain the idea that some firming could take place in the future given that rapid growth, if the economy begins to perform as we would anticipate and the pressures begin to show up in prices. All those things to me seem to be consistent with (1) what we think and hope the outlook will be, and (2) a realization that M1, M2, and M3 are outside [their ranges] and that the numbers are somewhat different than last month, but nonetheless we maintain them as guideposts.",245
-fomc-corpus,1986,They're somewhat different all right! That's an understatement of the situation.,13
-fomc-corpus,1986,"Well, draft directive III has no numbers in it at all with respect to any of the aggregates. I think that's a rather marked departure from what we've done in the past and one that I would not feel comfortable with.",44
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"Mr. Chairman, as you indicated in the beginning--and I think you pretty well said it all--the economy is being pulled in a lot of different directions. And it seems to me that this is a time when perhaps we should stay about where we are. Looking at the economic factors, there doesn't seem to be any reason for easing if we're half-way right in our assessment of what the economy is doing. And Ml, as we know, has been going through the ceiling and now the broader aggregates seem to be picking up a good deal. We have these special problems with particular sectors like agriculture and other manufacturing, but as you pointed out those are not things that we can address very well with monetary policy. If we tried to nudge the dollar down, for example, it might well backfire on us and we'd really achieve no improvement in our balance of payments. So, I've come down to the point that I think we ought to stay about where we are. I would go with ""B,"" although in the absence of a sharp deceleration in economic activity I'd be real happy if the aggregates came in at ""C"" or even below that. But if we get a clear signal that activity is beginning to accelerate beyond what any of us seem to expect and if the aggregates also are strengthening more than we anticipate, then I think we're going to have to be prepared at some early point to think in terms of moving in the direction, anyway, of restraint. I would not say restraint, but in that direction. I think alternative III--and this probably will surprise most of you, knowing my past views--really captures the posture. I think we ought to take it at this point; I hasten to add, however, that I would want to reinsert the short-term numerical targets for the aggregates when we get around to addressing the longer-term aggregates at our July meeting.",378
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"I'd be in favor of maintaining the existing degree of restraint right now but I definitely would have a bias in the direction of a somewhat firmer policy. In other words, at this point in time, I think it's more likely that we will have to firm than ease, as you said earlier. What concerns me is that there is always the possibility that when we see the ""whites of their eyes"" it will be too late. I am not sure that this is the time to begin to get some [unintelligible] back in, but we may be getting close to that time. And I would be particularly concerned if we did see some pickup in economic activity and that didn't flow through to a firming in the dollar; I think Sam said before that the trend in general still seems to be downward. That would concern me--if there really came a time when almost no matter what we did we couldn't easily turn that tide. In any case, I would be in favor of the existing degree of reserve restraint, but would favor language that would indicate something other than symmetry--language that would indicate possibly moving toward a firmer policy down the road.",233
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"First of all, I gathered from trying to piece together a few comments in the Bluebook and the Greenbook that the staff views at least the upper end of the M1 target as being consistent with the GNP forecast and that that can be achieved at roughly today's interest rates. So that implies a significant slowing in M1 over the balance of the year without any action on our part. If all of that is right then I, too, favor alternative B. As far as I can judge, it will take us about where we want to go. I do think, as others have commented, that the directive language perhaps matters a great deal this time around. I have a strong preference for the third alternative principally because, at least in my mind, that is the clearest statement of what we intend to do if growth in the aggregates doesn't slow as expected; and I think it's probably important to make that point. I also think that we can insert a sentence in there with some numbers if that's desirable; certainly that's doable. I am a little concerned about the language in there having to do with lesser reserve restraint because it points to things like slowing money growth or the foreign exchange markets whereas I think that slowing money growth and a stronger dollar might at least in the short run be more than welcome. I am not sure that I would want to respond to that. Beyond that, it also refers to sluggish economic performance and I think we have largely conceded that growth in the second quarter at least is going to turn out to look kind of sluggish--real growth of 2 percent, given the adjustment that is still going on in the energy sector and so forth. So I would be a little concerned about that kind of language--that such developments might prompt a policy response, and I don't find that appropriate at this juncture.",365
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"I think alternative B is the right policy course given the mix of hopes and anxieties and uncertainties that we face. As to what we do about an M1 that has blown out of its targets: I think we do have to acknowledge it, and I think something along the lines of variant II for the operational paragraph is right. To go all the way to variant III I think is premature. We will be having a meeting in July in which we will have to reevaluate the aggregates for the second half of the year. It may be prudent at that time--or it may not be--to change the target ranges. It may also be appropriate to acknowledge a different weighting; but it seems to me that a mid-quarter meeting is not the appropriate time to do that. So, I would acknowledge that [monetary growth] is over the target and then have a more fundamental look at the normal point in the calendar in July. There is also the advantage in July that [your Congressional] testimony would be following our decision fairly promptly and whatever we do can be wrapped around the appropriate words.",220
-fomc-corpus,1986,Mr. Morris. Mr. Morris has stepped out. Governor Angell.,15
-fomc-corpus,1986,"I also favor alternative B and I prefer draft II. I would want to be a little clearer on the fourth line of draft II to say rapid M1 growth and weakness in M1 velocity. I am not sure that M2 is rapid when it's right in the middle of our range and expected to be in the middle of the range. I do believe, however, that there is another immediate policy move that needs to be made to reflect the weakness of the dollar and the undesirability of further weakening of the dollar at this point. I would think it would be just ideal if the Chairman could negotiate with the Secretary of the Treasury so he would be willing to have intervention on behalf of the dollar, provided the Japanese and Germans cut their discount rates 1/2 point. So, I would like to see something take place in this environment; and I think that would be a step that would be helpful to everyone.",185
-fomc-corpus,1986,"Why don't we discuss the attitude toward intervention a little after we get finished with this instead of mixing it up. If you want to discuss it, I think it may be a good idea. We will reach this decision and then discuss that. Mr. Morris.",52
-fomc-corpus,1986,"Mr. Chairman, I also support alternative B but for different reasons, it seems. The stronger growth projected in the second half is really entirely a function of the improvement in the trade balance, and our ability to forecast the timing and magnitude of changes in the trade balance is not so great that we can have confidence that we can forecast it extremely well this time. If we don't get a third-quarter improvment in the trade balance, I think we will continue to have a pretty sluggish forecast. I don't see anything else that is going to pull the economy [up] very rapidly. So, I don't think we can move on the anticipation that the third quarter is in the bag yet. As a lot of people have said, we have to see the whites of the eyes of this narrowing trade deficit. I question whether we are in fact putting excessive liquidity into the system now. I proposed, when we were last talking about the long-range targets, that we set targets for M3 and total liquid assets; I assumed a minus 1 percent velocity for 1986. As I look at the fourth-quarter [and] the first-quarter rates of growth that would be compatible with a growth of 6 to 6-1/2 percent for nominal GNP I don't see that; the only thing in the picture that would lead one to think that we are building excessive liquidity is M1. I am not very sure that we understand the meaning of that growth of M1 for future economic growth. On the inflation front, I am more optimistic I think than many around the table, but I have been looking at what I call the ""core"" inflation rate and that is the price indexes eliminating food and energy. If you do that, you see that there hasn't been any deceleration in the inflation rate in 1985; and if you look at the projected inflation rate for 1987, it doesn't look at all bad because it is not much different than the core inflation rate now. It just depends on what set of numbers you have gotten used to looking at. I think quite clearly the recent sets of numbers for the CPI and the wholesale price index had a lot of one-shot effects from food and energy that are not going to be repeated; we have to understand that this is an aberration. And when the inflation rate gets back to the core rate, we shouldn't be too much alarmed because that was the fundamental situation all along. With respect to the directive, I appear to be the only one favoring draft directive I. The reason is that it seems very clear to me that when we meet in July, we're going to look at the growth rate of M1 and either we will have to eliminate M1 as a target or rebase it again. I think that is clearly in the cards. And if that is the case, I don't see any reason to equivocate in letting the market know what they already know: that we are discounting M1 in monetary policy. I don't think we kid anybody if we think the market feels otherwise. I don't think we can tell the market a different story with a [different] form of the directive than the former directive because I don't think we really mean it. Are we really going to tighten up money and tighten up interest rates in a sluggish economy in order to get the M1 growth rate down? If we are not, then it seems to me it's time to recognize that fact; and it seems to me directive I is an ideal way of beginning to do that.",709
-fomc-corpus,1986,"You leave me totally confused, if I may say so. I would think the thrust of your comments would lead you to want to change directive I.",30
-fomc-corpus,1986,"Well, directive I is where we talk about the expected rates of growth of M2 and M3 and it has language, which comes in after that, to the effect that the growth of Ml is uncertain. That suggests to me a downgrading of the significance of M1.",57
-fomc-corpus,1986,"People can read the same thing differently, but I think the interpretation of keeping alternative I would be that nothing has changed in relative emphasis because we haven't changed the language. If we want to change the relative emphasis we would change the wording of the directive. The [draft] wording may not be perfect, but--",62
-fomc-corpus,1986,"Well, I would be happy to make that suggestion also. If you accept the proposition that we are going to have to do something in July, it seems to me to make sense to start doing something now.",42
-fomc-corpus,1986,"I don't want to argue the point in substance. All I am saying is that if you want to make a change, I would think that the last thing you would want is the old directive repeated again, which says we are not changing anything.",49
-fomc-corpus,1986,Perhaps I inferred that drafts II and III imply that we are going to give a lot more emphasis to Ml.,22
-fomc-corpus,1986,I don't think they're implying that.,7
-fomc-corpus,1986,"Well, maybe these things are getting so obscure, Mr. Chairman, that we ought to decide what they mean.",23
-fomc-corpus,1986,I think that's pretty close to the truth.,9
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"Well, I would support maintaining the existing reserve pressure but I have the same problem with the alternatives presented today as I did a few months ago, and that is that there seems to be so little difference among them. I would like Bob Parry to give me the model that shows the impact in 1987 of a difference in M1 growth in this quarter of 3/4 percentage point at annual rate between ""A"" and ""B"" and another 3/4 percentage point between ""B"" and ""C,"" and 1/2 percentage point between the alternatives for M2, and 1/4 point between those for M3. I would like you to tell me how those marginal changes will impact on inflation, trade, auto sales, housing, etc. in 1987. I think these are very, very, tiny differences. As I say, I'm totally willing to go with maintaining the existing reserve pressure; but ""A"" doesn't send a message to me that it is a big change in the easing direction, nor does ""C"" seem like a big change the other way, particularly when we are talking about [a quarter point on these] numbers. Maybe I am missing something or maybe you are hiding those equations from me, but I haven't seen that kind of forecasting ability around here. Anyhow, in terms of the problems in the economy, as I said, I doubt that ""A,"" ""B,"" or ""C"" will solve our trade problems immediately or take care of manufacturing or third world debt or all of the other ailments we talk about. So, for that reason I will stick with the status quo. On the directives, again because we are going to take a fresh look at this in July, I would just go with alternative II.",360
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"I also would agree that alternative B is the right approach. However, I generally agree with what Frank was saying on the directive. I don't know exactly what the right language is, but I would prefer to be as neutral as possible on the directive. I certainly wouldn't want to acknowledge the growth of M1 at this point because right now we are still trying to determine whether that growth is a response to the decline in interest rates and whether the demand for money might lead us actually to want to increase bank reserves, rather than cut back on the growth of Ml, to accommodate a further shift in the demand for money--at least an increase in the quantity demanded because of some [unintelligible]. I certainly wouldn't want to send out the red flag about the fact that we're concerned it is growing too fast when we don't even know yet whether this is a portfolio shift or whether what's going on is a result of declining interest rates and inflationary expectations or whether it is something to be concerned about. There are only six weeks before the next meeting, and I'd say we certainly don't have to get stewed up about the aggregates when we can address this whole issue very carefully in July. We can decide then what we are going to do about the targets when we have a better chance to judge whether anything is happening to the economy as a result. Right now all around the table we have said very clearly that nobody sees any strong evidence that anything is going on. We're still in this 2 percent pattern. We are all hopeful with regard to the forecast, I agree; I too am optimistic about the second half of the year. But until we get a little evidence at least in the orders data--or something to indicate that there's a pickup--I would like to remain absolutely neutral in the directive about where we want to go. I wouldn't want to send out any signal whatsoever to the market at this point. I would wait six weeks and see what we want to do then. That's when we ought to have a little more time to decide whether the second half of the year is going to be the kind of situation we are hoping for.",427
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Well, Mr. Chairman, I also would agree on alternative B for all of the reasons that were given. On the directive, I agree with Frank and Manuel's point of staying neutral; it seems to me that alternative III does that much more than alternative I, as was discussed earlier. It does not use numbers; it's very straightforward. In fact, it says we don't know. We do have July coming up and that's a traditional point at which we take a new look at this. This [directive] would not become public until after the July meeting, which I assume would be pretty close to the time that you would be testifying. You would have the opportunity to explain it all. It seems to me this signal of not putting any numbers in right now, as in draft directive III, is the best indication of consistency, [acknowledging] that we are a bit confused. And it seems to me it gives you the opportunity to say whatever needs to be said come July. I would very strongly go with option III.",209
-fomc-corpus,1986,"My only concern about that was that it implied that we might have lesser reserve restraint if there was a marked slowing in money growth. I would say that we're so uncertain about the money demand situation that I wouldn't want to imply that we would ease if money growth slowed--even substantially. If we take out any response to the aggregates, I would be happy with that.",73
-fomc-corpus,1986,"Are you saying that if money does not slow at all over the next six weeks and we have continued [high] growth rates, that you would not be of a mind to make a move?",39
-fomc-corpus,1986,That would depend on whether we are seeing something happen in the economy by then.,16
-fomc-corpus,1986,I think that's really where the difference is. I think there are some people who say they would. I think that's a difference of substance.,28
-fomc-corpus,1986,"Well, everybody will have a different opinion. I am just saying that's my opinion. I would want to see if the economy was catching on as a result of this M1 growth that we have had. The base is not really doing anything. There has been big growth in M1 and I would like to see if that is catching on or if people are just deciding to save out of those other checkable deposits or what is happening. In July, [unintelligible] if things were really starting to catch fire--if orders data and leading indicators were looking a lot stronger--I would say that would be a good indication that money was being used more for transactions than we had thought at this point.",143
-fomc-corpus,1986,"You weren't doing this, but I think it's dangerous to draw a parallel between now and year ago when we had similar problems. The reason I say that is that interest rates are down a heck of a lot more than they were a year ago, the dollar is down, and oil prices are down. In a sense it's easy to slip into the mode, in general, of thinking that this is exactly where we were a year ago. I am not sure we are because of those other forces that are at work and what we may see down the road in terms of a possible resumption in inflation. In my mind, it may not be as easy this time around as it was a year ago, just from a market perspective point of view, to abandon the targets. But I guess that's for July.",161
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"Well, Mr. Chairman, I think we ought to stay in a holding pattern and that means I favor alternative B, like everybody else. On the directive, I favor alternative II. I also favor being neutral. And I see no conflict in being neutral with allowing the market to know that we acknowledge what's happening with the aggregates without making a judgment; we just let the market know that we know this. I think not to do that would risk giving the wrong signals. So, I would prefer alternative II. While I think we now are probably closer to the time when we may feel some need to snug up a bit, I would be careful not to give any indication to the market that I felt that way, because it just might make it happen; it might give rise to something.",158
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"Like Mr. Parry, I am not so sanguine about M2 and M3; and I guess the greatest concern that I have is really even more with M3, where for Bob it was M2. The concern that I have about M3 relates to this question that Frank raised about liquid assets or whatever you call it. We have a situation right now where there has been a tremendous burst in longer-term financing; but we also have a situation in which there has been a tremendous burst in both intermediate- and short-term financing as well as the long-term, through which the banks' role in that process is one of a contingent source of liquidity through standbys and guarantees and [unintelligible] and all of these other things. So, one of the reasons M3 looks so sanguine and indeed why liquid assets, or whatever that is called, look so sanguine is because the nature of the relationship of the banking system to this process is different. What is there now is a very substantial and very rapidly growing contingent liquidity [unintelligible] on the banking system. And I think that is something that bears on the way in which some of these broader measures of liquidity and financial expansion look. So, I put that on top of Bob Parry's earlier argument. I for one am not so sanguine about what M2 and M3 are telling us, and I am of the view that when we take account of conventional liquidity plus what I would loosely call contingent liquidity that we have kind of a paradox in that the contingent liquidity--what [financing] could have to be produced--doesn't show up in a lot of the conventional measures we are used to. Another quick point: Though none of us may be very impressed with Ml, and I am not either, I think it's worth noting that for the first time in months and months and months, people in the market are looking at Ml both in the United States and abroad. Nobody is getting alarmed or anything like that, but there is a change in that people are looking at it again. They are not reacting to it but they are looking at it, and I don't think we should kid ourselves about that either. As far as policy is concerned, I would certainly very much put myself in the ""B"" camp. I also have a little bias in the direction of the need to be more sensitive to the possibility of ""B"" with a bit of a bias toward greater restraint, or ""C."" I don't know what is going to happen between now and the next meeting either, but I certainly could envision a set of circumstances in which even in that intermeeting period we might feel the need to snug a bit. Because I feel that way, I favor directive III. I think directive III, with a couple of modest word changes, can be made compatible with the point that Governor Johnson made, which I think has some validity, by making the first conditional sentence something like: ""If such a slowing does not develop, somewhat greater reserve restraint would, or might, be acceptable in the context of a pickup in economic growth"" and putting a reference to the monetary aggregates in there. But the part that is more important to me is the somewhat lesser reserve restraint sentence. The only thing that would move me in the direction of somewhat lesser restraint that I really can think of right now would be if the balance of the quarter materialized in a way in which the economy itself were distinctly sluggish. So, I would either want to get rid of the lesser restraint sentence altogether or just have that sentence limited simply to a distinctly more sluggish economy rather than all of this other stuff.",736
-fomc-corpus,1986,"That was exactly the point I was trying to make. If the economy were showing a lot of strength--even if M1 dropped off quite a bit and it indicated that the velocity really would rebound sharply--we wouldn't want to ease under those conditions. I agree with that, but the opposite applies too. The economy could be growing strongly but if velocity were showing continued weakness, we wouldn't necessarily want to tighten.",82
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"I favor alternative B and the number II statement of the directive, although I could take number III with both the suggestions that Jerry has made with regard to saying something about the aggregates. That is why I mildly favor II: because I don't want to indicate at this point that we are turning our back on the aggregates or that we are not being watchful of them. I also agree about the change in the sentence on somewhat lesser restraint, because I do think the one thing that could happen that might make me want somewhat lesser restraint would be a remarkably sluggish economy.",112
-fomc-corpus,1986,"Governor Wallich, you can interrupt all this unanimity for Alternative B.",15
-fomc-corpus,1986,"Well, I don't have much [to say] for the ""B"" notion because of the problems about the situation. People are unsure about [unintelligible], and that is particularly the situation--when one feels unsure about the sensitivity of what one is doing--where it is better in that moment simply to go to ""C."" I know this could have a bad effect, but initially it will reduce some of the errors that one might make if one began with ""B.""",97
-fomc-corpus,1986,You want to tighten up a little?,8
-fomc-corpus,1986,"Yes, and I have had a hard time coming to this.",13
-fomc-corpus,1986,"Okay, with that exception, the easy part is alternative B. The difficult part is what that means. I have heard considerable expression that the wording of the directive ought to be changed, with only one exception. We have to look at these carefully to see what the difference is. Just to speak for myself, I am not sure I am alarmed--if that would be a fair way to express it--over Ml. Three consecutive months of high numbers do give me a little pause, however much I deemphasize M1. Even if I don't pay any attention to it at all, this is a time for a little perking up of the ears anyhow, particularly with some rumblings [unintelligible] in M2 and M3, although not at a serious level as yet. I also have to agree that it's very hard to see what would make us ease during this period except reasonably clear signs of softness in business activity. To see M1 falling below the particular M1 number would not impel a great easing at this point with nothing going on in the economy. However--",221
-fomc-corpus,1986,Who needs much more than 20 percent growth?,10
-fomc-corpus,1986,"I bet we could. I wouldn't want to, but I think we could.",16
-fomc-corpus,1986,"We'll see what the salient differences are in these directives here. The first sentence is going to be the same anyway--""maintain.""",27
-fomc-corpus,1986,"I wonder, Mr. Chairman, if I might make a suggestion as to something that might make most people happy? It seems to me that most people want some acknowledgement that Ml is overshooting but people--at least the majority--also want to be totally neutral about what we might do, in order to not tip the scales one way or the other before the July meeting. One way to achieve that would be in--",84
-fomc-corpus,1986,I don't accept that as a premise.,8
-fomc-corpus,1986,"All right. Well then, there is no use having what I suggest.",15
-fomc-corpus,1986,"The Committee may decide that, but I didn't think there was necessarily all that much unanimity that under no conditions would we change--",26
-fomc-corpus,1986,Not under no conditions. What I meant was that at this point we just don't bias the directive one way or the other.,25
-fomc-corpus,1986,"I do agree with that point. If we acknowledge the overshooting of M1 growth, which may be appropriate, I think we at least ought to balance our acknowledgement of the growth of M1 with the two possible meanings associated with that growth. One is that we have a big bulge in money demand for various reasons associated with lower interest rates, declining oil prices, and all those things. But it also can mean the opposite; it could be a warning of too much liquidity. We don't know right now, it seems to me, which one of those meanings to apply to it.",118
-fomc-corpus,1986,"Well, I think Governor Johnson is right. One way to deal with that is just to drop the sentence at the bottom of page 12 in draft alternative II that says, ""This action is expected to be consistent with a deceleration in money growth over the balance of the quarter."" If we just take that sentence out and then in the next sentence drop ""however,"" it simply acknowledges that we have had rapid growth. Then we could follow the numerical specifications by saying ""somewhat greater or lesser reserve restraint might be acceptable"" etc. It seems to me that that says: Look, we have overshot M1 and we are not sure what it means; we may respond one way or the other, but we are not at this point saying which way we might go. We will wait until developments unfold.",162
-fomc-corpus,1986,"If that's what we wanted to say, that's the way to say it. But I think a lot of people would not say that.",27
-fomc-corpus,1986,"I think I wouldn't want to say that. What I would want to say is that if money continues to grow, I have a concern. I think you're saying that if money continues to grow you don't have this concern until you see some other things occurring. I am not so sure that I could support that.",62
-fomc-corpus,1986,"Well, we were just making an offering.",9
-fomc-corpus,1986,"There are a zillion contingencies as usual, but just on this point, I guess there is a question: If monetary growth continued at the recent rates--I'm talking about all of the aggregates now--with Ml averaging about 15 percent if we use recent months, and M2 projected now for the second quarter at 9-1/2 percent and M3 at 8-1/4 percent, are we highly neutral about those growth rates or not? We had 13 or 14 percent growth in M2 in April and 11 percent in M3. Are we really saying that if growth continued at that rate of speed, just looking at the monetary aggregates alone, that we're neutral?",142
-fomc-corpus,1986,"Well, it depends on what happens to the economy.",11
-fomc-corpus,1986,All other things equal at this point.,8
-fomc-corpus,1986,"But even there I have a problem because these are not contemporaneous events. If one is expecting the real developments to follow what has happened with regard to the aggregates to some extent, then if we are waiting for that kind of confirmation and it occurs, we may have to do a lot more later than we would like to do.",66
-fomc-corpus,1986,"Bob, I agree with what you are saying, but I am just asking: How long have we been sitting around here waiting for the lags now? We have been watching.",36
-fomc-corpus,1986,It's obviously closer.,4
-fomc-corpus,1986,I don't know whether we are closer or not.,10
-fomc-corpus,1986,"I don't know how close we are, but I do know that these rates of growth of the aggregates have picked up substantially from what they had been.",30
-fomc-corpus,1986,"Isn't there some point in time that the Ml growth path in and of itself gets to be fast enough? Particularly if we are moving down the demand curve due to the interest rate declines, I would expect that at some point in time--that is, if interest rates don't drop--we ought not to be getting that kicker any more, so we would expect M1 to decelerate. It seems to me that it's more logical that M1 is going to decelerate. The question is: How much? I guess I would like to have Jim's comments on that. How long after we bring interest rates down do we expect to get the quantity demand response just due to the lower interest rate?",142
-fomc-corpus,1986,"Well, I think Don has the econometric results that we used. There is a lot of uncertainty, but we have various models. You are looking at the numbers, Don.",36
-fomc-corpus,1986,"According to the models, for what it's worth, the interest rate effects would be expected to begin tapering off to a certain extent in May but mostly in June and then even more going out. We are not sure that the models have captured the interest rate effects all that well, given that we're at levels of opportunity costs that we have just never experienced before with respect to NOW accounts. But certainly the pattern ought to be one of tapering off, and that's what we built into the paths.",99
-fomc-corpus,1986,Let's say you estimate that 5-1/2 percent of the M1's recent path might be explainable simply by the interest rate response. That response is going to disappear at some point in time.,42
-fomc-corpus,1986,"Governor Angell, I think we all agree that if money begins to grow more slowly, we would have some degree of comfort in that. I think the first issue, and one where we seem to have some disagreement, is what if it doesn't? What does that imply in terms of what we say and do?",63
-fomc-corpus,1986,"I want you to understand that if Ml begins to grow slowly, [unintelligible] if we get it down to the 5 percent path after we have been at 15 percent and we don't see any evidence. We can do all the talking that we want to about the economy's growth path, but the hard evidence is that the economy is still on a 2 percent real growth path. That's all the hard evidence we have. If we don't have any evidence and we get into the third quarter and the third quarter still looks like 2 percent or drifting to 1-1/2 percent or slower growth, we've got to ease.",131
-fomc-corpus,1986,Of course.,3
-fomc-corpus,1986,Unless the inflationary picture--,6
-fomc-corpus,1986,"[Unintelligible] to hear you say that. I don't know what the growth path is, but frankly I'm not sure there is all that much difference between II and III. The first point we may consider is: Do we expect whatever action we take here, which is not much change at the moment, to be consistent with a deceleration of money growth? That's what we are told, as a simple forecast; and I guess we would like to see it happen. If that doesn't happen, we might tighten, depending upon the strength of business. That's the most important thing. I think that's what people are saying; but it is dependent upon the strength of business.",136
-fomc-corpus,1986,The nub of the problem is that everybody starts guessing what growth rate that means. What's the third-quarter number that will make us do that?,28
-fomc-corpus,1986,I wouldn't rely upon a third-quarter number which nobody knows.,12
-fomc-corpus,1986,"Well, I agree. That's what I am saying.",11
-fomc-corpus,1986,"We'd need a variety of hard evidence--say, some pickup in orders, continued strength in housing, and automobile sales continuing strong. With regard to the projections of next quarter's GNP there's a certain amount of skepticism, although these current indicators tend to get reflected in those projections. I am not talking about fine tuning the language. It needs to be fine tuned, but I would have thought that you captured the essence of what people were saying. Yes, we do expect a deceleration [in monetary growth]; if that doesn't develop, we are going to be a bit worried but we are not going to be worried enough to change things unless the deceleration is accompanied by some feeling that the economy is [not] doing reasonably well. And the only thing that would make us ease, as near as we can see now, is a clear sign that the economy is not doing well relative to current expectations. If that is the essence of what we are saying we ought to be at both II and III have the [prima facie evidence] of that, or more than the [unintelligible].",222
-fomc-corpus,1986,"It seems to me that there is only one issue, Mr. Chairman, and that is whether or not we want to maintain some range for the aggregates, particularly as set out in alternative II--keeping M2 and M3 as the first targets and indicating that M1 is sort of uncertain.",59
-fomc-corpus,1986,"Well, that could be incorporated in III. The difference in the wording as it starts out is not much in substance, as near as I can see.",31
-fomc-corpus,1986,"To me the phrase ""if such a slowing does not develop"" was the one that made the difference.",21
-fomc-corpus,1986,"The one big difference is that I read III to mean that we are reemphasizing Ml, because in last month's directive we emphasized M2 and M3 and then we noted that M1 was uncertain.",42
-fomc-corpus,1986,I don't think it was meant to reemphasize Ml; it's a recognition that M1 is the one that is growing at a jet propulsion rate of speed.,33
-fomc-corpus,1986,I read III as Frank does--that M1 is in some way elevated.,16
-fomc-corpus,1986,"We have two different things: what's the inherent rate of Ml, which I don't think anybody is intending to change here, and what is way out of line with respect to what was expected, which clearly M1 has been. It's like price and income effects. It's a low-weighted aggregate way the heck out of line.",65
-fomc-corpus,1986,"It seems to me that we could make some progress if we decide which draft we want to alter. Draft II has the aggregates mentioned and I slightly prefer to have the aggregates mentioned. If we start from draft II, then let's make the changes. If everybody wants to start from draft III, okay, but I don't think we can work from both of them at the same time.",76
-fomc-corpus,1986,"Well, I think you're probably right. Let's start with one or the other; I don't think that there is that much difference. I can alter in either direction.",33
-fomc-corpus,1986,We can put in anything we want with the numbers. What matters to me is the kind of contingent operational approach between now and the next meeting.,29
-fomc-corpus,1986,Do you want to start on II?,8
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,I am not really picky anymore. I would be worried if this were to be released immediately.,19
-fomc-corpus,1986,"The first sentence is ""maintain. Then ""This action is expected to be consistent with a deceleration in money growth over the balance of the quarter."" That's a statement of fact. The next sentence is a simple statement of fact too. We could say ""In view of the rapid money growth thus far in the quarter and apparent weakness in velocity, the Committee anticipates faster growth in the monetary aggregates [than expected at the last meeting], particularly for Ml.""",92
-fomc-corpus,1986,That would be fine.,5
-fomc-corpus,1986,"Now, what numbers are we putting in there for M2 and M3?",16
-fomc-corpus,1986,Alternative B would say 10 percent and 8 percent.,12
-fomc-corpus,1986,"Well, alternative B says 10 percent and 8-1/2 percent for M2 and M3.",23
-fomc-corpus,1986,8 to 10 percent.,6
-fomc-corpus,1986,Alternative B says 10 percent; it would have to be 9 to 11 percent.,19
-fomc-corpus,1986,M2 and M3 are expected to expand at rates in a range of 8 to 10 percent.,22
-fomc-corpus,1986,That's all right.,4
-fomc-corpus,1986,"There is a slight peculiarity in that it says M2 and M3, and as it works out M3 is expected to be 8 percent and the 10 percent is for M2. If we put in 8 to 10 percent, it sounds just the opposite according to this.",61
-fomc-corpus,1986,10 to 8 percent!,6
-fomc-corpus,1986,The broader aggregates are expected to expand.,8
-fomc-corpus,1986,"Would we say M3 and M2? This says ""respectively;"" you didn't mean that. We want to take out the word ""respectively."" M1 growth at an annual rate of--",40
-fomc-corpus,1986,12 to 14 percent.,6
-fomc-corpus,1986,Are [unintelligible]?,7
-fomc-corpus,1986,That is one of the nice things about alternative III.,11
-fomc-corpus,1986,Are you changing your mind?,6
-fomc-corpus,1986,I never was off it.,6
-fomc-corpus,1986,Growth at the fantastic annual rate of--. Have we ever had a quarterly growth rate that big?,20
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Nothing ever got written down this way.,8
-fomc-corpus,1986,What did you say?,5
-fomc-corpus,1986,You had that happen in 1980.,9
-fomc-corpus,1986,"Why don't we say ""The behavior of M1 continues to be subject to unusual uncertainty.""",18
-fomc-corpus,1986,"""Unusually rapid growth.""",6
-fomc-corpus,1986,This illustrates the problem of--,6
-fomc-corpus,1986,It grew about 13 percent all year last year.,11
-fomc-corpus,1986,"No, 12 percent; it was 11.9 percent.",14
-fomc-corpus,1986,"Okay, 12 percent.",6
-fomc-corpus,1986,What is it?,4
-fomc-corpus,1986,12 to 14 percent.,6
-fomc-corpus,1986,12 to 14 percent appears big [unintelligible].,13
-fomc-corpus,1986,There is no use denying it; it's there.,10
-fomc-corpus,1986,"Well, the real problem is the next two sentences.",11
-fomc-corpus,1986,"With those kind of numbers there, I don't see how we can give it symmetrical treatment.",18
-fomc-corpus,1986,"Even with those numbers, I don't see it as symmetrical.",12
-fomc-corpus,1986,"Well, let me just suggest that we pick up the two sentences with some modifications from the other directive, and say ""If the anticipated slowing in coming weeks does not develop, somewhat greater reserve restraint would or might be acceptable in the context of a pickup in the growth of the economy, taking account""--keep the rest of that. Then ""Somewhat lesser reserve restraint might or would be acceptable...""",79
-fomc-corpus,1986,"Why don't we just eliminate that, Paul? Why do we need to talk about less reserve restraint? I don't think that is one of the options we are considering now, is it?",37
-fomc-corpus,1986,"Well, that is all right with me if it is acceptable to others. I don't know; some people may want to put it in there.",29
-fomc-corpus,1986,"I'd only want it in if it is limited to more sluggish economic [activity] or something like that. I would prefer it out, but if it were limited to ""lesser reserve restraint might be acceptable in the face of a distinct slowing in the economy,"" then I could live with it.",59
-fomc-corpus,1986,"Let's work on the second sentence. ""Somewhat lesser reserve restraint might be acceptable should there be""--do you want to leave in the marked slowing of money growth?",33
-fomc-corpus,1986,Money growth could be zero and it wouldn't hurt my feelings.,12
-fomc-corpus,1986,Would be acceptable?,4
-fomc-corpus,1986,I am not sure of that.,7
-fomc-corpus,1986,Me neither.,3
-fomc-corpus,1986,[Unintelligible] these aggregates [unintelligible] one path and it changed from 15 percent.,24
-fomc-corpus,1986,"Because of the vagueness of it, you don't know quite what it means. How much lower?",21
-fomc-corpus,1986,"And for how long? If it were just a month or two, I could stand zero, but--",21
-fomc-corpus,1986,"In a six-week period, what is going to make you want to ease?",16
-fomc-corpus,1986,I would be prepared to drop it.,8
-fomc-corpus,1986,"""Somewhat lesser reserve restraint might be acceptable in the context of a marked slowing in money growth and pronounced sluggishness of economic performance.""",27
-fomc-corpus,1986,"That is right. That will be fine. I don't see what is wrong with the way that is stated. It says about the same thing. Slower monetary growth than unexpected, especially of the broader aggregates, and sluggish economic performance.",47
-fomc-corpus,1986,"""Pronounced"" makes the difference.",8
-fomc-corpus,1986,"How about using the word ""only""? ""It would be acceptable only in the context of--."" ?",21
-fomc-corpus,1986,"Well, we could say ""it would be acceptable only."" Or ""might"" carries that.",19
-fomc-corpus,1986,"""And pronounced sluggish economic performance.""",6
-fomc-corpus,1986,Sluggishness of economic performance.,7
-fomc-corpus,1986,"Not ""pronounced.""",5
-fomc-corpus,1986,"I like that better--""sluggishness.""",10
-fomc-corpus,1986,Now the previous sentence.,5
-fomc-corpus,1986,"And a period after ""performance,"" right?",9
-fomc-corpus,1986,Are you going to strike the rest?,8
-fomc-corpus,1986,"""Somewhat greater reserve restraint""--do you want to put ""would"" or ""might"" in there? SEVERAL. ""Would.""",29
-fomc-corpus,1986,"--""be acceptable in the context of a pickup in growth of the economy."" Presumably if we did either, particularly easing--well, I'm not talking about some very minor thing--but if we wanted to make any pronounced move we'd have a consultation anyway. Let's see now, reading from alternative II, ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. This action is expected to be consistent with a deceleration in money growth over the balance of the quarter. However, in view of the rapid money growth thus far in the quarter and the apparent weakness in velocity, the Committee anticipates faster growth for the monetary aggregates, particularly M1, than expected at the last meeting. M2 and M3 are expected to expand over the period from March to June at annual rates of about 8 to 10 percent. While the behavior of M1 continues to be subject to unusual uncertainty, growth at an annual rate of 12 to 14 percent over the period is now anticipated. If the anticipated slowing in monetary growth""--do you want to put in there ""particularly M2 and M3""? SEVERAL. No.",240
-fomc-corpus,1986,"""If the anticipated slowing in monetary growth does not develop, somewhat greater reserve restraint would be acceptable in the context of a pickup in the growth of the economy, taking account of conditions in domestic and international credit markets and developments in foreign exchange markets. Somewhat lesser reserve restraint might be acceptable in the context of a marked slowing in money growth and pronounced sluggishness of economic performance."" And then we have to stick in a federal funds rate here. There is a question of whether you want to make that 5 to 9 percent, which is centered on the present rate. We haven't changed that [6 to 10 percent] forever.",126
-fomc-corpus,1986,5 to 9 percent.,6
-fomc-corpus,1986,"5 to 9 percent sounds reasonable to me, but I think we ought to put something in the policy record that states pretty clearly that that in itself implies no change in policy, because the press picks that up as a change in policy. So long as we are clear about that: that this is a purely technical change to center it around the existing rate. I think all this implies no change, as we said. We aim [for borrowing of] around $300 million--recently it's been below $300 million--as long as these monetary aggregates are so strong. We are not going to move anything for some weeks unless something very unusual happens. If we have a combination of continued strong growth in money and clear signs, whatever they are, of some pickup in the economy, we might consider snugging up a bit. If that became significantly more than a $100 million [snugging], let's say, we'd certainly have a consultation. Is that all understood?",195
-fomc-corpus,1986,"Well, it seems to me that we are just not certain at this point what is going to happen. It seems to me as likely to be in one direction as another direction. If the economy does grow slowly--does not pick up from the 2 percent path--the bond market is going to know as soon as we do.",67
-fomc-corpus,1986,Are we ready to vote?,6
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes President Horn Yes Governor Johnson Yes President Melzer Yes President Morris Yes Governor Rice Yes Governor Seger Yes Governor Wallich No,43
-fomc-corpus,1986,"Okay. Now, we had some question about the intervention that we might discuss for a moment. Do you want to discuss this operational issue of yours, Mr. Sternlight? Somebody mentioned to me that you'd like to have a biweekly report.",49
-fomc-corpus,1986,"If I may take a minute on that, Mr. Chairman. The domestic account management has been submitting weekly reports to the Committee since 1922, describing the week's open market operations and the market background against which they were undertaken. While not best-sellers, they have provided a useful current review and an important historical resource when researching past developments. Since going to the two-week reserve maintenance period a couple of years ago, it has occurred to us that a two-week reporting period would also make more sense. This would provide a more meaningful time interval on which to report how we've gone about meeting the Committee's reserve objectives which are set, of course, on a two-week time frame. Moreover, preparation of the report every second week should permit better use of staff resources to work on other assignments and possibly achieve staff savings. But I don't want to dangle any hopes on this score, Mr. Chairman. Committee members will continue to get daily reports on actual Desk operations and market developments and also a brief summary report sent out before each Committee meeting.",209
-fomc-corpus,1986,"To bring you up to date on one aspect of this dating from 1922: I don't remember just when, but when I was in New York I once thought that it might be a good idea to drop the weekly report altogether and just report for the intervals between meetings. But this is a half way [alternative]. It seems to make a lot of sense, but I--",76
-fomc-corpus,1986,In some sense it would. I know not everybody reads it--not even I.,17
-fomc-corpus,1986,Just out of curiosity: How many members of the Committee read it? [Secretary's note: Quite a few hands went up.],26
-fomc-corpus,1986,All the time or just some times?,8
-fomc-corpus,1986,Most of the time.,5
-fomc-corpus,1986,Once in a while.,5
-fomc-corpus,1986,"This is interesting. Well, I don't [unintelligible] for discussion. This seems not unreasonable. It passes conveniently into the reserve--",29
-fomc-corpus,1986,Two weeks makes sense.,5
-fomc-corpus,1986,It makes sense to do that. I think that the new schedule is accepted.,16
-fomc-corpus,1986,I might request a slightly less technical summary--maybe even just a one-page executive summary that would just sort of [unintelligible].,28
-fomc-corpus,1986,"There is another historical aspect of this that should be mentioned that the Chairman didn't mention. There is more than one person in this room who at some point in his career had the responsibility of drafting the weekly report. What is interesting about that is that after having drafted it, no one was permitted to read it.",62
-fomc-corpus,1986,Sounds appropriate to me!,5
-fomc-corpus,1986,"Well, let's discuss this intervention question a little. I don't know if you really want to be operational about this, but some sense of the Committee's mood, I think, would be useful. We have these concerns about the dollar from time-to-time, including quite recently, and the question of coordinated intervention to support the dollar arises. I think it is fair to say that historically, although the Committee has not been all that gung ho by and large, in many particular periods we have been more receptive to intervention on either side--certainly including for several years restraining the rise of the dollar--than the Treasury has been. I suppose one way of expressing this is that neither of us has chosen to act, although we have independent powers, when the other side has not been ready to act. If the other side is more reluctant than we are, we don't act. The most reluctant party has a natural advantage under those conditions. But the question has arisen at times, just as in the most recent context, as to whether there wouldn't be some usefulness in intervening. This question has not been pressed very hard. Governor Angell may have some opinions of his own; he had a more detailed proposal. But the question arises as to how useful you think this tool is and whether we should be sympathetic in the right conditions--meaning a weak dollar in these circumstances--toward perhaps providing some support for the dollar. It is probably not relevant right now in terms of our present decision, but at some time it may inhibit us from being as easy in monetary policy as we would otherwise like to be for fear of its effects on the dollar. We may not quite be in that mode right today, but we could be at some other time--even in the [near] future, if the second contingency sentence in the directive came to bear. How do you feel about that possibility?",378
-fomc-corpus,1986,"Can I ask you to clarify something for me? I assume we are talking only in terms of sterilized intervention, since otherwise it would have a bearing on what we just did earlier.",37
-fomc-corpus,1986,"I hate to discuss this in terms of responding [unintelligible] sterilized or unsterilized intervention because I think we've got to make those decisions separately and ex post. The intervention may be unsterilized but not in the technical sense that the amount of the open market operation is governed by what we do in the foreign exchange market. It may coincide with a period of easing and in some broad sense you can say it was unsterilized. We have this kind of separable decision. The contingency that might arise--the one that I cited--is where we might be in at least a slightly easy mode and want to intervene in the opposite direction. I guess it would be more than sterilized; in that particular case, it would be--I don't know what the term is--""antiseptically sterilized."" We would be putting money into the domestic market and taking it out of the foreign exchange market; we would be going in the opposite direction. Call it ""sanitized"" or ""insulated.""",210
-fomc-corpus,1986,"""Ultra-sterilized""!",7
-fomc-corpus,1986,"It seems to me that we might have some doubts about the U.S. economy, but there is a lot out there that tells us that the Third World is [unintelligible] debt. [Given] Japan's and Germany's growth rates, it seems it would be very desirable to have some further easing of monetary policy in Japan and Germany, and I just don't think we ought to give up. I don't think we ought to give them what they want, which is a little help on intervention, without getting a step from them. I am not willing to do it unless they make the move we want them to make.",127
-fomc-corpus,1986,"You are putting it in a negotiating context, which could arise, but I don't know whether I absolutely want to limit the question to that context. One of the difficulties in world economic situations generally is that appreciation in their currencies, in fact, tends to depress their economic growth in the short run. One other reason you get as much weakness there as you get is because their currencies have appreciated so much that their businessmen have not been as eager, at the margin anyway, to expand as they otherwise might be. And that tends to support an idea that goes in your direction, in terms of some kind of trade-off, at some point.",127
-fomc-corpus,1986,"The only question I have on the point that you made is that you have to be clear what you mean. Does ""some coordinated intervention"" mean we are talking about a slight tightening of monetary policy here to support the dollar while they lower their interest rates? I am not sure we want to do--",60
-fomc-corpus,1986,"[Unintelligible] forecast. I am thinking primarily of intervention to support the dollar. If we were tightening monetary policy here, however slightly, one ordinarily would think narrowly that that might strengthen the dollar a little in itself and we wouldn't have to intervene. We wouldn't have any interest in intervening on that side. I think the more operational case, although it is not the case right at the moment, would occur if we were running quite an easy monetary policy or easing further, or if monetary policy were unchanged and the dollar was declining anyway, making them unhappy. We would be raising some questions ourselves; we might want to intervene to support the dollar. One could imagine circumstances--let's say we were tightening policy [unintelligible] or for other reasons the dollar was strengthening. I [don't] think that is immediately ahead, but who knows? We might want to intervene on the other side.",183
-fomc-corpus,1986,This intervention is not directed at some momentary instability in the market? You are talking about something to change the direction of the currency?,27
-fomc-corpus,1986,"I am not talking about massive operations. If we have a massive operation, that is another kettle of fish. Presumably we couldn't leave that alone anyway until [unintelligible]. I think of it more as a change in the kind of attitude we have toward intervention. One particular reflection of that might be if the situation arose the way I described; that might make it operational but there might be other contexts too.",84
-fomc-corpus,1986,"At the margin, another tool in the kit seems to me to be a good idea as long as it is going to be sterilized most of the time. I don't think we ought to expect a lot out of it, but it certainly may have some signal effect, sentiment effect, or something like that. It strikes me as a good idea.",70
-fomc-corpus,1986,I have no objections as long as it is consistent with the monetary policy agreed to by the FOMC. I would think that we would have to cash those chips in few and far between to make it a credible change. It would have to be a moment that was really creating the right psychological impression.,61
-fomc-corpus,1986,"In a sense, to have any fundamental impact in the long run, it would have to be unsterilized and run fundamentally counter to the policy--in talking about the situation you described.",39
-fomc-corpus,1986,"The foreign exchange market may have been somewhat dominated in recent months by market uncertainty as to whether or not our policy leaders in the United States would prefer a lower dollar. It seems to me at this point in time, [given] the time lags that we have in regard to knowing what we have accomplished, that it is not a desirable move for us to have an appreciably lower dollar and [we should] take away that question of uncertainty. Right now someone thinks someone is going to try to push it lower. Just taking that away might create a more stable climate, which would give us more options.",122
-fomc-corpus,1986,You said we could take that away unilaterally. It would have to be in the context of the agreement with the Treasury.,27
-fomc-corpus,1986,I think that's [unintelligible] maybe.,11
-fomc-corpus,1986,In which case there might be so much confusion--,10
-fomc-corpus,1986,"[Unintelligible] could have a big fight about it. More generally, putting the question operationally, there have been times in the past when, quite on its own, the Open Market Committee was not very eager to intervene and--to exaggerate a bit--had to be dragged kicking and screaming to the table. I don't sense that such an atmosphere exists now, under the appropriate circumstances, but I want to confirm that. That's just the broadest way to put it. A more active mode in which to put it is to take one example, one Wayne took: If we see a positive desirability of doing it if we can get something out of the [other countries], that is one possibility.",144
-fomc-corpus,1986,I think Gary has said it right. It is an extra tool in the kit. There may be times when we can use it in the best interests of the United States and we ought to do it.,41
-fomc-corpus,1986,But in very modest amounts.,6
-fomc-corpus,1986,I am still unclear as to what we mean by that. Does that mean that we would let the funds rate drift up through our active intervention to strengthen the dollar?,33
-fomc-corpus,1986,"Barring some other decision, I think we would conduct a net of open market operations, domestic and foreign, to meet whatever the Committee decided upon.",30
-fomc-corpus,1986,"Roger, I remind you that we don't have a great big stock of yen. We don't have as many as I would like us to have; I thought we should have bought more in 1984, but--. So, we are not going to intervene a whole bunch because we don't have that many yen to take profits on. But it might come time to take a little profit--",78
-fomc-corpus,1986,The purpose of this is to communicate to the market what we think--,14
-fomc-corpus,1986,"Well, that clearly would be one possible purpose; another would be the kind of thing that Wayne described. Independent of that, if we really thought the weakness of the dollar was constraining what we wanted to do in reserve provision, we might want to send out signals. Whether that would be very powerful or not we don't know. But would it be useful to send a signal that says: ""Yes, we are worried about the dollar""? If we want to ease anyway, we could try to give ourselves room to ease by giving a counter signal on the dollar. It might not work.",118
-fomc-corpus,1986,That is the problem I have with it in the fundamental sense.,13
-fomc-corpus,1986,"Well, in some fundamental, theoretical, sense we would be moving in opposite directions. It might not work. But, given the importance of psychology in particular instances in the market, one can make a case for trying.",44
-fomc-corpus,1986,"In this particular market context, I think concerted intervention would have an impact--at least in my judgment, based on watching the market--whether it's sterilized or unsterilized.",38
-fomc-corpus,1986,"Well, at this moment in time, if the Japanese were to cut their discount rate 1/2 point, and the Germans cut theirs and we didn't cut ours and we said [unintelligible] at the same time, I don't think you'd have to worry about an impact. I think the markets would take note of it.",68
-fomc-corpus,1986,"Yes, that's easy. But in the other case, suppose they didn't ease their policy and we were still stuck and we wanted to ease or not tighten and the dollar was weak. Let's put it that way: We weren't very eager to tighten or we wanted to tighten as little as possible, and they are not doing anything, and the dollar is a pain--",72
-fomc-corpus,1986,"Oh, you might make the gesture. I'm not sure; you might change the psychology slightly for a bit, but--",24
-fomc-corpus,1986,"Well, we'd only get away with this once in my opinion. And we'd have to do it in conjunction with some support statements by all parties, it seems to me, instead of--",37
-fomc-corpus,1986,"Well, that obviously would help. But we could--",11
-fomc-corpus,1986,"I'm not sure about that, as a matter of fact. If you take it to that extreme where you've got to have statements and all the rest of it, then it certainly only would work once. I think there probably are very narrow windows of opportunity when Mr. Cross can sneak in and out of the markets, maybe with some help from the Japanese or something without having to go through that tribal rite, that can at least create a pause at a time that's right. And we're not going to have--",101
-fomc-corpus,1986,I think there have been some occasions recently when--,10
-fomc-corpus,1986,The recent past.,4
-fomc-corpus,1986,--the market was very sensitive to such a thing and it could have had considerable influence.,18
-fomc-corpus,1986,[Unintelligible] an impact.,9
-fomc-corpus,1986,"Okay, well--",4
-fomc-corpus,1986,"It seems to be in the realm of possibility, doesn't it?",13
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Your insurance goes to those people who want to take comfort in being short in the dollar.,18
-fomc-corpus,1986,You're underscoring too many risks in the market.,11
-fomc-corpus,1986,"What I'd like to ask Sam about is this: If you have a situation where the French and the Germans and the Japanese did nothing and we eased policy and we intervened, I have the feeling that the New York traders would sell dollars.",48
-fomc-corpus,1986,They might.,3
-fomc-corpus,1986,That could surely happen.,5
-fomc-corpus,1986,"I think you're right. In all these circumstances, that would probably happen. But the question still remains: Would they sell a little less eagerly and actively if we were giving this contrary signal?",38
-fomc-corpus,1986,"Well, if they think that it's going to come back to a natural rate then you're giving them even more profit because you took the dollar up. They'll sell and then [unintelligible] down. Right?",43
-fomc-corpus,1986,"Maybe, maybe not.",5
-fomc-corpus,1986,Traders very often have bet against intervention because intervention hasn't been very successful.,15
-fomc-corpus,1986,There are too many possibilities and too many situations.,10
-fomc-corpus,1986,[Unintelligible] judgment at the time as to whether you're going to be. And it's very hard to--Mr. JOHNSON. I do agree there are rare opportunities when it could be useful.,42
-fomc-corpus,1986,"Well, I agree with Sam. If you think about the last six weeks or so--maybe the last two weeks in particular--there may well have been a point or two in that time frame of the last six or eight weeks where we might have been able to sneak in there with the Japanese or with the Germans, or both, and get some stuff done without having to go through--",78
-fomc-corpus,1986,"I have a hard time envisioning, under the current circumstances, that we would do intervention without coordination with the Germans and the Japanese.",27
-fomc-corpus,1986,"Well, right now, the direction we're talking about we would get coordination with them.",17
-fomc-corpus,1986,At least you'd have the up and up.,9
-fomc-corpus,1986,"I'll give you one not very far removed type of hypothesis--a situation that did arise a couple of weeks ago. Suppose we were sitting right in the posture we're sitting with and, say, we don't want to move at the moment--we want to wait for a little more evidence of monetary growth or an improved economy. Yet we have a little tendency in that direction as time passes, but the dollar gets very weak in the meantime. So it begins forcing that decision sooner than we otherwise would want to do it. We might say: ""Well, let's try a little intervention in here because we don't really want to take that step toward tightening but we're getting a little concerned, or more than a little concerned, about the dollar."" It might work or it might not work. But I guess the question is: What do we lose by trying to buy a little time at the very least by doing the intervention?",182
-fomc-corpus,1986,But [unintelligible] with the fundamentals.,11
-fomc-corpus,1986,"Well, except unresolved fundamentals. We go against; we might be doing it in the future. We're not going to get into fundamentals.",27
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"And that is more or less where we are now. The dollar is weak at the moment. We're slightly biased in what we see for the future but we're not very eager to have to respond by general monetary policy to a pronounced weakness in the dollar. In that particular situation, apart from this negotiating Wayne suggested, is that the right time to be quite willing or--depending upon the situation--even eager to intervene?",83
-fomc-corpus,1986,"Another--it may not [unintelligible]--prime opportunity later would be this: If it does so happen that the aggregates are growing strongly and the economy is picking up quite substantially and we literally do decide in July or whenever that in fact we need to tap the brakes a bit, it would be a great opportunity to use that decision to buy dollars and--even though we're going to do it anyway--if Germany and Japan still are dragging their feet on stimulating their economies and it's clear that we are alone, we could offer to support the dollar and see if that might lead to a better situation with the Germans and Japanese.",127
-fomc-corpus,1986,"Given all the permutations and combinations, I think I got about as much guidance as I could get in the absence of specifics.",25
-fomc-corpus,1986,Does the question arise because there has been a shift in the Treasury's sentiment about intervention?,18
-fomc-corpus,1986,I think the question arises because there hasn't been any shift.,12
-fomc-corpus,1986,They too--,3
-fomc-corpus,1986,"Well, of course, I have some concern here that intervention ultimately is a monetary policy decision. I'm very sympathetic with Bob Parry in regard to that. I don't like to lose anything. Whenever you start off and do something you prove you're going to lose, I don't think that helps you. Personally, I would tend to prefer not to intervene on a sterilized basis unless I were willing to make a monetary policy adjustment relative to the two other countries. It just seems to me that the Secretary of the Treasury has been the person carrying the ball here on this topic. And it's somewhat of a monetary policy topic, so I think maybe it's appropriate for the Federal Reserve to have the Chairman speaking on some of these issues from time-to-time. I'm somewhat encouraging him in that direction.",156
-fomc-corpus,1986,"I don't think that this conversation is inconsistent with that.  I'm not sure how we would come out on a specific [proposal], but I think we've probably gone as far as we can go in the absence of something specific.  If there's nothing else, we have a meeting in July. We may have a consultation before that if something happens.  We can go eat lunch.",76
-fomc-corpus,1986,I think we can proceed. We need somebody to move the minutes.,14
-fomc-corpus,1986,So moved.,3
-fomc-corpus,1986,Second.,2
-fomc-corpus,1986,No objections. Ms. Greene.,7
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Any questions or comments?,5
-fomc-corpus,1986,What would be the likelihood of continued official intervention? I think in the intermeeting period it was about How would you characterize the size of that? Is there a willingness to continue to intervene on that scale?,41
-fomc-corpus,1986,"Well, the figure that you cited was a 3-1/2-month total for the Bank of Japan. The purpose of the intervention on Monday and Tuesday was to demonstrate that they feel as strongly after the election as they did before that it is inappropriate [for the yen] to appreciate any more. So, I would imagine that they would still be active in the exchange market. Whether they would have to do the magnitudes that they have done on certain days in the past, I don't really know.",102
-fomc-corpus,1986,That figure is more than just the [intervention by the] Japanese; it includes all of the industrialized countries.,24
-fomc-corpus,1986,That was just for the intermeeting period?,9
-fomc-corpus,1986,That includes everybody; it includes the Europeans--the French purchases and the Norwegian.,16
-fomc-corpus,1986,Is the scale of that intervention an extraordinary amount for the six-to-eight week period of time?,19
-fomc-corpus,1986,"For the intermeeting period, that is a fairly large amount.",13
-fomc-corpus,1986,"This goes beyond operations, but what is the main case, if one is [speaking for] Japan, for not easing monetary policy in Japan?",30
-fomc-corpus,1986,"I can recite the case. But if you ask me whether it's convincing at the end of the day I am never very convinced, though the individual arguments are stated with great force and clarity. They say consumption is rising pretty rapidly and the discount rate is at a postwar low. That is always presented as number one. They say: We have reduced the discount rate three times so far this year and it is at a postwar low; consumption is doing pretty well; there are reasonably favorable reports about the rest of the economy and we're happy; money supply is over the targets and the nontarget target.",123
-fomc-corpus,1986,What about the Germans?,5
-fomc-corpus,1986,What about GNP?,5
-fomc-corpus,1986,That is the transitory development.,7
-fomc-corpus,1986,"Over the year, though--",6
-fomc-corpus,1986,"In Germany the arguments are more or less the same. Germany, I think, can make a much better case. There is a lot more evidence that the economy could pick up. They have good investment survey figures, up above 10 percent in real terms; consumption was strong in the first quarter; and real income was way up and they say consumption is bound to be strong. They had a weak construction sector, but that's over now. They feel there is not much they can do about monetary policy; anyway, they are above target.",108
-fomc-corpus,1986,What is your impression of the strength of feeling about further appreciation of either the mark or the yen in those respective countries?,24
-fomc-corpus,1986,What's my feeling about the likelihood?,7
-fomc-corpus,1986,"No, what is your feeling about how strongly the Japanese and the Germans view a further strengthening of their own currency?",23
-fomc-corpus,1986,"Well, they wouldn't like it, but relative to easing monetary policy, I don't know. They have expressed no eagerness to ease monetary policy. If our exchange rate got weak enough, that would obviously be an influence but they are not going to interpret it as another [unintelligible] this summer. It is going to--",68
-fomc-corpus,1986,I have another question. You mentioned the diminishing willingness to hold longer-term dollar-denominated securities particularly--I believe I heard that correctly in your remarks. What evidence of that have we seen?,38
-fomc-corpus,1986,I think what I said was that the interest differential has narrowed to 50 basis points against Germany and 250 basis points against Japan. I will defer to my colleague to the right as to whether or not he has seen any--,46
-fomc-corpus,1986,"Well, there have been less substantial inflows than was the case around the May refunding, to be sure. And to the extent that there have been inflows, they have been moving in a little shorter on the maturity curve--more into the 7- and 10-year area--in part because of the anomalies that are still at work at the very long end of the government yield curve.",81
-fomc-corpus,1986,"Also, there is continuing diversification into non-Treasury [securities], presumably in a search for high yields.",23
-fomc-corpus,1986,"Any other questions or comments? If not, we will turn to Mr. Thieke.",18
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,"In the interest of completing my answer to Mr. Boehne, the Germans have the argument that they are low in the EMS; they are a little less low than they were even a few days ago. Both Germany and Japan are relatively low. They say the recent inflation performance is just temporary and they have to guard against the relative resurgence of inflation. Any questions of Mr. Thieke? Any comments, observations? If not, we have to ratify the transactions for a period marked by remarkable closeness to the borrowings target throughout the period.",111
-fomc-corpus,1986,Accidents will happen!,5
-fomc-corpus,1986,"Messrs. Kichline, Prell, and Truman. MESSRS. KICHLINE, PRELL, and TRUMAN. [Statements--see Appendix.]",35
-fomc-corpus,1986,"Jim, on your $16 a barrel [price assumption for oil], does that mean an average or the price at the end of the forecast period?",30
-fomc-corpus,1986,"To be explicit, we assumed something like $14 or $15, and it gets to about $16 by the fourth quarter of this year and just stays there. It creeps back up by the end of this year and sits there.",48
-fomc-corpus,1986,"The small decline in inventory investment in the second quarter has a very important influence on the strength and pattern of growth in the second half. The April numbers certainly would support that kind of conclusion. In terms of the production numbers for May and what you anticipate for June and the personal consumption expenditures for May, do you think that you might see an even greater reduction in inventory investment than what you have in the forecast? Would you be more optimistic?",88
-fomc-corpus,1986,"We approached the second-quarter projections from two sides, adding up all of the available expenditure data we could find--and for inventories that's very limited, given that we have [only] partial data for May in a lot of the real sectors. On the other side, we look at the labor input that we have. The labor input suggests a rather slow growth, pretty much in line with our forecast. The expenditure data are a mixed bag and we come out in the end feeling that that's reconciled with this kind of slight moderation in inventory investment. As we look at the industrial sector, we try to guess what's coming in from abroad, and that's very difficult to say. I think what is important for the outlook is that even though automobile inventories still seem rather high, the manufacturers seem intent on continuing to produce at a fairly high level. They have all of the parts and they will run them out through the end of the model year. In other areas of the economy, manufacturers' inventories have declined and don't seem to be a great impediment to growth. We just feel that in the trade sector, in retail trade particularly, there is some hint of weakness so that ordering may be a little on the slow side there for a bit. But it shouldn't take a major correction.",255
-fomc-corpus,1986,"But the PCE expenditures for May, at least at some point I hope in that area [unintelligible].",24
-fomc-corpus,1986,Indeed.,2
-fomc-corpus,1986,"Jim, I hear all the adverse comments about the staggered effects of the introduction of tax reform. I think you said there was a one percent effect next year.",33
-fomc-corpus,1986,"It's one quarter of a percent on our estimate of real GNP growth. But I should say that that comes about--and is a lower figure, I think, than in some outside forecasts--because we don't assume that the Senate is going to end up with $23 billion net additional [cuts] in 1987 and that we still get all of the Gramm-Rudman cuts. In fact, we think there is going to be some interaction and slippage in that process, so that by the time it comes out it won't be that much of a cut. So we have a limited effect. But don't let me interrupt. I think your point is that concern in the business community seems to be growing over time. Earlier on, there was a sense of uncertainty in some sectors; but now I believe there is a greater realization that the tax reform is going to affect the business sector at large--assuming that it comes out something like this Senate plan.",192
-fomc-corpus,1986,"Well, that was the point I wanted to make. I also wanted to ask a question. It seems to me that we have done this before: We have introduced tax legislation on a staggered basis and, if I remember correctly, the economic effects were a little more significant than what you are suggesting, weren't they?",64
-fomc-corpus,1986,"Are you talking about ERTA, going back to about 1982 or 1983?",19
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"Yes, but I think the fiscal effects were larger. What we have done, rightly or wrongly, is come up with a fiscal package effect that is about $7 or $8 billion more than we had previously, as a result of some additional outlays and somewhat fewer cuts elsewhere. And it has a depressing effect on the business sector, particularly, with an assumed given rate of growth of M2. We assumed with the cutback in demand from the business sector, in multifamily structures particularly, that there would be some interest rate effect; rates come down a little from what we had in the last forecast. So, you get a little more spending elsewhere, and net what we have is something that is sprinkled through the projection. I don't think it is an overwhelming feature, given the basic character [of the tax reform]. But if you assumed something like what happened in 1982, when depreciation schedules were changed as were other things that produced a much larger fiscal impact, then it probably would have a greater damping influence.",206
-fomc-corpus,1986,Thank you.,3
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,I would like to explore the other side of that a bit. Suppose we got substantially less restraint than you are assuming in your forecast? Have you done some sensitivity analysis or something that calculates what that does to the forecast?,44
-fomc-corpus,1986,"I didn't this time. We have done a good deal of that in the past. The general sense is that the models have a great deal of difficulty handling this, as you know. And that's where I see a little uncertainty, partly because what is built into the current interest rate structure is expectations that something is going to happen. If you remove that and you get a backup in interest rates, you get all sorts of effects that are not easy to capture--at least in the models that we deal with. Basically, in a standard sense, we would assume that you would have a fiscal multiplier that is somewhat larger; how much larger is always open to question. But if you had federal spending that was lower by something like $20 billion, at an annual rate, that would give you something larger than that in terms of its impact on the economy. And $20 billion is about 1/2 percent in real GNP. So, I think there is a lot of uncertainty here. What is basically essential to our forecast is to assume that there will be some fiscal restraint. However that comes about may be a very interesting question between now and October.",232
-fomc-corpus,1986,"Mike, I think I heard you say that tax reform would have the effect of broadening the tax base of state and local governments. How is that?",31
-fomc-corpus,1986,"Well, state governments in particular. Around 30 states, as I recall, have a tax form on which the state's tax rates are applied to the same income concept as the taxable income, or adjusted gross income, that is on one's federal tax return. With the changes that are contemplated in personal income taxes--with fewer deductions and so on--that number will be larger. Thus, unless the states lower their tax rates, they will experience an increase in the revenues they derive from income taxes. There is already some discussion in some states about preventing that from occurring. But I think as time progresses and they look at what their budgets are dictating in terms of revenue needs, undoubtedly some of it will be retained. That's implicit in our forecast. It's a minor element.",154
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Yes, I have a question for Mr. Truman. One of the things that I think has had a big impact on our import demands has been the failure of the values of currencies in Korea, Singapore, and Taiwan to change relative to the dollar. What are you anticipating in the forecast with regard to these areas, and what impact is that likely to have on our import demands?",76
-fomc-corpus,1986,"We have looked at that quite carefully in putting together this forecast. In the past we focused on the major industrial countries' currencies because, in general, the other currencies moved with them enough that it didn't make that much difference. What has happened since early 1985 is that the dollar has depreciated a lot against [the currencies of] major industrial countries and depreciated [less] against [the currencies of] the developing countries as a group--less so against Asian countries and against Latin American countries, but with a big weight going in there for Mexico. In the forecast, therefore, we have deliberately tried to adjust that out, in terms of slowing the rate of decline that normal models--based upon just industrial countries' currencies--would tell us regarding how much import volume would or would not respond. We also tried to adjust that out on the export side. It's pretty difficult. Quite frankly, we don't have enough experience to do that. But we have given the size of the exchange rate change against industrial countries' currencies a lot of adjustment in the forecast, trying to take account of this factor as well as somewhat related issues like how fast prices change and how fast we get a response [unintelligible]. That's one of the reasons why we get such fairly modest numbers; you may have noticed the numbers I quoted are quite modest [unintelligible] relative to what you might have thought.",282
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,Just a follow-up to that question: Have you considered that the imports from these emerging industrial countries around the Pacific Basin are really substitutable for what may not come in from Japan and other countries against whose currencies the dollar has moved substantially?,47
-fomc-corpus,1986,"That clearly is a factor and I think we have taken that into account. We haven't done, and I am not sure one can do, a close analysis of the [various] imports--to the extent, for example, that Korea is different from India in terms of what it can produce and [unintelligible] imports. There is an offset that I think one ought to recognize: It also is true that Korea is not going to build up big surpluses. To the extent that it is exporting more to the United States and the rest of the world, it also is importing more; and to the extent that we are also exporting to the Korean market we have a competitive advantage vis-a-vis Japan on exports, including the amount of raw materials and that kind of thing, which is nontrivial, that we traditionally have [unintelligible].",175
-fomc-corpus,1986,But that beneficial effect may lag somewhat?,8
-fomc-corpus,1986,"It will come later. But eventually we are going to gain somewhat in operating in some of these Third World markets from the fact that we have depreciated vis-a-vis Japan and Germany. In fact, you can see the other side of what seems to be a block in Latin America and Asia with the dollar's appreciation: As the dollar moved up against all of those currencies we lost.",77
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"I want to follow up on that same point too. It's still hard for me to understand how in the forecast you can get rising prices in the out years, both domestically and abroad, when currencies--especially the G-10 currencies--are appreciating relative to the dollar. I see how you can draw a scenario where prices tend to come back a little in the United States as a result of the appreciation of the dollar, with a lag as oil prices level off. I still don't understand how you can get the same trend abroad with appreciation in their currencies relative to the dollar, especially with the fact that their currencies are appreciating even more dramatically relative to the non G-10 currencies against which the dollar is also appreciating. So, I am having a rough time with that scenario.",156
-fomc-corpus,1986,"The response is that for the G-10 countries as a whole the difference between QIV inflation rates is 2.7 percent versus 2.9 percent. Now, the chart here is a little exaggerated because the higher inflation countries continue to go the other way and are left out of the chart. Switzerland, for example, goes down next year and is left out; [unintelligible] is left out of here. So you have a very small effect and that is coming from the fact that oil prices stop going down and the exchange rate--although the dollar continues to depreciate, it's not at a 30 percent annual rate.",130
-fomc-corpus,1986,10 percent.,3
-fomc-corpus,1986,"It is something like an 8 percent annual rate, so that is what [unintelligible]. I don't--",24
-fomc-corpus,1986,It still seems to me that it would be going the other way.,14
-fomc-corpus,1986,"I have quoted you the wrong set of numbers--the GNP numbers. It goes up, but one of the points is that for the G-10 as a whole--Sweden is at 4 percent this year and goes down and Belgium comes in a little high relative to Europe, going up about 0.3 percent --it's a relatively small average drop. You have a bigger effect in Japan and Germany partly because those currencies have moved a lot and the move was relatively large compared to the other currencies. The only point I would make is that the change is small relative to the change in the United States; [the numbers are] 2.1 and 2.9 percent in the G-10 [versus 1.4] and 3.9 percent in the United States.",163
-fomc-corpus,1986,I agree. I just don't--,7
-fomc-corpus,1986,It's the relative change that I think is more important.,11
-fomc-corpus,1986,"It's small, but I don't even understand the direction. I was checking.",15
-fomc-corpus,1986,"Well, wages are continuing to go up and there are other factors.",14
-fomc-corpus,1986,Isn't the impact of energy price developments even greater for them because it's a multiplier--,17
-fomc-corpus,1986,You are multiplying--halving the dollar price of oil and that times a 30 percent drop in the price of the dollar [unintelligible].,31
-fomc-corpus,1986,Maybe we ought to start over. I thought that oil prices leveled out in this--,18
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,And then against depreciating currencies--,7
-fomc-corpus,1986,"But say that oil prices go down by 8 percent or greater, say, 10 percent. Last year they had gone down about 50 or 60 percent.",34
-fomc-corpus,1986,But they are going down.,6
-fomc-corpus,1986,"Yes, but other prices are going up.",9
-fomc-corpus,1986,Above?,2
-fomc-corpus,1986,There is less of an offset to the higher increases in other components in 1987 than in 1986 and that can do it.,28
-fomc-corpus,1986,But the year-over-year consumer inflation rates in these countries are still positive and you can ask the same question even with price effects [unintelligible]. It has to do with the other components in the price index.,44
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"I have another dollar question for Mr. Truman. I have heard business people say that comparing the current value of the dollar to the absolute high back in February of 1985 tends to overstate the amount of the decline in terms of how they benefit from it. They say it is better to look at something like the current level versus, say, the average for 1984 or the average for 1985 because they point out that they didn't do a lot of transactions at the exact peak of the dollar. So this comparison we use overstates the amount of the deterioration and suggests more of an improvement than they, in fact, would be likely to get.",133
-fomc-corpus,1986,"[Unintelligible] I would agree with that. What transactions took place were [unintelligible] response to what was going on as the dollar was moving up. That's one of the reasons for the continuation of the effect. You count the negative effects on export and import volume as they lag through the system; at the same time, you begin to add on the positive impact and we don't begin to get much positive impact for a while. Look at it the other way: The dollar started depreciating on this particular index from, call it 90 in the fourth quarter of 1980, and it is now at 110. So it has gone from 90 to 150 plus back down to 110; that suggests that there is a lot of appreciation that has not been wiped out. It's debatable whether it needs to be wiped out completely anyhow, but it is clear that the dollar has still appreciated relative to what was on average the last [unintelligible].",200
-fomc-corpus,1986,A lot of appreciation against the Canadian dollar.,9
-fomc-corpus,1986,[Unintelligible] never appreciate that much.,11
-fomc-corpus,1986,"Also, I couldn't hear Mr. Kichline's comment. How much of a downward revision did you say we had made in our collective forecast for real GNP in 1986?",38
-fomc-corpus,1986,In 1986? Are you referring to the last chart?,13
-fomc-corpus,1986,"You have a summary of forecasts--I think it's chart 19 or something like that--where you show forecasts for real GNP of Board members, presidents, and staff. Sitting this far away, I thought I heard you say something about the downward revision.",52
-fomc-corpus,1986,I simply stated that nominal GNP now for 1986 falls below the lower range of the central tendency. I was trying to suggest that there has been a sizable downward revision both with respect to the deflator and real GNP.,47
-fomc-corpus,1986,Okay. Thank you.,5
-fomc-corpus,1986,"Jim, isn't that a typographical error on that chart? Shouldn't it be ""FOMC projections for 1986"" instead of 1985? We are bad [forecasters] if it was for 1985 and we missed it that much!",53
-fomc-corpus,1986,[You are right.] This is a result of trying to be cost conscious and using an old chart.,21
-fomc-corpus,1986,"Well, Bob, it may be worse than you did! That's one way to look at it.",20
-fomc-corpus,1986,That's a thought!,4
-fomc-corpus,1986,"Well, you have assaulted the staff with a few questions. I haven't heard anybody committing themselves to the outlook at this point. I don't know whether we want to do that after we look at the long-run ranges. Why don't we put the long-run ranges on the table? Mr. Kohn.",60
-fomc-corpus,1986,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1986,"Don, I might ask a question that was triggered by your statement. You used the phrase a couple of times ""should interest rates need to decline."" Maybe this is a question for Jim, too. How would that be treated in the model? Would one be able to control interest rates that effectively? There has been talk, for example, of highly stimulated interest-sensitive sectors of the economy. How would a 50 or 100 basis point decline in interest rates affect GNP for 1987, for example, all things being equal?",108
-fomc-corpus,1986,"Well, I think Jim can answer that, but let me say that my comments were really meant in the sense that our GNP forecast is considered consistent, as Jim and Mike both said, with rates remaining around current levels. I was trying to deal with the contingency that underlying demands were weak so that, in order to attain an acceptable rate of GNP growth, interest rates would have to fall; and GNP growth would be not stronger than we are projecting but around the rate that we are projecting.",101
-fomc-corpus,1986,"We have done some simulations; we didn't do the fiscal one, but we have done some monetary ones, basically using M2. And in this particular simulation, if M2 were running at the top of the range--if M2 grew at 9 percent through 1988 beginning now--the model result is that that would be consistent roughly with a federal funds rate 3/4 percentage below what it is now, with that sort of level maintained into 1988. You would get just a few tenths more real growth this year because of the lags but about a percentage point more real growth next year and a bit more in 1988. On the price side with that sort of scenario, prices don't change this year; they are up a quarter to one-half of a percentage point more in 1987 and, according to the model, up 1-1/4 percentage points over what they otherwise would have been in 1988.",194
-fomc-corpus,1986,[Unintelligible] the usefulness of the model. Does anybody have any particular questions for Mr. Kohn? Have we covered every contingency?,30
-fomc-corpus,1986,"Don, in the first paragraph in the Bluebook, you talk about the combination of factors that may be influencing Ml: lower interest rates on the one hand, and then a kind of potpourri of other things. I don't want to hear a model answer; I want a judgmental answer. How much weight would you give to the interest rate factor in and of itself as opposed to the potpourri of everything else?",86
-fomc-corpus,1986,"I think the interest rate factor accounts for the bulk of the acceleration. I think we are getting more of an interest rate response than the models would indicate and in large measure that is coming in the demand deposit component. A higher proportion of demand deposits is in compensating balances because some of the household deposits are out; they were shifted into OCDs. The compensating balance responses to interest rates are very large. In essence, it's one for one--an elasticity of one there. At the same time, our investigation of some of the activity in the secondary markets--in mortgage markets in particular--shows that a considerable amount of demand deposits can be generated through refinancing, through the use of cashier's checks, and the advance repayments of Ginnie Mae's being put temporarily in demand balances before being paid out and passed through to security holders. I hesitate to quantify it; I don't think we can. But I do think that some substantial portion of the demand deposit group in particular is related to this huge pick up in financial activity, particularly in the mortgage market. And our projection of a slowing of money growth over the second half of the year is predicated partly on the wearing out of these interest rate effects. But it is also predicated partly on the presumption that with a more stable interest rate environment the volume of mortgage refinancings will tend to taper off as will some of the other financial market activity. And that would help to bring down demand deposits or at least to level them off.",299
-fomc-corpus,1986,"Mr. Chairman, I remember that we went to controlling monetary aggregates very recently because we didn't know how to forecast what level of interest rates would be needed to get the nominal GNP growth that we sought. Now I think we have come full circle because, as I hear Don tell it, in order to set a range for Ml we have to forecast interest rates for the year. If that is the case, that raises a question in my mind whether it makes any sense for us to set a range for M1 when we don't know what interest rates are going to be in the coming year.",119
-fomc-corpus,1986,"Mr. Morris, M1 emphasis led us away from [unintelligible] so we can go back to it. That gets to the question that I was going to raise. Maybe we can, if not resolve it, at least begin to form some consensus on what we want to do with M1 in these long-range targets. I am not so worried about what precisely the target should be if we have a target, but whether we should have one or rebase it. Do we chose a new target for this year? Do we have one for next year? Do we rebase this year, do we keep what we have, or do we say we are going to be over it and eliminate what we have? Of the various choices Mr. Kohn gave you, what appeals?",160
-fomc-corpus,1986,"I kind of agree with Frank. I don't think we really know how to set a target at this point for the rest of the year. A lot is going to depend on interest rates and we are not sure what is going to happen. I think that we ought to emphasize M2 and M3, which is sort of what we have done. I think we would be better off not setting a new target for [Ml] and playing Ml down while emphasizing M2 and M3. I think that makes a little more sense.",107
-fomc-corpus,1986,You are talking about 1986? What do you do for 1987?,17
-fomc-corpus,1986,"Yes, 1986. A lot would depend, I think, on what we see in the demand for money by the end of the year. But of course, we have to set a target now. We could make--",46
-fomc-corpus,1986,We have to set a target for something; we don't necessarily have to do it for Ml.,19
-fomc-corpus,1986,"I would shy away even from 1987 at this point, saying that we might come back to it if we see velocity stabilize at some point.",30
-fomc-corpus,1986,I would hate to see us drop the target range for Ml. I would much rather see us retain a target range but announce that we don't expect the growth to be within that range. This way we would be facing up to the fact that--,49
-fomc-corpus,1986,You say just keep 3 to 8 percent this year and say we are not going to be within it?,23
-fomc-corpus,1986,"Well, that is what I said. I didn't say drop the target; I said maybe not announce targets for 1987 this year--not until we have a better look at what velocity is doing for 1987.",45
-fomc-corpus,1986,I would have no problem dropping it for 1987. It would be easier to drop it for 1987 than for 1986. I would prefer at this time to keep 3 to 8 percent for 1987 too and change it later.,53
-fomc-corpus,1986,"Yes, that is the same. I don't mind.",11
-fomc-corpus,1986,"But I would go along with dropping it for 1987, if there is a consensus.",19
-fomc-corpus,1986,Having it too high is one thing; but having it too low is another.,16
-fomc-corpus,1986,What is the value of having the range and then announcing that we are not going to be within it?,21
-fomc-corpus,1986,"I think it conveys a sense of honesty. We are telling the public what we think the range ought to be. Then we are telling them that for reasons that are not altogether fully apparent, we are not going to make the target range. It is more honest to do it that way.",58
-fomc-corpus,1986,Wouldn't it be more honest to say that the relationship between M1 and nominal GNP has become so unpredictable that we are dropping it as a target rather than say we have a range but we don't intend to stay within it?,46
-fomc-corpus,1986,"I think there is some information in M1 relative to M2 and M3. What we have seen is a runoff in bank CDs into Ml--to some extent a shift in savings from less liquid to more liquid form--and I think it is important to monitor that. I would be much more concerned about M1 if it were rising and M2 and M3 also started moving. It has some relative significance, but I don't know right now whether we could set a target and make any sense out of it.",104
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"I am afraid I won't do much more than join the discussions that have already taken place. It seems to me that it is honest to say, first of all, that M1 has [served us] quite well in the past and perhaps will come back full circle to where there will be a restoration of some historical relationship between income and money growth and we will want an M1 target again. As a result, I would prefer not to drop it but rather, as Emmett said, to be more honest and say we'll have a range for it but expect not to hit that range in 1986--and I should think in 1987 also, unless there is a return to some historical relationship. The Bluebook has the language that I think would be appropriate. It says that M1 [would be evaluated] depending on ""developments in the economy and financial markets, and potential inflationary pressures."" That is the kind of explanation, it seems to me, that would be appropriate after we have said we don't understand what has happened to M1. Therefore, I would opt to retain the 3 to 8 percent range for 1986 and also for 1987, with the explanation. We'll have another opportunity to look at it in February.",254
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,I am in favor of dropping the range for Ml--in particular for 1987. We don't intend to meet it and we don't really know--,30
-fomc-corpus,1986,You said particularly for 1987?,8
-fomc-corpus,1986,"Yes, I favor not announcing a range for M1 for 1987. As to how we handle 1986, I also favor not having a range. Whether we do that by actually eliminating the range we have already set or by saying that it was set and we are not going to come within it, I don't feel too strongly one way or another as long as we don't announce a range for 1987. I think it communicates that for the moment we have to step away from this. As you can imagine, I also have great hopes that we will come back to it one day.",121
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"I reach a rather different conclusion, Mr. Chairman. I think Don Kohn set a very good stage when he said the real question was not what we do with M2 and M3 but what we do with Ml. Even someone who has thought, as I have, that M1 has been so important has to admit that it has been behaving very strangely. So, I think it does deserve somewhat special treatment at this point; but I think it would be a decided mistake to downgrade it completely, since it is the aggregate that we can control better than any other. If we downgrade it, then that might jeopardize--and certainly would be perceived by a large part of the market as jeopardizing--our chances of attaining our long-run objective of permanently restoring price stability. I think we have to recognize that [prospective role] at some point--that is, after the more normal relationship is re-established between M1 and the economy. With interest rates having fallen the way they have, and with the general expectation that there won't be a great deal of movement in the last half, I think we might be at the point where we begin to see those relationships resuming in some form or another. So if you buy that part, that gets to the question of whether to take these wider ranges beginning from the first of the year or whether to rebase. As they are set up in the Bluebook, it really doesn't make a whole lot of difference so far as the end point is concerned, because rebasing from 3 to 8 percent results in a growth rate of 10.2 percent above the fourth quarter of 1985 which would be sort of in the middle of these two alternatives--raising the ranges or rebasing back on the fourth quarter of last year. But to me it would be much more logical to rebase, because my guess is that this unanticipated further substantial decline in the velocity of M1 in the first half of the year was due largely to this sharp decline in interest rates; and since we don't expect that to continue, to me it would make sense to sort of forgive that and rebase. But a second and more practical reason to rebase is that if we are going to move this range down over time, it is going to be a lot easier--from a public relations standpoint--to move it down to something that eventually is compatible to price stability if we come down from a rebased 3 to 8 percent than if we had 5 to 9 percent or 5 to 10 percent and then suddenly said next year we want 3 to 8 percent or whatever it is we decide on. I would definitely rebase, and I think 3 to 8 percent might be a good place to put the range. And I would hope that in 1987 we could move it down somewhat from that point.",580
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"I would be strongly against rebasing and also against changing the range. It seems to me that basically we have all concluded that we don't know very much about the relationship between money and economic activity in the last 18 months, but more importantly, that we don't have much confidence that we will know all that much more in the future. Consequently, it seems to me that the most honest thing to do is to leave the range for Ml where it is and simply indicate, as is shown in the proposed language of variant I, that for 1986 we are leaving the range at 3 to 8 percent but we are not going to pay a great deal of attention to it. As far as 1987 is concerned, it seems to me that if you buy that--particularly if you buy the idea that we are not confident of knowing what kind of relationship will exist between economic activity and money in 1987, then the choice is really an obvious one, and that is: Don't set a range. Because if we set a range--be it a range from a changed base or whatever--it implies that we have some degree of confidence about a reassertion of a predictable relationship between money and economic activity. And I don't have that confidence.",252
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"As far as the balance of 1986 is concerned, I would couch M1 in terms of a monitoring range as we have used that term in the past. In that setting, I would probably have a mild disposition to have what I would call a realistic range for the year, not rebasing it. But I could leave it at 3 to 8 percent too. I prefer a monitoring range with a realistic range. I come out rather differently in terms of 1987. I would prefer to have a target for 1987 and I would couch the language for the M1 target for 1987 in terms of suggesting that that range is based on the assumption of a return to a more normal velocity relationship. And if that were not to materialize, I would demote it in February back to a monitoring range. I have no strong theoretical persuasions about Ml or any M, but I am inclined to the view that, as sure as we sit here, the day will come when we are going to want to have Ml. And if we completely discredit it to the point where nobody pays any attention to it, it is simply not going to be possible to resurrect it when it suits our purpose. So, I think we need some continuity there, but I would be quite flexible as to how to achieve it; certainly, for the balance of this year a monitoring range is fine.",284
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Well, for 1986, I certainly would not like to see us revise the range because doing that would imply a sense of confidence in what we think Ml should be later on in the year and I don't think we have enough information, given the recent behavior of Ml, to have that kind of confidence. By the same token, I wouldn't like to see us rebase because by rebasing we, in effect, would be forgiving the growth of M1 that has taken place already. That, too, implies that growth in Ml was due to a one-time phenomenon that is now going to be corrected. So, I think that rebasing or revising is not the way to go. Nor would I think it desirable, given the history of M1 over the past several quarters, to announce a range and then say we are not going to pay any attention to it--that we are going to overrun the range for the rest of the year. So, I think the better course of action is to put this M1 aggregate on a monitoring basis. Now, maybe this is a matter of semantics. But some people have talked about dropping M1 and dropping M1 means discrediting the aggregate and saying that it is over and done with--that we probably are not even going to look at it and we are not going to assimilate the information that it gives us. I think that would be a mistake and I would not like us to do that. I would like us to do what we did about a year ago and that is to have it on a monitoring range, observe it, and take whatever information it has but not set a range for it. I take it that we don't have to--",345
-fomc-corpus,1986,How can you have a monitoring range without setting--?,11
-fomc-corpus,1986,"Well, setting target numbers. I don't think we have to set a public target for M1 if it is a monitoring range. In any event, I don't think it ought to be a target in the sense that we have had it up until now. I'd put it on a pure monitoring basis for 1986 and I would be inclined to wait for 1987 and not do anything about 1987 at the moment.",86
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"Well, I agree with the point that it is very difficult, given Ml's recent performance, to come up with a range in which I would have much confidence. But having said that, I think we would be well advised at this juncture at least to consider establishing a range that we have some chance of hitting for this year, albeit perhaps a slim chance. In some sense, I think our credibility is a bit at stake if we continually run with something like 3 to 8 percent and then acknowledge as quickly as we say that, that of course we are not going to hit it. That leads me to some thoughts along the lines of alternative I or II, as expressed in the Bluebook, for the balance of this year. We obviously can achieve the same thing with rebasing; I am indifferent as to whether we do it through rebasing or simply by establishing a new range that we have some possibility of hitting. Obviously, alternative II is probably somewhat more likely in that regard. One of the other advantages of doing that is that as we look ahead to 1987, if we establish a revised M1 range consistent with alternative II, which was 6 to 11 percent, we could at the same time consider a somewhat lower range for next year with all the caveats that have been appearing in our directives and in our ranges for several years--well, for at least more than a year now. In my mind, that would at least be a signal and demonstrate our intent to work toward price stability over time. So, I would favor something like 6 to 11 percent for the balance of this year, with something lower next year for the purpose of moving in the direction that I think we ultimately want to go.",351
-fomc-corpus,1986,"I don't want to get into just what the range should be at this point, assuming we have one. Governor Angell.",25
-fomc-corpus,1986,"It seems to me that a midyear change in the range would make more important what we do not want to make more important. The markets have already understood very well; they haven't had to have any guidance from us that we are permitting Ml to grow faster than the 3 to 8 percent range. So I think the less said, the better. Leave 1986 as it is. I would strongly endorse Mr. Corrigan's position that at some point in time--when, we do not know--inflation might once again return. You understand I say ""return."" And if it were to return, then velocity would behave in a manner consistent with those periods when inflation was a factor and it would be very important for us to have the M1 tool ready to go. My particular preference would be for 1987--well, you don't want to talk about percentages. But I do think it is important for us to have Ml in there. I don't think we need--",199
-fomc-corpus,1986,You can make a vague statement about that.,9
-fomc-corpus,1986,"Well, my vague statement would be that I would prefer for 1987 what you may remember I preferred for 1986: a 3 to 10 percent range because we do not know at this point in time how velocity is going to behave in the deflationary environment that we are in.",61
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Well, Mr. Chairman, it seems to me that the immediate problem is probably more one of form than of substance. We talk about honesty, and I guess that's in the eyes of the beholder. I would think that would be a straightforward change in the range--not dropping it and not rebasing it--to the money growth we would anticipate, much as Gary said. I would just do a straightforward change in the range at this point and say this is what we anticipate M1 will do--without having to say that it's a monitoring range or that we don't know what it's doing or that we are not going to be paying very much attention to it. The numbers might look a little large--larger than we are used to seeing--but I would be pretty straightforward on that. For 1987, I would keep Ml; there again I would be inclined to make the best judgment we could about what money growth numbers we anticipate, and I would construct the ranges around them. Again, they might be a little large, but I would do that here at midyear, because before we have to really settle on that early next year we would have the opportunity--if more normal relationships develop--to make an adjustment downward. I would rather go to the up side now and come down [later] rather than shoot low and have to go over. Those are good economic terms!",279
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"Well, I wouldn't change the range for 1986 or for 1987, nor would I rebase for 1986, because I think for all the statements that we could make, I would have very little confidence in any range or any base that we might choose. But I wouldn't drop the aggregate either for 1986 or 1987. I would think of the two periods as a continuum; I would leave the target where it is for this year and reestablish the range at the same level for next year, but make it perfectly clear that we might expect the results to be at very considerable variance with the target, and that in the interim period we are placing our emphasis on M2 and M3. I think [Jerry] made an important point: that at some point these relationships are likely to come back into line and that we are going to want to reuse Ml when we have the confidence that those relationships have been reestablished. If we keep it in the menu, I think it would be easier to accomplish that than if we drop it at this point.",220
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"I really think our credibility with financial market participants would be enhanced by admitting what is obvious: that we don't know what is going on with M1 and we can't really explain it. The relationship between monetary growth, as measured by M1, and economic activity has certainly broken down. Therefore, we are better off not coming up with a quantitative range because regardless of what we call it--a monitoring range or something else--the Fed watchers still look at the numbers and they still plot and compare actual Ml figures to whatever range we have mentioned. Also, the media pick these numbers up and do the comparison regardless of our warnings about how risky it is to make something out of it. They still do. I think we would be better off dropping it--maybe ""dropping"" isn't the proper term; maybe ""putting it on ice"" or something like that would be the terminology to use. I think we are just misleading people when we keep a numerical range for either 1986 or 1987.",202
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"I have gone back and forth in my thinking about this. I wanted to hear some of the discussion here today. In general, I think it's very important that we have a narrow aggregate like Ml. And I guess Ml is the best one we have right now because of the control characteristics and historically, anyway, the relationship to GNP. Now, whether any of the work going on to come up with a better narrow aggregate will pay off and we will come up with such an aggregate, I don't know. But for the reasons Governor Angell and President Corrigan cited, I would favor an approach that maintains the credibility of M1 down the road should we need it. One thing that concerns me about either rebasing or increasing the growth ranges at this juncture would be the implications that might be read into that in terms of how policy would be conducted in the second half. If somebody tore it apart and said: ""Well, 6 to 11 percent looks like a pretty broad range but that implies month-to-month money growth from June to December of less than 8 percent"" we conceivably could be sending a signal of tightening at a time when I don't think we want to do that. I think, politically, too many people are trying to jump on us right now in terms of policy, and [adopting] that range might increase that.",275
-fomc-corpus,1986,"Just so I get it clear in my mind, is it literally true that 6 to 11 percent implies 8 percent from now on?",29
-fomc-corpus,1986,Eleven percent implies just about 8 percent from June to December.,14
-fomc-corpus,1986,"In any case, whether it is established as a monitoring range or whatever, I think there is potentially a problem in terms of resetting the range at this juncture that could really affect the credibility of this aggregate down the road. In other words, we should only reset the target if we pretty much rededicate ourselves to trying to meet that target. I don't think that we have a credibility problem with markets right now in terms of Ml; I think they know we have been treating Ml differently. If we were just to say that we are not going to meet the target and put it on a monitoring range through the balance of this year, that would not create a problem. I would agree with what Jerry said that we ought to have targets for next year. I think that's important. We could see circumstances where we will need the rationale to support a firming in monetary policy and that likely would provide it. So, I would like to get from here to there maintaining as much credibility as we can for the Ml aggregate or a narrow aggregate that might take its place.",214
-fomc-corpus,1986,Governor Wallich.,4
-fomc-corpus,1986,"I think the behavior of M1 is still going to be so [uncertain] that the main issue is whether it is a viable target, regardless of whether or not its growth is going to be very strong. [Unintelligible.] So I would argue, not to trust too much in what we can do in terms of the M1 numbers, but to in effect [monitor it]. [Unintelligible].",86
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"I have two additional comments. With regard to 1986, I would be reluctant to support either alternative I or II because I don't have much confidence that they could be reached, particularly if for some reason we felt that a somewhat more accommodative policy would be appropriate in the shorter term. The second point relates to a comment Jerry made. I agree with Jerry that we should have a target for M1 to operate on in 1987. But please keep in mind that this is July of 1986, and what we basically could be saying is that we are not specifying a target in July because we do not have enough information. One could certainly address that issue for 1987 at the beginning of December, if one wanted to, for operational purposes.",153
-fomc-corpus,1986,"It's not quite relevant, but I would remind people that once we tried to do that with all the targets. We said: We aren't quite ready; we'll set them at the end of the year. And Mr. Proxmire sent us back, threatening us with a legal suit. But I don't think that's relevant, really, in terms of just one of the aggregates. Do you have anything to say, Mr. Boehne?",88
-fomc-corpus,1986,"Well, I must confess that I find this to be one of the lesser issues of our times, so I haven't been able to generate strong feelings one way or the other. I think I would come down on the side of keeping the 3 to 8 percent target--but, in effect, suspending it--on the grounds that it might be useful at some point. I would also keep it for 1987, but surround it with as many caveats as I could conceive of.",100
-fomc-corpus,1986,"Mr. Morris, you are against anything [relating to] Ml. You would say drop it and bury it?",24
-fomc-corpus,1986,"My position is very simple, Mr. Chairman. I don't think we can measure money in the old transactions balance sense in the United States. I don't think that we are going to be able to do it next year or the year after that or the year after that. I think it is nostalgia that is reflected in all of these comments about M1 returning to its historical relationships; the probability of that, given the changed character of Ml, has got to be extremely low. It seems to me that at some point we ought to say we can't measure money in the old sense because of all of the institutional changes that have taken place and, therefore, we are going to use liquid assets instead of money as a target. I would have M2 and M3 and, since we always have three targets, I would add total liquid assets.",168
-fomc-corpus,1986,Whose growth is very low this year.,9
-fomc-corpus,1986,"I know it; and it's not incompatible with what's going on in the economy either. It has been decelerating since mid-1984; and if you look at the rate of growth in nominal GNP, that has been decelerating too.",51
-fomc-corpus,1986,So was debt a few years ago and that has been rising like crazy.,15
-fomc-corpus,1986,I think I tried to unsell debt some time ago.,12
-fomc-corpus,1986,It's not necessarily the old relationships that would have to re-emerge but predictable relationships. I think the trend of velocity is going to be lower in the future than it has been in the past.,39
-fomc-corpus,1986,We will need a predictable relationship for an extended period of time. You don't take one six-month period of experience or a year's experience and get predictable relationships.,31
-fomc-corpus,1986,I agree with that.,5
-fomc-corpus,1986,We really need some time series on how much in NOW accounts are people's savings.,16
-fomc-corpus,1986,"We need a lot of future information so we would know what to do next year too. That's really what it comes down to. I don't think we have to have the whole relationship resumed but we have to have predictable relationships if we are going to use any kind of monetary target. But the alternative, which you posed very well a while ago, Frank, is choosing a level of interest rates, unless we do something like Chairman Volcker once suggested when I made a similar assertion that we can stabilize the exchange rate. But basically in a country like this, we have two choices: use some aggregate or pick the appropriate level of interest rates. And the question, I think, is on which path we'll make the smallest mistakes.",145
-fomc-corpus,1986,We're probably going to make big mistakes on both of them.,12
-fomc-corpus,1986,Or commodity prices or something.,6
-fomc-corpus,1986,"Well, I think the biggest mistake we could have made would have been to follow Ml the last 4 or 5 years. I think we would have set this country right on its ear.",39
-fomc-corpus,1986,"Well, I think there is some disagreement about how much weight we want to retain on M1 for some indefinite future period that we don't quite know about. I don't know how to resolve that problem. I suspect it's unresolvable in the sense of getting agreement among the members. I have a little logical difficulty with a monitoring range regarding what it means or at least whether we really want to do it. If we establish a monitoring range that means anything, we've got to establish a new target.",99
-fomc-corpus,1986,I think what most people mean is that we monitor it but not really set a range.,18
-fomc-corpus,1986,"I'm really addressing it to the only persons, at least on this Committee, who said set a new range. When you come up against Mr. Melzer and Mr. Parry, the problem is: How do you know what you want to set?",51
-fomc-corpus,1986,"If you talk about language for 1986, variant I doesn't use the term ""monitoring"" but accomplishes it.",25
-fomc-corpus,1986,We could change--,4
-fomc-corpus,1986,I think it's nice without it.,7
-fomc-corpus,1986,We could write down a new range and say this is now a monitoring range. I don't know what we would say.,24
-fomc-corpus,1986,We could keep the present range and say it's a monitoring range.,13
-fomc-corpus,1986,"Well, except that the present range is a monitoring range. We are monitoring how far outside the range we are now. It seems a little strange.",30
-fomc-corpus,1986,"We used that term ""monitoring"" in 1982 or 1983, I think it was.",22
-fomc-corpus,1986,But we had a range.,6
-fomc-corpus,1986,Did we? That was my question. Did we set a target at that time?,17
-fomc-corpus,1986,"Sure, we did.",5
-fomc-corpus,1986,"We could keep the 3 to 8 percent, but [unintelligible] July.",20
-fomc-corpus,1986,"I think Manley's idea is the right one. We should say we are going to monitor M1 and we are going to monitor debt, but we are not going to set ranges for either of them. We are not going to set any monitoring ranges.",51
-fomc-corpus,1986,"All I am trying to think about is how we should word it. In the wording we can say all sorts of things; but how operational it is, I don't know.",35
-fomc-corpus,1986,That is not what monitoring ranges have meant in the past.,12
-fomc-corpus,1986,"With a monitoring aggregate in the past, we have had a range. There's no doubt about it.",20
-fomc-corpus,1986,What I am suggesting is that we say we think we may be able to learn something from the M1 data and from the debt data and we are going to continue to monitor that data but we are not going to set a monitoring range.,48
-fomc-corpus,1986,"Doesn't the language of that first variant get us out of some of these problems? It doesn't use the word ""monitor"" but it says on the second page on page 21 [of the Bluebook]: ""In light of the uncertainties and of the substantial decline in velocity in the first half of the year, the Committee decided that growth of M1 in excess of the previously established 3 to 8 percent range for 1986 could be acceptable, depending upon the behavior of"" etc.",100
-fomc-corpus,1986,What page are you on?,6
-fomc-corpus,1986,"Page 21, the second line beginning with ""In light of."" This is variant I.",19
-fomc-corpus,1986,I think we would say something like that.,9
-fomc-corpus,1986,"And that gets away from having to use the word ""monitor.""",13
-fomc-corpus,1986,"Well, the great majority of the Committee members--",10
-fomc-corpus,1986,"But we would have a number, just--",9
-fomc-corpus,1986,"Oh yes, for 1986--the one we established in February.",15
-fomc-corpus,1986,"I would change ""could be"" to ""is.""",11
-fomc-corpus,1986,We don't need [precise] language now.,10
-fomc-corpus,1986,"It seems to me that whatever numbers we put in there ought to be predicated in part on what we think we are likely to want next year. If you think we are likely to want a lot of growth in money then 5 to 10 percent makes more sense; but if you think by next year a lower figure would make more sense, then the rebasing argument comes into play. Then it comes down to 3 to 8 percent or 3 to 7 percent or whatever we might decide looks more logical from a public relations standpoint.",111
-fomc-corpus,1986,"Well, just summarizing the discussion, a great majority of the Committee members want some variant but don't want to horse around with it--just admit we are running over it for this year. The majority of the non-Committee members want to do the same thing. So, unless people have any great changes of heart I think we are someplace in that neighborhood. We don't need to decide this issue right now, but that is where we are unless there are great changes of heart tomorrow. Unless somebody gets persuasive with a gold tongue, we're much more evenly divided regarding next year. It's pretty evenly divided; I'm not being too precise about it. I don't think these are the most crucial issues; I agree with Mr. Boehne on that. I presume the choice is that we either say we don't know right now and we may or may not have a range by the time we get to the end of the year and have to decide, or we write a figure down--I would presume something like this year's--and say we'll decide at the end of the year whether we really need it or not because we are not at all sure that we mean it. And there isn't an enormous amount of difference between those two choices.",245
-fomc-corpus,1986,Which one do you feel more comfortable uttering?,10
-fomc-corpus,1986,"I think I probably would feel slightly more comfortable saying we'll get around to it at the end of the year, but I am not sure it makes a lot of difference. The only loss in doing that, and I don't think this is an enormous issue so long as we get the right language, is how easy it is to return to it if we want to. Clearly, it's pretty simple to return to it at the end of the year, if we really want to at that point. If we don't want to then, and we stated the range earlier, it isn't going to help much. I don't think the difference is all that enormous.",129
-fomc-corpus,1986,Do you think the difference is of any significance for public understanding of what we are doing?,18
-fomc-corpus,1986,"Well, I presume if we didn't have a target, we would say: We are not crazy about being over it now, but we think we half understand and half don't understand it; and if M1 continues to run high and these other [aggregates] are running high we anticipate that we would get worried about it. We would look at it and take it into account, but we don't have any particular number in mind. If it was running high in connection with the others that would be of some significance to us. Next year we would like to see it a lot lower, but we are not ready to commit ourselves at this point.",129
-fomc-corpus,1986,I would urge my colleagues around the table to rally behind the Chairman.,14
-fomc-corpus,1986,"Given that you [don't] think it's an enormous point, I think that's about where we are at the moment. We will start tomorrow with the business outlook, which we haven't really dealt with, and then return to the long-term ranges in an operational sense. But I would hope not to linger too much over this M1 issue and be able to dispose of that in something like five minutes tomorrow. With the background of this discussion, I think that's roughly where the weight lies. So, unless somebody wants to be very persuasive tomorrow and feels very strongly--",111
-fomc-corpus,1986,"May I ask for an explanation of the discussion that you just had with yourself with respect to 1986 and 1987 with regard specifically to the use of the term ""monitoring range""?",39
-fomc-corpus,1986,"In that discussion I don't think I used the term ""monitoring range"" because we wouldn't have a range. We would say ""monitor.""",28
-fomc-corpus,1986,That's all I wanted to know.,7
-fomc-corpus,1986,9:30 a.m. tomorrow?,8
-fomc-corpus,1986,"Why don't we make it 9:15 a.m. because we have plenty of things to discuss before we go up to that lunch. Or, we can start at 9:00 a.m. if you want to. Let's start at 9:00 a.m. I had some crazy thought to say about this, but it has escaped me.",72
-fomc-corpus,1986,"Just to pick up on what you did say: The logic of what you are saying is that if we don't have a monitoring range, at least in an historical context, M1 is less important than debt because with debt we have always had a range.",51
-fomc-corpus,1986,"Well, I guess I would respond to that in some logical sense that may be correct. I don't think it really is correct. I think I am more certain even about the appropriate course for Ml right now than I am for debt. I do get worried about debt rising substantially faster than the GNP, I guess; I might not do anything about it but it doesn't seem to me right in the long run. I am not sure that one can say that about M1 in the very long run. For 1986 and 1987, I am not sure I can say it. I think something is the matter with debt rising as fast as it is. I am not sure that something is the matter with Ml rising as fast as it is for this limited period of time. Sure, if it grows that fast for five years, we would be in trouble. But if we are in some kind of transition to a new world, maybe M1 relative to GNP is still very low historically. Debt is very high historically. That is suggesting that we [should be] more worried about the level of debt than about the level of Ml in some sustainable sense.",235
-fomc-corpus,1986,"I am not sure I quite follow that ""relative""--",11
-fomc-corpus,1986,"Well, it's statistically true, I think. When you look at the levels, it's statistically correct.",20
-fomc-corpus,1986,"But in the historical context that we use these things, wouldn't you say it's also true that--",19
-fomc-corpus,1986,"[Growth in] M1 is very rapid relative to that of GNP for this period in time. There's no doubt about that, historically. They are both equally out of line in terms of the year-to-year growth path.",46
-fomc-corpus,1986,So treat them equally and have a range for both.,11
-fomc-corpus,1986,"You are going to get your two minutes to [expound to] everybody in a much longer discussion tomorrow. You can be really persuasive, but I guess you are going to have to convince people that they may not want to swear by your new range but monitor by it. Suppose you made the range the numbers the staff has here. What are they: 6 to 11 percent or something?",80
-fomc-corpus,1986,"No, 3 to 10 percent.",9
-fomc-corpus,1986,"Well, you are talking about next year; I am talking about this year. Suppose you made it 6 to 11 percent? Does that make you feel more comfortable than some other figure in terms of--?",43
-fomc-corpus,1986,"Well, it makes me feel more comfortable only in the sense that we might run into the situation that you yourself described, where the economic situation was different from the one we are looking at right now and Ml was growing at 15 percent and M3 and M2 were at 9 percent. If we didn't have any kind of a quantitative range for M1, I don't see how we could bring it to bear in a policy context. But at least if we had some kind of a quantitative range, it seems to me more credible that it would manifest itself in those circumstances.",116
-fomc-corpus,1986,Are you arguing for 1987?,8
-fomc-corpus,1986,"Yes, for any period. I don't think it matters in a literal sense in the near term--certainly not the [next] 12 months or so. But I just have this nagging feeling--",42
-fomc-corpus,1986,"I'll give you one to go home and think about overnight. Suppose the economy was moving more rapidly than all of these projections, and everybody was feeling much more buoyant, and maybe M2 and M3 were a little high but not outside the ranges, but M1 was behaving quite nicely within your new 6 to 11 percent range. Say it's only 10-1/2 percent.",80
-fomc-corpus,1986,That would bother me.,5
-fomc-corpus,1986,That could be a real problem.,7
-fomc-corpus,1986,"Or it could be like 1976, when Ml came in very low.",16
-fomc-corpus,1986,We can't deal with every contingency with one set of numbers. All I am saying is that I think there is a danger of getting into a position where we have no quantitative hook whatsoever.,37
-fomc-corpus,1986,"Well, we will see tomorrow, with a short additional argument, whether you can persuade your colleagues.",20
-fomc-corpus,1986,Sounds reasonable. [Secretary's Note: Chairman Volcker called for a discussion of the economic outlook.],20
-fomc-corpus,1986,"Well, Mr. Chairman, our outlook for this year and next year is consistent with the staff forecast; our numbers are close in a broad sense. In the Midwest conditions of expansion continue but certainly at a slower pace than in some other parts of the country. The consumer side out our way is pretty vigorous. Retail sales have been improving and one chain we talked to had the [best] May they have had in years. Auto sales seem to be pretty high, about equal to last year's level. But the manufacturing sector, as always, is pretty mixed. There are parts of it that have been doing well and continue to do well; building products are an example of that. All of the people in the building products side are operating pretty much at the top of their capacity. Those parts that have been weak show no particular sign of improvement. A somewhat recent development is that two large crane manufacturers in the Midwest in effect have gone out of that business; they just decided to get out.",198
-fomc-corpus,1986,What kind of manufacturers?,5
-fomc-corpus,1986,"Heavy crane manufacturers. Farm equipment and railroad equipment are operating at about 25 percent of their levels of the late 1970s. Every once in a while, maybe for myself, I take a look at the railroad numbers. In May of this year, for example, there were all of 950 cars ordered. For the five months through May 1986, ordering has been at about the 6,000 level. That's up from 1985, but for the full year in railway equipment there is the anticipation that there will be about 10,000 cars ordered. That compares with the peak level in 1979 of about 90,000. That certainly is one example of a troubled industry. There are two specific areas that I thought I would comment on. One is construction activity, which in the District and in Chicago particularly, has been and continues to be extraordinarily strong. On the residential side, housing starts in the District for the [first] five months of the year are up 24 percent as compared with those five months a year ago. In Illinois they are up 57 percent and I think that's the largest increase of any state in the country. In Chicago the number is even much larger than 57 percent. So, we have a very significant housing boom going on. In the nonresidential sector, floor contracts are continuing at what seem like increasing levels. For the five months of this year floor area contracts on nonresidential [structures] are up about 5 percent; that's a contrast from the national figures, which indicate a slump. And in Chicago the office boom continues despite the strong activity that we have had over the last two or three years. Many buildings are being announced; in one way or another some 14 million square feet have been committed to over and above what is already going on. My conclusion on this is that in the construction side we have some trends going on that certainly seem pretty unsustainable. On the inflation side, the news continues to be pretty good. Pricing is terribly tight. Everybody I talk to says that both raw material and product prices are extremely tight, with very little give, and increases certainly just aren't sticking. That's true even for the industries that are going through pretty high levels of activity. Paperboard is an example. That's an industry that is doing well. This April they had the biggest April that they had ever had in that industry and yet even now the pricing is only very modestly recovered from the amount that they lost during the recession. I commented before on labor contracts that have been settled. I think the news there continues to be pretty good. By and large the contracts are coming out on a three-year basis at about 3 percent or a touch under--a higher settlement in the first year but declining in the second and third years. But importantly--and this goes back to a chart that Mike Prell was showing yesterday--I am hearing that there are very, very substantial work rule changes in these contracts. Although managements are going after the financial side, they are really going all out after the work rule side. As a consequence of those substantial work rule changes, in terms of unit labor costs, I think the outlook is pretty good. Two steel companies have settled their contract negotiations; hourly wages were reduced and in both cases the COLAs were eliminated. Inland Steel's contract was up for a vote. The ballots were counted yesterday and I don't know how it came out, but that would suggest a similar pattern. Caterpillar settled over the weekend. They have not announced the terms of the deal, but they did reach a negotiation and the expectation is, or it's entirely possible, that it will call for a wage freeze but that they did not get rid of the COLA. They wanted to get rid of the COLA but they did not.",771
-fomc-corpus,1986,Who is that?,4
-fomc-corpus,1986,"Caterpillar. I know you saw the and I think he was suggesting to you a higher number than, in fact, worked out. It sounds like they got a freeze but didn't get rid of the COLA. They went into [the negotiations] thinking they'd have a higher number. Deere is next on the list and they will have a very tough negotiation; they would like to get rid of the COLA and they would like to get a freeze as well. I might mention that there is a little mini-exception to this 3-year, 3 percent pattern that I mentioned. It relates to us. The Chicago Building Trades have been [unintelligible]--those that had an impact on our building projects. There was a settlement there over the weekend for a 2-year contract and a 5 percent annual increase. But I think that's a very narrow, very specialized kind of situation. Net, the labor cost situation seems to be pretty good and the outlook for the next year or so okay. I have a final comment on this tax legislation. As I talk to people, I have a growing feeling of gloominess on the business side in that the shift of the burden from the consumer to the business side seems to be having a heavier toll, at least on outlooks. And I think the introduction of the changes on a staggered basis is causing apprehension. I hear what Jim says as to the impact but, at least as I hear the comments, it sounds like it might have a greater effect on 1987 than perhaps they have provided for [in the forecast]. As we look at it now, we expect the expansion to continue, though certainly at a more modest pace than was our expectation earlier in the year. But at this point, as we view it, we are very, very dependent upon the consumer; and I think as a consequence it will be important that we do anything we can do to deal with the consumer side of this.",398
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Our forecast is very similar to that of the Board's staff. We do have a slightly more rapid pickup in the second half of this year, but I must admit that more recent information that we have about inventories raises the likelihood that the pickup will get a later start. Also, our forecast for business fixed investment is slightly greater than that of the Board's staff. For 1987, our forecast for growth is virtually the same. We differ in our inflation forecast; but I think our forecast of a percentage point higher number for inflation is not all that significantly different, given the uncertainties associated with the forecast at this time. In the Twelfth District, the general economic picture remains quite mixed. We have quite a few industries that are doing well, such as commercial aircraft, electronics, and retail trade. But we also have our share of weak industries. Agriculture is weak and a little weakness has shown up again in the forest products area. The thing that I would like to note is that in recent discussions with our directors and also with our business and agricultural advisory council and others in the business community, there has been a noticeable erosion of confidence in the last month or two. Before we were hearing optimistic signs from all of these people; now they seem to think that things have become noticeably worse. Basically, I think their comments are reflecting the weakness that actually did occur in the second quarter. And frankly, they expect it to continue in the second half. I sometimes think that their forecasts are based primarily on what they see over their shoulder or what they are experiencing at the present time. But I think it is significant that their sentiment has changed in the last month or so. On Thursday, we will have a meeting of our board of directors. It's interesting to note that at the last two board meetings there has been a very close vote against lowering the discount rate; I really think it's quite likely that that's going to change at this Thursday's meeting.",390
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"When you have a spate of bad news such as we have had the last month or two, it's very tempting to focus on that part alone; I think all of us tend to do that. The good news is that the same thing happens on the other side and I think it's good for us to step back a little and try to take a little longer perspective than we sometimes do. If I remember correctly, back in April we were all pretty bullish because we had several fundamental factors that we thought were going to oil the wheel for the last half of the year: we had the declines in prices; the depreciation in the dollar; and then the continued low inflation. All this seemed to suggest to us that things were going to accelerate. And that was a very short while ago. Now, of course, we have reached the point where the depressing effect of the oil price decline on the producers is apt to be replaced by or surpassed by the positive effect on the oil users. So putting all these things together, it still seems reasonable to me that we ought to have a pretty fair increase in the second half of this year. We have revised our figures downward as a result of the bad news that has come in, but we are still just a tad above where the Board staff is and about where the consensus is of the Reserve Bank presidents' forecasts. If we get some more information that is below par and in particular if we don't see some improvement in the trade situation, then I think we are going to have to take another look at it. But for the time being we think that we might have [growth of] 3-1/2 percent in the third quarter and maybe 4-1/4 percent or something like that in the fourth quarter.",354
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Mr. Chairman, in the Sixth District growth has been about the same as in the nation as a whole over the first half of the year. But over the last month or so we have seen some weakening of the District economy on average. To be sure, we still have some pretty positive sectors in the economy. Consumer spending has held up pretty well: merchandise sales have been good, particularly in the furniture area, which had been hard hit by imports but recently seems to have been helped by the pickup in housing in the Southeast; and auto sales, while off a bit, still continue at a pretty high level. Single family housing has been good and, like other parts of the country, we have benefitted from the slackening of European and other overseas travel and tourism has picked up considerably. That has been a positive element in most areas of the District. I have been reporting pretty favorable news in the Southeast over the past year or so, but this time I think I would have to point to some very serious problems that have developed. First and foremost, of course, is the energy sector with a contraction that I believe has been more severe than we had expected earlier. And the weakness has spread beyond the energy sector itself and is reaching into state governments. For example, in Louisiana I heard a report that the state government is cutting back severely in the university system; programs are being cut and I think that will continue in other parts of the state as well. The lumber industry also has been badly hit. Commercial construction is a concern. Vacancy rates in most cities are not quite as high as the national average, but they are increasing; we are at a level of almost 20 percent on average. And a recent development that could become a very serious situation if it continues is the very severe shortage of rainfall that we have experienced. We have seen in most of the Southeast the most severe drought in over 100 years. That is having an impact, of course, not only on agriculture, which is already weak, but on other areas as well; and that impact is going to become even more severe if we don't get some relief. Water rationing, for example, is in effect in many places and now is beginning to have some effect on business production. Going back to the energy sector for just a moment, I wanted to mention that the rig count of Louisiana is now the lowest since 1949. Looking beyond the Sixth District to the nation as a whole, we too have changed our forecast for the latter part of 1986. We don't think that activity is going to be quite as strong as we had forecast earlier. We are about on the same mark as the Board staff in terms of growth for the latter part of 1986. For 1987, I think we are showing slightly higher growth. Our difference with the Board staff's forecast in 1987 I think relates basically to inflation. We see inflation somewhat higher than the Board staff; the difference there, as I have analyzed it, is that we perhaps are attributing a little more impact to the dollar effect than the Board staff is. I have just two final comments that echo what Si Keehn was saying. People that I am talking to around the District are very apprehensive about the effects of the tax bill. I think the uncertainty surrounding it is certainly causing them to pause with respect to business investment. But having said all that, when I talk to people generally, the confidence level as of maybe a week and half ago was still pretty high. People in individual businesses say ""My business has never been better."" In trying to analyze this, I have just a very quick impression [along the lines] of what we were just talking about this morning. People who are reporting very good results for the first half of 1986 are basically the smaller and middle-sized businesses. I don't hear that from the larger concerns. I just throw that out for what it may be worth. I don't know whether that has general applicability or not. In summary, Mr. Chairman, my feeling is that if we don't see some faster activity emerging pretty soon, I think the more positive--the more acceptable--outlook for 1987 really may not develop.",849
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"The Third District continues to do better than the nation as a whole. Construction activity, particularly the housing market, has been quite good. Pennsylvania ranks second only to California in the total number of existing homes sold during the first quarter, and the average cost of a house in the Northeast is higher than the cost of a house in the West for the first time in recent history. Nonresidential construction has begun to soften some, but not to the extent that it has in the nation as a whole. Retail sales have been especially good in the Philadelphia area; I think it has something to do with the relative strengthening of expectations about the economic future of the area, which for a number of years was not good. I think it is beginning to catch up to people as the outlook is better. Manufacturing continues to be something of a drag, but not as much of a drag as in the rest of the country. If you look at things like help wanted advertising, that has reached a high point and continues to be expanding. It's awfully hard, particularly in the suburbs, to go into stores without seeing signs in the windows asking for people to apply. I find the same kind of dichotomy, however, as Bob Forrestal does. There does seem to be more optimism among people in smaller and medium-sized businesses than those in the older, traditional large firms. I guess that has to do with just the nature of the economy. I have not sensed a general deterioration in sentiment, as Si has. I think sentiment is still reasonably optimistic for later in the year, although it may be more fragile than it was a few months ago. Turning to the nation, there is something of a dichotomy in what I have just said about my own region and my views about what is going on in the nation. I am more bearish now about the outlook than I was a few months ago. The reasons have to do with both the timing as well as perhaps some changes in the fundamentals--or at least our perception of the fundamentals. In recent discussions around the table, I think most of us have tended to emphasize the positive things about the economy: the drop in the dollar and oil prices, etc., etc. Yet there are a number of drags: in petroleum, in farming, in export demand, and tax reform itself. While most people think it's probably good over the long pull, there is definitely a drag in the short pull. My sense is that we have tended to over-emphasize the effects of the stimulative factors and have not taken into account, at least to enough of an extent, those factors that are dragging on the economy. Part of it is timing, but I think some of it may be more fundamental than that. So where I come out is that, yes, I still think there is going to be a pickup. But I am less sure of that than I was; I have more doubts about it. I find it quite difficult to see the threat of too much economic growth in the months ahead, but I could much more easily visualize too little. On the inflation front, I think inflation is an ongoing threat and we have to be careful about it and sensitive to it. But it does strike me as less of a threat now than the threat of too anemic an economy as we go to the end of 1986 and into 1987.",678
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"My forecast is similar to the staff's forecast, but I have found myself in the last three or four months relatively concerned about the downside risks of the forecast. I focus these concerns on two particular areas. First of all, like many others, my forecast depends on a significant improvement in exports and I wonder whether that is really going to come to pass. The other area that I focus my concerns on is the long list of imbalances in the economy. I'm not quite sure how that works through the forecast as would the failure of net exports to improve; but the list is long and this seems to me to be a very difficult economic environment for a recovery to continue. Turning to the District, our recent numbers show no significant strengthening but no significant deterioration in economic activity. From businessmen in our District--our directors among them --I sense a growing caution but not yet disappointment in the economy. Perhaps they are not disappointed on the trade side because they were always skeptical about the trade rebound; they didn't expect it and it hasn't happened. They continue to report intense import competition and we, like Si Keehn, also have industries that simply have been unable to lift their prices. Again, as in Si's District, our businessmen and directors seem fairly happy with the labor arrangements they have. I know it's fashionable to talk about changes in work rules when you have labor settlements, but I hear that talk often enough and from enough people that I think they are not posturing--that maybe this is really happening. I hear a lot of good feelings about the whole labor arrangement that businessmen are facing. A lot of the them seem to attribute the present sluggishness to the up-front problems with the oil industry. We have a reasonable amount of that in Ohio; Marathon just announced layoffs yesterday, as a matter of fact. In conclusion, I think the economic outlook is good, but the risks are increasingly on the down side.",382
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"Well, Mr. Chairman, the New England economy is still growing extremely well as exemplified by the fact that McDonalds is offering $4.95 an hour and is still having trouble finding people to flip hamburgers. But my reading is that the national numbers are very disturbing. I have been very optimistic that we were going to see an acceleration in real activity in the last half of the year, certainly on the basis of what the broader monetary aggregates have done in the first half. That suggests that we ought to be seeing about a 7 percent nominal GNP growth, and I thought that was just about right. But the staff is now forecasting 5 percent instead of 7 percent. And I am inclined to agree with Mr. Boehne and Mrs. Horn that if there's something wrong with our forecast, it could be that the forecast is too optimistic. I see a sense of contrast between [the economy and] the financial numbers. If I were sitting on a desert island and had only the financial numbers, I would say there is a tremendous boom going on in the United States. But if you look at the numbers for real activity, the last month gives no encouragement that we are going to get a faster rate of growth in the third quarter. The new orders figures certainly don't suggest it. The deceleration in the rate of payroll employment gains doesn't suggest it. I really don't understand what is going on out there. The system is not responding according to the rule books that I would follow. So, I find this very disturbing. For months I have been thinking that monetary policy has been doing everything it could to produce a healthy economy. I am less confident of that today because of the seeming failure of the real economy to respond to what the financial economy has been doing.",358
-fomc-corpus,1986,It looks like the string we're pushing on is a wet string!,13
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Well, Mr. Chairman, as I have been reporting, things have not been going all that well in our District. The Eleventh District economy seems to be about the weakest in the country. Not only has our situation gotten a little worse, we expect it to deteriorate even further and possibly at a bit faster pace. The Texas unemployment rate in June rose to 10-1/2 percent, and that's the highest level in modern times, certainly, for Texas. New Mexico and Louisiana expect to show increases in unemployment when their data become available. The last report for Louisiana was 13 percent and that's probably on the way up. As conditions worsen in energy, construction, and manufacturing, that is having some fairly severe effects on our financial institutions. If you read the papers, it's pretty hard not to see one of our Texas organizations being featured in one of the articles. Their performance has really not been all that good! Looking at it from a supervisory standpoint, we don't [rate] our major bank holding companies very high from a supervisory level! Those that seem to be doing a little better we wonder about, because some of their major subsidiaries haven't been examined for a year or year and a half and that makes us a little concerned over what the true situation might be. Now, I tried very hard to find some positive elements of strength in our District to report this time, but I just was not successful. Aside from this regional report, though, I continue to feel with regard to the broader picture that there will be some modest pickup in the second half of this year. Our forecast is in the middle of the forecasts of the Reserve Bank presidents. And we think this is sustainable into 1987, if there's some monetary stimulus that comes about to offset the economic drag of the uncertainties that are inherent in the fiscal environment.",367
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"In the Eighth District, I'd say things are going along pretty well. We've heard a couple of comments about a change in psychology; I haven't detected too much of that. Psychology among businessmen is pretty much the same as it has been according to what I've picked up. On an annual basis, we've had a good year in terms of nonag employment gains; they have exceeded the national gains by about a percentage point. Manufacturing employment has been pretty much flat, although in the most recent three-month period we had modest gains there. Retail sales were lagging somewhat early in the second quarter, although the sentiment was that the second quarter and the third quarter would come in quite strong. Residential construction has been mixed. Single-family construction has been and continues to be very strong, particularly in St. Louis; commercial construction activity in St. Louis, which I think in general has lagged behind some other cities in the country, continues to be strong and in the District overall it is down less than nationally. In terms of the broader picture, our forecast would be for the same rate of real growth as the Board's staff has both for the balance of this year and next year and somewhat higher on the inflation side. In terms of real growth, while that's lower than I might have expected a month or two ago, I'm not particularly troubled about looking at 3 to 3-1/2 percent real growth as a projection, given the overall growth rate that seems to be prevailing in the world and productivity gains and so forth. So, while it's lower, it's not something that at this point troubles me to the extent that I'd be inclined to react to it.",332
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"Dealing first with our District, the cross-currents that have characterized the economy in the District are a generalization between the rural economy and the urban economy. Those cross-currents persist, with the urban economies in general doing reasonably well and the rural economies continuing to struggle. Beyond that, looking at some of the state-by-state data, one of the things that has emerged recently is that the numbers in the two states in our District that have some involvement in the energy area, Montana and North Dakota, clearly look worse than the rest of the District. In the rest of the District, while growth isn't as gloomy, in general I would say it's certainly respectable and reasonably broad-based. But because of the energy involvement it looks like there is some contraction, certainly in Montana, and maybe some flatness in North Dakota. Beyond that, one of the more interesting things that has happened recently, and was a surprise to me, was that three or four new nonresidential construction projects have been announced for the Twin Cities. Whether that is good in the long run, of course, is an open question because I think we are close to--if not already at--an overbuilt situation. But in the short term that probably does augur well for employment and so forth in the metropolitan area. As far as the national outlook is concerned, I share the optimism evidenced in the Board staff's forecast, and indeed, I might be inclined to go a bit beyond that. It seems to me, as Mike Prell suggested yesterday, that there are several factors that we can identify right now that clearly have been retarding the economy--things like what is going on in agriculture, the adjustment in the energy sector, nonresidential construction activity in general, and the lack of improvement in the trade situation to date. It seems to me that we can at the same time identify a couple of those negative factors that have been retarding the economy as having a fairly high probability of turning around at some point. In particular, I'm thinking about a prospective improvement in trade and certainly at some point a slowing, if not a stop, in the deterioration stemming from the energy side. It's impossible, I think, to say with any precision when that may occur. But I think we can look forward to some diminution in those factors that have been inhibiting economic growth. And when that is coupled with what I think are still some very strong fundamentals--the kinds of things that we have talked about in the past like lower interest rates, a lower value of the dollar internationally, lower energy prices, and so forth--to my mind the case for some acceleration in the pace of economic activity is still a compelling one. But I would repeat the caveat that I think it's impossible to say with any precision exactly when this may materialize. I didn't find the second-quarter performance particularly discouraging in this regard, because it seems to me that we have been well aware and have been saying for some time around here that the adjustment has been occurring in energy. We've been well aware of the so-called J-curve effects on the trade side and weren't confident--or at least I personally didn't expect--that somehow in the second quarter things were going to start to improve materially. But I think the basic case, and certainly my own expectation, for some improvement in real growth is still there.",674
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"Just a couple of quick words about the District situation, which I think is a lot like others have described in that small and medium-sized firms, even in manufacturing, are doing quite well to very well. Nonresidential construction and the housing markets are very, very strong, especially in the New York metropolitan area. The service sector--and of course there's a special premium on financial services--is in a state of near frenzy. But there's a great question in my mind as to how sustainable that is. The large firms, especially large manufacturing firms--both those that [operate] there and those that are headquartered there--are by and large pretty dismal in terms of their outlook. Even in the case of IBM, which earlier in the year seemed to think that things were about to take a turn for the better, certainly doesn't have any conviction behind that outlook at this juncture. In terms of the national economy, my own forecast is very similar, and almost identical, to the staff forecast in both the aggregate sense and in most of the details. But I must say, I have perhaps as little conviction about a forecast at this point as I've ever had. I could easily put together a forecast that's stronger and I could easily put together one that's weaker. Some of the factors that have been mentioned--energy, commercial construction, and agriculture--are the obvious things that would point in the latter direction. But abstracting from those particular areas of concern, I have two overriding concerns: the first is this financial sector dichotomy that Frank Morris referred to. I too find it very hard to rationalize the patterns of behavior that we see in financial markets --not just in the United States but around the world--with what seems to be going on in the real economy. And I have a nagging feeling that we may be a little more accident prone there than we would like to admit. I say that not with a view on nonperforming loans at banks, as much of a problem as that can be in its own right, but more that when I look at the sheer volume and volatility that we see in the financial markets these days, I can't help but think that when we have a 62 or 63 point change in the Dow-Jones average in one day, that in itself feeds on this sense of uneasiness that a number of people have been referring to around the table. It makes you scratch your head a little and say: What the heck is going on here? The other area of great concern that I have that transcends these particular sectoral concerns is the continuing economic, financial, and indeed political, implications of the trade and current account situation. I read all the books about J-curves and all the rest of the [hype] but I must say I still have, and perhaps increasingly, a great deal of difficulty seeing how we will work ourselves out of that situation in an orderly way short of a recession-induced correction, which would obviously be very, very messy. As a number of people have suggested, I too sense that maybe confidence levels have ebbed a bit. I think the reason for that may well be associated to some extent with these financial market goings on. But I also think that there's a little phenomenon taking place now where for a variety of reasons--including, for example, the court ruling on Gramm-Rudman--the imbalances that have been there all along are maybe showing through in a more transparent way than has been the case. Again, I think we've got to keep some perspective on those imbalances. The staff forecast, for example, is going to produce an unemployment rate in 1986 of 7.1 percent. Now, the last time we had an unemployment rate of 7.1 percent was in 1980. When you look at what has happened since 1980, there have been some very good things: the inflation rate has come down from 10 to 2-1/2 percent and we are now in one of the longest economic recoveries on record, despite this enormous trade deficit. But when you look beneath that, in 1980 we had a trade surplus in real terms in excess of $50 billion. We now have a trade deficit in real terms of $140 billion. In 1980, the budget deficit was $50 billion or $60 billion; it's now $200 billion plus. In 1980, the personal saving rate was 7 percent; now it's 4 percent. And those fundamentals are not going to change very easily. To some extent, I think what we're seeing right now is a renewed appreciation that those fundamentals are there. And the final irony, of course, is that if indeed the economy were slipping badly, one of the things one thinks about doing is trying to provide some fiscal stimulus. But as a practical matter, we're not exactly in the ideal position to be able to do that. It all comes back to saying that the whole ball game seems unfortunately to rest on monetary policy. It's a very difficult outlook; and I guess I would be in the camp with those who are more worried rather than less worried.",1036
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"Thank you, Mr. Chairman. What has happened and what is happening in the Tenth District is not greatly different than what I have described in past meetings, and that is, that it's a very unbalanced situation. In the urban areas, things are going quite nicely except in Oklahoma, which is particularly impacted by the energy and agricultural situation. And in the rural areas there's growing desperation as to how this whole thing will play itself out. Having said that, I guess I'd like to focus on a couple of good pieces of information. One would be that the wheat crop is out and was a good crop. The weather in the growing season has been very good for all the crops, generally speaking, in the Tenth District. And I guess I take some comfort that they are having a drought in the Southeast, which will improve the commodity prices spilling into the Tenth District or [unintelligible].",182
-fomc-corpus,1986,It doesn't seem to be improving much.,8
-fomc-corpus,1986,"Not very much; I'm afraid that's right. Another piece of information that comes out of a quarterly survey that we conduct has to do with agricultural real estate prices. There was a further drop from the fourth quarter to the first quarter of about 5 percent in agricultural real estate values. That's down roughly 21 percent from a year ago and roughly 50 percent of the values posted in 1981, which was the high point. But the good news that may be showing through is that ranch land, for example, was down 7 percent, but crop land was only down 3 percent; and that is a slowing in the decline in crop land values. So, to the extent that you're searching for any good news, I suppose you could dwell on that only briefly to say that maybe we're getting close to the bottom of the decline in agricultural real estate values. With respect to the energy sector, it continues to worsen. For example, in the District there are 193 rigs now working and that's roughly 1/3 of the number of rigs that were working at the end of January of 1986, just a few months ago. In the banking sector, particularly that part that services agriculture and energy, [the news is bad]. At the agriculture-related banks the loan-to-deposit ratio is only at 53 percent, which is the lowest level since we began doing the survey in 1976--which merely says that the banks can't find any credit-worthy borrowers. This demonstrates some of the pain and the distress that is showing up and clearly is present in the agricultural and energy areas. With respect to manufacturing in the District, the farm machinery and oil equipment manufacturing is weak. On the other hand, auto assemblies, which are a very big component of our economy, are still going full out. In general aviation, aircraft for example is a very depressed part of the economy. Tourism is very strong, apparently in large part because of people travelling in the United States rather than going abroad. Turning attention to the nation, our projections are very similar to the staff projections. But increasingly, I am concerned about the pickup we have been expecting in the third and fourth quarters as well as in 1987 because it seems largely dependent upon the net export position. The swing that the staff has built in is fairly dramatic between now and the first quarter of 1987. If that does not come to pass, it seems to me that the economy is going to continue to buck along at a 2 percent [rate] in the period ahead; and it seems to me that perhaps that's not satisfactory for the long pull. To the extent that monetary policy [through] interest rate levels can impact that, I guess I would be more inclined today to do something along that line than I have been in the past, even though it will help only at the margin and not be of great benefit in my view to my section of the country. But at the national level, I'm coming closer to feeling the need to do something more in the monetary policy area.",611
-fomc-corpus,1986,Governor Angell.,4
-fomc-corpus,1986,"It seems to me that the most significant factor we face is that the world economy is not really going much of anywhere; it's stagnant. And I think it's behaving about like we would expect the world economy to behave in a period in which international credit had been on one path--on a 20-25-30 percent growth path--and then entered a period of much slower growth. Adjustments get to be very difficult. And world trade is no longer [moving in] an expansionary fashion. I think maybe we are beginning to find out why it was that protectionism got to be such a significant movement in the 1920s and early 1930s. In this environment it's only natural that everyone will worry more about their market share than they will about a growing market. And in this environment I think it's very difficult for us to expect to make as much gain on our balance of trade as we would like to make. I think it's going to be very difficult for those who enjoyed huge balance of trade surpluses not to have pretty slow growth economies unless they do something about the deflationary impact on their economies. Apparently, I see inflation somewhat differently than others do. I have come to see it less as a set of numbers that behave in such and such a pattern than to see inflation laws and attitudes. I see an attitude that says that prices rise and prices don't fall. And during such a period, individuals are anxious to restructure their portfolios away from monetary assets to real assets. During inflationary periods, you see, people are rewarded who are good at making portfolio shifts like that. In such a period you find--whether you're in the farming business or in the oil business or whatever business you're in--that you make more money depending upon how fast you borrow money and how fast you buy equipment and how fast you spend money. But a deflationary environment is really quite different. A deflationary environment is one in which people begin to see that prices can fall as well as rise. It seems to me that John Maynard Keynes in his Treatise on Money gave some really good indications about what one might expect to happen during such periods. And it seems to me that what is happening in the world's economy reflects the actuality of inflation being less than anticipated. I might suggest that if we're to do our job in economic analysis--of course, we cannot always forecast without any errors. But whenever we as a profession begin to forecast the rate of inflation over a 5- 6- or 7-year period and all the errors are in one direction, then I think one could make some case for the fact that inflation expectations are misplaced. And those with time lags in production find out they can't sell their product at the price they thought they could, so people's behavior changes. It seems to me that we're finding that kind of behavior change under way. And in this behavior pattern more firms are going to devote attention to cutting costs than they are to trying to buy a lot more equipment. The adjustment process is really rather significant. So, even though I used to be more pessimistic than others in some ways, I turn out to be somewhat more optimistic in a sense. We have undergone such a significant deflation in many areas of our economy and we're still kind of hanging on and I think that's a real plus. I believe we have to recognize [changed conditions] in agriculture, and Jerry may have been somewhat of a stimulus there. But when direct government payments to farmers and price support activity and direct payments for compensation for [unintelligible] differences are moved from a $12 billion annual rate up to a planned $24 billion annual rate and it is missed so badly, as I believe this last agricultural bill has missed it, that the actual expenditures [unintelligible]--they are going to run more like $32 billion than $24 billion--that puts a lot of support money out there. And eventually that's going to hold up. If we can continue to try to have some patience and be cautious and make careful moves so interest rates adjust to changed conditions in the world, it seems to me that we have a chance to continue along on what some may think is a rather slow growth path. The only disadvantage of that slow growth path may be that it makes it very difficult to get the government budget back in shape. As you know, when things happen in agriculture as they have happened, then those Gramm-Rudman targets get out of kilter. So that adjustment process may be very, very slow. But it seems to me that we have a good chance to keep expansion going for some time in the future. I'm not going to be too pessimistic on the basis of the numbers coming out right now; I'm going to be optimistic as long as we respond with interest rates to market perceptions in regard to these world economic conditions. I would certainly have a different forecast if I thought we were going to peg short-term interest rates and prevent them from responding to market conditions. So, I'm in a position of saying that my forecast is exactly the way it was in February. I'm not sure that is all that good but it may not be all that bad, if we can avoid any major deflationary or financial market disruptions that [brinkmanship], I suppose, runs a risk of encountering.",1073
-fomc-corpus,1986,I don't want to interrupt this because we've got to move along. But I don't understand this chart that we had yesterday on government payments to farmers. It only shows that they are about $12 billion and I thought they were more like what Governor Angell was reciting.,54
-fomc-corpus,1986,"Those numbers include the direct payments, that is, largely the deficiency payments. There is a certain amount that the government is committed to making up if the farmers' prices are below a certain level. There is also the dairy cow reduction program. [Our number] doesn't include CCC and some of the other programs that Governor Angell was mentioning.",68
-fomc-corpus,1986,They certainly include something [unintelligible]. Governor Rice.,13
-fomc-corpus,1986,"Mr. Chairman, I think the staff's forecast is about the best way of looking at things right now. I continue to look for the pickup in the second half, though it likely will be less of an acceleration than I expected a month ago and probably will be later in the second half than I expected. But like others, I find the situation looks more clouded than usual, in part because of some of the factors pointed out by Frank Morris and Jerry Corrigan. It is very difficult to read what is going on right now. At the present time, I have less confidence in my view of the future than I have had in some time. It could be that I am being, as are others, unduly influenced by the most recent data that we have seen over the last month. I hope that is so. But if we stand back and look at what is going on, I think we have to recognize, as Gary Stern pointed out, that some of the factors that have been dragging down the economy are likely to become less influential in the future. The fundamentals that we counted on to spur the economy are still there. In my mind, it is hard to imagine that business fixed investment will come in lower than the staff forecast. It seems to me that [the forecast] in that sector is probably a rock bottom outlook. And while a turnaround in net exports may be delayed somewhat further, it is hard to imagine that it will be delayed beyond the second half. I expect that we will see this acceleration before the end of the year, and my own guess is that the risks are not on the down side--that we are not likely to get a poorer performance than the staff's forecast. If anything, it will be somewhat better than the staff's forecast. Now, all of this is clouded further by the overhang of tax reform. Tax reform, of course, is factored into the staff's forecast. But in my mind, there are certain psychological effects that can't be factored in, which could perhaps have a more restraining impact than one would imagine at the present time. This would be especially true if the revenue raising provisions kick in ahead of the cut in rates. So, while I would repeat that the risk is probably on the up side of the staff's forecast, there are these imponderables out there that are very difficult to factor in.",480
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"Well, I think business is sluggish and I think it has been sluggish for most of this year. Economists, both within and outside government, that I have spoken with in the last week or so seem to be busily revising their forecasts--mostly downward--probably in reaction to the recent rather weak indicators. Back in February, I think Wayne Angell and I had the two lowest forecasts for real GNP growth for this year; mine was 2-1/2 percent. And after hearing all the bullish comments at the table, I was feeling guilty about it so I took advantage of Jim Kichline's offer to accept revisions and I put it up to 3 percent. Now I have moved it back down to 2-1/2 percent; I'm going round trip on this. Unfortunately, I just don't see what is going to cause business to pep up. I would like to see it happen; I would like to see stronger growth in the second half of this year. I would like to see a very healthy, dynamic economy next year too, but I just have doubts about our ability to pull it off. I know we are relying very heavily on a trade turnaround, but the people in trade that I speak with have convinced me that it is going to be very difficult to do. We have already seen that the lags are longer; they are going to be still longer. I agree with the comments of President Keehn and Governor Rice and some of the others about the impact of tax reform. Just the uncertainties that have arisen from the proposals have tended to curb businesses' enthusiasm for expansion and modernization. And if what is in the Senate bill actually becomes law, the disincentives to investments are very, very great. That is the way I read it, and this--",364
-fomc-corpus,1986,"The way I read it, [unintelligible] it could only be worse than what's in the Senate bill by the time it gets finished in conference.",32
-fomc-corpus,1986,"Yes, but what I am saying is that even what is in the Senate bill will provide major disincentives to investment, even though we desperately need to modernize our manufacturing sector, particularly. Anyhow, I also sense that there is some deterioration of confidence. The latest survey done by the National Federation of Independent Business, done in late June, showed a significant slipping in the optimism among their members, particularly in their expected gains in real sales for the rest of the year. Also, they have revised downward their inventory and capital spending plans. I sense too that some of the inventory numbers and some of the new orders numbers were distorted by these labor negotiations; individuals were building up additional inventory to hedge against strikes in copper, aluminum and steel and now it looks as if those strikes will not take place. They will have to work these inventories off. In the auto industry, I think some of the strength in sales is more apparent than real because they are having to make such tremendous efforts to get these sales--very great interest rate incentives are required, or cash rebates to customers, or additional rebates to the dealers themselves--and it is just very very difficult to get these [sales]. Their inventories are also hefty, particularly at General Motors. I can't imagine that this won't eventually lead to some pruning of production schedules. I would like to be a raging bull but I guess I can't quite do it today. Thank you.",285
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"I think everybody has just about covered all the points, so I will try not to be too long-winded. There are a couple of things I want to stress. First, I was generally very optimistic too--in fact, I put in probably one of the stronger forecasts for 1986--when we first gave these forecasts back in February. Of course, for 1986 my forecast is now down in the 2 percent range from about a 4 to 4-1/2 percent range. What has happened between the two periods for me is a growing pessimism about the situation abroad in terms of the domestic growth possibilities in the other industrial countries. There were strong expectations there; and I think our forecasts and the staff forecast were totally reasonable--exactly what you would expect if we had gotten reasonable performance abroad. But things have been coming in substantially weaker than what we expected overseas; I think we were looking for something on the order of 3-1/2 to 4 percent real output growth in the non-U.S. OECD countries. I really am getting very gloomy about that; I never thought that they could sustain the situation politically in those countries with the kind of conditions that exist. But not only are they sustaining it, their political strength seems to be growing, which is a really strange phenomenon in these days and times. I don't think we can expect much on the export side of the market, and I think that what we put into the growth path as a result probably ought to come out. That leaves the domestic economy much more dependent upon domestically generated stimulative factors and I think that becomes harder to do when no one else is participating in this real growth process, because it runs the risk of exposing our exchange rate and producing some pressures. Of course, if the rest of the world is going to pursue recessionary conditions, I am not as concerned about the exchange rate fallout as I would be otherwise. So, I think that is the dilemma we are in. And under those conditions, I think price pressures won't be as great. As a matter of fact, because of that, I think current nominal interest rates could translate into higher real interest rates than we now think exist. It may be the case that what is happening now to the domestic side is that real interest rates are [higher] than we think they are. I made this transition too: I also have some concerns about the uncertainty associated with tax reform. I think that will pass when we get a bill out of the way. But still, there are a lot of factors like this that we have to deal with. I would not be worried about the second half. I agree with what Jerry was saying: that everybody expected a weak second quarter. We had been forecasting that all the way back since last year. The problem is that the early indicators for the third quarter don't look good. We are not seeing the kind of evidence that we would expect to see in making the transition from a weak second quarter to a stronger second half. I think that's the problem and the reason that is the problem is what I mentioned earlier--what is going on abroad. It is almost a helpless feeling to see what is going on abroad and not be able to feel there is something we can do. But I think that is the situation.",667
-fomc-corpus,1986,"Do you want to say something, Governor Wallich?",11
-fomc-corpus,1986,I can't [unintelligible] normal. Allow me next time to have a chance.,19
-fomc-corpus,1986,"Well, I think we have completed our go-around on the business outlook. I don't have anything much to add to it, except I would pick up on the comments that Governor Johnson just made and that Governor Angell made to some extent. We have had a lot of what seem to me to be shocks--if that is the right word--on the domestic economy: oil and tax reform are probably depressants; we have been looking at overbuilding in construction for a long time and that's headed south; we have had an awful agricultural situation. We have had 3-1/2 years of expansion. I'd say maybe we are overcoming some of those depressing influences by a rather large amount of monetary and financial stimulation, which has its own difficulties down the road as to its sustainability. But the key problem is this trade problem. I don't think we are going to solve it by depreciation. That may be necessary over a period of time. We have had quite a lot. Without a better business picture around the world, I think depreciation in the short run will worsen the business picture abroad as well as be a depressing influence now on their economies. Our growth has not been all that great during the first half. However, in the world view it is not bad; in fact, it is better. The most depressing thing to me, in a structural kind of sense, is that our economy is not growing very fast and we are still growing faster than they are abroad--in particular when our growth is being undercut by a continuing decline in the trade balance right up to date. So long as that problem exists, we are on a collision course with something because we can't grow and build up the rest of the world when we are starting with a trade balance [deficit] of $140 billion or whatever it is, as opposed to three or four years ago when we started at close to zero. Over a period of time I think that also is related to the budget problem. But how do we get stimulus abroad? We would like some stimulus here, but it is going to have to be less than what we get abroad in order to begin working on the underlying problem; it is a nice trick, which isn't within our control in any easy way. It is really remarkable [to find] when you talk to these foreigners how happy they are about the situation. They seem to be perfectly content not to have much growth or a bit of growth at the expense of rising trade surpluses.",499
-fomc-corpus,1986,"Paul, would you comment on a strategy that would involve our easing policy or lowering the discount rate or whatever? What kind of pressure would that put on foreign countries to, say, stimulate their economies?",40
-fomc-corpus,1986,"I think we ought to presume [that] in our short-run policymaking. I want to turn to the long run now, but I would say that we are going to have a decline in the discount rate, say this week, if I read the tea leaves correctly. I didn't hear anyone around the table say they were particularly adverse to that. We just ought to assume that. It is all backwards; the foreign countries ought to be reducing [interest rates] or providing some kind of stimulus. I think many of them would say that ideally they ought to be getting some fiscal stimulus--that they ought to be reducing taxes or something. That is what the German monetary people say and that is probably what the Japanese monetary people feel, but it is not going to happen regardless of what is desirable. The second best approach for them would be to ease monetary [policy]. Based upon what I know, if we visibly [act]--say, by changing the discount rate--I would assume that the Germans and the Japanese will not respond. They say they will not respond. Whether they will or not depends upon developments in the market. The idea that we can orchestrate a general decline by the Japanese, Germans and ourselves this week or next week or the following week, I think is just not obvious. I do think we will see some declines by the French, the British, the Swedes, and maybe by somebody else in Europe, but I don't know who else. That may set up, apart from our change, a force that would leave the Germans embarrassingly stuck out by themselves and may raise [pressures] on the Japanese. I think economically a change by the French, British, and the Swedes won't make much different. But I think that is what will happen: there will be a pretty prompt change from some secondary countries but not a change by the Germans and the Japanese on round one. We talked vaguely about making a change in September, but that is a little beyond the horizon that seems immediately relevant. But I think that is the situation we face. Now, if we talked about a really big discount rate change, I don't know whether that would change [the reaction]. But I make these comments in the context of a 1/2 point change on the discount rate. That is the way they talk. What the chances are, say, within a two week period, that they would feel somewhat forced to change, I think depends largely upon the exchange market and other factors; but that is not their mood now. Let's turn to the long run, to [M2 and] M3. I don't know to what degree we can short circuit this [discussion]. We are comfortably within the ranges for M2 and M3. Does anybody have in mind proposing a change in the M2 and M3 ranges for 1986?",575
-fomc-corpus,1986,No.,2
-fomc-corpus,1986,"So, we can assume that they stay the same and dispose of that quickly. Then we move to 1987. That's a different page, isn't it?",32
-fomc-corpus,1986,Page 23.,4
-fomc-corpus,1986,"There isn't much difference in what is being presented to us but we're free to propose anything between keeping it the same next year or moving it all of one half percentage point. I don't detect any enormous economic significance in the difference between 6 to 9 percent and 5-1/2 to 8-1/2 percent; there might be some psychological difference. Obviously, the slight reduction fits in with the idea that we ought to lower the ranges over time. And if you match this against the forecast--I might mention that you all have an opportunity, as usual, to change these forecasts in the next couple of days. So, you ought to review them and see whether you want to [make any changes] in the light of this meeting. Otherwise, we have a nominal GNP projection by the staff of 6-1/2 percent and [forecasts by] everybody else that run over a full range of 5 to 8 percent, probably, but [cluster] at 6 to 7-1/2 percent. Either of these proposed ranges for next year seems comfortably to encompass a straight relationship [of money growth] to nominal GNP and would allow for some decline in velocity.",245
-fomc-corpus,1986,What has the velocity of M2 been?,9
-fomc-corpus,1986,"Well, historically, you're looking--",7
-fomc-corpus,1986,I know it has been around zero.,8
-fomc-corpus,1986,"Historically, it has been pretty close to zero, but it has been declining in the last two years.",22
-fomc-corpus,1986,The last several years it has been declining 2 to 3 percentage points.,16
-fomc-corpus,1986,So an 8-1/2 percent upward bound would account for that pretty much.,18
-fomc-corpus,1986,"Well, it depends upon which way nominal GNP is running.",13
-fomc-corpus,1986,If we get a 6-1/2 percent nominal.,13
-fomc-corpus,1986,It would allow for it.,6
-fomc-corpus,1986,"Yes, I think we can afford to take it down a half point from 9 percent.",19
-fomc-corpus,1986,"Well, a half point obviously shows some progress toward a lower range. I don't think the substantive difference is great, but I don't know. Does anybody else want to say anything?",36
-fomc-corpus,1986,"I prefer to keep it unchanged. I think that we would hope to have substantially larger nominal GNP [growth] next year than we're going to get this year. This year, with a projection of 5 percent nominal GNP [growth], we have M3 in the middle of the range. It doesn't seem to me there's much of a case--if you take those two key situations--to shrink the ranges.",84
-fomc-corpus,1986,"Well, I am not sure one would expect this kind of decline in velocity to persist in those particular aggregates. Does anybody else want to say anything?",30
-fomc-corpus,1986,"Yes, I would agree with Frank. I think we just don't know at this point. I don't see any reason to change; I don't think the gesture of a half point means that much at this point.",42
-fomc-corpus,1986,"I guess I come out differently. It seems to me that if we want to signal a concern about continuing to make progress against inflation, it might be a very good move to reduce it by half a point.",42
-fomc-corpus,1986,"What are you actually projecting for M2, for what it's worth? I am not sure it's worth all that much; nonetheless, what is the staff projecting for M2 and M3 for the year?",41
-fomc-corpus,1986,For 1987?,5
-fomc-corpus,1986,1986.,3
-fomc-corpus,1986,For 1986.,5
-fomc-corpus,1986,Around 7-1/2 percent and about the same--,13
-fomc-corpus,1986,Right at the midpoint.,5
-fomc-corpus,1986,"Yes. And about the same for 1987, within a few tenths of a point.",20
-fomc-corpus,1986,"I presume that, as for Ml, in a much more moderate way you would assume that M2 and M3 velocity might tend to decline with a significant decline in interest rates.",36
-fomc-corpus,1986,"That's correct. The larger the decline in interest rates, the more of a tendency for that. M2 velocity actually declined 3 percent last year.",30
-fomc-corpus,1986,"It's anybody's guess, but my guess would be that the decline in interest rates is going to be considerably greater this year than it is likely to be next year. I'm assuming that we may get some more [rate declines] before the end of this year.",52
-fomc-corpus,1986,I hope that's right.,5
-fomc-corpus,1986,"Let me just get a general show of preferences. This is quite a narrow difference between 6 to 9 percent and 5-1/2 to 8-1/2 percent. Nobody wants to talk outside that range, I take it. How many would favor 6 to 9 percent? I'll get preferences from everybody now, just for the fun of it anyway. How many prefer the other way? We are going to be pretty evenly split, I am afraid. We have a pretty even split.",104
-fomc-corpus,1986,"Do a ""could live with""--",7
-fomc-corpus,1986,Our 6 to 9 percent won.,9
-fomc-corpus,1986,Pardon me?,4
-fomc-corpus,1986,We had 7 or 8 votes for 6 to 9 percent.,16
-fomc-corpus,1986,"Well, I didn't count very carefully but it's pretty close, I think. Does anybody want to make an argument one way or the other here?",29
-fomc-corpus,1986,"Well, there's not a big difference between the two. I was just thinking of the psychological effect: that [a half point reduction] may still be showing a commitment to getting inflation down at the same time that we may be abandoning Ml. In other words, an 8-1/2 percent top on the range for M2 would still allow for a pretty explosive situation with Ml, if we have something that looks like what we got this year. You're saying that M2 is growing at a rate of about 7-1/2 percent this year so far, is that right?",119
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"And we see what's happened to M1. If that pattern were to continue, we could still be within our M2 range even with that Ml pattern.",31
-fomc-corpus,1986,"This is no life or death matter to me, but I come out about where you do as a matter of preference, in terms of everything else rising pretty rapidly. I [don't] think we're going to get in great trouble with 5-1/2 to 8-1/2 percent and it's probably somewhat better to be in that posture rather than the other. But it's not a life or death matter; I'm not going to put my body over railroad tracks for a half a percentage point.",101
-fomc-corpus,1986,Same here.,3
-fomc-corpus,1986,"Well, it seems to me that even if we had 6 to 9 percent, we would have plenty of room to be at the bottom end. If we find that we can get growth at the bottom end, then I think that's the time for us to lower the ranges, rather than bring them down a half point and then have to take them up half a point some time. I would rather demonstrate that we can do well within that 6 to 9 percent range. But it's no big deal.",103
-fomc-corpus,1986,"First of all, let me say that I would prefer to leave it at 6 to 9 percent, given a forecast that falls within a very narrow range for the remainder of 1986 and 1987--and particularly given that only a modest acceleration of inflation is being forecast. Furthermore, the fact is that we'll be in the fifth year of a recovery. That wouldn't seem to me to be the time to be moving money growth to the lower level to give the impression that we're going to work against inflation, when indeed the [inflation] forecast is pretty modest for the period ahead.",120
-fomc-corpus,1986,"You can say that there's justification for moving it lower; but a few people look at it differently, I guess.",23
-fomc-corpus,1986,"It seems to me that if we are possibly going to become somewhat more accommodative in the shorter term, then it would be useful to have a message about our continuing concern about inflation over the longer term. And I can't think of a better way to do that than to reduce the range for 1987 at the same time that we are going to be talking about the possibility of shorter-term ease.",80
-fomc-corpus,1986,"Bob, I share your sympathies. And there will be a point in time that I would like to be able to play that card of reducing the ranges. I just believe there will be another time when we will need that emphasis, whereas today we would almost be giving it away. I would rather use it when the time comes that we need to say we are going to plant our feet [against] any reinflation. That's when I want to play that card.",95
-fomc-corpus,1986,"On that point, it seems to me that it might work better to lower it now even if we have to give it up later, because right now we're talking about additional short-term ease and it might be good to offset that psychologically with some future commitment. We can always play that card if it looks like we're in a situation when we have to later.",71
-fomc-corpus,1986,We have the arguments on the table. Does anybody have another argument they want to put on the table?,21
-fomc-corpus,1986,"The other argument is that it doesn't make a heck of a lot of difference, Mr. Chairman.",20
-fomc-corpus,1986,"Well, I think we would all agree with that.",11
-fomc-corpus,1986,"Well, let me get down to the [preferences of] Committee members. For 6 to 9 percent: 1, 2, 3, 4, 5. For 5-1/2 to 8-1/2 percent: 1, 2, 3, 4, 5, and I count myself with that as my preference, so, 6. We only have 11 members these days, don't we? We can't be any closer than that. That's--",106
-fomc-corpus,1986,"Well, we [concede].",7
-fomc-corpus,1986,"If this minority is ready and willing to concede, we'll assume the 5-1/2 to 8-1/2 percent. So, it's 6 to 9 percent for this year and 5-1/2 to 8-1/2 percent for next year. Let me return to M1. I haven't thought about this exhaustively overnight, but let me try something out just to see whether I am in line roughly with where I thought the sentiment lay yesterday in not trying to destroy M1 completely. I tried to visualize how this would be presented in a table; it also would be reflected in the language, obviously. Suppose we leave the 3 to 8 percent for this year and put it in brackets or add a star or maybe both in presenting the table and we say: ""The Committee did not change this target for this year in view of all the uncertainty, but it certainly expects growth to run above it this year."" That's for 1986. For 1987, we could put in a target and also express a considerable amount of uncertainty. That leaves the question, then, of precisely what the target should be. And in the language we would indicate that even though all of these targets are tentative, this one is doubly tentative for next year. So, we leave it there in a formalistic sense, but disavow it as having any real operational significance at this point. The operational significance, with further explanation, would be stated in language presumably in the [Humphrey-Hawkins] report, and in my statement [to Congress], that we would get more concerned over a rapid increase in M1, if it were accompanied by rapid increases in M2 and M3.",351
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"And the converse, too, I guess: that we would not be particularly concerned in view of all the factors--interest rates and so forth--if a rapid increase in Ml were not accompanied by excessive growth in M2 and M3. Now, does that reasonably capture the spirit or not?",59
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,That's mine.,3
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,That contemplates setting a range for 1987?,11
-fomc-corpus,1986,"Well, that contemplates setting a range for 1987, but we'll have to discuss what range to put down for 1987. We had two alternative proposals yesterday. One is rather pro-forma to keep it at the 3 to 8 percent with all the reservations I suggested, and Governor Angell resuggested a much wider range of 3 to 10 percent. That looks so wide; it looks a little peculiar, unless we can make it 5 to 10 percent or something. But if you want to make it higher--",112
-fomc-corpus,1986,"Since we want to keep some link with M1, though we don't have the foggiest notion as to what it ought to be, we ought not to be tinkering around with the range up or down 1/2 point or a whole point. It makes more sense to me to keep it at 3 to 8 percent.",69
-fomc-corpus,1986,I think we can. I don't think we should fool around by a 1/2 percentage point or something like that. That doesn't make any sense to me.,33
-fomc-corpus,1986,"My view on M1 is that when you go back and look at the data on velocity of money, historically, 6 is a very, very fast velocity. V1 fell from over 4 for 1918 to under 2 for 1947; that was a 29-year period that velocity dropped. And, of course--",69
-fomc-corpus,1986,From when to when?,5
-fomc-corpus,1986,"From 1918 to 1947 V1 fell from over 4 to under 2, and I don't know where--",26
-fomc-corpus,1986,That's when Milton Friedman wrote his great tome saying there was an inexorable secular decline in velocity.,19
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,At which point it rose from 2 to 4.,12
-fomc-corpus,1986,"Yes, but I believe that there is some evidence that we've entered another period like that [earlier one]. And the reason I want 3 to 10 percent is because I don't know when this [policy] accommodation we've been implementing for some time might take hold. If it does take hold, I'm not going to be satisfied to have an 8 percent M1 growth path.",77
-fomc-corpus,1986,I agree with that. The point is that it could be even greater. Who knows what it could be? I'm just saying: Why not [leave it]? I would prefer not to even tinker with that.,43
-fomc-corpus,1986,Whatever we say for next year--I'm just repeating myself--will be in brackets or something.,19
-fomc-corpus,1986,"I would almost like to treat that 1987 target as if we're not really taking it seriously at all until we get closer to that point. Then we will look at it and maybe leave it there. Just indicate in the language that we're leaving it there, but we're really going to address it when we get to that point.",66
-fomc-corpus,1986,"Well, I think that would be a good idea, too. I'd be glad to postpone the debate until next January or February, because at that point in time we will have more evidence as to what velocity might be. If we tend to get a decline in velocity throughout this year, then I think a case could be made for that adjustment.",69
-fomc-corpus,1986,I'm inclined to think we ought to leave it the same or leave it out. To change it requires too many explanations; we would have to explain both why we changed it and that it doesn't mean much. That's putting an extra burden--,47
-fomc-corpus,1986,"Well, I'll switch to the 3 to 8 percent real fast then, because I want it in; I want an M1 range.",29
-fomc-corpus,1986,"Well, the thing that bothers me, Mr. Chairman, is that nobody wants M1 growth of 3 to 8 percent. That's not really operationally very significant. As we closed yesterday, I thought Jerry was making a very good point in arguing for wider ranges and higher ranges. I personally prefer to rebase. But I'd prefer what he was suggesting to this because if by chance--and maybe it's a very remote chance--Ml does reassume some of its previous characteristics, we really don't have anything operational that we can do with this 3 to 8 percent target at all, but we could with a larger one. We could try to come in under that, if that should happen.",141
-fomc-corpus,1986,"For this year, you're talking about?",8
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,I think we settled this year. We're talking about next year.,13
-fomc-corpus,1986,"Well, I misunderstood that. I knew you suggested that, but I didn't realize we had settled it.",21
-fomc-corpus,1986,"Well, from my perspective, the Chairman's suggestion accommodates the concern that I had.",17
-fomc-corpus,1986,I guess I misunderstood the point that you were making.,11
-fomc-corpus,1986,"Well, we can finesse it, but the thrust of this proposal is acceptable to me.",18
-fomc-corpus,1986,"It seems to me that we all are saying that we don't have any confidence about the relationship between money and the growth of economic activity at this time. Therefore, I don't understand why anyone would try to set a range for 1987 at this time. Is there some procedural reason why it makes sense?",61
-fomc-corpus,1986,"Well, I think the argument for doing it is just to keep it in the ball game. Some people feel it may be harder to come back and set a range next year.",36
-fomc-corpus,1986,I question whether we're going to have any better basis for setting a range next February than we do today.,21
-fomc-corpus,1986,It's possible.,3
-fomc-corpus,1986,"I think of it simply as an insurance policy, that's all. There could be a set of circumstances some time between now and the end of 1987 in which we'd be darn happy to have M1 in the ball game. And if we retire it now, it's going to be hard to--",60
-fomc-corpus,1986,"But if we leave it out, I presume what we would say is that we simply are not setting a target now and we will re-examine--",30
-fomc-corpus,1986,--before year-end or something like that.,9
-fomc-corpus,1986,Yes; we could just have language like that.,10
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"But if we did re-establish [an M1 range] in February, the markets quite likely would make a lot more out of it than if we just re-established 3 to 8 percent now and then changed it as we looked at it in February. I would opt to leave 3 to 8 percent in for 1987.",70
-fomc-corpus,1986,"If I understand correctly--on the theory that it is more important that we [not] fiddle around with it--I think the choice is between leaving it at 3 to 8 percent or leaving it out completely. If we leave it at 3 and 8 percent I envision presenting it enclosed in brackets and with an asterisk, footnoting why we have left it unchanged for this year. We certainly feel quite open about changing or even not having it at all next year.",98
-fomc-corpus,1986,"I like the very way you said it first, with the brackets and the asterisk and leaving it in. That gives a signal that we are going to look at it again in February.",38
-fomc-corpus,1986,"Well, let me get a preference among the Committee members for just leaving it out or for 3 to 8 percent, with suitable brackets, asterisks, and footnotes. Let me take the 3 to 8 percent with brackets and asterisks. Seven. That leaves four on the other side.",66
-fomc-corpus,1986,And one of those four would be happy either way.,11
-fomc-corpus,1986,"1, 2, and who's the other? Since this isn't a big deal, can those four live with it the other way with [unintelligible]? Let's look at the language of the directive. Well, we have this debt question too. Where are we on debt?",57
-fomc-corpus,1986,"We're above the top of the range right now, at close to 13 percent, and expect to be there through the year. Our projection for the year is around 12, 12-1/4 percent.",44
-fomc-corpus,1986,The range is 8 to 11 percent.,10
-fomc-corpus,1986,"Yes, 8 to 11 percent.",9
-fomc-corpus,1986,"Last year when we faced the same problem, we said we were going to keep the range the same because we thought debt was too high--that we were going to run above and we really couldn't do much about it, but we didn't like it much. There is no difference now, but we can make it [unintelligible]. Is that acceptable again for 1986? Do we leave it there and say we are likely to run above it?",92
-fomc-corpus,1986,Leave it and say we will run above it.,10
-fomc-corpus,1986,"But for next year, what are we going to do? Your forecast for next year is what?",20
-fomc-corpus,1986,"10 percent, I think.",6
-fomc-corpus,1986,10 percent.,3
-fomc-corpus,1986,"9-1/2 to 10 percent, or something like that.",15
-fomc-corpus,1986,"If that's what you are actually forecasting, it would be within the range.",15
-fomc-corpus,1986,Look out!,3
-fomc-corpus,1986,Why are we keeping it at all? We don't do anything with it. We have all sorts of reservations and the guy who sold it to us has bought it back!,34
-fomc-corpus,1986,"I recognize my mistakes, which is not true of all of you!",14
-fomc-corpus,1986,"Why don't you make some money, Frank?",9
-fomc-corpus,1986,There is a little danger in that argument because the same could be said of M2 and M3.,21
-fomc-corpus,1986,"I don't know if we [should] keep it. Assuming for the moment that we keep it, given the forecast I don't see much point in changing it next year. Or are we running too high?",41
-fomc-corpus,1986,"Just as an aside, Mr. Kohn, I thought the work that the staff did on debt was really quite good.",25
-fomc-corpus,1986,"Was there anything in there that we could use to say debt isn't quite as high as it looks? It still has to look high relative to GNP, but would it be within our targets with appropriate adjustments?",42
-fomc-corpus,1986,"No, because the double counting reduces last year's growth rate but would actually tend to increase this year's in the sense that there is less double counting--fewer state and local government purchases of Treasury issues and so forth projected for this year than last year. So, it is not really going to help. Adding the equity in does change things a bit.",70
-fomc-corpus,1986,Can we make a big technological adjustment factor?,9
-fomc-corpus,1986,"Even the equity, I suppose, wouldn't affect it much.",12
-fomc-corpus,1986,"That's right. It was close to 2 percentage points last year, and this year it hardly would affect anything at all.",25
-fomc-corpus,1986,"If we mark-to-market relative to household wealth, doesn't it look a lot better? It does. We can play the capital gains game.",28
-fomc-corpus,1986,It depends on whether you did that Monday or Tuesday.,11
-fomc-corpus,1986,"Yes, I guess we waited too long--two days too long.",14
-fomc-corpus,1986,"Does anybody object to leaving it the same as it is this year? I think the argument against taking it out is that to some extent that says we don't care about it. Personally, I do care about it--[not] in the sense that it's going to affect our policy significantly, but I don't like to give a signal that we are perfectly comfortable with the amount of debt being created.",79
-fomc-corpus,1986,"If the Chair wants it in, I think we ought to have it in.",16
-fomc-corpus,1986,"I don't think it's a big deal, but it's just another burden of explanation.",16
-fomc-corpus,1986,I agree. I would leave it in.,9
-fomc-corpus,1986,"The range is 8 to 11 percent now and the language the way this is written is: ""The associated range for growth in total domestic nonfinancial debt was retained at 8 to 11 percent."" There is no acknowledgement there that it is running high. The language you showed me this morning, Mr. Kohn, was that assuming we kept the Ml range? I forget.",78
-fomc-corpus,1986,"No, the language I gave you this morning for 1987 was assuming that a range was not set.",22
-fomc-corpus,1986,"Well, I am looking at [the language for] Ml now, not debt, in variant I: ""In light of these uncertainties and of the substantial decline in velocity in the first half of the year, the Committee decided that growth in excess of the previously [established range] would be acceptable""--",61
-fomc-corpus,1986,"""Could""--",3
-fomc-corpus,1986,"Okay, ""could be acceptable""--[they begin] to look the same--""depending on the behavior of velocity over""--. I was wondering whether we should break up that sentence and leave it the way it is with a ""would"" or just put a period after ""acceptable"" and then say ""The extent of""--",65
-fomc-corpus,1986,"--""the overrun"".",6
-fomc-corpus,1986,"""Overrun"" or whatever the word is ""would be acceptable to the extent that growth would continue to depend upon the behavior of velocity, growth in the other monetary aggregates, developments in the economy and financial markets, and potential inflationary pressures"" or something like that. I'm not crazy about the word ""overrun.""",64
-fomc-corpus,1986,"""Faster growth.""",5
-fomc-corpus,1986,"""Such rapid growth.""",5
-fomc-corpus,1986,We are talking about relative to the range.,9
-fomc-corpus,1986,Relative to the [unintelligible].,9
-fomc-corpus,1986,"""The extent of Ml growth relative to the range""--well, that is still not saying over. ""In excess of the range.""",26
-fomc-corpus,1986,Overrun describes it.,5
-fomc-corpus,1986,"Maybe we should just forget about the range. ""Acceptable growth in Ml over the remainder of the year will depend upon...."" Or we could just say ""The behavior of M1 will be judged in the light of....""",46
-fomc-corpus,1986,"Instead of saying ""and potential inflationary pressures"" I would put ""price movements."" I think we want to look at price movements whether they are up or down.",33
-fomc-corpus,1986,"At the end of that sentence, do you want to say something about international developments?",17
-fomc-corpus,1986,"I don't know whether we will have time to vote, we have so many--! I guess they are about the same. It just sounds a little better to say: ""Acceptable growth of Ml, however, for the remainder of the year will depend on the behavior of velocity,""--we don't have to say ""over the balance of the year"" because we just said ""the remainder of the year""--""growth of the other monetary aggregates, developments in the economy and financial markets, and the degree of inflationary pressures.""",106
-fomc-corpus,1986,"Well, inflationary or deflationary. It seems to me that we run the risk that someone could look back and say: These guys don't realize that they have a deflation going on. I just think we ought to have a balanced approach here.",51
-fomc-corpus,1986,"--""and price pressures."" That could be in either direction.",13
-fomc-corpus,1986,And price pressures.,4
-fomc-corpus,1986,"Why don't we put that last, anyway; we sure don't want to emphasize inflation. Now, turning to debt, I had wording--",27
-fomc-corpus,1986,"Mr. Chairman, in 1984 when the same problem was faced--that [time] it had to do with debt and M3 also--this sentence was put in the directive: ""It was anticipated that M3 and nonfinancial debt might increase at rates somewhat above the upper limits of their 1984 ranges, given developments in the first half of the year, but the Committee felt that higher target ranges would provide inappropriate benchmarks for evaluating longer-term trends in M3 and credit growth.""",99
-fomc-corpus,1986,Read that to me again.,6
-fomc-corpus,1986,"Translating it to the situation now: ""It was anticipated that nonfinancial debt might increase at a rate somewhat above the upper limit of its 1986 range, given developments in the first half of the year, but the Committee felt that a higher target range would provide an inappropriate benchmark for evaluating longer-term trends in credit growth.""",67
-fomc-corpus,1986,"Actually, the debt measure is expected to slow quite a bit after the first quarter.",17
-fomc-corpus,1986,"Yes. Well, that's partly the carryover effect of the strong growth in December that affects the quarterly average numbers. But we are looking at growth rates of around 10 or 10-1/2 percent for the year on an end-of-period to end-of-period basis. It's not really slowing all that much, going quarter by quarter.",69
-fomc-corpus,1986,"Well, I don't know if this is any good, but let me try something along these lines: ""Given rapid growth in the early part of the year, the Committee recognized that the increase in debt in 1986 may exceed its monitoring range of 8 to 11 percent but felt that an increase in that range would provide an inappropriate benchmark to evaluate longer-term trends in that aggregate."" Stick that at the end. The directive would now read: ""The Federal Open Market Committee seeks monetary growth..."" After the sentence on retaining the 6 to 9 percent we would go to Ml and say: ""With respect to M1, the Committee recognized that, based on the experience of recent years, the behavior of that aggregate is subject to substantial uncertainties in relation to economic activity and prices, depending among other things on the responsiveness of M1 growth to changes in interest rates. In light of these uncertainties and of the substantial decline in velocity in the first half of the year, the Committee decided that growth in Ml in excess of the previously established 3 to 8 percent range for 1986 would be acceptable. Acceptable growth in Ml over the remainder of the year will depend on the behavior of velocity, growth in the other monetary aggregates, developments in the economy and financial markets, and price pressures. Given its rapid growth in the early part of the year, the Committee recognized that the increase in debt in 1986 may exceed its monitoring range, but felt that an increase in that range would provide an inappropriate benchmark in evaluating the longer-term trends of that aggregate."" Tne trouble with this all is that I can see that Mr. Proxmire is going to say: You have two ranges that are meaningless. What are you doing here? And so forth and so on.",357
-fomc-corpus,1986,"He has moderated his tone on M1 a bit, though. I noticed when I went up for my confirmation hearing that he hit me hard on the growth of M1.",35
-fomc-corpus,1986,"Regardless of his tone, procedurally he will say that we are shirking our duty by expressing such ranges. The defense will be: Oh no; we have ranges here for M2 and M3. He won't be happy, but I don't know any other way we can handle it.",59
-fomc-corpus,1986,We rely upon you to explain it.,8
-fomc-corpus,1986,He'll put something in the Congressional Record.,9
-fomc-corpus,1986,He would say the same thing if we had no ranges.,12
-fomc-corpus,1986,I wonder why you use all those words?,9
-fomc-corpus,1986,Do you really think [we need] a disclaimer for debt? How far over do you think it's going to be?,24
-fomc-corpus,1986,"Well, we are projecting about 12-1/4 percent.",14
-fomc-corpus,1986,"If we don't say anything, the obvious question is: ""Is it going to be within that?"" And then I say ""No.""",27
-fomc-corpus,1986,"Well, we don't know. The projection is fairly close.",12
-fomc-corpus,1986,"It is pretty close, but I don't know. If the projection were 11-1/2 percent, I would say ""Yes."" If it were 12 percent, ""I don't know.""",40
-fomc-corpus,1986,I think we were projecting 11-1/2 percent at the February meeting and that's probably why [the range was retained]; the projection was close enough to the 11 percent at that time.,40
-fomc-corpus,1986,"I am going to have to give an explanation, anyway. I am inclined to think some explanation like this is what I would have to say.",29
-fomc-corpus,1986,I suppose it would be too straightforward to raise the range to 8 to 12 percent and say that we think that's a better fit with what's going on in the economy and in M2 and M3.,42
-fomc-corpus,1986,"That would be a choice. But we could overrun that too. These are the choices, I think: raising it, or dropping it, [or leaving it the same]. Whether we drop it, raise it, or leave it the same, I think we have to say something like this.",60
-fomc-corpus,1986,There might be some sentiment for just dropping it.,10
-fomc-corpus,1986,That's harder to explain.,5
-fomc-corpus,1986,"If we drop it, then we have to add quite a few paragraphs saying that we haven't found it very useful.",23
-fomc-corpus,1986,"If we leave it and they ask questions, you could defend yourself by responding that we haven't had good results relating it to anything that would explain why--",30
-fomc-corpus,1986,We could drop M1 on the same basis.,10
-fomc-corpus,1986,"That's right, but at least there is some historical pattern of a relationship there; there has never been--",21
-fomc-corpus,1986,There's more nostalgia too.,5
-fomc-corpus,1986,M1 is a sacred cow.,7
-fomc-corpus,1986,"Can't think of anything else for a while, in terms of a pure correlation--",16
-fomc-corpus,1986,I guess it's rates as well.,7
-fomc-corpus,1986,"Ben Friedman sold the debt/income relationship to me; and then it immediately went [off track]. That's why we may be better off not taking up total liquid assets, because I'm afraid--",38
-fomc-corpus,1986,[That's why] they pass sunset laws.,9
-fomc-corpus,1986,All of these things have been pretty good as long as the relative prices didn't change. When they did--,21
-fomc-corpus,1986,"Well, I think I'll get boxed around the ears by Mr. Proxmire. I guess I can survive it. [For debt] we take this sentence with the language [I read]. Is that right? [For M2 and M3] we keep 6 to 9 percent and we keep [Ml] in the table and the range appears as 3 to 8 percent. All we say in the directive is that we are going to exceed it. How much we exceed it is not stated for now. Let's vote on that as what we are going to have for 1986.",122
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes President Horn Yes Governor Johnson Yes President Melzer Yes President Morris Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,43
-fomc-corpus,1986,"Now, 1987. The first thing, I think, is that we don't put M1 in there in the paragraph. ""For 1987 the Committee agreed on tentative ranges of monetary growth, measured from the fourth quarter of 1986 to the fourth quarter of 1987 of 5-1/2 to 8-1/2 percent for M2 and M3."" I think I would put the debt last again; I'm not sure if it's going to be 8 to 11 percent again, but I'd put it last. Then we would say ""With respect to M1 [unintelligible].""",129
-fomc-corpus,1986,The sentence sounds all right.,6
-fomc-corpus,1986,"Well, the sentence sounds all right; but I think if we are going to put 3 to 8 percent in the table, we have to say something about it.",35
-fomc-corpus,1986,"Just say ""With respect to Ml.""",8
-fomc-corpus,1986,"I would just add on to that, though, that for the time being we are carrying forward--",20
-fomc-corpus,1986,I think we ought to leave the sentence that is already in there with respect to M1.,19
-fomc-corpus,1986,"I think the sentence that is in there is all right. I'd take out the word ""particularly"" and I would take out the word ""reappraisal"" and just make it ""appraisal."" But I think we have to say something about or precede it with ""While the Committee has plugged in""--",62
-fomc-corpus,1986,"""Carried forward"" is kind of a passive [wording].",14
-fomc-corpus,1986,"""While the tentative 3 to 8 percent range [for Ml] has been carried forward, the Committee recognizes""--",24
-fomc-corpus,1986,That does it.,4
-fomc-corpus,1986,Why did we pick 3 to 8 percent?,11
-fomc-corpus,1986,Because you rejected my 3 to 10 percent.,11
-fomc-corpus,1986,"Rather than that, why don't we say ""the 3 to 8 percent tentative range has been carried forward""?",23
-fomc-corpus,1986,"I don't know; maybe I am getting too fancy. But let me try something like this: ""While the range of 3 to 8 percent for M1 in 1987 would appear appropriate in the light of most historical experience, the Committee recognizes that the particular uncertainties surrounding the behavior of M1 velocity over the more recent period would require careful appraisal of the target range for 1987.""",80
-fomc-corpus,1986,That's just perfect.,4
-fomc-corpus,1986,That's great.,3
-fomc-corpus,1986,Wonderful.,2
-fomc-corpus,1986,A winner; that's pretty fancy.,7
-fomc-corpus,1986,It doesn't only help us with 1987; I think it also does something about 1986.,21
-fomc-corpus,1986,"I am making a big modification in my mind. ""The Committee recognized the exceptional uncertainties""--that sort of particularizes it. Well, does that sound all right? Does anybody have anything else to say? We have 5-1/2 to 8-1/2 percent for M2 and M3. Debt we can keep the same or make it less; it was 8 to 11 percent. For 1987, we can keep Ml the same [as for 1986]; we are not saying whether we are setting it as a tentative range or not. It depends on what we want to do. And in the table we would put [the range] in brackets with an asterisk. Are we ready to vote?",151
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes President Horn Yes Governor Johnson Yes President Melzer Yes President Morris Yes Governor Rice Yes Governor Seger No Governor Wallich Yes,43
-fomc-corpus,1986,"We better go have a donut and return. I do think, with regard to the short run, that I personally would make the assumption that the discount rate will be reduced in a few days.",39
-fomc-corpus,1986,I don't know how many of you read that [staff memo] on debt. The question is whether an abbreviated version of that should be added to the Humphrey-Hawkins report as an appendix. [Secretary's Note: Several members expressed agreement.],50
-fomc-corpus,1986,Who wants to say something about the short-run posture?,11
-fomc-corpus,1986,"Well, given all that has been said about the economy, I'm for alternative A with a 6 percent discount rate and a $300 million borrowing figure.",31
-fomc-corpus,1986,That puts the funds rate about where?,8
-fomc-corpus,1986,6-1/2 percent isn't it? Or is it less?,14
-fomc-corpus,1986,I don't see any reason not to assume that the funds rate would go down as much as the discount rate.,22
-fomc-corpus,1986,"6-3/8 percent, then.",9
-fomc-corpus,1986,I would support that.,5
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"Could I just clarify a procedural issue? For example, the discount rate issue aside, I would be in favor of maintaining the existing degree of restraint. It becomes a curious sort of thing. One could argue that what Ed just expressed a preference for was an unchanged degree of reserve restraint, with the $300 million borrowing target, but with a different assumption on the discount rate. I will address my comments to that, but it's a little tricky in terms of how the record reads and what we ultimately vote for, it seems to me.",107
-fomc-corpus,1986,But that's not an unchanged degree of restraint if the discount rate is down and we maintain borrowing at $300 million.,23
-fomc-corpus,1986,You would want a higher level of borrowings.,10
-fomc-corpus,1986,You would want a higher level of borrowings.,10
-fomc-corpus,1986,"Yes, but I don't know how I can vote for an action that presumes something that hasn't occurred yet.",22
-fomc-corpus,1986,"Let me suggest something in that connection, just in terms of clarifying the record. To me it seems very awkward--and undesirable--to put in the directive some action that hasn't been taken yet, however probable it may be. But I don't see anything the matter with making clear in the record of the meeting that many people suggested--if that's the way it comes out--an unchanged degree of reserve restraint on the assumption that the discount rate is reduced and that when it is reduced, they presumably might be in favor of a lesser degree of reserve restraint. But [there should be] something in the record so that when people read the record it says that decision was made in the light of an anticipated reduction in the discount rate, without actually putting it in the directive. Now, people may have different opinions about the discount rate; but if that is the underlying assumption, I think that ought to be clear in the record someplace, whatever the directive says.",191
-fomc-corpus,1986,"We might say ""in view of the anticipated reduction in interest rates""--it wouldn't have to be the discount rate--in order for the $300 million borrowing number to make sense.",36
-fomc-corpus,1986,I would resist putting that in the directive with [unintelligible].,15
-fomc-corpus,1986,That's a bear trap.,5
-fomc-corpus,1986,"But I think it can be made clear in the policy record, if that's what we are assuming and if that were the basis--for many people anyway--for however they voted.",36
-fomc-corpus,1986,"There's a way around this, if the Board wanted us to leave for a few minutes.",18
-fomc-corpus,1986,Kill two birds with one stone.,7
-fomc-corpus,1986,"Anyway, I'll tell you what my main concern is. I am sensitive to some of the political considerations at this time and also to the views of other Committee members about the uncertainties and concerns. What concerns me the most is this: We have just received the court ruling on Gramm-Rudman, which could have a major effect on the psychology in the markets about deficit cuts; and we have experienced lately a weakness in the dollar and have heard reports about the possibility of a diminished willingness of foreigners to hold dollar-denominated securities, given shrinking interest rate differentials, and so forth. I think there could be a considerable risk, because of these two developments taken together, in our moving at this time to reduce our rates; it sounds as if it might be unilateral, at least for a while.",159
-fomc-corpus,1986,"I don't think it will be quite unilateral, but it will be with minor actors rather than major actors.",21
-fomc-corpus,1986,"That concerns me. We have been worried from time-to-time, to a greater or lesser extent, about the risk of losing control of the dollar on the down side. To think only about the dollar having been under pressure maybe wouldn't be enough, but if you take that against the backdrop of the Gramm-Rudman decision and this being an election year, I worry a little about that psychology in the context of what probably will be viewed as a continuing stimulative fiscal policy and a monetary policy that moves toward further accommodation. Beyond that, I expressed my views on the economy before. I probably will reduce my projection but I think [the lower growth] is still at an acceptable rate. And I would argue that with the current borrowing target we have run a very accommodative monetary policy. Just to pick up on your point, Wayne, about not resisting rates adjusting to market levels: One might even argue that having pumped in reserves at a rate of 22 percent or so over the last three months, we might be resisting what would be a natural upward movement in the funds rate, not a downward movement. I don't want to make a big argument out of that particular point, but the point is that we have been adding reserves at a very rapid rate.",251
-fomc-corpus,1986,"Sorry to interrupt, but I want to raise a procedural point. We were going to invite the Justice Department lawyer who is defending us, hopefully, in this [Melcher] suit to come over after lunch. But he couldn't come after lunch. I don't know what the chances are that we will be finished by 12:30 p.m. or 12:45 p.m. today. We may run into the time of the luncheon for Mr. Axilrod.",95
-fomc-corpus,1986,"So you want the short version! I have just two other points. I would also question, in terms of looking at the next six months, what impact a reduction in rates is really going to have. I am not sure it's going to have a very significant impact in terms of real output in the short run. The numbers that Jim gave us yesterday on what the inflationary impact might be out in 1988--whether you believe them or not, and I realize there are a lot of [unintelligible] between here and there--[lead me to] think that we are getting down to a relatively few bullets left to fire in terms of monetary policy. I don't know where we cross that ragged edge of tipping expectations over, but my sense is that we are getting preciously close to that. And with that in mind, I am not sure I would trade my flexibility right now because if this one goes through and there continue to be weak numbers, we will get jumped again. So, I don't know where one should make one's stand, but those would be my reasons to argue for the existing degree of reserve restraint, alternative B.",232
-fomc-corpus,1986,"I agree completely with Tom, but I think the discount rate decision precludes our doing that, so I think we have no alternative but to go with ""A"" or something akin to it. But I think his case is persuasive; we have done all we can, I think.",57
-fomc-corpus,1986,I would like to join Tom on that too for the most part. I agree with most of what he said.,23
-fomc-corpus,1986,"But we have a theoretical action. If the discount rate is reduced, we can increase the reserve restraint a little. As for the argument about changing the discount rate and the effect on the economy, we haven't got a good choice. There is obviously a lot to these arguments. If it were entirely up to us--if you conceive of it as I do--the question is whether we have any chance of getting some improvement abroad. To a considerable extent, the dilemma for us is that it may [depend] less on our policy than on other people's policies. And this is going in reverse from the way it should go. I don't deny that for a minute. But it's not going to go without our moving. It is also true that we are not going to get an immediate response, as near as I can see it, from the Germans and the Japanese. But should we properly sit here and say: ""Well, if you are not going to move--and at least as aggressively or more aggressively than we move--we are not going to do anything""? Where are our responsibilities? [Rather than] sit here saying that, we can take a chance that we can push them a little, given the risks that you eloquently described, which I think are there. It's a question of where the risks lie. I don't think the change--unless it's a much bigger one--is going to have any very significant effect on our short-run or intermediate-term business outlook. Does it have an effect on theirs? It goes in that direction. Maybe it's not very powerful; it's a pretty weak reed, but it's the only reed we have. It's the only argument we can make.",337
-fomc-corpus,1986,"I agree wholeheartedly with what you are saying. I think that's the whole issue. It's almost a feeling of being held hostage by our trading partners. [That's been the case] for almost five years now, really. How long are we going to stay hostage in that situation when at some point we have various domestic concerns? You are right; there is the risk that you described. But I am a bit more optimistic. I agree that a half point on the discount rate, if it's followed by a $300 million borrowed reserve level, is not going to change the world by any means. Still, I think it's more than just hitting the interest-sensitive sectors that are already running almost full out. It was pointed out by the staff that to some extent the lower interest rates have been offset by tax reform and that the cost of capital really has been relatively unchanged. And I think we could affect that efficiency of investment at the margin with an interest rate decline. As you say, it's not going to change the world; but it certainly could do more for new orders than what we have been seeing. That's the way I am looking at it--that hopefully it could add some pressure at the margin--even though it sounds like we are going to have to wait until the fall.",255
-fomc-corpus,1986,Maybe a 1 percent discount rate reduction would do more.,12
-fomc-corpus,1986,"There's no doubt about that. The only other point would be the additional psychological [effect]. I don't think we want to look panicky; we want to look confident in what we are doing and not like we made a mistake and now are trying to get ahead of the ball game. But you are right; a 1 percent discount rate reduction would exert more pressure abroad if it affected [their actions], but if they chose not to--",88
-fomc-corpus,1986,And do more about the cost of capital.,9
-fomc-corpus,1986,That's right.,3
-fomc-corpus,1986,"If we really want to do something, or if we think that we have things to do that we should do--",23
-fomc-corpus,1986,"Yes, but I think we have to draw the line too on the potential. I agree with that.",21
-fomc-corpus,1986,I just don't think we need to--,8
-fomc-corpus,1986,"That obviously can be carried to the extreme, to the point where one has done too much.",19
-fomc-corpus,1986,"Well, I have a practical question. I don't know how we can resolve it here. If the discount rate does go down and the constellation of psychology is such that the dollar gets in a lot of trouble and the others don't move, there's a question of whether the assumption we make here should be changed in the market.",64
-fomc-corpus,1986,"Or, we could nudge up the borrowing target a bit initially, particularly on the argument that over time we would like to see more done abroad than here. It sort of sets the stage for that, at least initially, and then we can play it from that position.",55
-fomc-corpus,1986,But we wouldn't get the reduction in the funds rate.,11
-fomc-corpus,1986,We would have a growing disparity--,7
-fomc-corpus,1986,It would come up in the middle somewhere.,9
-fomc-corpus,1986,That's the problem. There would be a growing disparity between the funds rate and the discount rate and we would have to [unintelligible] if we wanted to--,34
-fomc-corpus,1986,"The funds rate would be at a somewhat lower level than it is today, but we wouldn't let the full 50 basis point [reduction in the discount rate] show through.",36
-fomc-corpus,1986,"No, but the gap would widen.",8
-fomc-corpus,1986,"Yes, the gap would widen; that's right. And that might be a little initial insurance on the performance of the dollar.",25
-fomc-corpus,1986,The only problem is that I think that might be interpreted very bearishly.,15
-fomc-corpus,1986,"I think the foreign exchange market has already discounted, largely, a 1/2 point reduction. A one percentage point reduction would surprise them. Gretchen, what is your view on this? Certainly, a one percentage point reduction would be a surprise in the foreign exchange market; but what about a 1/2 point reduction?",67
-fomc-corpus,1986,"I think you have to distinguish between what the market is expecting and the announcement effect even when an expected action is taken. I think the market is pretty much expecting a 1/2 point reduction, but the announcement of a 1 percentage point drop would have an immediate impact, particularly if what happens here comes sooner than the market might have thought.",70
-fomc-corpus,1986,I think the market--or at least a good part of the market--also thinks that a half point would be more coordinated than what we are talking about right now.,34
-fomc-corpus,1986,"I'm sorry, I didn't understand.",7
-fomc-corpus,1986,"I think the market probably expects that, if we come down a half point, at least one of the other two major countries would do the same.",30
-fomc-corpus,1986,"I think the expectation is that Japan may do something. They don't seem to be indicating that they want to do something, which may be of some surprise in the exchange market. But that's the whole question.",41
-fomc-corpus,1986,"If there were a major decline in the dollar, wouldn't that put very heavy pressure on the Germans and the Japanese to go along with this reluctantly?",29
-fomc-corpus,1986,"Absolutely. Japan is going to be in there intervening and, of course, whether or not that does any good remains to be seen. But if they don't do any good with intervention--if they sterilize all of their intervention--they will end up having some very low yielding returns in the United States. So, we put some pressure on them. It seems to me that the elasticity of their exports in regard to their exchange rates is much more sensitive than ours, [unintelligible] improvement of our balance of trade. So it seems to me that Japan eventually will have a jolt if they do not take action.",127
-fomc-corpus,1986,They would be setting their domestic economy up for a real ride.,13
-fomc-corpus,1986,"The danger in the whole situation--and I don't know how to avoid it--is that if we do have a real decline in the dollar and they are not very eager to act, their business outlook may deteriorate from what it is now.",49
-fomc-corpus,1986,I think it will.,5
-fomc-corpus,1986,That's correct.,3
-fomc-corpus,1986,"If they don't act, then we are worse off. But I think that's not demonstrable until it happens.",22
-fomc-corpus,1986,Right.,2
-fomc-corpus,1986,"But it seems to me that with a cut in [our] discount rate at this point, when the market finds out that Japan and Germany haven't cut theirs we could expect some real pressure on the yen to appreciate further. I don't see how that can be avoided. But that does put pressure where it belongs; and I think that they will be rational people and, in that environment, that they will move.",82
-fomc-corpus,1986,"If they continue not to move and if they let their economic situation deteriorate domestically, at some point we conceivably could end up in a situation like 1983, when they were lagging so badly and our stimulative effects actually led to a strengthening of the dollar. Boy, we would really get a trade problem out of that! In other words, it could be perceived that they were getting so weak that it would weaken their own currency. And then we would have a strengthening dollar in a situation of the United States moving [toward ease] relative to those countries. It might be a double whammy on the trade side.",131
-fomc-corpus,1986,"Well, I think what we are saying is that all of this isn't very predictable.",17
-fomc-corpus,1986,But I will go with alternative A.,8
-fomc-corpus,1986,I don't know what alternative A really means. I guess I don't have much faith in projecting these numbers to the last percent. I take it that it ought to mean $300 million to--,38
-fomc-corpus,1986,"It means the $300 million; I don't think we ought to change the degree of reserve pressure. If we lowered that to $200 million, I think it would be a little more difficult to run the Desk than keeping $300 million.",48
-fomc-corpus,1986,It certainly becomes a trickier process to try to control the relationships at that level of borrowing.,19
-fomc-corpus,1986,So to me it would make sense for us to keep the $300 million--maintain the same pressure that we have had--and do what we want to do with the discount rate.,38
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Well, that's the way I come out, Mr. Chairman. I am not sure what alternative A means in terms of these Bluebook specifications, but I do think there is a case domestically for monetary accommodation--even though it is not going to cure all of the problems in every sector of the economy. I have been preaching patience for a long time but my patience is running out. So, I think we need to try to give the economy a little kick, and I would do it through a lowering of the discount rate to 6 percent. And I would keep the borrowing at $300 million. If the Board doesn't lower the discount rate, then we have to come down to a frictional level of borrowing if we are going to provide more accommodation. I think that would not be desirable, so I would like to see a discount rate cut and $300 million of borrowing.",178
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"I am for a $300 million borrowing level. I am assuming a 50 basis point drop in the discount rate, essentially for the international reasons--the effort to get into that business a little and see how things develop.",45
-fomc-corpus,1986,Mrs. Seger.,5
-fomc-corpus,1986,"I am for alternative A with a $300 million borrowing target and a swift cut in the discount rate. I do think that lower rates would have some beneficial effects on the economy, particularly in the capital spending area. With the changes coming from tax reform--assuming they materialize--there would be lower returns on investment. Therefore, to the extent that funds can be borrowed at a lower rate, that would increase the number of projects that become feasible; so, I think it would have that impact. Also, I think it would make it easier for debtors to carry their existing debt burdens at lower rates, whether they are farmers or home buyers or whatever. So, I favor ""A.""",139
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,I would favor the recommendation of Bob Forrestal and Karen Horn: reducing the discount rate by 50 basis points and maintaining the borrowings at $300 million. I hope that we would characterize that as a lesser degree of reserve restraint because it is.,50
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"As a matter of fact, what funds rate would be consistent with that in your opinion? It should be about the same as the discount rate, but I just wondered if the--",36
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,I would be counted in the alternative A [camp] with a discount rate decrease and $300 million on borrowing.,23
-fomc-corpus,1986,Anybody else have anything to say?,7
-fomc-corpus,1986,"May I? I don't know if I expressed my [view]. I'm for alternative A, which is a $300 million level on borrowing.",28
-fomc-corpus,1986,"If we weren't going to reduce the discount rate, I would be in favor of alternative B.",19
-fomc-corpus,1986,So would I.,4
-fomc-corpus,1986,"But given the reduction, I would have to go along with alternative A. I don't know yet how I am going to vote on the discount rate.",30
-fomc-corpus,1986,"Anybody else want to say anything? We have some other issues. One is how to express all this. I think we are interpreting alternative A very loosely at this point, until I get instructed [by you] otherwise. Why don't we look at the directive? I don't know how to interpret the sentiment [on borrowing] if the discount rate were not reduced. Those people who have said a $300 million borrowing level, would they be inclined to say less than a $300 million borrowing level? I am not sure that's the preferable course; I am not suggesting that. I just want to get theoretically--",121
-fomc-corpus,1986,"The answer to that is ""yes,"" as far as I am concerned.",15
-fomc-corpus,1986,"Yes, it would be for me too. But I think you pointed out the practical problem. What do we do with a frictional borrowing level of $150 million?",34
-fomc-corpus,1986,I just want to make sure that I'm not imposing something on you. People are saying--if they think we ought to be making some move in the easing direction--that it should come preferably through the discount rate rather than a lowering of the borrowing.,50
-fomc-corpus,1986,It makes a lot more sense.,7
-fomc-corpus,1986,"I suppose the question that arises right in the first sentence--there is an awful lot of crossing out [in the draft and] it is a little hard to read. There may be some ambiguity, however much we explain it. [We can] explain it in the overall record but there is still some question, technically. If we say unchanged borrowings, is that the same as saying unchanged degree of pressure on reserve positions? If not, I don't know how to reword this without saying the discount rate is--",104
-fomc-corpus,1986,"Just say that we are going to try to achieve a lesser degree of reserve restraint. For practical purposes, that [discount rate reduction] causes the funds rate to go down 50 basis points.",39
-fomc-corpus,1986,Do we have to quote a borrowed reserve target?,10
-fomc-corpus,1986,"No, we never do; just leave it out.",11
-fomc-corpus,1986,"The first sentence is still a problem because, as always, it says ""maintain"" or ""increase"" or ""decrease."" That is the--",31
-fomc-corpus,1986,Couldn't we have a sentence in there saying that we interpret the same level borrowing with a lowered discount rates to mean a lessening in reserve pressures?,29
-fomc-corpus,1986,We have a reserve--,5
-fomc-corpus,1986,We can say that in the overall record.,9
-fomc-corpus,1986,"I think the thing to do is to leave the sentence as we have it in the beginning and say ""decrease somewhat the degree of pressure on reserve positions."" We are not reporting the borrowed reserves target, so--",43
-fomc-corpus,1986,Because we are decreasing it from where it was.,10
-fomc-corpus,1986,"If we actually published the $300 million borrowed reserves target, it would be hard to interpret that as a decrease in reserve pressures. But if we are not reporting the borrowed reserves target and say ""decrease reserve pressures somewhat,"" then--",47
-fomc-corpus,1986,"Let's say: ""The Committee seeks one way or another to decrease reserve pressures.""",16
-fomc-corpus,1986,That's right. That is just saying that the Committee is reducing reserve pressures and it is not saying how.,21
-fomc-corpus,1986,I think that is all we've got to do.,10
-fomc-corpus,1986,I agree with that.,5
-fomc-corpus,1986,That's right.,3
-fomc-corpus,1986,"How can we say [the Committee] decreased reserve pressures? Maybe the Federal Reserve System did, but the Committee did not.",25
-fomc-corpus,1986,But since we--,4
-fomc-corpus,1986,"Suppose we took the opposite course. ""In the implementation of open market operations for the immediate future""--",21
-fomc-corpus,1986,That has the elements working against each other.,9
-fomc-corpus,1986,"Well, we could say ""maintained [the existing degree of pressure on reserve positions], consistent with lower patterns of interest rates.""",26
-fomc-corpus,1986,That is what we have been trying to avoid all these years.,13
-fomc-corpus,1986,We have been trying to avoid being specific about a borrowing target and being specific about interest rates.,19
-fomc-corpus,1986,"Couldn't we approach it this way? The consensus of the group seems to be that we want to ease reserve pressures. If tomorrow the Board approves a cut in the discount rate, then we do it one way; if the Board doesn't, then we do it with a lower borrowed reserve target. The Committee doesn't have to address that at this point. As Manley said, I think all we need to put in there is ""decrease."" Since we never specify our borrowed reserve target in any of these--",101
-fomc-corpus,1986,"Well, presumably we would say if [unintelligible] exactly the same borrowings. It is going to be confusing as the devil to people.",31
-fomc-corpus,1986,The reason we would have the same borrowings would be because after we voted to decrease reserve pressures somewhat the Board lowered the discount rate. That would make it necessary to go back and--,37
-fomc-corpus,1986,We don't hit the borrowing target exactly anyway--,9
-fomc-corpus,1986,We are only off by $15 million.,9
-fomc-corpus,1986,"Well, there is a very precise way to say it: ""In the implementation of policy, etc., the Committee seeks to decrease somewhat the existing degree of pressure on reserve positions given the current discount rate:"" or alternatively, ""seeks to maintain the existing degree of pressure on reserve positions given a decline in the discount rate.""",65
-fomc-corpus,1986,"We said [""maintain""] in December.",9
-fomc-corpus,1986,"That is actually not true. If the discount rate is lowered, we are not maintaining the same degree of reserve pressure.",24
-fomc-corpus,1986,"Well, it depends on how you define it. If you define it in terms of borrowings, we are. If you define it in terms of the amount of reserves put into open market--",39
-fomc-corpus,1986,You are right. But we have to spell it out then.,13
-fomc-corpus,1986,"Suppose we just added on here: ""In the implementation of policy for the immediate future, the Committee seeks to decrease somewhat the existing degree of pressure on reserve positions, taking account of the possibility of a decline in the discount rate.""",47
-fomc-corpus,1986,That's the way to do it.,7
-fomc-corpus,1986,"We could even just say ""taking account of the level of the discount rate."" That covers the possibility that the Board, in its wisdom, doesn't want to lower the discount rate.",36
-fomc-corpus,1986,We are taking account of possible changes in the discount rate. That's the way to do it.,19
-fomc-corpus,1986,"Mr. Chairman, you could say something about easier conditions in reserve markets to get away from this ""degree of pressure"" language that seems to be confusing. For example: ""The Committee seeks somewhat easier conditions in reserve markets taking account of etc."" In the past ""pressures"" has been a stand-in for the borrowing objective. We have said ""maintain"" even when the discount rate has gone down or been about to go down before and that would show through in the federal funds rate.",99
-fomc-corpus,1986,What was your language again? It was the best idea.,12
-fomc-corpus,1986,"To just say ""decrease the existing degree of pressure on reserve positions taking account of the possibility of a change in the discount rate.""",27
-fomc-corpus,1986,"That is fine. That hits the spot. It is not quite the level of writing you did earlier, but--",23
-fomc-corpus,1986,"I think it can be explained in the policy record. ""For growth in M2 and M3 over the period as a whole--"". I would resist going from [the existing language of] annual rates of about 8 to 10 percent, which are nice [round] numbers, to whatever we have [in the Bluebook]--8-3/4 percent and 7-3/4 percent.",84
-fomc-corpus,1986,7 to 9 percent.,6
-fomc-corpus,1986,7 to 9 percent.,6
-fomc-corpus,1986,That's fine.,3
-fomc-corpus,1986,"If you want to dissent, dissent now. Well, let me try something on the Ml, since I think it is consistent with what we just said. Instead of putting in a number for Ml, what if we say ""Growth in M1 will be judged in part in light of changes in M2 and M3,"" or something like that? I suppose there is some chance that if we put in this high number for Ml, we'll come in below it. We are starting July pretty low; on the other hand, if we come in way above--",112
-fomc-corpus,1986,"Yes, with a cut in the discount rate--if the elasticity of the demand for money is anything like it has been--we are probably going to get another boost.",34
-fomc-corpus,1986,I will accept that. There is a good chance that it will come in way below or way above.,21
-fomc-corpus,1986,"Well, your language doesn't pin us down to a number.",12
-fomc-corpus,1986,"How about saying: ""The growth of M1 is expected to moderate from its extraordinary pace in the second quarter. Its behavior will be evaluated in the light of..."" I don't think we want to leave the message that a 20 percent growth rate or something--",52
-fomc-corpus,1986,What was it in the second quarter?,8
-fomc-corpus,1986,I think it was about 17-1/2 percent.,13
-fomc-corpus,1986,"""While growth in M1 is expected to moderate somewhat""--",12
-fomc-corpus,1986,We've been wrong before.,5
-fomc-corpus,1986,"--""it will continue to be judged in the light of the behavior of M2 and M3 and other factors."" All right. I don't see anything the matter in general with the proposal that Mr. Kohn or somebody made here in capital letters: ""Somewhat greater reserve restraint"" etc. That about covers it. It doesn't say what to do if we get strength in the business expansion and powerful developments in the exchange markets.",87
-fomc-corpus,1986,It still leaves uncertain what we would do in a situation where M1 continued to explode and M2 and M3 did okay and the economy kept declining. I am just saying that is not covered in here; I hope we don't have to face that.,51
-fomc-corpus,1986,"It is covered by inference. We're not going to pay much attention to Ml, if it is not confirmed by M2 and M3.",28
-fomc-corpus,1986,"Well, I was just thinking about this one sentence here that says: ""Somewhat lesser restraint might be acceptable in the context of a marked slowing in money growth and pronounced sluggishness in economic performance.""",40
-fomc-corpus,1986,That's out.,3
-fomc-corpus,1986,All that in the brackets comes out? I see.,11
-fomc-corpus,1986,"We still have the question of ""woulds"" or ""mights."" I would make it the same for both. Any preference between ""would"" and ""might""?",34
-fomc-corpus,1986,"I would make both ""might.""",7
-fomc-corpus,1986,I think that is the safest.,7
-fomc-corpus,1986,"A final issue is the federal funds rate range, which we changed to 5 to 9 percent last time. The midpoint of 5 to 9 percent is 7 percent.",37
-fomc-corpus,1986,This will take us down to 6 percent to--,11
-fomc-corpus,1986,"Obviously, we are going to be well within this range, but I don't know where.",18
-fomc-corpus,1986,Would 4 to 8 percent be consistent with it?,12
-fomc-corpus,1986,Let's say 4 to 8 percent.,9
-fomc-corpus,1986,4 to 8 percent or 5 to 9 percent.,13
-fomc-corpus,1986,How about 3 to 10 percent?,9
-fomc-corpus,1986,That combination does not apply with the world [unintelligible].,14
-fomc-corpus,1986,How about 5 to 8 percent?,9
-fomc-corpus,1986,"5 to 8 percent doesn't really fly. Well, I don't know; I guess it is getting closer to the range.",25
-fomc-corpus,1986,We could make that big policy change of narrowing the range all the way to 3 percentage points!,20
-fomc-corpus,1986,I don't understand what you accomplish by doing that.,10
-fomc-corpus,1986,It goes half way to 4 to 8 percent and it does center the range sort of where we expect the rate to be. It is closer to the center of what we want.,38
-fomc-corpus,1986,"So just leave it the same, 5 to 9 percent.",14
-fomc-corpus,1986,Leave it the same?,5
-fomc-corpus,1986,"If we change it, we might be suggesting that we anticipated a discount rate change.",17
-fomc-corpus,1986,We already did that.,5
-fomc-corpus,1986,It is spelled out.,5
-fomc-corpus,1986,"We have already said that we are anticipating a decrease by the words ""taking account of a discount rate change."" And we are saying if the discount rate doesn't change, we want an easing of pressures. In no--",43
-fomc-corpus,1986,How would a narrowing of the range be interpreted?,10
-fomc-corpus,1986,That we are moving closer toward a federal funds target.,11
-fomc-corpus,1986,Typographical error!,4
-fomc-corpus,1986,I don't think we ought to tell anybody what we are doing!,13
-fomc-corpus,1986,I don't think it could be interpreted as much--,10
-fomc-corpus,1986,"I think there probably will be about three articles in the financial journals talking about it, saying we are getting closer to interest rate targeting or something like that.",31
-fomc-corpus,1986,That's the main significance.,5
-fomc-corpus,1986,It might be interpreted as tightening.,7
-fomc-corpus,1986,"I would leave it the way it is, but I really don't care. There are three possibilities: 4 to 8 percent, 5 to 8 percent, or 5 to 9 percent.",42
-fomc-corpus,1986,Let's vote.,3
-fomc-corpus,1986,Who prefers 4 to 8 percent? It's going to be more than one-third.,18
-fomc-corpus,1986,I'll throw my vote in.,6
-fomc-corpus,1986,"Who prefers 5 to 9 percent? Who prefers 5 to 8 percent? You really want 4 to 8 percent? Okay, put in 4 to 8 percent. Should I read all this over again? ""In the implementation of policy for the immediate future, the Committee seeks to decrease the existing degree of pressure on reserve positions, taking account of the possibility of a change in the discount rate. Growth in M2 and M3 over the period from June to September is expected to be at annual rates of 7 to 9 percent. While growth in M1 is expected to moderate somewhat from the exceptionally large increase during the second quarter, that growth will continue to be judged in the light of the behavior of M2 and M3. Somewhat greater or lesser reserve restraint might be acceptable depending upon the behavior of the aggregates...etc."" And we have 4 to 8 percent [for the funds rate range]. If there are no other comments, we will vote.",201
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes President Horn Yes Governor Johnson Yes President Melzer No President Morris Yes Governor Rice Yes Governor Seger Yes Governor Wallich Yes,43
-fomc-corpus,1986,I guess we are finished.,6
-fomc-corpus,1986,Are there any questions or comments?,7
-fomc-corpus,1986,"Sam, do you think that the market is looking for further U.S. easing at this point?",20
-fomc-corpus,1986,"I think there is that expectation, but the timing is difficult to say; certainly, looking over a period of some weeks I think there is [that expectation].",32
-fomc-corpus,1986,No other observations? We haven't got any transactions to ratify do we?,15
-fomc-corpus,1986,We have nothing.,4
-fomc-corpus,1986,"I might take up at this point the Mexican situation. We have [distributed to the Committee] a memorandum in which you'll see a proposal described as bridge financing. The Mexicans don't like to call it a bridge but a contingency support [facility]. It was agreed to in principle some time ago and was pretty much put together after a lot of discussion last week. We had some difficulty putting it together. We are sort of in the middle, satisfying the BIS people on the one side and the Mexicans on the other side. I'm just glancing through this memorandum to see what it says and what it doesn't say--it does say $1.1 billion. We were thinking of $1 billion, but we added the kind of voluntary contributions of the Europeans and the Latin Americans. We came up with the idea that the United States would be 50/50 with the others and they came up with a little more than $500 million to make it $1.1 billion [in total]. The U.S. participation will be some combination of Federal Reserve and Treasury participation, which hasn't been finally resolved yet; I think it will be resolved today. The banks were not very eager about this initially but agreed to go ahead on the basic conditions that were described in this memorandum. They would go ahead with their bridge [financing] after they reach an agreement in principle on the basic bank loan--not only an agreement in principle on the terms of that loan but agreement on participation of the so-called critical mass, which is in the neighborhood of 90 percent participation. That is going to take, at the very least, some weeks to achieve. There was an original target set for the first week in September, but enough time has passed already that I would be extremely surprised if it is reached in the first week in September. That negotiation on the basic bank loan is really only going to begin tomorrow and if we get it done before the IMF meeting, I think we will be fortunate. One of the terms of the banks' participation is that the officials come in first and go out last in terms of the initiation [of the loan] and the conclusion. That doesn't mean that the amount of the official facility has to be as large as theirs for the whole time that it is outstanding. The banks originally wanted to come in on the same terms and conditions that the officials did, but that violated another principle that we follow: that the official bridge be paid off by official money--IMF payments and World Bank payments to the Mexicans. There isn't going to be enough of that money to also pay off the commercial banks. The logic is that the bridge part of the commercial bank participation gets paid off by the basic loan that the commercial banks presumably will make. And that is why they have tied it down by saying they are not going to participate in the bridge until they have agreement in principle on the basic loan. That makes the participants in the bridge pretty safe. Sometimes these things have been done just by the advisory committee, which is about 13 banks, but this time they hope to involve 40 to 50 banks. They will get all the major banks involved in the Mexican credit to participate. There was quite a lot of difficulty getting full participation, even in the advisory committee, on the agreement in principle. The have been very reluctant about this whole operation. The were reluctant at one point. The were bargaining with their own government about some other supervisory matters. That has all been cleared up, in principle. Then we ran into delays on the official bridge. The most important substantive question that arose from the Mexicans is this: Mr. Mancera, the Governor of the Bank of Mexico, told me that if the bridge is going to be repaid out of IMF and World Bank money on the time schedule anticipated for that money--and the bridge is going to be repaid pretty much by November and December--that's just when Mexico is going to need the money the most if the bank loan is not concluded by December. We have been assuming that the target date for the bank loan--the target date in the sense of actual disbursement of the first tranche of the bank loan--is December. He is, with some justice, very suspicious of whether that date can be met. And he says: If that date cannot be met, what do I do? By December or January the official part, at least, will be pretty much repaid. I am going to be losing money all during this period from a balance of payments deficit. It doesn't look like [the plan] is adequately designed to meet my needs. He had some other complaints too, including the cost, but we got those resolved last week. We got them resolved with my intervention, frankly, which raises a matter I directed just to the Committee. I think he has a point, if the bank loan is delayed--which is not what we plan, but I think one has to assume that it might not come through in December and might be delayed until January or even possibly early February. If it's delayed longer than that, I think we have a big failure on our hands. I have a piece of paper, which you might want to glance at, that shows precisely what I told him because he wanted it in writing. [Turning to staff:] Why don't you give the members of the Committee my paper? But I would like to have it back. You have it? Well, I would like to have this back when you have read it because I don't think this is something we want in the public domain at this point. You can just take a minute to read it. I wanted to meet what seemed to me his legitimate concerns about what happens if the bank loan doesn't come through by December. So I told him that I personally would be willing to recommend to the Open Market Committee--as you will see this is hedged--that if their program is on track and if the bank loan is in fact negotiated and the only real problem is that the bank loan is going to be dispersed in January, let's say, instead of in December, that we would provide, on our own, permission for a drawing upon the existing swap facility with the Bank of Mexico. That would presumably be toward December or January, until the bank loan is paid out in the amount I discussed--let's say $250 to $300 million. Obviously that could be changed, but I discussed that order of magnitude and that provided him with enough reassurance so that he agreed with the whole thing. I told him I would report this to you. I don't expect any action; it would be inappropriate to take any action at this point. In fact, I don't think we can take action because it's all a contingency plan. But if you have some fundamental concern about this we ought to know about it because it removes the point that reassured him to go on with the whole bridge. We also made some other adjustments to help satisfy some of his concerns. The BIS wants to charge him which is standard BIS practice. That is not unexpected; that has been their standard practice. But then they wanted to charge a I also told him that as far as we were concerned, he could have drawings on our swap facility at the Treasury bill rate, which is our standard practice. There is nothing unusual about that, except that I think once or maybe twice--just once?--when we participated in a bridge of this sort we charged just to conform because everybody else was charging We were tentatively thinking of doing that this time, but we went back to our usual practice of not charging any spread. So he would get our portion [at the bill rate]; I don't know what the Treasury is going to do at this point. That will force the Treasury, I guess, to do the same, so on our half of the official bridge or one third of the total he will pay no spread. That calmed him down about the fact that this whole thing was costing the Mexicans money. There is a back-up facility for the official bridge. If everything fell apart--if, as would be the normal expectation, they haven't paid through IMF drawings and the money they get from the World Bank--an arrangement has been made, similar to an arrangement that was made with Mexico in 1982 when a bridge was provided, The whole agreement hasn't been signed yet, but I don't think there are any open issues anymore. Are there, Mr. Bradfield?",1701
-fomc-corpus,1986,"Basically, that's correct. We still have the process of getting final comments, but it's basically agreed.",20
-fomc-corpus,1986,"We will get the actual details of the agreement written out. I think it is in place, basically. Exactly when they will draw upon it is not clear to me. Mr. Mancera wasn't too eager to draw on it before he had to because it costs him money. On the other hand, they want to show adequate reserves at the end of August because that's one of the few dates during the year when they publish their reserves. They will ""publish"" in this case by a speech by the President of Mexico, I understand, on September 1. They actually publish it the very next day on this one occasion during the year and they want to show adequate reserves as of August 31. That raises a different question, which I will return to in a moment. As I say, this is all set--provided this Committee doesn't forcibly object to looking sympathetically at a request for a drawing in, let's say, the latter part of November or December if the bank loan doesn't go through [by then]. That would basically be a two- or three-month drawing. I have told him that I am prepared to recommend such a drawing to you at that time if such a situation should develop--that is, if the bank loan isn't dispersed. As noted in my memorandum: In the context of progress being made in carrying out the Mexican economic program and in light of the agreement by the bank advisory committee on a commercial bank new money facility and progress toward concluding that agreement at an early date--under those particular conditions--I would recommend that we extend to them, all on our own, a short-term swap for two or three months until it can be repaid. The payout would be from official money but, in fact, the payout would be from the bank loan if it came through, let's say January 15 or so; if that's the first time they had the money, they would pay it out of that. At that point they would have adequate money. So, the first question I will raise with you is whether you are prepared to receive that recommendation in a friendly spirit should the conditions arise in November or December. As I said, I don't want any official action but I thought I should know if you were in basically an unsympathetic mood and I think you should know about this in all fairness. I will interpret silence as basically a sympathetic mood, I warn you. If that is wrong, please enlighten me.",489
-fomc-corpus,1986,Is this tax reform package going to cool the commercial banks' enthusiasm for this kind of thing even further or am I reading press accounts wrongly?,28
-fomc-corpus,1986,"Oh, I am sure that some of the banks will raise the question. The part of the tax reform package that directly affects this is the treatment of foreign tax credits and I am not exactly sure how they finally resolved that. The Senate bill, I think, had a reasonably satisfactory division. I think that was cut back but I don't think it was cut back far enough to--",76
-fomc-corpus,1986,It's short of the Senate bill.,7
-fomc-corpus,1986,"I think they still allowed the 3-year transition if they continue to do anything and then a phase out of 5 years instead of the unlimited time for the Baker countries and 10 years for the non-Baker countries. They have put it at 5 years for all countries; they have expanded the list of countries eligible for the first grace period, and there is a phase-out period for 15 to 34 countries. So there shouldn't be any immediate impact on the willingness to lend overseas in these kinds of arrangements--at least for three years, and perhaps for as much as 5 years.",121
-fomc-corpus,1986,"But they will argue that it's a problem because, whatever this will be, it will be a 10-year loan or a 12-year loan and this favorable treatment will only be for 5 years.",41
-fomc-corpus,1986,"Five years, but it's phased out at 20 percent a year after that, so it's 80 percent after the [fifth] year and so on.",32
-fomc-corpus,1986,"It won't help, but I don't think it will make it impossible. The theory of the phase out is, in part, that that gives the foreign countries time to adjust their own laws so that they don't have the withholding tax in the first place--or such a punitive withholding tax anyway. It costs them revenue so it is an additional problem, but we hope not an insurmountable one.",80
-fomc-corpus,1986,You spoke of the September 1 date to publish reserves. That has nothing to do with this? There will be no drawing on this?,28
-fomc-corpus,1986,"Well, there might be, so I want to return to that. It's really different from this question, but it also might involve a drawing on the swap. I take it that this doesn't seem unreasonable. I don't know exactly what their reserves are now, but the indications are that on August 31st they would like to show around It's not in their interest to show too many reserves because that would cool off the banks. That's one point of view. On the other hand, they are afraid that showing too small an amount of reserves will frighten people in Mexico and raise concerns on that side. So, it's kind of a balancing act. In 1982 we did something when the particular conditions that existed in the waning months before the election in 1982 were that they were running out of reserves but felt unable to take any action because of the pending election in August. Even if they do the planned disbursement of the official bridge, that would be $850 million in the first tranche. This could be changed; it isn't crucial. But what we were thinking about, notionally anyway, is drawing $850 million of the $1.1 billion fairly promptly and drawing the last $250 million probably simultaneously with the bank bridge, which would likely be in the latter part of September as things look now. When I look at this it would not hurt my conscience too much if we provided something, if they really needed it, in terms of our swap over the end of August in anticipation of drawing upon this bridge. It's a little less window dressing under those circumstances because it's not that we're putting the money in and taking it out right away; we're just speeding up the disbursement that would take place under this official bridge anyway. Now, whether that will be necessary or desirable simply has to wait for more conversations with them. But I guess we can decide this. We have a Foreign Currency Subcommittee that would ordinarily do these things or I do them myself in the absence of the Foreign Currency Subcommittee so long as it's in line with the Committee's guidelines. But I just wanted to raise this issue with you and see whether there would be any overwhelming objections to doing that if it seemed desirable in the light of their particular needs and the anticipated drawings on the bridge a few weeks later.",461
-fomc-corpus,1986,Who is this designed to impress?,7
-fomc-corpus,1986,"From their viewpoint, they are concerned about impressing the Mexican public. What they are specifically afraid of is that if they show too low a reserve figure on August 31 that will contribute to capital flight. There would be concern that they really don't have enough money to get through this period and it would undermine confidence within Mexico and make their problem more complicated by fomenting capital flight. That's the way they look at it. But I do think there is this other concern that an unduly large reserve position in the eyes of the banks will only encourage the banks to say: There's no great urgency about our reaching an agreement and maybe they don't need so much money after all. Those are the two things that have to be balanced. I'm not certain of this, but I don't see why there would be any announcement of when the drawing takes place on this regular facility. So I assume that people will interpret the reserve figure at the end of August, if it looks as large as as already including a drawing on the bridge. So I don't know that it means all that much one way or the other.",219
-fomc-corpus,1986,How low are their reserves likely to be at the end of this month without this infusion? Is there any feel for that?,25
-fomc-corpus,1986,"Well, their reserves at the end of July were what?",12
-fomc-corpus,1986,"And I would guess, although I just don't know, that they would probably lose at least in a month--that would be a fair guess--which would take them down to leaving them if that's what they want. But that's just a guess. And that includes some nonusable reserves. Their usable reserves are under",62
-fomc-corpus,1986,"Actually, Mr. Chairman, I think the does not include all of the nonusable reserves. So that may be an underestimate of the total reserves.",30
-fomc-corpus,1986,"Well, we don't know precisely.",7
-fomc-corpus,1986,"They include silver and a few things like that, but- -",13
-fomc-corpus,1986,"You put the family tableware in the public [unintelligible], I guess. If the drawing is big enough it does, under our normal rules, require an official Committee clearance, which I don't think we should consider now anyway. We might have to do it by telegram, but--",59
-fomc-corpus,1986,Is this shared with the Treasury?,7
-fomc-corpus,1986,"This would not be; I don't see any point. Theoretically it could be, but I don't see any point dragging them into it; I'd do it myself. And similarly, this drawing in November-December doesn't rest upon any Treasury participation, although it may be that they'd want to participate. Not hearing any objections expressed, we will use our judgment. If it gets above some nominal amount we would have to have an official Committee clearance anyway. But if it gets that far--not that we didn't want to see it [unintelligible]--we would send out telegrams.",119
-fomc-corpus,1986,Aren't you going to get the approval?,10
-fomc-corpus,1986,"Yes, I think the one thing we do want to take official action on is just approving the basic bridge. I suppose we can approve it with an open-ended amount because it will be roughly 50-50, I think, with the Treasury. I just haven't worked that out with them precisely. It's not critical, but with that reservation as to precisely what the amount is, I suppose what we want to approve is suitable participation in an American bridge of $545 million under the terms and conditions that have been described. That I think we can take a vote on.",114
-fomc-corpus,1986,I move it.,4
-fomc-corpus,1986,I'll second it.,4
-fomc-corpus,1986,"Is there any objection? If not, that official bridge is approved. I assume a sympathetic view toward the November matter--should it be recommended to you under the conditions that are described in this memorandum--and a certain degree of flexibility if it appears desirable to do a very short-term drawing at the end of August.",63
-fomc-corpus,1986,What are the major terms and conditions on the commercial bank credit? And is that going to take a push and a shove to get across?,28
-fomc-corpus,1986,"Yes. There are several problems on that, starting with the fact that the estimates that were made on the size of the needed commercial bank financing were based upon assumptions of a $10-1/2 Mexican oil price this year and $11 next year. I emphasize Mexican oil price because about half of their exports are heavy crude for which the price is quite a lot lower than the prices that you see quoted. Their blended price rounds up to $3 less than, say, the west Texas [intermediate] price you see quoted in the papers because so much of it is heavy crude and there's a little transportation discount, too. Before this OPEC decision, when the oil price was at its low, the blended price of the oil they were selling was less than $9. Obviously, it has been substantially higher than that in the last couple of weeks. But on that assumption of $10-1/2 this year and $11 next year their gross reserves would rise by about or in that neighborhood, over this period. In fact, they would rise from the end of 1985 to the end of 1987 by about that would take them back roughly in the range, which is something the IMF insists upon. They always insist upon getting reserves back to some half-way adequate level. The bank financing need, given all the other assumptions about financing, comes out to about $6 billion net to the public sector. Now, that's a little misleading but that's a figure that gets quoted. Those figures assume repayment, net, of about [$1] billion by the private sector to the banks. So, if you look at total commercial bank exposure to Mexico, the assumption is that it will go up by about $5 billion; the $6 billion figure that gets talked about is the net exposure to the public sector. But in Baker-initiative terms that are talked about the total exposure to the country is $5 billion. Their total exposure now is $65 billion or something like that?",400
-fomc-corpus,1986,It's around $60 billion to the public sector and another $15 billion to the private sector.,19
-fomc-corpus,1986,"$75 billion? So if you think of it as a 2-year program for 1986-1987, which in some sense it is because the banks haven't been lending anything this year--they didn't lend anything last year, but forget about last year--that $5 billion increase in exposure is less than 3 percent a year. That is on the high side but within the parameters that were talked about in the Baker plan all along. If you look at the period as 15 months it comes out to a higher percentage, but I don't think that's quite fair because they haven't been lending anything so far this year. So it's broadly within the parameters of the Baker plan but it's also larger than we or the banks anticipated some months ago before the oil price took its last decline. And I'm sure the banks will argue that since the oil price is up again they will make a more optimistic estimate on the oil price and cut down the amount. So, that's issue number one: the amount. Issue number two is the concept stated explicitly in the program with the IMF that if the oil price declines below the $9 Mexican price there would be additional financing from the IMF and, by implication, from the commercial banks too. That is symmetrical. If the price went up above $14--I think that was the number they had in there--there would be less financing. Actually, it's closer to the $14 level than to the $9 level if you took today's figure. But there was this contingency arrangement which some banks liked and other banks seemed to dislike intensely. Similarly, the Mexicans will certainly ask for a reduction or elimination of the spreads on the outstanding notes as a straight concession from the banks, maybe related to the oil price. That is, if the oil price is below a certain level reduce the spread; if it's above a certain level they repay it. They also want for presentational reasons--they think it's very important politically--to get an extra big concession on some portion of the new money which again, in their eyes, would be related to the oil price. That would be a big concession--They haven't put these cards on the table yet, but in concept it would be something on the order of I'm just picking numbers out of the air, but that is the concept. In fact, there was a bond issue sold in the market a few weeks ago by Standard Oil of Ohio, or whatever its name is now. Is it still Standard Oil of Ohio? It was precisely on that basis that it was sold in the public market. It had a rate of interest related to the oil price: a low rate of interest when the oil price was low and a high rate of interest when the oil price was high. And it was salable in the market. A lot of banks have said they object intensely to that as a matter of principle--that they are not in the business of making loans whose interest rates vary in accordance with some external indicator. They're in the business of making bank loans for other reasons. There will be a big conceptual fight about that. So, yes, it's going to be difficult. That is why I think Mr. Mancera probably has some skepticism about how quickly this could all be put together. In fact, I think it's not going to be fatal if the amount of the loan is cut back a bit. But it can't be cut back to $4 billion; that is out of the question; $5 billion with some contingency clauses, maybe. I don't want to give away the Mexican's negotiating position but I think something can be worked out on an amount that looks reasonable. But these terms on interest rates are going to involve very difficult negotiations; there's no doubt about it. I think those are the principal issues, but I'm sure other issues will arise. What is unusual about this, in terms of past patterns, is the amount of official financing that's involved. Even with the commercial banks at $6 billion to the public sector or $5 billion overall, there will be somewhat more official financing than there will be commercial bank financing, which is unusual. This is a bridge, of course. But if you count the official financing calculated over the full time period of the program there's a lot of World Bank money and of course the IMF money and there is an intention of there being a Paris club which provides quite a lot of money. The Japanese have semi-promised some special project financing which could run as much as if you believe it. I don't think it'll be that big but it could be up to that. In terms of special bilateral financing to Mexico, there is CCC financing. I don't remember exactly what it all adds up to, net, but it's a little more than the private financings. Fortunately, the amount of World Bank money in any bilateral deal they do with Mexico is new.",972
-fomc-corpus,1986,"I sent out to the Reserve Bank Presidents on Friday--you probably didn't get it yet--all of the publicly available documents laying out the details of the overall financing plans: who's in for what and the rest of it. The other issue that comes up is this supervisory question, of course. Your senior supervisory people have a piece of paper that was agreed upon by the federal regulatory agencies that sets forth the policy statement as to the collective attitudes of the federal supervisory agencies on this whole reserve question. That piece of paper is not to be shared with the banks; it essentially says there's a lot of [unintelligible] but we look at these things on a case-by-case basis.",137
-fomc-corpus,1986,I haven't looked at that for some time. I don't know if that's ever been officially adopted. When the banks get a little further on in this negotiation they may well press us for a written statement and I'm sure it will look something like this. But at this stage I don't think it should be given to them.,63
-fomc-corpus,1986,No.,2
-fomc-corpus,1986,"It could well be that in two or three weeks we could have a joint statement by the regulators, which probably will incorporate this language, that could be published or sent to them.",36
-fomc-corpus,1986,"Are you saying this is a new policy, Jerry? I missed something.",15
-fomc-corpus,1986,"It's not really a new policy, but it gets on paper a philosophy that had been agreed to by Messrs. Clark and Seidman and our people.",32
-fomc-corpus,1986,"We made a statement along these lines on one or two of these previous occasions, but it arises every time and the statement gets slightly edited every time. It's not entirely new, and it's not entirely a departure.",42
-fomc-corpus,1986,"It basically says all the customary things: the decisions are your own; the examiners by the nature of their work, of course, have a responsibility to look at these loans; they're going to focus primarily on your system's procedures, controls, etc.; and there is no automatic linkage between decisions, especially when they're in the context of an internationally supported program. They will be looked at case-by-case, taking account of the overall condition of the bank.",91
-fomc-corpus,1986,"Perhaps we can return to this subject later after the meeting, if you want. The usual complaints go to the Comptroller's Office. It follows a long technical procedure sometimes, but we are not exempt from such complaints. Somebody told me the other day that there was an actual letter of agreement with some bank in which part of the agreement was that the bank would under no conditions increase its exposure to less-developed countries. That letter was being used to say: How can we participate when we had such an agreement? I don't think the agreement was with our cease-and-desist people; I think it was with the Comptroller. I'm not sure.",129
-fomc-corpus,1986,It was.,3
-fomc-corpus,1986,You have to be a little suspicious of these things. I can imagine that that bank invited the Comptroller to put that provision in the agreement.,29
-fomc-corpus,1986,"We did check, Mr. Chairman, and in that particular case it was a general provision about working down the exposure to troubled debtors and that was as far as the letter went. The bank was choosing to apply this particular [interpretation].",49
-fomc-corpus,1986,"All right. Well, you have to be a little careful because banks will be very eager to apply--",21
-fomc-corpus,1986,"In the past there has been a problem of very large banks accounting for 85 or 90 percent of the money and then we spend all our energy trying to get [the remaining] 10 percent by dealing with hundreds of regional-sized banks. In putting this package together, has any thought been given to where the money is coming from and how we're going to spend our labor in terms--",78
-fomc-corpus,1986,"Well, if you want to discuss this further I'd be happy to but I'm just worried about having the time in this meeting. We're going to have that problem again. Some of the major European banks, may insist in the end on doing this in the form of an interest-capitalization deal, and maybe if a very small margin of banks do it that way this all will come out. But that bridge has not begun to be crossed yet and I wouldn't breathe a word of that at this stage. It may be that something innovative will have to be done to pull in that last 10 or 15 percent, as you say. We can return to the supervisory aspects of this later so long as the Open Market Committee aspects are clear. Are there any other questions on that? If not, we'll turn to Mr. Sternlight.",167
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Any questions or comments?,5
-fomc-corpus,1986,"You know that I have difficulty expressing myself, but I'd like to ask in this particular instance of either Mr. Sternlight or Mr. Kichline: Does the view of the people in this group lean more toward one force or another on this issue? I'm not trying to settle something difficult; I'm simply asking on the issue--",66
-fomc-corpus,1986,The issue is what?,5
-fomc-corpus,1986,The issue is where do you see the present view as you look at the business [outlook]?,20
-fomc-corpus,1986,I think we'll get to that question a little later--the tendency of business and the tendency of open market operations. So maybe we can defer that question.,31
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,"Are there any other comments or questions? We do have to ratify transactions here, as always.",20
-fomc-corpus,1986,So moved.,3
-fomc-corpus,1986,Second.,2
-fomc-corpus,1986,"[Approved] without objection. The question has been asked from time-to-time--I confess mainly by me, and I don't want to take undue time on this question because it's not a matter of enormous urgency--as to why we purchase long-term securities occasionally. I wonder about it every time the issue arises. So I had some discussion about it with Mr. Sternlight and he prepared this little memorandum for you on the pros and cons of occasionally participating in the bond market, which in recent years we have done about twice a year. As I say, it's at rather odd times in a kind of arbitrary guise, and every time I wonder: Why now? What are we attempting to achieve or prove by buying some long-term bonds?",147
-fomc-corpus,1986,I was going to ask Peter one question.,9
-fomc-corpus,1986,"Let me just make one other comment first. I have nothing philosophically against buying long-term bonds or coupon issues if they serve some purpose. I'm not arguing a ""bills-only"" doctrine at all. If we have some purpose we want to achieve by buying bonds, fine. The purpose is rather elusive in what we do now.",67
-fomc-corpus,1986,May I express a partial Treasury opinion from my past?,11
-fomc-corpus,1986,Sure.,2
-fomc-corpus,1986,It was always thought that it would be nice for the Fed to get into long bonds because the Fed always rebates the interest and that saves on the interest the Treasury owes.,34
-fomc-corpus,1986,"It has a slight effect on the rate, depending on how much we do and how much we turn over to the Treasury. Of course, the counter argument to that is: If the Treasury doesn't like the cost of the long-term bonds why issue so many?",52
-fomc-corpus,1986,I agree with that. I was unsuccessful in discussing that.,12
-fomc-corpus,1986,"The other consideration, just to throw it in here, is simply emphasized in this memorandum. I'll point it out: These days it may seem a little wild to you but I do worry a bit about the liquidity of our portfolio, given the possible contingencies in the banking world. If we have to lend a lot of money--in tens of billions of dollars--suddenly to the commercial banking system we presumably would want to liquidate our portfolio to make up for that. Under most conditions it's extremely difficult to liquidate coupon issues anyway. And certainly, in those kinds of conditions it would be even more difficult. I would never want to be in the position where I felt that we had any degree of inhibition from liquidating securities because of the composition of our holdings. Now, it is also true that there is a constraint--what we have to have there in covering the note issues. We could get into a bind regardless of the liquidity of our portfolio by not having the types of assets which the law says we have to hold against our note issues. Certain types of discounted paper can be used but not the type that we ordinarily make these days. And maybe some day we ought to think about changing that law or changing our procedures or something, but that is an additional constraint apart from the liquidity of our portfolio. I have had these reservations from time-to-time and I thought it would be useful to have a discussion. Mr. Sternlight could you shed some light on the matter?",298
-fomc-corpus,1986,"Thank you. You said some of what I would say in your introduction but the question naturally arises as to why this is on the agenda. The chief reason is that on some recent occasions when Desk operations were undertaken or contemplated basic questions were raised, as you mentioned, as to the need for or the desirability of those operations. In any event, it's probably a good idea to take a fresh look at subjects like this from time to time. [Statement--see Appendix.]",95
-fomc-corpus,1986,Did you say you haven't done anything so far this year?,12
-fomc-corpus,1986,So far this year we have not.,8
-fomc-corpus,1986,Any particular reason for that?,6
-fomc-corpus,1986,"Well, as the Chairman mentioned, he has a discouraging word now and then. Typically, we have done it in periods of heavy reserve need--once in the spring, usually. Going back to something you said earlier, Mr. Chairman, I don't think the times are arbitrary. It has been done when there is a big reserve need, usually in April or sometimes in that heavy seasonal need around the year-end period. I guess the last time was actually early December '85.",97
-fomc-corpus,1986,"Well, the times are arbitrary only in the sense that there's no particular reason at those times to do coupon issues as opposed to something else. But it is clearly consistent with the reserve needs at the time. You don't do it right in the face of obvious reserve [reducing] indications.",58
-fomc-corpus,1986,I think you've answered part of my question by indicating that you generally buy the traded security rather than at the auction.,23
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"Yes, at the auctions--",6
-fomc-corpus,1986,We're talking about the [unintelligible].,10
-fomc-corpus,1986,"At the auction we would only roll over the maturing amount. As I mentioned, a few years ago at an auction--particularly these big quarterly refundings, where there would be an option of going into any of three issues--we were dividing our holdings in about the proportion that the Treasury offered them to the public. But that was tending to lengthen our portfolio because the Treasury was putting its emphasis on offering more longer-term debt. In recent years we've tended to slant the mix more toward the shorter-term options, and in the last year we've tended to move even further in that direction of slanting our rollovers toward the shorter-term options.",131
-fomc-corpus,1986,"Peter, I'm sorry, what [unintelligible]?",12
-fomc-corpus,1986,"Planning the rollovers relative to what the Treasury has been offering, which is more long-term securities.",20
-fomc-corpus,1986,"Yes, but when you've been buying, I presume you buy the actively traded issue.",17
-fomc-corpus,1986,"Well, we buy depending on what's offered to us. There will be more offerings of the actively traded issues, but sometimes there will be an attractive offering of some less actively traded ones. And I think that probably tends to improve the market in some of those less active issues.",55
-fomc-corpus,1986,"So, by buying the less actively traded issues then you get a higher yield than you otherwise could get?",21
-fomc-corpus,1986,"I think it often works that way, yes.",10
-fomc-corpus,1986,"I have some hesitation in seeing us buy the actively traded issues, then holding them when they become inactive, and taking what I would call a loss in liquidity that occurs when an active issue becomes inactive. But it's--",43
-fomc-corpus,1986,When is the last time we sold a coupon issue or bond?,13
-fomc-corpus,1986,We sold some short-maturity agency issues a few years back. I don't think we've ever sold coupon issues.,22
-fomc-corpus,1986,Basically when you buy a coupon issue you don't sell it.,12
-fomc-corpus,1986,What is the issue about liquidity here? What do we need the--,14
-fomc-corpus,1986,"I think we want to be prepared. In 1984 when Continental was borrowing massively, we had to lighten the portfolio by several billions of dollars over a short period of time, and it was very useful to have ample supplies of Treasury bills to be able to do that.",55
-fomc-corpus,1986,That's it. The liquidity issue [unintelligible].,12
-fomc-corpus,1986,$90 billion?,4
-fomc-corpus,1986,We have some $95 billion or so of bills now.,12
-fomc-corpus,1986,It isn't always true that you can gain liquidity cheaper. Your give-up cost isn't always lower by selling bills; sometimes you can have a give-up cost that's lower selling coupons than selling bills. But you don't sell coupons.,44
-fomc-corpus,1986,We have not. I think it's a good question--whether we shouldn't develop that potential.,18
-fomc-corpus,1986,"We do so [unintelligible] because of the [unintelligible], which I think is correct. This probably goes back decades and decades. If the Federal Reserve were to walk into the market and sell bonds it would have a big impact on the market, particularly since we never do it.",62
-fomc-corpus,1986,"It seems to me that we ought not to be in coupon issues unless we have a policy of also selling coupon issues. That is, I would prefer that we manage the account in the same way that one might manage other kinds of accounts. I hesitate for us to be in coupons without fully playing both sides; I think if we're going to be in coupons we ought to have the alternative of selling coupons.",81
-fomc-corpus,1986,"Well, there's a lot to be said for being able to develop some flexibility to sell coupon issues as well as bills.",24
-fomc-corpus,1986,There might be times when the market would be supportive of a policy to sell some along the [unintelligible]. I think of October '79 when we had a 2 percentage point increase in the discount rate; that attracted a lot of attention. In a situation like that where we want a big response rapidly it seems to me that a relatively small sale of coupons issues could have a rather big impact. And there might be times when we want a big response.,94
-fomc-corpus,1986,I agree. I can see a time when a coupon sale would be useful.,16
-fomc-corpus,1986,Especially if we never do it!,7
-fomc-corpus,1986,"I can, too, theoretically. I would observe, or bet you, that in 40 years you can't find an occasion when we found a suitable time.",32
-fomc-corpus,1986,"But that period that Frank described may have been a suitable time, I think. I don't know.",20
-fomc-corpus,1986,Rates were shooting up then.,6
-fomc-corpus,1986,"In retrospect, but--",5
-fomc-corpus,1986,"It seems to me ""bills only"" is a lack of flexibility. But coupons when you can only buy and can't sell is a lack of flexibility.",31
-fomc-corpus,1986,You can run them off too.,7
-fomc-corpus,1986,"Well, Peter, I find it difficult to see the circumstances. Theoretically, I can see circumstances in which we would sell. For instance, that October I at least sat here with some hopes that we would have such a dramatic effect on the market that in a few weeks long-term rates might decline. That shows you how naive I was at that time. The last thing I would have wanted to do was to sell long-term bonds.",89
-fomc-corpus,1986,[And drive up] the yield curve.,9
-fomc-corpus,1986,"Drive up the yield curve and oppose that hope--false hope as it turned out. Sure, theoretically, you might want to sell them at some times. I also would agree--I just want to make very clear--that I can see times much more practically when you might want to buy coupons. If we have a specific reason, I have nothing against it whatsoever. I would not want to give up that tool of being able to buy them. The question is whether we should routinely buy them.",100
-fomc-corpus,1986,"It seems to me we have two different discussions here. One is that we might sell them in special circumstances. But Wayne raises the point of why not condition the market in such a way that we can sell them routinely. And I think that's a more interesting question. What would be involved in, over time, trying to condition the market [to the view] that if the Federal Reserve sold coupon securities that it wouldn't produce an earthquake?",87
-fomc-corpus,1986,"Well, probably some educational effort and starting out with shorter maturities. We did a little conditioning like that before we sold some short agency issues. And that was taken reasonably well. Of course, there are really not all that many occasions when we sell bills. The potential is there, but I think we've gone over a year now without selling a bill. The long-term trend is up.",78
-fomc-corpus,1986,"But there seems to be merit at least in exploring how one might improve the liquidity by setting the stage for being able to sell these on a rather routine basis, at least as routinely as selling bills.",40
-fomc-corpus,1986,"If we put out a press release that says we would sell Treasury securities in the same proportion that we buy them in these contingency situations, we could do that on a regular basis.",36
-fomc-corpus,1986,"If you put out such a release, the bond markets are going to be immediately affected by that release. And you probably are not going to want to have that impact.",34
-fomc-corpus,1986,You're right. That's why we haven't sold any.,10
-fomc-corpus,1986,Have you sounded out many primary dealers on this matter?,11
-fomc-corpus,1986,"On the selling of coupons, or--?",9
-fomc-corpus,1986,"Well, both sides: being in the coupon market period, as a buyer or a seller.",19
-fomc-corpus,1986,"Sometimes they will bring up the matter, saying ""You haven't been around recently to buy coupon issues,"" or something of that fashion. I have not raised it.",32
-fomc-corpus,1986,If we put out a release and said that we're going to buy more coupons and we're going to sell more we might get by with doing that and not affect the market. Yes.,36
-fomc-corpus,1986,"That was the point I was getting at: talking symmetrically about buying in the same proportion that we sell, along the lines that since we've been cutting back on the proportion of the Treasury's issues--. I think that would balance the market; maybe not.",53
-fomc-corpus,1986,I would be--,4
-fomc-corpus,1986,In order to be able to do that I think you'd have to get to the point where you're pretty active.,22
-fomc-corpus,1986,And what's the point of being so active in the market?,12
-fomc-corpus,1986,"Well, I agree with that. I'm not for changing just for the heck of it.",18
-fomc-corpus,1986,"What would your maturities be in an average week? I can see what your total bill holdings are, but when you're talking about being prepared for the failure of XYZ bank in short order--. Without selling, I would suspect that you have some sort of laddering in your portfolio that each week you must have bills maturing and also--maybe not every week but fairly often--some of your existing coupons coming due.",84
-fomc-corpus,1986,There are a lot of coupons due within a year that mature every month or every--,17
-fomc-corpus,1986,"With maturing coupon issues, the pressure is always to roll those over so the Treasury isn't pressed with the bigger job of placing them in the public market. I don't know. Have we even let a coupon [run off]?",45
-fomc-corpus,1986,"I think we pretty generally have rolled over coupon issues. It would be a complicated thing to work out. In the case of bills, Mr. Chairman, if we run some off--which is a reasonably common occurrence--then the Treasury automatically announces that they're selling X billion so that the market will pick up more. But when they announce their coupon offering, what they offer to the Fed is separate from what they offer to the public. If we ran some off it would, at least under current procedures, hit them as a cash loss.",108
-fomc-corpus,1986,"Well, I look at this thing rather simplistically. It is arbitrary, but I kind of like what we're doing and that is maintaining what I at least envision as something close to a minimal level of presence in the coupon market. From my perspective, that's fine. I don't think we can reasonably embark upon any ambitious program of working on both sides of that market without some very, very basic changes in the whole approach to open market operations. But both for contingency reasons of a slightly different nature and just to maintain that point of contact with the market, I think showing ourselves--even if it's only on the buy side a couple times a year--makes some sense.",133
-fomc-corpus,1986,I would like to see the weighted average maturity over time. The data we have doesn't give us that. It would be very helpful to have a history of the weighted average maturity.,36
-fomc-corpus,1986,"I could provide that, certainly.",7
-fomc-corpus,1986,"You can provide that, obviously, but the weighted average is not what you're selling. You sell the very short stuff that you have; whether you have a 10-year bond or a 30-year bond doesn't make much difference. You're not going to sell either one. That is the argument that's made. I don't understand it, frankly, because I don't see what purpose is served by it.",79
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"That is the issue, I guess. I don't understand it, but that seems to be the issue.",21
-fomc-corpus,1986,I guess I've always been--,6
-fomc-corpus,1986,"[Unintelligible] a heck of a contingency to it. Just as you can envision a set of circumstances where you might think it desirable for some policy reasons to be selling bonds, it's hard to conjure up when to do it. I think it's a little easier from a policy perspective to conjure up a situation where it might make sense to be buying.",74
-fomc-corpus,1986,I have no difficulty in conjuring up a policy where you want to buy; I have no problem--,21
-fomc-corpus,1986,"But if you want to have policy flexibility, it does seem to me to be marginally advantageous to maintain some presence in the market so that when you want to do that you don't produce the very splash effect that prevents you right now from selling.",49
-fomc-corpus,1986,My difficulty then is you get a policy reason for what--to buy bonds [if] you want to make a splash?,25
-fomc-corpus,1986,Maybe; in which case the argument is moot. But it may not be that clear that you want to make a splash.,25
-fomc-corpus,1986,"So far the liquidity argument is one [against] the central bank holding any long-term securities. But on the liquidity issue, obviously, we've been buying so much in the past year that Treasury bill holdings look more adequate now than they did two or three years ago. All you have to do is [consider] two or three years ago putting Continental together with--all apologies to the present company-- and a few Texas banks and you've got a big liquidity need rather suddenly.",94
-fomc-corpus,1986,I'd forbid that coincidence!,5
-fomc-corpus,1986,"I think that's a more important point, Mr. Chairman. You touched on it a while ago about the collateral cover for Federal Reserve notes. It'd be sort of ironic if the collateral cover, which was designed to make them safer and presume there's a limit to the issuance of money, led to an overabundance of demand deposit money because we didn't have the free securities to sell to sop up the reserves injected by borrowing. So, if there's an opportune time, I think we might well want to consider lowering the gold certificate requirements and then eventually eliminate them because that's getting pretty close now.",120
-fomc-corpus,1986,All these sins we've made in the past--eliminating all these safeguards that were in the law--we can now make another one.,28
-fomc-corpus,1986,"They never really had any any effect on limiting any of those things. But to me the argument that Peter makes is most persuasive. And also, it gives him a chance to keep up with what's going on in the market. That's the most persuasive argument. So, I'd opt for staying where we are, but I don't think it's any big deal one way or another. We're increasing liquidity all the time because he's not buying enough [bonds] to lower our liquidity. So if liquidity is getting better it's not really a big issue.",107
-fomc-corpus,1986,This is not a big issue; it comes up from time to time. But if we continue buying I would [unintelligible] and do rollovers into much shorter issues. That's the alternative. There's some value in buying [but] we pick up liquidity by doing rollovers into much shorter issues. I don't see the value in buying.,70
-fomc-corpus,1986,"Yes. It's interesting to have someone who has been at the Board and also at the New York Bank with the other view--someone who has been both places looking at this ""bills only"" issue.",41
-fomc-corpus,1986,"I am not for ""bills only""; I'm perfectly ready to buy long-term bonds if there's a purpose in buying long-term bonds. But I have a little difficulty being willing to buy them when there is no purpose in buying them.",47
-fomc-corpus,1986,You occupy a unique position having been in the two prime places when these different arguments have been made in the past.,23
-fomc-corpus,1986,"If you stop buying long coupons right now though, it will be very visible, it seems to me. If you did a coupon pass and didn't touch long coupons, I think somebody would try to read something in there with respect to inflationary expectations or whatever. So we're better off not to do a coupon pass at all.",65
-fomc-corpus,1986,"Well, we haven't done any for the last three months when we ordinarily might have. Presumably, if there is an ample supply of bills we just wouldn't do the coupons at all.",37
-fomc-corpus,1986,"Well, we did pass this spring, which would normally have been a time for a coupon purchase, right?",22
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,For a reason?,4
-fomc-corpus,1986,I think the Chairman had reservations about dealing in this market.,12
-fomc-corpus,1986,The reason was that we had scheduled this discussion and decided this was the first meeting in which the agenda wasn't cluttered with other things.,27
-fomc-corpus,1986,And there may have been times when we would pass a period just because at the time we had the reserve need the market was under this or that special influence that we didn't want to be in the--,40
-fomc-corpus,1986,"It hasn't been that rigid, anyway. We've only done this twice a year. Well, I don't think it's worth a lot more discussion right now. We can continue what we're doing and let it just fade for a month and reach a concrete decision next month or reach a decision now. Do you want to let this matter gestate a month or do you want to reach a decision?",77
-fomc-corpus,1986,Gestate.,3
-fomc-corpus,1986,[Unintelligible] just this month.,10
-fomc-corpus,1986,"Well, why don't we come back and make a firm decision on this less-than-overwhelming matter next month?",23
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Comments or questions?,4
-fomc-corpus,1986,"Jim, do you have those numbers for inventories and net exports in the second quarter in real terms?",20
-fomc-corpus,1986,In dollars?,3
-fomc-corpus,1986,Dollars.,3
-fomc-corpus,1986,"The change in business inventories of minus $28.3 billion had been minus $20.3 billion. So it's a large downward revision of $8 billion in real terms. Half of it is in farm inventories; half of it is in nonfarm. Net exports now show a change of minus $24.6 billion compared to minus $20.4, so that's a decline of $4.2 billion.",83
-fomc-corpus,1986,"Jim, do you have private domestic final purchases in percentage terms?",13
-fomc-corpus,1986,I have gross domestic purchases here.,7
-fomc-corpus,1986,What would that be?,5
-fomc-corpus,1986,"They had been 3.2 percent and are still 3.2 percent. Final sales were actually revised up, obviously, in this situation. They had been reported at a 3.4 percent increase and they are now at a 3.8 percent increase.",55
-fomc-corpus,1986,"That change in inventories from the first to the second quarter is very substantial. I don't recall exactly what you have for the third quarter, but does that raise the possibility in your mind that we actually could get more growth in the third quarter as inventories perhaps come back into better alignment with what activity is?",60
-fomc-corpus,1986,"Well, there are a couple of things about this number. First of all, under the new procedures [the Commerce Department] releases details tomorrow. So, we don't have the details.",37
-fomc-corpus,1986,We don't know--,4
-fomc-corpus,1986,"Part of the farm [story], I think, may be the CCC because government purchases were revised up. So the question is really on the nonfarm side. From the little information that we have around, it appears that it's a revision in part in the deflator--a higher deflator and thus lower real expenditures. The question is: Is it in oil or is it something else--perhaps merchandise trade? We don't know. In our view, we have a further runoff in the third quarter, which is mainly in autos. Outside of autos our forecast entails something flat. In fact, supporting your supposition, we have very strong consumer spending in our forecast, as I mentioned, and we don't have much in the way of production. The question is: Is it going to come out of inventories or are we going to have more imports or are we going to have rising production? It's a question. Essentially, given these data along with what was happening, one can argue more strongly that expansion in demand is going to lead directly into production because inventories in most sectors, outside of autos, are very lean.",222
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"I was going to make a comment along those lines because as I looked at your numbers--with personal consumption going from 1.7 percent in the fourth quarter of last year and then to 3.6 percent [in the first quarter] and 5.9 percent in the second quarter and employment growth and personal income growth and so forth seemingly staying pretty much on track, at least over the course of this year--one really has to question the dropping down of personal consumption to the 2.4, 2.5 percent level, looking forward. You actually raised those same questions in your comments already, so I don't want to elaborate on it. But it seems to me in looking at this, one could say that there was some uncertainty in that direction in the forecast.",158
-fomc-corpus,1986,"Let me ask a question which often arises anyway and I think it was what Governor Wallich had in mind: In assessing the overall tenor of this forecast, are the forces in the direction of sustained expansion or hesitancy?",45
-fomc-corpus,1986,"Well, the forecast--",5
-fomc-corpus,1986,Where do the risks lie?,6
-fomc-corpus,1986,"The forecast, I think, is reasonably balanced. There are risks on both sides of this and I wouldn't say they are skewed in any significant way. Obviously, we have a forecast that shows improvement over time. Some of the risks have been talked about, certainly [at the FOMC meeting] in July. On the down side, for example, one of the risks relates to what's going to happen to the trade sector; it's clearly a key in this forecast. And that raises questions about foreign growth and demands for our own exports. One of the downside risks is in business fixed investment. Frankly, in the office and commercial area it now seems that both commitments and structures are going down at a tremendous rate. That sector could be one for which we perhaps have underestimated the severity of the decline. On the other side, I'd say we do have a slackening in growth of consumer spending that we think is consistent with what's happening to disposable income. There's just no question, if you look at the data, that consumers have been quite willing to spend and [unintelligible] generated enough income in this forecast, it seems to me, that consumer spending at the rate we have could look very moderate. So, there are risks on both sides, and I think it's rather reasonably balanced at the moment.",264
-fomc-corpus,1986,"The forecast, as you have mentioned several times, is heavily dependent upon a rather strong improvement in the foreign trade balance in real terms, not necessarily in monetary terms. It may be worth having Mr. Truman justify the forecast.",45
-fomc-corpus,1986,"I should say that the GNP numbers that were put out, which show some downward revisions on the export side and an upward revision in real terms on the import side, were in line with what we had guessed--based upon the preliminary numbers on the trade side that are still not available [in final form] for the second quarter. So, although the revision was downward on the overall situation, both components of it are consistent with how we have been reading the incoming numbers. The forecast for the external sector is basically contingent upon two factors. One relates to the exchange rate effects, which have been slow so far in coming. They have not yet come through in terms of showing much effect on slowing the growth of non-oil imports or speeding the growth in the volume of nonagricultural exports. [We believe] that we will in due course begin to see those effects; and the anecdotal information, from what I have seen, is consistent with that. We're now getting some stories of firms moving from the category of ""we're eager to compete"" to ""we're beginning to get some orders in the fall"" from that. The other important factor is that we are assuming that the lull in growth in the first quarter in other major industrial countries, at least as far as Europe is concerned, will be replaced by faster, though not exuberant, growth over the next six quarters. A third factor, which we may not have taken into account quite as much, is that in the last several quarters with the Mexican situation we have lost exports and increased imports because they have moved [down] their exchange rate over the past year against the dollar; the rate had gotten out of line again, essentially since July of 1985. They also have lost income. The two things together have had an impact on our trade with Mexico, which is one [unintelligible], if anything, we should at least be reducing in emphasis.",389
-fomc-corpus,1986,Maybe it would be worthwhile getting any comments Committee members may have at this particular point on the external prospects.,21
-fomc-corpus,1986,"Well, I think it would be very nice if the forecast came true, but I'm pretty pessimistic. [I doubt] that we are going to see [export] growth rates of up to 15-1/2 percent on a quarterly basis. Certainly, in Europe and Japan it's going to be very tough for Americans to make rapid inroads into those domestic markets. And at the going exchange rates, I don't think we really have a competitive advantage, although we have roughly leveled the playing field versus other industrialized countries. I don't see the growth in the LDCs--and I think that's where the relative exchange rate movement probably has a bigger role to play, because when you're competing in [third] markets you're on more equal terms than when you're competing in foreign home markets--in spite of the generosity as far as Mexico is concerned. The federal deficit, I think, plays a role too. And that certainly isn't going to come down as fast as the trade balance comes down [in your forecast], from $146 billion to $82 billion at the end of the forecast period. That's a terrific swing. My last question to you really would be: What do you assume as far as exchange rates are concerned to make that scenario compute?",251
-fomc-corpus,1986,"We're assuming a further moderate decline, at least on the scale that we've seen over the past 17 months or so now. So, the dollar declines at roughly a 10 percent annual rate through the end of the forecast period. Given the lags in these relationships, though, most of that decline will not affect the nominal value of the trade balance; in fact, we even have [forecast] an adverse affect on it. As a consequence of that--you're quoting GNP numbers I guess--the trade balance [deficit] itself goes from the $150 billion range where we are now to only about $130 billion in the fourth quarter of 1987, just--",136
-fomc-corpus,1986,"This gets confusing. Now, what--",8
-fomc-corpus,1986,I think you're quoting--,5
-fomc-corpus,1986,The $82-1/2 billion that Governor Heller quoted.,14
-fomc-corpus,1986,Net exports.,3
-fomc-corpus,1986,Net exports on a real basis.,7
-fomc-corpus,1986,Right.,2
-fomc-corpus,1986,In the fourth quarter of 1987.,9
-fomc-corpus,1986,"You get a big difference between the real figures and the nominal figures, which gets very confusing. But a real increase in exports is still there in the forecast unless, assuming the question--",37
-fomc-corpus,1986,"As I'm sure you know, there's a lot of port activity on the West Coast and the--",19
-fomc-corpus,1986,A lot of what activity?,6
-fomc-corpus,1986,"Port activity on the West Coast. The international trade picture there is very mixed. The public figures on port activity really don't provide much of an indication of a turnaround in the net export picture. But having said that, we certainly have picked up information that there are several key products where the situation has changed rather dramatically. There are larger exports of such things as citrus and almonds, particularly to the Far East. Wine is doing quite well and, just looking at it from the net export position, there has been a very substantial decline in imports again. Wood pulp is up significantly as well as seafood. So there seems to be some change but it's more anecdotal at this point and hasn't shown up in the port [activity figures].",145
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"I have just a little different impression, Mr. Chairman, on the trade front. Some of the retailers that I've talked to recently have been reporting some price increases of goods. It's still very spotty, but it does seem to be appearing more and more in autos and apparel. It doesn't seem to be getting through to the manufacturers, and the reasons that I hear for this are: first of all, that the quality of the goods coming in from abroad is very, very good and highly competitive with U.S. goods; and secondly, that some customer loyalty to some of these products apparently has been developing. It's hard for me to believe that price is not going to be an important ingredient down the line, but at the moment the price increases have not yet overcome the tendency of the purchaser to buy what he is used to buying given that he's also getting a good quality product. The other thing that I'm hearing a lot is that the improvement in the dollar vis-a-vis our trading partners, because it has been confined to the European currencies and to the yen, has not really helped a lot of industries in the Southeast. I've reported this before. This is particularly true with respect to Canada and to the east Asian countries such as South Korea. So we're not seeing in the Southeast any particular improvement in the trade sector yet.",264
-fomc-corpus,1986,"The same is true in the Mid-Atlantic states. You hear some anecdotal evidence here and there that suggests that perhaps there are a few more orders. But there's a great deal of skepticism that any kind of a major turnaround in the trade sector is going to occur. In addition to the arguments that have already been given, the market share argument keeps coming up: that with unemployment high in European countries, it's just very difficult to lose those markets even with thinner margins. So we don't see anything that would lead us to share the kind of optimism that's implicit in the forecast.",115
-fomc-corpus,1986,An argument we hear in our area that would put us on the side of not being very optimistic is that a lot of our manufacturers are conducting trade with countries with an exchange rate that hasn't moved very much. We hear that time and time again.,49
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"One of the problems, Mr. Chairman, is that the lags are so long that I, too, am a little pessimistic about our ability to turn the situation around. I looked at the last two periods of decline in the dollar since 1970 and in those two periods the lag before we got a substantial change in net exports, apart from a bottoming out process, was 7 to 8 quarters. If we get this kind of sequence again, that means that we shouldn't expect to see much before the fourth quarter of this year or perhaps not even until the first quarter of next year--unless something in this cycle is going to shorten the lags. And I suspect that's not going to be the case. The lags are long and I think we have to be a little patient.",162
-fomc-corpus,1986,Governor Angell.,4
-fomc-corpus,1986,"I think we not only have the normal J-curve effects here, but we also have to look at this in terms of the deflationary environment. That is, the J-curve effects in an inflationary environment could be quite different than in a deflationary one. We've already seen the impact of oil prices in terms of wanting to hold inventories during a period of declining prices. And we've now gone through a period with declining agricultural prices because of a U.S. policy change. We're now seeing a period of falling agricultural prices with a huge feed-grain crop, corn crop, coming on this fall. You tend in those circumstances to expect to find people delaying their purchases because they expect prices to be lower; so inventories will tend to be drawn down. I think our agricultural exports are probably not going to be picking up very much very soon.",171
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"I'd just add to this a little. I agree that consumption seems to be doing quite well, but I think that we're probably putting too much emphasis on the G-10 trade-weighted dollar for the reasons that already have been mentioned. We're doing quite a bit of trade with a lot of countries whose currencies are still depreciating relative to the dollar; Canada and Mexico, our border countries, are good examples of that. It's not unreasonable to expect to see a continuation--well, there may not be a deterioration in our imports but, of course, if oil prices bounce back up a little we may see a further deterioration in imports. And with all the relative weakness in European and Japanese demand we're certainly not going to see improvement on the export side of the market. It is very difficult for me to see where this domestic production is going to come from. I still think that we're probably overestimating the impact of the trade-weighted dollar against the G-10 countries. I think that's the problem.",201
-fomc-corpus,1986,"Well, in fact, we have tried to make an allowance for that in the forecast. That's one of the reasons why we have not gone with traditional model estimates as our basic forecast; we adjusted the G-10 [index] in putting the forecast together. I might add that I have a table here of our forecast and 8 other forecasts of the current account for 1987 and of the 9 forecasts listed on this table we have the largest deficit at $135 billion; the lowest is $98 billion. Now, there are price and quantity effects involved; so we may be too pessimistic on the price side and too optimistic on the quantity side. The two together, in any case, would produce for us a much higher current account deficit than anybody else who is represented in this listing.",161
-fomc-corpus,1986,"From our perspective in the heartland, there has been some encouragement taken from the recent legislation for export subsidies of farm products--farm exports being a very big component part of our exports. I guess my question to Ted would be: Have you factored in the result of that subsidy program?",58
-fomc-corpus,1986,"We have. We had built in a drop in exports of the agricultural sector in the first and second quarters in anticipation of that program. That is one basis for the modest increase we have, which is on the order of $2 or $3 billion in 1982 dollars, in our agricultural exports over the period.",64
-fomc-corpus,1986,"I have a fairly specific comment, but one that relates to heavy manufacturing. I had an opportunity a couple of weeks ago to visit with I think that reasonably describes the company. Their principal market, of course, is He observes that that's an industry that has a very, very significant worldwide overcapacity. Gradually, the business of the manufacture of has been coming under foreign control; as you know, within the last week there has been a further development on that. As a consequence, they just haven't had any benefit at all from the change in the value of the dollar and they say that the pricing in the market is just absolutely fierce. They finally, and maybe belatedly, have come to the conclusion that they just can't compete [unintelligible]. And they're going to begin to move a greater percentage of their production offshore as a way of trying to maintain their position. They just concluded that they can't compete when they manufacture domestically and that they're going to make a change. These [changes] tend to be fairly permanent. But it's the only way they see that they can remain viable in a very tough market.",226
-fomc-corpus,1986,"May I ask a question? I heard a story the other day that there's a massive shift in demand into Canada for U.S. autos--General Motors and Ford-type automobiles--and that they're having to put sanctions on the dealerships in Canada to keep the flow of traffic from going over the border, given the exchange rate shift, to buy automobiles. I don't know if that's affecting the domestic sales level any, but have you heard anything like that?",89
-fomc-corpus,1986,No.,2
-fomc-corpus,1986,"I heard that same report. They were talking about something like $3,000 on a--",19
-fomc-corpus,1986,"Yes, a huge [difference].",7
-fomc-corpus,1986,"The report said that a car you could buy for $12,000 here you could buy for $9,000 in Canada, which was something like a 25 percent markup here. The Canadian dollar has not depreciated 25 percent.",48
-fomc-corpus,1986,"Yes, it doesn't--",5
-fomc-corpus,1986,"So, it sounds like they started out with a differential pricing policy that has come home to haunt them. It seems to me a segment of the market--",31
-fomc-corpus,1986,"I couldn't tell if that was the case or not, but it sounded like they were inundated with U.S. crossovers and I just wondered--",30
-fomc-corpus,1986,Are these American cars?,5
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"There was a joint agreement so that the trading, at least at the dealer level or the manufacturing level, is free between both parts and cars.",29
-fomc-corpus,1986,It's not clear if some manufacturers export the cars up to Canada and import them back down or--,19
-fomc-corpus,1986,"Well, I don't know if manufacturer--",8
-fomc-corpus,1986,"Then they resell them in both markets; they are sold in both markets and they have different prices, not just a lower price in Canada. So, a large number now have sanctions.",38
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"I wasn't going to comment on this, but since it involves going back and forth to Canada, people from Detroit understand all this because they've gone back and forth to buy gasoline when it was cheaper there than back in Michigan and the same [is true] with automobiles. They really watch this very carefully; they run over [the border] for meals, etc. So I'm sure they psyched it out. I just want to report on some empirical research I did a couple of weeks ago by strolling through some local department stores and appliance stores. When you do that you see a lot of merchandise, at least in women's clothing, say, that is from Korea, Hong Kong, Taiwan, and even China. So, again, I think that looking at the typical series we look at for the weighted-average value of the dollar is just not that illuminating because the currencies of these countries have not appreciated against the dollar. So there hasn't been a big advantage for us here. In appliances, I was stunned to find the inflow from Korea. I used to think it was the Japanese that were providing all these TVs and so forth, but the Koreans are sending in a lot. Also, I saw quite a bit from Taiwan. So, I don't think that we're going to get a lot of consolation from this particular distribution of imports. And, in talking with a lot of industrialists whose main competition comes from Canada, they are not getting good vibes at all. The Canadian dollar is continuing weak relative to the American dollar.",303
-fomc-corpus,1986,Their trade deficit is beginning to increase. Their trade surplus is declining; the current account is increasing.,20
-fomc-corpus,1986,"Let me defend the weighted-average calculation, for what it's worth. The theory about these countries is that sure, the Korean currency, say, may not change but their balance of payments won't change either. And they now have an enormous incentive to divert some exports to Europe and Japan instead of to the United States and to buy more in the United States relative to what they buy in Japan and Europe. Now, it may [not] work out so neatly, but that's the theory.",96
-fomc-corpus,1986,"Yes, but if you're talking to someone from Bob Forrestal's area or some Senator from South Carolina, I think that these kinds of relationships are significant because they have a lot to do with protectionist sentiment, even though it all may come out in the wash.",53
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"First, I would follow up on a comment that Roger Guffey made. I think there are a few flickers of optimism, particularly among the wheat producers in our District. And that was true even before the export subsidy program was announced, [unintelligible] more price controlled. But beyond that, I would say that we are seeing some sustained and probably growing protectionist sentiment in the District. There's no other way to describe it. Also, I'd like to follow up on something Governor Heller mentioned and I hope this isn't an extraneous question: Jim, you do have a very significant narrowing of the budget deficit next fiscal year and it's not clear to me how much of that is due to Gramm-Rudman or other overt steps to reduce the deficit and how much is based simply on readings of the current services budget as it now exists.",172
-fomc-corpus,1986,"Our current fiscal year 1986 budget deficit is $225 billion and we have it going down to a little under $170 billion, to $167 billion. Included in those numbers is essentially $45 billion of explicit deficit-reducing actions, $9 billion of which already have been enacted in a reconciliation bill so that $36 billion remains to be done at this point. That was our reading of a combination of what would be done in the budget process in reaction to Gramm-Rudman as well as revenues from tax reform. We had assumed about $15 billion on tax reform; now the estimate, if it goes through as currently planned, is that there would be a revenue increase of about $11 billion. So we're a little too high on those revenue increases. The rest would represent economic growth. Basically, the answer to your question is: [deficit reduction] in the $35 to $40 billion area, with explicit actions that would need to be taken to be consistent with the forecast.",201
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Yes, I'd like to return to the trade issue a minute. Clearly, the lags are very long in terms of improvement. I really don't have great difficulty with where the Board staff's forecast ends up at the end of 1987. We're slightly more pessimistic, but not much more. It would seem to me important for those who are negative to quantify how much they are negative. If they don't see improvement, then I think that turns what might be an acceptable economic performance in 1987 into something that clearly is unacceptable. So, I'd like to know what the degree of pessimism is here on the part of those who are not optimistic.",132
-fomc-corpus,1986,"Are you pessimistic, Mr. Corrigan?",10
-fomc-corpus,1986,"I was going to say partly what Bob just said. If we don't get an improvement in the trade balance along the general lines of the forecast the outlook [for the domestic economy] does go from something that is marginally acceptable to something that's pretty anemic. Having said that, the further irony of the situation, though, is that to the extent that you try and fix that up--at least through monetary policy--you run the risk of aggravating the trade side of it in the short run, aggravating the very problem that you're trying to solve. It's very hard when you go through the numbers--by country, by product, by anything you can think of--to see exactly where the improvement is going to come. Frank, I too looked at that '77, '78, '79 experience in terms of the dollar. And that says to me, if anything, that the lags will be longer, not shorter, for two reasons: (1) the level of the dollar was much higher to begin with so that there's more profit margin cushion on the part of the foreign exporters; and (2) the patterns of economic growth in that period from late '77 to early '79 were generally more robust on a world-wide basis. The difference between the growth in domestic demand in the United States vis-a-vis the other industrialized countries today versus then is really very sharp. That too says, if anything, that the lags probably will be longer. I find this discussion about autos fascinating because I have a great deal of difficulty understanding how we're going to solve even the auto problem when, in the face of very sharp rises in import prices, domestic producers now are slipping in what strike me as very substantial increases in domestic automobile prices. This latest round of Chrysler price increases of 6-1/2 to 7 percent across the model line strikes me as astonishing in the current environment. The other point I would make, simply because it has been raised, is that I think the implications of this tax bill are a crap-shoot in terms of the near-term implications for the economy. I don't know, Jim, if you have any views on that, but it just strikes me as so incredibly complex that I am very hard pressed to have a judgment as to the net effect of it over the next 5 or 6 quarters.",472
-fomc-corpus,1986,"Well, for what it's worth, what we have in the forecast is a negative impact, principally in the business fixed investment area and in multi-family housing. We have felt that the uncertainty of the current environment may be depressing spending and that passage and clarification of the rules might lead, at the margin, to some increase. But, on balance, we view it as a net negative feature of the forecast.",81
-fomc-corpus,1986,"I can't quite shake myself from believing, even though people tell me not to believe it, that at least the near-term effects of it could very well be inflationary. I don't see how you can shift as much tax burden to the business side without expecting that some, or perhaps a lot, of that is going to be fed through on the price side. And those higher prices are going to be financed by the personal tax cuts.",87
-fomc-corpus,1986,"Well, phasing out the deduction of consumer loans over time should speed up some consumer expenditures now.",20
-fomc-corpus,1986,I don't know.,4
-fomc-corpus,1986,I would think.,4
-fomc-corpus,1986,"Also, the elimination of the deductibility of sales taxes has been cited in that connection. Make your big ticket purchases this year because you can't--",29
-fomc-corpus,1986,"Right. Yes, that's another good point.",9
-fomc-corpus,1986,"I feel that the tax change is so comprehensive that we're just going to have to play it by ear. I don't think we have any idea what the effect will be. Given all of the interactions in this bill and the dramatic changes, I don't think we're in any position to forecast what the effect is going to be on investment, on consumption, or on anything else. I think it's just beyond us. It's one thing to have an incremental change in one tax, but it's quite another to have a wholesale revision of the whole system. It seems to me it's just unpredictable.",115
-fomc-corpus,1986,"Yes. Speaking from [the perspective of] somebody who tried to do that for about 2 or 3 years while we were working on it, it is too complex, definitely.",37
-fomc-corpus,1986,"I've had a number of businessmen tell me that they think just resolving the tax issue and eliminating the uncertainty as to how investment is going to be taxed is going to exert some stimulus on investment, including multi-family investment. A guy who is running a lot of tax shelters says his firm is regearing and is going to start building projects on an economic basis.",71
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,Does that mean that vacancy rates will once again enter into the picture?,14
-fomc-corpus,1986,It means they won't build anything.,7
-fomc-corpus,1986,They'll build in areas where the vacancy rate is still lower.,13
-fomc-corpus,1986,"Well, I think we probably are getting off just this external side. Let's wind this up with any comments anybody has about the business outlook generally. Mr. Wallace, do you have something?",38
-fomc-corpus,1986,"Mr. Chairman, I want to raise a question with Jim about his forecast that is unrelated to the trade issue. Jim, you've mentioned that your forecast is based on an assumption of a $16 oil price by early 1987. Are you assuming that there will be stability at that level and that that will be reflected in economic activity in 1987--that is, increased exploration and drilling and so on? Our people, for example, feel that there's going to be some considerable lag before an increased oil price is really going to be felt in the economy.",113
-fomc-corpus,1986,"I think the path that we've assumed is something like $11 this quarter, $14 in the fourth quarter, and then $16 in [early 1987]. The $16 thereafter is, in part, ignorance; we've just assumed stability at around $16. What that does on the price side for petroleum products is that in the fourth quarter we'll begin seeing some price increases and under that scenario in the first quarter and in the spring they should be fairly large. Then it sort of flattens out. Outside of oil prices, in other service fuels, electricity and natural gas, that sort of thing, we think prices will continue to drift down; they've been laggards in this process. On activity, we ended up essentially suggesting that by the fourth quarter the halt in the decline in petroleum drilling will stop. And by the second half of next year we've added several billion dollars in increased activity. We may have it wrong, but the main story is that the decline stops sometime around now and we're just going to see small increases in 1986, but probably more later on.",218
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"To continue along the line of inflation, Jim, your forecast for the fourth quarter of 1986 shows a fairly significant drop in the inflation rate from the third quarter. I know most model forecasts are monotonic and I wonder if you had something in there that is special that we should note since the price level in your forecast is probably a lot lower than a lot of other people have.",78
-fomc-corpus,1986,This is the fourth quarter of 1986?,10
-fomc-corpus,1986,Yes. The deflator goes from 2.5 percent to 2 percent and that's not usually what happens in a model forecast.,27
-fomc-corpus,1986,"No, this isn't a model forecast.",8
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,"I think what happens is the initial perverse effects of higher oil prices; oil imports coming in at a higher price are subtracted out, which affects the fourth quarter.",34
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,"In effect, it's the arithmetic of GNP accounting in the deflator in that quarter when oil prices are rising.",23
-fomc-corpus,1986,So the domestic deflator probably would show this continuing increase.,12
-fomc-corpus,1986,"It would show higher prices, right.",8
-fomc-corpus,1986,"Okay, thanks.",4
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"I would just make a general observation. We've talked a lot about the dependence of this forecast on the foreign trade side and the substantial improvement there. But it seems to me that in some sense this is a reasonably conservative forecast even when you make that observation. As I look at what's in the forecast for consumption, for government spending at the federal level, for residential construction perhaps, and for durable equipment, it seems to me that those are all relatively conservative outlooks. I can certainly imagine without much difficulty that one or more of those components may do somewhat better than this forecast embodies. So, even if we don't get the material improvement in the trade picture that we're talking about, or if it's slower to come, or whatever, I'm not sure that that jeopardizes the forecast to such an extent that the outlook next year becomes unacceptable, at least to me.",171
-fomc-corpus,1986,Anybody else have any general comments?,7
-fomc-corpus,1986,"One last comment to follow up on Bob Parry's question. I'm not sure I can think far enough ahead to 1987; I'm more concerned about the rest of 1986. I'm not that pessimistic regarding the trade side except that my major pessimism lies in the area of growth in the industrialized countries. It appears that Germany may be on a better track now, but I'd like to see those numbers in detail before I'm convinced that they're going to do better than 2 percent growth this year. And Japan doesn't look like it's going to be improving. So I just don't see the pickup there. I think that Japan is at the beginning of a long transition process and that we're probably not going to see them improve dramatically for some time. I may be wrong about that but it appears to me that they are not going to be making any major contribution to export demands. The rest of Europe doesn't impress me all that much, but I'm hopeful that Germany is starting to pick up. A lot of my opinion about 1987 and the rest of 1986 will depend on how solid this German growth is, but I'm not particularly excited. I think we're doing reasonably well domestically but so much is being affected by the trade side.",250
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"Mr. Chairman, we come out about where I think Gary Stern came out in saying that the staff's forecast is probably pretty reasonable. Like most people around the table, we think that this J-curve is going to be a little lazier J-curve, to use a metaphor, than the staff has assumed in its projection. By the same token, we believe consumption expenditures probably are going to be a little greater because of the low interest rates and the low inflation and the high increases that are occurring in personal disposable income. And I think this tax bill probably will have a positive effect upon consumer expenditures. I end up by saying that if we do achieve the results the staff is projecting I think that's a darn good set of results for this stage of a business cycle, given all these structural problems that we have in the economy now. I don't think we can hope for much better than that.",180
-fomc-corpus,1986,"I, too, would like to respond to Bob's question; it's a very good question. It's easy to say somebody's forecast is wrong without trying to do your own. I would tend to put off by maybe up to two quarters the improvement in the net export picture. The staff has a $26 billion improvement shown between Q3 and Q2 and a $28 billion improvement of Q4 over Q2. It seems to me that that could be very difficult to accomplish, particularly because oil prices might be causing people to want to have higher oil inventories--and higher oil inventories don't come out of U.S. production, they come out of more imports. If that export picture doesn't improve then it seems to me somewhat difficult to get quite as much improvement in the U.S. government budget deficit as shown. So, I would just tilt a bit in that regard. I think there is a reasonable chance of getting the [staff's] 1987 growth rates in the export sector; if we don't we're in trouble.",205
-fomc-corpus,1986,Anybody else have any general comments? Governor Wallich.,11
-fomc-corpus,1986,I'd just [emphasize] the point that I tried to put out before. It seems so simple to say but it still is very difficult for me. I hope you'll just bear with me; maybe I will not say anything now.,48
-fomc-corpus,1986,"Anybody else? If not why don't you give us a little run-down, Mr. Kohn, and we'll go and eat a doughnut.",29
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,"Reverting to Mexico for just a minute: Mr. Truman pointed out to me that the IMF has more than you want to know about the Mexican program in an IMF document, which he will be glad to make available to you. It is only 53 pages, single-spaced.",57
-fomc-corpus,1986,It's 68.,4
-fomc-corpus,1986,"Sixty-eight, single-spaced or-double spaced. I have reached the advanced age where I can't read IMF documents. I haven't found that a great loss. Returning to our present problems and dilemmas, I think we are in a situation where there aren't any good choices. Let me just make a couple of points. A number of the Reserve Banks have proposed a reduction in the discount rate. I think that is obviously on the table as a policy variable in the period immediately ahead. [We'll be] judging more after the conversation than before in terms of how desirable that is. I have a few comments on the international setting which, of course, we can't expect miracles from, given all the lags. But it is rather [unintelligible] in the short run in terms of exchange rate movements and somewhat [unintelligible] I hesitate to say in the longer run, but not immediately in terms of prospects for growth abroad. I think the situation in Germany, which is of course typical in Europe, is dominated by what appears to be a rather satisfactory--and they would almost say better than satisfactory--economic outlook, as they read it. They did not do well for a couple of quarters or more; but apparently the gross national product will have a very large rebound in the second quarter. The decline in the first quarter was probably partly statistical and the increase will be partly statistical, they think, however you look at it. I don't know whether it will be as strong as they think, but they are expecting the data to show a very strong second quarter. And they are anticipating a continued pretty good rate of growth, in the area of an annual rate of 6 percent or more, through the rest of this year anyway. It remains to be seen whether that materializes; they need that kind of growth to come up to 3 percent year-to-year increases, which is what they were talking about earlier. At some point we were talking 3-1/2 or even 4 percent; we're clearly not going to make that. Still, in their view, they think they'll make the 3 percent, which requires rather strong growth from now on. German monetary growth is significantly in excess of their target--not significant in our terms, significant in their terms. They usually meet their targets and that doesn't give them any eagerness to move. If you just look at Germany, I think that is all understandable, if you have any confidence in their outlook. The German failure to move on the discount rate not only gives us problems in terms of the immediate exchange rate repercussions of what we do but I think it also, rightly or wrongly, blocks action elsewhere in Europe where the economic outlook is not so ebullient. The French and the British have been very reluctant to move because of their concern about their own exchange rates vis-a-vis the mark if the Germans don't move. They would be delighted to see the Germans move. Whether the Germans move or not, I think there is virtually no chance of their moving on their own initiative. Whether they would move under some pressure within Europe instead of pressure from the United States--. That may be counterproductive because they have made it an issue of national honor not to respond to external pressure. But I think there is a reasonable chance that they would move if other people move first and the exchange rate, in fact, reacted. Then they could just throw up their hands and say: We don't think it is a good idea but external developments give us no choice. That is not certain, but I think it is a reasonably good prospect. In fact, I think that As for Japan, I don't feel I know much about the outlook there. I don't see any reason for thinking it is as strong as the Germans think their outlook is. It looks like a very sluggish picture being affected by the external squeeze, if that is the right word. It's hard to call it a squeeze when they have a surplus of $70 billion or so. The external surplus is no longer rising except as a result of the oil price decline, and I guess there are some real declines in their exports that feed back into their domestic growth. They do talk about putting together some kind of a fiscal package, but I think that really has a long fuse on it in terms of affecting the economy. That doesn't do us much good in the immediate exchange market situation. Again if they move at all, [it might] be merely a reaction to being forced into it. I haven't had any real contact with them recently but it doesn't sound all that encouraging. The other point is that certainly the Germans, and I am sure the Japanese, would be much happier if we would intervene, along with them, at some rate not very far from today's rate. We might in some sense be close to a point of ""buying"" a discount rate decline in exchange for a promise to intervene visibly, if not aggressively, to support the dollar. I am not sure that wouldn't be a reasonable bargain for us to make, but the bargain has not been struck anyway. They would like us to intervene without them doing anything, which just isn't a negotiating posture; I don't think the United States will find that acceptable. Conceivably, if everybody moved that might be a way to encourage some action. I think the upshot of it is--I am sure in the case of the Germans, I can't be absolutely sure in the case of the French and the English or the Japanese [unintelligible]--that if we move in the immediate future, within the next week, I don't think they will do anything; but they might do something in reaction to what happened.",1144
-fomc-corpus,1986,"I don't understand that last point. If we lowered the discount rate, the Japanese would not follow us but would instead intervene to maintain--",27
-fomc-corpus,1986,"Well, I think they would probably intervene too, but what they'd like us to do is intervene. They kind of say: Well, you go ahead and reduce your rate and then we will all intervene to support the dollar. The Germans would say that too. You go ahead and reduce yours if you think it is necessary and then why don't we all conduct joint [intervention].",76
-fomc-corpus,1986,And as a last resort--,6
-fomc-corpus,1986,"No, I'm saying I think it might be a reasonable view that they also would reduce their rates.",20
-fomc-corpus,1986,I see.,3
-fomc-corpus,1986,"Now, I am not sure that the Treasury would think it is a reasonable deal. I am saying that from my point of view it seems a reasonable deal.",32
-fomc-corpus,1986,"The last time we took the lead in reducing the discount rate there were clearly great expectations, I thought, that some of the secondary countries such as France, the United Kingdom, and others would follow along, and they did not.",46
-fomc-corpus,1986,"I tell you there were very clear expectations; they had told me they would. What changed their minds was that during that week both the franc and sterling weakened, in their terms, significantly. That probably [now] appears as a very small blip on the charts. But they were both very sensitive to that fact. We probably discussed that as late as a Tuesday, at an Open Market Committee meeting, and they had told me the previous weekend that they would move. But on Wednesday, Thursday, and Friday, or at least on Thursday and Friday, their exchange rates weakened--the British pound because it kind of got caught up in this oil situation and the French franc for other reasons, I think. They just felt uneasy about moving when their exchange rate was weakening. And that is the same hang-up they have now since the franc has weakened further against the mark. What is sterling doing?",179
-fomc-corpus,1986,"It has gotten some strength but net, on balance, it's down against the dollar.",17
-fomc-corpus,1986,I think both the British and the French are probably in an untenable position. They would both like to ease but neither wants to pay any price in terms of their exchange rate.,36
-fomc-corpus,1986,Then you wouldn't expect them to move until Germany moves?,11
-fomc-corpus,1986,"Well, I think the answer to that question is no. Whether I would exclude it entirely, I don't know. I am afraid neither of them will move without the other moving and I just [unintelligible]. I can find that out, but my suspicion is they won't. I can't entirely exclude a move, but the straight answer to your question is: I wouldn't count on it purely because of [concern about] exchange rate movements. There is no doubt that they would like to move. If the Germans moved, [the British and French] would move in a second. But one thing I am sure of is that the Germans aren't going to move in a second.",137
-fomc-corpus,1986,Is the timing issue with the Germans a question of the time between when the Federal Reserve would move and when they would move? Or is their timing dependent on some other factor?,35
-fomc-corpus,1986,"I wouldn't characterize it as a timing issue. From their basic standpoint, they don't want to move. Just look at their internal situation. They might move in response to external developments and a very strong mark. That would make the move come later in time, but it is not that they think it will be great to move in September as opposed to now. If nothing changed and they weren't under any pressure to move externally by September, they wouldn't move in September either. They basically don't want to move. And that is easy to understand, if you just look at their domestic picture and you give credence to their confidence about their own outlook. It may not be as ebullient as they say, but that is what the argument is; it does look strong if you just look at Germany by itself. They have had a big increase in real income because of the exchange rate and oil. They have had a pretty big wage increase and no price increase is another way of looking at it. They have a very strong consumption picture at the moment; I don't know whether to call it a boom because it hasn't been going on that long. But they had strong consumption in the first quarter when GNP went down. They were estimating--not in our terms, but the way they look at it--an increase in real consumption at a seasonally adjusted annual rate, I forget the exact figure, of 12 to 13 percent in the second quarter. Now, those are partly phony statistically because they don't make working day adjustments. I don't understand it: they seasonally adjust the figure but they don't adjust it for working days. I guess it is a straight seasonal adjustment procedure and it doesn't take account of different numbers of working days. They have a sharp alteration of working days between the first and second quarters, so the first quarter wasn't as bad as it looked and the second quarter won't be as strong as it looks statistically. But nonetheless, it will look strong--they think very strong.",398
-fomc-corpus,1986,"If we moved unilaterally and the Germans did not, what kind of pressures would occur on the dollar? Or is it on a slightly different track than it may have been in the past?",40
-fomc-corpus,1986,"Well, it is anybody's guess, I suppose. You would think that the dollar might [weaken], given not very strong confidence in the market. Anyway, it would depress the dollar but that is the chance you take. How much, how far? I don't know whether Mr. Cross has any inside story.",64
-fomc-corpus,1986,"No, I don't have any inside story. But I certainly know that a great deal of attention was paid to the fact that we moved unilaterally without the others the last time. That made quite an impression in the market and I certainly think they are watching very closely. There is a risk there, but it is hard to assess how big it would be.",74
-fomc-corpus,1986,We had a 4 to 5 percent decline in the dollar against all the other major currencies. I would think that would even accelerate.,28
-fomc-corpus,1986,"Well, peculiarly, it went up for a couple of days [unintelligible] then came down.",24
-fomc-corpus,1986,They spent quite a large sum of reserves supporting it.,11
-fomc-corpus,1986,The Japanese--,3
-fomc-corpus,1986,The Japanese fought it.,5
-fomc-corpus,1986,Hasn't Germany as well?,6
-fomc-corpus,1986,"No, Germany has not.",6
-fomc-corpus,1986,"Part of the psychology with respect to the dollar seems to be looking to the level of economic activity here. To some extent you would think, initially, that a pickup in activity here would be a positive factor, some kind of insurance policy. Then I think about what we were talking about earlier: that the risk, if you will, is on the consumption side. If the consumption side picked up one could conceivably feel initially, given that psychology, that the pickup was an insurance policy--insurance that we wouldn't get into a free-falling situation. But I worry a little about that psychology turning on us because if our consumption did pick up we could continue to run large trade deficits. At some point, inflationary psychology could possibly start to filter in there and [with it] the unwillingness to continue to hold dollars at these rate levels or however you--",173
-fomc-corpus,1986,"I agree with that; people can make that argument. I wouldn't put much weight on this. What if we ease? Let's say we reduce the discount rate and that would make people feel so good about the economic outlook that the psychology of the economic outlook would outweigh the change in interest rates. I think that is a theoretical possibility. In the practical sense, [the probability] that a half percent reduction in the discount rate is suddenly going to make people feel ebullient about the business outlook is close to nil. If it did, I think you would forget that psychology. I just think the chances of that happening are extremely minor. Now, if it was followed not just by strong consumption figures but by accident you got stronger investment figures and you had good employment figures for August then, yes, the dollar could strengthen regardless of what we did on the discount rate. I don't think it will be because we reduce the discount rate.",186
-fomc-corpus,1986,"Your own staff projections assume already a decline of the dollar of 10 percent to make the projected trade picture come true. So, if we don't get any dollar decline at all, presumably the trade picture would be a lot worse than--",47
-fomc-corpus,1986,"If you put a lot of weight on our staff forecast, that's right.",15
-fomc-corpus,1986,"At least for consistency purposes. Well, the feeling around the table was that people were a bit more pessimistic than the staff was, so you clearly need the exchange rate story--",36
-fomc-corpus,1986,"Analytically you are correct, if your starting assumption is correct. One of the real dangers we have here --it may be more apparent in the case of Japan now than in Germany--is that that same dollar decline would further depress business activity and expectations in Japan. It works against you. You may gain on the price side and lose on the income side.",73
-fomc-corpus,1986,You kind of stretch out the J-curve in the process.,13
-fomc-corpus,1986,In nominal numbers you stretch out the J-curve.,11
-fomc-corpus,1986,That is one of the problems if they just continue to resist on their discount rate.,17
-fomc-corpus,1986,"But it is something of a problem, it seems to me, to assume that we know that at the current level of the dollar the trade will work when that J-curve is fully operational. If we were to make a stand on the dollar at this point and turn out to be wrong--",59
-fomc-corpus,1986,"When we talk about intervening, I am not talking about a life or death struggle to protect any particular level of the dollar. My own feeling is that if we are not competitive, particularly against the yen, at these levels heaven help us. I don't know how we will get out of this problem. But that may only be evident in a much more fully employed economy abroad where there are some pressures on capacity and all the rest. And we are some years away from that. That is not going to develop this year and it isn't going to develop next year; it may develop in 1988, but you've got to wait until 1988.",131
-fomc-corpus,1986,"That hurts us, not just with regard to our exports to Japan, but it hurts us with regard to our exports to many of the [unintelligible] and the Third World countries where Japan is going to try to make up for their lack of growth in [exports to] the United States. They are going to try to beat [us in] those other markets.",76
-fomc-corpus,1986,"If you look at Japan as the big surplus country in the world, which it is, and say that is where the adjustment has to fall, the adjustment is not necessarily in trade with the United States but in trade with Third World Countries. When you look at how [un]willing they are at any exchange rate to welcome more textiles from Korea, or more cars from Korea--or steel, I guess, is the more relevant product from Korea--they are going to scratch and dig and resist importing steel from Korea like crazy even though Korean steel is selling at half the price of Japanese steel. It may happen over time but it isn't going to happen very fast. The one developing country that is running a big surplus on current account--the others aren't running big surpluses--is Taiwan. Their current account is really huge; for the size of the economy, it is absolutely enormous. That is the one LDC that has an adjustment problem of its own. Korea has a lot of debts; they are not running a big current account surplus. Canada is not running a big current account surplus; Singapore isn't; I don't even think Hong Kong is. Taiwan is, but that is only one country.",242
-fomc-corpus,1986,On current account you also get the big statistical discrepancies worldwide--,12
-fomc-corpus,1986,Half of our deficit is in the rest; its counterpart is the statistical discrepancy.,16
-fomc-corpus,1986,So that is a lot worse in the current account than the trade account.,15
-fomc-corpus,1986,I think that what we need is a lower current account [deficit] and that means less favorable international relations.,23
-fomc-corpus,1986,"We need a lower current account deficit, I think, over time. The question is, how do you get there without--",25
-fomc-corpus,1986,"I don't think we want to create a psychology that would lead to a real impression that we were aggressively pursuing a lower dollar policy. I think that is something we should try to avoid at all costs; at the same time, I wouldn't be that upset by some sort of symbolic intervention--because I think that is what it would be, basically.",69
-fomc-corpus,1986,"If we were intervening, just to make it clear, I presume what we would do is intervene around 150 yen, which is already lower than what it is now, and 200 marks. Getting down to there, say, with a reduction in the discount rate, would be very easy to contemplate. We are already about one-third of the way to the reduction that Mr. Truman is projecting for an 18-month period.",87
-fomc-corpus,1986,"I want to come back to the interest rates and the exchange rates. To not cut the discount rate or lower interest rates in order to avoid the drop in the exchange rate I think would really give the wrong signal to all our foreign countries. And that is exactly what you are saying. By doing that, you are in essence forcing their domestic hand, which you want to do anyhow. That is where you want to be and the exchange rate is the threat--",92
-fomc-corpus,1986,"I don't seem to ""force"" very well.",10
-fomc-corpus,1986,"Well, then the exchange rate is the thing that will do it eventually. I am the last person who would like to see a low dollar for international financial purposes. But on the trade front, it may forestall the protectionist [unintelligible].",52
-fomc-corpus,1986,"On the protectionist side, we are running out of steam. This point of protectionism is the same: I don't care where the dollar is, I don't see any results. They just want protection in the same period but it doesn't hurt [unintelligible]. But I think we could have managed in the worst of all worlds where you get a lack of confidence in the dollar and it damages their outlook and it damages our outlook at the same time and forces interest rates up in the end instead of down. Then we are in an unholy mess. But we are playing on the fringes of that whatever--",124
-fomc-corpus,1986,I noticed--I may be pre-conditioned to look for this sort of stuff--that in the last month there seem to have been a lot more stories in the popular press about reviving concerns domestically about inflation. I have seen three or four different ones and I don't think we can lose sight of that either in looking at our monetary policy in the context of the purely domestic setting.,77
-fomc-corpus,1986,"I would like to latch on to that because I agree with Tom on that. We have a lot of problems in this country, no question--in agriculture, manufacturing, energy, and so forth. The near-term outlook for investment certainly doesn't appear to be very good. But most of these problems are due to such things as structural changes in the international market, the federal budget deficit, and uncertainty over the impact of the tax bill. And there is not a lot we can do about that with monetary policy. We could undo a lot of the progress on inflation if we overlooked those concerns.",118
-fomc-corpus,1986,"To my mind, the problems are not very soluble. I see that time is passing. Maybe we better get to a decision here. Just in the interest of short circuiting this, given the time--I don't want to short circuit any discussion that people want to have--I suspect that the idea of tightening monetary policy at the moment is not very appealing. [Hearing no objection] we can reject that option. If we were going to ease, in the broader sense, I am not sure that the best way to do it is by easing what is already a very easy open market posture. That leaves me the very easy decision, insofar as open market operations are concerned, that we have to stay about where we are. That leaves open the question of the discount rate very specifically.",159
-fomc-corpus,1986,"Well, I think you said it.",8
-fomc-corpus,1986,"If we did that, that would put us in a posture like the last time: the same borrowed reserve target and a lower discount rate and a lower funds rate.",33
-fomc-corpus,1986,"No, I meant that we ought to stay on the current policy course and not move toward ease.",20
-fomc-corpus,1986,"Let me just make a little artificial distinction and ask, regardless of the discount rate: Would anyone want to argue differently than staying roughly where we are? Actually, we've been playing it slightly on the easy side from where we were about one month ago--you can see it in the funds rate--when you adjust for Tulsa, Oklahoma borrowing.",68
-fomc-corpus,1986,"May I ask you a quick question? Please rule it out of order if you don't [think it's appropriate]. In the Bluebook, and also earlier in the discussion, it came up that [the staff] expects monetary growth to slow down in the next two or three months.",56
-fomc-corpus,1986,We often expect that and it often doesn't happen.,10
-fomc-corpus,1986,"Well, it is a very comforting thought. Why?",11
-fomc-corpus,1986,"I don't put much weight on it, but if I may summarize--Mr. Kohn can go on and give you a more erudite answer--when you put this stuff in the equations and you assume no short-run change in interest rates--and there hasn't been much in the recent past--the result always comes out that monetary growth will slow down. Whether it does or does not depends upon what [else] happens. But that is the way the equations tend to look.",97
-fomc-corpus,1986,One-time adjustment to the change.,7
-fomc-corpus,1986,"I am not sure whether this is more or less erudite. I think there are two things working: one is that some of the boost [to M2 growth] in July was what we think was a one-time spurt because the banks did accumulate record volumes of Treasury securities and financed them with overnight RPs, which end up in M2. So we don't--",76
-fomc-corpus,1986,Why is it a one-time spurt?,9
-fomc-corpus,1986,"Well, we don't know; we are assuming that. It was a record; it was unusual; it broke a pattern; and our understanding from contacts with the banks is that it was in large measure an interest rate play, particularly in the early part of July, given an anticipation of a discount rate cut. It continued a little past that but it was an unusual event that we wouldn't necessarily expect to be repeated. That can't be ruled out.",89
-fomc-corpus,1986,"Typically in our banking system, when we are pumping in reserves greater than are needed to finance loan demand the banks naturally put the remainder in the securities markets. The question is: Why is it going to be different next month?",45
-fomc-corpus,1986,But they don't necessarily repo them.,7
-fomc-corpus,1986,"You have a chicken and egg question here, too, as to whether they buy these investments and then we supply the reserves to support the deposits created or whether we're putting the reserves out first.",38
-fomc-corpus,1986,We're really putting the reserves out second.,8
-fomc-corpus,1986,Reduced interest rates--,4
-fomc-corpus,1986,"Because, otherwise, they wouldn't repo them. The reason they repo them is because we didn't put the funds out.",23
-fomc-corpus,1986,We are following the market.,6
-fomc-corpus,1986,"The other facet, I think--and it relates a little more to the Chairman's comments about the equations--is that, in a relatively stable interest rate environment, we would expect offering rates on these time deposits, even on the more liquid deposits, to come down and adjust to the current level of market rates. And that should slow down some of the shifts of assets into M2.",78
-fomc-corpus,1986,"Actually, I guess CD rates now are quite low relative to the present discount rate; they are right on the discount rate.",25
-fomc-corpus,1986,"Right on it, practically.",6
-fomc-corpus,1986,"If I understood Mr. Kohn right earlier, he was saying that if you combine an unchanged open market policy with a reduction in the discount rate, the probabilities are quite high that you will continue to get very rapid monetary expansion.",46
-fomc-corpus,1986,What is the assumption about borrowing?,7
-fomc-corpus,1986,"Say, around $300 million of real adjustment borrowing, discounting this Oklahoma situation.",17
-fomc-corpus,1986,Your target here does not assume anything on the discount rate?,12
-fomc-corpus,1986,"Well, alternative A is consistent either with a discount rate cut or continuing the $300 million--",19
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,"Wouldn't ""B"" be roughly consistent with that? It seems to me that ""A"" would be consistent with a discount rate change of more than one-half point.",34
-fomc-corpus,1986,Our estimates of the monetary growth we would expect at current interest rates we put under alternative B.,19
-fomc-corpus,1986,"Oh, really? But you have a midpoint on the fed funds range which differs by a full percentage point. That's all [unintelligible] associated with ""A"" or ""B,"" one-half percentage point.",44
-fomc-corpus,1986,"The ranges for the fed funds rate are more symbolic than real. That is, they weren't necessarily centered on the midpoint of the fed funds rate we were assuming.",32
-fomc-corpus,1986,We have a bit of double counting here; last time we changed the fed funds range a full point with a half-point change to the discount rate. I would think we wouldn't want to change the fed funds range from 4 to 8 percent. I don't see where that is warranted.,58
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"I think you want to do something to the midpoint to reflect the discount rate change, not the funds rate range.",23
-fomc-corpus,1986,We changed them the last time.,7
-fomc-corpus,1986,"Yes, okay.",4
-fomc-corpus,1986,"Just to pursue the point a little further: If we reduce the discount rate 50 basis points and keep borrowings at the current level, it seems to me we're talking about a funds rate that is about 5-3/4 percent. That seems to me more consistent with ""B."" I would call that more ""B plus"" than ""A."" So it would seem to me logical to go for alternative B even if one were in favor of a half-point reduction in the discount rate.",100
-fomc-corpus,1986,"Wait. Do you mean by that, Bob, that you are just interpreting ""B"" as consistent with $300 million of borrowing?",27
-fomc-corpus,1986,No. I am not talking about keeping borrowing the same in both discount rate environments.,17
-fomc-corpus,1986,But with the fed funds rate down to 5-3/4 percent wouldn't you think that was easier?,22
-fomc-corpus,1986,"Well, that is what I think Don was--",10
-fomc-corpus,1986,"No, I am saying I think it is closer to ""B"" than to ""A"".",19
-fomc-corpus,1986,"I don't think we ought to worry about whether it is precisely ""A,"" ""B,"" or ""C."" At this stage, we ought to decide what we want to do. There may be disagreements about this because people have different ideas about what should be done with the discount rate. I guess I am arguing that the decision ought to be left to the discount rate as the more appropriate tool now. Whatever way that decision goes, the question in essence is: [Do we want borrowing of] something around $300 million or a little less than $300 million if the discount rate doesn't move?",119
-fomc-corpus,1986,"My preference would be for a discount rate decrease of one-half percentage point with the $300 million borrowing level, which would result in roughly a 5-3/4 percent [funds rate]. Or, if we wanted to go some place between ""A"" and ""B,"" if you will, to raise that borrowing level to the $400 million range as opposed to the $300 million range would give us some flexibility if we wanted to go on down adjusting the borrowing range. But in terms of the greater question as to whether or not I would opt for some ease, the answer is yes. The way I would love to do it is with a discount rate decrease. I would not favor some lesser borrowing level because I think we are getting fairly close to some sort of frictional level. We could lose control. Then, you are right on an interest rate target. The second part of that recommendation does include the international. It seems to me that we are the only catalyst and have the only tools that would make the Germans and the Japanese move if they are going to move at all. If we don't move, they are not going to move. To the extent that the lower dollar would help us on exports, or as an alternative that they would move and give us a little more stimulation, I think that is the prescription that we need to follow.",273
-fomc-corpus,1986,The assumption you make is the only operational assumption now with a high degree of probability to be right--that they are not going to move without us.,30
-fomc-corpus,1986,I thought that was the sense of the discussion.,10
-fomc-corpus,1986,And they may not move with us.,8
-fomc-corpus,1986,"I understand that. But if they do not, then the dollar will fall in some relationship to their currencies and make us more competitive in international markets. Either one of those two: if they move, that would be the better of the two; but if they don't then we get, hopefully, some benefit from a bit of ease domestically.",69
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"That's my same sense except that I prefer to keep the borrowing level about where it is, at about $300 million. And, I think something like a half point on the discount rate might be pretty good.",42
-fomc-corpus,1986,I support that too.,5
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Well, I was just going to go back to the forecast, Mr. Chairman. I think that the Board staff's forecast is a reasonable one but I think it is fraught with an awful lot of uncertainties. And frankly, I think that the risk is on the down side, both with respect to the trade deficit and consumer spending. There is an awful lot in this tax bill that could turn consumer spending around one way or the other. With that kind of uncertainty and the risk I see for lower growth, I think that some move toward further accommodation is called for. Now the method of doing that [involves], obviously, some difficult judgments. My preference would be to keep the borrowing at $300 million and to move the discount rate by 50 basis points. Having made a few of these discount rate cuts over the past several months, I think that we're perhaps at the point that we may, in fact, be forcing the Germans and Japanese to make a corresponding move. But even if they don't I think we should go ahead. In the absence of their moving, if there were considerable concern about selling pressures on the dollar, then perhaps lowering the borrowing to a frictional level of $150 million and no discount rate change--in order to probe the fed funds market--might be called for. But that would not be my preference; I would prefer a rate change and approximately $300 million on borrowing.",285
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"I have to admit that I am concerned about what we are talking about in terms of reducing the discount rate at this time. I am not fundamentally opposed to that kind of move, but I think the timing is critical. It seems to me that we are sitting here in a situation where we have very little data on the current quarter but the data we do have--both employment and retail sales numbers--are on the positive side. We had rapid growth in the aggregates in July; we don't know with much conviction what they are going to do going out, but we are certainly coming off that. We have been listening to Sam and others talk for some time now about the vulnerabilities of the dollar and this just does not strike me as a very opportune time to take this step. I certainly can see circumstances going forward where the environment might be far more preferable to the current one. So, I would be somewhat hesitant at this point. I can certainly live with ""B"" as specified, but I am not very comfortable about a discount rate reduction soon.",212
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"Gary, you have said everything I was thinking--almost. I would agree with that position in general. I have just a couple of other observations. It seems to me that we are taking, in a sense, a marginal approach to policy. If we take a look at what has happened in the intermeeting period in terms of the economy and we are not happy with that then we think about easing policy further. And I am not sure that we have given enough time for the accommodative policy that we have been pursuing for some time to take effect. I am concerned about the risk that Gary cited and I share his feeling about the outlook right now. I mentioned some of the commentary in the popular press about inflationary expectations seeming to be reviving; I might also mention that long rates since two discount rate cuts ago are actually higher now than they were then. We have had a steepening in the yield curve. I have a little trouble with the thought that somehow lower rates are going to help the economy here. I think the market place, in a number of different ways, is telling us to be careful in terms of inflationary expectations. So I would be in favor of alternative B, the $300 million borrowing target, and no change in the discount rate.",255
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"I am very closely in agreement with Gary Stern and Tom Melzer on that. I consider this scenario that the staff has traced out in its projections to be a very fine outcome for this [stage of the] cycle--in the fourth year and into the fifth year. I can see the arguments on the international side, but trying to nudge these other countries into action--. I just can't see how any further easing will do anything to our domestic problems, most of which can't be addressed by monetary policy. The aggregates are running through the ceiling and I can see and understand very well why we've downgraded Ml. I even agree with that, which may surprise some of you. But somewhere along the way the aggregate numbers are going to mean something. And at some point we are going to have to get back to some kind of procedure in which targeting aggregates and trying to hit the targets is part of [our policy approach]. Or else we are going to be back in an inflationary environment somewhere along the way; I don't know how soon, but it is coming. So, I just can't see the case on the domestic side at this point.",231
-fomc-corpus,1986,Mr. Wallace.,4
-fomc-corpus,1986,"Mr. Chairman, as you know, we have supported a further discount rate cut and, therefore, I would support the approach that others have expressed around the table. However, in the absence of that, in view of what I would regard as continued weakness in the economy--especially from where I sit--I would favor an action such as alternative A. I think we should use this window of opportunity to let interest rates move down further before we are faced with the reality of a resurgence in the inflationary [unintelligible]. But if the discount rate cut is in prospect, then I would favor [that].",124
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"Mr. Chairman, I favor a borrowing level of approximately $300 million and a half percentage point cut in the discount rate. My view is conditioned by my outlook for prices. I suppose four years of a rather steady number of around 4 percent followed by this remarkable year, even when you make adjustments for energy and food, draw me to conclude reluctantly that the outlook for inflation may be reasonably good. I say I view that reluctantly because I have great concerns that, with the kind of money growth we have been seeing, we do have a long-term problem with inflation. But now I view the current environment as a moment where we do have room for ease because of the inflation picture. So, my recommendation for easing is not based so much on my view of the outlook for the real economy as it is on my outlook for inflation.",167
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"Well, Mr. Chairman I would like to associate myself with the Stern and Melzer camp. I have an intuitive feeling that 1987 could be significantly stronger than we are now thinking for two reasons: (1) I don't think we know much about the timing or the amplitude of the decline in the exchange rate; and (2) I don't think we know much about the economic impact of the tax bill. That could cut both ways, but I think it does mean that there is a possibility that we could have a significantly stronger 1987 than we are now thinking, even though I can't give any numbers to document my gut feeling. I am also impressed with the fact that we are generating a lot of liquidity in the system. Maybe Don is right that we had a one-shot jump in July. But even though I haven't been known to be a slavish follower of the aggregates, I am concerned about the buildup of liquidity in the system. Sooner or later that could cause problems. So I think we are in a situation where we ought to exercise a little patience, at least until the next meeting, and adopt a ""status quo"" policy here, which I interpret alternative B to represent. I would like to see us wait a little longer before we move on the discount rate.",260
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"While our economic outlook continues to be positive, I do think there are some growing risks that loom on the down side and I think we would have a better opportunity to maintain the growing economic expansion if we were to reduce the rate structure somewhat. Real rates continue to be a little on the high side. I think that we have an opportunity here to reduce the discount rate and I would be in favor of doing that. Therefore, I would recommend that alo'ng with a borrowing level of $300 million. Certainly, this whole issue is vastly complicated by the international situation, which is terribly tough to judge if you are not intimately involved in it. But I think, as others have said, that there is a chance that if we were to do a discount rate cut, it would put some additional pressure on the other central banks to move and, therefore, I would be in favor of doing it.",179
-fomc-corpus,1986,Ms. Seger.,5
-fomc-corpus,1986,"Since I am concerned with the general sluggishness of the economy and the specific areas of significant weakness, I think that the risk in the staff's forecast for the next six months and for 1987 is probably on the low side, particularly because of questions about tax reform and the various points made about international developments. I can live with alternative B, assuming that it will be accompanied by a half percentage point discount rate cut and a borrowing target of about $300 million.",94
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"I support alternative B with borrowing at $300 million. But along with all the other worries that I have I must say that I also have the worry that there is at least some danger that we could be sowing the seeds for a greater inflationary problem down the road. It appears to me that at least in terms of the price effects, the beneficial effects of the oil situation may already be behind us. Import prices are rising and are certainly going to rise more. Indeed, if they don't rise more the chances of getting a correction in the trade balance are diminished. The service sector doesn't look all that hot from a price and wage performance [perspective]. And like Frank, I am not very slavish on any of the Ms but I can't completely disregard the pace at which all of them seem to be growing, at least at the moment. Partly for that reason, I am not so keen at this precise moment on the discount rate part of the package either. I certainly would be keen on it in a context in which I felt some greater assurance that we might get some support abroad. Even aside from that, I guess I am not quite sure what a discount rate cut does now. Clearly, it reduces debt service burdens--not just for LDCs, but for everybody. That is good, if it doesn't have the perverse effect of encouraging still more debt. But the effects of lower interest rates in the short run in terms of the exchange rate, in terms of the trade account, and in terms of stalling the prospects for growth in Japan and elsewhere, are really big question marks to me. It is just not clear, aside from that debt servicing aspect of it, what a lower discount rate is going to do. And ironically, I suppose, I see some danger that it could have some perverse effects. Now, I think those perverse effects would be greatly minimized in the context in which there was some greater prospect for movements elsewhere. Unfortunately, that doesn't look so good. In that setting, if the discount rate has to come down, I probably would be inclined to tilt open market operations and borrowings on the up side. We have been rather systematically tilting operations on the side of ease and tilting borrowings on the low side. In a setting in which the discount rate were reduced, absent moves abroad, I would be inclined to reverse the tilts.",482
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"I would favor alternative B. I have many of the same fears that have been mentioned by Presidents Corrigan, Stern and Melzer about an easier policy. I am especially troubled by the implications of an easier policy as far as the growth of the aggregates is concerned. With regard to the discount rate, I think a case can be made that there is no urgency at this point and that, really, there probably is a reason to delay a decision for a couple of weeks. In the next couple of weeks we are going to get a lot of data about the economy. Although that may not provide any definitive information, it is certainly going to provide a lot more information about the beginning of the third quarter than we have at the present time. So, it seems to me that ""B"" with no change in the discount rate is a reasonable course to follow for the next couple of weeks.",178
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"Well, when you total up the reasons for easing or not easing, I find them fairly evenly balanced. But I come down on the side of not easing at this point. I don't feel any great compulsion for a drop in the discount rate. So, my preferred course would be to sleep on any change in the discount rate for several weeks and keep open market operations around alternative B.",78
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"Mr. Chairman, I favor alternative B with the view that we ought to stay about where we are with respect to the growth in the aggregates. I expect that the economy is going to turn out to be very difficult to get a grip on. And I would agree with some of the views expressed earlier that we don't need a discount rate cut for domestic reasons. I don't see what it will do to improve our situation domestically. However, I think the argument for reducing the discount rate to prod the Europeans and the Japanese to stimulate their economies is an important one. That turnaround in net exports at the present time is probably very crucial to maintaining a satisfactory rate of expansion in our domestic economy and in my view the way to move in that direction would be to reduce the discount rate along with alternative B. No one wants to add to liquidity in the economy right now, but I think the risks of not trying to do something to affect the trade sector are great enough to assume the risks that go along with expanding the liquidity in the economy and so forth.",210
-fomc-corpus,1986,Governor Angell.,4
-fomc-corpus,1986,"I am very sure that monetary policy does matter. That's why it's such a difficult call here. I don't share the notion that it doesn't make any difference; I think it makes a great deal of difference. It seems to me that we have more balanced risks to worry about this time than I [saw earlier]. I don't like easing in the face of the monetary aggregates being where they are. I don't like easing when I have a sense that commodity price developments suggest another outlook. At the same time, I think there is a greater risk that this [economy] could deteriorate further on us and compound government revenue [problems] by growing at a rather anemic rate. I think that's a pretty dangerous risk. I think there is a dangerous risk in that the world trade pattern is still stagnant, not expanding. I think that Tom Melzer and Gary Stern are right when they say that inflation expectations have changed. But that's what worries me on the other side, because I see inflation expectations rising and the rate of inflation not rising. And that tends to cause me to believe that output is going to be slow, not fast. So, given this severe difficulty, I am very hesitant about being on the side of an easier stance which could best be accomplished by a discount rate cut and leaving borrowing at $300 million. But I do believe that we are in a place where if we do get some indication that prices are moving too high that we then have to be prepared to take the next step--which would be to say that discount rates can go up as well as down. I have very little faith that we are going to be so accurate as to get this thing tuned just right without overshooting, but I am afraid not to take the steps. So I am reluctantly for easing.",360
-fomc-corpus,1986,"Mr. Heller, will you add something on your maiden voyage?",14
-fomc-corpus,1986,"I think I can't wait any longer here. Listening to the discussion, it's just about evenly divided between the discount rate cutters and noncutters. I think that shows how tough the job is going to be. As far as monetary policy is concerned, I think it's very important to preserve the credibility of the Federal Reserve, to stick to preannounced targets and not to get out of the target ranges. The A alternative gets awfully close--if only I had my bifocals--to the line that I would really like to stay a bit below. I would agree very much with the discussion around the table about alternative B. As far as the discount rate is concerned, as I look at the economy, I don't see that much strength in the immediate future. Given consumer spending and the high consumer debt levels that are already there and the prospect of not having these consumer debts tax deductible in the future, I think consumer spending will be soft during the coming year. On the investment side, I certainly don't see any prospects for sharp increases in investment and the fiscal picture, with the tax reform, would support that view. On the trade balance, as I said earlier, I am not quite as optimistic as the forecasts that have been made by the staff. It clearly will improve, but I think it will be very rough going, especially in Europe. Therefore, largely for the international reasons that also were cited by Mr. Rice, I would favor a discount rate cut at the present time.",299
-fomc-corpus,1986,Some people said alternative B without specifying a borrowing target. I am a little confused--,17
-fomc-corpus,1986,[Unintelligible] I think we have got to try to get a decision. Governor Wallich.,22
-fomc-corpus,1986,"As I look at the longer run, I am more concerned about the inflationary effects of this--what it might be with a 6-year [unintelligible]. So I would go with the monetarists and say we cannot go on with the M1 and M2 growth that we have been having. That just can't go on indefinitely. Easing, by the same token, presents an element of risk. So regretfully, I think that we have to work at the present level of operation.",103
-fomc-corpus,1986,"I think all of the situations have been eloquently described here and they leave most people with a sense of some unease because we are fine-tuning around what is hopefully a bottom. The good news is that we are trying to fiddle around with the correct amount of shading, possibly further ease, in the hopes of maybe [unintelligible]. There is no way of squaring the circle and I haven't really tried, but I feel for the views that have been expressed on both sides. We are sitting here pumping up liquidity and pumping up debt at the same time, and somehow no good comes of that in the long run. I don't know whether it's [inflationary] or what. What I would suggest in listening to this is probably the [unintelligible] to the widest possible consensus, partly because I think it is probably right. I think it is probably right in probing around specifically for the operational language here to say that the Committee seeks to ""decrease slightly"" and leave in that ""taking account of the possibility of a change in the discount rate."" The way I would interpret that is that even though the Board of Governors may not decrease the discount rate right now, we will continue this process of leaning slightly on the easier side in open market operations, and maybe get down towards $200 million or so on borrowing, leaving aside the Oklahoma borrowing. If we do reduce the discount rate, not necessarily immediately, and we didn't like the repercussions on the exchange markets or some other things we leave open the possibility of increasing the borrowings slightly to, say, around the $400 million level. I think both of those [scenarios] are consistent with language that says easing slightly in terms of the overall picture, including the discount rate. That would leave a little flexibility on the open market side to either ease a bit if there's no discount rate change and, on a contingent basis but not on a planned basis, to tighten just a bit if that seems desirable in the way of exchange market reactions or domestic reactions. In either case, it's rather a small band.",418
-fomc-corpus,1986,"Mr. Chairman, what's the argument for easing on the open market operation side if we don't reduce the discount rate?",23
-fomc-corpus,1986,I think it's a way of probing. Somebody suggested this as a way to get a bit of ease without making the overt move of a discount rate change. It's kind of a substitute but not a full substitute. It tests the waters as to what the exchange market reaction might be or whatever.,58
-fomc-corpus,1986,That's not what I had in mind.,8
-fomc-corpus,1986,"I couldn't say that that is what anybody had in mind, but we are sitting here with a group that is going to make the decision--",28
-fomc-corpus,1986,"If I am going to ease, I want to lower the discount rate.",15
-fomc-corpus,1986,"In the terms that we used the last time that was easing. That's why I think this language we used the last time is suitable for either course. The only real difference I'm suggesting from that language, just to capture this a little more closely, is to change ""decrease somewhat"" to ""decrease slightly."" That's the tenor of the whole thing. The basic thrust is that some people might prefer to reduce the discount rate; but if there is no reduction in the discount rate, those who prefer to reduce the discount rate probably want a little easier stance in open market operations. Or vice versa: if we have the discount rate cut people may not prefer any easing [in open market operations]. Quite clearly, nobody has spoken of easing in open market operations plus the discount rate change.",157
-fomc-corpus,1986,"I guess we could be very careful on the open market side but I am a little concerned that we could end up getting a pretty nasty effect in the bond market if we were to cut the discount rate and raise the borrowing level--maybe not, if we did it just a little around the edges in a way. I think we might get a steepening of the yield curve from an attempt to raise the borrowing level at the same time we cut the discount rate. I'd hate to see that.",99
-fomc-corpus,1986,"I'm not suggesting we do both at the same time. I'm just getting reactions. Presumably, if you want to argue for a steepening--of the Melzer school or the Stern school--I suppose you might say you would get an increase in the bond rates with the reduction in the discount rate.",61
-fomc-corpus,1986,"Well, you might.",5
-fomc-corpus,1986,"I don't know which you would get, but I am not sure that you would get both at the same time.",23
-fomc-corpus,1986,"I would like to see at least what happens to the yield curve independent of any changes in borrowing. Maybe if we think things are a little too aggressive as a result of that, we might want to change--",42
-fomc-corpus,1986,"That's what I am saying--take account of the major variable, which would be the exchange rate. If we didn't like that, give ourselves a little room to firm slightly.",35
-fomc-corpus,1986,How much of a move is it going to require in [unintelligible] move in the yen to 140?,25
-fomc-corpus,1986,[Unintelligible] 140 in the week or we go to the devil. I think [at] 145 we would [unintelligible] going to the devil; 150 is not. But if we go beyond 150 in a very short period of time--,58
-fomc-corpus,1986,I think those numbers you mentioned are what people are now focusing on: 2 DM and 150 yen.,22
-fomc-corpus,1986,"I think we are prepared for going to 2 DM or 150 yen, but if it went suddenly beyond that I would get worried.",28
-fomc-corpus,1986,"Did I detect less certainty in your description of discussions [with foreign central banks] about the discount rate this time? At the last meeting I felt it was pretty much a fait accompli. I might not have heard you just right, but--",49
-fomc-corpus,1986,"Oh, there has been none. I would expect nobody to follow us this time and--",18
-fomc-corpus,1986,I didn't mean that. I mean about whether or not we would do a discount rate cut--that perhaps there were other discussions that had to take place in an international context.,35
-fomc-corpus,1986,I think there is a certain ambivalence as expressed around this table. That is right; I think you have made a correct distinction.,27
-fomc-corpus,1986,"Just thinking in terms of that, would it not make sense to presume nothing in that regard and convene a conference call if a cut in the discount rate were to occur rather than to try to anticipate all of that? I don't know whether that--",50
-fomc-corpus,1986,"[Unintelligible] but I suspect that that decision will be reviewed this week. I feel a certain mechanical urgency to make a decision this week, one way or the other, because I am going to be out next week and a couple of days thereafter. We have to make a decision this week or, if we don't, I presume we are not going to make one for another week or so. But that's no argument. I think it is so close to the possibility, anyway, and I don't know what you do. [Unintelligible] everybody seems to be at $300 million for the moment, anyway. If we say it clearly is not going to happen for a couple of weeks, then we might ease. I think we are capable of deciding that today instead of--",160
-fomc-corpus,1986,"Without getting into a great [debate on] semantics here, when you talk about your formulation I interpret your shadings on the sides of $300 million as what I would think of as tilt. It's hard to capture what you are really saying here.",52
-fomc-corpus,1986,"I can't be more specific than around $200 million and around $400 million, but I don't want to take those too literally.",26
-fomc-corpus,1986,You are putting them in a context in which both are obviously conditional on a matrix of other things.,20
-fomc-corpus,1986,"That's inevitably the case. But what I am saying is that if the exchange rate fell out of bed on its own in the next few days and we didn't reduce the discount rate, I don't suppose we would take that particular time to go to $200 million. But I assume if the exchange markets aren't doing anything [or if the dollar] particularly strengthened and we didn't reduce the discount rate I would.",80
-fomc-corpus,1986,"You meant to exclude the special borrowing in Oklahoma from the $200 million, Mr. Chairman?",19
-fomc-corpus,1986,"Well, I certainly would have put a different context on it. If the discount rate were cut and if the dollar were under more pressure than we wanted and if we thought we wanted to make a gesture of intervention, I think it would be appropriate in that context also to go for a higher borrowing target. I don't want us to make an exchange rate move without in a sense backing it up a little. But I would not prefer cutting the discount rate and then just as the market gets used to a lower discount rate, boom, hit them with an increase in borrowing and knock the fed funds rate up. That's the part I don't want, but I--",131
-fomc-corpus,1986,"I did not say that we would just do it. I said it's contingent upon things happening that could be strong business news, but that takes a period of time.",33
-fomc-corpus,1986,In the context of that I support your proposal.,10
-fomc-corpus,1986,"I am not talking anything very major here in either direction. That's a formulation that I propose here. If somebody has a better formulation, propose it.",30
-fomc-corpus,1986,I would be more inclined to support a one-sided proposition that we stay with the $300 million. And if we cut the discount rate then I'd move borrowing to $400 million.,36
-fomc-corpus,1986,"I think that is consistent with your expressed view and the views of several other members of the Committee. But I don't detect that that will command unanimous support; if it does, then that's what we ought to say.",43
-fomc-corpus,1986,It won't get a majority.,6
-fomc-corpus,1986,It is an obvious alternative. How many would prefer that kind of alternative?,15
-fomc-corpus,1986,The one you suggested or Frank's?,8
-fomc-corpus,1986,You are asking for votes of members?,8
-fomc-corpus,1986,Members.,2
-fomc-corpus,1986,"If the discount rate gets cut, there is no point [unintelligible].",17
-fomc-corpus,1986,I'd lean on the side of borrowing being higher rather than lower.,13
-fomc-corpus,1986,With a cut in the discount rate.,8
-fomc-corpus,1986,"Well, how many prefer that course--at least other than Mr. Morris? Have we got any other alternatives to put on the table?",28
-fomc-corpus,1986,"The alternative ""around $200 to $400 million,"" just hang around--",15
-fomc-corpus,1986,One other alternative is to just leave it at $300 million.,13
-fomc-corpus,1986,Just leave it at $300 million and what? The problem with that is that people feel differently about whether there should be a discount rate cut or not.,31
-fomc-corpus,1986,"Well, that's the alternative.",6
-fomc-corpus,1986,I think the alternative is leaving it at $300 million regardless of whether we reduce the discount rate. That is a theoretical alternative.,26
-fomc-corpus,1986,Theoretical?,3
-fomc-corpus,1986,"Well, I think it's more than theoretical. It leaves the whole decision in our hands. Would people prefer that?",23
-fomc-corpus,1986,In some ways I would.,6
-fomc-corpus,1986,"Yes, I would sort of prefer that.",9
-fomc-corpus,1986,I would.,3
-fomc-corpus,1986,Not change it?,4
-fomc-corpus,1986,"Yes, just leave borrowing at $300 million whether we cut the discount rate or not.",18
-fomc-corpus,1986,Leave it at $300 million with the discount rate cut or not.,14
-fomc-corpus,1986,I would be happy with that if there were a call at the time. Wouldn't it raise the question as to what to do with the borrowing level at that time?,34
-fomc-corpus,1986,No.,2
-fomc-corpus,1986,"No, it's saying that you're willing to accept $300 million on borrowing regardless of what the discount rate--",21
-fomc-corpus,1986,It's basically shifting the decision of the discount rate.,10
-fomc-corpus,1986,"Yes, but the fact is that, in effect, it is the same thing given the high degree of probability of a discount cut happening. I don't think--",32
-fomc-corpus,1986,You're giving up the $400 million possibility if you vote for that.,14
-fomc-corpus,1986,What you're really saying is that there's not a whole lot of difference between $300 million borrowing and no discount rate cut and $300 million borrowing with a 1/2 point cut.,37
-fomc-corpus,1986,"Well, there's a 50 percentage point drop in the funds rate, right?",16
-fomc-corpus,1986,I know. I'm just saying that you would have to believe that that margin didn't mean a lot.,20
-fomc-corpus,1986,"Isn't one possibility just to maintain the $300 million and when a discount rate change occurs, if it does, to revisit the issue of reserves at that time?",33
-fomc-corpus,1986,I'm just a little reluctant; if we can't anticipate a reaction three days from now we're in pretty sad shape. I am not saying we would automatically go to $400 million with a discount rate reduction. I simply would leave ourselves that room if it appears desirable in the light of events subsequent to the [rate cut].,63
-fomc-corpus,1986,What about this? The discount rate decision is clearly a separate decision. And however that decision is made we would think that the Chairman would have the normal discretion that we've become used to in recent years in adjusting the borrowing.,44
-fomc-corpus,1986,"I would say this is all within the range of a certain amount of discretion. What's a little more sensitive is the numbers we get when the percentage change in the borrowing gets larger. It seems to be a matter of greater sensitivity, understandably perhaps. I don't care if we do it; that's what I started out with. But I'm trying to capture a little more closely a center of gravity.",78
-fomc-corpus,1986,"I prefer leaving the borrowing at $300 million as an initial part of the approach. If the circumstances are such that we don't cut the discount rate I don't want to take the borrowing down to $200 million. If we do cut the discount rate, I prefer that borrowing be at $300 million but I would want there to be latitude that if developments then require a higher borrowing level that we would do that. If we ever got ourselves in a position of wanting a discount rate increase we probably would precede that first by taking the borrowing from $300 million up to $400 million and $500 million and then we would condition the market that we think it's time to increase [the discount rate].",139
-fomc-corpus,1986,"That's correct. We're just talking about timing. Just to repeat what I said on that theory: I'm saying we might have the flexibility to do that depending upon subsequent developments. The other thing is that I am not saying we reduce the discount rate on day A and raise borrowing on day A. Also, just to be clear, I'm saying we don't reduce it to $200 million tomorrow when we're going to make a discount rate decision one way or another later this week. If we do not make a decision to reduce it that would imply slightly easier borrowing numbers for a while pending whether we make a decision a little later.",123
-fomc-corpus,1986,"Okay, I could see that. That's fine.",10
-fomc-corpus,1986,"With that understanding, I would agree.",8
-fomc-corpus,1986,I think you will agree--,6
-fomc-corpus,1986,"Mr. Chairman, I think that if you put that out as a proposal it will pass.",19
-fomc-corpus,1986,"What it means in terms of language is this: to say ""decrease slightly"" instead of ""somewhat"" probably captures it a little more closely. But we would leave in this language ""taking account of the possibility of a discount rate change."" Now, I don't know what numbers to put in here, because our staff is telling us that we're at least in grave jeopardy of exceeding the 9 percent. Whether we want to admit that or not, I don't know. We could leave the 7 to 9 percent.",107
-fomc-corpus,1986,"Yes, I would just leave that.",8
-fomc-corpus,1986,I'd leave it.,4
-fomc-corpus,1986,"I think we're saying that one of the considerations, and it is only one of the considerations, is that we're looking at that contingency of whether we reduce the discount rate or not. The option to slightly tighten reserve conditions would depend at least in part upon whether M2 and M3 continued to zoom with M1 continuing to zoom.",66
-fomc-corpus,1986,But it would be a pretty large increase.,9
-fomc-corpus,1986,"It sure would be, relative to what has been happening. That is one of the factors; the directive says it. If we came out with 10 to 11 percent growth in M2 and M3 that would certainly be a consideration in moving toward the higher borrowing level. I think that's what we would be saying. Understood? And the same [language on] M1 follows that. I don't care if we use ""might"" or ""would;"" it makes no difference here. The trouble with this is it's exactly the directive we had last time. And I don't know what it--",120
-fomc-corpus,1986,"Well, you changed ""somewhat"" to ""slightly.""",13
-fomc-corpus,1986,"I suppose we leave in the 4 to 8 percent. Any other questions? The language couldn't be simpler: change ""somewhat"" to ""slightly;"" leave in ""taking account the possibility of a discount rate change;"" and the rest of the language remains as it was in the last directive. The understanding is that tomorrow we do nothing--stay at $300 million--and that the discount rate will obviously be considered later this week. If we reduce the discount rate we still do nothing in the [unintelligible] but, depending upon developments, we might use a little flexibility on the up side. If we don't reduce the discount rate we might use a little flexibility on the down side but very slightly depending on what [unintelligible] but we're close to that now. Understood? Just call the roll, sir.",170
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes President Horn Yes Governor Heller Yes Governor Johnson Yes President Melzer No President Morris Yes Governor Rice Yes Governor Seger Yes Governor Wallich No,47
-fomc-corpus,1986,I think we have completed our business. Do we have sandwiches?,13
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,We need to approve the minutes. Do I have a motion to approve?,15
-fomc-corpus,1986,I'll move it.,4
-fomc-corpus,1986,I'll second it.,4
-fomc-corpus,1986,Without objection. Now we'll turn to Mr. Cross.,11
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,The lesson is that we have too much official discussion.,11
-fomc-corpus,1986,I don't disagree with that.,6
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,I was told by a knowledgeable source that the reason the dollar did not go down when we cut the discount rate was that the long rate did not go down with it and that the exchange rate is more sensitive to long rates than to short rates. Is that a plausible explanation to you?,57
-fomc-corpus,1986,"I would think that certainly it's a factor. I wouldn't give it total weight but, obviously, much of the effect on the dollar is in the investment instrument and there's certainly a lot of attention paid to the long-term rates. And it's well known by everybody in the market that those long-term rates have not been declining with our discount rate cut. So, I think it is certainly a factor.",79
-fomc-corpus,1986,It does raise questions about our ability to influence the exchange rate at this particular juncture.,18
-fomc-corpus,1986,"If the long-term rate goes up because of concern about inflation, I wouldn't think it would help the exchange rate.",23
-fomc-corpus,1986,You wouldn't think so. On the surface we seem to have a perverse reaction. The domestic market is saying this is inflationary and the international markets have a different view. But this is the only concept that I've heard that has tied the two together. I don't know.,55
-fomc-corpus,1986,"President Morris, research done by people here does suggests that in econometric terms you get more of an explanation of the dollar's movement from real long-rate differentials, as the Chairman commented, than short rates. But they don't explain very much of the total. So, although by themselves they seem to provide more [of the explanation] over the longer term than [do short rates], it's not decisive. It is one of the factors, but presumably not the only one.",95
-fomc-corpus,1986,But isn't the long-term prospect more durable than the short-term prospect? I'm speaking now of half a year or two years?,25
-fomc-corpus,1986,"You get more of that, Governor Wallich. That's presumably what you're trying to pick up with the so-called econometric exercises. But I don't think they are very useful in explaining wiggles from discount rate changes. You need other things.",48
-fomc-corpus,1986,"So much of the public discussion about the exchange rate seems to center on the mark and the yen and yet we focus from time to time on how little the dollar has moved with respect to other important currencies--those of Korea, Taiwan, Hong Kong, and so forth. Is there any effort, nonpublic effort, being made with these governments?",69
-fomc-corpus,1986,"Well, there's certainly an effort being made by the Treasury and others to talk to the Taiwanese and Koreans on some of these trade issues and other matters. Of course, it cuts both ways. The Taiwanese currency, for example, went up with the dollar and back down with the dollar. So it hasn't affected the present exchange rate very much either way. If you draw charts including more of these [other countries] you'd have a higher movement in the charts than we typically see when we focus on industrial countries. But the pattern is quite similar.",109
-fomc-corpus,1986,"President Horn, there is a proposal by the Taiwanese to apply U.S. trade legislation in reverse. For countries with which they had big trade surpluses they would cut the tariffs on imports rather than seek a depreciation or appreciation of the currency. That has not had any effect; it's one manifestation of this kind of pressure.",65
-fomc-corpus,1986,There's certainly a lot of discussion underway with them to try to do something.,15
-fomc-corpus,1986,"Taiwan strikes me as rather a special case. They have an enormous surplus, enormous reserves. Their big surpluses, fortunately anyway, are with the Germans and Japanese.",35
-fomc-corpus,1986,Taiwan has the biggest surplus of any of these.,11
-fomc-corpus,1986,Current account surplus.,4
-fomc-corpus,1986,"By a long shot. And they also have very, very high reserves. Korea is different.",19
-fomc-corpus,1986,"We don't regard Taiwan as a country [unintelligible] this large surplus, [unintelligible].",23
-fomc-corpus,1986,We ought to make it a 51st state if that would help!,15
-fomc-corpus,1986,Did I hear you right that the Germans were on both sides of the market within a fairly short period? Are they trying to target the dollar-mark relationship?,31
-fomc-corpus,1986,"I'm not sure I would read all that into it. They have not intervened on the low side. They did intervene when the dollar rose to 2.10; it did jump up very suddenly and that occurred at a time when we were closed--at 5:00 or so in the morning here--and they undoubtedly felt that they were taking a helpful step at that point. A lot of the pressure on the other side has come from the other Europeans who feel stress and strain resulting from the strong DM. As the dollar is weakening against the DM, the DM is tending to strengthen against all currencies, particularly the EMS currencies. And, as I said, they sold $4-1/2 billion worth of DM last week and that begins to hurt them. So, they are the ones who have been pressing, I suspect, for these understandings on the joint intervention--that efforts should be made in order to prevent a further sliding of the dollar, not that we should let go. At least that's the way I interpret it.",210
-fomc-corpus,1986,They get a lot of pressure within Europe when the Germans don't reduce their interest rates; that is one way of reading it. Nobody wants a revaluation within Europe so they were driven to this intervention idea as a method of relieving pressure within Europe against the general background of concern about the dollar. But that's not what led to that particular decision.,68
-fomc-corpus,1986,Is there any notion of what the Germans will do with all these marks that are being sold? Will they just let them stay out there? It would be fundamental to their monetary policy.,37
-fomc-corpus,1986,These are basically coming out as marks that are in Euromark holdings. They have not allowed the Europeans to build up marks within the Bundesbank.,30
-fomc-corpus,1986,Better get some--,4
-fomc-corpus,1986,Does that mean it's not inflationary the way they're doing it?,13
-fomc-corpus,1986,Indirectly,2
-fomc-corpus,1986,"Yes, indirectly.",4
-fomc-corpus,1986,It has no [direct] effect.,8
-fomc-corpus,1986,Monetary [effect].,6
-fomc-corpus,1986,Somebody else in the market has to hold them.,11
-fomc-corpus,1986,"Yes, somebody's got to be holding them.",10
-fomc-corpus,1986,"Yes, but it doesn't have an effect on bank reserves within Germany.",14
-fomc-corpus,1986,That's the only point I was trying to make.,10
-fomc-corpus,1986,But if somebody else within the European--,8
-fomc-corpus,1986,It doesn't affect the Bundesbank.,7
-fomc-corpus,1986,"But Sam, the other Europeans are intervening mainly in deutschemarks and not in--",17
-fomc-corpus,1986,Almost entirely. There has been very little dollar intervention by the other Europeans. There has been a little; the Spanish have been picking up a few dollars as they position themselves for entry to the EMS or one thing or another. But basically it has been overwhelmingly DM intervention and not dollar intervention.,58
-fomc-corpus,1986,"As Sam mentioned, and I would just emphasize, there has been quite a pickup in the German economy after a very sluggish performance. Nobody knows how long it will last. But at the moment their domestic demand is doing very well. That, together with fairly rapid monetary expansion, is why any ideas they had of reducing their discount rate have been turned off. From the standpoint of results, if what we're interested in is growth in the German economy, the most recent performance has been good; although it's hard to know if it will carry them, at the moment it is good.",115
-fomc-corpus,1986,Do we anticipate that that growth will continue? I noticed that the assumption about growth for the OECD countries has a fairly sharp fall-off in the second quarter.,31
-fomc-corpus,1986,"Well, it's certainly yet to be known, but we anticipate the second quarter will continue at the rate the Chairman has expressed which, depending upon which numbers you use, is either 8 or 14 percent at an annual rate. But on average, we don't see much difference from the trend that they've had over the past couple of years of something under 3 percent. If anything, we see some tailing off as we get into 1987.",91
-fomc-corpus,1986,Mr. Sternlight.,5
-fomc-corpus,1986,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1986,No questions?,3
-fomc-corpus,1986,I have one: Why was it that we didn't know until the last day about this tremendous additional need for required reserves?,24
-fomc-corpus,1986,"Well, under the system of contemporaneous reserve accounting we depend on reports and revisions during the reserve maintenance period. And sometimes we get sizable revisions. If there is a revision midway through the period we can cope with that fairly well, but we are vulnerable to hearing something as late as the last day. And we can even get a report after the period is over that requirements were materially different from what we thought they were on the last day we had an opportunity to operate. I wouldn't say that a revision of this size on the last day is typical but it's not unheard of to get a pretty big revision very late in the period.",126
-fomc-corpus,1986,But it has to be in the non M1-type deposits because you already know those required reserves.,20
-fomc-corpus,1986,"Well, I think we're getting some changes even in the M1-type.",15
-fomc-corpus,1986,But aren't they based on deposits earlier in the period?,11
-fomc-corpus,1986,"The non-Ml reserves are based on earlier deposits, right. The M1 reserves, of course, are based on contemporaneous deposits and that's where this large revision is.",35
-fomc-corpus,1986,"Yes, I said it backwards, I'm sorry.",10
-fomc-corpus,1986,Only the M1-types of deposits--,8
-fomc-corpus,1986,"If there are no other comments or questions on that, we will return to Mr. Sternlight and the topic we covered to some degree last month about operations in coupon issues. I'm sure we have all thought that through. I think what the issue comes down to is whether we do it reasonably routinely two or three times a year, the way we've been doing it, or whether we do it when we think there's some purpose in doing it.",88
-fomc-corpus,1986,Why don't we do both? Could we do it in both circumstances?,14
-fomc-corpus,1986,"Yes, we can do it in both circumstances; we could do it routinely and also when there's some purpose.",22
-fomc-corpus,1986,That's the point.,4
-fomc-corpus,1986,Then we buy more longer-term securities.,8
-fomc-corpus,1986,Not necessarily.,3
-fomc-corpus,1986,"It is, necessarily, if literally you go in that market routinely and also--",16
-fomc-corpus,1986,You'd go in the market more frequently but you wouldn't necessarily buy more.,15
-fomc-corpus,1986,But that also might mean that you would sell at times when--,13
-fomc-corpus,1986,"Well, this question of selling arose last time. I don't know whether there's anything more to be said on that. The observed practice is that we don't sell.",32
-fomc-corpus,1986,It might have an announcement effect.,7
-fomc-corpus,1986,There's no doubt about that. That's why we don't sell--because we expect an announcement effect.,19
-fomc-corpus,1986,"On this issue of liquidity, which is one of the main reasons for reducing the holdings of long-term securities: That table that Peter sent out shows that we have something like--this is not an exact number--$90 billion in Treasury bills.",49
-fomc-corpus,1986,Very close to $100 billion.,7
-fomc-corpus,1986,"All right, close to $100 billion. Total reserves in the entire System are around $50 billion, aren't they?",24
-fomc-corpus,1986,Right.,2
-fomc-corpus,1986,"A good chunk of that $50 billion would be vault cash, so actually the deposits at Federal Reserve Banks would probably be what--$25 to $30 billion?",33
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Or something like that. So that means in terms of liquidity that we already have in our portfolio something like three times the amount of total reserves on deposit at Federal Reserve Banks. Unless I'm missing something I don't see a liquidity issue here.,47
-fomc-corpus,1986,"I think the liquidity is very ample now. I don't know if I'd draw that [conclusion] just from the comparison that you made, but there has been ample liquidity. And it seems to me that liquidity has grown, even, with the policy of recent years. But we have done a moderate proportion of our long-term provision [of reserves] with occasional purchasing of coupon issues.",77
-fomc-corpus,1986,"If two or three large banks get into trouble and we're providing reserves through the discount window, though, there could be a liquidity problem even with these numbers.",31
-fomc-corpus,1986,"Yes, I don't think this [unintelligible]. Now, we do have other constraints than that [unintelligible]. We lend dollars to--",32
-fomc-corpus,1986,Twelve.,3
-fomc-corpus,1986,Twelve.,3
-fomc-corpus,1986,If we run into a $90 billion problem we might as well turn in our badge.,18
-fomc-corpus,1986,We may not be routinely mopping up reserves.,10
-fomc-corpus,1986,We can turn in the badge but still handle the problem.,12
-fomc-corpus,1986,"It does suggest, though, that if we get a chance we ought to get rid of that collateral requirement on notes just in case.",27
-fomc-corpus,1986,That I think we can do. But I think it is right to say that one issue is the liquidity crisis and the other is whether we see any purpose in buying coupons.,35
-fomc-corpus,1986,"I guess my view on this is that the folks in the Treasury Department ought to be in the debt management business and that some sort of neutral stand by the Federal Reserve is an appropriate one. Having said that, I think you could define policy as neutral if either we pursued a bills only approach or if we routinely went in for preannounced, preagreed, purchases in the long-term area. And since both long-term and short-term [securities] count as collateral that doesn't help make the decision either. But those are the two policies that I can define as neutral, if you will.",120
-fomc-corpus,1986,"If we could get the Treasury to stop extending the term structure of the debt, it seems that a neutral policy would be to buy whatever they issue in the same proportion. But they keep extending the number of long bonds without a real rationale that I can tell.",52
-fomc-corpus,1986,"You find a portfolio distribution you like and the Treasury is maintaining a distribution that it likes. I have no doubt of the volume this could involve should it never involve buying, just rolling over what we have.",41
-fomc-corpus,1986,"Yes, I guess that's right.",7
-fomc-corpus,1986,I [unintelligible] this with it. We might buy in proportion to what their--,20
-fomc-corpus,1986,"In proportion to what their needs were, which would mean we would be in the market on a regular basis but for small amounts.",26
-fomc-corpus,1986,It seems to me that it's a potentially useful tool that we might not want to give up.,19
-fomc-corpus,1986,I'm not talking about giving it up; I'm talking about--,12
-fomc-corpus,1986,You give it up if you don't use it every once in a while.,15
-fomc-corpus,1986,"Well, that's the question. That's what the issue comes down to.",14
-fomc-corpus,1986,I can imagine times--not often--when there might be a shortage of bills and we don't want to increase that shortage of bills in the market and there may be some long-term securities available.,39
-fomc-corpus,1986,I have no objection to buying long-term securities when there's a good reason for buying them. My question is whether any particular purpose is served when there's no reason to buy them. I think you want to argue that this [routine buying] keeps the machinery oiled or something. That's the argument.,59
-fomc-corpus,1986,"A corollary argument to that is that if you completely stop doing it except in extraordinary circumstances, that too involves an announcement effect. At some point you're going to have to answer the question: Why aren't you buying long-term securities anymore?",48
-fomc-corpus,1986,I have no trouble answering that question as to why we're not buying. If we wanted to adopt that policy we would say we're not buying them anymore except when some purpose is served in buying them.,39
-fomc-corpus,1986,I think the idea that we control a long-term position by not rolling over completely all of the maturing issues--,23
-fomc-corpus,1986,"Certainly, that helps you.",6
-fomc-corpus,1986,Is that something that the Treasury would be upset about?,11
-fomc-corpus,1986,They would not be bothered by our leaning more toward the short-term option.,15
-fomc-corpus,1986,I would do that if we're going to continue buying. I would go very short and pretty soon.,20
-fomc-corpus,1986,Would buying smaller amounts have an announcement effect?,9
-fomc-corpus,1986,"Well, we'd [unintelligible] if we buy small amounts now, and even if we can, if we're going to do it at all. That is my impression.",36
-fomc-corpus,1986,I wouldn't see any significant announcement effect from leaning toward the shorter options. I don't think [unintelligible].,23
-fomc-corpus,1986,"No, no. From buying smaller amounts?",9
-fomc-corpus,1986,"No, I don't mean that. From buying smaller amounts in the market when we buy.",18
-fomc-corpus,1986,"I don't know how much ""smaller"" would be--",12
-fomc-corpus,1986,We don't buy.,4
-fomc-corpus,1986,What's the average amount?,5
-fomc-corpus,1986,"In typical trips to the market recently it has been something like $1 billion or $1-1/2 billion, in that kind of range. We only did $4 or $5 billion [unintelligible]. We could certainly buy a couple of billion.",54
-fomc-corpus,1986,You could certainly buy a couple of hundred million.,10
-fomc-corpus,1986,You can buy it if you [unintelligible]. Even $1 or $1-1/2 billion isn't very much; it's pretty trivial considering the volumes in the Treasury market.,38
-fomc-corpus,1986,But you could generate that leeway very easily by just failing to roll over part of our holdings.,20
-fomc-corpus,1986,No doubt you can protect the liquidity position by going shorter on the rollovers.,16
-fomc-corpus,1986,"If the Treasury doesn't object, it seems to me that would be the answer. You could have your cake and eat it too.",26
-fomc-corpus,1986,"Well, there's no question you could do that. That is kind of in between. It just leaves the question--. It's not like it's [unintelligible] every time we buy a coupon issue. I personally wonder why we're doing it. There is no other reason. The answer I get is: to keep the machinery oiled. I don't know what that means.",76
-fomc-corpus,1986,To keep people from being surprised.,7
-fomc-corpus,1986,"If you have a purpose, you want to surprise.",11
-fomc-corpus,1986,"It seems to me that if we do not want to sell, and that presumably is the consensus, we ought not to buy as long-term as we've been buying. That would maintain more liquidity. If you can never sell then there is merit in shortening the maturities that you do buy.",58
-fomc-corpus,1986,But presumably we learn something about the functioning of the long-term market by seeing a response to our operations. I assume that's where Peter--,27
-fomc-corpus,1986,"That, I think, is one argument.",9
-fomc-corpus,1986,It's not a matter of oiling the machinery; it's really having a test that we participate in to see how the machinery is working. SPEAKER(?) But in general the Treasury market is very broad and very deep. If you just keep--,48
-fomc-corpus,1986,"I don't want to prolong this discussion or add to it. Ordinarily, it's working just fine. There's a lot bigger volume going through the market every day than what we're doing. We might want to know how it's working at some point of strain or whatever. Then I have no problem. I have no compunction about buying long-term securities when there's a purpose here.",74
-fomc-corpus,1986,Have we bought coupons for a purpose at times?,10
-fomc-corpus,1986,"Not for a long time. Historically, yes, but not recently.",14
-fomc-corpus,1986,"I might point out that sometimes in those periods of strain, we feel constraints--that we should not get in the market because we don't want to be seen as interfering with the market's own adjustment process.",41
-fomc-corpus,1986,"That's the concern that I have: If you withdraw from the market completely, do you create a situation where you're so inhibited about going into the market that in precisely the circumstance that you might want to go in you are just scared to death to do so because the announcement effect would be bigger then? I don't know.",63
-fomc-corpus,1986,"Well, I will give you an example. Ordinarily, if we had a strong reason for going in, the announcement effect might be welcomed. If we really thought the market was in a panic, say, and we wanted to show some support in the market, we would want an announcement effect. An announcement effect would have been more important in July. But taking the last few weeks, I don't know whether we had any particular reserve need which was suitable--",92
-fomc-corpus,1986,I think we did.,5
-fomc-corpus,1986,"But we might have argued we were going to buy anyway and with the long-term rates backing up and the new rate [unintelligible] it might have been quite reasonable to have bought long-term securities. Now, would we have been better off or worse off if we had decided in the last few weeks to do that against the background of a reserve need when we had no purpose--just a matter of having been in there and only been in for periods of that sort. That's an arguable point.",102
-fomc-corpus,1986,"Just to take your example and make it a little more pointed: My personal instinct is that if that very touchy interval a week ago, last Thursday-Friday, also had been one of those intervals when the market in the normal course might have expected us to be doing something, I think it would have been easier to do something.",66
-fomc-corpus,1986,"That's what I'm saying: you could get in between cases of that sort. But we're so constrained now, we could [only] do it when we're supplying reserves permanently. Anyway, the chances of that arising coincident with a period of that sort are remote.",52
-fomc-corpus,1986,I don't think they are that remote at all.,10
-fomc-corpus,1986,"Well, does anybody else want to express a view on this subject? If not, the issue having been raised we'd better arrive at some conclusion. One option is merely to do more or less what we have been doing, which doesn't exclude, obviously, doing it on special occasions and [leaning toward] the shorter [maturities] in refundings. The other option would be to [cut back] in our already pretty limited operation of being willing to do it--I don't hear anybody saying we never should do it or even that we should be all that reluctant if there is a need or some positive rationale--but confine ourselves as to when there is some positive rationale other than that we haven't done it for six months. These are the two choices. Who prefers option one, continuing fairly routine [purchases of coupons]? Most people prefer that so we'll continue that fairly routine--",178
-fomc-corpus,1986,But we will go short on the refunds [unintelligible]? At what pace are we going to roll them over?,25
-fomc-corpus,1986,That's not [unintelligible] three years.,11
-fomc-corpus,1986,"We could thin out the market [unintelligible], depending on the pace that we--",19
-fomc-corpus,1986,I don't think it makes much difference in the market because now they have allocated these securities especially to us anyway and we can--,25
-fomc-corpus,1986,"Yes, that's [unintelligible] in the market.",13
-fomc-corpus,1986,"We can just go to shortening, which doesn't affect the market at all.",15
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,"As to how short we would be, I don't know. On this last quarterly rollover when the Treasury was offering roughly equal amounts of 3-year, 10-year, and 30-year issues, we did about 2/3 in the short option and correspondingly small amounts in the two longer options. I think leaving those longer options still smaller but keeping some minimal contact with the--",78
-fomc-corpus,1986,[Why do you] say you're keeping contact with [the market] if you're buying them directly from the Treasury and never selling them?,27
-fomc-corpus,1986,"Yes, I don't think they are being sold. I don't think there's any reason to be in the 10- and 30-year issues if you're not going to be able to sell.",38
-fomc-corpus,1986,"Well, having some small holding of them can be useful in our lending securities program. I wouldn't make a whole lot of that, but after Drysdale it was useful to have securities that we could lend just to help sort out delivery problems in the markets.",52
-fomc-corpus,1986,"Where do you plan to be, roughly, if you talk about the percentage of total portfolio? Now we have 48 percent, which is about a record high. Two or three years from now where do you think we'll be?",46
-fomc-corpus,1986,I think the proportion of bills will continue to creep up.,12
-fomc-corpus,1986,"To 55, 60 percent?",8
-fomc-corpus,1986,"I think it will continue to creep up, continuing what we are doing.",15
-fomc-corpus,1986,In bills. Coupons would presumably get shorter?,9
-fomc-corpus,1986,"Yes, the coupon holdings would tend to shorten on this rollover--",13
-fomc-corpus,1986,So you're taking about every two years or so another 5 percentage points up there. Is that roughly the result of--,24
-fomc-corpus,1986,"It depends upon whether the money supply continues to expand at the rate of recent years. The marginal increase will rise with more bills, but as he said--",31
-fomc-corpus,1986,Is it by a large rise or--,8
-fomc-corpus,1986,It depends upon,3
-fomc-corpus,1986,"It depends on the rollover, the runoff of the coupons.",12
-fomc-corpus,1986,"No, because they'll be rolled over into coupons.",10
-fomc-corpus,1986,They're going to the short end.,7
-fomc-corpus,1986,"Short coupons, but they'll still be in coupons.",10
-fomc-corpus,1986,"Traditionally, or within the last few years, we've done a couple of bill purchases in providing longer-term reserves and the market expects that.",28
-fomc-corpus,1986,[You mean] a couple of coupon purchases.,10
-fomc-corpus,1986,"Yes, coupon purchases. Does this in any way alter that policy? Would we not do a coupon pass if--",23
-fomc-corpus,1986,I understood the consensus to be to continue what we've been doing.,13
-fomc-corpus,1986,The consensus was to continue to do it in small amounts.,12
-fomc-corpus,1986,And you'd just shorten it up by not taking as much on new issues then?,16
-fomc-corpus,1986,By not taking as much of the long options.,10
-fomc-corpus,1986,"Yes, on new issues.",6
-fomc-corpus,1986,Right.,2
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"The inventory pattern that you have for the third and fourth quarters I know is related to autos, but what indication do you have that that disinvestment in the third quarter is likely to come about--particularly in light of the numbers that we have for inventories in July?",53
-fomc-corpus,1986,"What we have in terms of nonfarm inventories in the third quarter is a runoff of nearly $12 billion, annual rate, in constant dollar terms. We have nonfarm inventories excluding autos rising about $9 billion. So the story is really very much an auto story, with a decline in auto stocks of about $21 billion in real terms in the third quarter. The numbers in the report in July were a little curious in the auto sector. They run counter to this and, as far as we know, the folks at BEA have other information they use in putting the numbers together. As you know, inventories are a wild card in all of this and I don't have any particular faith in a given number. But we do know what's happening to measures of auto stocks. And I would say that we have this forecast of a $21 billion runoff and an increase of $12 billion in the next quarter within a few billion. I think it's safe to say autos are largely driving that. Outside of autos we have small increases.",206
-fomc-corpus,1986,"The other issue is on net exports. You have roughly a $17 billion growth in the second half coming from net exports. Going to the July data again, the fact that you get an improvement of roughly $7 billion in the third quarter looks a little suspect at this point.",56
-fomc-corpus,1986,I have a colleague who has answered many of these questions.,12
-fomc-corpus,1986,"I agree that the July data were disturbing. In fact, as far as the trade balance itself, the trade deficit in the third quarter would be larger than in the second quarter, which was essentially unchanged from the first. In terms of GNP accounts, however, two things are operating. One is the deflation; prices are rising for imports and in some sense that's taking back, so quantities are not rising as rapidly. On the other hand, when you're going through the trade numbers to the GNP accounts, there's about $3 billion at an annual rate that's accounted for by gold. Gold comes out of trade, both imports and exports, when it goes into GNP accounts. The negative swing is because of what's been going on in gold trade going from second quarter to third quarter; that swing isn't reflected at all in the GNP accounts. So I think it's fair to say that while we don't know what the revised figures will be when they come out at the end of this month they could well show worse numbers for July than the preliminary estimates. Our sense is that those are odd numbers and we are assuming they will be offset in part by August and September in the trade balance.",238
-fomc-corpus,1986,I get the impression that your level of confidence is not the highest on that one.,17
-fomc-corpus,1986,I think Jim summarized our sense of a lack of confirming evidence.,13
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,"On the other hand, to the extent that other aspects of the forecast are beginning to fall into place we had hoped that this one, too, would turn--",32
-fomc-corpus,1986,"The improvement in, let's say, the period from the fourth quarter of '86 to the fourth quarter of '87 certainly looks reasonable; it's that pattern in the last half.",35
-fomc-corpus,1986,"Staying on the trade number for just a moment: If for some reason that projected trade number didn't come to pass, there might be implications for the inflation number. If you get more stimulus from the deficit than you're projecting and less from the trade accounts, then that might cause you to revise your inflation number. Inflation would be worse then.",68
-fomc-corpus,1986,"Yes, to some extent our view is that some of the inflation coming from the dollar is a matter of timing. We've been seeing those price increases and it's a question of how they feed through. Obviously, we have weaker domestic markets. Out of the forecast of 3 percent real growth next year, a little over a third of that comes from net exports. So if you took away those exports the direct effect is rather large; and you can clearly have indirect effects, feedback effects, in domestic income. So, if you were to assume no improvement whatsoever, I think you're talking about a pretty sick domestic economy unless we have other things wrong.",129
-fomc-corpus,1986,"Yes, it's other things equal.",7
-fomc-corpus,1986,"Jim, do you have a CPI figure for all items other than food and energy?",17
-fomc-corpus,1986,It's up 3/10ths.,8
-fomc-corpus,1986,3/10ths. Thanks.,7
-fomc-corpus,1986,"Jim, can I ask about the unemployment numbers? I would have thought that the unemployment numbers would be a bit lower than they are in your forecast for those two quarters. Are those [unintelligible]? Or are the numbers about right, do you think?",53
-fomc-corpus,1986,"Well, I don't think I'd make big changes. We have a number for August of 6.8 percent and an average of 6.9 percent in the third quarter. If anything, I might change it a tenth, clearly on the downside. I think that's what you're asking.",58
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"The question as we go into the fourth quarter is whether we're going to continue to see that sort of improvement in a major way. We have assumed that we'll continue to have employment growth but at a somewhat lesser rate than we've been seeing recently. So, we have the unemployment rate drifting down only a tenth on a quarterly average. If that's wrong, and given what we know now, I'd bend in the direction of knocking another tenth or two off. I don't feel particularly uncomfortable [with our forecast] but I think the weighting of the evidence would be in the direction of a lower rather than a higher rate.",121
-fomc-corpus,1986,"Jim, one question on your forecast. The positives are fairly heavily weighted on the improvement in exports. As I think you know, our folks have been doing a little research trying to figure out what has really happened to the dollar and our judgment seems to be that it has declined somewhere between 7 to 9 percent as opposed to 25 to 30 percent. If that should be true, that would tend to postpone this improvement. I would just raise--",92
-fomc-corpus,1986,"But, President Boykin, we don't say this is our forecast for the weighted average dollar and put that into an equation and ignore the rest of the world. So, just because we use that as an indicator of where the dollar is going does not mean that we have ignored in this forecast the fact that the Taiwanese or the Korean [currencies] have not been depreciating appreciably against the dollar. We have gone back and looked at this more carefully over the last several months and, in fact, I am much more comfortable than I was before--at least to the extent that history can be any guide in these matters--that in the forecast we have adequately taken account of the lack of depreciation against the fixed [exchange rates of certain countries] in the judgmental adjustments that we have been making. Before, when we went back and looked at it, the whole scientific evidence suggested that, if anything, we were going too far in the direction of slowing down [the adjustment] for that reason rather than not far enough. So there is something in the forecast that takes account of the lack of depreciation against those currencies explicitly, and it is based upon scientific evidence as well, if you want to call it that. Now, we have a big problem in terms of how we forecast what's going to happen to those currencies. Basically what we have assumed is that they would maintain their value in real terms against the U.S. dollar. So there would be no net real appreciation or depreciation versus those currencies, on balance. Given the fact that we're dealing with some countries who have rather severe debt problems, that may or may not be appropriate. On the other hand, we have enough trouble doing the forecasting we do. So there is an explicit assumption, essentially, about both the behavior of those currencies and economies and an assumption about the course of their exchange rates in our forecast [unintelligible].",380
-fomc-corpus,1986,You have marked down some the G-10 countries' growth?,13
-fomc-corpus,1986,"A touch, yes.",5
-fomc-corpus,1986,I haven't read the export numbers carefully enough to know: Have they been changed much since the earlier forecast?,21
-fomc-corpus,1986,"No, this forecast basically is the same as the previous one.",13
-fomc-corpus,1986,"Okay, so something had to give there. The growth abroad slowed. Is that made up in what has happened to the exchange rate since that time?",30
-fomc-corpus,1986,"No, the exchange rate forecast for once didn't change at all just because we have the growth down by a tenth, or two tenths if you combine the two years. This would tend to give us a little more depressing effects on exports, as you suggested. Basically, the order of magnitude would be about the same as the last time. As for the impact on the overall forecast, on balance, I think we took a little out of the 6-quarter change from where we were last time.",100
-fomc-corpus,1986,"I'd like to ask a question about the inflation rate that you have, the implicit deflator, and the dollar. The very small increase in inflation in the fourth quarter we talked about last time and you mentioned that it's primarily the fact that the deflator on imports is rising. That's part of the story in the sense that in subsequent periods one would expect that as profit margins get narrow the [price increases] would get passed on in terms of higher domestic prices on goods that use imports as raw materials, and also in terms of domestic goods that compete with imports. How do you explicitly capture that? Do you do deflators by sector or is this a judgment?",133
-fomc-corpus,1986,"No, we do it by sector. And where that shows up explicitly is in private domestic final purchases. So you look at consumption, you look at investment. For example, we have that total, excluding food and energy, rising next year at a rate close to 4 percent. So that's sort of an explicit recognition that these imports prices are feeding through into final goods prices.",76
-fomc-corpus,1986,So that would be adding how much--roughly a percent?,13
-fomc-corpus,1986,I think we have something like 3/4 of a percent or 0.8 percent.,20
-fomc-corpus,1986,"Jim, how would you view the declines in the consumer confidence indexes? Would you attach much significance to that, what do you think the causes might have been, and so forth?",36
-fomc-corpus,1986,"I have a hard time reading some of those. They have bounced around. They're still at a high level but clearly they are not as high as they were a number of years back. Some of these reports--depending on whether you look at the Michigan or the Conference Board surveys--tend to be sort of ""things are good now but they're going to get worse."" In the Michigan case what often happens, and what I think was happening in August, is that it reflects an increase in inflationary expectations that's very highly correlated with food prices. Given the past behavior [of the index], whenever food prices go up Michigan seems to pick up the view that things aren't quite as good as they once were. So, at the moment I wouldn't read a lot into the declines, given that the levels are still high and given what we see going on in terms of actual expenditure patterns--that consumers have been quite happy to spend.",185
-fomc-corpus,1986,"The Michigan people also say that the index is very sensitive to changes in interest rates, particularly the mortgage rate, and the backing up of the mortgage rate may be [a factor].",36
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"Jim, if I could ask you: You mentioned that nondefense capital goods orders were down somewhat. What about total durable goods orders?",28
-fomc-corpus,1986,The total was little changed. It was up 3.4 percent in July and down 2.6 percent in August. There was a big drop in defense orders.,35
-fomc-corpus,1986,Was there a revision in the--,7
-fomc-corpus,1986,"No, the revisions, I think, are very small. On nondefense capital goods alone it's virtually unchanged. That was up 3.7 percent in July and down 2.8 percent in August.",43
-fomc-corpus,1986,So we didn't get any confirmation of the employment numbers in manufacturing?,13
-fomc-corpus,1986,"No. Part of what's going on, though, is that the aircraft area has been extremely volatile. It was up very sharply in July and went down in August. Nondefense capital goods orders excluding that aircraft component are still down in August but the level is 3-1/2 percent above the second-quarter average. So I would read that as something very helpful. The other development that is encouraging is that office and computing machinery orders rose again. They are now, as you know, at a low level; but they are 25 percent above where they were in the second quarter. So there seems to be a little life coming back in that high-tech area.",135
-fomc-corpus,1986,"Yes. I was told by one computer company that they are selling a lot to Korea and Taiwan, so maybe we'll--",24
-fomc-corpus,1986,Do I remember correctly that you said most of those major Boeing and McDonnell-Douglas orders were not booked yet?,24
-fomc-corpus,1986,"Yes, that is true.",6
-fomc-corpus,1986,So there could be even greater strength coming along.,10
-fomc-corpus,1986,They indicated in their release this morning that those orders still aren't showing up in these latest figures.,19
-fomc-corpus,1986,And they're big orders.,5
-fomc-corpus,1986,Do we have any general comments on the economic outlook?,11
-fomc-corpus,1986,"Could I say something about how difficult it seems to be at this stage to [look] forward? It's difficult for me to [elaborate on] that, but I just want to make that clear.",42
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"Mr. Chairman, our view of the near-term outlook is still pretty close to that of the staff. This upward revision in growth of GNP in the second half makes sense to us in view of the domestic automobile sales incentives and what appears to be some improvement in the manufacturing sector in general. I think the longer-term prospects are a little harder to call. We're still generally optimistic and we think the staff is perhaps about right in projecting a moderate 3 percent rate of growth for next year. In fact, we tend to think that consumer spending and probably business fixed investment might be a tad stronger. One reason is that we don't think there will be quite as much of an increase in the cost of capital and, therefore, that the new tax law will be less damaging to capital spending than some economists believe--if you take into consideration that the top corporate tax rate has come down and also consider what has happened to individual income tax rates of dividend recipients. But all of this depends, I think, on interest rates and inflation remaining relatively stable. And I think the risks have increased that such might not be the case on both fronts. In particular, the prospect for progress in reducing the federal deficit looks a lot less favorable now. I think the financial markets sense this and that's one of the reasons we had the recent backup in interest rates, which probably affected the decline in the stock prices. The markets also are clearly more concerned now about the possibility of a revival of inflation and neither of these kinds of [developments] is good for the markets and neither is good for the economy. I hope we'll do everything we can to keep these things from gaining momentum.",332
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"Conditions in our part of the Midwest, I think, are very much unchanged. The trends that have been in place most of the year continue at about the same level. But I continue to be struck by this incredible dichotomy between the good sectors of the economy and those that are relatively weak. There is nothing new about that but that dichotomy certainly continues. I think the automotive sector, which Jim referred to, is rather phenomenal. Here we have had the third year in a row of auto sales over 10 million, which I think is a pretty good record, yet even now these incentive programs just have a phenomenal effect because sales have literally taken off. Construction activity in the Midwest continues at a pretty high level. Residential construction throughout the District is really quite strong; that's particularly true in Illinois where the numbers are running well over the national average. We are perhaps slightly different from what Jim said on the commercial side; we are stabilizing in our commercial construction but nonetheless stabilizing at what seems like a pretty high level. On the negative side, the heavy manufacturing news continues to be pretty somber. There is no particular improvement. More and more companies are continuing to shift their production offshore to take advantage of lower wage rates. They admit that they are late in doing it but nonetheless see an opportunity to take advantage of that trend. On the tax bill, those that I talk to on the heavy manufacturing side are pretty glum as to the near-term effects that the bill, assuming it gets passed, is likely to have. Our agricultural directors report that we have had, really, a perfect growing season and we're bracing for record production; the stories one hears about the storage problems and what they're going to do with all this are really quite phenomenal. On the inflation side, I think the general outlook continues to be favorable but there are just those few worrisome signs there. As I suggested, housing starts in the Midwest are pretty strong. In some suburban Chicago areas we're having significant prices increases --15 to 20 percent in the first six months of this year. It's a very, very, strong housing market and the prices are going up. We anticipate that apartment rents will be up 5 to 10 percent in the Chicago area. And, I think everybody expects that the prices of imports, particularly cars, are going to begin to go up. Offsetting that, the labor news, as Jim suggests, continues to be good. Three-year contracts are prevalent and annual costs are very moderate. I talked to somebody last week who settled a three-year contract with costs over the three-year period of 1 to 1-1/2 percent. And the companies are getting very, very significant work rule changes--that's the big push now, of course. On the pricing side--perhaps not in services, but certainly in manufacturing--there are pressures. As to the [national] outlook, certainly our outlook is consistent with the staff forecast. But I agree with Governor Wallich that it's a very, very hard time to call it. Everybody anticipates that we're going to see export activity pick up and that at some point imports will be under some constraint; but these events are certainly getting to be long overdue. Therefore, I think it is a tough call to judge just how strong the underlying strength of the economy really is. Perhaps this is one of those times that we just have to stand back and see how things come in.",690
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"The economic situation in the Twelfth District is basically unchanged from the last meeting, but I think there are a few more signs of strength in the District. In August, growth of employment in California was very rapid. And the July-over-July increase for the entire District, which of course includes 9 states, was a full percentage point greater than the national average, with only Alaska and Oregon being under that average. Even in a few of the problems areas of the District we see some glimmers of greater strength. The mining industry got a boost recently in Utah with the signing of a 4-year contract by Kennecott with the mining union that is going to result in a resumption of production and will probably add about 2,000 workers between now and the middle of next year. The lumber industry is doing quite well at the present time. It has been helped by several developments, including strong domestic demand for lumber and a 22 percent increase in exports in the first half. There's also an industry strike in British Columbia which is affecting the Pacific Coast lumber industry positively. And there is an expectation, in the industry at least, that the International Trade Commission is going to find that British Columbia has subsidized soft-wood exports and that that's going to accrue to our benefit. On the negative side, as far as the District is concerned, most of the talk centers around the tax bill and is basically in line with what Si Keehn mentioned. Our forecast is similar to that of the Board staff's with the exception that we don't have quite the same pattern for net exports and inventories, particularly in the second half of 1986, and for inflation over the entire period. We agree that the trade account is likely to be an important source of growth in 1987 but we are not very confident that the turnaround will occur in the third quarter or that we'll get as much strength in the entire second half as indicated by the Board's forecast. We looked at some data that we have for Pacific Coast customs districts, which represent about 25 percent of all trade. Those data have a lot of problems, including the fact that they are nominal--we don't have any deflators in them--but they do indicate that the trade balance has deteriorated consistently through July. It appears as though that deterioration is a result of greater imports from Canada, Mexico, and perhaps also the Pacific Basin mix. In the inventory area, we see more strength in the third quarter and perhaps a little less in the fourth. I must admit that the contribution to growth of $25.8 billion in the fourth quarter in the Board's forecast is quite a bit more than we have. Also, we do not have such a sharp fall-off--going from 5.6 to 0.9 percent--in final sales. So, there's quite a difference in pattern but we end up with a real GNP growth which is not that much different for the second half. Finally, I have a somewhat greater concern about inflation through 1987 than is in the Board staff's forecast. We talked about that a little in the discussion. I think there is a chance that we'll see more of an effect in other sectors of the passthrough of the higher dollar cost of imports. I also wonder if the growth rate of the economy, averaging 3 percent between now and the end of 1987, would enable producers to pass along larger price increases than are incorporated in the Board staff's forecast. As a result, our inflation rates have a tendency to be running about a percentage point higher than those shown by the Board staff.",726
-fomc-corpus,1986,What happened in that Weyerhauser strike? Is it settled?,14
-fomc-corpus,1986,We still don't know. It's mainly in British Columbia and that's why it seems to be accruing to the benefit of--,24
-fomc-corpus,1986,Weyerhauser in British Columbia?,8
-fomc-corpus,1986,The one domestically has been settled.,8
-fomc-corpus,1986,It has been settled?,5
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,On what terms?,4
-fomc-corpus,1986,It was mainly rules. I don't know what it was on wages. is not nearly as optimistic as because it is apparently accruing very much to the benefit of is not as much affected--,38
-fomc-corpus,1986,He didn't get a good settlement?,7
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"Mr. Chairman, I think the staff's forecast is a good one. I expect, as they do, that the economy will pick up in this quarter and in the fourth quarter. However, I can't help noting some areas of concern. The first is that the two areas of strength in the economy--consumption spending and single-family residential construction--while likely to maintain their strength, will be contributing less to the economy. That is, their rate of growth will be decelerating and residential construction in the single-family area will be offset by what's happening in multifamily housing construction. And I'm mindful that the two components that we are relying on to provide this pickup--that is, inventory accumulation and an improvement in the external accounts--are areas that in the past have proven difficult to forecast. As has been pointed out, we may not see the degree of improvement in these components that we would hope for. Therefore, I would see the risks of the forecast on the down side. I'm gratified, however, by the recent evidence of improvement in the economy, particularly in the employment area, and also by the anecdotal evidence that has come in. There seems to be an improved sentiment in the business community as well. But I do see the risks at this point on the down side.",259
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"The District continues to operate at a higher level of business activity than the nation as a whole. Just one indicator of that is unemployment, which for the District as a whole has been running around 6 percent and around Philadelphia closer to 5 percent. But we have noticed in the last couple of months that the rate of change has slowed somewhat. That has not affected attitudes, however, which I think are generally upbeat because of the higher level. While people don't feel great about the future, they think it's pretty good. As I look at the national economy, I do think that the statistics have improved a touch. I'm not sure how much I would make of that but I think that is there. Largely because of the foreign sector, how the economy in fact will turn out is very tough to call. As a result, my convictions, and I sense the convictions of others, do not run very deep about the economic outlook. I think we see this more dramatically in the financial markets, which seem to act on changes in sentiment, more than on the goods side. There is that level of uncertainly and lack of conviction as to where we're going. On the inflation side, I sense that there has been perhaps more than a subtle change--that the concern about inflation as expressed in the long bond market, and to some extent in the commodities market, is there. And I think the message there for those of us who make monetary policy is that perhaps we have run into some resistance point on what we can do. Trying to bring all that down to a bottom line, I would come out about where the staff is as far as numbers; but I would emphasize that there's not a whole lot of conviction that lies behind those numbers.",349
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Looking first at the District, I think I could say, Mr. Chairman, that conditions in the Southeast reflect pretty much the imbalances that we see in the rest of the economy. The energy states are especially weak, particularly Louisiana. We're seeing a lot of out-migration from that state to other states, particularly Mississippi, and that's causing unemployment rates in those states to move up as well. We now have the distinction, dubious as it may be, of having the highest unemployment rate in two states--in Louisiana and Mississippi it's over 13 percent. The agricultural sector is also in bad shape, partly as a result of the drought that I reported on before. We have had some recent rains in the area but they've come too late to help most crops. The corn and soybean crops are destroyed. We've had some marginal benefit to some other crops from that rain. The apparel and textile producers still are reporting that they're not getting any particular benefit from the decline in the dollar. They still say that foreign competition is coming in very strongly and, of course, they are continuing their protectionist cries, particularly from Congressman Jenkins. And I think we'll hear more of this bill that the President vetoed. At the same time, some of the apparel and textile people who have tried to carve a particular niche in the market are doing better, particularly those who have not only carved that niche but have improved their productivity through greater automation. So it's a mixed picture in that industry; I wouldn't say that it's completely negative. General business conditions continue to be very good in the urban areas, and this has given rise to more and more talk in a number of states in the District of this dichotomy that somebody else has talked about--where we have the rural areas not participating in the general beneficial economic conditions and the urban areas doing quite well. That seems to be consistent throughout the entire District. We have seen a leveling off of single-family housing, but it's still at fairly high levels and I think will continue to be a source of strength in the local economy. Business attitudes are still fairly positive, although I detect on the part of some people I've talked to a waning of confidence just a bit. That's particularly related to uncertainties about the tax bill and the trade sector. Interestingly though, I don't hear at all any concerns about recession in the District; and I don't hear very much concern about inflation, notwithstanding what the markets seem to be telling us. On the national level, I agree generally with the staff forecast. I might have some marginal difference with respect to unemployment, as I indicated earlier, and perhaps to inflation. But those are very minor differences. I, too, would share the great uncertainty that others feel about the direction of the trade deficit and what that means for overall economic activity in 1987. But in general, I think the forecast is on target. And we can only hope that the trade deficit will turn around in a short period of time.",591
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Mr. Chairman, on the national level I'd be slightly less optimistic than the staff's forecast, but it's pretty close. On the District level, I'm having a little change of heart; I think my attitude is changing from one of pessimism to cautious optimism. I don't want to damn this by faint praise but I, too, think that we are seeing signs that we may be reaching the trough in the Eleventh District. The big increases in unemployment rates seem to be over. In Texas, in both July and August, rates were below the rates for May and June. Those July and August rates, however, were very high: August was 9.2 percent compared with the 6.8 percent national average, but that's down from the 10+ percent that we had a little earlier. Unemployment rates [are high] in Louisiana; Bob Forrestal mentioned that. New Mexico is about the same as Texas. Our nonfarm employment may be near the end of its major decline. We did see a little rise in July in Texas and New Mexico and that comes after five consecutive months of decline. So, hopefully, we're seeing a turn there. The manufacturing sector remains weak but may be close to bottoming out. Some areas of strength we're seeing include electrical and electronic equipment as well as aircraft and parts. Our construction contracts seems to be stabilizing, at least for now. Construction values remain about 20 percent below year-ago levels. The most pronounced reduction in the energy sector activity also appears to be behind us. Our rig count is flat or rising slightly--from very low levels, of course. Our energy sector employment now is declining slowly in contrast to massive layoffs just a few months ago. Even in agriculture, the livestock producers are feeling a little better because of higher beef prices. So in summary, Mr. Chairman, I would say that maybe we have a little cautious optimism for the Eleventh District now.",388
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"Thank you, Mr. Chairman. In the Tenth District I'm not sure that the cautious optimism is present. The District as a whole, as I think the Committee knows, has not performed as well over the past year or two as the national economy--measured by either total employment or unemployment numbers, personal income gains, and things of that nature. There is the difference between the urban and the rural that I've spoken of before. However, in my most recent meetings with businessmen, I found the views of urban businessmen across a fairly wide range of activities a bit more pessimistic than in the past. That is to say, they understand that the economy even in the urban areas is operating at a fairly low level, but they don't have any great optimism that there is any light at the end of the tunnel that gives them much hope that it's going to improve over the near term. That seems to me to be a bit of a change. The other side of that coin is that they have apparently no concern, or little concern, that inflation or inflationary expectations will be revived. As a result, in the urban areas activity is rocking along at kind of an unsatisfactory rate but at least on the positive side. On the agricultural side on the other hand, there is very little improvement other than in the areas Bob Boykin just referred to--that is, in the red meat sector prices of both hogs and cattle have come up and are at very good levels. There are good profit margins simply because the [cost of] feed that is necessary to put those animals to market is less; as a result the profit margins in red meat industries are very good. If you look at net farm income, however, you could build a fairly good case that it will be about the same level in 1986 as it was in 1985. If you look a little deeper you will find, however, that the net farm income is largely attributable to government programs. It's merely a transfer from the federal Treasury to the producers that gives you net farm income that is nearly equal to last year. On the other hand, the net exports of agricultural products will be at the lowest level in 20 years. We will have a net export position of agricultural products that is something over $7 billion; a couple of years ago that was in the $30 billion range. So, the impact of the dollar hasn't hit, and probably won't hit, in that sector simply because there is production beyond the U.S. boundaries that is supplying the demand that we used to supply. So the outlook in the farm area is not very bright. In the energy area, much as Bob Boykin has indicated, there is a little activity but there's still a great reluctance to do very much exploration simply because of the uncertainty of what OPEC's impact will be on energy prices. They are afraid not that the oil price will go to $20 but rather that it will go back down to $8 or $10 and they will be in the midst of drilling a well that will not pay off if they are successful in hitting oil. So, overall, the District is rocking along at a very low level. But in a sense the tenor seems positive, except for the foreclosures in the agricultural sector and the lack of activity in the energy sector.",667
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"Thank you. I find the staff forecast in the Greenbook conservative--not in the sense that I think the outlook for real growth is too low, but in the sense that the very heavy reliance on improvement in net exports is accompanied by what I judge to be some consecvative assumptions about performance of some of the other sectors in the economy. In particular, I have in mind consumer spending, government purchases, and possibly investment a bit. My point is that even if the improvement in net exports turns out to be delayed, or more modest than envisioned here because of some of the other conservatism built into this forecast, it seems to me that we have a good chance of realizing something like the outlook expressed in the Greenbook, or perhaps even something a touch better. It seems to me that at the national level the latest statistics are a bit stronger. I am not sure how much to make of all of that. We have seen these little spurts in the past; the most recent one, I think, was late last year and maybe into January. It is certainly too early, as far as I can tell, to know if that will be sustained. In the District, though, a more upbeat tone--I might say almost distinctly more upbeat--has emerged in the last couple of months. A variety of factors are contributing to it; of course, the national auto sales situation that [unintelligible]. In the District in general, retail sales have been good and the retailers I have talked to said back-to-school sales were reasonably strong. The wood products industry, which is very important, is in general doing well. Summer tourism was good, if not great. Defense spending has provided a lift in some locations in the District, and I think there is a growing conviction that the problems in agriculture are close to bottoming out. Now that's not to say that the emergence from the bottom is at hand or that it would be significant emergence. But I think people are taking some comfort simply in the fact that it looks like the bottom may have been reached. The economy in the Twin Cities, which accounts for a good deal of what goes on in the District, continues to do very, very well. So, in general, I would say that attitudes are improving, at least, in the Ninth District and that there are some signs of economic activity improving.",476
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"I would say about the same for the Eighth District. The most recent indicators we have all would show an improvement, particularly in July. For example, nonagricultural employment was up over 9 percent and we even had an improvement in manufacturing of 1-1/2 percent or so. Retail sales over the second quarter were quite strong, at a 7-1/2 percent annual rate of increase. Also, both residential and nonresidential construction were strong in July, although looking at those sectors over the period of a quarter, they declined somewhat, as you might expect. In terms of conversations I have had, there has been an improvement in sentiment among businessmen; retailers said the same kinds of things Gary was referring to in terms of good back-to-school sales. On a broader basis, one of the things I have given some thought to is the question of whether this concern about inflation is something that is just reflected in the markets or whether it has perhaps what some people would consider more solid underpinnings. The first observation that I would make is that while often markets overact in the short run, I think we are looking at something that has been developing over a period of some months--going back to early April--with respect to how long rates have performed relative to short rates. So I am not inclined to think that this is just a passing fancy, particularly when you look at the kinds of volumes that are traded--for example, $100 billion a day in the government securities market. I tend to think of that as condensing the best odds and expectations of a broad cross section of people, so I am inclined to put some credence in that. Also, one of the things you read about is the Commodity Research Bureau Index and I asked some of our people to take a look at that. Since June that overall index of about 27 industrial and agricultural commodities is up at an annual rate of, say, 11 to 12 percent. If you take out the 7 grains in the index, which tend to be very much influenced by the government's support programs, it is up at an annual rate approaching almost 30 percent. So, just on that score, I think there are some things happening with respect to underlying commodity prices that go beyond pure speculative influence. What I have been trying to pick up, and haven't really picked up yet in talking to people, is whether the behavior of purchasing managers who are running inventories has changed at all. Going back over a period of time when I have asked these questions there has been really no expectation of inflation; accordingly, people aren't really building any inventories. That is one of the things I am going to be looking for in talking to people but I haven't picked up any evidence of that yet.",558
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"In terms of the general outlook, I'd piggy-back on a comment Mr. Stern made earlier: my GNP forecast on balance looks a lot like the staff's but it looks that way notwithstanding the fact that we have a smaller improvement in the trade deficit than is in the Greenbook. On the trade deficit question, I have been on the skeptical side in terms of the rate at which that could turn around, and I still am. But for what it is worth, our people did a little informal survey this past week of a cross section of a couple dozen firms, major and minor; and for the first time that survey does suggest some things that are consistent with at least a stabilization, if not some improvement, on the trade side. It comes through both in terms of export opportunities being there in ways that they were not there before and in terms of import price pressures beginning to work their way in. One of the surprising things we found in the process of doing this survey--at least surprising to me--was the emphasis that people on both sides put on commitments and long lags in orders and processing. One example of that was even in soft goods--clothing and that type of thing. The lags are a year or more, growing out of commitments and contractual obligations that are standing in the way of adjustments being made even in the face of more favorable conditions. Now, there is nothing spectacular there--no hard evidence--but at least it is a bit of an indication that maybe the tide is turning, notwithstanding the horrible July number and the prospect for the third quarter as a whole still probably being pretty lousy. On the inflation side, I have some of the same concerns that Bob Parry and Tom Melzer talked about. Our forecast is one in which we have the inflation rate roughly a half percentage point higher than what is in the Greenbook. In some sense that is not altogether alarming, but what bothers me is that it wouldn't take a whole heck of a lot to make me want to mark up that price forecast. Looking around, one of the things that really has disturbed me of late is this pattern that we see in domestic automobile prices--Ford, I guess it was, last week announcing price increases on domestic models of up to 9 percent. In the context of the anecdotal reports that people have referred to, I think that is, to some extent, a matter of concern. In the staff forecast, by the end of next year they have the CPI, excluding energy, at 4-1/2 percent. I don't know what the threshold is but my hunch is that if that were above 5 percent, or if the deflator were above 4 percent, we would have a very, very difficult situation on our hands by the end of next year. In that setting I, too, don't think that what we are seeing in the financial markets is completely irrational. There is some basis for concern there, notwithstanding the fact that, as Emmett Rice and others have said, there are some downside risks in the economy itself. It goes without saying that these patterns that we have seen in the last couple of weeks in the financial markets serve as a reminder of the vulnerabilities that are there--whether in terms of just volatility or these very, very sharp changes in financial asset prices over periods of weeks and months. That in itself has the potential to undermine confidence in ways that could be quite counterproductive in terms of economic performance. So, I can't disregard what the financial markets are doing at all, and I think what they are saying is that you better be careful here boys.",726
-fomc-corpus,1986,"Are you prepared to be careful, Mrs. Horn?",11
-fomc-corpus,1986,That was a [generic] term.,8
-fomc-corpus,1986,"Well, taking off on that lead, the numbers in the Cleveland forecast look quite a bit like the Greenbook forecast. But perhaps, whereas I sense from the Greenbook that the Board staff tends to look at those numbers and see the glass as half full, I see the glass as half empty. I suppose that is a result number one, of the situation in the Fourth Federal Reserve District, and number two, of my growing disappointment that the expectations I had earlier in the year for lower interest rates, a higher stock market, and low oil prices coming through haven't yet materialized. Or, if they have materialized, they haven't been in the quantity that I expected. From the Fourth District vantage point I am unable to report developments that suggest a step-up in the pace of expansion over the balance of the year. The flat economy has meant a flat capital goods market and that is key for the Fourth District. Given that, together with strong competition from imports, many District producers--notably of steel--are tempering their optimism and are starting another wave of restructuring and serious consideration of cost cutting. I see this attitude not only in steel, but in autos, auto-related industries, machine tools--what is left of them--and machinery-making in general. Although we are not talking about declining production--things aren't that bad--we are talking about decreasing market shares in intense competition. All of that is making people think about survival: about shutting down less efficient facilities and basically consolidating and down-scaling operations generally. I don't think the mood is bleak, but I think there is much less optimism on futures markets and the future ability to gain market share than there was, say, a year ago when there was more hope for what the exchange rate would do for our world in the Fourth Federal Reserve District. So, I would say that in this next year in the industrial Midwest--or what is left of it--we would have a turbulent time, with the next steps being toward restructuring. Businessmen and the directors in our District talk more and more about their disappointment with the budget process. I am not sure how to evaluate that because there are the two sides--one is the deficit reduction and the other is the tax increase they are about to be hit with, or may be about to be hit with. That is something that I hear talked about more and more as time passes. I think the overall effect of these factors is working in the direction of weakening the foundation for the expansion next year. With the additional drag on capital goods that we will see from the tax package, I see little likelihood of a strengthening in the traditional capital goods market. I don't yet detect nervousness about inflation; people seem prepared to watch prices go up and attribute that to the end of the oil price contribution to the indices. Cost control efforts really are already intense and they will intensify. One could argue on the good side from that, but even among businessmen I find skepticism from pushing too hard or relying on that on the inflation front. Of course, on the inflation front, if the deficit is not going to be brought down then the load will fall once again on monetary policy.",636
-fomc-corpus,1986,Governor Angell.,4
-fomc-corpus,1986,"I certainly welcome all the comments about market commodity prices. I would review just a minute by suggesting that we have a severe commodity price deflation on our hands and I think it is encouraging that our accommodation of the world's demand for financial assets has, in a sense, blunted this deflationary move. It seems to me that there are ample signs that the accommodation of this demand has worked. But it is very difficult to stop the deflationary move without creating some changes in expectations, which are most apt to show up in precious metal prices. And any index that has those precious metals in it is going to show that kind of movement, which I think is what you might expect. But the index numbers that I look at do not show any appreciable change. I think it would be appropriate for us to recognize that there is a tremendous supply side force out there in regard to commodity supplies worldwide. I don't think that has changed. I would agree, however, that we are undoubtedly somewhat vulnerable to any outside force that might create a particular kind of shortage that might produce a price rise. It seems to me that Si Keehn had it exactly right when he said that this is probably the time to wait and see what happens. I am very impressed by the fact that the United States and Canada now have the best record in year-over-year wage changes. That is, our 3 percent wage increase, year-over-year, is only beaten by Canada's 2.9 percent. A couple of Scandinavian countries are very close, whereas many of our major trading partners are running much heftier wage rate increases. I am somewhat encouraged by those wage rate movements, which may provide some stimulus abroad. That is, those wage rates along with their low inflation rates, it seems to me, are going to provide some real substance to better final demand in Germany and Japan. So I think that is encouraging. I am in tune with the staff's forecast both for GNP and prices. I think there is a grave variation in terms of accuracy of these forecasts dealing with the inventory numbers and the export timing change; but I feel--",425
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"Mr. Chairman, I have sensed a change in the spirit of my directors and businessmen in New England in the last month. There is a much more upbeat feeling than there was in the summer. I find some evidence now that some of our high-tech companies have begun to say that maybe the yen has gotten to a level where they can compete with the Japanese and they are planning to try to get back some of the market that they have lost to the Japanese in the past few years. It is the first sign of that sort that I have heard. who has a very unusual company called and their sole business is making equipment and special He said that on what he calls his consumer products, are a very good economic indicator; and he has noted that in the past two weeks they have had a big increase in orders for the",164
-fomc-corpus,1986,American products?,3
-fomc-corpus,1986,"American products. But he also sells abroad and his European orders are going up, too, for whatever that is worth. Boston seems to be the one exception in this downward trend in commercial office building. Our boom is still going on. I went to a meeting a week or so ago on new office buildings and hotels planned for Boston and, despite the fact that we have a lot of space coming on stream in the next six to eight months, we still have a tremendous array of office buildings and hotels planned. It is sort of like Dallas and Houston used to be. I figure we're going to have our glut but it is a ways off. For people renting space in our building we have a new program in which we are trying to stretch out leases to nail down today's high rental values because we would like to have everybody locked in when the glut hits.",171
-fomc-corpus,1986,That is a great expression of confidence about inflation as well as probably an escalator! Mr. Heller.,22
-fomc-corpus,1986,"I think we are making amazingly good progress this late in the recovery. Overall, I agree with what most people have said: that there is a more balanced economy than there was last year and very little in excesses actually developing. I agree with the staff that consumer spending is very well sustained and I think consumers are going to get a second wind next year when the tax cuts become effective. We see behavioral changes taking place already, both in the financial markets and as far as planned purchasing is concerned. Investment will be slow in coming, but at least we have bottomed out, especially in the agricultural and energy area; so we don't have any more drag from those sectors in the future. And the government deficit reduction program, disappointing as it is, will be a positive contribution that should be particularly good in the financial markets. I am less optimistic on the trade front, as I said previously. I think our exports won't increase very rapidly but at least the erosion in GNP due to imports will tend to stop. So, overall, the export sector will tilt a bit more in our favor and that also reduces some of those imbalances. On the inflation front, I am amazed by the good news that came in this morning. It is very heartening. And I fully agree with what Wayne was saying about wage increases. When you look at the European wage increases, given the high unemployment rates, it is amazing that they are all running in the 5 percent range--much above the 3 percent range that we heard here in other comments before. Overall, I think it is a very satisfactory performance with fewer imbalances than we have had in the past.",333
-fomc-corpus,1986,I don't know about those wage increases; those wage increases are low but so is productivity.,18
-fomc-corpus,1986,Productivity in the service sector is low but I don't think we know how to measure it. Productivity in the goods producing sector remains right at the 3.2 percent level that it has been at for some time.,44
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"I have just a couple of comments since I have heard just about everything said that I was going to say. In general, I am probably a hair more pessimistic than the staff, primarily because when I look at the auto industry I just have a feeling that we are going to give back more next year than the staff is assuming. I am impressed with the current sales level--no doubt about that--which, I guess, shows what low interest rates will do and how inattentive a lot of consumers are. But I think that this is not all a net gain. I think the give-back will show up, particularly in the first quarter. Also, I am just very nervous about the impact of tax reform on a whole lot of things, but particularly on business spending on new plant and equipment and on office buildings which, of course, are already under the gun. I think that is just going to provide one more discouraging influence. We have been talking about this trade turnaround for a number of months and expecting that to provide quite a bit of support for the economy, and I certainly hope that happens. But Senator Riegle sent me a little story which, with your permission I would like to tell, because I think it demonstrates how difficult it is to turn off the import competition. This involves one of his constituent companies out in Michigan; they produce Being non-mechanical, I have no idea what those are, by the way, but apparently they are very important in the production of engines. The company supplies parts for about three-fourths of the engines produced in this country and the Japanese had been their primary competition. They have revamped their entire operation, they have spent heavily on R&D and on new equipment, etc., they have gotten wage concessions, and they have tried to imitate the Japanese in the labor-management relationship. They have done remarkably well in dealing with the Japanese [competition] and they are now selling their main part for $5.50. Now, all of a sudden, the Koreans are calling on their major customers in this country and are offering them very similar products at $3.50. This isn't something I picked up; it came from Don Riegle. But I think it is very indicative of how tough this job is going to be, particularly when we haven't seen the dollar deteriorate vis-a-vis the Korean currency. I just hope and pray that we can get some movement in the currencies of these newly industrialized countries, particularly in the Far East, or I don't think we are going to see this big turnaround that we are counting on. Thank you.",524
-fomc-corpus,1986,You think that big improvement in [unintelligible]. How are they going to pay the interest on their debts?,24
-fomc-corpus,1986,That's somebody else's problem.,5
-fomc-corpus,1986,I think we should note these prices are not [unintelligible].,15
-fomc-corpus,1986,"No, they were for",5
-fomc-corpus,1986,It must have been per,5
-fomc-corpus,1986,Anybody else want to say anything?,7
-fomc-corpus,1986,I guess I should put in my two cents worth. I really don't have much to add; I think everybody has covered most of the basics.,29
-fomc-corpus,1986,From every point of view.,6
-fomc-corpus,1986,"That is right. My own views are not that much different from the staff's, either. I am a little more pessimistic on the trade side. And looking a little further down the road in 1987, I worry about how this automobile situation is finally going to work itself out. They are making a big contribution in sales this quarter, which is going to drain inventory and have a fairly neutral effect on GNP. Even in the fourth quarter, it appears that their inventories are going to build back up because the incentive programs will go off and demand will slide. What comes after that is somewhat of a concern. Are they going to cut prices, which doesn't appear to be the case, or are they going to build in deeper incentive programs? How much have they borrowed from the future? My concern is that there may be some bigger production cutbacks ahead in autos, perhaps in the 1987 period. The numbers are working out about right for 1986, it appears. The third-quarter trade just doesn't look like it is going to meet our expectations, at least if the July numbers are half correct. I realize there is a gold sale phenomenon in the accounts but that does not make me feel that comfortable. So I am a little more pessimistic, but I do see a turnaround. I don't think you can have a depreciation of the dollar of around 40 percent against the major industrial countries' currencies and not see some improvement. I think that we are getting close to the peak of the trade deficit and that some improvement will start showing up. If it just stopped increasing, we could see a good improvement in the GNP growth rate. I am a little concerned, too, as I have mentioned before, about some of the changed environment in the financial sector. I do think a lot of it is associated with the turmoil over who is going to contribute to world growth. There has been a good bit of expectation developing about interest rate reductions in Europe and Japan, which haven't materialized. That has added to the argument of some policy makers in the United States that the only way to solve the trade deficit, as a result of this resistance, is through an ever lower dollar. Obviously, that is going to create some anticipation in the financial markets that trying to solve the trade deficit through a substantially weaker dollar ultimately could be inflationary. I think that is a factor contributing to the turmoil of financial markets. Hopefully, if growth is stronger in Europe than we are thinking that will improve the situation and calm the environment a bit and exports will pick up. I think that is the only thing that ultimately is going to calm that environment. The outlook doesn't look that good in Japan; I think we have to place most of our hopes on Europe and hope that Germany is right unless they are planning to reduce their interest rates a little later. Maybe this European exercise to support the dollar will help but I am still concerned about the mechanics of that and how that's all going to work out. That is my two cents.",606
-fomc-corpus,1986,Mr. Kohn.,5
-fomc-corpus,1986,"[Statement--see Appendix.] Thank you, Mr. Chairman.",13
-fomc-corpus,1986,Let's break for donuts.,5
-fomc-corpus,1986,"When I look at this economic forecast of the staff, I don't know how good it is as a forecast, but it looks to me in a less than perfect world to be about as good an outcome as one could wish for. It has a nice tapering off of domestic demand, a good boost from the export side, real progress toward our longer-range objectives and we escape without too much inflationary pressure. So, if we can achieve that result we would be fine. Now, the question is: How do we achieve that result? I will just make a forecast that we are not going to have very startling policy moves arising out of this meeting, so I would be glad to hear about your nuances. You can prove me all wrong. Who would like to comment? Mr. Morris.",159
-fomc-corpus,1986,"Well, I have a little nuance, Mr. Chairman. I agree with you that we are sort of locked into a no-change situation here at the moment, but I am concerned about the increase in liquidity that we are building into the system here. If you look at the security holdings of the commercial banks over the past four months, they have risen by $31 billion of which $21 billion is in government securities. So, with loan demand so weak, we actually are pumping in reserves and the banks are placing them in fairly liquid form. It seems to me that if we ever do get the economy reaccelerating that we are going to have to lean against this liquidity growth at a fairly early stage. At the moment I would support alternative B.",151
-fomc-corpus,1986,That doesn't sound too nuanced. Mr. Melzer.,11
-fomc-corpus,1986,"I also would favor alternative B. Policy has been moving in one direction for some period of time and I don't think it's appropriate to turn it around on a dime. I have some concerns, as you know, about some of the developments on the inflation and inflationary expectations front. Looking down the road, I think we have to be mindful of the fact that the operating regime that we are pursuing now provides the reserves that are demanded, so pressures aren't really going to show up in the funds rate. After things have had time to settle out--and I guess by that I mean the effects of the decline in interest rates and so forth, all things being equal in terms of the economy--if we don't begin to see some of the slowing in the aggregates that Don has referred to, then I think we have to be prepared to move to a firmer stance. As I say, the pressures are not going to show up in the funds rate, and I think we cannot continue to provide reserves at the rate we have been under the circumstances I just brought up.",213
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Alternative B would be my choice. We have been expecting the fundamentals to produce a pickup in economic activity, and it appears from the recent data that that is occurring. At the same time, I think financial markets are concerned about inflation and the effects of a particularly easier policy on long-term rates and the value of the dollar would be adverse at this point. I share Tom's concern about overshooting our targets for M2 and M3. If I had to introduce a nuance, it would be at least in terms of verbiage leaning slightly toward greater restrictiveness.",114
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"Mr. Chairman, I would first like to endorse your statement that this would be a pretty darn favorable outlook. In particular, considering that this is the fifth year of an economic upswing I don't think we would have expected to have done any better than that. As I indicated earlier, I think the biggest risk is the possibility that this present pessimism that we have in the bond markets will gain momentum, with long-term interest rates backing up further. Obviously, that would not be a very healthy development from the standpoint of the domestic outlook. I think a lot of the concern in the market is stemming from some reduced hope that the Gramm-Rudman procedures and the reduction in the deficit will be possible. There is certainly nothing we can do about that from the standpoint of monetary policy, but I think some of these developments clearly stem from a change in attitudes and a feeling that there has been an increase in the possibility of inflation. I think that stems, in turn, from at least two factors. One is the recent action of OPEC; but I think it is also probably nourished by some growing uneasiness about the substantial growth in money and liquidity that we have provided recently from the highly publicized moves of the System toward greater accommodation. So, I think this is a time when we really ought to pause and take stock and convey a posture of caution to both financial markets and to the public in general, and I would favor alternative B.",291
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"I, too, favor alternative B. Like several others, I must say I am troubled by what has happened in the bond market in recent weeks. It seems to me that, for whatever reasons, there has been some deterioration in inflationary expectations, as Mr. Melzer and others have suggested. Beyond alternative B, and maybe by way of a nuance, I think we need to find some way to signal more clearly to the markets that we have a mechanism in place that will enable us to respond, should that become necessary, with a somewhat more restrictive policy. I think we will need some accompanying language in the directive to make that clear. It seems to me that such a stance would help to assure market participants and perhaps would be positive in terms of its ultimate impact on long-term interest rates; it also would be desirable from the perspective of the way fiscal policy is turning out. I must say that that situation looks worse than even I thought it would be, and I have been pessimistic all along. So, I would say that while alternative B is a fine starting point, we need to think a little more about the process by which we respond to the behavior of M2 and M3 in this.",243
-fomc-corpus,1986,"If I can just interrupt a second: There has been a lot of talk about the fiscal situation. I don't know what's optimistic and what's pessimistic. I think it's Mickey Mouse what they are going through to get $154 billion; it isn't realistic. But I guess I would just as soon that they didn't get to $154 billion from $220 billion all in one fell swoop. If you believe the staff forecast, which is what?--$225 billion to $177 billion--that doesn't sound too bad to me as a change from a year ago. It's not quite $50 billion less but $40 billion or so anyway.",127
-fomc-corpus,1986,$230 billion is about the forecast.,8
-fomc-corpus,1986,"Oh, I thought the forecast was about $225 billion--whatever. That may be about as much as it should be in one year in my view, if you really believe that number. Now, I don't know how solid that number is; I would guess it may be higher than that, I suppose. However, what do you allow for in the farm program?",74
-fomc-corpus,1986,It was $32 billion last year and we have $26 or $27 billion in fiscal 1987; the Administration has something like $18 billion.,31
-fomc-corpus,1986,"Well, good luck.",5
-fomc-corpus,1986,That's a good point. The smoke and mirrors that they are going through right now likely will add to that $50 billion and--,26
-fomc-corpus,1986,"If you believe the $50 billion, I don't think it's all that bad. But I don't fully believe the $50 billion.",26
-fomc-corpus,1986,"As far as a lot of the markets are concerned the smoke and mirrors, to use Governor Johnson's term, just reinforce the out-year problem. I think that's what nagging at--",37
-fomc-corpus,1986,Some day they may have to think about even increasing taxes; maybe that's what you go through to prove you can't reduce expenditures. I don't want to get off on this subject. Mr. Forrestal.,40
-fomc-corpus,1986,"I, too, would support alternative B, Mr. Chairman, without any nuance at all. I think we are at a point in time where we need to pause in monetary policy. As we pointed out, the numbers coming in are not all that bad; the forecast is a reasonably good one. And, while I don't think that markets are infallible, I think that we do have to pay some attention to what has been going on in the markets recently. To ignore the steepening of the yield curve would be perilous for us, but I think we need to stop and assess the situation for another three or four weeks and let previous actions work their way through and hope that we get the kind of improvement that we want. One of the things that may be bothering the markets as much as inflationary expectations is their feeling that we have not only abandoned Ml but that perhaps we are in the process of setting aside monetary targeting all together. I think the markets are asking what kind of an intermediate target we have, and I think that is something we will perhaps have to take into account. I don't have any answers, certainly, at this point, but I think this kind of pause is desirable. So, I would favor alternative B with borrowing at around the level of $300 million.",260
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"I am for alternative B without any nuances. But that is against the background that we have been on a one-way street toward ease. We have pumped in a huge amount of liquidity by these various measures that we look at in terms of the Ms and reserves and credit--although some of those can be ""funny"" numbers. But the conclusion is that we have put in a lot. We can analyze what the market is telling us, but I think they know that it's a lot easier for a central bank to ease than to tighten, and they may be beginning to wonder how much we are going to overshoot and whether we will have the kind of backbone, when the time comes, to show that we can operate monetary policy on a two-way street. I think for now we should stay where we are but we ought to begin to think about what might happen to all of this liquidity and how we might deal with it.",186
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"I would join those in favor of alternative B without a tilt one way or another. It seems to me that there are conflicting trends regarding the strength of the economic outlook and conflicting trends with regard to the inflationary situation. To a large extent we have done our thing over the last few months. Clearly, the markets are beginning to resist these changes. Perhaps the decision the next time is going to be harder than it is this time; but for now I would simply stand back and see how events develop.",101
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"I am for alternative B. As we have been easing policy over time, with each subsequent move we have increasingly asked ourselves the question: Can monetary policy really help the situation of the imbalances and so forth? For the last couple of moves, which I have been in favor of, I have found it harder to answer the question that monetary policy will help. I think we probably have gone about as far we can with monetary policy and now it is time to stop and watch the developments.",98
-fomc-corpus,1986,With no nuances?,4
-fomc-corpus,1986,No nuances.,3
-fomc-corpus,1986,Governor Angell.,4
-fomc-corpus,1986,Alternative B.,3
-fomc-corpus,1986,Alternative B straight.,4
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"I will join the landslide. Alternative B, no nuances.",13
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"My view is the same, ""B.""",9
-fomc-corpus,1986,"I am in favor of alternative B. I'm torn about nuances. I wouldn't mind having some language describing why we are pausing and seeking no change--language that would be associated with the yield curve and with commodities and the dollar to at least provide some sort of criteria for a guideline. Somebody else mentioned the fact that one problem is that people are starting to wonder in the financial markets what the guideposts are. They don't think that we are paying that much attention to the aggregates, which we are not, and I think we ought at least to tell them what is important to us to some extent. I don't know quite how to engineer that language, but I think it would be useful.",138
-fomc-corpus,1986,Governor Wallich.,4
-fomc-corpus,1986,"Well, having heard people, I have come to the conclusion that alternative C is what we are after.",21
-fomc-corpus,1986,You want to tighten up a little?,8
-fomc-corpus,1986,"If you have to do something, you do something.",11
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"I will join those who prefer ""B"" notwithstanding some of the comments I made earlier in the discussion with respect to M2 and M3 and the concern that we should be expressing to the market, either verbally or otherwise, that we are not abandoning the aggregates. I share some of those feelings, but if we are going to rock along at 2-1/2 or 3 percent growth, I would hate to be focusing on M2 and M3 going marginally above the top of their range and take some action to tighten up. So, I conclude that ""B"" is the appropriate course now and I would not be very receptive to any movement in the period ahead if M2 and M3 are going to exceed their targets in just a marginal way.",155
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"I will go for ""B"" but I have a nuance. It's a little more than a nuance. I think at this juncture that we have to be prepared to pave the way for the possibility that we might have to tighten. Paving the way doesn't mean that we have to go down that road; but to be positioned to do that if the need arises strikes me as important. So, I would lean a little in that direction. The question of what we would do over the balance of the year if M2 and M3 burst out on the upside of those ranges is a question that has to be faced. We don't have to face it decisively right now, but I think we have to have that possibility in mind. I, for one, think that we'll be faced with that situation; we are not going to be able to sweep it under the rug.",176
-fomc-corpus,1986,I don't know what all that means [for policy].,11
-fomc-corpus,1986,"It means ""B"" with a little bias in the direction of snugger rather than easier.",19
-fomc-corpus,1986,"It probably means more emphasis on ""woulds"" than ""mights.""",15
-fomc-corpus,1986,More emphasis on what?,5
-fomc-corpus,1986,"On ""woulds"" than ""mights.""",10
-fomc-corpus,1986,Mr. Heller.,5
-fomc-corpus,1986,Alternative B without comment or reservations.,7
-fomc-corpus,1986,"I better read what alternative B says. Well, something like $300 borrowing is fine and I don't have any problems with alternative B. The question is what happens if, let's say, the business situation goes along pretty much as expected but the monetary numbers continue to run high or the dollar is weak, and [unintelligible] are weak. To use a word I picked up from Mr. Sprinkel in a different context when he made a comment about the business outlook gathering strength--that's not what I am referring to--we do expect that the inflation rate is going to ""ooze up."" The question that I raise is: Under what conditions should borrowings ooze up?",138
-fomc-corpus,1986,"Hasn't he been expecting that for three years, though?",12
-fomc-corpus,1986,I think it's [unintelligible] the oozing up word.,16
-fomc-corpus,1986,"What kind of increments are we going to use to measure ooze, Mr. Chairman--$50 million, $25 million?",26
-fomc-corpus,1986,"Well, we have the current problem that the borrowings are so low that every time something unusual happens they get higher. The first question is whether we are bothered by that; I'm not. If somebody's computer goes out or they get caught late in the day by some withdrawals or something what do we do? Leaning over backwards to try to offset that seems not to be the order of the day. We haven't been doing that and I would think that we don't want to do that. We don't do anything at the moment but the question is beyond that. A number of people raised the issue of liquidity. If, for instance, the aggregates continue to run pretty high--higher than what alternative B straightforwardly suggests--and the business news continues reasonably on the firm side and let's say, just to put another thing in, that the dollar doesn't look all that great, should we ooze up on the borrowings more or less deliberately? I interpret what some people said as certainly in that direction, but I am not sure about the others. Many people just said they were neutral. I don't know what they meant by neutral. That's what a straightforward interpretation of the directive permits.",236
-fomc-corpus,1986,"My interpretation is not so much that I think how much attention we pay to the aggregates still depends on what velocity is doing; it's whether the economy seems to be catching on in the face of growth in the aggregates. I am not that troubled by the aggregates performing strongly. If we have another huge negative velocity number, I think the third quarter is going to come in about like the second quarter. Given evidence of that, if commodity prices kept rising and the yield curve kept steepening and the dollar was still under pressure, that would be criteria for oozing up the borrowings a little in my opinion.",122
-fomc-corpus,1986,"Well, it would in mine, too. I don't know whether I would necessarily expect the yield curve to continue to rise; it might or might not. But a sense of inflationary expectations would be a factor, however measured. In those conditions, with the aggregates running high, I would ooze a bit.",63
-fomc-corpus,1986,Are you suggesting that we have a $300 million target that we just [unintelligible]? Are you saying that we work harder not to offset these other leakages?,35
-fomc-corpus,1986,"Well, I wouldn't offset those right now. I figure actually changing [borrowings] a little, not very much. Oozing is meant to convey that you lean with a slight drift, which wouldn't carry borrowings above $400 million, I don't think. But you might ooze by less than that.",63
-fomc-corpus,1986,So you're just saying leave some discretion on the borrowings.,12
-fomc-corpus,1986,"Yes, and mostly on that side. I see it less likely, given where borrowings are now, that we would want to ooze on the down side.",33
-fomc-corpus,1986,"I certainly believe if commodity prices were to make a move upward by a significant amount, [precipitated] by some unforeseen event, that it would require us to look more carefully at the monetary aggregates and to tighten slightly; and I would take the borrowing up to $400 million. I don't know how likely it is that that event is going to occur, but I think it would be appropriate for us to have an understanding that a move would take place if it needs to.",96
-fomc-corpus,1986,"Well, what is ""C""? I don't want to ooze into alternative C.",17
-fomc-corpus,1986,"One way of doing it, Mr. Chairman, using last month's directive, is to change ""somewhat greater or lesser reserve restraint"" simply to ""somewhat greater reserve restraint,"" indicating a bias.",40
-fomc-corpus,1986,That's the kind of thing we could do.,9
-fomc-corpus,1986,I am not sure that we want to have greater reserve restraint. I don't want greater reserve restraint right now. I would only want it under certain spelled-out conditions.,33
-fomc-corpus,1986,"Yes, spell out all the conditions in great detail. If we can get a sense of that and then do it--. I am assuming there is no change now from what we have been doing, right at the moment.",45
-fomc-corpus,1986,We would have but one direction of ooze.,10
-fomc-corpus,1986,"We could have another direction of ooze if something went wrong. If the economy was clearly weak, the dollar was clearly strong, and the aggregates were behaving just fine, we would move in the other direction.",42
-fomc-corpus,1986,The anatomy of an ooze.,7
-fomc-corpus,1986,"But you wouldn't go as far as ""C"" because that would be a trickle instead of an ooze.",23
-fomc-corpus,1986,The markets would interpret that as more than a trickle--,12
-fomc-corpus,1986,"If the yield curve steepened, policy would be tighter.",12
-fomc-corpus,1986,You may get some argument about that.,8
-fomc-corpus,1986,[It could] go the other way first. [Unintelligible] what we care about.,21
-fomc-corpus,1986,"I am not talking about anything that will be a very overt move. Anything we are talking about is within the range of natural fluctuation anyway, but it's a little sense of where we are aiming over time and in certain contingencies. Why don't we just look at the wording and that will resolve the problem: ""Maintain the existing degree of pressure on reserve positions. This action is expected to be consistent with growth in M2--"" What numbers do we have here?",94
-fomc-corpus,1986,We had 7 to 9 percent the last time.,12
-fomc-corpus,1986,That's still okay.,4
-fomc-corpus,1986,I would think so.,5
-fomc-corpus,1986,Is 7 percent too low or not as an estimate?,12
-fomc-corpus,1986,I think 7 to 9 percent is fine.,11
-fomc-corpus,1986,"Well, the midpoint is 8 percent; 7 to 9 percent encompasses the midpoint. We won't say ""respectively;"" we just say--",30
-fomc-corpus,1986,"Yes, it refers to M2 and M3.",11
-fomc-corpus,1986,It refers to both at annual rates of about 7 to 9 percent.,16
-fomc-corpus,1986,9 percent is above--,5
-fomc-corpus,1986,"Well, 7 percent is below. What the staff says is 8, 8-1/2 percent; that's roughly in the middle of 7 to 9 percent. We have this great choice of whether we say ""about 8 percent"" or ""7 to 9 percent."" The ""7 to 9 percent"" doesn't bother me given the behavior of these things anyway.",79
-fomc-corpus,1986,"Isn't this the same discussion as last time? I think it was 7 to 9 percent, the same numbers.",25
-fomc-corpus,1986,What we did was encompass different numbers for the two. I don't care: either 7 to 9 percent or about 8 percent.,28
-fomc-corpus,1986,7 to 9.,5
-fomc-corpus,1986,"I detect no realistic difference between ""about 8"" and ""7 to 9."" This says ""about 7 to 9"" and maybe that is a difference. We have a nuance of difference.",42
-fomc-corpus,1986,"""About"" goes with 8 and not with 7 to 9.",16
-fomc-corpus,1986,"Do we always say ""about"" even when we use a range?",14
-fomc-corpus,1986,"You could take the ""about"" out, if you want to be more specific. We put ""about"" in there for fuzziness at one time.",31
-fomc-corpus,1986,"I don't think this is decisive, but if you say 7 to 9 percent for the balance of the year, you are saying that you are prepared to tolerate growth outside the boundaries for the year for both M2 and M3, though not by a lot. If we had 9 percent growth in M2 and M3 for this period, we would end up about where ""A"" is, and on the charts ""A"" is outside the cone. It's a trivial amount.",99
-fomc-corpus,1986,"If we are looking here at 9 percent, with about 9 percent you are going to stay on there.",23
-fomc-corpus,1986,"""B"" would stay right on the cone.",9
-fomc-corpus,1986,But the 9 percent stays on the cone.,10
-fomc-corpus,1986,"That's what I am saying, 9 percent would be ""B."" It would be moving right along that cone line, since we are right on it now.",32
-fomc-corpus,1986,That's right. And M2 is slightly under it.,11
-fomc-corpus,1986,It doesn't quite work that way because of the compounding problems that--,14
-fomc-corpus,1986,I guess you are right.,6
-fomc-corpus,1986,"In other words, you need a slightly lower growth rate--like the 8 or the 8-1/2 percent--to keep you moving along 9 percent from last November's base. Of course, you are talking about tenths of a point here.",54
-fomc-corpus,1986,I don't understand how these lines [unintelligible].,12
-fomc-corpus,1986,I assume that we are on the line and if we're on the line and the line says 9 percent--,22
-fomc-corpus,1986,It's more on a linear scale than a log scale. It wouldn't be much if you did it on a log scale.,24
-fomc-corpus,1986,That's because it's not logarithmic.,7
-fomc-corpus,1986,The deviation is trivial.,5
-fomc-corpus,1986,This is splitting hairs over something that we know nothing about.,12
-fomc-corpus,1986,"That's right. I think it's either ""about 8 percent"" or ""7 to 9 percent."" What are the preferences? Who prefers 7 to 9 percent? I count 9. I guess we have a majority for 7 to 9 percent. I am a little embarrassed by continuing this sentence on M1 about this great expectation that doesn't materialize.",75
-fomc-corpus,1986,Sooner or later we will be right.,9
-fomc-corpus,1986,"I don't know what we can do with it. In the interest of variety we might express the same sentiment, but do we have to express it in exactly the same words?",35
-fomc-corpus,1986,"Yes, let's stay with it until we--",9
-fomc-corpus,1986,We can put it lower in the--,8
-fomc-corpus,1986,"All right, we'll leave it the same, as embarrassing as it is. Now we get to the nuances. Let me--",25
-fomc-corpus,1986,That one still leaves the door open. We can ooze in that way.,16
-fomc-corpus,1986,"No we can't. No, I wouldn't want to ooze in this language. If we wanted to make it a little more explicit I guess we could say something like ""slightly greater"" instead of ""somewhat greater."" We could say: ""Slightly greater reserve restraint would be acceptable should the aggregates exceed expectations depending upon the strength of the business expansion, developments in foreign"" etc., and ""somewhat lesser reserve restraint might be acceptable"" and so forth and so on.",97
-fomc-corpus,1986,I think we need an asymmetrical statement this time.,11
-fomc-corpus,1986,"I made it non-symmetrical just by changing the ""would""--",14
-fomc-corpus,1986,"Changing the ""would"" and putting ""might.""",10
-fomc-corpus,1986,"We have done that lots of times. We can do it all in one sentence which is what we have often done. But if we want to put a little more emphasis on the aggregates, we could just say ""somewhat greater reserve restraint would and somewhat lesser reserve restraint might be acceptable depending upon"" just what you have here.",66
-fomc-corpus,1986,Split the two out.,5
-fomc-corpus,1986,"But that would put them both in the same sentence. I tried to make a little distinction that the aggregates would trigger this depending upon the other things. We could still say ""depending on the behavior of the aggregates, taking account of the strength of the business expansion"" and so forth. That's our rather traditional way of doing it.",66
-fomc-corpus,1986,I would suggest we add international credit and commodity markets.,11
-fomc-corpus,1986,I don't want to get too many things in there.,11
-fomc-corpus,1986,What would we really do differently if international credit markets would change unless it's [unintelligible] to the exchange rate?,25
-fomc-corpus,1986,I think international credit markets is meant to be a code word for--,14
-fomc-corpus,1986,If the Germans lowered their interest rate--,8
-fomc-corpus,1986,Or the dollar depreciates.,6
-fomc-corpus,1986,"I thought it was, frankly, a reference to the international debt situation. Let's change ""somewhat"" to ""slightly"" and say ""somewhat greater reserve restraint would be acceptable or slightly lesser reserve restraint might""--. I guess ""slightly"" should go after the would, too: ""slightly greater reserve restraint would or slightly lesser reserve restraint might be acceptable depending upon the behavior of the aggregates and taking account of...""",86
-fomc-corpus,1986,"""Taking account of"" probably does it.",9
-fomc-corpus,1986,"Your way without the ""and""; comma, ""taking into account the behavior of the aggregates,"" etc. Is that all right?",26
-fomc-corpus,1986,"I question, Mr. Chairman, how many people would really want to support the condition of lesser reserve restraint. I don't know; conceivably there could be conditions that would generate--",37
-fomc-corpus,1986,"Well, let me ask the question this way. I will give you the most extreme test of that. This doesn't rest on anything very dramatic in the economy. In this period of a few weeks, suppose the Germans and Japanese say: We will reduce our interest rates, but you have to reduce your discount rate again to help us along. Think of it as good politically, or for some reason or other. I don't think they will say that, but suppose they do.",95
-fomc-corpus,1986,"Suppose the Japanese stock market went down dramatically and suppose oil prices started heading lower dramatically and we got some other kind of movements there and a pessimism prevails--if M2 was growing at 5-1/2 percent and M1 was at 6 percent, I think you might want to have lesser restraint.",65
-fomc-corpus,1986,I would rather leave it out now and have the Chairman call a telephone conference.,16
-fomc-corpus,1986,"You can make extreme assumptions about the business situation which are not inconceivable, but which I don't think are very likely during this particular period. I think it's more likely that the question I raised could arise, but I don't consider that very likely--don't misunderstand me. But suppose it did occur?",60
-fomc-corpus,1986,"On the merits, the best outcome would be that they lowered their rates and we didn't.",18
-fomc-corpus,1986,I have to question their [unintelligible].,11
-fomc-corpus,1986,That would be where I would start; that's for darn sure.,13
-fomc-corpus,1986,"I don't think it's likely that we would need to use the alternative for ease. It just doesn't look like that alternative is going to materialize. But I certainly wouldn't want to leave it out as a possibility; you never know. The ""might"" and ""would"" nuance deals with it okay; I wouldn't want to just leave it out completely.",70
-fomc-corpus,1986,"I don't think there is any reason to make it appear in the minutes [for this meeting] that we know what's going to happen in this atmosphere. I think we ought to leave it balanced, but we can imagine in our minds what is likely on either of these or what might be.",58
-fomc-corpus,1986,I think we balanced it just right.,8
-fomc-corpus,1986,Wasn't it back in May that we put in the asymmetrical language? And when those minutes were reported some people in the media were saying that we almost tightened and they made a big thing of that.,41
-fomc-corpus,1986,"Well, I don't mind giving signs that we didn't like what we saw in the financial markets. I would like people to be able to look back and see that in the discussion.",36
-fomc-corpus,1986,"Well, does Mr. Morris have any following for leaving [the easing alternative] out entirely?",19
-fomc-corpus,1986,I would support that.,5
-fomc-corpus,1986,You have a following but not [a majority]. I think we appear to be for an asymmetrical nuance.,22
-fomc-corpus,1986,"Mr. Chairman, I would like to raise a question on the other side--that is, with regard to the language of 7 to 9 percent on M2 and M3 and the importance of that language with regard to snugging up a bit or oozing up a bit. We are at the top of those ranges now and I guess I have an operational question as to how either you or the Desk would respond. What would you do if M2 and M3 started coming in at 9-1/2 or 10 percent and the economy was working along without much problem? Would you then ooze up? Unless you saw some real strength in the economy, I would hope you wouldn't ooze up until M2 and M3 burst out as Jerry Corrigan described it.",161
-fomc-corpus,1986,"I think I just gave you my interpretation. We are not talking about a great [unintelligible]; we are not talking about one week or two weeks. We are talking about some sense that it is indeed running high and that if other things were proceeding as expected--if we didn't get any weakening in the economy, didn't get any strengthening really in the exchange rate, the oil price was not going down another $3--yes, we would ooze. But it's only an ooze.",100
-fomc-corpus,1986,It's not triggered off 9 percent; it's something higher than 9 percent.,16
-fomc-corpus,1986,"I think it can go higher than 9 percent by some figure in one week or, necessarily, by one month's figure. But if it was one month, the fact that it was continuing--as best we can make these appraisals--and there weren't any signs of tapering off, yes, we would ooze. But it's only an ooze and, given all those other things, it's not much of a quibble. Do we have enough understanding of what we are talking about to vote on this? It's: maintain; 7 to 9 percent; slightly greater reserve restraint would and slightly lesser reserve restraint might be acceptable depending on the behavior of the aggregates, taking into account all these things; and 4 to 8 percent.",151
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Heller Yes President Horn Yes Governor Johnson Yes President Melzer Yes President Morris Yes Governor Rice Yes Governor Seger Yes Governor Wallich I'd be against it. I have this view of what we can do but it shouldn't be in this context.,68
-fomc-corpus,1986,"Okay, you want to tighten a little.   I guess we are finished.",16
-fomc-corpus,1986,Are there any questions or comments on the swap extensions?,11
-fomc-corpus,1986,Is there any more to say about the so-called agreement between the Americans and the Japanese--particularly what it might portend for the future?,28
-fomc-corpus,1986,"Well, what it may portend for the future is anybody's guess. I don't know anything more about it. Mr. Baker has been looking for some reason to say something nice. And he had it with the discount rate reduction and this report that the Japanese might reduce taxes sometime in the future. But they said it hasn't got any operational significance in terms of intervention in any direct sense. I think it is quite consistent with intervening if things perhaps became extreme in either direction, but it is no commitment to undertake anything.",105
-fomc-corpus,1986,The view on Germany is essentially as it has been and--,12
-fomc-corpus,1986,"Germany? I think the situation is quite different in Germany in the very short run. They have been growing pretty fast. I saw Mr. Poehl earlier this week and he's still armed with all these numbers, which I--. You can argue that 3 percent is too modest an objective for Germany. But they can make pretty good progress if they are growing at 3 percent--which in their view is good enough--with 5 to 6 percent domestic demand and a minus on the external side, which of course is what people want. And right now they can show it at least for two quarters. Their monetary growth is still exceeding their targets by a significant amount, which doesn't make them very happy. They are sitting there worried about how they are going to explain this. They have to announce new targets in December and they say: Do we rebase or do we [unintelligible]? It's the same type of problem that we have.",192
-fomc-corpus,1986,You're in a position to give a lot of advice on that subject.,14
-fomc-corpus,1986,"I did. His charts for the first time--he showed me charts [unintelligible] just like the ones that we have, but for two years [changing] the base. One chart has a very expanded scale on the vertical axis, just the way some of ours do. The chart looks at the last two years and it has these little wedges on it and it shows the actual movement in the monetary base. And the actual movement for two years in a row now is way above the wedges. While they've been closer than we have, their scale was so expanded that it looked pretty bad. It was just like the kind of thing that you--",132
-fomc-corpus,1986,"Well, they have real wages growing at about 5 percent in Germany--",15
-fomc-corpus,1986,They did this year.,5
-fomc-corpus,1986,--at a time when the unemployment rate is almost 9 percent. I would think that if we had that situation we might be a little nervous about expanding too much as well.,36
-fomc-corpus,1986,"But the wages were really set, basically, before the prices went down. And so real wages on this [unintelligible] economy. That's one of the questions: whether or how long this recovery is going to be sustained. The basic wage bargains were set before they had experienced the effects of lower oil prices and [unintelligible] and the exchange rate change and prices came down.",80
-fomc-corpus,1986,That's true. But they still settled for the 5 percent wage increase at a time when the unemployment rate was very high. I should think that--,30
-fomc-corpus,1986,"Some of that was deliberate, too. Last fall, in fact, the government was talking of wages as a way to--",25
-fomc-corpus,1986,Their GNP deflator--that's domestic prices--is running at about a 3 percent annual rate of increase. It's like ours running higher than the CPI; there is an even sharper discrepancy than in this country. There is concern over what might happen as they get into next year. I guess their Economic Institute's projection has raised some question about it. A 3 percent growth next year--which is what they're projecting--depending upon what happened last quarter and what happens this quarter does not imply a 3 percent rate of growth from fourth quarter to fourth quarter next year but significantly less than that.,120
-fomc-corpus,1986,But the labor markets in Germany are very tight right now in skilled workers. They just can't hire anybody. Openings are--,25
-fomc-corpus,1986,"But their unemployment is in the north. That's what they keep saying, it's a regional--",18
-fomc-corpus,1986,Also a sectoral unemployment.,6
-fomc-corpus,1986,So they're like the British in that sense.,9
-fomc-corpus,1986,And because they have the enormous terms of trade gains in the external sector they [can] pay the high wage this year without hurting themselves domestically in making it show on the inflation front. But I think the difficult situation will be next year when the terms of trade don't improve any more and people have become accustomed to big wage increases.,67
-fomc-corpus,1986,Exactly.,2
-fomc-corpus,1986,"But if the weakness should show through, I think they're fully prepared to move forward to 1987 the tax cuts that they are now scheduling for 1988--although those deadlines are passing very rapidly right now.",43
-fomc-corpus,1986,"Well, they won't do anything before the election and part of the--",14
-fomc-corpus,1986,"Not before the election, but--",7
-fomc-corpus,1986,"Part of the problem is that the opposition party adopts an American view to economic policy, or vice-versa, which is very embarrassing to the government. So if they did anything they would appear to be adopting the opposition's economic view; and for understandable reasons they don't want to do that. Actually, the Bundesbank wants to take some technical actions that appear as tightening and wouldn't really be--I don't understand it all. They want to get rid of rediscount quotas, which they think are getting out of line, and substitute some other way of putting the money in the market. But I'm afraid if they do that it will be interpreted as a tightening.",131
-fomc-corpus,1986,Is it true that they were willing to cut their discount rate in August but the word got out so they were upset? There was a little article in today's paper to that effect.,36
-fomc-corpus,1986,"Well, the words I've heard are literally that there was more pressure at one point to raise the discount rate because of the growth of the aggregates.",29
-fomc-corpus,1986,"I think that was probably a little later. My impression is that earlier [Mr. Poehl] maneuvered so as to be potentially in a position to reduce the discount rate in early September, say, which is what he was talking about. But then the aggregates got high and there was all the public discussion and so forth, and the GNP numbers came in as strong as they expected. All those things together made a discount rate cut less likely rather than more likely as September actually arrived.",99
-fomc-corpus,1986,"Can you give us any more information about the Mexican situation? Specifically, is it in difficulty or--",20
-fomc-corpus,1986,"Well, that's hard to tell. It's a big subject. Why don't we have a discussion about Mexico after the meeting? Are there any other questions about the market? We do have this question of routinely extending the swap lines.",45
-fomc-corpus,1986,I would move it.,5
-fomc-corpus,1986,I second.,3
-fomc-corpus,1986,"Any discussion of that? If not, you are authorized to routinely roll over swap lines, Mr. Cross.",22
-fomc-corpus,1986,Mr. Sternlight.,5
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,Questions or comments?,4
-fomc-corpus,1986,"Peter, do you have any thoughts on the decline in the demand for excess reserves?",17
-fomc-corpus,1986,"We were steadily moving up our allowance for excess reserves. We had moved the standard allowance up to $900 million in the first few months of this year. Since about March or April we have tended to fall a trifle shy of that $900 million level. And now we think that maybe the demand was augmented somewhat in the early months of this year by some seasonal factors. So, I'm not convinced of any basic decline in the demand for excess reserves. I think it has probably leveled off and what we are seeing now is just a little resistance for seasonal reasons. We will have to be watching carefully as we get toward the winter months again to see whether we need to review that and go back to something like the $900 million level.",149
-fomc-corpus,1986,"If there are no other observations, we have to ratify the transactions.",15
-fomc-corpus,1986,So moved.,3
-fomc-corpus,1986,I second.,3
-fomc-corpus,1986,Any objections? Mr. Prell will clarify the economic outlook.,13
-fomc-corpus,1986,"He will attempt to. Thank you, Mr. Chairman. [Statement--see Appendix.]",18
-fomc-corpus,1986,I wonder if you could elaborate further on your discussion concerning the recent increase in import prices--but in terms of how you see that improving our trade balance and how you see it impacting the domestic price level.,41
-fomc-corpus,1986,I would like to piggy-back on that and ask: How do they come through in the CPI? Do you have an estimate or rule of thumb that you use about what proportion of the CPI is import prices and so on?,46
-fomc-corpus,1986,"Well, let me just say a couple of words, and I know Ted Truman will want to address the broader issue. The more interesting recent data on import prices were the BLS figures that were released just last week. They showed a substantial increase in the prices of a number of commodity groups--something on the order of a 12 or 13 percent annual rate of increase. On the consumer price side, it's very hard to trace these changes in import prices through to what is happening at the retail level. It's apparent that some of those groups that would seem to have relatively large import components, say, apparel and automobiles, are showing relative strength in terms of consumer price movements. But it's very hard to pin this down. Let me let Ted say something about the broader analytical issue on the pass-through of that sort.",164
-fomc-corpus,1986,"On the consumer price level there are three channels: the direct impact from higher prices, the indirect effects of competing goods, and then some allowance for aggregate demand effects. We used to say that the rule of thumb was that something like a 10 percent decline in the dollar on the G-10 index would give you, after three years, something like a 1-1/2 percent increase in the level of the CPI. But the work that we have looked at recently suggests that it may be a little less than that--perhaps something in the 1 to 1-1/2 percent range. One of the reasons it is less relates to the same phenomenon that we have debates about--what is the right index? The prices of some imports--especially to the extent that they are imports from countries against which the dollar is not falling--will not be rising as rapidly as the others. It is through that differential effect, however, that you are essentially going to change the distribution of trade. As far as the general question about [prices] feeding through, ultimately you have to get some prices up in order to get some consumers or importers to change the way they are doing business. And in that sense there is both good news and bad news in the price increases that now seem to be coming along. The good news is certainly that the process that should lead the decision-makers to look elsewhere--maybe at home--to satisfy their needs is starting. So far there is certainly some evidence of slowing in the rate of growth in the volume of imports. I might also add one small footnote on the BIS figures that came out on Friday that Mike referred to: the revisions show a higher increase in import prices than the numbers that were incorporated in the GNP figures that were released earlier in the month. That would suggest that for a given value of imports you would get less quantity, ceteris paribus.",385
-fomc-corpus,1986,"In the Greenbook data in that first table, I-7, you have some amazingly good news that you didn't even refer to in the oral presentation or the written material, and that is a 0.4 increase in the GNP deflator for the fourth quarter of 1986--unless it's a typo. Would you tell me about this?",71
-fomc-corpus,1986,"It's 0.7. This is one of those quarters in which the movements in imports and import prices do something very exotic to GNP prices and, particularly, the deflator. As you can see, the third quarter was 3.6 percent. It was above the recent trend and [the fourth-quarter number] is essentially offsetting that, given the gyrations of imports and the effects of changes in the relative importance of oil prices.",90
-fomc-corpus,1986,But you just said you expect import prices to go up and--,13
-fomc-corpus,1986,"All things equal, rising import prices drive down GNP price measures in the short run because imports are subtracted. That is one of the recurring novelties. I think if you look at the fixed weight measures we are getting some of this showing through.",52
-fomc-corpus,1986,Too--,2
-fomc-corpus,1986,But it's smaller in effect there.,7
-fomc-corpus,1986,There are two effects. It's the change in weights and then the change in prices.,17
-fomc-corpus,1986,One question about the near term: I noticed that you have a fair runoff in farm inventories and also an increase in government. Is that an offset? Is there a CCC thing going on there?,39
-fomc-corpus,1986,"Let me check. Yes. We have a $4-1/2 billion increase in CCC inventories. That's roughly the range we have been seeing the last couple of quarters, so there is no gyration in that. Basically, it's something that goes through from our overall output estimates.",57
-fomc-corpus,1986,"Well, that should show up in government spending at the same time. It didn't last quarter, I don't think. Government spending last quarter actually declined very substantially. The rate of growth in the fourth quarter was up, so maybe it just got swamped.",51
-fomc-corpus,1986,"Defense spending in the third quarter was flat and we have a noticeable uptick based on what we would perceive to be the deliveries. Obviously, there is some very erratic timing; some procurement items show up or don't show up in any given time period.",51
-fomc-corpus,1986,Are there any indicators that support the slowing in state and local spending to that extent?,17
-fomc-corpus,1986,"We don't really have much to go on there. There is some elusiveness in tracing the data that we do see to the BEA's translation. We can track what is published for construction put-in-place in the state and local sector, but BEA does considerable massaging of those data in estimating the structures component of state and local expenditures. Basically, in terms of the overall budgetary situation, we just don't see the likelihood that that kind of growth can be sustained. In fact, we have been averaging something like a 45 percent annual rate of growth in state and local construction over the past two quarters; it has really jumped up very rapidly. So, we are looking for that to level off quite a bit.",146
-fomc-corpus,1986,"Would you answer a couple of questions about the distribution of activity in 1987? Specifically, for producers durable equipment you have a rather significant pickup between the increase in first quarter of next year and the remaining portion of the year. From your general comments I am trying to figure out why you would have it picking up that much.",66
-fomc-corpus,1986,"Well, we have [unintelligible] this tax effect built in. It's rather small but when you annualize these things they begin to look bigger. In effect, we have a small payback on the equipment side in the first quarter of next year because we are assuming that they will succeed in accelerating some of their purchases into this quarter and thus capture the more liberal depreciation allowances.",78
-fomc-corpus,1986,"So you don't see a negative tax reform impact, then, beyond the first quarter?",17
-fomc-corpus,1986,"We perceive that there is some increase in the cost of capital. The tax law changes, if nothing else were changing the outlook, would be tending to depress capital spending. But all the other considerations--including the fact that, as we perceive it, real interest rates have declined considerably over the past year or so and there is a long lag in the effects of that on spending--are tending to offset that change. Furthermore, we think that as output [unintelligible] demand, firms--particularly in the manufacturing sector--will be more inclined to move ahead toward modernization, replacing their older equipment, and continuing their efforts to reduce costs and increase productivity. It's not really a very rapid growth of investment spending, but we think there is a reasonable foundation.",152
-fomc-corpus,1986,"I guess I am just more nervous about it, but I can't quantify my--",16
-fomc-corpus,1986,We are still in a situation where it's hard to assess the effects that have already occurred because of anticipations or uncertainties relating to tax reform--whether some of the hit already has been taken or whether people now will move ahead knowing what the laws will be. It is very hard to read the current situation.,61
-fomc-corpus,1986,"Also, on residential structures, you have quite a nice turnaround between the second and third quarters of next year and then additional strength in the fourth quarter, if I am reading this correctly.",37
-fomc-corpus,1986,"These annualized growth rates for residential investment tend to exaggerate, I think, the movements in housing starts that are in the projection. But we have the single-family sector improving a little as 1987 progresses.",43
-fomc-corpus,1986,Is this an interest rate play or what?,9
-fomc-corpus,1986,"Well, part of is, I think. But it's not really a significant interest rate effect. It's more a come-back in terms of the underlying demographic factors. And, as construction in the multifamily area winds down and rents begin to show the effects in that area, it's just going to tip the balance a bit further in favor of single-family home ownership, which we think the demographic factors already are going to be favoring. But we don't have a tremendous change in the overall affordability of single-family homes.",102
-fomc-corpus,1986,"Yes, I notice your housing starts are pretty level.",11
-fomc-corpus,1986,"On the single-family side, we move from around 1.15 in the third quarter up to just over 1.20 in the second half of next year, so it's not really a dramatic change. The multifamily side is continuing to trend downward through most of next year.",57
-fomc-corpus,1986,"A final question on the domestic auto sales: Apparently you assume that the so-called ""give-back"" will all be accomplished in the fourth quarter of this year and then sales will be sort of flat and unexciting quarter by quarter in 1987.",51
-fomc-corpus,1986,"I'm sure it won't turn out that way. Short of forecasting every twist and turn in marketing strategies, we have sales coming back toward what we think will be a reasonable overall pace for the year. But yes, [unintelligible] and is consistent with the payback largely being through by the end of this month and things beginning to turn up a bit--perhaps with some renewed incentives, if necessary. But we don't at this point anticipate that there will be gigantic incentive programs put in place in the near term.",104
-fomc-corpus,1986,"So, you are not assuming that GM has really been gambling on this approach and that without these incentive programs they will dramatically [cut back] their production schedules?",32
-fomc-corpus,1986,"We see them trying to keep things on a stable level, [given] the actions they took in October to cut back their production schedules. The [unintelligible] of what we pick up suggests that maybe they are going to move toward a somewhat more realistic approach to their production, so we might see something that is a little smoother, in fact, next year without them pushing so hard to maintain what seems to be an unrealistic market share expectation.",91
-fomc-corpus,1986,Thank you.,3
-fomc-corpus,1986,"Mike, the trend in personal consumption expenditures has been upward since the fourth quarter of last year. You are really showing a dramatic shift in the fourth quarter, which I guess is primarily autos. MR. PRELL(?). Yes.",46
-fomc-corpus,1986,Do you try to factor into that the effects of the tax legislation and accelerated big ticket purchases to the extent that you can?,25
-fomc-corpus,1986,"Well, we have certainly attempted to do so. Our assessment is that there may be a very small effect. A number of factors lead us to think that it will be small. One is that many people may already have made the big move to buy an automobile before year-end--in September when they could also get the big price cuts and the rebates and the other financing arrangements. A second factor is that, in most states, that sales tax deduction does not bulk very large as a percentage of the price, even for automobiles. And what one can bargain with a dealer for may be more important than that. Many people [don't] itemize their deductions; furthermore, for goods other than automobiles, people generally are going to be using tax tables and this specific purchase doesn't become an important matter in further deductions. So, putting all of these things together, we're looking for just a very small effect in the consumer sector.",184
-fomc-corpus,1986,A related question: What happened to real disposable income in the third quarter?,15
-fomc-corpus,1986,It moved down.,4
-fomc-corpus,1986,I know.,3
-fomc-corpus,1986,"Three things seem to be the major factors there. One is that farm subsidy payments were much smaller than they were in the second quarter. Those have been a considerable short-run swing factor this year. The second factor is that consumer prices were up in the third quarter because oil prices [were no longer] going down or flat as in the first half of the year. The third factor, which is also very important in these numbers but is rather obscure, is a substantial increase in personal tax payments that wedges between income and disposable income. We have tried hard to track this down with parties elsewhere in the government, but it remains a somewhat obscure area. It is something that has been a factor in bouncing the disposable income numbers around over the course of the year. Basically though, we think that underneath all of this is a deceleration in disposable income growth in large measure related to the end of that oil price effect.",182
-fomc-corpus,1986,Would people like to comment on their own views of the outlook? Bob Parry.,17
-fomc-corpus,1986,"I think there have been more signs of possible strength in the economy since the last FOMC meeting than there have of weakness. The signals that we see coming from the Twelfth District, on balance, are really rather positive. Total employment and unemployment figures showed continued improvement in September and they paint a better picture than that for the nation as a whole. As an example, the District's unemployment rate fell in September, in contrast to the nation's, to 6.8 percent; and we've seen employment growth over the past year averaging just under 5 percent compared to 2.2 percent nationally. We also received data on trade from the Pacific area customs districts for August and September and nongrain agricultural exports, particularly cotton and also rice, seem to be benefiting from the lower dollar and also from the effects of the 1985 farm bill. The lower dollar and Canadian strikes are also helping the forest products industry. Aero-space and related electronics are a source of considerable strength in many areas of the District and the service industries are performing well. At the national level, it would appear to me that the signs are relatively strong--clearly not as strong as the western region, but favorable. Recent monthly statistics that have been mentioned for orders, for new home sales, and for leading indicators in merchandise trade do indicate some strength. And I do believe, similar to the Greenbook [forecast], that the third-quarter runoff of inventories should lead to greater production in the current quarter. And it would seem to me that based upon, admittedly, a very preliminary reading of the third-quarter trade numbers that there is a chance of a turnaround in net exports in the fourth quarter. The monthly trade numbers for August and September looked as though they had improved somewhat and, at least in some of the deflators I've looked at, the prices of durable imported goods are rising rapidly. So it appears as though the prices of U.S. exports are becoming more competitive. In summary, our forecast for growth in '87 is very close to that of the Greenbook. We expect a pickup in inflation next year of relatively modest proportions. The changes in our forecast since the last FOMC meeting produced a little lower rate of inflation next year, so our forecast suggests a better trade-off between growth and inflation than we had before.",463
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"In our District the fundamental conditions are very consistent with the pattern that we've had, really, all year long. The unevenness that I've commented on before certainly continues. Those who are doing okay are really doing quite well, and the weak parts of our District show no particular signs of improvement. I hate to bring the agricultural subject back up, but there has been a renewed outbreak of gloom in that area for two very different and diametrically opposed reasons. First, the flood damage in September was localized, particularly in the central Michigan area, but in the areas that were hardest hit the crops were virtually wiped out. That, of course, is an adverse condition that's completely unrelated to the basic adjustments going on in agriculture. The opposite problem exists in the other parts of the District. The harvest is now largely completed and I am told that the production has just been huge, phenomenal. While the acreage for total production will be down, on a per acre basis the yields have been very, very high. That means, I think, that the carryover stocks are going to be heavy. The pressure on commodity prices will continue. In the third quarter we do a survey of land values and, again, we saw somewhat of a decline in land values. Whereas we thought we were somewhat in the zone of stability with regard to land values I am beginning to hear that we're going to see another slide off--nothing too sharp--but nonetheless that we have a way to go before we get down to the bottom level. And that suggests some more pressure on the agricultural banks, so we've got more to do there. On the manufacturing side the adjustment process goes on. I might note just a couple of late developments, which I'm sure you've read about. GM has this overhang in the market. They're probably going to close as many as 12 plants and that, of course, will have a significant impact on the District in terms of employment.",387
-fomc-corpus,1986,How many plants do they have?,7
-fomc-corpus,1986,"Gee, I can't tell you that. But I think 12 would be a fairly big percentage.",20
-fomc-corpus,1986,Almost by definition.,4
-fomc-corpus,1986,"Of that number probably 7 are going to be in our District. We think the employment [effect] could be as high as say, 23,000, which would be a very, very significant number. Another structural adjustment in the manufacturing sector comes [unintelligible] engine. I think I commented the last time that they were thinking about downsizing their domestic production. They have now announced that and will be outsourcing to a heavier degree than they have done in the past. On the inflation side, I think the trend is continuing to be favorable; what I hear anecdotally is very much consistent with what Mike has suggested. On the price side, as I hear it, the conditions are very, very competitive and it's very tough to get price increases to stick. And on the wage side, people are continuing to get three-year contracts and very good work rule changes; average costs are favorable so that the productivity aspects, I think, have been pretty good. As for the outlook, certainly, our forecast is consistent with the staff's forecast. We have every expectation that the expansion will continue at, say, 2-1/2 to 3 percent. And importantly, we see no current signs that we can fall back into a recession; but on the other side, we don't think that there's a significant risk that we would break out on the up side either. So, we're broadly consistent with the staff forecast.",290
-fomc-corpus,1986,I keep hearing about all these great work rule changes and enormous hope for productivity increases and I look at these figures and I see no productivity increases. Would Mr. Prell please explain to me the discrepancy between what I hear and what I read?,49
-fomc-corpus,1986,"It seems like whenever I'm up here giving a briefing the same question arises about the productivity figures. I think many of these collective bargaining agreements involve the manufacturing sector where the data would indicate that we have been getting fairly substantial increases in productivity--maybe not as much as the anecdotal evidence for individual companies would suggest but, on the whole, quite good gains. For this cycle the gains are much more favorable in comparison to past cyclical experience than for the rest of the economy.",95
-fomc-corpus,1986,More favorable than past cyclical experience?,8
-fomc-corpus,1986,"Well, I guess at least as favorable as--",10
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"-- previous cycles in contrast to the overall picture. But, as you know, the total for the nonfarm business sector has been less favorable and the data, such as they are, show that in a number of the more service-oriented sectors we just aren't seeing productivity improvement.",55
-fomc-corpus,1986,"Of course, what this means--and I've had several conversations with our staff over this--is that, with productivity in manufacturing doing what it is and the way we go about measuring it, we have to have negative productivity in the service sector. And that raises the question as to how we measure productivity in the service sector; the fact of the matter is that we really don't. So there is some kind of strange averaging process going on there. I think there's really grave doubt as to what our productivity in the service sector is. But if productivity in the service sector is stronger than we're measuring then that means, of course, that our economy is doing a little better than we are measuring. So there are those two aspects that are very interesting.",149
-fomc-corpus,1986,There's another aspect to take--,6
-fomc-corpus,1986,You don't think more computers mean less productivity?,9
-fomc-corpus,1986,No.,2
-fomc-corpus,1986,That depends on how one--,6
-fomc-corpus,1986,"On this issue of work rules, we have an auto plant in our District run by one of the big three auto makers. They think that their biggest problem in the American [work]place is not so much price or productivity as it is quality--actual quality and the perception of quality. This is such an interesting story that I'm going to visit the plant. I talked to the manager there the other day and he says that they are putting their emphasis not so much on how many cars they can get out in a day but on how many cars they can get out that don't have defects. And they think that is where the payoff is in terms of the market. Now, I don't think our productivity figures capture that sort of thing, but it certainly is an improvement in the output if you can do it right the first time.",166
-fomc-corpus,1986,"Yes, but you had to get some work rule changes to improve the quality.",16
-fomc-corpus,1986,That's exactly what my point is: that the work rule changes are going into the quality aspects rather than improving the measurable productivity.,25
-fomc-corpus,1986,It decreases the GNP; we don't have all those repairs that go in there!,17
-fomc-corpus,1986,A different aspect of quality in a more secular rather than cyclical area is the question of quality of the labor force. Some researchers have suggested that [taking account of] the quality adjustment in the labor force--[based on] indexes like SAT scores or mix of workers or whatever--you find that our labor productivity growth trends have not been as bad in historical context as they look. It's a very controversial area.,83
-fomc-corpus,1986,"If we have a flu epidemic [unintelligible], Mr. Chairman, that would decrease GNP too.",23
-fomc-corpus,1986,"[The way] the SAT scores work, [there are] negatives and positives.",17
-fomc-corpus,1986,[Unintelligible] but that's what he says. Productivity in the educational system is going down.,21
-fomc-corpus,1986,"Well, if you wanted to use SAT scores and--",11
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"I agree with Bob Parry. I think the evidence we're looking at today suggests that the economy is strengthening. We have the new orders in durable goods and capital goods; we have strengthening in basic materials prices. We've been looking for a decline in the trade deficit to really carry the economy next year and we're getting very strong anecdotal evidence that this is taking place. When we had the Beigebook survey I found that every company that was interviewed that does a significant export business reported an increase in export orders--aircraft engines by GE, computers, medical instruments, and so on. Right across the board, there were very widespread increases in orders for exports. We always get very impatient waiting for this two-year lag to take place, but the turn seems to be coming on schedule.",157
-fomc-corpus,1986,It sure is in our projection. I hope it's there.,12
-fomc-corpus,1986,"Mr. Chairman, our sense is that the September trade numbers that were released, the so-called statistical month-[end] numbers, were probably better than the underlying trend. So that means that for the sum of these months--October, November, and December--we're going to get some very much worse numbers. If you look at the raw data--not the nice leading indicators President Morris has cited--they are a little peculiar because the export numbers are not particularly good. In fact, most of the improvement in the August and September numbers is in the import side where, although we're expecting a slowdown, we're not expecting a drop off.",128
-fomc-corpus,1986,[Unintelligible] phenomenon for the last couple of months. And so we shouldn't expect to see them recorded in the actual shipments for another 6 months or so.,35
-fomc-corpus,1986,"I'm not quite sure I understand what you're saying, Ted. You have a $19.3 billion improvement in the real net export position. That's got to show up--",34
-fomc-corpus,1986,Half of that is oil. Half of what's going on in this fourth quarter is oil.,18
-fomc-corpus,1986,"Yes, but I think it's going to show up in the monthly numbers; if the monthly numbers get much worse than they were in September you're not going to get a $19.3--",38
-fomc-corpus,1986,"Yes, but if we had to redo the forecast with the numbers that now exist the third quarter would look better. The fourth quarter might not be changed much.",32
-fomc-corpus,1986,I see.,3
-fomc-corpus,1986,"And that's based just on the fact that it looks like we've got some lower imports--that we're probably going to get negative numbers, or not so big numbers, on the import side in the fourth quarter. Exports are beginning to come in a lot more, as Mike mentioned. On the current import side our sense is that the monthly number ends up getting built into the quarterly GNP numbers and then you're stuck with them for--",86
-fomc-corpus,1986,So you're comfortable with the second-half improvement?,9
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,You're finished?,3
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"Our numbers for the District continue to look pretty good. We continue to have better growth in non-ag employment than we've experienced nationally. Retail sales in the most recent three-month period have gone up more rapidly. And we've had a turnaround on the construction side where we have been lagging a bit; both residential and nonresidential construction in the third quarter were quite strong. Anecdotally, on the retail side, a national retailer in the District mentioned that for three months now they've experienced stronger numbers; he wouldn't describe it as a boom situation by any means, but it's the first time for a long period of time that he has seen three months--August, September and October--with continued improvement in terms of their own sales. On the price side, we had a group of small business owners in for lunch not too long ago and I asked them whether any of the developments in terms of markets and expectations of higher prices were affecting their behavior at all. And there was certainly no evidence among that small group that they felt any better able to put through price increases or were seeing any major increases in their costs. So, at that level, there is no real change in the price picture. I would say on the overall forecast that the one difference we might cite is that we would tend to be a little more [positive] on the personal consumption side just because of the rate of increase in income growth over the course of this year versus last year. As Mike pointed out, the fourth-quarter GNP number is more than accounted for by net exports and the inventory numbers; and if personal consumption were to be stronger we could be looking, in the short run, at considerably stronger GNP numbers.",340
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"At the District level, I think our numbers continue to look rather good, although quite varied. Pennsylvania is a state that has characteristics both of East Coast prosperity and some of the problems of the industrial Midwest. But on the whole, the numbers have continued to make us look better than the nation as a whole. At the anecdotal level I have noted a less pessimistic view among manufacturers about the trade business. Two or three months ago they were very skeptical that the drop in the value of the dollar was going to have much of an impact. What I notice now is that their orders have begun to pick up and inquiries to their firms are picking up. They now are feeling a little better--feeling that they may be getting back into this ball game. I think that is a subtle but important harbinger of what might lie ahead. At the national level, we tend to go up and down in this Committee. I think back over the last year and it seems we get one month of figures that look better and we feel better; and then we come back the next month and the figures are a little less; we sort of go up and down. If we seasonally adjusted it all my guess is that we would conclude that things are probably unchanged. There is a touch better evidence, I think, from the trade side as well as in some of the forward looking indicators. I think we need a little more information to conclude that there has been a significant improvement. But having said that, I think that the latest statistics tend to make one feel a little better about a broadly unchanged outlook.",321
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Well, Mr. Chairman, in the Sixth District the situation has not changed very much over the past six weeks, which is to say that conditions are pretty mixed in the area. Picking up on something that Mike Prell mentioned, there seems to be growing concern that the tighter restrictions on municipal finance and the smaller grants in aid as a result of the tax bill are going to slow the area's efforts to improve the public infrastructure and provide needed social services. The weak areas in the District--that is energy and agricultural--continue to be weak. We got a little benefit from the reduction in the drought situation, but the rains came a bit too late to help most of the crops. Confirming what the staff said about the rig count, we find that in Louisiana the rig count actually has risen slightly in the last couple of months, although I hasten to add that conditions in Louisiana and in that general energy patch are still very, very depressed. Another area that continues to concern a number of people is the office overbuilding situation. In the Atlanta downtown area it doesn't look too bad; the vacancy rate is about 15 percent. But as you move to the outskirts, particularly with newer development, vacancy rates are as high as 40 percent. That average is not as high as in other cities but office overbuilding clearly is a very serious problem and is continuing to be so. The same is true for multifamily rental units, which are experiencing record high vacancy rates. In spite of all those negatives, as I talk to people I think there is a fair degree of optimism about what's happening not only in the District but in the country. There is a feeling that the faster pace of activity in the third quarter is going to be sustained and there is growing confidence, supported by some of the recent numbers, that the trade sector is going to do better. In fact, we have seen in our District orders from textiles pick up significantly over the past month or two. There are early indications--perhaps more anecdotal than anything else--or some suggestion of a pickup in agricultural exports as well. Looking at the national picture, our outlook is very much the same as the Greenbook's. We think that for the next several quarters we are going to have a growth rate for real GNP that's close to the 3 percent mentioned in the Greenbook. But that kind of growth is hinging on consumer spending and on an improvement in the trade deficit. We're putting most of our money in those areas, as it were. And I have some concern that perhaps we won't get the kinds of improvements that we're looking for there. So I would think that if there's risk in the economy the risk is on the down side. I say that about consumer spending partly because the discretionary income that people have as a result of the drop in oil prices is beginning to trail off, as are some of the effects of the greater wealth experienced in the form of a run-up in the stock and bond markets. Another uncertainty in the whole picture is the extent to which adjustments to the new tax law have already occurred versus how much more there is to see. We did a little survey, a very informal one, but it suggested that about 50 percent of the businesses that we talked to had built the adverse treatment of capital into their plans before the tax law was enacted. Altogether, I think the picture is encouraging; certainly, the District on average is doing better than the nation as a whole and we think that the expansion is going to continue. But again, I would stress that in my view the risk is on the down side.",723
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"In the Fourth District we don't really see evidence of a resurgence in the economy nor do we see anything that would indicate that we're going into a recession. As I look around the District I have the opinion that Ed Boehne expressed: that it's sort of more of the same. I think my directors in general and the businessmen I talk to have that opinion. I think we're more concerned in our area about the restructuring that's going on in some specific industries--steel and autos come particularly to mind, although I suppose machine tools could be put on that list as well. But this idea of an unchanged outlook, I think, is embodied in most forecasts and I would have no quarrel with it. On the District level, one of the interesting stories we're looking at is the steel story. My view is that there is more and more recognition by the management in those companies, and maybe by labor as well, that the problem is not imports and it's not exchange rates but that the problem is more basic than that--whether you call it overcapacity or whether you call it inadequate demand to support capacity. They are beginning to look at that and simultaneously, I think, are trying to deal with it constructively. Now, whether it can be dealt with or not is another issue, because as they close plants they have pension costs and the fringe benefit liabilities, and I certainly don't see how they're going to deal with that. But at least I see a recognition of what the problem is and an attempt to deal with it. Of course, the USX strike has bought the industry time; it has closed down something like the proportion of capacity the industry would like to see closed down. So a little time has been bought by that. We don't see in our District what Frank Morris sees on the exports side. What we see in the foreign sector is that people are beginning to feel better about import prices and that they are poised and ready to take advantage of that by moving their own prices up as soon as they see the window to do it. I see a shift of attitude in the foreign sector, but that's the one that I see.",426
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"Let me just comment on a couple of the changes in our District because I think the fundamental two-tier nature of the economy is well recognized, and that hasn't changed much in recent months. Perhaps what shows most clearly the distinction between what is happening in the rural areas as opposed to what's happening in the metropolitan areas is that the unemployment rate in the Twin Cities is now down to 3.7 percent. That is really a rather remarkably low rate for our economy. But that kind of prosperity is not translated in general once you move out into the rural areas although, of course, the cattle and hog producers are doing considerably better. Some of the producers in Montana, where they had a drought until this year, and some of the wheat producers and others are feeling better, but I wouldn't want to make too much of that. Certainly, the agricultural problems persist in general. I think anecdotally though, some of what has already surfaced at the table certainly is occurring in our District. There's just an awful lot of talk of potential improvement in exports. That kind of talk seems to be occurring in some considerable magnitude and it's clear that people who are interested in foreign business are starting to feel considerably better. As also has been mentioned, at least as far as we are concerned, pricing remains very, very competitive. One of the striking features that has come up in conversations that I have had with business people recently is that the pricing environment is still very competitive and they are still very, very concerned about their costs and so forth. In general, that would be a healthy aspect, in my mind. As far as the overall economic outlook is concerned, I have no particular quarrel with the Greenbook forecast. I think that's a respectable outlook and certainly, in the context of the fifth year of an economic expansion, something that I can live with. My intuition tells me we may do a touch better than that, but it is not the kind of thing that I think is going to make a material difference in terms of how the economy performs or in terms of what happens to rates of inflation and so forth, at least over the horizon of the next four or five quarters.",434
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"As far as the general economic outlook is concerned I would associate myself with the broad profile of the staff forecast. I think the risks are pretty well balanced. I would add that I would consider an outcome over the next five quarters like the staff forecast quite acceptable, considering where we are in the business cycle and considering the range of structural problems that are out there that really don't have a heck of a lot to do with monetary policy in the short run. One thing that bothers me is that I can't for the life of me figure out what to make of this tax bill. It's so complex. I think we're just going to have to wait and see how that shakes out. But it is a major uncertainty as far as I'm concerned. On the trade side, we too encounter many, many anecdotal comments along the lines that Frank Morris and Gary Stern have mentioned. And at this point I think they're more broadly based by industry groupings. A few months ago we heard some of that in chemicals and paper and that was about it. But now there is some in other industry groups as well. An interesting little side light to that on the other side of the equation--the import side--came up in a discussion Sam Cross and I had with some Swiss people yesterday. Now, Switzerland is not a great exporter to the United States; but nevertheless they indicated to us that just in the past several weeks there had been a very sharp decline in orders at Swiss companies for exports to the United States, presumably concentrated in so-called high-tech and electronic types of products. Again, not that Switzerland is a big exporter to the United States, but it was rather a dramatic report just because it seemed to be so sharp and so sudden in terms of their experience. I have a couple of other anecdotal items. I had a conversation with a fellow from one of the largest mail order houses in the United States at a business leaders meeting we had on the 22nd of October. He told me that in the first three weeks of October--which is kind of the beginning of the Christmas buying season for a mail order firm--they had set records across the board in terms of their mail order business. The other development, which is regional in character or is maybe just in the New York metropolitan area, is that the housing market and the labor market in the New York metropolitan area continue to really be booming. Prices of houses are just out of sight. On the labor market side I'll provide a great vignette: I noticed Saturday when I was out doing a couple of errands that the help wanted signs for part-time workers in service-type establishments seemed to abound. That, of course, is a very local phenomenon, but nevertheless--. Overall, as I said, I think the staff forecast is a reasonable one and an outcome that I would find quite acceptable.",568
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"As I see it, I don't think there has been a lot of change in the business outlook since our last meeting. I think those, led off by Bob Parry, who had the perception that people in the market and other observers think the statistics look a little better are correct. But if you look at them on a moving average basis they're not quite as much better as you might think on the surface. The anecdotal information we pick up from around our District, which had been pretty good, I would say was a tad worse than it was maybe a month ago. When I try to figure that out, I think one of the factors is probably the paucity of any information that suggests that we're getting any acceleration of the upturn. The other thing that seems to me to be more important now is the doubt that business people seem to have about the effects of the tax law on businesses. For example, one of our directors said at our last meeting that he estimated the tax changes would cost his business $3 million more in 1986 and $5 million more in 1987. And I think most of them are viewing it that way. But I think the financial underpinnings are certainly there to accommodate any kind of reasonable upturn that we might have in the economy. I believe the staff is right in what it has done in the Greenbook projection. As several people alluded to, if you break that projection down between gross domestic purchases and net exports of goods and services, you see that the projection shows gross domestic purchases for next year running well below what they're doing this year. By dividing it that way it focuses pretty crucially on the importance of the net exports side. So, if we are to get an increase in GNP that means that the net exports side of it has to come through. I think that's a reasonable thing to expect; as several people have noted, we are seeing a lot of anecdotal information that this kind of thing is happening. There are all sorts of measures of how much the dollar has depreciated, but when you get through all of those I think you have to conclude that in real terms there has been a pretty significant depreciation in the dollar. So I think it would be rather surprising if we didn't get some kind of a turnaround in our real balance of payments with this kind of improvement in the terms of trade. We think we'll see that more, of course, in the real figures in the GNP than in these monthly census figures on merchandise trade. They may not show up. But after the deflation, I think it's going to show up in net exports of goods and services. I don't know whether it's of any value or not, but one of our economists ran a VAR model and he usually gets results almost diametrically opposed to what the Board staff has; but that [model] suggested about the same kind of improvement that the Board staff has projected. It might concern you more that two models suggest the same thing than if neither did!",605
-fomc-corpus,1986,What's a VAR?,4
-fomc-corpus,1986,Vector autoregression is what it stands for.,9
-fomc-corpus,1986,I think it's a modern times series model.,9
-fomc-corpus,1986,"It came along after we finished our graduate work, Mr. Chairman, so we weren't really exposed to it in those days. So, we would buy the staff's forecast and we would say the chances of error are about equal on each side of it.",51
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Mr. Chairman, I don't have very much new or different to report for the Eleventh District. Things have continued pretty much as they have been. We do think that we're at the trough, as I reported last time, or certainly very close to it. I guess you'd say it has stabilized or has become stagnant, whichever term you want to use. As hard as we're looking, we really don't see any visible evidence of an upturn but neither are we finding evidence that it's getting worse. As a result of our District's economic conditions, the banking situation doesn't seem to be improving. Looking at the national economy, we don't have any real issue to take with the staff forecast. We might tend to be a little less optimistic on real growth--but not anything very significant--and to a certain degree on the inflation outlook than they projected.",169
-fomc-corpus,1986,Ms. Seger.,5
-fomc-corpus,1986,"As I've been thinking about this year and our different views as we've gone through the year, it seems to me that there has been some general paring of forecasts for real GNP, particularly for 1987. I still think, even with that, that there is some downside risk, particularly in the next 6 to 9 months or so. I hope Mike Prell is right that the auto bulge is going to be straightened out this quarter, but maybe because I'm cynical about the auto industry and things can vary I just sense that they've borrowed more from the future and that it's going to take more time to make that up, unfortunately. Also, I continue to be a worrywart about the consumer debt situation. When I read the article about Sears and its experience with rising amounts of uncollectibles, and so forth, that didn't make me feel any better. Also, in the multifamily housing area I heard a story--anecdotal but I think it may suggest that we have tremendous problems in apartment vacancies--that down in Bob Boykin's area they're giving free braces to people who are willing to sign two-year leases for apartments. I guess that just shows that the dentists own the buildings!",244
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"Oh, you can get braces now up to age 60. I'd say the market is probably pretty big. Anyhow, I think it does suggest that there's some urgency here to move people into these empty buildings. Again, that didn't make me feel terribly good. And that's without even considering the tax reform items. I really think that the tax reform is going to hit the multifamily or the apartment area probably as hard as any sector of the economy. It's sure going to knock off some of these limited partnerships that have been used to finance them. And for offices the same is true: there are lots of vacancies and it's very difficult to unload space. I don't believe I've heard it mentioned at the table here but there's a real problem coming up with hotels because so many have been built. It's not just in Washington, D.C. where all the lobbyists control them, but in many parts of the country there has been a lot of hotel construction and it's reaching the point where there is an excess of rooms and some real downward pressure on plans to put up additional hotels. Finally, in relying heavily on the trade turnaround I certainly hope that it takes place. I've heard some stories about additional orders for American exporters or soundings on the possibility of additional export business. But I also continue to hear stories about how difficult it is to meet the import competition from the countries that we seem to ignore, countries like Canada and Korea and Hong Kong. And it seems to me that if we're going to close this gap we've got to address both sides--not just expand our exports but put a damper on our imports. I'm not talking about trade restrictions, believe me. But I don't see a lot of evidence that the import surge is slowing down. So I guess I'm just generally negative today.",357
-fomc-corpus,1986,"Let me ask a question about multifamily housing. I hear about all of these surpluses, which I assume are true, but my impression is that rents are still going up at about the same rate of speed. Is that true?",48
-fomc-corpus,1986,The CPI measure hasn't shown any significant change in the rate of increase recently.,15
-fomc-corpus,1986,How do you explain that seeming dichotomy?,9
-fomc-corpus,1986,"Well, I'm not sure we can. One thing that may be a source of concern about that measurement is the treatment of vacant units. They evidently make some adjustments for the discontinuous movements in rents that occur after units have been vacated. While we can't manage to get into the details of how they're actually doing these adjustments we think there could be some upward bias in the measurement of rent increases recently.",80
-fomc-corpus,1986,"Also, the big recent increases are in the Northeast where the vacancy rates are very low.",18
-fomc-corpus,1986,That's another point. The sample may not be capturing the developments across the country correctly because it may not be representative of the current regional mix.,28
-fomc-corpus,1986,"There are other things going on, too, that the numbers might not capture. Talk about the incentives on the commercial side! There are a lot of incentives on multifamily units, as evidenced by the signs in front of a lot of these projects saying ""The move is on us!"" with a picture of a moving truck. They say they will pick up the moving expenses, give free rent the first six months, and then talk about the rental rate later. There are all kinds of incentives at work, so it may be that for reporting purposes the [true cost of a] rental is not actually being shown. By the time you work in--",130
-fomc-corpus,1986,"It would be interesting to know how long some of these units were standing vacant, actually.",18
-fomc-corpus,1986,"Jerry Corrigan talked about the very rapid price movements in homes, and we are having that too. In Dover a friend of mine just offered $100,000 less than the asking price and the owner took it before my friend could even back off.",50
-fomc-corpus,1986,You have rich friends [unintelligible].,10
-fomc-corpus,1986,"It was just a $300,000 house.",10
-fomc-corpus,1986,"Well, it was a $400,000 house. Mr. Guffey.",17
-fomc-corpus,1986,"Mr. Chairman, with respect to the national picture, we don't have any serious difference with the Greenbook forecast. This time again, as has been said around the table, that [forecast] depends greatly upon the turnaround in our net export position; absent that we would expect a still positive rate of growth but more in the 1 to 1-1/2 percent range. So it's extremely important that we get that kind of turnaround to achieve 3 percent growth in the next five quarters. With regard to the District economy, not a great deal has changed. We still have the unbalanced condition that Gary Stern described in his District of the urban versus the rural areas. Urban areas seem to be doing very well with the exception of the oil patch cities; Oklahoma City and Tulsa still are very depressed, but other cities such as Denver and Kansas City, or even Omaha, are moving along at fairly good clips--particularly the Kansas City area. Manufacturing in the District is very mixed. Auto production--and we are fairly large in auto assembly within the District--is moving along at a full two-shift operation. The rumor that we have heard is that instead of 12 GM plants closing it's only 6 and at least one is in the Kansas City area. However, the offset to that is that there is a very large plant being constructed now in Kansas City; so it may involve just an upgrading of their plant facilities, as far as our local economy is concerned. Interestingly enough, the high-tech sector, particularly the chip industry in Kansas City and in Denver, seems to have an uptick and that is largely attributed to the relationship of the dollar. The strengthening seems to have come about even though their competition was, among others, Taiwan. Although that relationship hasn't changed, apparently they feel that they are back in competition again where they were priced out of competition at an earlier time. With regard to other manufacturing sectors--such as farm equipment and oil field equipment--those are still very depressed, largely because of the agricultural situation. With regard to agriculture, net farm income will be essentially the same as it was last year. But breaking that down, the red meat sector--I'm talking about hogs and beef prices--has been very good. With the low commodity feed prices they have an all-time good spread; so there is money being made in that. That's being used largely to service some of the agricultural debt and hopefully it will buy a little more time. In the farm sector, we just completed our third-quarter survey and two things fall out of that. One is that the decline in agricultural [land] prices continues. The second quarter showed a decrease in agricultural real estate values of about 2 percent and that continues in the third-quarter survey, as contrasted with a decline of 6 to 7 percent in the fourth quarter of 1985. So the decline is slowing and, hopefully, we are getting at or near the bottom. The other important number that falls out of that survey of agricultural banks is the fact that the loan-to-deposit ratio is the lowest that it has been since our survey started in 1976. That is, it is now resting at a 52 percent loan-to-deposit ratio in agricultural banks. That's largely attributed to the fact that there is a lot of liquidity but there are no good agricultural loans that they can find; as a result, they are sitting with that liquidity.",688
-fomc-corpus,1986,Mr. Angell.,5
-fomc-corpus,1986,"I think the most unusual development is that we haven't had anyone around the table who has taken exception with the staff's inflation forecast. This is the first time that I remember that someone hasn't suggested that inflation is going to be higher than the staff forecast. That may be good news if that is shared around the producers; it may very well be that we don't have those deflationary and disinflationary forces that may depress the economy. I am getting somewhat optimistic because even though I have stayed with a 2-1/2 percent [forecast] in regard to real growth, it is getting close enough to the staff's forecast that I see very little difference. It seems to me that our economy is rather recession resistant in the sense that the proportion of population of elderly--retired with social security and retirement income--is kind of a nice floor. Farm programs do provide a safety net, and certainly, the service sector tends to produce income flows to a large portion of the U.S. economy that tends to make it not too susceptible to a dramatic downturn. Certainly, there have been no indications of any inventory accumulation based upon price expectations, and so there is very little danger of any typical inventory-lagged kind of recession. I do think there is quite a bit of risk, of course, of those sectors that the staff is forecasting to increase just matching in very nicely with those that may have been decreasing. So there has to be some risk of that [not] occurring. But I would be at a loss to suggest which way the risk is the greatest. It would seem to me that if we avoid any dramatic alterations in the money growth path downward--. You know, we have been running Ml at a 16 percent path and I think we all find it surprising to look back and see that. If we had it to do over again I am not sure we would have chosen a lower [path], given the way velocity turned out; but if there is any downside risk, it might show up in a rather quick change from a 16 percent growth path to a 6 percent growth path. If that were to occur, we ought to look at that. I don't know whether it is occurring or not; I think there might be some evidence as one might expect. We are getting to nearly three months without a discount rate cut and that's almost unheard of this year; probably in that environment we might expect the M1 growth path to show a change. The leading indicator that I run says that may be happening. So it seems to me that we do have a fairly good outlook. I agree with Roger Guffey that the meat producing segment of the farm economy, which at times can account for half of net farm income, has profit margins or spreads that are about the best we have seen. Even though we haven't seen a trend toward higher numbers, the feedlot operators know how to keep them in the lots a little longer and have them go at higher rates; consequently, we do have some opportunity for some good food price news, perhaps with regard to some continued downward news in poultry and hogs and finally beef prices. Let me end by suggesting that all is not well on the price front: I think we have a danger. I think it's quite likely that the President will receive on his desk a trade bill before next spring has passed and I think that might pose the first warning sign of a danger on the inflation front.",693
-fomc-corpus,1986,Governor Rice.,3
-fomc-corpus,1986,"Mr. Chairman, I feel pretty comfortable about the staff's longer-run forecast, despite the fact that we are seeing an aging of the expansion of the economy over the next year. I am somewhat less comfortable about the short-range forecast--that is, over this current quarter and the next quarter, largely because the rate of growth that we are expecting is highly dependent on inventories and net exports. And that, of course, [unintelligible] for a fairly chancy outcome. I certainly agree with Wayne that there are a lot of other sectors in the economy that are components of the GNP. So I think that at this time we are forced back more than usual on the anecdotal evidence. I am encouraged by what I hear around the table that basically the feelings and the mood are good and/or better; chances are much greater that we will see some improvement in the short run, over the next couple of quarters, than no improvement. But this is a time when I think we just have to sit back and wait to see what will happen.",212
-fomc-corpus,1986,Anybody else have any comments?,6
-fomc-corpus,1986,"Well, I agree broadly with the views expressed by the staff and by the speakers around the table. In particular, I think three developments are very heartening. First, the reduction in the federal imbalance--and if you take the state and local in together, the deficit is down to just slightly over $110 billion. Second, the external sector imbalance is being reduced. And third, the agricultural and oil-patch situation [seems to be] bottoming out. So, overall, I think we are seeing a strong reduction in the structural imbalances here. And I think that all bodes well for the success of the staff forecast.",129
-fomc-corpus,1986,"I don't have much to add. I think just about everything has been said. The staff forecast is looking better and better. The latest evidence is consistent with the pickup in exports, though it may be too early yet for that to be conclusive. But I do think that the anecdotal [evidence] and some of the aggregate numbers are consistent with the staff forecast, so I feel fairly comfortable with that. It comes just in the nick of time, really. Some of the improved aggregate statistics on the trade side along with both the proposed change in fiscal policy and the drop in the discount rate in Japan were timed well. I think [those developments] relieved a lot of the concern building in the financial markets about what was going to happen to the dollar, what kind of pressures that was going to bring on us, and whether the economy was going to remain weak. All of that has led to some relief in the financial markets. You can almost see it; you can see it in some flattening of the yield curve. I think we have a little more breathing room now and I feel a little less pressured than I did last time looking at this situation. Still, I think it is too early to pass judgment on whether we are out of the woods. But certainly, the evidence is consistent with the projection that we have, so I feel better.",273
-fomc-corpus,1986,"Let me just make a couple of comments about the international situation. This was not stated when we were discussing Japan and Germany earlier. So far as Japan is concerned, the most important point to make about their recent actions, particularly the discount rate change--which is good news, I guess--is that undoubtedly they acted because they are really worried about their business outlook now. That's the bad news. I don't think the Japanese economy has looked very good for some time, but the Bank of Japan seems to be convinced that it's not very good and that the growth prospects at the moment are not very satisfactory. Mr. Truman just gave me the announcement of German industrial production in September; the figures just came out this morning, I guess. I don't know what to make of it; it's a big reduction when the August figure, which was initially .3, is revised down to -.1 and then it's -1.7 in September. That gives a rather sick cast to their industrial production. They accompanied the announcement with a statement that they expect an upward revision of close to 2 percent. I don't know what kind of statistics they have [when they realease a figure that is] down 1.7 and say they expect it to be revised upward by 2 percent. So think of that what you would like to think. Even with that upward revision it would not be very strong in the third quarter; it doesn't quite bear out these much happier GNP figures they have. I thought that Governor Heller or Governor Angell might mention a little curiosity--I don't know whether it's literally true, but it's very close to being true--that despite all of this agony in the farm sector, which is very real, we may have record net farm income this year. It's a little odd to have all of this agony at the same time that you have record income, which will almost all be funded by government payments. For whatever reason, there it is. If you don't have any debts on the farm, I guess you are doing all right.",410
-fomc-corpus,1986,"Mr. Chairman, on Japan: Aren't their exports still increasing?",14
-fomc-corpus,1986,They think the export orders are actually down.,9
-fomc-corpus,1986,"Yes, their exports are down. The last couple of months the volume has actually picked up a bit, but I think that may be shipping. When volumes are down, then--",36
-fomc-corpus,1986,Volume is down year over year.,7
-fomc-corpus,1986,"The last couple of months they have done a little better, but basically they are down.",18
-fomc-corpus,1986,In the last couple of months their trade surplus has increased.,12
-fomc-corpus,1986,"Well, in dollar terms [unintelligible].",11
-fomc-corpus,1986,"In dollar terms, but not in yen terms. You see, in yen prices--",17
-fomc-corpus,1986,Okay.,2
-fomc-corpus,1986,"Yen prices are lower and volume is lower, so the yen value of exports is down.",19
-fomc-corpus,1986,"Of course, that's what's affecting the domestic economy as we feared. Besides that, they don't import much. The big contrast between Japan and Germany is that in Germany imports, including imports from Japan, are going up rather sharply. I don't think Japanese imports are going up much.",55
-fomc-corpus,1986,Domestic demand in Germany is much better than in Japan. That's the big difference. And investment too [unintelligible]--,26
-fomc-corpus,1986,"How much of that is based on the oil price, and is it going to level off?",19
-fomc-corpus,1986,"Governor Johnson just mentioned this change in the dollar and so forth. I have a better feeling for the moment; I don't know how long it will last. In some sense it gives us a little more flexibility; we may not want to use it, but it removes one constraint on our fine tuning as we go along. Right at the moment, I'm kind of on this [unintelligible] curve. I can't refrain from saying that there are two things that bother me, looking at a longer-term prospective, that are particularly relevant to what we do now. I am struck, particularly [by the comments of] the first people who were talking, that we are doing much better on wages. Mr. Prell and other people tell us that it really has been quite remarkable. Productivity in manufacturing, at least, seems to be pretty good. They are keeping their costs under control and everybody says all of these manufacturers are sitting there champing at the bit to raise prices. They can't do it, but at the first opportunity that comes along they are going to raise prices. I just wonder about the consistency of these things and what they tell us about the psychology of the American business sector. You have twenty years of inflation, that's normal; and if you can't raise prices that's not normal, even if you are making production gains and keeping your costs under control. There seems to be something the matter there. Then I hear about all of these capacity cutbacks--I don't want to generalize too far, maybe it's just in orders on steel--but if we are going to have these high exports in the future and we are going to have these restrained imports that we are talking about, presumably that means manufacturing activity does a lot better in the United States. I would think some of that improvement in the trade balance has to come in the automobile industry. And if that's true, what are we doing reducing plants by 6 or 12 or whatever it is [unintelligible] increasing them, may be [unintelligible]. But it bothers me.",414
-fomc-corpus,1986,"One of the things that I failed to mention is that a big plant, a new plant, in Westfield that doesn't run a third shift has very efficient [unintelligible]. In a downtown truck plant that is closing, 2,000 or 2,500 laborers might get laid off and this other facility expects to pick up as many as 2,000 of those. So, maybe there is some of that going on.",90
-fomc-corpus,1986,"It is a capacity shift as opposed to necessarily a capacity reduction. The plants I mentioned clearly are older and outmoded; it is a way of trimming them as opposed to making a very fundamental, huge reduction [in capacity].",46
-fomc-corpus,1986,You think in the context of at least maintaining production?,11
-fomc-corpus,1986,"Well, I think they will reduce their production but not in the magnitude that the numbers would suggest. As Roger says, they are adding a plant in Kansas City. They are right; there are a number of plants where they can add a second and third shift to pick up the production.",58
-fomc-corpus,1986,Over the next few years foreign car producers are going to have substantial amounts of added capacity.,18
-fomc-corpus,1986,How much does that amount to?,7
-fomc-corpus,1986,It seems to me that I have seen figures that by early 1990 it will be 1 million units a year; that's a vague recollection.,31
-fomc-corpus,1986,"One place I suppose we can make gains in that connection is that a lot of these foreign plants were established, I am sure, with the intention of importing almost all the components. But if an American company can get in there and provide more of the components--which seems possible--you get a pickup almost invisibly this time.",66
-fomc-corpus,1986,Some of them are creating their own parts-producing facilities.,11
-fomc-corpus,1986,"Well, I think it's important to realize that what's in the bag is a cessation of the worsening of our trade balance. That is going to show up in the GNP numbers rather substantially just because we have stopped worsening our position. But it remains to be seen whether in a sense we are substantially narrowing that trade deficit.",64
-fomc-corpus,1986,"This forecast has pretty big increases in exports and no increases in imports. And that surely is a change in trend, if it comes about.",28
-fomc-corpus,1986,"Getting to the plant closings: if you look at the details I think you will find that they are not all assembly plants. There is a foundry; there are parts plants, etc. And the grim news is that as they close, they will be importing some of those items that GM now produces in Saginaw, Michigan, and so forth.",72
-fomc-corpus,1986,But the point of it is that there is outsourcing in the United States as well as outsourcing abroad. A lot of this is outsourcing right out of the boundaries.,32
-fomc-corpus,1986,Why don't we hear from Mr. Kohn and then have our break?,15
-fomc-corpus,1986,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1986,"Okay, let's have a break.",7
-fomc-corpus,1986,Let's get the show on the road. Who would like to take an initiative?,16
-fomc-corpus,1986,I'd like to take an initiative not to take an initiative.,12
-fomc-corpus,1986,How about no change?,5
-fomc-corpus,1986,Ditto.,3
-fomc-corpus,1986,I would not mind suggesting one little nuance.,9
-fomc-corpus,1986,"Is this in the nature of an ""ooze"" or what?",14
-fomc-corpus,1986,Stampede.,3
-fomc-corpus,1986,"I will take it that this affirmation of no change means no change in the borrowing and presumably in the numbers that we use, although there is a little question as to whether we should move those. I don't think it makes any difference in the numbers if we move the time frame to the fourth quarter instead of from August. I am indifferent, but it's somewhat more normal to use the fourth-quarter figure. That would not make any difference in the numbers; it just affects the words. Forgetting about the nuances in the language at this point, is that what we are talking about? Okay. The floor is open for nuances.",125
-fomc-corpus,1986,"The nuance I had in mind is that since the last FOMC meeting perhaps conditions have changed sufficiently to take the asymmetry out of our wording and either leave it totally symmetric or shift the nuance to the other side. It would be fine with me if we made it totally symmetric, but I have a slight preference for shifting the nuance the other way. I think we ought to change that nuance and that's about all.",84
-fomc-corpus,1986,Can we put on the table taking out at least--,11
-fomc-corpus,1986,"Take out ""would"" and use ""might.""",10
-fomc-corpus,1986,"That's right; make them both ""mights"" or shift the ""would"" to the easier reserves part.",22
-fomc-corpus,1986,"Mr. Chairman, even though ""would/might"" sounds like some kind of obnoxious insect such as a tick, I would still like to keep our ""would/might.""",36
-fomc-corpus,1986,"Well, what is the feeling about symmetry?",9
-fomc-corpus,1986,I can go along with symmetry.,7
-fomc-corpus,1986,Symmetry.,3
-fomc-corpus,1986,I would prefer symmetry.,5
-fomc-corpus,1986,"Well, it sounds like a consensus for symmetry. Should these be ""woulds"" or ""mights""?",22
-fomc-corpus,1986,"""Woulds.""",4
-fomc-corpus,1986,"Yes, I agree with that.",7
-fomc-corpus,1986,"No, ""mights.""",6
-fomc-corpus,1986,"No. Symmetry would be ""woulds.""",10
-fomc-corpus,1986,I guess it doesn't matter as long as we use the same word on both sides.,17
-fomc-corpus,1986,This is going to be a long meeting.,9
-fomc-corpus,1986,"Well, this is a very significant issue.",9
-fomc-corpus,1986,"I don't have any strong feeling either [way], but I'd suggest ""might"" as being slightly more [appropriate]; I don't hear anybody talking about wanting to change now in a very active sense. Mr. Kohn raised a question about whether we want to change ""slightly"" to ""somewhat."" Any preference between ""slightly"" and ""somewhat""?",73
-fomc-corpus,1986,"I think it's ""slightly.""",7
-fomc-corpus,1986,"On the same theory you would make it ""might"" - -",13
-fomc-corpus,1986,"""Might"" is consistent with ""slightly.""",10
-fomc-corpus,1986,"What about these [proposed] changes that Mr. Kohn made? On the first reading I don't see that they change anything: change ""exceptionally large increase"" to ""exceptional pace;"" and ""past"" to ""previous."" What is--",51
-fomc-corpus,1986,"The point was that the way it read before it wasn't clear over what period the Committee was expecting Ml to moderate. [The question was]: as compared to what? So I tried, by putting ""over the same period"" to convey that it was the August-to-December or the September-to-December period compared to ""over the summer.""",69
-fomc-corpus,1986,"Well, you see more of a difference between ""previous"" and ""past"" than I do. Since I see no substantive difference between them, I guess it just raises the question of whether it's worth changing the language.",44
-fomc-corpus,1986,"Oh, ""previous"" is slightly clearer, isn't it? Because ""the past"" would include the months in the period that he was talking about earlier.",31
-fomc-corpus,1986,"Do you want ""previous might"" or ""would be""?",12
-fomc-corpus,1986,"[For] September to December I think it makes absolutely no difference, since we had it this way, with ""exceptional."" It would make just a slight substantive difference if we thought the higher end of this range in September [unintelligible]. August to December means it includes August too.",60
-fomc-corpus,1986,"No, it's from an August base; so it would be September, October, November.",18
-fomc-corpus,1986,So the difference is whether you include September and September was toward the high side. If the figures came in low you have a month of high [growth] that would be in the calculations.,38
-fomc-corpus,1986,"Look on page 6, Mr. Chairman. For alternative B, the August-to-December growth we have is 8.4 percent for M2 and 7.4 percent for M3. For September-to-December growth we have the same thing for M2, so that's no difference at all; but it's slightly lower for M3. A range of 7 to 9 percent would do for both.",85
-fomc-corpus,1986,"It's just a matter of presentation. Usually in these mid-quarterly dates we talk about the quarter and not about a period longer than a quarter. Before the quarter this time we did add August; as we sometimes do, we included an extra month. What do you want to do?",57
-fomc-corpus,1986,Use the September.,4
-fomc-corpus,1986,Do you want to change to September?,8
-fomc-corpus,1986,"Yes, that's all right.",6
-fomc-corpus,1986,"I would like to make a case: If the monetary aggregates came in exceptionally weak, I would hope it would not be a ""slight"" and a ""might.""",34
-fomc-corpus,1986,I actually disagree with you a little on that one. I think we should look forward to the time when the monetary aggregates would slow down.,28
-fomc-corpus,1986,"Well, we should. But how abruptly?",9
-fomc-corpus,1986,If we are continuing to get a good tight economy--,11
-fomc-corpus,1986,"Well, as long as you are not driving interest rates [up] at the same time.",19
-fomc-corpus,1986,"Does anybody else have anything to say? It would read: ""In the implementation of policy the Committee seeks to maintain the existing degree of reserve restraint. This action is expected to be consistent with growth in M2 and M3 over the period from September to December at annual rates of 7 to 9 percent. While growth in Ml over the same period is expected to moderate from""--we'll take these refinements; that will produce a whole article in the Fed Fortnightly.",97
-fomc-corpus,1986,"Don't you have to take out ""respectively,"" Mr. Chairman?",14
-fomc-corpus,1986,"Yes, we took out ""respectively."" It's 7 to 9 percent. ""While growth in M1 over the same period is expected to moderate from its exceptional pace during the previous several months, growth in this aggregates will continue to be judged in the light of the behavior of M2 and M3 and other factors. Slightly greater reserve restraint might or slightly lesser reserve reserve might be acceptable"" etc. And we have 4 to 8 percent on the federal funds rate. Any other comments?",102
-fomc-corpus,1986,I think we ought to take a vote.,9
-fomc-corpus,1986,"If we are prepared, we can take a vote.",11
-fomc-corpus,1986,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Heller Yes President Horn Yes Governor Johnson Yes President Morris Yes Governor Rice Yes Governor Seger Yes,39
-fomc-corpus,1986,"We have a couple of housekeeping items.   I thought we might meet for two days in December [unintelligible] in the discussion of how we handle next year.  That, of course, raises not exactly a new event but a considerable question about what we do about Ml in particular. So if that's all right we will schedule the meeting to begin on Monday afternoon instead of on Tuesday. Also, I think you have had a tentative schedule of next year's meetings.  The only question I am aware of that has arisen is that a couple of people raised a question about the meeting scheduled during Christmas week. I would like to indicate that we work during [unintelligible].",138
-fomc-corpus,1986,We need to approve the minutes. No objections. Foreign currency operations.,14
-fomc-corpus,1986,"[Statement--see Appendix.] Mr. Chairman, I have no transactions [to be approved].",19
-fomc-corpus,1986,Any questions or comments?,5
-fomc-corpus,1986,Mr. Cross was so clear.,7
-fomc-corpus,1986,"With all this silence, we'll go to domestic open market operations.",13
-fomc-corpus,1986,"One quick question: You mentioned the Japanese-U.S. agreement. So far, has all of that been holding together on the exchange rate side just by the market perception that there could be intervention?",39
-fomc-corpus,1986,"No, I think there have been other factors involved. There is the feeling that the yen really had moved quite far in terms of the situation in Japan. I think there is an expectation that further movement could lead to some developments within Japan that would cause more problems there. I don't think it has been done just with smoke and mirrors. I think there has been a difference in the actual impact of the exchange rate changes that have occurred in Japan vis-a-vis the effect of the exchange rate changes that have occurred between the United States and the Europeans.",109
-fomc-corpus,1986,"You don't see, say, capital flows into the United States now to a greater extent because there is greater confidence that there would be--",27
-fomc-corpus,1986,"We are still seeing capital flows into the United States from Japan; we have seen them all along. The one factor that has changed is the extent to which these inflows are offset, in effect, by measures in the exchange market to hedge against further exchange rate changes. But we are still seeing the inflows.",63
-fomc-corpus,1986,Do you see that hedging more or less?,10
-fomc-corpus,1986,"The hedging? Well, going back to when the dollar was considerably higher, there was a lot of hedging taking place. We don't really have very good information on all of this, so what I am telling you is what we deduce and what the Japanese tell us. Just after the middle of this year, when the exchange rate had changed a great deal--the dollar was, say, at 150 yen as compared to 260--there was a change in their attitude about hedging against this, and they were taking some of their profits. Now it is a little uncertain as to whether they are still investing on a hedged basis or whether they are taking some risks.",138
-fomc-corpus,1986,"What about looking ahead on swap lines? One reads a lot about Brazil, Argentina, and the Philippines. Do we anticipate being asked by them for swap lines?",32
-fomc-corpus,1986,It's never impossible. The Philippines are not actually asking for money--just refinancing.,16
-fomc-corpus,1986,Is there still quite a bit of activity in the foreign exchange markets around the year-end by multinational corporations? I remember that used to be the pattern.,30
-fomc-corpus,1986,"There are still some purchases of dollars by companies to kind of balance off their balance sheets at the end of the year. That is one of the factors that seem to have caused the dollar to show some strength recently because, as I was saying, as these corporations buy dollars the banks don't really seem to want to change their positions very much. So it goes right through the market and tends to have an impact on the rate and to send the dollar up a little. That has been a factor tending to strengthen the dollar so far as we can tell in the last couple of weeks.",116
-fomc-corpus,1986,"Let's go back to this swap question, just to avoid any misunderstanding. I answered on behalf of the United States; The Federal Reserve hasn't done swaps with anybody except Mexico anyway. The United States has, the Treasury also--it's kind of a division of labor.",52
-fomc-corpus,1986,We don't even have a swap line with Brazil.,10
-fomc-corpus,1986,They have agreed to a lot of Mexican ones.,10
-fomc-corpus,1986,Did the other banks sign on yet for the Mexican credit? Or is that still a--,18
-fomc-corpus,1986,"We have reached that critical mass, but still haven't got the uncritical mass. A lot of significant banks are not in.",25
-fomc-corpus,1986,But the uncritical is still out there?,9
-fomc-corpus,1986,"There are a lot of these LDC things coming together. The Philippines has just been hanging there; that's just a refinancing. Brazil, Argentina, Chile, Ecuador, and Venezuela have all come together and the mood is not good. It depends on how one interprets it. Paying off some--",59
-fomc-corpus,1986,What is the feeling about Brazil? Is there a growing feeling that they need a significant amount of new money?,22
-fomc-corpus,1986,"I think it is impossible to judge. They ran into a very bad time. The story of Brazil is they have to [unintelligible] for a while; instead of saying inflation went away, it was frozen out of the system. They have had very rapid [inflation] growth this year. Furthermore, there was a great loss of confidence in the weeks before the election. People knew they were going to have a program. They had capital flight and their trade position went to the devil, partly because of leads and lags and partly just because domestic growth was so bad. They lost a lot of reserves over the course of the month, or 6 to 8 weeks. So when they finally took the measures--and I think they haven't lost any reserves since then and they probably have regained some--they were pretty well depleted, in the sense of what they think they need anyway. So their confidence that they can get through next year without significant new monies from the banks has evaporated. But how much they really need depends. The IMF patted them on the back on their program; there is no formal way [unintelligible] Paris for rescheduling. Rescheduling is fully anticipated but no money which is [unintelligible]. Whether this new money is $2 billion or $4 billion--",267
-fomc-corpus,1986,But they don't anticipate any further adjustments to meet the financing as conditions [unintelligible].,19
-fomc-corpus,1986,"They may have some [unintelligible] measures growing out of this program but they don't want to agree specifically to part of this rain dance--kabuki dance, I guess, is a more apt description--where they took these millions that they more or less thought would be approved by the international [unintelligible]. It is quite a big program; it is very disturbing and it is mostly excise taxes, what little excise taxes apply. You stick a 100 percent tax on automobiles, and I guess a 70 percent tax on some other items, so you get this tremendous price distortion.",123
-fomc-corpus,1986,They devalued a couple of times.,9
-fomc-corpus,1986,"Well, a small devaluation. They did a small devaluation to keep up with their own inflation, which is rising again. They manipulated the price indices so that these things that are really whacked will not be so heavily weighted in the price index for poor people so they won't have to raise wages. But it is a big program in terms of the budgetary impact, if they can carry it through--if people don't stop buying cars, which is one of the risks [given that] so much of the revenue comes from cars and other durables. They really whacked these out of sight in terms of the taxes; other things they didn't tax at all and continue to subsidize. Some internal distortions in the program [unintelligible] that just in sheer budgetary magnitude may be 4-1/2 percent of the GNP; I guess they already said 3-1/2 percent.",186
-fomc-corpus,1986,"The sad thing is that they are going back to indexation, at least partially. If you didn't weight--",22
-fomc-corpus,1986,"Well, the big thing in this program, of course, was to pretty much get rid of it and then they took another step to try to get rid of the last debts. And that is what they are back on, informally. They took a massive step to get rid of it, so you wonder whether they will do some more backsliding. That is right. The actual backsliding compared to what they had is very small.",90
-fomc-corpus,1986,"The latest measures didn't include any new indexation. In fact, they took off [unintelligible].",22
-fomc-corpus,1986,I think you will find they put something back on.,11
-fomc-corpus,1986,I think they allowed bank deposits back. Do they link back to--,14
-fomc-corpus,1986,"Well, they changed the taxation of certain deposits so you didn't get taxed on inflation--on a portion of the interest rate. Look at that as just not taxing the inflation portion of the interest base. Taxation limited [unintelligible].",49
-fomc-corpus,1986,Mr. Sternlight.,5
-fomc-corpus,1986,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1986,Mr. Sternlight does have a sense of humor.,11
-fomc-corpus,1986,Any questions?,3
-fomc-corpus,1986,"Peter, [do you see] any shift in the maturities that the Japanese in particular seem to be buying?",23
-fomc-corpus,1986,"I heard more about them coming into the market after that Baker/Miyazawa agreement that Sam referred to. I am not aware of any great shift in the maturity area. They certainly have been interested in the intermediate and longer end and I guess if anything there perhaps has been a little renewal of interest in the longer end. Early in the year they were in the long end, and then were more in the intermediate area, and have shifted back somewhat to the long end, or a mixture of different areas anyway now.",104
-fomc-corpus,1986,"Could you just educate me on a rather basic point? It seems to me that when CRR was introduced--almost three years ago or whenever it was--that one of the points made at the time was that it would give the Fed the opportunity and the ability to better control reserves and the money supply. And yet as I hear discussions on an ongoing basis it sounds as if we [still] have problems forecasting or estimating required reserves, etc. So, did I get the message wrong almost three years ago or has something changed between then and the implementation of this?",113
-fomc-corpus,1986,"Well, I think there was probably a mix of views at the time as to how much improvement we would get.",23
-fomc-corpus,1986,I probably read some propaganda from somebody.,8
-fomc-corpus,1986,"From the very start, CRR meant that we had to live with ongoing revisions of required reserves as we went through a reserve period. That's been something we have had to cope with.",37
-fomc-corpus,1986,"It depends upon what you are interested in controlling. The rationale for CRR was to get a very [unintelligible] between M1 and reserves. If you are interested in evenness in the federal funds rate and predictable nonborrowed reserves and predictable excess reserves, then it's [unintelligible].",63
-fomc-corpus,1986,"It is ironic that as soon as the Board approved CRR, its interest in Ml declined precipitously.",21
-fomc-corpus,1986,So we continue to learn to live with the worst of both worlds.,14
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"Well, there are some people in banking who remember when [the reserve requirement] was contemporaneous the first time. It has changed and changed again.",30
-fomc-corpus,1986,"[Unintelligible] quick control over M1. No more questions on this? We will turn to Messrs. Kichline and Truman, [but first we need to ratify the open market] transactions.",45
-fomc-corpus,1986,Move it.,3
-fomc-corpus,1986,I'll second it.,4
-fomc-corpus,1986,"No objections. We will hear precise, careful, thoughtful estimates of the internal and external outlook.",19
-fomc-corpus,1986,Thank you. [Statement--see Appendix.],9
-fomc-corpus,1986,[Statement--see Appendix.],6
-fomc-corpus,1986,"Ted, one question: Maybe I misunderstood you when you spoke of the third-quarter net export number being $151 billion. In the Greenbook, I believe--oh, the trade deficit. I beg your pardon. MR. PARRY(?). [Unintelligible.]",55
-fomc-corpus,1986,"Around 2-1/4 to 2-1/2 percent. So in terms of what we have for 1987, we are essentially growing a half point faster than that; given our translation, it is really worth 1/2 point or so. What, indeed, is the trend growth of productivity? The more recent numbers have been rather disappointing, closer to 1 percent rather than what we had thought--1-1/4 percent or even higher. So I think it is an open case at the moment. I don't view this as terribly out of line with our sense of potential growth in the economy. I suspect there are folks who have numbers all over the lot. Some outside forecasts [show unemployment] down to 6-1/2 percent; others have 3 percent growth and unemployment rates rising. So there is a good deal of variability.",178
-fomc-corpus,1986,"Jim, how much different does productivity look if you differentiate between the service sector and the goods producing sector?",21
-fomc-corpus,1986,"Well, we don't really have good data, as you know, for well over a year. The evidence that we have suggests that manufacturing productivity is probably rising 3-1/2 to 4 percent. Service sector productivity is just really quite poor. So, we are getting strong productivity gains; that is important in this forecast. In terms of potential growth, we are trying to look at trend productivity for the economy in total, but there is a great deal of variation among sectors.",98
-fomc-corpus,1986,"Then it is possible that we really don't measure productivity in the service sector and don't measure the value of output in the service sector. We just assume productivity is going to be zero in the service sector, and lo and behold it is.",47
-fomc-corpus,1986,"No, I think there is a little more information than that. Let's say it is open to question but there is a little more information than an assumption of zero.",33
-fomc-corpus,1986,"That wouldn't enter into President Parry's question because, as you know, it would affect the GNP growth as well. It wouldn't affect our estimate of the likely effect of the growth numbers that we have on unemployment.",44
-fomc-corpus,1986,"Jim, could you supply me with some dollar numbers? It helps me to think of the real GNP change--to look at the total dollar change expected fourth quarter over fourth quarter and then to look at the specific contributors. Mr. Truman just said that net exports are expected to provide about a third. If I am reading your numbers correctly, the fourth quarter over fourth quarter change in real GNP is expected to be about $102 billion. On the right line, you say about a third of that would be supplied by an improvement in net exports. Where do you--",115
-fomc-corpus,1986,"$28.2 billion is the dollar amount [for net exports]. Ted's one-third is roughly focused on the growth rate of real GNP fourth quarter over fourth quarter. We have a growth rate of 2.8 percent, and if you take out net exports it is something like 1.8 percent.",64
-fomc-corpus,1986,"Okay. Looking at the $102 billion, where is it going to come from?",17
-fomc-corpus,1986,"[Our forecast has]: $60 billion in personal consumption; $7-1/2 billion in business fixed investment; virtually nothing in residential construction; nothing, or perhaps a billion or two, in business inventories; $28 billion in net exports; and $5 billion in government purchases.",58
-fomc-corpus,1986,"Okay, thank you.",5
-fomc-corpus,1986,I think Martha has a good point; you used to supply dollar figures [in the Greenbook] and then removed them awhile back. Sometimes [unintelligible].,34
-fomc-corpus,1986,You would like those sort of numbers in the green sheets?,12
-fomc-corpus,1986,I would and I gather that Martha would. I don't know--,13
-fomc-corpus,1986,It is hard for some of us who are not mathematical whizzes to take the rates of change and to equate them to specific numbers.,28
-fomc-corpus,1986,"Jim, I continue to have problems getting a real handle on the budget outlook. I see in the Greenbook that you have a $180 billion deficit for the current fiscal year. That is very close to the current CBO baseline, which I guess is $184 billion. I can think of a number of things that are likely to push that deficit up, starting from the CBO baseline, and not a heck of a lot that are likely to push it down. So it seems to me that the deficit is likely to exceed that $180 billion, perhaps considerably. I am having trouble reconciling that with what you mentioned might be the latest OMB projections.",134
-fomc-corpus,1986,What is the latest OMB projection?,8
-fomc-corpus,1986,"The number floating around that is still preliminary, I think, is $163 billion for the current fiscal year. That's still subject to change but it's in the $160-$165 billion area. Keep in mind: that is the same number that just a matter of a few months ago was $143 billion; so they have added $20 billion. It's a case of how much you want to up the ante. We have added another $20 billion. I think there is a danger of going too far in that direction, because there were legislative changes enacted that will begin to bite. One of the issues relates to defense. We had a lot of defense spending in the second and third quarters of last year. It is our sense that the level of that spending is now quite high. We have had major weapons systems deliveries that are now coming in; they are producing these things at a very rapid rate. But we don't expect defense spending to continue to grow in real terms at a fast clip. Rather we expect, as we get into the first part of next year, that we will probably have constraints on defense spending--in part because appropriations were cut back at the Administration's request. I would say that if we are wrong, I would probably add more; that is the safe way to go now. A big question mark is the agricultural area; we have substantially more dollars in there than does the Administration. My experience over the years is that even when we do that we are always low. It looks sort of outrageous but basically it turns out to be a really important issue. I think it is too pessimistic to say that things weren't done. I think they were done. And I think they will begin to show up as time goes on.",350
-fomc-corpus,1986,"One of the problems with the defense budget is that when you initially have a defense build-up and add to authority, you build up a lot of authority in the system; then, as you start cutting back that budget authority, the actual outlays start to speed up because you have a lot of backlog in the system. And that can go on for quite some time. It is a strange anomaly: when you are actually cutting budget authority you see outlays increase. But that can happen; I know that has happened a few times before.",108
-fomc-corpus,1986,There was something in the news today about the Administration requesting some additional defense funds for the current fiscal year as kind of the quid pro quo for a modest increase in 1988. It adds to that--,41
-fomc-corpus,1986,"You have a nice chart on the effect in the Greenbook. I can't find it right now, but it is kind of startling: the authority goes down and the outlays are going up. I don't know what page it is on, but it really makes the point nicely.",56
-fomc-corpus,1986,Page 17.,4
-fomc-corpus,1986,It really does happen.,5
-fomc-corpus,1986,Page 17.,4
-fomc-corpus,1986,What do you make of the decline in unemployment insurance claims?,12
-fomc-corpus,1986,We had a lot of employment growth.,8
-fomc-corpus,1986,"Not as much as in some earlier months, when unemployment claims didn't do anything, if I remember correctly.",21
-fomc-corpus,1986,"Over the last two months or so, they have been averaging about 20,000 to 23,000 per week under what they had been running during the summer. In October-November we did have increases in manufacturing employment; and that is the circumstance where you often see the [effect on] initial claims showing up very promptly. The employment growth for those two months is very strong. It has been a reliable leading indicator and I would say it is supportive of a strengthening labor market. That is what I would make of it.",107
-fomc-corpus,1986,You'd make something of it?,7
-fomc-corpus,1986,"Another facet of the recent data is that the household employment series is not showing gains as strong as the payroll series. If there were some catch up, as there might well be, we could see the unemployment rate tick down and be more consistent with this pattern that we have seen in the claims recently.",60
-fomc-corpus,1986,How is it handled statistically when these masses of people who are in middle management get pink slips and are given a severance package or are given psychological treatment for two months or something to help them adjust? Do they show up in the unemployment statistics immediately or do they have to wait to apply for--,59
-fomc-corpus,1986,I don't know the answer to that question.,9
-fomc-corpus,1986,"I think on the payroll survey they wouldn't show up, because many of the companies that do this actually keep them on the books for maybe a three- or six-month period.",35
-fomc-corpus,1986,I see.,3
-fomc-corpus,1986,So I don't think they would show up.,9
-fomc-corpus,1986,"I gather, though, that once they have been severed, even if they have gotten some payment, you can expect to see them listed as unemployed and eligible for unemployment insurance.",36
-fomc-corpus,1986,Okay. We may be seeing some of that.,10
-fomc-corpus,1986,I have another question. There is a further 10 percent depreciation of the dollar built into the 1987 forecast. How important is it if that does not come about? Or is the lag long enough that it doesn't affect 1987?,49
-fomc-corpus,1986,"That is a very difficult question to answer. I can really only answer within the context of the way we think about these things. The way we put this together it has quite a significant impact on the forecast--not on the export side itself, because there the price lags and the quantity lags are longer and, in some sense, we have already constrained that forecast to be less ebullient than one would think would come from the current pace of exchange rate changes. But you get a faster move on the import side; you would get more and more import growth if things stayed unchanged. And you get a quite rapid impact on gross investment income from abroad; we still get a considerable amount of investment income from abroad and that gets translated very directly into higher dollar value. In the way we put together our deflators and price indexes, you get quite a rapid increase from a 10 percent depreciation over this period.",185
-fomc-corpus,1986,On the import side.,5
-fomc-corpus,1986,"On the import side. The bottom line, if I remember correctly, is that if you kept things at the current level maybe about two-thirds of the improvement would go away.",35
-fomc-corpus,1986,Do you have import prices moving up this year by 5-1/2 percent?,18
-fomc-corpus,1986,"Actually, we have had it at a little above 5 percent.",14
-fomc-corpus,1986,"And you have import prices moving up in 1987 at 10 percent. Now, let's posit that they would turn out not to be that strong. Let's suppose that import prices were to move up next year more like they do this year; I presume that means that the real trade doesn't improve as much.",62
-fomc-corpus,1986,That's right.,3
-fomc-corpus,1986,"Real GNP isn't as favorable, which would also mean slightly better on the inflation.",17
-fomc-corpus,1986,"I think, on net, things would deteriorate.",11
-fomc-corpus,1986,"On balance it deteriorates. If you do that, then in the scenario in which the foreign exchange rates remain about constant, rather than depreciating 10 percent, that together weakens the entire--",40
-fomc-corpus,1986,"Right. I would emphasize, in answer to Governor Johnson's question, that there are a number of ways to view this--that honest men and women get different results from essentially the same set of initial conditions, including what might or might not be in the pipeline. That is partly just a function of the fact that you have so much relative price change already. If you thought imports were going to be much more responsive to the price change you have already had, and you stopped the depreciation where it is, then you are going to get significant improvement on the real side. And you would likely get an improvement on the nominal side because, essentially, you have had most of the price change and the quantity change, by hypothesis, coming down a lot. But as I said, to get the $28 billion that Jim mentioned earlier we stabilized things at the fourth-quarter level, and we get, in real terms, about $21 billion. About $12 billion of that is on the trade side and $9 billion is on the services side--most of it from higher real imports.",216
-fomc-corpus,1986,Do you have any interest rate assumptions for the United States vis-a-vis--,15
-fomc-corpus,1986,Not built into that scenario.,6
-fomc-corpus,1986,The interest rate assumptions are built in or are not built in?,13
-fomc-corpus,1986,"In running that kind of experiment, we didn't change the--",12
-fomc-corpus,1986,So U.S. interest rates--,7
-fomc-corpus,1986,They were lower; U.S. interest rates probably fell. You still earn more--,17
-fomc-corpus,1986,I didn't quite understand you.,6
-fomc-corpus,1986,The question is: How does the lower interest rate affect our net payments? It affects how much we receive in interest payments. And [unintelligible] stocks are such that a lower interest rate--leaving aside dividends and those kinds of things--[unintelligible] still gives you less net receipts.,64
-fomc-corpus,1986,Are there any corporate profit assumptions that are explicit in this forecast?,13
-fomc-corpus,1986,"Well, just on the international side, as I said, most of that $9 billion at an annual rate does add up to corporate profits; it is real. At least in the accounting it is a consequence of exchange rate changes. Those numbers are very large.",53
-fomc-corpus,1986,"We do the income side of the accounts, as well, so we have corporate profits. In economic terms they are barely higher in 1987 than in 1986; and if you take profits after tax, they indeed would go down because of the $15 to $20 billion tax increase that we have built in for the new tax law. So essentially, corporate profits in an economic sense are little changed next year.",85
-fomc-corpus,1986,"May I ask you a different question on the domestic side? The hourly earnings index has been declining very sharply, and there has been a lot of publicity recently given to new entrants into the workforce being paid barely above minimum wage. Is that improvement in the index entirely due to new low-wage workers entering the workforce? Or is it across the board for existing workers as well? In other words, is the mix--",83
-fomc-corpus,1986,"The hourly earnings index that we focus on adjusts for inter-industry shifts in employment. So it is not average hourly earnings as such; the index adjusts for that. As you know, it popped up in November by about four-tenths; it is volatile from month to month. Contract construction was up very strongly and there were wage increases as well in finance, insurance, and real estate. That has been a hot area--particularly the real estate, where there has been a lot of employment and maybe there has been some bidding up of wages. But I don't know that we have noticed anything in particular about rapid growth in the minimum wage area. I would note that other information that we are looking at for contract construction does not tend to support this sense of a very rapid sustained increase in construction wages. Did I answer your question?",167
-fomc-corpus,1986,"Well, actually I wasn't focussing on the November numbers. I was looking at the quarterly numbers because the monthly figures are so volatile. The quarterly figures show a sustained downward trend and I was really wondering whether the new entrants are pulling the average down or whether that reflects just low settlements across the board.",60
-fomc-corpus,1986,"Some of it is lower settlements. We do have information there: the average of settlements in the Bureau of National Affairs series, which includes all settlements of 50 or more workers, continues to drift lower. One other feature that is influencing the labor market data on the wage side, in a major way, is that many of the agreements provide for bonuses and lump sum payments that do not get cranked into the hourly earnings. That's sort of straight time salary. But this bonus feature pops up a great deal and that may be one thing that--",109
-fomc-corpus,1986,That's outside the index?,5
-fomc-corpus,1986,"Yes, the index is straight time hourly pay; it takes away overtime and all these other things. That particular feature is captured in compensation measures but not in the hourly earnings index. And that seems to be spreading.",43
-fomc-corpus,1986,"If I may correct myself, Governor Angell. An increase in interest rates would deteriorate the current account. [Unintelligible] on balance that way. Now, on the GNP net exports--because you net out government interest payments--it would go the other way.",57
-fomc-corpus,1986,"Ted, thank you.",5
-fomc-corpus,1986,"Ted, can I go back to what you said before about the exchange rate? Did I hear you say that if the exchange rate remains the same in 1987 that two-thirds of the improvement would disappear from the trade balance?",46
-fomc-corpus,1986,That is the conclusion that we have come to.,10
-fomc-corpus,1986,If that were to happen you would then--,9
-fomc-corpus,1986,"This is in the real [balance]. It would be less than that amount of deterioration on the imports, on the net current side, because you don't have the right [unintelligible].",39
-fomc-corpus,1986,"I am thinking about what that does to the overall forecast. You said that one-third of the forecast is dependent upon improvement in the trade balance. If you remove two-thirds of that improvement, your forecast is 0.6--",46
-fomc-corpus,1986,"Well, that is assuming--",6
-fomc-corpus,1986,In retrospect it would be 0.6 percent.,11
-fomc-corpus,1986,"I think there are other things that happen. You may well have different price behavior, for example, or different interest rates that come out of the forecast, or different consumption spending. Basically, the inclination is not simply to adjust the domestic forecast down by the full amount because these other things could be happening to help shore up--",65
-fomc-corpus,1986,"Subject to your correction, you have about the lowest price forecast of any of these standard forecasts. Would you explain why I should be so reassured?",30
-fomc-corpus,1986,"Well, Mr. Chairman, [unintelligible] says that we are going to get [unintelligible].",25
-fomc-corpus,1986,"[Unintelligible] remind us that we've all been too high [unintelligible]; next year we are in the clover, it seems.",32
-fomc-corpus,1986,"It depends on what you assume about the oil price and, as Ted mentioned, we have that drifting up to $16. So that is clearly different from 1986 but it is not a major problem. Another big issue is what you assume about import prices and how they will be reflected in domestic prices. We think we have something reasonable there. I don't know how some of these other forecasts track that through. In addition, our sense is that we have at the moment fairly moderate wage growth, in terms of measured expectations of inflation. You say we are at the low end, but I guess when we talk about numbers that are four or five percent I would want to be at the low end. I wouldn't want to be there all the time, but I am perfectly happy sitting there in December 1986.",164
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,Right.,2
-fomc-corpus,1986,"DRI has a somewhat [unintelligible] forecast. I don't know if you know why, but they also have more improvement in the trade balance than we do.",35
-fomc-corpus,1986,They are pretty close to our basis.,8
-fomc-corpus,1986,It is a similar forecast.,6
-fomc-corpus,1986,Isn't DRI the major model that is also concerned about a recession?,15
-fomc-corpus,1986,[Unintelligible.] I think we are lower in compensation than they are but less optimistic about productivity growth.,23
-fomc-corpus,1986,"Ted, you focused on net exports for 1987. The growth that you have for the fourth quarter of 1986 is very large.",29
-fomc-corpus,1986,"Two-thirds of that, or a little more than half of that, is the oil. About $15 billion of that reflects the change in the fourth quarter in the volume of oil from the high level. We have different sources of preliminary data for November, too, and we are more confident about that number than about some of the others.",68
-fomc-corpus,1986,It is certainly interesting to note that the growth in real terms is $28.6 billion for the fourth quarter of which $27.2 billion--,30
-fomc-corpus,1986,"A lot of it is based upon two assumptions: one is that the oil imports will behave this way; and the other has to do with what is or is not picked up in the national income accounts on counterpart inventory. Such a very little amount was picked up that we could find [unintelligible] in the third quarter, assuming that we treat it symmetrically in the fourth quarter. Much of it is oil; a small part of it is non-oil imports. And agricultural exports have been quite strong. Again, we have both October [data] and some other information on November agricultural exports; it seems [unintelligible] special factors which are not carrying through that expansion in the forecast period. But we have had a $4 billion annual rate of increase in ag exports, which largely [reflects] Japanese purchases, and then some continued improvement on the [non-ag] export side.",184
-fomc-corpus,1986,I think we might call on Mr. Kohn for comments about Mr. Simpson's paper.,19
-fomc-corpus,1986,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1986,"I think the question we might devote a little time to--[not] this afternoon but tomorrow morning--in setting the stage for our next meeting is what targets we want to use, if any. I have been assuming that we would have targets for M2 and M3. Ml looks a lot more doubtful to me. I think we might go some distance in establishing a framework so that when we come to the next meeting we'll at least know what targets we are going to have, if any.",100
-fomc-corpus,1986,"If any? You are required to have them, right?",12
-fomc-corpus,1986,I think you are right. It is a matter of law; we've got to cook up some target. That was a little too [unintelligible]; I don't want to [unintelligible] my view yet.,46
-fomc-corpus,1986,"The broader aggregates we never [miss] that badly. As for Ml, a big question mark in my mind is whether we even want a target for next year. I would hate to get into the same situation we got into this year with Ml. That could really constrain the markets quite a bit at the beginning of the year--if we set a target assuming another stable pattern of velocity for the year and end up with something [close to this year]. There just seems to be too much uncertainty about it, period. The study even indicates that there is so much uncertainty around Ml that it doesn't seem to have any great advantage. Maybe if velocity patterns stabilized a little more during the year we could re-establish a target at midyear.",148
-fomc-corpus,1986,"I think it is not only the disinflation impact on M1 but also the very sharp shifts that we get in the components right around that borderline of Ml, those between Ml and M2. We get growth rates up and down, near 20, 30, or 50 percent sometimes. And it is right on that borderline; it's very difficult to draw a line right there. If we want to have an Ml target we might want to look at the old M1A, or something like that, which apparently has been a little more stable.",113
-fomc-corpus,1986,It has done better.,5
-fomc-corpus,1986,Maybe somebody from the Research Department could--,8
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"No, I am not going advocate the old M1A. I am just saying between that and the current M1 it would be the lesser evil.",31
-fomc-corpus,1986,You mentioned the sensitivity of Ml to a change in interest rates. But what about the spread between NOW accounts and time deposits?,25
-fomc-corpus,1986,"Well, when I mentioned interest sensitivity, I was thinking of something that really encompassed the opportunity cost, so that would be relative to that time deposit--.",32
-fomc-corpus,1986,"So when you mentioned a percentage point decline in interest rates, you meant a compressing of the spread?",21
-fomc-corpus,1986,Right. Or a widening.,6
-fomc-corpus,1986,A decline in the opportunity cost.,7
-fomc-corpus,1986,Could you tell us more about the new model that you have that does a better job explaining the relationships?,21
-fomc-corpus,1986,The most recent version basically encompasses what we think is a little better fix on the offering rates--establishing those in the model. But mostly the reason it gives a better performance is that it has been refitted and it has much higher interest sensitivities and that happens to--,56
-fomc-corpus,1986,Just because you added the additional experience.,8
-fomc-corpus,1986,"We added additional experience and I think the models are influenced by the most recent experience in some way. I have my own concerns that we may have over-reacted econometrically, in some sense, to the most recent data--that some of the shifts that we've gotten in M1 are really very substantial shifts in reaction to a change in the state of the world from a high interest rate, high inflation world to a lower interest rate, lower inflation world. My concern is that when we look back a couple of years from now, by incorporating that into the interest sensitivity term we may have overstated what actually could happen as interest rates fluctuate in a cyclical sense in much smaller waves around a lower level. I can only emphasize the tremendous uncertainty at this point.",153
-fomc-corpus,1986,"Let me summarize what I think I heard you saying. As a central point, if one assumed no change in velocity with unchanged interest rates M1 would go up 5.5 percent. If interest rates then moved up 2 percent we should have about a 14 percent increase in Ml; in a different environment, if they moved down by 2 percent we should have minus 3 percent.",80
-fomc-corpus,1986,"The other way around. But you are right that a 2 percentage point change would imply maybe an 8 percentage point effect; I used one percentage point and got a 4 point effect. Now, that is--",44
-fomc-corpus,1986,You multiplied by 2.,6
-fomc-corpus,1986,Right.,2
-fomc-corpus,1986,But that too is opportunity cost.,7
-fomc-corpus,1986,Are you saying that in the estimation the interest rate elasticity may be somewhat higher than is really the case--that it may be more of a one-time shift?,32
-fomc-corpus,1986,"I have that suspicion. Obviously, I can't show it. It is true that the newer models with the higher elasticities do pretty well this year; they show about a 12 percent growth. So they've got that on their side. I just have the suspicion that in some sense we may have overreacted. But I think that M1 is going to be very interest sensitive, very sensitive to opportunity costs--in part because, as Governor Heller was saying, it is closely substitutable for other kinds of short-run liquid deposits and insured deposits. And as those things shift then--",118
-fomc-corpus,1986,"When you say a one percent change in interest rates, you are talking about a one percentage--",19
-fomc-corpus,1986,One percentage point change in interest rates. In my own calculation I was using the funds rate.,19
-fomc-corpus,1986,I thought you said--,5
-fomc-corpus,1986,Absolute change. All you are talking about is a change in the funds rate from 5 percent to 6 percent or from 5 percent to whatever.,31
-fomc-corpus,1986,I thought you said there was some opportunity cost --,10
-fomc-corpus,1986,[Unintelligible] the opportunity cost is between--,12
-fomc-corpus,1986,"That implied that there was some adjustment by the institutions, but a slow adjustment. That is, this was taken from the table in the last part of the paper that referred to a slow adjustment of the offering rates. It didn't imply that offering rates didn't change--only that they changed slowly as they have this year. So it is not necessarily a one percentage point change from opportunity cost; it would be something less than that. It would be, say, a one percentage point change in market interest rates on January 1st and then a very slow adjustment of offering rates to that.",117
-fomc-corpus,1986,You assume this interest rate sensitivity works both ways on the same demand function?,15
-fomc-corpus,1986,"The way we have it now, it would. But for large changes, I am not certain.",20
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,The symmetry of the response of the banks to this is a further complication.,15
-fomc-corpus,1986,"If it did have symmetry, that would mean that if we were ever to get back into a higher inflation scenario and the need for higher interest rates one might argue that the correct path for Ml might be zero. This thing works both ways.",48
-fomc-corpus,1986,"It's not likely to be symmetrical from the current levels since offering rates are above where they need to be anyhow. If you raised interest rates from the current level, presumably you'd short cut a certain adjustment that otherwise would be happening. So it is a more complicated kind of thing. But if you started from an equilibrium relationship of offering rates--",67
-fomc-corpus,1986,"If the market rate that you use changes by one percentage point, what is the elasticity of M2 and M3?",24
-fomc-corpus,1986,"I don't have an M3 elasticity, but M2 with a slow adjustment would be .09 elasticity. So .09 times about 16 percent would be about a 1-1/2 percentage point change in M2. The elasticity with respect to Ml--this is over a year--was .23.",63
-fomc-corpus,1986,"Don, in expressing doubts about the new model, are you explicitly assuming that you will have more rapid adjustment on the offering rates?",26
-fomc-corpus,1986,"Well, that is another thing that could happen here. It could be, particularly if interest rates moved down, that the cost pressure on banks would be so large that the competitive dam would break and you could get offering rates moving much more promptly than that--",51
-fomc-corpus,1986,You are seeing some movement--,6
-fomc-corpus,1986,You would have smaller elasticities but they would still be large.,13
-fomc-corpus,1986,"It would be relatively [more] comfortable than living within an M1 pattern for 1987 of between 2 percent and, say, 16 percent.",32
-fomc-corpus,1986,"Mr. Chairman, I think that we have come a long way on this subject in the last [few years]. A few years ago, we were sitting around here talking about M1 as if it were synonymous with transactions balances. I should hope that that concept may be seriously damaged. And we were talking, either directly or indirectly, about the causal relationship between the rate of change in transactions balances and the rate of change in nominal GNP. As you know, [I have been] arguing that we can't measure money anymore and that we really should start to think in terms of gearing policy to the rate of change in liquidity. In that connection, I think one indicator that we might want to use--if you think there is safety in numbers and in the past that has proven to be the case--is total liquid assets, if you can displace Ml. I would certainly strongly urge that we use total liquid assets if we want a third [target]. Last year its behavior relative to the nominal GNP was less defective than any of the other indicators. It wasn't too great, but it was less defective.",223
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"Well, there was one year when it was [unintelligible] but so did all the others--everything did well--and that was 1982. Since 1982 its velocity has been less than tranquil, I see, but the deviation as compared to M1 trend velocity is very small. I am not saying that any of these is anything that we should tie our [unintelligible] to in any rigid way. What we have learned is that none of these monetary aggregates has an extremely stable relationship to nominal GNP. But the fact is that in four out of the last five years we have not met our initial M1 target, and I think that is something we ought to pay a little attention to. Despite the deviation of the relatively broader aggregates from trend velocity, we generally have been hitting the [targets for] the broader aggregates. We have had ranges wide enough to encompass them. And we have done that this year. If we are forced to go with these, and under current law we are, then I think it makes sense to go with--I wouldn't call them targets--but indicators of monetary policy that we are more likely to hit. And I think the situation with M1 now is such that M1 velocity is completely unpredictable. We need to forecast Ml velocity, as Mr. Kohn's paper indicates. But first we need to know what is likely to happen to interest rates, what the relationship between nominal GNP and interest rates is, and also how the bankers are going to respond to any change in interest rates. And it seems to me that all that adds up to the proposition that the current M1 velocity is not predictable.",338
-fomc-corpus,1986,"Suppose we had a situation where interest rates were rising, say, one percent or more and M1 was rising at the same time, say, at least faster than the nominal GNP. Does that tell you anything?",45
-fomc-corpus,1986,"Yes, it certainly does. It seems to me that Frank wants to throw away too much. During a period of accelerating inflation, from even very low levels, it seems to me it's the case that there is still a rather stable relationship. There may be a stable relationship during periods of disinflation, but we may not be willing to admit to what that is. That is, we may not be willing to admit to the negative velocity that would entail. What I think we know is that when you shift from an inflating [unintelligible] economy to one of disinflation and outright deflation, then those relationships are unstable. And I think that every such period in history would demonstrate that to be the case.",147
-fomc-corpus,1986,I am just saying that I have no objections to using M1 for whatever information you think it may be giving you. What I do object to is using it as a published target of monetary policy when the uncertainties are so enormous.,46
-fomc-corpus,1986,"I agree with that point. I think Wayne has made a good point too. You can visualize times when this relationship gives you a lot more accurate assessment of nominal GNP, and I can see a time when more stability would return to Ml. When you have big shifts, as you say, from a high inflation, high interest rate economy to low inflation and low interest rates, you expect big changes and unstable conditions. I wouldn't want to throw M1 out altogether; but I certainly feel uncomfortable publishing a target range for 1987 in the middle of a transition period like this. And giving people the impression that we are going to make some attempt to hit that target really bothers me.",138
-fomc-corpus,1986,Maybe we should call it a monitoring range.,9
-fomc-corpus,1986,Even if you do that the New York Times is going to publish a picture of it every Friday showing M1 way [outside]--,27
-fomc-corpus,1986,"What [velocity] increase do you get with, say--just to keep the arithmetic easy--a 6 percent increase in nominal GNP and no change in the discount rate?",36
-fomc-corpus,1986,"For next year we would have, because of some of the lagged effects of the declines in interest rates--",22
-fomc-corpus,1986,Suppose there are no lagged effects in interest rates.,12
-fomc-corpus,1986,Then I would say we'd get about a 5 percent increase in M1 and I would expect about a one percent trend increase in velocity.,28
-fomc-corpus,1986,You still have a trend?,6
-fomc-corpus,1986,"A little one; between zero and one, backing off a little. I think there could be some trend from having demand deposits and currency in there. It is not all NOW accounts that might have a trend growth of about zero, the way M2 did. So I can't rule out that there would be some trend in there.",66
-fomc-corpus,1986,That would imply very slow growth over the last three quarters of next year given the first quarter.,19
-fomc-corpus,1986,No. I didn't think that was a projection for next year but rather if we were in equilibrium. For next year we would have much faster growth for the year given that we have lagged effects from this year.,43
-fomc-corpus,1986,What kind of velocity would you have if you had a 5 percent nominal GNP and a 100 basis point decline in interest rates?,28
-fomc-corpus,1986,"I guess I would have about a minus 3 percent, using my 4 percent minus the one.",21
-fomc-corpus,1986,So that would mean an 8 percent--,9
-fomc-corpus,1986,This is not for next year; this is starting out from the position--,15
-fomc-corpus,1986,What if the banks continued to pay the current rate when the market rates really went down by one percentage point? Then Ml would balloon.,27
-fomc-corpus,1986,"That is right. Now, my calculation assumes even with a 4 percent reaction, which is a huge reaction to a one percentage point change in interest rates, at least some slow adjustment of those offering rates. I don't know what--",47
-fomc-corpus,1986,You get interest rates back up to 21 percent again; you won't have any money supply at all.,21
-fomc-corpus,1986,"That's the question I want to ask. I am not sure about that. Within the framework of this revised model that you are working with Don, is it plausible--this is not, obviously, an operative question for 1987--that you could get a pattern of pricing behavior by banks that would produce a real credit crunch in the old fashioned sense of the word? Is it plausible to get pricing by banks that becomes so aggressive that you are not even sure of the algebraic signs?",98
-fomc-corpus,1986,I guess by credit crunch you mean a situation in which interest rates are rising. They could raise their rates on NOW accounts by even more because of the concern about lowering--. I suppose M1 could swallow M2 at some point here but that sounds rather extreme.,53
-fomc-corpus,1986,It depends on what kind of market they want to--,11
-fomc-corpus,1986,"I don't see how the crunch can occur, Jerry, without [interest rate] ceilings. Deregulation shouldn't mean that you are going to price so that the quantity demanded--",35
-fomc-corpus,1986,"I realize this is a highly implausible circumstance, but in that circumstance if the banks decide that what they really have to do to protect themselves, or to keep away from hot money positions themselves, is not just maintain their deposit base but increase their ""stable deposit base"" they could get very aggressive in pricing retail deposits in a crunch type environment.",70
-fomc-corpus,1986,"Well, then they have negative margins, don't they?",11
-fomc-corpus,1986,It seems to say that retail deposits are more volatile than--,12
-fomc-corpus,1986,"I think it says that they are not more volatile, but that in order to keep them the competitive pressures get so intense that banks have to respond by pricing those deposits more aggressively.",36
-fomc-corpus,1986,It is hard for me to see the situation in which they would price those deposits more aggressively than the marginal deposits. Mr. Parry.,28
-fomc-corpus,1986,"As I recall our discussion about Ml in July, after lengthy discussion, I think we came to the conclusion that it would be best to show a range for M1 and that we would stick with the current range and note all the uncertainties associated with it. In 1986 we have had very sharp declines in interest rates. We are now expecting, at least on the basis of the general discussion, that interest rates are going to be flat. So it seems to me that one could repeat what we set out as a tentative target and feel a little better about it.",114
-fomc-corpus,1986,"The argument on the other side--just to put forth the argument--is that if it is going to be so volatile in either direction, with relatively modest changes in interest rates, does that serve us well?",42
-fomc-corpus,1986,"One thing that struck me in reading this paper is that the advantage of a narrow aggregate is that we can influence it. When you get out to M2 and M3, our ability to influence is somewhat limited. Just from an operational point of view it is desirable, at least the way I see things, to have something there that we can influence should we choose to do so. The other thing that struck me is that the NOW account aspects of Ml are really going to cause ongoing problems in that regard. There may come a time when we want to go to some more strictly transactional base, whether it is M1A or some other type of narrow aggregate. This isn't the time, I don't think, to lay a new narrow aggregate on the table because there are still a lot of uncertainties. But I do have this feeling that it is a desirable thing, if we want to choose a regime around a narrow aggregate, that we could control it--that we have the concept of that intact in some way, in terms of how we set targets.",211
-fomc-corpus,1986,"May I object to that argument? We cannot control M1 unless we do not have an interest rate policy. In other words, if we want to have a strict monetarist regime and decide we are going to produce X amount of Ml, we can do that, but we have to surrender any influence over interest rates. You really are going to have to add that to your operational--",78
-fomc-corpus,1986,That is always the case.,6
-fomc-corpus,1986,What's always the case?,5
-fomc-corpus,1986,"If you want to focus strictly on Ml, you have got to give up interest rates.",18
-fomc-corpus,1986,"I would argue that we are never going to give up some kind of interest rate policy. Nor should we. And, therefore, the idea that M1 is controllable has no merit whatsoever.",39
-fomc-corpus,1986,"There is a value to the monetary aggregates that goes beyond the control issue and that is their value as an indicator variable. We can use interest rates to control nominal GNP but one of the problems is we don't know what nominal GNP is except with a considerable lag. Something like M2 can give us information about what is going on in the economy, in an indicator sense, even though we don't control it. And it seems to me that there is some value in having an indicator variable that has a lag that is shorter than nominal GNP. If you look at M2, it has not been all that bad even though we have had a drop in velocity this year. If we had used M2, for example, and had followed it more as an indicator value, it would have signalled the need for lower interest rates during the first part of the year, sooner than in fact we did lower them. And if you look at it now, what it is signalling is that we don't need further reductions in short-term rates at the moment. You have to look at an indicator variable in the context of a whole lot of other things. But I think one could have a framework for arguing the value, in an indicator sense, of the broader aggregates--both M2 and M3--that is quite separate from this control business.",269
-fomc-corpus,1986,"I can conceive of a time when Ml would be [unintelligible]. I don't want ever to get in a situation like this, but 1979 was a very convenient time for an Ml target. It is a disguise, maybe, for a high interest rate policy; but it certainly avoids a lot of the politics of having to--",69
-fomc-corpus,1986,The broader aggregates would do the same thing.,9
-fomc-corpus,1986,"Well, I don't know. If I remember right, M2 was right on the target.",19
-fomc-corpus,1986,"You could go the other way. If you go on the control issue raised by Mr. Melzer, what is wrong with going to the monetary base? Then you have something that is really under our control, and it probably has been performing better than the current M1 at least.",57
-fomc-corpus,1986,Damning with faint praise!,6
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"There is something to at least having a measured narrow aggregate that we can influence, if we can. But I think the point is still this: I don't see that the uncertainties around Ml or the base are any more improved than they were when we started out last year. I realize that we didn't forecast the decline in interest rates that we got last year. I am just saying--",76
-fomc-corpus,1986,What about the base? You don't get that kind of shifting that you get around the artificial line drawn on M1 and [in response to] what you call financial deregulation.,36
-fomc-corpus,1986,You get that kind of shifting; it is just once removed.,13
-fomc-corpus,1986,"That is right. The magnitude is not as great, but it is there.",16
-fomc-corpus,1986,"With shifting into NOW accounts, as I recall, you get a higher reserve requirement relative to the base, all other things equal.",26
-fomc-corpus,1986,Definitely.,2
-fomc-corpus,1986,You don't have to accommodate it but--,8
-fomc-corpus,1986,"Who is to say, Bob, that we won't get a shock with energy prices or something. What if OPEC--? We could get a big surge in interest rates and we would end up looking vicious on M1 and need to go, as you say, even temporarily to negative rates of growth.",61
-fomc-corpus,1986,It seems to me that there are several ways we could go here. But one thing I feel is very important is for the market to understand that if inflation were to reemerge as a threat we would move quickly to a monetary aggregate targeting--we would make that our primary responsibility. I don't know whether we have it out there--,67
-fomc-corpus,1986,"Does anybody else have anything burning to say? At this stage I just want to give you a little homework. I was listening to this and I think we ought not come to any obviously final judgments; but it would be very helpful if we had a good sense of the framework in which we should approach the necessary numerology, recognizing that we can't get away from that. Is there any sympathy for a new narrower aggregate?",84
-fomc-corpus,1986,"Yes, I have some Mr. Chairman, which I will talk about tomorrow.",16
-fomc-corpus,1986,"Is there any sympathy for any new aggregate at all? Responses in the morning. I even want a consensus in the morning, as nearly as we can get one. Do we want to have a normal type target for Ml at all? And I would have a sub-question to that, which may be quite important. In the absence of a normal target--which says to me that we have a target of X to Y and if we're outside it, we're outside it--is there anything that we would want to say about movements of M1 in relation to other things, such as things that would alarm us or reassure us? And finally, the question is: Do we retain M2 and M3? If we answer all those questions with a ""no"" we don't have any targets. So you have one constraint on your remarks tomorrow: you can't answer no to all the questions.",177
-fomc-corpus,1986,"Did you ask if anybody wanted to comment, Mr. Chairman? At the appropriate time, I would like to.",23
-fomc-corpus,1986,The appropriate time is [now].,7
-fomc-corpus,1986,"I don't see much point in setting a range for Ml because it has been misbehaving so badly. We could simply omit the range but I think it would be worthwhile if we substituted a range for M1A. I know there are problems with trying to target M1A, just like there are problems with any of the other aggregates; but the long-run interest elasticity of M1A reported in the staff paper is low enough to make it, I think, technically feasible to set a range of 4 to 5 percentage points [in width], which is what we have done customarily. It seems to me likely that the interest elasticity of M1A will remain relatively stable even if the depository institutions began to adjust their deposit rates more flexibly in response to changes in market rates. And I just think that some sort of discipline like that could be very useful in reminding the public that we are serious about inflation. Also, if we get to the point that we need to tighten up, we are going to need something to [unintelligible]. Remembering back to October 6, 1979, I think a lot of people voted for targeting the aggregates because they thought it provided an excuse to raise interest rates more than they otherwise could get away with; and I think this kind of aggregate target could be extremely useful in that capacity when that time comes, if it ever comes. I would do this along with--",290
-fomc-corpus,1986,"It's in large part ex post rationale. Do you have any studies of the elasticity of M1A as opposed to Ml, Mr. Kohn?",30
-fomc-corpus,1986,"Yes, we do, Mr. Chairman. I think there is some information in the back of the paper--table 3 in Mr. Simpson's memo. You can see that M1A elasticity over a one-year period is roughly comparable to that of M2.",54
-fomc-corpus,1986,"The last paragraph on page 15 is a good one to read on that. For me, it's easier to interpret that sort of thing than to look at the elasticity tables. It says that a 50 basis point change in market interest rates would alter M1A growth and its velocity by less than 1/4 of a percentage point at an annual rate in the short run and about 1/2 of a percentage point over the year--not perfect, but not bad by the standards of the other possibilities, I think.",107
-fomc-corpus,1986,"Do we have any confidence, assuming that one was going to have a target for M1A, about where it should be?",26
-fomc-corpus,1986,I was going to ask Mr. Kohn what he thinks it ought to be.,17
-fomc-corpus,1986,"I didn't really think about a target range, Mr. Chairman, but I would say in terms of our experience with M1A over the last year or two that we have found it not nearly as bad as Ml as a predictor of GNP. It is better, but not that much better. The problem here is that demand deposits have been growing even faster than we would have predicted on the basis of past experience. We have had about a 9-1/2 percent increase in M1A this year and I think on the basis of past experience we would have predicted something more on the order of 6 percent. So we have added, in some sense, an overshoot in our demand deposit growth relative to the growth [unintelligible]. As we look at this phenomenon, we see that the current interest elasticity of demand deposits seems to be increasing year by year. Now, I think there are a couple of possibilities here. One is that to the extent that demand deposits had a large block of sort of ""excess deposits"" in them before businesses began to manage them more efficiently that helped to hold down the elasticity. As cash management has spread into medium and smaller sized businesses, those excess demand deposits are more and more typically out of the demand deposits and are being held as compensating balances for cash management and other services.",270
-fomc-corpus,1986,Do you know if the additional growth is almost entirely in business accounts?,14
-fomc-corpus,1986,"Well, yes it would have to be. In our ownership survey, household accounts were about 1/4--I think 26 percent--of demand deposits, and that proportion hasn't changed very much. So by definition it is primarily businesses that account for the growth. But, returning to the original point, M1A has been better than M1.",72
-fomc-corpus,1986,"It also has another feature and that is that it is somewhat more controllable in regard to altering its opportunity costs, I would presume. Do your studies show that to be the case?",37
-fomc-corpus,1986,"Well, the market rate is the opportunity cost, the way we look at it, because there isn't an explicit offering rate on demand deposits. So it's true, as I think President Black said, that it is not subject to some of the uncertainties that we would see for M1 associated with how depository institutions are going to price their NOW accounts; I think that greatly adds to the uncertainty.",79
-fomc-corpus,1986,Presumably submerged under this is how depository institutions price their services.,14
-fomc-corpus,1986,"To the extent that there are switches between compensating balances and fees, that would affect M1A as well.",23
-fomc-corpus,1986,What interest credit do [they] give?,9
-fomc-corpus,1986,It's hard to say that demand deposits have been less volatile in this whole mess than OCDs. Isn't that right?,23
-fomc-corpus,1986,I'm sorry?,3
-fomc-corpus,1986,"Intellectually, I presume that if you want to go this way, the excuse would be that we have had all of the shift from demand deposits into NOW accounts that we are going to get and they are less substitutable at the margin for other types of liquid funds.",55
-fomc-corpus,1986,"That's what would trouble me. As I said yesterday, I think it's desirable to have a narrow aggregate, but it would trouble me to roll another one out right now when there is still this uncertainty in general about the behavior of velocity. That could not only discredit that aggregate but also could raise questions about what we are doing because, when we roll the new one out, we are implying a higher confidence level in that aggregate and in aggregates targeting in general.",92
-fomc-corpus,1986,I think that's a good point. It looks like we are really starting to get desperate--fishing around for something.,24
-fomc-corpus,1986,"That may give you the perfect excuse in a way. You may want to say at the beginning of the year that you are studying the possibility of reintroducing narrow monetary aggregates and at the present time you are conducting studies to determine if M1A, or something along those lines, might be appropriate. If so, at a later moment in the year you may want to set new targets. Therefore, it's clear that you want to go back to targets but you avoid having to set a target at the beginning of the year that you will clearly overshoot.",112
-fomc-corpus,1986,MIA has somewhat peculiar characteristics to me. It says we are very interested in business demand deposits and currency but we don't care what transactions balances individuals hold per se.,33
-fomc-corpus,1986,"Mr. Chairman, I have a more radical idea.",11
-fomc-corpus,1986,Let me recognize Mrs. Horn first.,8
-fomc-corpus,1986,"Well, I agree with many people who think that this is not the time to set an M1 target.",22
-fomc-corpus,1986,We are only talking now about what we are going to do regarding a [new] narrow--,19
-fomc-corpus,1986,"Oh, sorry. That's not what I am talking about.",12
-fomc-corpus,1986,We will rapidly get to the [Ml] question.,11
-fomc-corpus,1986,"I didn't mean to overstate the case about M1A because I don't think it's going to be all that good; I don't think anything is going to be all that good. What I would really like to see us consider is setting inflation targets for the next three years or so. I don't have in mind that we would set up any kind of automatic operational procedure that would cause us to in any kind of predetermined way do something if we deviate from this target. All I am recommending is that we set forth an explicit objective. I think that would have more than a cosmetic effect because, first of all, it would help preserve our credibility in the sense that the public would know that we were going to have to take some kind of action to try to get inflation in line if we saw signs that we were deviating from the target. The second reason I mentioned a while ago--that it is awfully nice when the time comes that we have to take the unpopular step of tightening to have something that we can point to other than interest rates. If the aggregates are weak, we don't have a lot to point to and something of this sort could give us some political insulation at a time when we need it.",244
-fomc-corpus,1986,"We will return to the question a little later. Mr. Stern, do you have something [to say] about the new Ml?",27
-fomc-corpus,1986,"I was going to say that, from a strategic point of view, I thought Governor Heller's suggestion was a good one--particularly because I think we ought to take another look at the monetary base as a narrow target. We have some evidence that suggests that, at least in recent years, its basic relationship to things like interest rates and inflation and output has been more stable than that of the other aggregates. While I am not prepared at the moment to say that the evidence is sufficiently convincing to me that I would want to push it, I do think it's worth some further investigation. And that would fit in rather nicely, it seems to me, with the kind of approach Governor Heller was suggesting.",141
-fomc-corpus,1986,I don't detect any strong enthusiasm for introducing a new narrow monetary aggregate as an actual target at this point.,21
-fomc-corpus,1986,"I would be in favor of continuing to study it if we can, as Governor Heller said. Maybe at midyear if we felt more comfortable with a narrower target we might look at it.",39
-fomc-corpus,1986,Let's return to that. The next question I have is: Do we want any new aggregate at all? I think Mr. Morris proposed one.,29
-fomc-corpus,1986,My proposition was that L would be a suitable swap for M1 but only if we wanted to stay with three targets.,24
-fomc-corpus,1986,Do you push this with enthusiasm or with just a feeling that if people want to try that we--,20
-fomc-corpus,1986,My thinking is that it is probably a better measure of liquidity than M2 or M3. If I had to choose only one of the three I think I would take L.,36
-fomc-corpus,1986,L suffers from the grievous defect that the figures come in months late.,15
-fomc-corpus,1986,"But they don't have to. If we wanted an early estimate we could get it, I am sure.",21
-fomc-corpus,1986,Would the staff like to comment on L?,9
-fomc-corpus,1986,"A couple of levels of comments: one is that--returning again to the results we get in looking at L relative to the other aggregates--it looks better in terms of St. Louis type reduced-form regression estimates than the narrow aggregates but about the same as M2 and M3 in predicting GNP. Before we decide really to pay a lot of attention to L, I would like to take a close look at some of the data problems. It is supposed to include Treasury securities under one year that are in the hands of the public, outside the banking system. We don't know quite how many Treasury securities under one year are in the hands of the banking system because the Treasury used to run a survey on that and they don't anymore. It doesn't include agency securities, for example, because we are not sure how many agency securities are out there [in the hands of the public], although it does include commercial paper. It has some very peculiar things; I think it has a lot of data problems. We probably could work around some of them, but my temptation would be to work on those data problems and also on getting more timely information before we get serious about L.",235
-fomc-corpus,1986,Does anybody else have any views on L or any other broad aggregate?,14
-fomc-corpus,1986,"Mr. Chairman, maybe what we should do is set the M2 and M3 targets in conformity with the Humphrey-Hawkins Act and have staff study a menu of possible aggregates--M1A, L, and whatever else people think might be appropriate--and try to deal with that later in 1987.",65
-fomc-corpus,1986,Any other comments? I do not detect any strong urge for adopting L as of--,17
-fomc-corpus,1986,We ought to go back to targeting interest rates.,10
-fomc-corpus,1986,Too radical! Let me just take my questions out of order. Does everybody agree with what seems to be the implicit assumption of some people that we will have an M2 and M3 target in the traditional form?,43
-fomc-corpus,1986,"Since we can't accept anything else, I would be afraid to throw those out.",16
-fomc-corpus,1986,"I guess we have that assumption on M2 and M3. So the other question is what we do with Ml. I think there is a question, clearly, as to whether we should have an M1 target, stated as either a target or monitoring range, in the form in which we have had but didn't initially [adopt in July]. Do we want to say anything about Ml? We can obviously say some things that have been suggested about looking at various alternatives and studying these things.",99
-fomc-corpus,1986,"I don't think we can have Ml as a normal target. I think that is fairly clear and obvious, given all the problems. But I do think there are some advantages to keeping it as a monitoring range, for the simple reason that it may be useful to us sometime in the future under a different set of circumstances than we have now. It also has the advantage of some history, so we aren't rolling out something new. We can say that it once worked; it's not working now, but it may work in the future. And I would couch it in terms of: Here is a range; we don't have a whole lot of confidence that we can hit it but we want to keep it on the shelf so that we can use it; it would only be used in the context of a whole lot of other information, so don't think that a deviation from the target in and of itself means that we are going to change policy; it's in a state that we are going to look at it and we may bring it back to play a more useful role. So, I am for a monitoring range with some kind of numerical values to that range.",230
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"I would be in favor of continuing to follow Ml and certainly reporting on it, but I would be a little reluctant to re-establish the range at this point because the results are going to vary, probably, from whatever we target. And as we go through the year, if the relationships tend to re-emerge and/or if GNP growth or inflation growth were to begin to move away on the high side, then at that point I would re-establish the range to use it effectively. But I'd establish a range that seems appropriate at that time.",111
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"I would join those who would opt to maintain M1 as an aggregate and also to set a monitoring range. To be sure, I'd adopt language not unlike what we have done in most recent times--that is, that we will pay attention to it, but only in relationship to M2, M3, and other developments--and as a result keep it in front of the public for purposes of going back to it sometime in the future, which I'm convinced we will have to do.",98
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"I would agree with Si Keehn. That is to say, I would keep M1 for its informational value and because we might need it in the future. I wouldn't want to set a range for it because I think it's getting a little embarrassing and boring trying to explain why we keep missing it. Moreover, the market seems--and as far as I can tell the Congress seems--fairly comfortable with our stance on Ml; so I don't think we have a lot to lose by keeping it [for its informational value] and just dropping the range entirely.",112
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"The idea that I am fooling with is a variation on several themes here. First of all, I do want to keep M1 in the ball game, even if it is on the bench, partly because when I look at the behavior of M2 and M3 it seems that they basically grow within a 6 to 9 percent range, regardless of what's going on in the economy, inflation, interest rates, or anything else. There's a certain amount of comfort that you can draw from that, in that you have a good chance of hitting the targets but not much comfort in terms of what hitting the targets may mean. The thought I had would be to keep the M2 target, and presentationally--",144
-fomc-corpus,1986,The M2 target?,5
-fomc-corpus,1986,"Keep M2, M3, and maybe a monitoring range for debt like we have had in the past. Presentationally, what I had in mind is that they would be prominently displayed in the box that is always part of the testimony. Also in that box in a prominent place we could have a brief paragraph that would say something like ""While the Committee has not adopted a formal target for M1 for 1987, it will continue to monitor its behavior closely. Consistent with that, the Committee expects that in the context of GNP growth of, say, 6 percent and relatively stable interest rates, Ml growth should be in a range of 4 to 8 percent."" And then add something along these lines: ""However, in the unlikely event that income is growing rapidly and velocity is increasing the Committee might be prepared to re-establish a target [for Ml]."" You could maybe combine that idea with Governor Heller's suggestion and broaden it to say something to the effect that in the intervening period the Committee is restudying these relationships and definitions and so on. Some notion like that has some appeal to me, both presentationally and substantively, even if it does mean that Ml in some sense is on the bench rather than in the ball game.",259
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,I basically agree with what Jerry said. It seems to me that having Ml still play a role--and with a range--makes some sense.,29
-fomc-corpus,1986,I am not sure you are agreeing with him. Maybe you can be more explicit. I am not sure whether you are or you aren't.,28
-fomc-corpus,1986,"Well, he stated a range. He even stated a specific range for Ml, but a monitoring range.",21
-fomc-corpus,1986,"That seems to be somewhat different. Perhaps it's more nuances--. If I understood Mr. Corrigan, he said don't present a range even as a monitoring range; present one as a footnote under certain assumptions.",43
-fomc-corpus,1986,It's a little more than a footnote. I'd have it in a prominent place in that box that is always the focal point.,26
-fomc-corpus,1986,I have a little difficulty visualizing your paragraph as part of a box.,15
-fomc-corpus,1986,I added in close physical proximity to the part that lays out the quantitative targets for M2 and M3.,22
-fomc-corpus,1986,An off-balance-sheet item.,7
-fomc-corpus,1986,An off-balance-sheet item.,7
-fomc-corpus,1986,Governor Johnson.,3
-fomc-corpus,1986,"That is an interesting possibility, but my views are even more basic. I would simply explain the problems we have had with M1 and then say that, given those problems and the uncertainties that still lie ahead on M1, we are undertaking a study on narrow aggregates in general but that under the circumstances now we are only publishing an M2 and M3 target. Perhaps at midyear when we have had more evidence on whether velocity has stabilized for some of these narrower aggregates, we would have a chance to choose one of them--and maybe Ml is the one again--and we might publish a new target range. I don't see that it serves us any good purpose to have a range at all for the first six months of the year. As a matter of fact, if we published a range, I think we would all feel uncomfortable saying that we ought to have a range that includes 12 or 13 percent growth for Ml, even though that has been the experience [because] of velocity; I think we would be constrained to want to say something like 5 to 8 percent or 6 to 9 percent. And then we would run into the same potential problems, it seems to me, of running above the targets initially in the year and having the markets ask: What's the Fed going to do about Ml? Even if they don't believe we will do much, it could be a matter of weeks that they are uncertain about it. It could affect the markets in a way that I don't think we would really want. So, I would be in favor of announcing that we still think there is an important function for a narrow aggregate but we are going to study the issue; it could be that M1A or some other narrow measure responds better than Ml. And we could also get a better feel for velocity later. But I am for going with an M2 and M3 target.",381
-fomc-corpus,1986,Ms. Seger.,5
-fomc-corpus,1986,"Unfortunately, my view is the same as it was last July--which was that we should not publish an M1 target range because the aggregate was behaving so weirdly. I felt that it would--and as a matter of fact it did--confuse the financial markets and market participants, regardless of how many qualifications we put out with it and despite our saying that we were not paying as much attention to it as we used to. As long as it can be graphically presented every Friday by The Wall Street Journal and The New York Times, people will pay attention to it. Those footnotes don't get transmitted because newspapers don't transmit everything and the readers don't want all of that baggage. They are looking for easy answers. So I would go along with Governor Johnson's view that it's best not to establish a range for it now but to indicate that we are doing a thorough study of this and looking for some sort of narrow aggregate. I would publish an M2 and M3 range.",197
-fomc-corpus,1986,"An afterthought on what I said is one thing on the other side too. If we were to establish something like a 5 to 8 percent or a 6 to 9 percent monitoring range, and if we did have an upsurge or sudden increase in velocity, it could really be just as appropriate to be thinking of 2 or 3 percent money growth. We would be just as constrained by the minimum on that range as the upper side.",93
-fomc-corpus,1986,What I am talking about does not contemplate a range in that sense.,14
-fomc-corpus,1986,Let's come back to that. Mr. Morris.,10
-fomc-corpus,1986,"Mr. Chairman, if I read Mr. Corrigan and some of the others who have spoken up for a monitoring range correctly, it reflects a feeling that at some point in time we may face another 1979 situation and that at that point we will be able to resurrect M1 again and pursue a more restrictive policy than we otherwise would have been able to do because of the mystique attached to Ml. I think that's not a very realistic proposition. I think Ml did have that kind of mystique in 1979 but it certainly doesn't have it now. If we go to the Congress and say we can't have M1 growing more than 9 percent, they are going to say: Well, you let it grow at 15 percent in 1986 and in 4 out of 5 years in the 1980s you didn't meet your target and nothing happened. Why do you think you have to meet an M1 target this year? I don't think you can put M1 back in the box and pull it out that easily anymore.",212
-fomc-corpus,1986,"You don't want a range, I take it.",10
-fomc-corpus,1986,No sir.,3
-fomc-corpus,1986,Governor Angell.,4
-fomc-corpus,1986,"Ml is not going to go away. We are not going to keep a chart out of The Wall Street Journal or The New York Times. I presume we are going to continue to release weekly figures, four-week averages, so it's there. I think too much attention has been given to it. I prefer that we keep it as a monitoring range. I would prefer not to change it; to tinker with the numbers is like tinkering with M1A. We are not going to tinker with the numbers and have them be large enough that we have a chance of being within them. So, I would like to have a monitoring range, a historic range that we have been using, and simply indicate to the market that there may come a time when M1's velocity will return to this more historic relationship.",164
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"That is essentially where I would be. I would set a range and then put language around it like we did in July indicating that we wouldn't necessarily expect to hit it. In connection with that, that's where we could bring in Governor Heller's point that because of the interest elasticity of Ml, we are looking at other narrower aggregates that would have less elasticity. I don't think we have lost a lot of credibility by having the range and then not meeting it. My own view is that it doesn't create a lot confusion in the marketplace as to what we are doing. I think when the market gets worried about rapid M1 growth, it may well be against the backdrop of other developments like, say, a weak dollar, a steeper yield curve, and so forth. They're not making judgments about rapid M1 growth solely based on what our range is.",171
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"My preference would be to go without a range for Ml, basically for some of the reasons already mentioned--that we think the relationships between M1 and the other economic variables we really care about have broken down or at least we don't understand them very well. To set a range in that context, it seems to me, is difficult and hard to justify. I certainly would not be uncomfortable with some language to the effect that we are going to continue to watch what happens with M1 and evaluate it along with a variety of other incoming information. As a kind of fallback position, it seems to me that if we are going to set some sort of range it ought to be somewhat more realistic than the ranges we have been adopting, simply because I don't think we are achieving very much by specifying ranges that our best estimates suggest are going to be too low.",170
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"I agree pretty much with what Tom Melzer has just said. I would set a range and I would try to explain it. It seems to me that whatever credibility we had on Ml we have lost. The markets have adjusted to that loss of credibility. They seem to be accepting the fact that we don't know. If we come up with something else, it would be an implication that we know what we are doing. If we lose on that, we double our credibility loss. I would rather ride with what we have for a while and, obviously, be looking for better ways. But I guess I have not heard anything proposed that gives me a lot of confidence that it would be any better than what we have been doing over the last several months.",151
-fomc-corpus,1986,"Mr. Chairman, I am with those who think we should not set a target range for Ml but I suppose, in the end, a monitoring range is a possibility. The words that we associate with what we do with M1--and for that matter with monetary targeting in general--I think are very important. And I would like to see some words that maybe go back a bit to Bob Black's point about the targeting of inflation, or just some words that say monetary targeting is not an objective of the Federal Reserve System--that whether it's Ml, M2 or M3, we are not expecting to control the aggregates, but we are setting ranges that we think are consistent with such and such a pattern of prices, employment, and total spending. I would indicate that, basically, we began setting target ranges publicly and in Congressional testimony as a way of assuring the Congress and the public that we were in fact intent on getting to a certain point with inflation, and that at the moment the connection between monetary targets and inflation is not what it used to be, and that we are talking here about what monetary targets we think are consistent with our ultimate objective.",232
-fomc-corpus,1986,"May I make a comment on the suggestions for studies? If Don Kohn checks his files, I think he will find a whole stack of studies that we have done on this particular topic. I think our words ought to be couched in terms of ""we will continue to study this subject on an ongoing basis"" rather than make a reference to a new major study that we hope will somehow enable us to find the truth, because six months or a year from now, when the results of this study come out, I think they may be somewhat disappointing. I just don't think we want to set ourselves up for that.",124
-fomc-corpus,1986,"Well, we can always say we studied it and didn't find anything.",14
-fomc-corpus,1986,"Did you express yourself explicitly on this subject, Governor Heller?",13
-fomc-corpus,1986,Yes. I would stay away from setting an explicit target right now and then note that we are thinking of re-establishing a target at some later time.,32
-fomc-corpus,1986,"Well, we have a range of opinion. I don't see anybody saying we should have a target of the traditional type, as opposed to a monitoring range. I will make a couple of observations. I think I am repeating what other people said but--even setting forth a monitoring range the way we did [in July] or as we do for debt I don't think is very helpful, because we are likely to be either way above or, in some conditions, way below. I would hate to be in a position where every indication was to tighten up and we've got all of these interest elasticity [unintelligible]. I'm not particularly expecting that in the short run but, over time, we may want to tighten up and if we have great interest elasticity and M1 runs low people will say: You are running below that 5 percent target, how can you possibly tighten up under those conditions? So I have a real concern in both directions about setting forth a target, even a monitoring range, just pure and simple. I share some of the concerns about promising too much from a study. I would suggest that we say we are going to get back to it at midyear. It seems likely that the study is going to show that almost anything we look at has a lot of interest elasticity and that gives us the problem that we are not going to be in any position--. Obviously, nobody can oppose a study. It's just a matter of the way it's stated, as Mr. Boehne just said. However, I think we can say something that would be useful. And that probably would be something along the lines--I haven't quite visualized a box, but that's a subsidiary point--that we think we know something about Ml and how it behaves in a very broad way. I think we probably could say something like: under normal or specified conditions, we would think it would rise at a pace somewhat around nominal GNP and we think that a nominal GNP--I'm not sure I'd state it quite this way--of around 5-1/2 or 6 percent is appropriate. And if interest rates weren't changing, that's what we would expect. But if other things happened and interest rates went up, we would expect M1 to run low, and the public shouldn't be surprised by that; if interest rates were declining and the economy was soft, we would expect M1 to run high. If inflation is down, we wouldn't be disturbed by a higher figure; if inflation is rising and interest rates are rising, we wouldn't be disturbed by a lower figure. Everyone ought to understand that that's the way we will appraise Ml--as a kind of supplementary device to the other targets, without putting it in the box, or setting a monitoring range per se. We might footnote it or something. I don't know how much one can say in a box. It's a visual point, but I think we could have a useful discussion of M1 indicating the kinds of conditions under which we would be disturbed or not disturbed by a big slowdown or a greater increase. That might be more useful than anything else.",626
-fomc-corpus,1986,I didn't mean literally within the box. All I meant to say is that I thought it should not be buried on page 28 of the testimony--that it should get some prominence.,37
-fomc-corpus,1986,Page 16?,4
-fomc-corpus,1986,You know what I mean!,6
-fomc-corpus,1986,"I think we could have a discussion of Ml. Maybe we could mention studies and all of this other stuff. I didn't look at it very carefully, but I think we could say that we are not ignoring it, but that we find ourselves unable just to give a simple range that encompasses all the significance of it. [How we view] it would depend upon circumstances, and we can try to describe the circumstances. The trouble is that this is getting too complicated, obviously. The basic point that we would make is that we think M1 has a lot of interest elasticity and an increase or a decrease should not be a surprise if there are changes in interest rates that may be appropriate for other reasons.",140
-fomc-corpus,1986,"But, of course, without a change in interest rates now for four months, where we normally have an interest elasticity problem, it seems we also may have an increase in demand for financial assets that may continue even in a period of stable interest rates.",50
-fomc-corpus,1986,"I think that is correct. If you thought that was a great big possibility, unlike those nice little equations Mr. Kohn has, the less you can say about it or the more vaguely you say anything--",42
-fomc-corpus,1986,I think Jerry's concern is that if you bury it too deeply then you may not be able to exhume it if you need it.,28
-fomc-corpus,1986,"I don't know what ""exhume it if you need it"" means. If it really has a lot of interest elasticity, I am not sure what the exhumation means.",37
-fomc-corpus,1986,"Well, that may change some over time. I hope--",12
-fomc-corpus,1986,"The one thing that might be possible, if we want to have any kind of picture at all to illustrate it, would be to have two sets of parallel lines imposed on the same graph instead of having a cone shaped target.",45
-fomc-corpus,1986,Have three-dimensional graphs?,5
-fomc-corpus,1986,You wouldn't need a three-dimensional graph; you could have one inside the other. One would be associated with stable interest rates and the other would be associated with volatile interest rates.,35
-fomc-corpus,1986,Make it out of rubber!,6
-fomc-corpus,1986,"One thing we might do is, without any monitoring range, to suggest that the Federal Open Market Committee might reinstitute quarterly ranges at any time that it deemed appropriate. That would give us the chance, in case circumstances changed whereby we believed that we had an inflationary tension that needed correcting, we could then institute a quarterly target without setting up an annual target.",72
-fomc-corpus,1986,"That is kind of the thought that I would mention at the end of what I suggested: that the range we have isn't really a monitoring range in the sense that we have used that term historically; it's just a statement of what we would expect to happen in somewhat normal conditions. But we could add on to that the thought that, in a context in which GNP, velocity, and inflation were rising, the Committee would be prepared to reconsider Ml as a target--or something like that without being specific about a quarterly target.",105
-fomc-corpus,1986,"Even though I asked for a monitoring range, I am happy to join this consensus.",17
-fomc-corpus,1986,"Instead of monitoring range, maybe a better term would be an observation area, or something like that.",20
-fomc-corpus,1986,"Well, implicit in what I am saying, anyway, is that we will continue to observe Ml. I don't know exactly what the right wording is, but we would observe it within some analytic framework, if we could state it. [Unintelligible], I'm afraid, unless Mr. Kohn can give me a little more reassurance than he gave me yesterday.",73
-fomc-corpus,1986,"I think the model would say it's close to one percent, but I think it's still in a period of evolution.",23
-fomc-corpus,1986,Plus or minus one percent?,6
-fomc-corpus,1986,"Plus one percent, in terms of velocity.",9
-fomc-corpus,1986,Adjusted for income and interest rates.,7
-fomc-corpus,1986,"Well, adjusted for interest rates.",7
-fomc-corpus,1986,"Don, how likely do you think it will be that eventually we will get to the point where these rates paid on other checkable deposits will vary pretty directly with market rates?",35
-fomc-corpus,1986,"I think that's possible but, as I indicated yesterday, I think some of the interest elasticity that we are observing now may be exaggerated. If the offering rates begin to move up or down with market rates then we would observe what the elasticity is with respect to market rates. But it's still going to be very substitutable, at the margin, with other closely related deposits. I don't think that we will get back to where we were before.",88
-fomc-corpus,1986,"I sense we have gone about as far as we can go on this subject this morning. I have a little work to do before the next meeting. Does anybody want to express any views, in a very preliminary way, about the M2 and M3 targets that we settled on tentatively last time? What were they: 5-1/2 to 8-1/2 percent [for both]? Does that still seem about right or does anybody have a strong view for something different than that? This would be very tentative at this point.",111
-fomc-corpus,1986,"I have been trying to think about why it is that the broader aggregates, including L, have been growing more rapidly relative to the nominal GNP. The only thing that I have been able to come up with is that in recent years, with the decline in interest rates, we have had a big increase in the value of financial assets in the hands of consumers and businesses--a big increase in stock prices and bond prices also. In fact, financial assets have been growing more rapidly than nominal GNP. So if an investor wanted to maintain liquid assets at a constant proportion of his portfolio and the other financial assets were growing more rapidly than GNP then his liquid assets would have to grow faster than nominal GNP as well. Now, whether that is the answer to it, I don't know, but--",161
-fomc-corpus,1986,"Your projection [would be] that if we had a great crash and stock prices went down people would want to hold less liquidity then, if your argument is symmetrical.",33
-fomc-corpus,1986,"They would, certainly; if we had a great depression then liquidity would go down.",17
-fomc-corpus,1986,What kind of depression?,5
-fomc-corpus,1986,[Unintelligible.] What Paul is talking about is a great crash.,16
-fomc-corpus,1986,I thought you said great deflation.,8
-fomc-corpus,1986,"Well, a stock market crash would lead to a reduction in the rate of growth of liquid assets, even if people tried to improve their position or maintain it. If incomes are dropping, that's going to be difficult to do. But if that theory has any validity to it--and I am not sure it does--it means that when the financial assets start growing at about the same rate as nominal GNP, you would expect that the liquid assets would go back to their prior growth rates relative to nominal GNP. I don't know whether this makes any sense to you, Don, or not.",119
-fomc-corpus,1986,"Those wealth variables we have do, I think, have bearing on M2 growth and on the broad aggregates; it makes some sense.",27
-fomc-corpus,1986,Does this lead you to the conclusion that the targets should be changed?,14
-fomc-corpus,1986,It leads me to conclude that we probably should not reduce the ranges for the broader aggregates. My tentative idea was to cut half of one percent from the 6 to 9 percent range for this year. I don't see that there is any case for doing that.,53
-fomc-corpus,1986,"Well, you can argue the opposite on the basis of your knowledge.",14
-fomc-corpus,1986,"Not, I think, while interest rates are still high relative to the inflation rate. If you promise that interest rates are going to continue to move toward their normal relationship to the inflation rate, and if that stays low, then you would expect the value of financial assets to continue to rise relative to GNP for a while.",65
-fomc-corpus,1986,"Mr. Morris makes an important point there, because I think it really explains a lot of the past behavior that we have seen. The trouble with it is that if you are trying to use it for forecasting purposes you first have to forecast what the stock market and the bond market are going to do, and that's probably just as tough as anything else that we've seen. But you can get more stable functions that way; I fully agree with you.",89
-fomc-corpus,1986,"There may be some reason to believe that. I don't know how long this stock adjustment will go on either, because of the change in the environment, but it wouldn't bother me--and it might give off an important message--if we could find a way to lower those broader targets a bit.",59
-fomc-corpus,1986,"Particularly if we drop the M1 target, I think it has a message there.",18
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Under the assumption of little or no change in interest rates in 1987 and the kind of nominal growth that is incorporated in the staff's forecast, on the basis of the staff's analysis and some analysis that we have done we think we would get growth of M2 and M3 at the lower end of the tentative ranges. In fact, we got 5 to 6 percent on M2 and 6 to 7 percent on M3. It seems to me that one could argue for perhaps a 1/2 percentage point reduction in the existing tentative targets [for 1987]--to somewhere around 5 to 8 percent.",131
-fomc-corpus,1986,"Well, maybe that's something that we need to get further counseling on from Mr. Kohn--[whether his work] indicates that half of one percentage point is not a matter of major consequence.",39
-fomc-corpus,1986,"I would just make the observation that for every one of those financial assets there is a financial liability, too. One of our problems, looking a little beyond M2 and 8-1/2 or 9 percent is the liability structure of the economy as a whole. In some ways it is what's driving the increase in some of these asset-based measures. And I think that is still a major concern over the long haul. That's one of the things that creates a preference on my part to try and shave off that half point, even though I am under no illusions about it.",117
-fomc-corpus,1986,Shave it more?,5
-fomc-corpus,1986,"No, just shave the half point because in the long run--",13
-fomc-corpus,1986,Keep it where we have it?,7
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Mr. Angell.,5
-fomc-corpus,1986,"It seems to me that we have no evidence that 1987 is going to be substantially different from 1986. I look at the 1986 M2 and M3 target bands and see that in January and February we were running a little below. And if we want them as targets I presume that means that when they run low we ought to be easing; and hindsight, I think, would tell us that it would have been okay to have some accommodation in that [early 1986] period. But we also found a period of time when we ran up to the 9 percent range. Now, if we wanted to be at 8-1/2 percent--if the targets mean anything--we would have to say that we should have screwed it down a little tighter in July and August and September. I am not sure that there is evidence of that [being desirable]. I would prefer not to get into wishful thinking about bringing the M2 and M3 [ranges] down until we have evidence. I might be persuaded at the February meeting that 8-1/2 percent and 5-1/2 percent are satisfactory, but hindsight might suggest that 9 percent may not have been too bad.",249
-fomc-corpus,1986,"But the forecast for 1987 is quite different than the experience for 1986 in terms of interest rates, and that's one of the most significant factors in determining the growth of the aggregates. So why wouldn't that make a difference in your view?",50
-fomc-corpus,1986,"But if you went back a year ago and asked the FOMC what its interest rate forecast was, some of what has happened may have been unexpected. It may very well be that we do not know whether the economy, for sure, is going to be growing at a 4 percent real path--or 3 percent, or even 1-1/2 percent.",76
-fomc-corpus,1986,"Yes, but you have to base your determination on expected values and we are expecting--or at least the staff forecast is--that there will be no change in rates. If one thought that rates were coming down, that would certainly give a lot of reason to support that. If you buy the idea that rates were not going to change very much, why wouldn't you expect a significant slowing?",78
-fomc-corpus,1986,"Well, because I am not so sure that the economy will be growing at a 3 percent real path or a 6 percent nominal path. It may very well be that we will have been inaccurate or not have been able to foresee that. We might be on a path that is conducive to lower interest rates; if so, would we want to have an M2 target that restrained us and caused us to tighten in an environment in which the economy was growing at a real path of, say, 1-1/2 percent and a nominal path of 4 percent?",116
-fomc-corpus,1986,Change it.,3
-fomc-corpus,1986,You're coming perilously close to having no target at all. Mr. Keehn.,17
-fomc-corpus,1986,"It seems to me that last July we established the tentative ranges and reduced them by 1/2 of a percent, really, to deliver a message--namely, that we were going to continue to control inflation. That must really be an important part of any kind of mechanistic result. Changes at this point, if we don't have a substantial reason for doing them, would give a rather false message. Therefore, I would be in favor of maintaining the tentative ranges that we set out last summer to continue that message.",105
-fomc-corpus,1986,Anybody else want to offer some comments on this subject? I will take silence as indicating at least that you are not more than 1/2 point away from the range in either direction. I guess we have established a broad band.,47
-fomc-corpus,1986,"I think the elasticities for the broader aggregates are such that there is a lot of tolerance in the current ranges. We can still see 15 to 16 percent Ml growth as consistent with 6 to 9 percent [growth in the broader aggregates]. That's why I don't think a 1/2 point reduction, or some small symbolic reduction in the target, is a real danger.",78
-fomc-corpus,1986,"We will give Mr. Kohn the last word. Just refresh our collective minds, given your assumptions or Mr. Kichline's assumptions: What is the probable range in which M2 and M3 are likely to come in?",47
-fomc-corpus,1986,"Well, Mr. Chairman, that's a difficult question in part because the models, as Mr. Parry said, give us some pretty low numbers for [monetary] growth next year--especially if you assume that depository institutions are going to adjust down their offering rates, increasing the opportunity cost of holding M2 [assets]. However, I am not sure I believe the models in many cases, but particularly in this case. So if I gave you a purely model-based forecast, looking across different models, I could give you anywhere from 9-1/2 percent for the Minneapolis VAR model to the 5 to 7 percent that the non-VAR models are clustered around.",139
-fomc-corpus,1986,That sounds almost like General Motor's range.,9
-fomc-corpus,1986,"Similar to General Motor's models. But when you look under the hood, that sounds low to me; so I think a little higher than that would be more likely.",34
-fomc-corpus,1986,"It is true, I think, that after-tax real long-run interest rates are even slightly negative. If you take the marginal [income tax] rate off the nominal interest rate and then take [out] about a 3 or 4 percent inflation expectation, you have a negative number on longer-term rates.",62
-fomc-corpus,1986,I think we can turn to what we have to decide this morning. Before we do that I would open the floor for comments on the [economic] situation and outlook. Mr. Boehne.,40
-fomc-corpus,1986,"In the Mid-Atlantic part of the country, economic performance is mostly positive. We have sensed a pickup in manufacturing activity in recent months; retailers report fairly brisk sales; construction, both residential and non-residential, is doing well; and loan growth in my District is running about twice the national rate. Unemployment rates are well under the national rate, particularly in New Jersey, Delaware and the Southeast quadrant of Pennsylvania. We are also seeing some wage hikes that are higher than the national average, as one would expect, particularly in the growing industries in our District. The outlook is generally positive although bankers doubt that loan growth will continue in 1987 as it has in 1986. On the national economy, I find myself in broad agreement with the staff: 2-1/2 to 3 percent real growth and around 4 percent or so on inflation, which for the fifth year of a recovery isn't all that bad. The only word of caution that I would pass on--and it's largely anecdotal and I don't know what to make out of it--is that our examiners are reporting more noticeable deterioration in consumer loan portfolios, especially the credit card portfolios of some of the big credit card issuers in Delaware. I had lunch with some merchants in part of the District a week or so ago and they reported that more and more potential sales are being turned down because people are hitting the ceiling on their credit cards. And I had lunch with some credit card people and they talked about something called a special lending option program--SLOP for short--for people who have bad credit ratings. They lend to them with higher interest rates and extra collateral and so forth. Again, I don't know what to make out of that. But there is somewhat of a pawn shop mentality in banking with home equity loans and all that; and maybe the consumer is running out the string to some extent and bankers are not being all that prudent in trying to put some limits on that.",397
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"Mr. Chairman, our view hasn't changed much since the last meeting. We are substantially in agreement with the staff forecast, and for the Fourth District that staff forecast, if it came true, would not be a bad outcome. It would give us some more time to carry through the further restructuring process that is under way in our heavy manufacturing sector. We continue to experience plant closings and structural changes and, of course, the size and speed of the adjustments is closely related to the impact of the exchange rates. A period of slow growth would be basically a good outcome for us on that front. There is a hopeful note on the export side in our District. In talking to our directors and to other businessmen, we don't have a profusion of new export orders to report but we do have a significant increase in the number of inquiries from foreign customers, and their attitudes seem to be much more receptive than we have noted in the past. Beyond that, there is also a feeling that the thrust of imports into specific markets has not been as strong as it was. We have hope on another front as well--on the employment growth in our District. To take the Ohio numbers alone, in the last year Ohio employment has grown faster than the nation as a whole, significantly fueled by employment in the services sector, and within that, in the business services sector. On the negative side, not only in our bank but in our District many feel that the risks connected with the 1987 forecast are on the down side. That feeling stems from the straightforward reasoning that the trade accounts may not turn around as much as anticipated in the forecast and that the business investment sector may not be particularly strong. So it's easy to picture an economy that won't, in fact, be growing in the 2 to 3 percent range. It would be nice to be able to identify some truly bright spots to counter the skepticism but so far I haven't been able to do that. On the retail sales side, we see in our District much of what was reported yesterday as the national trend; we see soft retail sales with a slightly stronger durables component. Our retailers say they have plenty of traffic in their stores but that just isn't resulting in the kind of sales they expect. They are, of course, reacting with discounting and waiting to see what the last few days [of the Christmas shopping season] will bring. I will end with a note on the agricultural situation in our District. We have a fairly small agricultural sector and it's fairly diverse. But I report this just because it seems rather interesting. Up until just a few months ago, three months ago maybe, the attitude in our District was that somehow the agricultural situation--land prices and income pressures on farm banks and on good farmers--had reached a plateau. This view has shifted significantly in the last couple of months under the weight of good crops and the low prices associated with them and the huge federal outlays. We now have a view among quite a wide range of people--from bankers to other observers in our District--that there is going to be another significant adjustment in land prices and in farm programs as well.",630
-fomc-corpus,1986,Mr. Parry.,5
-fomc-corpus,1986,"Our forecast is about as close as one could get to that of the staff. We feel confident that the fourth quarter will show strength of 3 percent or more; I think the available national statistics on production, sales, inventories, and employment would support such a conclusion. Plus, what we see in the Twelfth District is indicative of a strong economic picture for the fourth quarter. When I look at 1987, one of the things I would note is that, first of all, we do have a fairly sharp slowdown expected in the first quarter; and we have a fair amount of uncertainty about how sharp that slowdown might turn out to be. We expect it to be centered on weakness in both nonresidential and residential investment spending. We still don't have much of a handle on what the effect of the tax reform is likely to be in 1987. It seems likely that it is providing some strength to the current quarter and also, given the timing of some of the changes in taxes in 1987, that it will be a negative for next year. With regard to the trade sector, which we have talked of as a key factor, we did some studies based upon alternative assumptions of the speed of passthrough of import prices and what that might do in terms of the demand for imports. And any statistical study we did produced a greater improvement than we have in our forecast and that the Board staff has in its forecast. In addition, regional anecdotal evidence suggests--",297
-fomc-corpus,1986,Does that mean you get a high price for imports?,11
-fomc-corpus,1986,"No. Even if one uses some of the series that do not have much of a passthrough, you still get a sharper slowing in imports than is included in our judgmental forecast and in the Board staff forecasts that we have seen. So I think we are running on judgmental forecasts as far as imports.",63
-fomc-corpus,1986,How about import prices? Do they go up? Is that what you are saying?,17
-fomc-corpus,1986,Import prices don't go up all that much. What he is saying is that you get a big improvement.,21
-fomc-corpus,1986,"Right--faster than what we have. In other words, if you look at the statistical studies, we all seem to be taking conservative positions with regard to the net exports. That's not very comforting, given what we have seen to date. We have some regional anecdotal evidence that suggests more signs of a pickup in export volumes in the Twelfth District. There has been a strong pickup in foreign demand for aircraft. We have had foreign orders for electronic products, including computer graphics and certain measuring devices. There is some additional demand for agricultural exports and not much sign at all of any declines in imports, I might point out. It appears as though the bottom line, as far as the net export sector is concerned, is that there is a chance of some positive surprises in the trade account.",159
-fomc-corpus,1986,On that happy note we will hear from Mr. Melzer.,13
-fomc-corpus,1986,"In the Eighth District, conditions continue to be pretty good. We have had good non-ag employment growth in the last three-month period--about a full percentage point greater than nationally. Retail sales are a little slower than the national growth. In a sense, a surprising area of strength continues to be both residential and nonresidential construction: in the most recent three-month period through October we have had annual rates of growth of 20 percent in residential and 16 percent in nonresidential. Following up on that, real estate lending has been very strong at District financial institutions; there also has been a notable pickup in commercial lending activity. I would say that some anecdotal comments we hear tend to bear that out. In Louisville, for the first time since I have been involved, I have heard people mention a pickup in manufacturing activity there, particularly among smaller manufacturers. Homebuilders in the St. Louis area are expecting to do next year maybe 90 percent of what they have done this year in the single-family area, with multifamily construction down substantially. There continues to be anxiety about the Christmas selling season; there is evidence of a lot of promotional activity in the newspapers and some talk of price cutting, but that still remains to be seen. I would say that in general the anxieties remain what we have heard about before--in terms of the consumer in the first quarter of next year, capital spending early next year, and so forth. Overall, our outlook on economic activity would be somewhat stronger than the Board staff's, though not substantially. On the price side, we believe there is somewhat greater risk. But in general I would be quite satisfied if we achieved the 2.7 percent growth that the Board staff is looking for next year. As Mrs. Horn was saying, that sort of growth rate tends to facilitate the kind of adjustment that we need to see in order to get the trade situation into better balance.",387
-fomc-corpus,1986,"[The staff's forecast is] 2.8 percent, to be precise. A few people were talking about housing starts; a housing starts figure came out this morning, which I am sure Mr. Kichline can report to you.",49
-fomc-corpus,1986,"Housing starts were at a 1.6 million unit annual rate in November. That's just about 2 percent below October. All of the decline is in the multifamily area and, regionally, all of the decline is in the South. It's a shade weaker than we had built into the forecast, but not much.",65
-fomc-corpus,1986,What about building permits?,5
-fomc-corpus,1986,"They are up and very close to starts. They are up about 2 percent, surprisingly all in the multifamily area.",25
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"Conditions in our District remain very much unchanged and are certainly consistent with the trends that have been in place for so many months now. The unevenness which has been a feature of this whole cycle in our area certainly continues. The plant closings are a tangible sign of all of this. The last time we talked a bit about the GM plant closings that we thought would take place. That announcement, of course, has been made and it certainly has had an enormously negative impact on the District, particularly in Michigan where they are going to be fairly hard hit. Since then there have been quite a number of plant closings announced, and I must say that I find it distressing at this stage of the cycle to keep having this phenomenon take place. As I look ahead to next year--to say the obvious, I suppose--the two major questions are: 1) inflation; and 2) the trade picture. On the inflation side, I have this feeling that once we get the energy and food effects through the cycle we are going to be into a fundamentally higher underlying rate of inflation; but no one that I talked to confirms that. My sense is that market pressures are very, very tight. People are holding down on their raw material purchases very substantially and, in turn, aren't able to pass price increases on their products through to the market. Of course, the operating ratios and the continuation of favorable labor contract settlements tend to confirm that. Our outlook, therefore, for the inflation number next year is quite similar to the staff's. The issue of the trade picture I find equally perplexing, given the large decline in the value of the dollar. It just has to make sense that we are in a better position at this point than we were before; and I would say that the people I talked to are sensing better export opportunities than they had before and, certainly, an improvement in the trade picture is fundamental to our outlook for next year. But one issue that I find a little troubling is the enormous disparity between our wage rates and those of some of the major foreign competitors. To give an example of this: I was in last week and had a chance to talk to the general manager of with six or seven plants around the world; and they have a good one in Mexico. Wage rates in are $23.00 an hour; wage rates in Mexico are $1.00 an hour. Not only is that surprising but the productivity in Mexico is better than it is in and even more surprising, the quality standards in Mexico are better than they are in",515
-fomc-corpus,1986,Are they investing more in Mexico?,7
-fomc-corpus,1986,"He says they are investing more in Mexico, given that it's a pretty easy decision. The thing I find bothersome about that is that you can have an awful lot of currency value decline and you can't quite make up for that kind of disparity.",49
-fomc-corpus,1986,We need a 95 percent depreciation in the Mexico peso!,12
-fomc-corpus,1986,"Admittedly, that's a pretty narrow product line. Putting it in a broader perspective, our anticipation is that there will be improvement here. I would end my comments by saying that our outlook with regard to the growth picture as well as the other major economic indicators is very much in line with the staff's forecast. We certainly expect a continuation of the expansion through the year.",74
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Mr. Chairman, our forecast is very much like the Greenbook's and I too would be very happy if we got 2.7 or 2.8 percent, whatever it happens to be. But I would repeat what I said last month: that I think the risk is on the down side. With respect to the regional economy, developments show continued strength in almost all of the urban areas but weakness in the rural areas, particularly in the agricultural and energy-dependent sectors. Christmas retail sales have been fairly good so far, again in those urban areas, although in a lot of the large urban centers there has been a rapid proliferation of stores and that has kept the unit gains fairly [modest]. The black spot in our District, of course, is Louisiana, which is basically in a depression. The only good news that you can find there at all--if indeed it is good, but you grasp at almost any straw here--is that the rig count has stabilized and maybe even picked up a bit. People down there are now saying that a $15.00 oil price would be a viable price to begin to accelerate some exploration. Now, that's a lower price than we have heard before. The farm sector also is fairly depressed in most areas of the Southeast. We are looking for greater liquidation, mostly due to the drought that we suffered last summer. More and more farmers are being forced to the wall and land prices continue to plummet in many areas. In the housing sector, we are finding generally that single-family home construction is picking up in several areas in response to sales of new homes. I don't know how that squares with the latest numbers, but that was the information that we had. Nonresidential construction is off. So it's a very mixed picture, Mr. Chairman, in the Southeast. Despite that, there is still a fair degree of confidence among most people outside of Louisiana that we are going to have continued expansion in 1987. There is the evidence that the trade situation is turning around and there is an expectation on the part of people in the export-related areas that they are going to see improvement in 1987.",432
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"Mr. Chairman, the Eleventh District has remained much the way it was when we reported at the last meeting. We continue to think that we are at the trough, statistically at least; we think there is going to be some improvement in 1987. We just did our own forecast for the District and we think we will do about half as well as the national forecast. That does key off the national forecast, because we think that's where most of our strength is going to be--the spillover effect from that--and we do pretty much agree with the staff's forecast. Also, if oil prices are in the $13.00 to $16.00 range we have a little optimism there, and that's built into our forecast. We have had a little improvement in non-ag employment in the District, although the Texas unemployment rate is still holding at 9-1/2 percent versus 7 percent for the nation. Of the eight highest unemployment rates [for cities] around the country, we have five of them in Texas. It depends on where you happen to be; if you are in McAllen, Texas it's 19 percent. Agriculture presents a bit of a mixed bag. If you are in the livestock business, it's looking pretty good; if not, it still looks bad or not very encouraging. The high-tech and related areas look pretty good. One reason I said that, statistically, we think we are at the trough is that, anecdotally, we are about the only ones who think that. Comments of our directors and reports from around the District tend to be more negative in that we get very little encouragement. In trying to figure out why that is, I think it is probably that our directors don't have the same view of the national economy's growth that we have. In other words, they have a feeling that growth is not going to be as strong as we think it will. So, while there is not anything really to brag about openly, we are going to go along and gradually improve.",409
-fomc-corpus,1986,A little vignette in Texas is actually going to try to export some steel to Japan. That's a--,21
-fomc-corpus,1986,I'd say two things about that: it's an unusual plant and it's an unusual individual.,17
-fomc-corpus,1986,Will they let it in or will it have to sit on a boat for three years?,18
-fomc-corpus,1986,That he is going to find out.,8
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"The economic recovery in the Ninth District remains intact, with all of the imbalances that we have discussed in the past persisting as well. Anecdotally, it seems that holiday sales, at least in the metropolitan areas, are pretty good so far. I have not heard any concerns expressed recently about how that was shaping up. At the national level, certainly, the latest spate of evidence seems to me to be consistent with something like the staff's Greenbook forecast. My own view is that there is some chance--or that it would not be that difficult at least to try to build a case--that in fact we might do a little better over the next four or five quarters than the Greenbook suggests. When I consider that, I come back to the view that maybe something like the Greenbook outlook is what we will achieve, in fact. It seems to me that ongoing imbalances, both in the economy and in fiscal policy, are likely to restrain the private sector sufficiently that perhaps something like the Greenbook performance is what we will get and is about as good as we can expect to get.",225
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"I think the staff's projection for real GNP is still reasonable both for the fourth quarter and for 1987. Like everybody else, we were impressed by the November report on employment; and I think the staff was right to revise their figures up on that basis. But I really believe that the near-term outlook is more uncertain than it has been for some little time. It seems that one month we get a series of good reports and the next month they are all bad; we keep flip-flopping back and forth as these reports come in. But for three reasons, I am now concluding that the risk may be on the down side. One reason is in the foreign trade sector. I am particularly uneasy about the rapid improvement of the net exports of goods and services projected for the fourth quarter by the staff. Even taking account of the likely slant in petroleum imports, I think there's certainly better than an even chance that we are eventually going to see some improvement on the trade side; at the same time, this strong and increasing competition from some of the smaller Asian countries and rather lackluster performance in the German economy in the third quarter lead us to think that the improvement might not be quite as great as most people are assuming. I guess it was Bob Parry a while ago who suggested that it might be stronger now, and I certainly hope that he's right on that. I am a little worried by it. We are disturbed for a second reason by this continued deceleration in residential [construction] and new home sales; and we got a new figure that sort of confirmed that this morning. Finally, we are not as confident about the prospects for consumer expenditures as we were at the last meeting. the head of a large department store reported that sales had literally dried up right at Thanksgiving, after having been very good before then. This was a nationwide phenomenon rather than something simply confined to the area; we get the same kind of reports from other retailers in our area. And I can't help but think that some of this strength we are seeing--even in items other than automobiles--is an acceleration of purchases by those few people who itemize their sales tax deductions in order to take advantage of that this year on big-ticket items before next year when the tax is not deductible.",457
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"Thank you, Mr. Chairman. Our view is very close to, and consistent with, the Greenbook forecast. I think that is an acceptable outlook, and I would join those who say that if we achieve 2.7 or 2.8 percent growth in the fifth year of recovery, that's a pretty good record given the projection for prices. On the regional front, the situation has not changed greatly from what has been reported before--that is, we have an uneven recovery, with severely depressed conditions in the energy, agricultural, and aircraft sectors of the economy. I suppose we can take some comfort from the fact that our most recent agricultural survey shows that the decline in agricultural real estate values is moderating. That is the second quarter in a row in which declines have averaged only 2 percent, as contrasted with earlier declines of 6 to 7 percent in each quarter. Those values now are roughly 50 percent of what they were in 1981 at their highs. I take some comfort from the discussion about exports, particularly Ted Truman's indication yesterday that agricultural exports have picked up. I must tell you, however, that we don't see any of that activity in the Tenth District. As a matter of fact, the crop this year has been a bumper crop virtually across all crop lines, and the good news is that the red meat industry--both beef and hogs--together with the government subsidies are returning some cash income to our agricultural producers. On the energy side, there has been a bit of an uptick in the rig count from 215 to 223; that's cited as a great improvement in our District! But having met last week with a very small group of Oklahoma businessmen, I can tell you that pessimism pervades that part of the country, both because of energy and agriculture. And the situation regarding bank failures is very, very gloomy; they can see no light at the end of the tunnel, if you will, so they are just hunkering down and hoping that something magic happens that will bring them out of this depressed state. I don't see what that will be either, I might tell you. In the aircraft industry, there is a further decline--that is, layoffs, simply because they cannot compete on an international basis given the value of the dollar and there is no [new] domestic demand for purchases of aircraft, largely because of the very big pool of used aircraft. As companies have cut back over the years, one of the first things that went was their airplane. As a result, new aircraft just are not coming off the line or selling, so the industry is simply laying off the people. All in all, it seems to me that we have quite a long ways to go in the Tenth District to join the rest of the country in the recovery. But it seems to me that the Greenbook forecast is quite reasonable for the nation as a whole.",589
-fomc-corpus,1986,Ms. Seger.,5
-fomc-corpus,1986,"Perhaps the story that Si Keehn mentioned about the plant closings in the Midwest and the hit that certain states, including my own, are going to take made me feel a little less optimistic about both the current state of the national economy and also the outlook for next year. I think that some of the apparent strength at the moment is related to tax reform and is primarily driven by businesses and some individuals trying to push their transactions into 1986 rather than do them in early 1987. Another portion arises from inventory building and, unfortunately, I think part of that is involuntary. In fact, using our own staff estimates I believe that $25 billion out of the $40 billion or so increase in real GNP in the fourth quarter comes from the inventory swing. So I'm just wondering if maybe the first half of 1987 could be quite a bit weaker than we presently expect it to be. If you'll allow me, I'd like to give you some comments I got from a top automotive analyst yesterday about what's going on there. I found them very interesting. He thinks that somewhere between 100,000 and 200,000 new car sales are being pushed into this year from next year for tax reasons, namely to get the sales tax deduction. Some other unknown quantity of sales was generated this year by the tremendous interest rate incentives that we all know about. Those too are likely borrowed from 1987 but the exact amount of the borrowing is not known. The bottom line of his analysis is that total new car sales in 1987 will be about 75,000 below what they're running in 1986 and that import sales will be flat. So the whole hit will come on the domestic side. Also he made a big point--and he does not work for General Motors by the way--about the inventory situation at General Motors. At the end of November GM dealers were already up to 85 days' supply of unsold new cars. More importantly, if you look at some of the individual models, their stocks are running above 100 days' supply. Earlier this year when GM had problems with excessive inventories their response was to launch another incentive program and try to ""buy"" sales, shall we say. But that was a very expensive way to go in order to maintain production stability and their market share. So the betting now is that when GM has this excessive inventory situation they are going to pare their production schedules. I don't sense that we have enough of that paring in our numbers, particularly what will likely hit early next year. Also, I'm not sure that we are taking enough out on the commercial building side. I just have a gut reaction that office construction could be a lot weaker than we are presently estimating. Salomon Brothers had an interesting presentation showing that over the past 12 months the new office construction put in place has been off about 14 percent and that the boom that has been running from 1979 to 1986 has raised the vacancy rate from 3.6 percent up to 24 percent in the suburbs and almost 17 percent in downtown markets. Using their estimates and running with current demand levels, they think we'd have to get a 50 percent decline in new construction in order to bring back single-digit vacancy rates by the early 1990s. I found that rather startling. Finally, I really believe that the tax reform is going to take another bite out of business spending and that it possibly will be weaker--not just in the first half of the year but in the whole year--than we're presently expecting. So, I just think that sometime we ought to ask ourselves if maybe we are running the risk of a recession sometime in early 1987. I'm not arguing that we are, but I think maybe we ought to consider that possibility.",764
-fomc-corpus,1986,Who else wants to contribute to this?,8
-fomc-corpus,1986,"Oh, I guess if we have to--",9
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"Overall, I'm in broad agreement with the staff forecast. I think their numbers are eminently reasonable. I'm a bit more optimistic on the consumer; I'm not only looking at the high debt levels, but also at the high asset growth that they've experienced and some interesting data that were brought to our attention recently; the latter show that the net worth of the consumer is now at its highest point in relation to personal income in the last decade. So, it really doesn't mean that the consumer has to fall off the cliff, as a lot of the debt-watchers would make us believe. Furthermore, tax reform will clearly be a positive picture for the consumer. Starting on January 1 there will be bigger pay checks--maybe even for the federal employees, who knows? The bad surprise for the consumer will only come in April '88 when he realizes that his deductions and the old tax shelters have been gone for the last year and that he has to come up with a tax payment. But I don't think it will influence consumer behavior a lot before then. On the foreign trade sector--well, I hope Bob Parry is right. But I don't see an awful lot of growth in the foreign economies, and I think it is very difficult for American producers, given the current situation and current exchange rates, to increase their market shares. So, on the export side, I don't think we will see as much progress as has been hoped for. I think we will be making the progress on the import substitution side because American producers clearly are more competitive, although some of the numbers will be skewed--for instance by the automobile plant building in this country and foreign plants in general that have been [unintelligible]. On investment, I'm not quite as pessimistic as some people. I think it's important for the manufacturers to see the sales going up rather than just looking at the tax incentives; and as long as sales are sustained they will also start to invest again. Overall, as I said earlier, I'm in broad agreement with the staff's GNP forecast for growth of slightly below 3 percent.",419
-fomc-corpus,1986,"I'm generally in agreement with the staff forecast, too. I think there are some risks, as indicated by the sensitivity of things to the exchange rate. That was illustrated yesterday by the notion about what's riding on the further 10 percent decline, to some extent. But even if you cut back [growth by] 6/10ths it's not the end of the world. After 4 years of expansion, I think it's very unusual and very comforting to know that cost/price pressures are as moderate as they are at this stage. I don't think we have ever, at least in the postwar period, entered a recession with the moderate kind of cost/price pressures [we are seeing] at this stage. So, I'm reasonably optimistic that the expansion will continue. I think it's a question of by how much. I think there is this continuing dichotomy in the [financial] system and in the economy that's still a bit troublesome. But over time, the change in the dollar is going to improve that. There's a long adjustment period still ahead to work out all of the inflation excesses of the past. But I'm fairly optimistic that expansion will continue. I'm a little concerned that the expansion in the first half of the year may show some transitory problems, and I think we ought to remain flexible for that; I don't think it's likely to be deadly. So, I agree with the staff assessment but I think the risks are a bit on the down side.",294
-fomc-corpus,1986,"My view is very similar to Mr. Johnson's and many others around the table, and that is that the staff forecast seems to me the most likely event. I would have a slightly lower CPI number. But I must admit that I only overestimated the rate of inflation one time in the last seven years; so I put my CPI at 3 percent, hoping that I'll have another overestimate in here sometime.",83
-fomc-corpus,1986,What does the staff have for the CPI?,9
-fomc-corpus,1986,3.7 isn't it?,6
-fomc-corpus,1986,3.7.,4
-fomc-corpus,1986,"3.7 percent on the CPI, 2.7 percent on the fixed--",17
-fomc-corpus,1986,We have 1.4 percent this year and 3.7 percent next year.,18
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,How much of that is attributable to the oil price increase assumption?,13
-fomc-corpus,1986,"Well, let's see--",5
-fomc-corpus,1986,"Basically, my view is that taking food and energy out in an attempt to get a baseline is just not a very accurate way to go, because when you take food and energy out then you have the services sector, which is such a large portion of what's left. So I feel uncomfortable with any inflation forecast that takes food and energy out because then we have what I call a measurement problem. I think many of you see that measurement problem in the service sector, and I think that just keeps our baseline inflation rate a little too high. So, I am a little more optimistic on inflation, but I certainly appreciate what I would call the staff's ""within the range"" forecast there. My concern is that even though the fourth quarter seems to have some strength to it, it seems to me a very vulnerable strength; we could end up the quarter in a rather fragile and vulnerable position. I see that in terms of world imbalances. We continue to have these huge saving rates in Japan and western Europe and we have other countries that are almost synonymous to farmers and oil people in the United States that have these huge debts. There's nothing really happening internationally, it seems to me, to cause that basic structural position to improve. So we're kind of patching together an international problem which is of grave concern. It seems to me that we have a fragile circumstance in the import sector. I'm looking for import prices not to rise quite as fast as others because the Japanese automobile industry seems so attuned to doing what they need to do on the wage and price front in order to remain competitive, and I don't think we're going to see price increases there. And it doesn't seem to me that we're going to have much chance to lower our imports with our staff's projected real GNP path. So, I think we do run some risks that the first and second quarters could cumulate to a lower level of output than we're forecasting. And if that happens, I don't know what's going to turn it around. If we get off to a weak start, I don't know what will lift us up because it seems to me that the pattern of consumer spending may worsen as fast as we get any export side improvement. I think there will be export side improvement, but I think it's going to be very slow and it's going to come only to industries that are very attuned to keeping costs low. Also, of course, if we end up with a lower growth than estimated, then we're not going to get quite as good a government budget outcome. If we achieve 3 to 4 percent real GNP growth, government spending as a percent of GNP has a chance to take a noteworthy downturn. I'm kind of uneasy but, like many of you, I share the priority of maintaining stable prices, and I guess I'm willing to run a little risk here in order to achieve price level stability. But I think we have to be aware of how vulnerable we may be and we have to be ready for some unexpected events. It may not come out just like the forecast.",609
-fomc-corpus,1986,"Mr. Chairman, the answer to this question about energy is essentially that in 1986 energy prices are declining at 18 percent. In our estimate they have a weight of about 10 or 11 percent, so the energy sector depresses the consumer price index by about 1-3/4 percentage points this year. Next year our guesstimate is that energy prices will be up 6 percent, so they would add 0.6 of a percentage point. So a major part of the swing is the energy sector.",109
-fomc-corpus,1986,And that's only assuming [an oil price] of $16; if it went to $18 it would be more.,24
-fomc-corpus,1986,That's correct.,3
-fomc-corpus,1986,"If you get that kind of a swing in energy isn't the implication, when you're talking about the consumer price index, that you must have other prices going lower relative to that?",35
-fomc-corpus,1986,"We have one other element that's important here: food. And it has a big weight, something like 18 to 20 percent. This year we're estimating food price increases of about 4 percent and next year 2 percent. So that is a major swing the other way. The other prices that we have in there don't change a great deal from one year to the next; it's not much of an acceleration.",83
-fomc-corpus,1986,"And food prices could be even lower than that given the fact that the red meat industry has the highest profit margins it has had for many, many years and given the fact that we had weather that adversely affected poultry prices. So we do have some possibilities for food being better and we have an underlying wage structure change in the service sector that's rather noticeable for next year compared to this year.",77
-fomc-corpus,1986,"Service sector inflation is continuing to decelerate, I think, sort of gradually.",17
-fomc-corpus,1986,Yes. We have something like 5-1/2 percent in 1986 and our number [for 1987] is a little under 5 percent.,34
-fomc-corpus,1986,"Anybody else want to say anything? Let me ask a question. If the nominal GNP were higher than you're projecting would you think that it's more likely to appear in prices or in real GNP? Before you answer that, I know what the models show: that the prices will show up in 1990 and the real will show up right away. I guess I'm really asking where the risks are and how confident you feel about this inflation forecast.",90
-fomc-corpus,1986,"Well, let me answer that in a less direct way than you might like. In looking at 1987, I think the risks are that in the first half the economy will turn out to be weaker rather than stronger. We can't identify how much spending is being accelerated but I think we probably underestimated it. I wouldn't be surprised to see a number in the fourth quarter that's greater than what we have built in; and if that happens I might also look for a weaker first quarter and first half. Beyond that, I tend to think that we may run with stronger GNP rather than weaker as we get into the latter half of the year. On the price side I think there's a good bet that very little will happen in the near term. But if we're wrong at this point--again looking out--consistent with my view on real GNP I might be adding a few tenths to the inflation side rather than taking away.",186
-fomc-corpus,1986,"And you're projecting, essentially, a few tenths per month average increase in the consumer price index with oil prices tilted slightly higher?",26
-fomc-corpus,1986,And food prices slightly lower.,6
-fomc-corpus,1986,"And the food price tilt--you've only got a 2 percent difference and maybe it should be bigger. It probably will be, but I--",30
-fomc-corpus,1986,It seems to me that if the price pattern is stronger we will then get more desire to hold inventories and the economy could turn out to be stronger than the staff estimates.,34
-fomc-corpus,1986,"Well, there's another factor too. To the extent--",11
-fomc-corpus,1986,Your argument is that they go together?,8
-fomc-corpus,1986,"There has been a lot of discussion about import prices and I share the skepticism, both ways, that has been expressed on that. But to the extent that you get import prices moving more rapidly you would then have a direct impact in terms of statistical aggregate demand, because real GNP presumably would also accelerate in the process of import substitution that Governor Heller spoke of. So there is a direct link there even with the [unintelligible] of inventory.",92
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,Moving both at the same time is built in this four-quarter time period--,15
-fomc-corpus,1986,"It just seems to me, Ted, that we do have quite ample capacity at a lot of these manufacturers in basic industry areas worldwide. The evidence seems to point to increased determination to be competitive by one means or another, whether it's by subsidy or some other event. And I tend to feel that the world prices are continuing on a moderate plane. But much of it would be--",76
-fomc-corpus,1986,"Well, [unintelligible] you're right about how the rest of the world is behaving. Your words about the rest of the world suggested an even soggier picture; that too could affect the base prices and then you don't have the given exchange rate change. Whatever you want to assume about [unintelligible] could be less--",70
-fomc-corpus,1986,But it might not be so bad for us to go back to 4 percent CPI and get a little stimulus in here and then have to go back when M1 starts behaving well and tighten up interest rates--run them up 150 basis points. Maybe that's not too bad; I don't know.,60
-fomc-corpus,1986,"Well, Mr. Black raised an interesting question earlier about whether we should have an inflation target, more explicitly. It's a big subject. It's a nice question on how we can get the interest rate down. Maybe we ought to reserve a little time next meeting for being a little more explicit in our discussion about what we really are satisfied with and what priority to give it. Meanwhile, we will turn to Mr. Kohn and then go to coffee.",90
-fomc-corpus,1986,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1986,"Given what you were talking about earlier regarding the various models for Ml and given the relative stability of interest rates--in fact there has been a very faint increase of an insignificant amount, but it has been stable for quite a long time--why are you still showing a 12 percent rate of increase in Ml? Are the lags that long?",69
-fomc-corpus,1986,"Yes, and especially when the offering--",8
-fomc-corpus,1986,How long has it been since short-term rates--,10
-fomc-corpus,1986,"Well, August was the last discount rate cut, so--",12
-fomc-corpus,1986,And that's about the last time short-term rates went down.,12
-fomc-corpus,1986,"Now, if the offering rates were to adjust more promptly--. But they've been edging down very slowly. So we have very narrow opportunity costs, yet we continue to see huge growth in those--",39
-fomc-corpus,1986,"We haven't had a substantial increase in short-term market rates, since when--September?",17
-fomc-corpus,1986,Four months.,3
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,And you're saying that the lag is more than six months?,12
-fomc-corpus,1986,"Well, the total lag would be more than six months. The models probably were projecting a bit more of a slowdown over the last couple of months than we actually had.",34
-fomc-corpus,1986,I wonder what they are projecting for the first quarter?,11
-fomc-corpus,1986,"For the first quarter they are projecting anywhere from 11 to 14 percent, or 10 to 14 percent on this November-to-March basis.",31
-fomc-corpus,1986,"What would they project for the second quarter, assuming unchanged interest rates?",14
-fomc-corpus,1986,They would project a first quarter of 13 percent and a second quarter of 9 percent.,19
-fomc-corpus,1986,Even then they don't get down to the [growth rate of] nominal GNP.,17
-fomc-corpus,1986,No. They would get there by the second half of the year.,14
-fomc-corpus,1986,A one-year lag?,5
-fomc-corpus,1986,"Well, it dissipates slowly in the model.",10
-fomc-corpus,1986,We'll go and have a short lag for coffee.,10
-fomc-corpus,1986,"Well, after half of an afternoon and most of the morning we have to get to a decision. Who would like to say something? We have a volunteer--Governor Johnson.",35
-fomc-corpus,1986,"I'll volunteer. After condensing all of this--what I hear and the way I feel--I don't feel strongly about changing monetary policy from where we were before. I still think that a $300 million borrowing target is about right. Although I favored [a tilt] last time, I feel a bit more strongly about it this time. I think we might want some asymmetric language in the directive because of the potential I've heard mentioned for a little more downside risks this time, at least in the first half of the year. I think the inflation picture looks a little less risky now than it did earlier, so we might want to change the mights and woulds in the directive to be asymmetric toward potential ease rather than tightness at this point. But I don't feel too strongly about it; I feel a little more strongly than last time, but it's just a suggestion.",175
-fomc-corpus,1986,Who would like to pitch in? Mr. Parry.,12
-fomc-corpus,1986,"I would favor alternative B mainly because I think there are convincing signs of strength in the economy at the present time. But I share the view that the extent of the slowdown which we all seem to agree is likely to occur in the first quarter is uncertain and that, of course, should be noted in the policy statement as well. That could be done either in terms of asymmetric language or in some other more direct way.",84
-fomc-corpus,1986,Mr. Melzer.,5
-fomc-corpus,1986,"I would also favor alternative B. I would not favor asymmetrical language. To an extent, I think we've already allowed for potential weakness in the first quarter; we've been pursuing a very stimulative policy. I would be somewhat concerned if we didn't begin to see some slowing in Ml with stable interest rates. We are having to provide reserves at a very high rate to maintain the funds rate at this 5-3/4 to 6 percent level. I don't know how long those lags are either, but if we continue to see very rapid rates of Ml growth against the backdrop of stable interest rates, there may be some pickup in economic activity and I'd be concerned. So, I favor alternative B, with no asymmetry.",147
-fomc-corpus,1986,Mr. Morris.,4
-fomc-corpus,1986,"I would favor alternative B without asymmetry, too, because the market, in a context of the federal funds rate going up, read a lot more--at least temporarily--into the last directive that we published with asymmetrical language in it than we intended. For that reason I would favor symmetrical language.",61
-fomc-corpus,1986,Mr. Forrestal.,5
-fomc-corpus,1986,"Well, Mr. Chairman, I believe the forecast, although I'm somewhat nervous about it as I indicated earlier. But until the downside risks really begin to emerge I would favor no change in policy. Therefore, I would opt for alternative B as shown in the Bluebook. I would slightly favor an asymmetric directive suggesting greater ease. Also, I would like to see us adopt the language suggested in the Bluebook with respect to M1 and not continue what we have had--that we are continuing to look for a reduction in M1. I prefer the language that has been suggested by the staff.",119
-fomc-corpus,1986,Mr. Boehne.,6
-fomc-corpus,1986,"[I favor] alternative B with an evenhanded directive. [Although] it's true that we expect some weakness in the first half, we also expect some increase in inflation. But I don't think we are going to know very much at all about the first part of next year before our February meeting. So, I think it would just be too early to indicate to the marketplace, with an asymmetrical directive, that we're concerned about a downturn.",89
-fomc-corpus,1986,Mr. Black.,4
-fomc-corpus,1986,"I, too, would favor alternative B, Mr. Chairman. I prefer the proposed substitute language because I don't think we have any idea where Ml is going to be headed in the next two to three months and I don't think we'd react to it anyway, unless we were getting similar signals from the other aggregates. I always tend to favor a symmetrical posture and I think I would this time, [although] what Manley said certainly makes sense. I prefer ""somewhat"" over ""slightly"" because I think that indicates a little more willingness to react in case something unexpected occurs. And for the same reason I prefer the ""woulds"" over the ""mights.""",135
-fomc-corpus,1986,Mr. Stern.,4
-fomc-corpus,1986,"I, too, prefer alternative B and I would advocate symmetric language. It seems to me that even if we get some weakness in the first half of next year, to some extent that is anticipated at this point. We are expecting an overall satisfactory economic performance and I don't think we would want to alter policy at that juncture if, essentially, the expected were happening. So it seems to me symmetric language would be appropriate and only if the economy or other measures, like the exchange rate, were deviating significantly from the general path we expected would we want to react.",114
-fomc-corpus,1986,Mr. Keehn.,5
-fomc-corpus,1986,"I'd be in favor of alternative B also, perhaps for slightly different reasons. I would think that these minutes probably are going to be released just before your testimony, and that, therefore, these should be consistent with the last [directive]. I would think that would be a slightly better environment--symmetrical language, without suggesting any change to the market--as you go into your testimony.",77
-fomc-corpus,1986,Mr. Guffey.,6
-fomc-corpus,1986,"""B"" and symmetric.",5
-fomc-corpus,1986,You get to the heart of the matter. Mr. Angell.,14
-fomc-corpus,1986,"""B"" and asymmetric. If we use symmetric language, I prefer ""would"" and ""somewhat"" to ""might"" and ""slightly.""",30
-fomc-corpus,1986,You want to be asymmetric?,6
-fomc-corpus,1986,I would like to be asymmetric because it seems to me that when the minutes are released they should be the best reflection we can provide at this time as to the general outlook. And asymmetric is a better reflection of what I heard around the table than symmetric.,51
-fomc-corpus,1986,Mrs. Horn.,4
-fomc-corpus,1986,"""B"" and symmetric.",5
-fomc-corpus,1986,Mr. Corrigan.,5
-fomc-corpus,1986,"I clearly want ""B"". I get confused on the symmetries and asymmetries here, though. In listening to the conversation, I think we might want to keep the language symmetrical; but even if the language were symmetrical I don't think that would necessarily preclude some easing--to go back to two months ago--if things really got ""oozy."" But I think the point about having the language symmetrical in the context of the testimony is a good point.",94
-fomc-corpus,1986,That's a good point.,5
-fomc-corpus,1986,Mr. Boykin.,5
-fomc-corpus,1986,"""B"" and symmetrical.",5
-fomc-corpus,1986,Governor Seger.,4
-fomc-corpus,1986,"Well, based on my views of the economy, I should be voting for ""A,"" but in the spirit of Christmas I will go with--",29
-fomc-corpus,1986,You've got to break this pattern sometime!,8
-fomc-corpus,1986,"I will go with ""B,"" but I would like asymmetric language allowing for some lesser reserve restraint should all heck break loose.",25
-fomc-corpus,1986,Mr. Heller you're last in line.,9
-fomc-corpus,1986,Can't avoid it anymore. I also favor alternative B.,11
-fomc-corpus,1986,"""C"" just for--",5
-fomc-corpus,1986,If Henry were here today--,6
-fomc-corpus,1986,"Taking Henry Wallich's spot, I would want ""C."" But I think I'll go with the ""B"". And while I would not favor asymmetrical language, I agree that we should shade it in an asymmetrical fashion if it comes to that point. So I am taking Mr. Corrigan's amendments to Mr. Johnson's proposition.",69
-fomc-corpus,1986,"Well, we have unanimity for ""B."" Before we get to symmetries and asymmetries, let me see what that means. I'm happy with the language. We certainly would say ""maintain the existing degree of restraint. This action is expected to be consistent with growth of M2 and M3 over the period from November to March at..."" Well, I guess we have a choice: we can say about 7 percent; we can say 6 to 7 percent; or I suppose we could say 6 to 8 percent. What's your choice?",116
-fomc-corpus,1986,"How about ""about 7 percent""?",8
-fomc-corpus,1986,"Is ""about 7 percent"" all right with people? ""Respectively"" is not needed if we say ""at an annual rate of about 7 percent."" I don't know what you want to do about this Ml statement. It seems to me a bit vacuous to say the outlook for M1 remains subject to a great deal of uncertainty.",70
-fomc-corpus,1986,However accurate.,3
-fomc-corpus,1986,However accurate. It seems to me better that something be said in the [policy record] text rather than in the directive. That's--,27
-fomc-corpus,1986,But it would set the stage a bit for the February testimony.,13
-fomc-corpus,1986,I have no objection to saying it at great length in the policy record or whatever we call it. This is an operational directive.,26
-fomc-corpus,1986,"Well, you could say ""in view--""",10
-fomc-corpus,1986,It's a matter of taste. It just sounds odd to me to say in an operational directive that we have great uncertainty about Ml.,26
-fomc-corpus,1986,Take the sentence out.,5
-fomc-corpus,1986,"Well, that's one thing to do: just leave it out. Or we could just say ""growth in Ml will continue to be judged in the light of--",32
-fomc-corpus,1986,"That's good, yes.",5
-fomc-corpus,1986,I think that's the one.,6
-fomc-corpus,1986,"We could say ""monitor"" instead of ""judge.""",11
-fomc-corpus,1986,Sure.,2
-fomc-corpus,1986,Now you're getting into major changes here!,8
-fomc-corpus,1986,It seems to me a slightly more--I don't know--,12
-fomc-corpus,1986,"""Viewed"" makes a lot of sense.",9
-fomc-corpus,1986,[Unintelligible.],6
-fomc-corpus,1986,"""Viewed"" or ""appraised""?",8
-fomc-corpus,1986,"""Fretted over""! How's that?",10
-fomc-corpus,1986,"""Appraised"" works pretty well.",8
-fomc-corpus,1986,"""Appraised in the light of the behavior of M2 and the other factors mentioned below."" Isn't that a little better maybe? Then we get to symmetric or asymmetric. Let me try [unintelligible] greater support for the symmetric one. I'm not sure I understand this comment about being released before the testimony and being symmetric. What difference does that make?",73
-fomc-corpus,1986,"Because that's what we had this past time. In other words, it's consistent with what we had in the last--",23
-fomc-corpus,1986,Why is consistency a virtue in this case?,9
-fomc-corpus,1986,I think it all depends on what the economy is doing.,12
-fomc-corpus,1986,Precisely. I think it will look good if the economy is a little soft or--,18
-fomc-corpus,1986,"I suggested it because, as Frank said, the market overread what we said the last time. It seems to me there could be an overreading at this point. [With no change] you would go into the testimony without that clouding the comments.",52
-fomc-corpus,1986,But on the other hand--,6
-fomc-corpus,1986,"If the economy is weaker in such a way that the asymmetry was operational, it seems to me this language would be operational anyway. That's the point I was thinking of.",35
-fomc-corpus,1986,"Oh, I agree that if the economy were weak this does reflect a little substance as to how quickly we would move. It certainly is not a [big] difference. If it turns out that we have moved by the time this is released, we'll look better if it's a little asymmetric.",58
-fomc-corpus,1986,That's right.,3
-fomc-corpus,1986,"If we haven't, I am not sure it makes a lot of difference. But I--",18
-fomc-corpus,1986,"Well, the questions could get a little harder at that point.",13
-fomc-corpus,1986,"I'm a little bothered--I don't want to be too bothered--but if, in substance, we feel we want to be a little asymmetric I'm not sure I see any compelling reason not to say that if, in fact, we feel that way.",50
-fomc-corpus,1986,Yes.,2
-fomc-corpus,1986,"If everybody's right about the likelihood that the fourth quarter is strong--and we're not going to know a lot about the first quarter by the time of your testimony--what was going through my head is that if we have an asymmetrical directive but have decided not to use the asymmetry, then the questions are harder, I think. On the other hand, if circumstances are such that we decide we want to ease a bit, nothing here would prevent us from doing that.",95
-fomc-corpus,1986,"While I think it's certainly true that nothing will have prevented us from doing it, I think this difference is not enormous. It may just come down to a question that depends upon substantive views. If we really think the [likely direction of policy] is significantly tilted I would think on general principle that we ought to say something in the interest of truth; and if it's not that clear then--",78
-fomc-corpus,1986,"What I heard was a feeling of uncertainty, Mr. Chairman, tilted a little in the way you say. But if uncertainty is the predominant feeling then the symmetrical language makes a little more sense to me because we could be wrong in either direction.",49
-fomc-corpus,1986,But I think what we've written here--,8
-fomc-corpus,1986,I thought the tone was we could be wrong more in one direction than the other.,17
-fomc-corpus,1986,"Yes, I agree with that; and I was on that side. But I don't say that with a great deal of confidence and I don't think any of us does.",34
-fomc-corpus,1986,I only remember one person--,6
-fomc-corpus,1986,"One thing that hasn't been mentioned--so let me just mention it for the record--is that in terms of flexibility of action I think the performance of the dollar makes it easier to ease slightly if otherwise we wanted to than if the dollar was not behaving. Now, I'm not saying that dictates any action; I don't think it does. But I think we ought to reflect that properly someplace in the record, though not with too much emphasis. It could easily change, obviously, in many ways. But at the moment it is one difficulty that is removed in making [an easing move] if we wanted to do so, as I say, for other reasons. But I don't want to say this was too big a deal. I would have some slight tendency, as I say, towards easing language if we feel that way. We have used asymmetric language lots of times to make this--",177
-fomc-corpus,1986,"In connection with the dollar, could I ask a question? You may choose to answer [or not]. If the Germans were to cut their discount rate tomorrow would it necessarily follow, in an economic sense, that we should leap to match that? In other words, you could make the argument that, standing alone, that might be a salutary action over time to address the trade imbalance. I don't know whether that's something that--",86
-fomc-corpus,1986,"Well, I'll just give you my own reaction. I don't think we need to talk about it theoretically because I would be very surprised if Germany reduced their discount rate any time during this relevant period. I would say I don't see any need to, in your terms, ""leap."" If, in fact, the result was a significant strengthening in the dollar then I would think that might become a positive factor weighing in the balance toward some easing.",89
-fomc-corpus,1986,Because that would take the dollar quite a ways from the staff forecast and might have some implications.,19
-fomc-corpus,1986,It would tilt our foreign trade balance the wrong way.,11
-fomc-corpus,1986,I wouldn't put quite the same weight on the staff forecast. It might move it in the direction that was counterproductive over time.,26
-fomc-corpus,1986,I think that would depend on how the domestic economy was performing--whether it was really starting to show some signs of picking up.,26
-fomc-corpus,1986,All I'm saying is that it would put weight in that direction if the dollar actually moved. It may not offset other things if it [unintelligible] but that's my own view on it.,40
-fomc-corpus,1986,But would you be easing policy through the Desk or would you be considering a discount rate decrease under those circumstances?,22
-fomc-corpus,1986,"Subsidiary questions. Well, you know this is not a federal case. Gee, we've got a whole hour that we can--",27
-fomc-corpus,1986,We can make a federal case out of it.,10
-fomc-corpus,1986,Can we spend an hour talking about symmetry?,9
-fomc-corpus,1986,That would be making it a federal case!,9
-fomc-corpus,1986,Let me write it down here. It took me some time to figure out how to spell it.,20
-fomc-corpus,1986,We've had less--,4
-fomc-corpus,1986,"It seems like we can kill two birds with one stone with that. I don't think the implications are great one way or the other but if some sort of asymmetry in the language would represent our current feeling--and maybe I'm wrong interpreting it that way--that we actually believe that the economy is going to show weakness, the timing [of the directive's publication] would be associated with the actual event.",81
-fomc-corpus,1986,"I think a fair summary of the discussion--I'm not talking about the directive now--would be that there was somewhat more emphasis on the risks of a shortfall in the early part of the year than the other. Presumably, the directive will get interpreted in that light anyway, which [unintelligible] arguments. It's no big deal if we put asymmetry in here so long as that's in the background discussion. So I don't think this is a terribly great issue: but we're pretty closely divided as to what to do.",107
-fomc-corpus,1986,I'll certainly go along with that.,7
-fomc-corpus,1986,"We could fool around with the ""slightlys"" and ""somewhats"" too. We could have one ""slightly"" and the other ""somewhat;"" that would be a new way of doing it.",44
-fomc-corpus,1986,"And we can play with the ""woulds"" and ""mights"" too.",17
-fomc-corpus,1986,"Yes, that's what we usually do.",8
-fomc-corpus,1986,You've got three combinations.,5
-fomc-corpus,1986,"We could say ""slightly greater reserve restraint or somewhat lesser reserve restraint would""--",16
-fomc-corpus,1986,"Oh, we could really have some fun indeed!",10
-fomc-corpus,1986,"I have a tough time telling the difference between ""slightly"" and ""somewhat,"" but I guess just for variation--",25
-fomc-corpus,1986,"Well, I think it's easier to tell the difference between that than it is between ""might"" and ""would.""",23
-fomc-corpus,1986,"After all of this, is there any sense in saying ""slightly greater reserve restraint or somewhat lesser reserve restraint might""? Either ""might"" or ""would""--",32
-fomc-corpus,1986,[The press] would have a good story with this.,12
-fomc-corpus,1986,"I think ""slightly"" is better.",9
-fomc-corpus,1986,I have a great compromise.,6
-fomc-corpus,1986,That was an attempt at a compromise. Do you have a better compromise?,15
-fomc-corpus,1986,"Yes: ""slightly,"" ""somewhat,"" and ""would.""",14
-fomc-corpus,1986,"I think the ""slightly greater"" is not really operational in a borrowing [unintelligible]. So what about leaving it ""slightly greater, slightly lesser"" and have the ""would"" apply to both? It's still symmetrical but ""would"" is a little more purposeful than might.",59
-fomc-corpus,1986,But that's clearly symmetrical. It's only the reservation in your mind that is in the first part of the sentence.,22
-fomc-corpus,1986,I don't have a strong feeling about this. The two things I'm worried about are the testimony and the year-end thing too. We are going to have crazy money markets here for the next--,38
-fomc-corpus,1986,"I don't know, maybe I'm wrong, but this testimony [issue] seems pretty irrelevant. In the testimony I'll say whether we've changed policy or not.",30
-fomc-corpus,1986,"But what I was thinking of is that if events work in a direction that we would choose not to [move] and we have an asymmetrical directive, then you have to answer questions that seem to me a little difficult such as ""Why did you say you were going to change and you didn't?""",60
-fomc-corpus,1986,I didn't say we were going to change; I said we might. In September we said we might tighten; in December we said we might ease.,30
-fomc-corpus,1986,I don't feel that strongly about it either way.,10
-fomc-corpus,1986,"Oh, neither do I. I only feel strongly that we've got to reach a conclusion next time. And I would prefer a conclusion that satisfied the maximum number of people. Does it appeal to anybody apart from Governor Johnson to say ""slightly greater reserve restraint or somewhat lesser reserve restraint would""?",58
-fomc-corpus,1986,"I would much prefer to say ""slightly greater reserve restraint.""",13
-fomc-corpus,1986,"Could we just try it again? ""Slightly greater reserve restraint or somewhat lesser reserve restraint would.""",21
-fomc-corpus,1986,"Yes, that was my suggestion.",7
-fomc-corpus,1986,That's what I would do. I think that most accurately reflects the discussion. There was only one individual that I recall who said [the economy] might be stronger and yet it didn't appear that it would be strong enough to require some action. There were quite a few who said it could be weaker.,60
-fomc-corpus,1986,"We could really make it asymmetric by leaving out the possibility of [greater reserve restraint], but that's probably too asymmetric.",23
-fomc-corpus,1986,"Yes, even I wouldn't want that.",8
-fomc-corpus,1986,"Well, is that acceptable?",6
-fomc-corpus,1986,It is to me.,5
-fomc-corpus,1986,"Can I have a show of hands as to how acceptable ""slightly greater or somewhat lesser would"" is? There is reluctance in some of those hands, but I see quite a few. You need an expert to read that asymmetry.",49
-fomc-corpus,1986,"Yes, it's pretty--",5
-fomc-corpus,1986,We should publish a guide to asymmetry.,9
-fomc-corpus,1986,"In the [policy record] discussion I think we can reflect the fact that there was more uncertainty on the down side and, given that, a little more possibility of easing.",35
-fomc-corpus,1986,It would be nice to have the economy perform better than we expected. That would be--,18
-fomc-corpus,1986,"And we keep the 4 to 8 percent [range for the funds rate]. There's nothing else that appears. Does that capture things? It's: maintain; about 7 percent; growth in M1 will continue to be appraised in the light of the behavior of M2 and M3 and the other factors cited below--which are the strength of the business expansion, developments in foreign exchange markets, progress against inflation, etc. Okay? We will vote. MR.BERNARD. Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Heller Yes President Horn Yes Governor Johnson Yes President Melzer Yes President Morris Yes Governor Seger Yes",137
-fomc-corpus,1986,The meeting is concluded.,5
-fomc-corpus,1987,[The minutes for the December meeting have been moved and seconded and are approved] without objection. Now we will get our report on foreign currency operations out of the way.,35
-fomc-corpus,1987,"[Statement--see Appendix.] Thank you, Mr. Chairman. Also, we need approval of intervention of $50 million that we did on one day.",31
-fomc-corpus,1987,We ought to approve that and then go to the questions and answers.,14
-fomc-corpus,1987,I move we approve it.,6
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,"Without objection. Now, let's turn to the discussion. You recited all this and a lot of it sounded like ancient history. History repeats itself about every 3 days.",35
-fomc-corpus,1987,What have you noticed about the inflow of investment funds from abroad through all of this?,18
-fomc-corpus,1987,"The Japanese tell us that their total long-term capital outflows are continuing at the same level as last year. We don't know, but there seems to be more diversification; to a greater extent there is Japanese investment in Australia and Canada and in sterling also. There is also more diversification in the types of instruments, we think. But we don't have very good information. Another problem is that there is a tendency by Japanese investors to engage in hedging operations. Even if they continue the long-term capital outflows, they may at the same time be hedging on the exchange rate side and that has effects on the exchange market. There seemed to be a considerable amount of hedging during the period when the dollar/yen rate changed from the 158-159 level where it had stood for a while. As it broke through that level, a number of Japanese investors seemed to engage in some hedging. To summarize, the Japanese capital outflows seem to be more diversified, but there might be other things that are taking place which are offsetting some of the exchange market effects.",215
-fomc-corpus,1987,"If I could add to that: There was a lot of focus in our bond market on what the weak dollar might mean to foreign interest, especially Japanese interest, in the current Treasury refunding. That turned out finally, after some backup in rates as the auction approached, to be pretty good interest. A footnote to that, though, is that with these firms becoming more internationalized not every thing they take is necessarily for resale back in Japan; but, certainly, the great bulk of it is.",101
-fomc-corpus,1987,Do you see any shift by the Japanese from the bond market to the stock market? Is there any evidence of this?,24
-fomc-corpus,1987,"Certainly, we hear those same comments on diversification that Sam referred to: either into the stock market or from Treasury issues into other securities such as Ginny Mae's or corporate issues--even some of the higher-yield corporate issues.",46
-fomc-corpus,1987,"Sam, did your reference to diversification mean diversification within the U.S. or diversification among countries?",19
-fomc-corpus,1987,"Both kinds are going on. There is diversification among countries in the sense that more Japanese investment is going into Canada, Australia and into sterling--we don't have very good information [unintelligible]--than before. Secondly, there is diversification in the sense that Peter mentioned: that instead of the very heavy concentration on Treasury bonds, there is a greater tendency to buy corporate bonds, equities, real estate, or other forms of investment. So, we see both types.",95
-fomc-corpus,1987,"No other questions? There probably should be, because if we ever reach this great international understanding--with or without a meeting--I presume there might be a lot more intervention.",35
-fomc-corpus,1987,"Well, I think so. There has been a great deal of discussion of that possibility [here] and perhaps elsewhere, with the deal presumably being more intervention on our side and more moves by Germany and Japan and others to stimulate their economies. There's some question about what the Germans could do at the present time, given the fact that they just got through their election and are still in the process of trying to put together a government. The market has taken some encouragement from the fact that the party that had a greater belief in stimulating the economy seems to have done well. But what that will lead to, if anything, is the point that--",128
-fomc-corpus,1987,"Meanwhile, the economy is doing less well.",9
-fomc-corpus,1987,That is another point; the German economy is clearly doing less well than it appeared to be a month ago.,22
-fomc-corpus,1987,This talk about the Germans and Japanese stimulating their economies in exchange for our intervention has surfaced off and on for months. Is there any reason to believe that we are any closer to some kind of understanding now than we have been in the past?,48
-fomc-corpus,1987,"Closer, yes. Close enough, I don't know. Partly, I think, as a result of the election there is more pressure in Germany politically to do something. Plus, the economy quite visibly is not doing so well. seems very resistant to changing what the economy is doing in any short period of time; he is not exactly a fine tuner. Nonetheless, he is bound to put somewhat more pressure on that side. And I think the Japanese are more worried than they were. These countries get really worried about their exchange rates but they sure don't move very fast to take what seem to be the necessary steps. Actually, neither of them is going to do anything very dramatic. What you hear talked about in both cases is probably a tax reform program--fixing it up so there is some revenue loss over the next year.",166
-fomc-corpus,1987,"If it is just a nod in the direction of stimulation, then the chances of any meaningful success from intervention, I think, would be a good bit less than if it were something more stimulative.",40
-fomc-corpus,1987,"It depends upon what you think of the exchange rate anyway--whether there's a reasonable, potential equilibrium or not. But obviously, it has implications for the conduct of monetary policy not just here but abroad.",40
-fomc-corpus,1987,"It seems that the Germans are emphasizing [domestic demand] a lot as well as the GNP numbers that we focus on and that look pretty discouraging. Domestic demand is expanding at 4 to 4-1/2 percent and the difference is going to imports. I think that's where our perspective and their perspective are really different. They say as long as we have a 4 to 4-1/2 percent domestic demand expansion, we don't mind the low production figure at home as long as the rest goes into imports. That way we make our contribution to international adjustment.",118
-fomc-corpus,1987,[Unintelligible].,6
-fomc-corpus,1987,"With the mirror, right.",6
-fomc-corpus,1987,They are also starting to admit that their domestic demands may not be as strong as they had thought.,20
-fomc-corpus,1987,Their GNP number is a lot lower. The 1-1/2 percent they are talking about now is a lot lower than the 2 percent they were talking about a couple of weeks ago.,41
-fomc-corpus,1987,Three percent domestic demand is not much in terms of what we would like to see. They'd have to get to five percent or something like that; four is better than three.,36
-fomc-corpus,1987,With a shrinking population they'll say that is tough to do.,12
-fomc-corpus,1987,"They have all those great terms of trade in their favor. That helps them to consume more, but they are not big consumers.",26
-fomc-corpus,1987,Export some credit cards to them and help them out.,11
-fomc-corpus,1987,Credit cards?,3
-fomc-corpus,1987,To be better consumers.,5
-fomc-corpus,1987,"Yes, but there are no credit companies in--",10
-fomc-corpus,1987,I am saying we could export some of ours to them so they could use them.,17
-fomc-corpus,1987,"Oh I see! Well, as part of the Bank of America sale to BAI, they got a big credit card operation over in Deutscheland.",30
-fomc-corpus,1987,"Are there any more questions? If not, we will turn to the domestic report.",17
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1987,Any questions?,3
-fomc-corpus,1987,"Peter, with regard to these expectational effects that you were just referring to, I agree with you that what you described there is a major shift in psychology. Can that have a permanent effect on the level of the funds rate for a given borrowing target?",51
-fomc-corpus,1987,"I think it can have a lasting effect. I would hate to say that anything is permanent, given the changeability of things. I wouldn't be totally astounded if the funds rate drifted back to something under 6 percent. Maybe that would come about as seasonal borrowings picked up more. But, at least barring some new factor right now, as I said, I tend to think more of a funds rate in the 6 percent area in association with $300 million of borrowing.",99
-fomc-corpus,1987,"If you had expanding credit demands--it is clear how that can happen as it did in that year-end period--under our operating procedures you just can't adjust your projections of required reserves quickly enough to adapt. On an on-going basis and in a more orderly fashion, can that phenomenon create greater pressures in the funds market?",64
-fomc-corpus,1987,"In more normal times the revisions don't occur with such speed. So, one can fold in the new revisions in an orderly way and they wouldn't have the impact that they had in that December period.",39
-fomc-corpus,1987,"So, in theory, you ought to be able to keep up with it if it is more or less orderly.",23
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"There is a question as to whether you always want to keep up with it. MR. HELLER(?). Oh, I understand that.",29
-fomc-corpus,1987,"Just from my own perspective--and this is obviously one person's view and one person's alone--I frankly regarded that whole year-end thing as pretty darn wild. And there is a question that arises in my mind--not that I have an alternative idea. To find ourselves in a position where we have to throw $20 billion dollars into the market for individual banks, between open market operations and the discount window, seems to me to raise a question as to how far we should go in sanctioning the kind of behavior that we were seeing in that time frame.",111
-fomc-corpus,1987,Where would the funds rate have gone if we hadn't--101 percent or something?,16
-fomc-corpus,1987,I guess.,3
-fomc-corpus,1987,I think it leaves--,5
-fomc-corpus,1987,In no circumstances would it be the end of the world if the funds rate did go to whatever level. I don't know; I am just saying that from my perspective the whole thing was pretty wild.,40
-fomc-corpus,1987,"Peter, I hear in the business community, among financial types, a little more talk about inflation accelerating and at least some questions about how firm we might be. I noticed, I believe it was in that Drexell Burnham survey, that there seemed to be some uptick in inflationary expectations. Is that noticeable at all in the bond market or in the conversations that you have?",78
-fomc-corpus,1987,There has been a little of that. A lot of it came in the wake of the oil price [moves] by OPEC and the other countries lining up with OPEC in the last couple of months. Then the dollar weakening also fed those views that there was more to be concerned about prospectively on inflation. I wouldn't say it was a very major factor but it was there.,77
-fomc-corpus,1987,"Peter, my impression is that the price performance of the long-term tax exempt market has been a lot better than the taxable market in this period. Is that due to supply or the fact that, with the new tax law, investors really don't have as many opportunities to shelter income as they did before?",60
-fomc-corpus,1987,"My impression is that it would be both of those factors. There was some abatement of the supply of tax exempts and, as you stated, there are fewer alternatives for sheltering income.",39
-fomc-corpus,1987,"Peter, I guess that you would say the degree of pressure on reserve positions is essentially unchanged, despite the higher federal funds rate.",26
-fomc-corpus,1987,"Well, it depends upon your standard of measurement. Measured by the borrowing target that we are aiming at, it has been unchanged. But I have to admit that a somewhat higher level has emerged, even screening out the super high levels around the year-end.",52
-fomc-corpus,1987,"The fact that the Bluebook alternative B has a 6 percent funds rate I guess means that you agree, Don.",24
-fomc-corpus,1987,"Yes, for the $300 million in borrowing, I agree with Peter's analysis. I think there is, as Peter says, some risk that it might stick a little above 6 percent; but we are so uncertain about it that 6 percent seems like a good center of gravity.",58
-fomc-corpus,1987,"What is in our directive? We don't specify a borrowings number in our directive. We have an understanding of about $300 million or whatever we decide. But if we say constant reserve pressure, what is that going to mean to us? Maybe we ought to institutionalize the borrowing number or the funds rate. Are we going to--",67
-fomc-corpus,1987,I think we have institutionalized the borrowing number.,10
-fomc-corpus,1987,"Borrowing number, yes.",6
-fomc-corpus,1987,"There's some allowance for excess reserves when they are very abnormal, I suppose.",15
-fomc-corpus,1987,"Well, that's what I had assumed. An answer to your question would be that we haven't changed reserve pressures.",22
-fomc-corpus,1987,If you look at it another way and measure it by the increase in the money supply it has been rather enormous.,23
-fomc-corpus,1987,To say nothing of the increase in reserves.,9
-fomc-corpus,1987,The funds rate has been where it has been because of a $27 billion increase in the money supply in three weeks.,24
-fomc-corpus,1987,"Doesn't it take pressure on reserves to move the fed funds rate as it has moved? I realize that there were unusual circumstances; nevertheless, there must have been some temporary reserve pressure to have pumped it up so. I think you said the rate was 38 percent at one time; that doesn't sound like it was excessively easy.",66
-fomc-corpus,1987,There were $2 billion of excess reserves that week.,11
-fomc-corpus,1987,"Yes, but maybe they needed $2.1 billion.",12
-fomc-corpus,1987,Zero in the evening!,5
-fomc-corpus,1987,And there is probably one guy out there who bought them at 38 percent and sold them at zero.,21
-fomc-corpus,1987,He's not with that company any more.,8
-fomc-corpus,1987,"It puts us in a real dilemma. How much do we think this demand for economic activity [unintelligible]? If we were under our old operating procedure, aiming for the money supply, the federal funds rate would have been 60 percent or 75 percent for a few days.",58
-fomc-corpus,1987,"Peter said he was playing it by his gut. I understand that, but my reaction is that you didn't do too badly, Peter. Given all the forces, it seems to me that you follow directions very well.",43
-fomc-corpus,1987,"I didn't mean to imply otherwise by my question. I felt that was the way you were going to answer, but I just wanted to make sure that you still view it the same way. Because of the high spread between the discount rate and the federal funds rate, there might be a little more demand for those borrowings, so there might be a little more pressure.",74
-fomc-corpus,1987,It would be interesting to know eventually why people aren't borrowing with the higher spread. I would like to know that answer. I am not--,28
-fomc-corpus,1987,How much can you identify this simple distribution of reserves that you have been talking about? We know the seasonal [unintelligible]. Do you see appreciably less borrowing by banks under $1 billion or--?,43
-fomc-corpus,1987,"We have looked at those data, Mr. Chairman. The division that we have looked at is banks over and under $1 billion. You can see, actually, some [difference] all year--and I think this has been connoted by the fact that the seasonal borrowing has been less, to some extent--and then a widening of the gap over November and December. It is not a lot, but you can see--",87
-fomc-corpus,1987,Suppose you look at banks under $10 billion or so.,13
-fomc-corpus,1987,"We haven't done that. All we have done was over and under $1 billion. We can try other breaks, I think.",26
-fomc-corpus,1987,What is happening to the administration of discount windows?,10
-fomc-corpus,1987,"As far as I know, nothing.",8
-fomc-corpus,1987,I see.,3
-fomc-corpus,1987,They are instructed not to do anything.,8
-fomc-corpus,1987,No new personnel?,4
-fomc-corpus,1987,One little clerk who's doing it all.,8
-fomc-corpus,1987,"I think we started, maybe a year or two ago, to get tougher with the big banks. We instructed them that they could come in on Wednesday, on a settlement day, if they really had a case. And that was it. My impression is that, at least in our District, we had more borrowing from the big banks before that--before we started this Wednesday-only routine.",78
-fomc-corpus,1987,"I am glad you said that because I told Don that I hear stories from bankers, too. And he tells me faithfully that we haven't changed.",29
-fomc-corpus,1987,[We haven't] as far as the smaller banks.,11
-fomc-corpus,1987,"In his District, big banks don't borrow because they do not want it known that they may have come to the window for other reasons. So, the big institutions don't come in.",36
-fomc-corpus,1987,"The big banks seldom, if ever, borrowed other than on a Wednesday anyway, though.",18
-fomc-corpus,1987,"I don't know what the numbers would show, but I have a feeling that the big bank borrowing is less now than it was a couple of years ago.",31
-fomc-corpus,1987,"I have looked at data over the last several years, and it doesn't--",15
-fomc-corpus,1987,Borrowing is less than it was a couple of years ago.,13
-fomc-corpus,1987,That's true.,3
-fomc-corpus,1987,"You would have to normalize on the interest rate spread, and it hasn't shown any [tendency to run lower] for banks over $1 billion, which is the break we've been using. It hasn't shown anything, particularly in the last couple of years; it may be a little lower but not much. Now, it is true that when we went to contemporaneous reserve requirements (CRR) we said--as we always have said and as President Corrigan just noted--that most of the big bank borrowings are supposed to happen on Wednesday. That is when they have gone out and sought funds. And now it happens every other Wednesday. So, that may be what you are referring to. But in terms of their frequency of borrowing, or the amount they are allowed to borrow relative to deposits, and that sort of thing, there was an attempt made in the switch to CRR and the two-week reserve period not to change the standards. There was an attempt made to keep the standards roughly comparable. Perhaps it wasn't successful, but that was an explicit goal.",214
-fomc-corpus,1987,"I don't see how that would explain the change at the end of the year and the continuation now. I think there is something over and above that CRR that is making them hesitant, because the funds rate was behaving fairly consistently before.",47
-fomc-corpus,1987,One thing that is probably at work is that they have more surprises now than they used to have. Just in recent weeks the speed at which the turnover is taking place is continuing to grow. I am sure that they have more surprises that have nothing whatever to do with the discount window. They just don't know where they are going to end the day.,70
-fomc-corpus,1987,This would make them more reluctant to use the window.,11
-fomc-corpus,1987,"A couple of our banks reported that they couldn't find the federal funds. The market had dried up, as far as they were concerned.",27
-fomc-corpus,1987,It increases the demand for excess reserves.,8
-fomc-corpus,1987,It would also be consistent with their being more reluctant to come to the window. They want to save that for when they really need it. I think that is part of the explanation.,37
-fomc-corpus,1987,"Moreover, I wouldn't exaggerate the significance of this moving around one quarter of a percent or something like that.",22
-fomc-corpus,1987,"It probably has been very timely, given what has happened to the dollar.",15
-fomc-corpus,1987,We are going to vote to ratify these transactions. [Without objection.] Mr. Kichline.,21
-fomc-corpus,1987,"[Statement--see Appendix.] We have had a lot of focus on the international side, so we are going to do something different than we have done over the last decade; we are going to invite Mr. Truman to speak next.",47
-fomc-corpus,1987,[Statement--see Appendix.] Mr. Prell will now continue our presentation.,16
-fomc-corpus,1987,[Statement--see Appendix.] Mr. Kichline will now conclude our presentation.,17
-fomc-corpus,1987,"[Statement--see Appendix.] That concludes our presentation, Mr. Chairman.",15
-fomc-corpus,1987,"If anybody still remains wide awake, are there any questions? Or was the presentation so complete that no questions--?",23
-fomc-corpus,1987,"I have at least one question. First of all, I think you fellows did an outstanding job. This is not an easy task and I think you outdid yourselves. Having said that, let me ask my question. The key to this forecast is what happens to the international sector--to the turnaround in the trade deficit. I guess if we have been disappointed, we've been disappointed because the turnaround hasn't come faster. So often things happen more slowly than we think in economics; but then when they do begin to happen, they sometimes surprise us in that they happen so quickly. This is my question: Even though what we are dealing with in the trade deficit is outside historical experience, is there anything in our own history or the history of other countries to suggest that once the turnaround comes--even though it may have come more slowly than expected--that it may occur faster than we think?",177
-fomc-corpus,1987,"Some time ago we looked at one part of that question--whether anyone ever had a turnaround of this magnitude. We found a number of examples of countries that had turnarounds in a space of 3 to 5 years of 3 percent or more of GNP. So that is not unheard of. The question is whether we would have for the forecast period as much of a turnaround as we have projected here. In fact, a passing allusion to that is 1978, which was shown on the first chart. In 1978 and 1979, as a share of GNP, there were slightly larger swings. Basically, from the first quarter of 1978 to the first quarter of 1979 there was an improvement of something like 1-1/3 percent of the GNP. And we have essentially 1 percent over several quarters. In that sense, we have less of an improvement stretched out over a slightly longer period. However, I think it is fair to say that we had a more conducive external environment in those periods. Both abroad and in the developing countries, particularly, [growth] was much more rapid in the late 1970s than we are seeing at the moment. That certainly is one reason why we had to scale back our projections somewhat. The other factor I would mention is that in putting projections like this together we look at what various historical equations tell us, and maybe because we are a little gun-shy, we have chosen not to go with what the straight econometric equations tell us in terms of how much of an improvement we would have over this period. That's for a number of reasons, some of which I think everybody knows, including the fact that we are coming back from such a strong position. The third point I would make relates to whether this is disappointing. I guess in some sense it is disappointing. But as I look back at the forecast that we gave a year ago, the forecast for the U.S. current account for last year, given all the conditions, was reasonably close to what we came out with. Maybe people hoped there would be more of a turnaround, but I don't think the staff forecast as a whole was substantially outside any normal range of error in terms of 1986.",457
-fomc-corpus,1987,"Ted, what are some of the models actually projecting? I agree with you, I wouldn't--",19
-fomc-corpus,1987,"We would have another $20 billion in real net exports over this period if we went with historical equations for the volume of nonagricultural exports. As anybody who has done this knows, all equations have errors and it is partly a function of what you do with the errors that happened in the most recent period. There has been some error in the most recent period, and in putting the forecast together we have chosen, implicitly, to increase rather than to reduce its size. That's partly because, given the relatively soggy environment in the rest of the world, we feel that there are limits on the rates at which U.S. exporters can penetrate some of those markets. Looking back at it--and with the big qualification that the fourth-quarter numbers are still partly estimated--I think it is clear that there was a substantial improvement in our nonagricultural exports in 1986. That's something that was borne out in the Reserve Bank surveys and also by the statistics.",194
-fomc-corpus,1987,"I think that the biggest issue is that a lot of people you talk to expect most of the gains to come on import substitution, but we don't really show much there at all.",36
-fomc-corpus,1987,"Well, we have it coming on import substitution in the sense that we have a still growing economy. In fact, in some sense you want to look at the production side, not the demand side. Production is growing at 2-1/2 percent, and normally that would be associated with an increase in imports of 2-1/2 percent or more over the course of the next two years. We essentially have none of that. So the substitution effect comes, in some sense, against a two-year 6 percent import growth that otherwise would be there. That is quite a large number, but we are not looking for an actual decline.",131
-fomc-corpus,1987,How much did the volume of non-oil imports go up last year?,15
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,"So, non-ag exports have been a little slower.",11
-fomc-corpus,1987,Mr. Parry.,5
-fomc-corpus,1987,"I have a question for Mike Prell on personal income and savings, chart 14. I think it may have some implications for the PCE forecast. The saving rate clearly has been coming down in recent years. Your forecast would have that saving rate trending down--not looking at the quarterly pattern, but on average--in 1987 and 1988. Of course, if that did not occur there would be some implications, potentially, for the growth of consumption. With disposable income rising more slowly, I can understand why it might be a difficult environment in which to build savings, but at the same time I have difficulty seeing the rates coming down to those levels. I don't know if you can ever find saving rates down at those levels. Continuing that trend would be of considerable interest and significance.",161
-fomc-corpus,1987,"Well, the periods in which you find sustained low saving rates are not periods that you would necessarily want to use for purposes of analysis at this time--the Depression, for example, or the early postwar period. I think you put your finger on one of the factors in our thinking: that as real wages are eroded, there will not be an immediate adjustment of spending patterns. We have durable goods purchases growing at a very low rate. Our consumption growth is historically very low and we are assuming that this wealth increase that we have seen at least is not erased. So, on the basis of those wealth and income levels, we ought to be able to sustain a relatively low saving rate. But certainly, we are in somewhat uncharted territory and it's a potential risk in the forecast. We decided not to look back at [unintelligible] and say that's a potential risk. They are two sides of the same coin.",187
-fomc-corpus,1987,You are assuming a little increase in the saving rate in 1987.,15
-fomc-corpus,1987,If you look at the annual totals it's gyrating around.,12
-fomc-corpus,1987,It's a difference between the annual average and--,9
-fomc-corpus,1987,"The saving rate in the fourth quarter of last year was 2-3/4 percent. If you are visually looking at this chart, it depends on the point you look at. One other thing that conditions our thinking is that, historically, the income side tends to get revised up in the national income accounts in July. They tend to find income with these revisions. We have looked at these data, and history would tell us that the 2-3/4 percent number for the fourth quarter is likely to be over three percent, and perhaps appreciably over three percent; but we will know that a couple years from now. So, conditioning our thinking is the fact that these numbers tend to understate the saving rate.",146
-fomc-corpus,1987,This is where we were a year ago; it was essentially the same sort of situation. It has happened repeatedly that they find income and the saving rate does go up.,34
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"Well, I was stimulated to ask two questions, Mr. Chairman. First, given the relatively favorable numbers at the end of the year, I think there is some expectation that the GNP for the fourth quarter might be revised upward. And some people are suggesting that it might even be revised substantially. If that were to happen would that change your outlook for the year as a whole? In other words, do you think you might revise your forecast?",90
-fomc-corpus,1987,"We had in mind when we put the forecast together that the fourth quarter would be revised up somewhat. The question would arise if the revision were much larger than we had anticipated. The major source of the change is our expectation that net exports will look a lot better, perhaps $8 to $10 billion better, than in the accounts now. But some more recent information coming out on business fixed investment and some other areas suggests that maybe by the time they put all of the numbers together the upward revision will be something smaller than that. So, our sense is that we might get a 2-1/4 to 2-1/2 percent number instead of 1-3/4 percent. Implicitly, we had that expectation in mind when putting together this forecast.",157
-fomc-corpus,1987,You have that built in. My second question is for Ted Truman. I guess I am not quite clear why you think you are going to get depreciation of specific Korean and other Far Eastern currencies against the dollar. I ask that given their propensity to keep their currencies at a low level relative to the dollar. I guess they haven't exactly pegged it but--,71
-fomc-corpus,1987,"Well, most of the action in this area comes from Korea and Taiwan. They have already begun depreciating slightly for the last three or four months. And basically, that's what we have built into this forecast. They depreciate by 5 to 6 percent in real terms while some of the Latin American countries, essentially Brazil and Mexico, [unintelligible] percent over the two-year period, [unintelligible].",87
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"Jim, or Mike, I forget which one of you mentioned [in the presentation] that if you had had the employment report you probably would have upped your forecast a little. If you add to that the National Association of Purchasing Manager's Report, would that cause you to change your figures?",59
-fomc-corpus,1987,"No, we had that information in hand. The only major piece that came out that we did not include in our thinking was the employment report. We have 2-1/4 percent now, and I think if we had had that report, we would probably have a number in the 2-3/4 to 3 percent range for the first quarter.",74
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"Mr. Truman, you have the interesting chart 5 there, with real interest rate differentials and the U.S. dollar plus your forecast for the real interest rate differentials.",36
-fomc-corpus,1987,Forecast of the dollar.,5
-fomc-corpus,1987,Pardon me?,4
-fomc-corpus,1987,The red line is the forecast of the dollar.,10
-fomc-corpus,1987,I'm sorry; I totally misread the chart. I was going to ask if you forecasted real interest rate differentials what the underlying actual rates implied by that chart were.,35
-fomc-corpus,1987,The interest rate differentials?,6
-fomc-corpus,1987,"Well, the actual interest rates that you were looking at.",12
-fomc-corpus,1987,"We have long-term interest rates in the United States that are trending up slightly over the forecast period in nominal terms and real coming down slightly now. And that is about offset by the differential in inflation over the period. Essentially, you have the same midpoint, which is about 3/4 of a percent there.",63
-fomc-corpus,1987,So it's a flat line.,6
-fomc-corpus,1987,"Basically, it will be flat. That's one of the reasons why I didn't put it in the chart.",21
-fomc-corpus,1987,So why do you get the further depreciation?,9
-fomc-corpus,1987,"Economists argue about whether negative real interest rates cause depreciation. If you have a lagged structural model, I think you would argue that they probably do. At some point, however, it implies that you are going to have appreciation. In this context, I think it would be a negative factor, on balance. The major point is that, while we think there will be at least continuing downward pressure on the dollar, the current account will not move fast enough as some combination of market participants and market [unintelligible] think is necessary.",110
-fomc-corpus,1987,"Mr. Truman, on chart 6, that wholesale price chart, if that were net of oil, am I correct that probably you would have seen more of a depreciation in the United States than you would in the foreign countries?",46
-fomc-corpus,1987,"We have more [unintelligible]. As a matter of fact, we have it going the other way.",23
-fomc-corpus,1987,"But oil is denominated in dollars, so the depreciation of their currencies must have had a very large impact on those indices.",25
-fomc-corpus,1987,"In some sense you can see it in the next chart where you have the Economist Index of all commodities. You have essentially [unintelligible] over the last couple of years; prices have been flat in dollar terms. So likewise, in the oil case, you had a combination of a declining dollar price and it's magnified by the exchange rate.",71
-fomc-corpus,1987,"So net of oil, our inflation improvement probably was better.",12
-fomc-corpus,1987,"No, I would say net of oil, probably our inflation improvement is not as good. Because if all of the other commodity prices were fixed in dollars, and the dollar was declining against deutschemarks, yen, and so forth, and you take oil out, you have [unintelligible].",60
-fomc-corpus,1987,I see.,3
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"My question is somewhat related to an earlier question regarding Japanese investors in long-term Treasury obligations, and you probably have no chart or number for it. You have given the interest differential. Normally that's what we are [unintelligible]. But given the tremendous decline in the dollar [unintelligible], broadly how are those long-term investments looking over any period of time? I guess the question is: Is there a way that they have been protecting themselves against a [depreciating dollar]?",99
-fomc-corpus,1987,"There are three things to say. One is that the statistics do not show much in the way of net Japanese purchases of Treasury securities over the past year. The statistics may be wrong, but they do not show it. Secondly, as I commented and as I think was implicit in what Sam was saying earlier, even if they buy them you don't know what else they are doing and to what extent they are selling them. As to the question of whether there is going to be enough foreign investment in the United States over the next two years, I think it's a question of the price at which that investment takes place. Investment is going to be made in the United States. They don't have much choice. The question is what combination of interest rates or exchange rates brings that forth. If the Japanese want to invest abroad but insist on protecting themselves, then basically they are saying [unintelligible]. They have to place yen-denominated investments abroad and someone is going to have to take the other side of that currency position. If there are not enough people to take that at the current exchange rates, the rates are going to go lower. That's how I think of the model.",235
-fomc-corpus,1987,"There is another way of looking at that. Chart 10, I think, is kind of interesting. Roughly speaking, if you take the three years 1983, 1984, and 1985, the cumulative current account deficits for those three years are something like $280 billion; but the cumulative current account deficits for 1986, 1987, and 1988 are something like $410 billion. So we are looking at a situation where in the three years that we are in now, we have to finance 50 percent more than we financed in the three earlier years--but in a context in which interest rate differentials and exchange rate relationships are very, very different than they were in the three-year period when we were only financing $280 billion as opposed to the $410 billion or whatever it's going to be. It could get a lot tougher. The conclusion one draws is that it could very well be tougher--especially in the kind of interest rate/exchange rate environment we have right now--to finance what lies ahead than to finance what came before us.",219
-fomc-corpus,1987,"In my mind there are always two possible outcomes. The one is like the scenario that you are outlining--that the dollar will really plunge; the other possible outcome is that you say okay, the balance is not turning and, therefore, there will be more exports and that will give confidence.",58
-fomc-corpus,1987,That's already built into those numbers.,7
-fomc-corpus,1987,So then you are stuck with the first one.,10
-fomc-corpus,1987,You are not stuck with it. I think it just says that the potential risks of that adverse scenario are probably greater prospectively than they were retrospectively.,31
-fomc-corpus,1987,"I think something of an offset to that, Jerry, is that because of the depreciation of the dollar the foreign investor is, in effect, buying at a cheaper price.",34
-fomc-corpus,1987,"That's the other point that came up in my conversation with Governor Johnson. In some sense, the closer you are to the bottom the more attractive it is to buy. In fact, the expectation of appreciation makes it look cheap now.",46
-fomc-corpus,1987,"Still, in those markets people will buy. Do we have any more questions or comments? If not, I think we can go on to people discussing anything they want to lay out about the general view of the outlook and the potential risks therein. [In the forecasts you submitted prior to this meeting] everybody is positive in a certain range, but there is considerable difference for some people. Mr. Parry isn't one of them; he agrees with the staff so his comments can be brief.",98
-fomc-corpus,1987,I hope the converse of that doesn't necessarily apply!,10
-fomc-corpus,1987,I didn't hear you.,5
-fomc-corpus,1987,Comment briefly on the outlook.,6
-fomc-corpus,1987,"I would start out by saying that our forecast is not very different from that of the Board staff. But I do want to comment a bit on the risks that I see to the forecast because I think they could have implications for policy. It would appear to me that the risks as far as inflation is concerned are on the up side. We have assumed that the recent decline in the value of the dollar is largely permanent and that the dollar will end 1987 at a lower level than we had in our previous forecast. The pass-through of price increases resulting from the dollar's decline has been slow to date, but I believe profit margins of many foreign suppliers of goods to the United States are really quite narrow at the present time and, therefore, future pass-throughs could be considerably greater. Secondly, it seems that the momentum of oil prices at the present time is in the direction of rising oil prices, or at least not declining. Thus, our assumptions about oil prices could turn out to be too low and inflationary pressures more intense. The dollar and also the oil price issue are largely factors that one would presume would be temporary as far as inflation is concerned. But a third risk for inflation would be more prolonged, I think, in its impact. The staff projection of the unemployment rate at year end is around 6-1/2 percent. By some estimates that rate gets close to full employment and thus any positive shock to demand could produce more serious price pressures than are included in the forecast. On the real side, I am basically comfortable with the staff's estimate of just under 3 percent, although there is a risk to the projection, probably, on both sides of the forecast. I would like to note two risks on the downside. The first one I really was hinting at when I asked the question about the saving rate. It seems to me that it is conceivable for the saving rate not to deteriorate from these levels. If that were the case, it's possible that consumption would grow at a somewhat slower pace than is incorporated in the forecast. Obviously, another major uncertainty on the real side is net exports. We have talked about that considerably, but to me a conservative stance would be to assume that the failure of the dollar to decline relative to currencies of numerous important trading partners will lead to an improvement in net exports that is somewhat less than the Board staff's number. On the regional front, we continue to see growth a bit faster than the rest of the nation. Last year we saw employment up 3.5 percent compared to 2.3 percent nationwide. We also saw a huge jump--67 percent--in California building permits in December, but that was a response to a large builders fee that went into effect January 1. It's interesting to note that the increase significantly added to the national totals; it probably caused about 17 percent of the increase in the December leading indicators. So it was not an insignificant development. A couple of other points in the District: We had a rather interesting experiment regarding the effects on consumer behavior of the removal of the sales tax deduction. Oregon does not have a sales tax, and consequently, one of the things that we observed was that there was no surge in car sales in Oregon in contrast to the year-end surge in other states with sales taxes. We also heard from a member of our small business and agricultural advisory council that apparently one major Japanese car maker is beginning to ship stripped down models to the U.S. I think that is interesting because it may mean that the volume of Japanese car imports may not decline as much as had been expected and that, conceivably, price competition in the industry may turn out to be more intense. Finally, pointed out to us that he was having much greater success in selling to the Canadians because they were now substituting our exports for French exports. We have been focusing on the failure of the Canadian dollar and the currencies of [unintelligible] countries to appreciate and thus to enable us to cut down on our imports. One thing that is sort of interesting is that the failure of their currencies to appreciate relative to ours is probably raising some export opportunities that perhaps we have not been focusing on.",843
-fomc-corpus,1987,"It also has diminished some imports when you [unintelligible] to France. The problem is your precise indication of the risks. Let that be a model to others when they approach this thing. Just in terms of inflation, I meant to ask a question of you, [Mr. Kichline]. We have all of these GNP deflator projections; how much do you have to add to that, roughly, to get a consumer price index projection?",93
-fomc-corpus,1987,"For 1987, fourth quarter to fourth quarter, we have forecast a CPI increase of 3.8 percent; it was 1.3 percent on a fourth-quarter basis in 1986. So that's 0.9 percentage points above the deflator in 1987.",58
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,"I will be very brief. One of the noticeable differences in the forecast of people around the table has to do with inflation. There seems to be a trend: the more you are in Washington the lower you think inflation will be; and the more you are out in the country the higher you think it will be. I have been surprised in travels around my District by questions about inflation. I would have expected questions to be more on the dollar or whether the economy is going to go into a recession or what have you. I have found in recent weeks that the greatest concern is that inflation is going to get out of the box. And if you push, and ask if [the basis for the question] is wages, or imports, or that you are raising your own prices, you find that it doesn't seem to be analytically based. It seems to be more of a gut feeling that somehow we are just going to let inflation out of the box again. I think it's just a general worry at the gut level that causes that. But it is there. And I think that has some implications for how monetary policy is stated in addition to what it actually is. In general, I agree with the staff forecast; I'm perhaps a touch higher on inflation.",251
-fomc-corpus,1987,Mr. Morris.,4
-fomc-corpus,1987,"Well, Mr. Chairman, before I talk about the forecast in general, I thought I would tell you about some interesting numbers I came up with. Ninety percent of the New England high tech manufacturer exports are flown out of Boston Airport because of the low weight to value ratio, so I thought I would ask the port authority to give me some figures on air freight exports and imports. I thought it might be an indicator of how this high tech industry is doing because I have been getting a lot of optimistic feedback and I wanted to see if it was confirmed by the numbers. The numbers are in pounds so you don't have any exchange rate problem. What they show is that our air freight exports bottomed out in the first quarter last year and have been rising pretty substantially. In the three months ended in November of 1986 they were running 29 percent higher than the same months of 1985. Air freight imports, which are still larger than exports, were running 7 percent higher than a year ago. Now that's pounds and that can be misleading because I know that we shipped a lot of tuna. Lobster don't weigh much, but we ship a lot of tuna to Japan. We don't eat fresh tuna and we ship the whole fish in a specially prepared box because they like fresh tuna. It could well be that a good part of this increase reflects a 40 percent decline in the cost of fresh tuna to the Japanese. But I think it does tend to confirm the idea that the high tech industry is doing a lot more business overseas than it has been. So, I will keep watching those numbers and see what intelligence I can get from them. I am inclined to think that if the forecast is wrong on real growth it's going to be wrong on the low side. I had a long argument with my staff about what number to give you. They wanted me to give you 2 percent real growth. I thought that was a bit on the low side. I hated to offend them because their forecast has been better than mine in recent years, so we compromised at 2-1/2 percent after they saw the January employment numbers. I am impressed with the very widespread strength in the leading indicators in November, December, and January. Three months back-to-back strength of this sort leads me to think that at least the first half may be considerably stronger than we are projecting. So I come out on the optimistic side of the risks.",490
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"On the real side, our forecast is just a touch higher than the Board staff's. I would be inclined to agree with Frank Morris; I feel good about the current statistics that we are seeing, although I am not inclined to read too much into that. I certainly don't pick up anecdotally the idea that people are consciously recognizing a significantly strengthening picture right now. The only thing I would say on the price side--just to pick up on what Ed Boehne said--is that in general in our discussions, particularly of late, we tend not to place too much weight on the effects of M1 growth and so forth. But just to pick up on this year-end phenomenon, one way that you could conceptualize that is that what we have done is monetize or liquify a lot of unrealized capital gains. And that has been done largely through an expansion of bank credit that hasn't run down significantly. That money is sitting there and some of it certainly will go back into other investments; but some of it could well be spent. I just think that at some point, when money has run at such rapid rates, we are going to see some impact in prices that may not really be built into the forecast we are looking at. So, we're higher on the price side; we are at the high end of that range.",270
-fomc-corpus,1987,"If the relationship is the same as the staff's, your kind of price [forecast] would have to produce about a 5 percent CPI. Mr. Forrestal.",34
-fomc-corpus,1987,"If we have a difference with the staff, it's on the inflation side as well. We see pressure on prices probably occurring more towards the end of the year than at the beginning, and we are attributing that basically to a greater impact from import prices than we had thought earlier. We have done some studies that suggest that the decline of the dollar is going to affect these import prices somewhat. Those studies are certainly not definitive by any means, but my hunch is that they are probably right. So we are looking at the deflator to be at about 3-1/2 percent; we think it is really somewhat unrealistic to see the deflator stuck at 3 percent, which is what the staff is forecasting for three quarters. On the GNP side, we are closer to the staff but a little lower; therefore, our forecast is a little less sanguine than the Board staff's. Some of that activity that we saw in December could very well have been tax related. I hope it's more than that and that there is some momentum in the economy; but we will just have to wait and see on that. But we think that GNP is probably going to grow around 2-1/2 percent. Consistent with that slower rate of growth, we have a slightly higher unemployment rate at year-end, although it's not significantly different. So the real difference that we have is on the inflation side.",285
-fomc-corpus,1987,Mr. Stern.,4
-fomc-corpus,1987,"As far as the real economy is concerned, my forecast is the same as the staff's but I tried to build into that some allowance for this fourth-quarter borrowing phenomenon--that is, I assumed the fourth quarter was going to take some strength out of the first half of 1987 for tax reasons and so forth. I must say that I am not sure that was a wise adjustment. It seems to me, at least, that the risk--risk is probably not the right term--that the range [of error] around the forecast is probably symmetric at this point. I am quite impressed with the momentum with which the economy ended the year. I am not just referring to the December statistics. Looking at the payroll data or the household employment data going back to September or October, we see a string of consecutive sizable increases in the statistics on a monthly basis that, as far as I am concerned, are about as reliable as any we have to look at. And there are some other developments one can add to that as well, relating to the year-end improvement in housing starts and the tone of the purchasing managers' survey and so forth. As far as inflation is concerned, I am at the high end of the range, based on the reasoning that we have benefitted from some special factors in 1986 that are not going to be with us in 1987 and that, in fact, will be reversed through higher import prices of oil and other things. So, I suspect we are going to see a somewhat more rapid rate of inflation. A couple of interesting things have happened in the District lately that I might just comment on. We run a quarterly agricultural credit conditions survey, and for the fourth quarter that survey had the most positive tone reported in a long, long time, both with regard to farm earnings and to the pace of farm debt repayments. One quarter obviously doesn't establish a new trend, but there seemed to be some inkling there that, at least in our District, we are seeing some real turnaround. I would also comment that the labor market in the Twin cities, which has been quite tight for some time, has apparently tightened further. We got reports from one of our directors that for jobs that would have to be characterized as requiring modest skills, but where the compensation is really pretty decent--total compensation of $20,000 to $25,000 a year--they just cannot find people to fill them. There are no takers.",494
-fomc-corpus,1987,If I am right that an inflation rate of 4 percent in the GNP deflator means something close to 5 percent on the CPI--and that is the middle of the range--your number means the CPI could be over 5 percent.,50
-fomc-corpus,1987,"It could be, but that's only 0.4 percent a month annually. It doesn't strike me--",21
-fomc-corpus,1987,A turning point--,4
-fomc-corpus,1987,"The CPI last year, excluding food and energy, was averaging about 0.3. It's that kind of deterioration.",24
-fomc-corpus,1987,I wasn't saying it couldn't happen. I just wanted to talk about it. Mr. Keehn.,20
-fomc-corpus,1987,"Our numbers are very consistent with the staff forecast. We are a touch higher on real GNP, but perhaps from a lower fourth-quarter base, and our deflator number is a little higher. With regard to risk--and I think we have covered it in some detail--it seems to me that so much is dependent on the trade side that the risks really have to be in that area. I must say, nonetheless, that I think we are probably going to come out about right on that. From talking to people in the District, I do sense that probably one of the more significant changes that we have had in the last month or so is on the trade side, more as it relates to imports than to exports. Certainly, the environment for exports is better and there are some industries--chemicals and paper products, for example--that are doing better. But on the import side, I think an awful lot of the domestic people who have been supplying the domestic markets that have been so very, very hard hit are sensing better opportunities now--particularly for people such as the integrated manufacturers who had typically gone to foreign markets for their out-sourcing. I think they are beginning to look more at domestic markets for their sources and, therefore, that's an improvement also. It's nothing dramatic, but I do think we are perhaps at a turning point on this. Because of the importance of the trade sector to our outlook for the year, in my mind that has to be the big risk. On inflation, I think the risks are a little on the up side. People I talked to say that wage costs are continuing under very good control. Their contract settlements are excellent in terms of cost as well as work rule changes, etc. And the market pricing is very tough; conditions continue to be very, very competitive so they are able to maintain pressure on that. There is this bet that imported products will begin to go up in price. I think we are going to see that show through and the CPI number is going to be a little higher than we might have expected. And because of the sheer publicity--the visibility that the CPI gets--it seems to me that it is going to begin to get one's eyes focused on this problem, perhaps more than has been the case in the last couple of years. So, I think inflation is the other risk area. I have just a couple of quick comments on the District. I echo what Gary Stern was saying about the agricultural sector. I have been out a couple of times over the last two weeks, and I sensed that we might, I hope, be at the bottom of that particular problem, or in the zone of stability, as I call it. That's a bit of a positive. On the negative side, we are continuing to see plant closings, something that I keep a count on. Caterpillar has announced the closing of three additional plants in the Midwest in the last month or so. GM has announced one more plant closing over and above that big string that they had a couple of months ago. They are now beginning to shut down some of their [plants producing] parts used in assembly and, again, they are going to out-sourcing. So that's one on the negative side. Generally, conditions in the District seem to be pretty much unchanged from what has been the case over the last few months.",674
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"Mr. Chairman, we are more on the optimistic side, like some of our brethren are, I am comforted to see. We may have been overly influenced by the signs of a turnaround in manufacturing in recent months than by the flurry of good statistics that has just hit in the face of a great deal of liquidity in the economy. We put in 3-1/2 percent as the rate of growth in real GNP, and we have the unemployment rate coming down to 6.4 percent. So far as our analysis is concerned, we are pretty much in agreement with the staff on the forces that are at work in that we think there is going to be a marked improvement in the net export picture and that it's going to be a major contributor to growth. We also agree with the conclusion that gross domestic purchases are going to grow more slowly, but we differ mainly in that we think that there are going to be more real personal consumption expenditures. The staff has projected just 1-1/2 percent growth fourth quarter to fourth quarter. It is certainly true that we have a lot of debt there, but we also have some factors that offset that negative in the growth of wealth. So our guess is that PCE is going to be somewhat higher than their forecast. Coincidentally, I suppose, we had about the same kind of growth in real disposable income last year as they are projecting for 1987 and we had a 4 percent rise in real consumer expenditures. Against this more optimistic forecast, we have inflation near the high side, at 3.8 percent. I am a little comforted to see that someone else is there and even more comforted by one of the Board member's forecast of real GNP of 4 percent. For once I am not the high one on that. We think that inflation is going to stem from this stronger projection of real growth; that ought to tend to reduce this remaining slack in labor and product markets, particularly in the second half of the year. Insofar as the risks are concerned, I would say that the risks are that the numbers are going to come in somewhere between our forecast and the Board staff's.",441
-fomc-corpus,1987,Not much of a risk. Mr. Corrigan.,11
-fomc-corpus,1987,"It's an averaging of two misses, probably.",9
-fomc-corpus,1987,"My forecast is again almost identical with the staff's forecast. It probably means that we are both wrong. As a number of people said, the trade sector is obviously crucial. And frankly, I blow hot and cold on that. Sometimes I think we have a good shot at doing better than the forecast and other times I say ""no way"". I guess right now I am, to some extent, in the cold camp as opposed to the hot camp. And that came about in part from listening to President Poehl and Governor Sumita over the weekend in Basle, both of whom were really distinctly more cautious about economic prospects in Germany and Japan. Clearly, in terms of the favorable world economic situation--",141
-fomc-corpus,1987,How are the Japanese talking now?,7
-fomc-corpus,1987,"Well, they start with the government forecast which is 3 percent plus--say, 3-1/2 to 4 percent. Then they talk a little about the Bank of Japan forecast and shave a half point off that. Then they start wriggling in terms of their own forecasts, so with the body english, I ended up with 2 percent or less.",76
-fomc-corpus,1987,That is where the Germans are. It's not very exciting.,12
-fomc-corpus,1987,"And some worry, especially in the Japanese case, that they are really taking a terrible beating in their manufacturing sector now. So, as I said, I guess today I am a little influenced by that.",41
-fomc-corpus,1987,A terrible beating by Japanese standards.,7
-fomc-corpus,1987,"By their standards. On the import side, the question I keep asking myself is: If we have a shortfall from this kind of consensus forecast on the export side, is there any good possibility that we can make up the difference on the import side? That to me is a tough one. Indeed, it's a ""Catch-22"" because when I look at the nature of the import situation here in the United States now, with the infrastructure that goes with it in so many product lines, it just seems to me that to break out of that mold that Ted has in his forecast, we are probably going to have to have pretty sharp price increases for imports. That's something we haven't seen yet; and if we start to see it, it's just going to add that much more pressure on the domestic inflation side. So, I am not sure we can make up any shortfall on the export side. But if we do, I am afraid that we are going to make it up at the cost of higher inflation. So, as I said, right now I am a bit on the cold side of the trade situation, but that will change next week, I suspect. On the purely domestic side, like Mr. Stern and a couple of others, I've got to say I am impressed with not just the January employment numbers, but the collection of numbers over the past three or four months which, net, have been stronger than I would have expected, especially in the circumstances of the tax change. Those developments will probably lead me to be marking up my forecast a little. Putting it all together, I would say that the risks are about symmetric at this point. I have a little of that nagging sense of unease that Ed Boehne spoke about in terms of the inflation situation, although I can't pin it down either. If you go through unit labor costs and productivity exercises, you still get numbers that look respectable, at least in terms of deflators. But there is at least that nagging feeling that this tremendous amount of liquidity that we put into the economy ought to do something at some point. And right now all it seems to be doing, in some sense, is feeding the financial sector. That in itself constitutes a risk because I continue to see a rather sharp--and in some ways an ever sharper--dichotomy between the financial sector of the economy and the real sector of the economy. And I just don't see how that is sustainable. I think there are risks right there in terms of something going astray which, in turn, could impair confidence in the world in a detrimental way.",525
-fomc-corpus,1987,Mr. Boykin.,5
-fomc-corpus,1987,"Well, Mr. Chairman, optimism or pessimism is a relative thing. Having been through a series of meetings over the last several weeks--with our own board of directors, our advisory councils for small business and agricultural, our financial institutions' advisory council, and a few others--I thought I was being rather optimistic in sending in [a forecast of] 2-1/2 percent real GNP because that isn't what I was hearing anecdotally from our people. However, based on what I have seen, it's probably under the others; it's certainly a little under the staff forecast. My own staff, I think, would encourage me to shave that up slightly, based on their analysis and, certainly, the current information. One thing that is tending to influence us in the Eleventh District is the fact that in the survey that we just did on the effects of the decline in the value of the dollar, we probably have not received the benefit--or certainly not the same benefit--that other Districts have been reporting. There is optimism, although it's cautious optimism; it's a sense that we just don't think we are going to slide down any further and we can see a few glimmers of hope. If anything, I have been a bit pessimistic in terms of the 1987 performance on the real economy and inflation, although we are not seeing a great amount of indication that inflation is getting to be a problem. To me, at least, it's time to observe that very, very closely, because the possibilities are such that we could see a little pickup there. I don't know whether it will materialize or not; we will just have to wait and see. But it's something that I would hope we'd be observing very closely.",351
-fomc-corpus,1987,"Well, Mr. Angell, is going to tell us how good the inflation outlook is.",19
-fomc-corpus,1987,"No, I think it's pretty bad. I think my forecast for the CPI is 100 basis points higher than it was last year after I had been here 7 days. So I got worse on that.",42
-fomc-corpus,1987,Relatively worse.,4
-fomc-corpus,1987,"Yes, relatively worse, right. In a sense, I suppose my forecast, at 1.9 percent real GNP, is optimistic in that the non-U.S. world output would seem to be hardly higher than 2 percent and it would seem appropriate that we would be a little less than the rest of the world. So I guess I feel very comfortable that if we can do it that wouldn't be bad at all. As I looked at the export side, I noted from St. Louis' recent publication that U.S. export prices over the last six years have risen a total of 11 percent, which would be less than 2 percent a year. Our staff forecast has an 11 percent increase in export prices over the next two years. In the world that I see, it is somewhat unlikely that that kind of increase in export prices would occur. On the import side, I also noted in that same study that U.S. imports as a percentage of GNP have been so constant; they just don't change very much. So I just don't hold much hope for any reduction of imports by relative pricing. That is, the price elasticities seem to be such that we are not going to make much gain there. Frankly, I don't see that we are going to make quite as good a move on the trade side as even the staff forecast, and that's not very good. When I look at dangers, I suppose there are two kinds of dangers. I tend to set aside the stagflation scenario; I don't see that as very likely. On inflation, my estimate is only 1/2 of a percentage point different from the staff, and I don't see that to be very large. But if we both missed, if there was higher growth and more inflation, I guess that would provide us a very decided monetary policy option which would be, I presume, higher U.S. interest rates; and that would be good for the dollar. If we had higher growth, it would be good for a lot of sectors of the domestic economy. So I assume that if we missed in that direction we would have a response that would be appropriate both domestically and internationally. The problem I see would be if we get too slow and the world gets too slow. And if the U.S. gets too slow, then I wonder what the policy response might be because that might put downward pressure on U.S. interest rates. I'd hate to see that happen with equity prices maybe going even higher than they are today, which might be an unsustainable path. So that's the kind of worry that I have: that we might get too slow [economic growth] and get declining interest rates. This would put the dollar in a precarious position, and we might not have good policy options. So, I guess I do worry some.",570
-fomc-corpus,1987,You are paid for worrying. Mr. Heller.,11
-fomc-corpus,1987,The pay shows that Governor Angell is not worrying very much.,13
-fomc-corpus,1987,Spoken like the private sector fellows.,8
-fomc-corpus,1987,"Overall, I very much agree with the staff. My numbers are almost indistinguishable from the staff forecast, but on the trade picture I agree more with Jerry Corrigan. Having been through Europe only a day or two before him, I think the hand-delivered Wall Street Journal article, courtesy of Manley Johnson today, says it all: ""Fed Official Finds Little Sympathy in Germany on Trade Deficit."" It will be difficult to get the very optimistic progress on the export growth front. On the other hand, on the import substitution side I think there probably is a lot more room for progress. So the net outcome may well be very much the same as forecast by the staff but the composition would be very different. On the inflation front, I think the key is not the direct effect of the depreciation of the dollar but the response of U.S. manufacturers to the increase in prices by their competitors. And if the U.S. automobile industry and their pricing behavior is any indication, I think we are in for a hard time. I hope that not everybody will follow that example but will instead hold prices and go for the market share. If the auto example were followed it would clearly be very detrimental on the trade front, because we would not get the relative price effect and the trade picture would be very bad. One last brief comment: a lot was made out of the difference between the CPI and the GNP deflator. I think there is good reason to assume that next year that discrepancy will be bigger than it has been in the past because the prices from imports will show up in the CPI while they are going to be subtracted out of the GNP numbers. So there is going to be a bigger discrepancy there. I think that is basically a statistical quirk that we have to be aware of but shouldn't overemphasize.",369
-fomc-corpus,1987,Ms. Seger.,5
-fomc-corpus,1987,"Wayne Angell and I have been having a horse race in the last year to see who could be the most pessimistic. And, believe it or not, looking at actual numbers for 1986, neither of us was low enough. Wayne, do you realize that?",56
-fomc-corpus,1987,"Yes, and my inflation [forecast] was also too high last year.",15
-fomc-corpus,1987,"Well, having said that, I am in his camp again with a low number for real GNP growth--something on the order of 2 percent, which is below the staff's. I have two main reasons for departing from the staff forecast. One is that I continue to be concerned about the auto industry. On the one hand, I watch the pricing behavior, as Governor Heller indicated; but also, I really think that the fundamentals of the auto sales picture are weaker than the dealer delivery figures may suggest. There was a surge at the end of 1986, and I think much of that surge should be attributed to the tax changes that were going into effect January 1. We know that there was a substantial decline in January. But, as someone pointed out to me, even that overstated the strength of true retail demand because many fleet sales were processed in January. And, of course, that's not a function of showroom traffic, and so forth; that is a deal that is struck between large purchasers and the corporations. So, the fundamental demand for automobiles is probably even weaker than it looks. Auto manufacturers are watching February numbers very, very carefully. One person told me that they were in the process of revising down their production schedules as we spoke, which was this morning. Anyway, I don't think that they are going to continue to wait for a miracle to occur that will somehow or other eliminate these high inventories, particularly in certain lines and certain makes, is the company with the worst inventory situation. They have excessive--that's my word, not theirs--and extensive incentives out right now. If they don't get the results they expect--and there is a great deal of concern that they won't--then they will have to make really substantial production cuts. I hope that isn't the case, but I am concerned that we may not have [forecast] enough weakness coming from that particular sector. The other area of my concern involves the trade turnaround. I asked at the [Board staff] briefing on Monday where the additional exports in this country were going to go and what the products would be. I also asked what imports were going to be curbed or curtailed, and I haven't gotten very good answers to those questions. I just think it's going to be much more difficult to accomplish this. The deterioration, I would remind people, went on for a number of years--five or something like that. And I think that there have been adjustments made in the economy to these changes and that they are not going to be easily reversed. Although I would like to see a quick and substantial turn, my suspicious nature suggests that it won't take place. So, I put those two differences together, and that's why I think that we are going to have a slower rate of growth. On the inflation side, I am just a touch more optimistic, perhaps, that we will be able to keep inflation under control. Here I guess my main difference comes from what I view as a real change in business behavior--not in all business behavior but in the behavior of a number of significant businesses--in that they are finally addressing the efficiency question. They are really trying to skinny down. I just heard of one request by an organization that is working with its suppliers over a five-year time horizon and telling them that in order to be assured of business in this period ahead, they will have to agree to cut their prices, not increase them, by one percent per year over the next five years. That's pretty hard bargaining. And I think a lot of things like that are going on that have mainly resulted from the intense import competition. I think it has been a [unintelligible] factor. I certainly can't put an exact number on it; I don't pretend to know. But I think that that kind of behavior is going to help us keep these inflation numbers looking better than they otherwise would.",781
-fomc-corpus,1987,Mr. Guffey.,6
-fomc-corpus,1987,"Mr. Chairman, I didn't hold up my hand, but--",13
-fomc-corpus,1987,"Well, I got your name on a piece of paper and I will delete it if you don't want to say anything.",24
-fomc-corpus,1987,"Well, I think that since I am about the last [speaker], I will say something. Our forecast is very much like the Board staff's on the growth side; we are a touch higher on the inflation side. If one were to make a forecast from the Tenth District perspective, none of those figures would be very satisfactory; they would be much more pessimistic. On the forecast itself, the growth is largely dependent, as everybody has already noted, upon the turnaround in the net export sector. If that occurs, then growth much as we experienced in 1986 seems to me to be quite reasonable. On the other hand, on the price side it seems to me that our foreign competitors' import prices will have to rise since their profit margins have been squeezed over the last year and a half as the dollar has declined vis-a-vis their currencies. And that should start to show through together with an increase in imported oil prices. If that were to occur, and as that is passed through, it would seem to me that inflation would be a bit higher than we experienced last year. Having said that, I think it is noteworthy, as Governor Heller mentioned, that the CPI--which will incorporate those higher import prices--quite likely will be in the 4 to 5 percent range. And it's going to take some explanation, I guess by the Chairman, of the contrast between the slow CPI numbers posted in 1986 with what likely will happen in 1987 and why this may not be all that significant--why it looks very high and should [not] give us all cause for concern.",324
-fomc-corpus,1987,"I agree with you. I am willing to explain something about the forecast--up to 3.9 percent. When it gets above 4 percent, it may get a little difficult to explain.",40
-fomc-corpus,1987,"That's the reason they pay you that big money, Mr. Chairman! In summary, our forecast is very close to the Board staff's forecast with the exception that we think prices may be a touch higher.",41
-fomc-corpus,1987,"Governor Johnson, a benediction here.",9
-fomc-corpus,1987,"I will try to be brief; just about all of the issues have been covered. Like Jerry, I just got back from Basle and, after talking to the other G-10 governors, I am a little less optimistic, I think, than I was when I left.",56
-fomc-corpus,1987,Just remember what you did to them the last time you were there!,14
-fomc-corpus,1987,"I'll admit to being the guilty party among the Board members who estimated the higher real GNP growth rate. I have been looking at the numbers, and I have been fairly impressed with several months of fairly good data. There are some end-of-the-year problems there, but I think there is enough evidence to say that things are starting to pick up. The staff's forecast on the trade deficit is looking pretty good. As I said, I was even more optimistic before I left to talk to the Germans and Japanese about it, so maybe I would cut that back a little now. But I do think things are looking better. On the tax side, I will make one point: one reason why demand may hold up a little better than some expect is that some people, I think, are overestimating what tax reform is going to do. There was a big surge to avoid the elimination of the sales tax deduction at the end of the year. I went back and checked the law and found that you really don't lose the sales tax deduction unless it's a special sales tax item. Any generalized sales tax is still deductible--at least that is what it says in the books. If you calculate your sales tax from the state tax tables, you can still deduct it.",253
-fomc-corpus,1987,I don't think that's right.,6
-fomc-corpus,1987,"Well, I went back and from what I could see it's still there.",15
-fomc-corpus,1987,We will have somebody look into this over night.,10
-fomc-corpus,1987,I sure hope you are right.,7
-fomc-corpus,1987,It will be interesting to know because that's what the accounting firms say in the books they put out.,20
-fomc-corpus,1987,"Well, I don't think we have to resolve this right now.",13
-fomc-corpus,1987,No. I am just saying that it's interesting. A few people may find that their deductions--,19
-fomc-corpus,1987,I have looked in two [publications] that said exactly the opposite.,15
-fomc-corpus,1987,If they can ever fill out their W-4 forms.,12
-fomc-corpus,1987,"A good point along those lines, Manley, is that the withholding went down for a lot of people and a number of retailers, particularly the ones that compete on price. I view that as a real positive.",43
-fomc-corpus,1987,"A lot of the interest deductions are being phased out, so it's not really a big hit all at once. That issue aside, I am reasonably optimistic about a turn in trade but it may not be as strong as I originally had thought because I am a little gloomier about the growth prospects abroad. It's going to be interesting to see. On the inflation side, I am a little more pessimistic. I have marked up my estimate about a percentage point, I think, from last July but that's basically a function of the oil picture as much as anything. The nominal inflation picture doesn't look that bad to me. There will be some pressure from import prices. But looking at the wage situation and the shift toward manufacturing--so at least there is some productivity away from the service area--I think it's going to be a little better. So, I am fairly consistent with the staff on the inflation forecast but I do think we have to be extremely cautious in that area. I agree with everyone else here that the psychology seems to be tilting the other way a bit. What's been happening in the financial markets with the dollar and some of the nervousness in the bond market should be watched very carefully. That's about it.",244
-fomc-corpus,1987,That ends today's session.,5
-fomc-corpus,1987,We can proceed with Mr. Kohn this morning and discuss the long-run ranges.,17
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1987,"I think we probably ought to turn to M2 and M3 first and see whether we can resolve those. But I have one question, just to isolate it, on M1. If I understand correctly, you're saying it's a matter of judgment but, for what it's worth, you're reluctant to say that growth would be less than 10 percent for M1; however, the model shows half of that.",82
-fomc-corpus,1987,The model shows rates on the order of 5 to 7-1/2 percent for M1 for 1987.,26
-fomc-corpus,1987,You just don't believe your models.,7
-fomc-corpus,1987,"That's correct. Some of these models showed rates only a little above that for 1986. Others were closer to the mark but implied such a marked slowdown, especially in the OCD component, that I have trouble believing them.",45
-fomc-corpus,1987,You have to put in a set of interest rate assumptions to make it--,15
-fomc-corpus,1987,"No, these model results are based on the interest rate assumptions behind the Greenbook forecast--that is, essentially very little changed.",26
-fomc-corpus,1987,"Yes, but growth greatly exceeded what they said for last year. Is that before or after the actual declines in interest rates that took place last year?",30
-fomc-corpus,1987,"Even after the actual declines in interest rates, several of the models underpredicted money growth last year. Our quarterly model didn't do too badly; it was under by about 2 to 2-3/4 percentage points--that is at about 12-3/4 percent.",58
-fomc-corpus,1987,And that model shows what for next year?,9
-fomc-corpus,1987,"That model shows about 5 to 6 percent, depending on the assumptions about offering rates and--",20
-fomc-corpus,1987,"We will return to M1, but it's more productive to look at M2 and M3 first as we did last time. Does anybody want to say something about M2 and M3?",39
-fomc-corpus,1987,Alternative II is for me for M2 and M3.,12
-fomc-corpus,1987,"Alternative II is all right with me, too. But I think it's important to give some signal that we're moving toward a little more restraint on the broader aggregates; at least, that is consistent with continuing to try to keep inflation suppressed. And I think there is enough room in that target to allow for that in a fairly significant way. Given what M2 did last year, with an explosion in M1 and the decline in interest rates, it doesn't seem that it's that sensitive. So, I think alternative II would be able to handle just about any event.",112
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"I prefer alternative II also. It would seem to me that the accommodation of 1986 is not as apt to occur; so 8-1/2 percent, even under a declining velocity scenario, does give us an equal opportunity to snug up a bit. But I do think, as we proceed with alternative II, that this year we should be aware of the fact that market forces are even more important. That is, if long-term bond rates and intermediate bond rates were to rise, it seems to me that, given the problem with the dollar, we ought to be particularly sensitive to those interest rates--on the down side also. I want alternative II with a proviso that interest rates ought not to be managed by the Fed much differently than the market forces would indicate.",157
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,"I like alternative II, but I get there by asking myself the question: What kind of a message ought we be sending? Monetary policy has largely been on a one-way street toward ease over the last two or three years, particularly last year. I think it's time to send the message that monetary policy operates on a two-way street: There are circumstances in which we might loosen some more but there are also circumstances in which we might tighten some more. And I think alternative II does send that two-way street message.",103
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"Mr. Chairman, I don't really see a great deal of difference among these various alternatives but, for psychological reasons, I would prefer alternative II. I think it is important that we send a signal to the public and to the markets that we are continuing to observe inflation. That will be particularly important this year and next year if the estimates of increasing inflation are accurate, which I think they are. So, I would prefer alternative II.",87
-fomc-corpus,1987,Mr. Parry.,5
-fomc-corpus,1987,"Mr. Chairman, I would favor alternative II as well. And I would make a suggestion as far as sending a message about the commitment to price stability. Some work that we've done indicates that it's quite likely that M2 will grow at the lower end of this range and, from reading the Bluebook, I got the feeling that some of the quantitative work the Board staff has done would suggest that as well. It seems to me that one thing we could do is have 5-1/2 to 8-1/2 percent for M3 and 5 to 8 percent for M2. That change, as far as M2 is concerned, would represent a full percentage point decline from what we had in 1986. And I think that would send a message.",158
-fomc-corpus,1987,Would you? Which way did you have this? The 5-1/2 percent would be for what?,23
-fomc-corpus,1987,Have M2 at 5 to 8 percent--,11
-fomc-corpus,1987,M2 at 5 to 8.,9
-fomc-corpus,1987,And M3 at 5-1/2 to 8-1/2 percent. Some of the work that we've done would support that and--maybe Don can comment on this--I think some of the quantitative work the Board staff has done suggests that M2 would grow in the low end of the range.,64
-fomc-corpus,1987,Let me just pin that down. I read the opposite someplace--maybe you had it--that M3 would grow less than M2.,28
-fomc-corpus,1987,"No, no.",4
-fomc-corpus,1987,"Actually, that was our judgment given what we expect for bank and thrift credit growth, which tends to drive M3 because of the managed liability component; we expect that to decelerate substantially. We had M3 at 7 percent or a tick below, between 6-1/2 and 7 percent. M2 at 7 percent was judgmental. Mr. Parry is absolutely right in the sense that our quarterly model, as I tried to indicate in the briefing, was showing something on the order of 6 to 6-1/2 percent for M2 growth, which is in the lower end of the range. I think his model is showing more like 5 to 5-1/2 percent.",149
-fomc-corpus,1987,This is between models and judgment. Governor Heller.,11
-fomc-corpus,1987,"Well, I'm in favor of alternative II but now you've got me a bit confused. First of all, let me remark on the short-run alternatives. I realize we may want to discuss it later, but the target for the first three months is rather high. It's at the high end of the range for M2 and the lower end of the range for M3. I think that's what Chairman Volcker was just talking about. But San Francisco also got me confused. You are in favor of discount rate cuts yet you want to have a tighter monetary target?",112
-fomc-corpus,1987,I don't vote on the discount rate.,8
-fomc-corpus,1987,I'll stick to alternative II.,6
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"I would definitely not favor alternative I. The choice, in my view, is between ""II"" and ""III"". We have established a pattern over the last few years of reducing the range on a yearly basis and alternative I would certainly break that. Between alternatives II and III, I see no particular reason not to choose alternative II, which we adopted [on a tentative basis] last summer. Certainly, there seems to be an expectation that we can hit that and alternative III might suggest a change in policy that we don't really intend at this particular point. So, I'd end up with alternative II.",120
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"Mr. Chairman, I'd be reluctant to reduce the ranges a full percentage point as alternative III suggests, and I think we'd risk confusing the market if we went with alternative I. Besides, I think the staff has made a good case for alternative II as encompassing, probably, all the reasonably likely behaviors that we might see in velocity of M2 and M3. So I can go with ""II"" like everyone else.",84
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,I'll try to keep this short: alternative II.,10
-fomc-corpus,1987,Well said.,3
-fomc-corpus,1987,Mr. Morris.,4
-fomc-corpus,1987,I vote for alternative II as well. One thing we ought to keep in mind is that the elimination of IRA accounts is likely to drive up M2 relative to income. That's why I'd be concerned about moving the M2 target down to 8 percent. We may need a little more room for that. The Bluebook says you don't expect much effect in 1987; I'm not sure why you feel that way.,84
-fomc-corpus,1987,"Well, I agree with you on the direction. The question is the magnitude. Our feeling was that we might have stronger inflows early in the year both from people who might have postponed putting money in last year, partly because of all the uncertainty with the tax law, and from people who wanted to make sure they took full advantage of their ability to use IRAs under the 1986 law since it was going to be the last chance. Flows later in the year would indeed be lower, but this might be offset by the--",108
-fomc-corpus,1987,"You can still put money in an IRA for last year, can't you?",15
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,That's correct--through the 15th of April.,11
-fomc-corpus,1987,Up until April 15th.,7
-fomc-corpus,1987,The last one.,4
-fomc-corpus,1987,I don't see why it should affect this year much; it may affect 1988.,18
-fomc-corpus,1987,But in 1988 it clearly would be a factor.,12
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Mr. Boykin.,5
-fomc-corpus,1987,Alternative II.,3
-fomc-corpus,1987,Ms. Seger.,5
-fomc-corpus,1987,"I don't see a big difference, frankly, between alternatives I, II, and III. We're talking about 1/2 of a percentage point between each one. When we discussed this last summer in July, one of the points I made when I opposed changing from the ranges we had for 1986 was that I didn't think we had the predictive tools to come up with these fine gradations of economic impact. Six months have gone by and I guess I'm still not convinced that we can readily say with great confidence that there's going to be a major difference in impact on the economy with ""I"" versus ""II"". So that leaves me with the psychological side. I guess if you think that this is the kind of thing that will send a big message to the world out there that we're tough rather than weak on inflation--I happen to think they look at a lot of things and not just our ranges--I could reluctantly go with ""II"". But I still think a more honest presentation would be just dealing with round numbers, say, 6 to 9 percent.",215
-fomc-corpus,1987,Mr. Stern.,4
-fomc-corpus,1987,"I favor alternative II as well. For what it's worth, our model suggested that M2 growth would probably turn out to be near 8 percent in the year ahead. But our model also has a somewhat stronger picture of the economy than the Greenbook forecast; if you were to plug in something akin to the Greenbook forecast I think you'd get something comfortably within that alternative II range for M2.",80
-fomc-corpus,1987,Mr. Guffey.,6
-fomc-corpus,1987,"I would also favor alternative II. I don't have a great deal of faith in M2 or M3 as a guide to policy. If you look back over the history of M2, for example, over the last 5 or 6 years it has varied between 8 and 9 percent except, I believe, for 1983. Many things have happened--policies have changed, interest rates have dropped--and still growth comes out to be 8 to 9 percent. As a result, it doesn't seem to me that it's a very reliable guide.",115
-fomc-corpus,1987,Like M1.,4
-fomc-corpus,1987,We expect to see--,5
-fomc-corpus,1987,All guides are unreliable; some are just more unreliable than others.,13
-fomc-corpus,1987,"Mr. Hendricks, do you have something to add from Cleveland?",15
-fomc-corpus,1987,"We also believe it would be appropriate to adopt the same ranges for 1987 that were set in July, so we would favor alternative II.",29
-fomc-corpus,1987,"Well, we seem to have great unanimity. I, personally, could make a case for alternative III. I thought the Bluebook set that out rather convincingly but I won't make the case. Alternative II is obviously the easy thing to do; it's a nice compromise. I interpret this to mean, without being very rigid about it, that we expect growth to be someplace in the middle of the range; this time it's a target set reasonably symmetrically around where growth should be. Let us turn to M1 with this caveat--that if we wanted something like variant I [in the Bluebook], which I think has some informational content, I'm not crazy about the particular language proposed. I think it needs a little work, and I'm a little reluctant to rewrite it in detail right now rather than during the break. I haven't got another proposal to put in front of you, if we end up with that one. I'm making an assumption that we're going to end up there, which may be wrong. I think we ought to discuss it. But if we think something like variant I is correct I would just defer final consideration until we get some possible modification to the language in front of us. It would be along these lines, but not precisely this language. I may be wrong about whether that's where we'll want to end up, but let's see. We're open for discussion on M1.",280
-fomc-corpus,1987,"I'll try. And this is going to muddy the waters right off the bat, so I apologize.",20
-fomc-corpus,1987,"Well, after all--",5
-fomc-corpus,1987,"Just looking at it in terms of variant I and variant II, predictably, I come out somewhere between the two. I don't think I have to restate the reasons why that's where I am. But I would like to suggest that at least we start out with something like the first sentence in variant I.",62
-fomc-corpus,1987,That would be the part in the first bracket or something?,12
-fomc-corpus,1987,"No, the first sentence. And then put in something like this: ""Looking to 1987, in the context of moderate economic growth, continued moderation in inflationary forces, and absent major changes in interest rates and exchange rates, the behavior of M1 relative to income and prices might return to more normal relationships. In those circumstances, growth of M1 in a range of 4 to 8 percent--or 3 to 8 percent or 3 to 9 percent-- would be appropriate."" Then I would say: ""Because of the continuing uncertainties, the Committee decided not to establish such a target at this time, but would be prepared in appropriate circumstances to reestablish such a target range."" Now it stops short; clearly, it's not a target. I don't even really think of it quite as a monitoring range. Nevertheless, we have a couple of numbers there in a context of an economic scenario. And we're saying that, in that context, those numbers mean something. So I think of it as a combination of ""I"" and ""II"".",215
-fomc-corpus,1987,That's all you would say?,6
-fomc-corpus,1987,"Well, we'd have all that other stuff.",9
-fomc-corpus,1987,All what other stuff?,5
-fomc-corpus,1987,"Some flavor of the language at the bottom of Don's current variant I. In other words, put in some of this language here that would deal with what we would do--meaning probably nothing--if one of those assumptions were widely off the mark. Clearly, if the exchange rate fell out of bed, signals would be off. If the economy were very sluggish, signals would be off. I said it would muddy the waters.",86
-fomc-corpus,1987,This assumes that we know what the normal relationship of M1 to income is.,16
-fomc-corpus,1987,"Yes, I have great doubts about that. Mr. Morris, we'll let you talk.",18
-fomc-corpus,1987,"I think we still persist under the delusion that there is a normal relationship between M1 and nominal GNP that is going to reassert itself at some point. The mistake in this kind of thinking is that this is a brand new aggregate. It's not like M1 was; interest is being paid on these deposits. And I think it's going to be a number of years before we know what the normal relationship of this new aggregate is to nominal GNP. So I still think it just does not make sense to set a range, given this level of ignorance about this new aggregate. I don't think we know any more about it now than we did last year and we had a miss of more than 7 percentage points. I think that's a testimony to the fact that this new aggregate, which we call M1, has behavioral characteristics that it's going to take us a long time to understand. To set any kind of a range for it for 1987 would be a mistake.",197
-fomc-corpus,1987,"In general, you like the kind of language that's in variant I?",14
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"Let me just make the case for this because, as I obviously indicated earlier, this is the way I'm leaning. I think we ought to take M1 seriously in a sense--in a certain economic context that isn't fully predictable--and we ought to tell people that. We can't be very precise about the numbers. But I think it is saying something. We could say: If inflation is building up or the dollar is very weak we would expect M1 to be quite low and that would be appropriate. In other circumstances, we would expect it to be quite high without getting worried about it. That is saying something. We ought to try to say something about it and if muddies the waters--. It seems to me that to suggest some normality over a very wide range doesn't mean much.",160
-fomc-corpus,1987,What you're basically saying is that if velocity starts to rise we need to pay attention to it. If it goes down we don't.,26
-fomc-corpus,1987,"Well, one way of putting it is that we would expect velocity to rise under certain circumstances or we might even force it to rise, in a sense, and that would be entirely appropriate. What we really want to say is: You shouldn't be surprised by a low M1 number; on the other hand, we wouldn't get concerned in certain circumstances about it remaining high. I'm not sure what sticking a number in there that we don't know much about adds to that. We end up with a range so wide that it's meaningless. What we really want to say is that we think a low number would be appropriate under certain circumstances and we think a high number would be appropriate under other circumstances. But we've got to describe the circumstances in which that would be true. It gets complicated, and that's what makes writing the precise words difficult. But I think that's the sense of what we ought to say.",178
-fomc-corpus,1987,"Would you go on in those circumstances to suggest that if certain events transpired that, at a later date, we would think about a range?",29
-fomc-corpus,1987,"Well, I think we could say that more generally. It's hard to put it in the directive. I think we could put in a sentence later on. I don't know what we would say because I have some sympathy for Mr. Morris' point that if it's going to be very interest-rate sensitive we're always going to be saying that it's going to be high or low depending upon the trend in interest rates. And I'm not sure what that's saying. I guess the point we ought to make is--we can't put this all in the directive but we could put it in the other discussion--that we have a much more highly interest-sensitive aggregate here. And the message we ought to be emphasizing is that, depending upon circumstances, M1 might vary widely into the extended future based upon what we know now.",160
-fomc-corpus,1987,"I think that's an excellent way of doing it. It seems to me that in a reemergence of an inflationary environment in which interest rates were trending up the range should be as low as maybe 2 to 6 percent. On the other hand, if deflationary forces were to pick up speed again and we had this demand for financial assets it might very well be that 8 to 13 percent would be right. Whatever the case, I think it ought to be less than last year. But I like the suggestion. I think it would be appropriate for us to suggest that since we've had a period in which M1's growth has been very, very strong, we realize that there must be another period in which M1's growth path is indeed going to be below what we would ordinarily expect it to be.",168
-fomc-corpus,1987,"That is part of my concern. We may well run into such a period whether it is this year or not. But we're [not] going to want people jumping off wildly if M1 is very low for a while because it might be entirely the reflex of what we've had in the past and be entirely appropriate. On the other hand, I don't want to give Mr. Proxmire too many hostages--just to name one, that we think it's a disaster that it has been as high as it has been under the particular circumstances that have prevailed to date.",114
-fomc-corpus,1987,"If M1 growth were to be low and deflationary forces were to pick up again and the dollar was not weak, that's another matter.",29
-fomc-corpus,1987,That's the way I see it. I just don't see that you add much by putting in a figure which could be exceeded in either direction from an already large range.,33
-fomc-corpus,1987,"As I hear this, I think the difference between what you're saying and what I said is a fairly narrow difference, because all I was trying to say is use a number to indicate where we thought M1 might be if everything were, in a sense, working right. In other words, if the economy were growing at a reasonable rate and nothing was happening on inflation, exchange rates, or interest rates, this is a kind of central tendency where we think M1 will come out. But if any one of those conditions is not present, M1 could come out way above or way below it.",120
-fomc-corpus,1987,"I'm not arguing that the difference is huge. This is an extreme example, but suppose we really thought the situation was such that inflationary forces were picking up, the economy was at the high end of all the ranges of projected growth, and the dollar was weak--we put in all these assumptions--and M1 really came out very low for a few months, anyway. I'm not sure I want people hollering at me that we have a range that is 4 to 9 percent or something and the middle of that is 6-1/2 percent and M1 is only coming in at 4 percent and saying oh my heavens [policy is] way too tight! Because I'm not sure it would be way too tight.",148
-fomc-corpus,1987,"But under some circumstances it might be way too high because if we come down the demand curve for money with interest rates falling, if interest rates were to rise it has to hold that our growth path would have to be much, much less than we normally would have thought.",54
-fomc-corpus,1987,"Well, I think that's the problem--it would change that interest rate differential even if we hadn't acted to change short-term interest rates because of inflationary expectations affecting the long end; we could get a decline in the aggregates or a slowdown even if we hadn't tightened at all. And we might want to tighten, and everybody would think that we had.",70
-fomc-corpus,1987,"Yes. Or, if we had not accommodated last year and the discount rate were still at 7-1/2 percent, it seems to me that we would have had a macroeconomic result of a lower real GNP growth path than we had and we still would have had dramatic declines in velocity.",61
-fomc-corpus,1987,"Well, does somebody else want to add to this? Mr. Melzer.",16
-fomc-corpus,1987,"Basically, I like this language or the concept of it. I might just suggest an extension to what you've suggested. What you have suggested makes a lot of sense. In general, I have some problem with the signaling effect of abandoning a narrow aggregate altogether. As I said at the last meeting, I'm not sure that we have the right one in M1 as it is now. Also, I'm not sure that we can really pick another right one right now. I think we have to let this unwinding of inflationary expectations that's been in process sort of run its course. I don't think any of us is confident that it has done that, so I don't think it's a good time to pick another narrow aggregate. Roger Guffey commented before, and I agree with him, that what we do with respect to M2 and M3 doesn't have much of a signaling effect at all. I'm afraid that not setting any target at all for M1 could potentially have a negative signaling effect. And as you've observed, Mr. Chairman, it could have a negative effect on Mr. Proxmire. I would suggest that we consider setting a target along the lines of what Don suggested based on what we know now. We could set a target range for M1 of, say, 7 to 13 percent, but with language surrounding it indicating that we might miss that on the up side or the down side. Now, when I thought about this, I was concerned about what the implications of that might be. But if we add to that the kind of language that's in variant I with respect to missing that substantially on the down side--and also recognize that we've got to approach this target flexibly and we ought to be prepared to change it--I think that there's some advantage to having the target out there. As I said, not having a narrower aggregate--which is what we can really exert some control over based on our behavior and what we do with reserves--could send a negative signal. What you're suggesting could potentially be misread in the other direction as well. The 7 to 13 percent range certainly puts out a clear message in the market that we expect the very rapid growth rates in money that have occurred in the last two years to come down. We expect, and intend in a way, to commit ourselves under certain circumstances to bring those down.",474
-fomc-corpus,1987,"Boy, 7 to 13 percent sounds to me--and this is part of the problem--wildly high in terms of sending out a message right now. It may not turn out to be.",41
-fomc-corpus,1987,And the 7 percent could turn out to be much too high.,14
-fomc-corpus,1987,"Oh, I understand that.",6
-fomc-corpus,1987,"But I thought Tom Melzer was saying that 2 to 6 percent under certain circumstances might be the right range, but 7 to 13 percent under other circumstances might show restraint compared to what happened in 1986.",46
-fomc-corpus,1987,"Well, I think putting a number--",8
-fomc-corpus,1987,It doesn't sound very restrained to me.,8
-fomc-corpus,1987,"That is precisely the trouble. If we talk about a range that high I don't know what we can say. We have a problem with what we say if we use something like variant I. It could be misinterpreted; I have no doubt about that. A lot depends upon what we say. My own gut feeling is that, ideally, by putting it in a more realistic context we're putting more weight on M1 than by putting out a target like 7 to 13 percent and saying it may go below it or above it.",108
-fomc-corpus,1987,"In a way, with inflationary expectations on the rise right now, somehow I would like to see the message out there that we've noticed that.",29
-fomc-corpus,1987,But 7 to 13 percent doesn't give that message to me.,14
-fomc-corpus,1987,I think something like variant I in combination with ratcheting down M2 and M3 at least gives that signal.,24
-fomc-corpus,1987,I agree with that.,5
-fomc-corpus,1987,It conveys that message.,5
-fomc-corpus,1987,"Yes, I agree with that. I think putting a number in gets in the way of what you're trying to explain.",24
-fomc-corpus,1987,That's my point.,4
-fomc-corpus,1987,People are going to have to think a bit about the implications of what is in variant I. If we put a number in there people are going to look at the number and forget about what we're really trying to say. That's why I like variant I without a number.,54
-fomc-corpus,1987,You have expressed my gut feeling. I think that we send a better substantive message without a number--and we don't know what the number means anyway.,30
-fomc-corpus,1987,"Okay, if you accept that part, how do you get away from the fact that we're walking away from a narrow aggregate target at all? It's not that M1 is the right one, but how do we get back into that ball game down the road?",52
-fomc-corpus,1987,"Well, I don't interpret it that way. Given all the difficulties of explaining this, that is not my feeling. Unfortunately, the fact of the matter is that we are in a situation where we can't interpret M1 in terms of anything like an appropriate growth rate. So we're going to be very vague anyway.",62
-fomc-corpus,1987,If it's as interest sensitive as it appears to be--,11
-fomc-corpus,1987,"We can't evaluate M1 without taking account of what's going on elsewhere, and that's what we ought to be telling people. We want to take it into account but only in the context of specific economic circumstances. And that's what we ought to be trying to tell them.",53
-fomc-corpus,1987,"Tom, doesn't that say more precisely that if we return to a period of inflation actually being there--and with the behavior in regard to preferences for financial assets waning--that we would then expect to come in with some rather conservative numbers?",48
-fomc-corpus,1987,"Yes. As long as abandoning the concept of setting a target does not take away the fact that we think it's important to pay attention to what M1 does and that it has to be evaluated under certain circumstances, that's fine. As a matter of fact, on that point I asked our people to look at what would happen if velocity went back to what it was--roughly a level of 7 at the beginning of 1982--over a two-year period. If that were to happen, based on the liquidity that's in there, we could have roughly 5 percent nominal GNP growth each year without adding any more money.",127
-fomc-corpus,1987,That's right. Zero would be appropriate.,8
-fomc-corpus,1987,I'm very sensitive to the problem on the down side. I just also am very concerned about the signaling effect--making sure that the message out there is that we can't set a range but we're paying close attention to this narrow aggregate in the context of what's going on more broadly.,55
-fomc-corpus,1987,"If M1 is really symmetric, interest-sensitive wise, we could be sitting around trying to ignore 2 percent M1 growth--",26
-fomc-corpus,1987,Exactly.,2
-fomc-corpus,1987,"--when the economy was growing, just like we're trying to ignore 15 percent now when the economy is sluggish. I think that lends some weight to what Bob Black has been talking about--more of a price rule. I'm not sure how you do that either, but in a period like this it seems to me that we have to be more sensitive to some sort of price signal.",77
-fomc-corpus,1987,"It also supports what President Morris has been saying, and I think he's right: that we haven't seen all of the reshuffling that will take place under the deregulated environment that we're in. But at some point in time, those savings accounts are going to get reshuffled with the transactions account to the extent that they're going to be. And I think that--",72
-fomc-corpus,1987,"I think it's quite specific. What I think we ought to be able to say when we are attacked [and accused of] being wildly expansionary now and building up inflationary pressures and all the rest, is: Look, [we will act] if we see evidence that that's true, which we haven't seen heretofore with the weights, trends, and a lot of other things. But we recognize all those dangers. We agree with you that we couldn't keep feeding out M1 like this and we ought to be prepared, and you ought to be prepared, to see M1 level off rather abruptly under those circumstances. We contemplate that under that particular set of circumstances. On the other hand, if there are no inflationary pressures, and the economy is weak, and we haven't got any particular dollar problem, and we have not seen the dangers of this kind, and M2 and M3 are behaving all right, then we don't think your criticism that we're unduly easy is valid.",200
-fomc-corpus,1987,Would you want that check list to be in there?,11
-fomc-corpus,1987,Yes. I think we have to be quite careful about how we put it in there--that's why I have some quibbles about this language here--but that's what I want to convey.,39
-fomc-corpus,1987,"Yes, it seems to me that we do need to draft that [unintelligible] because we need to indicate what might occur in that check list that would bring back these M1 targets in a meaningful way. The market has to expect that, if those things occur, we will act. Of course, if the market believes this and those things start to occur, then we're going to have a market forced interest-rate response based upon that expectation, and we will have achieved our objective.",99
-fomc-corpus,1987,"I think a 7 to 13 percent range would be telling the market that we don't intend to push interest rates up this year no matter what happens, because as soon as there is a little rise in interest rates the growth of M1 has got to swing pretty rapidly.",55
-fomc-corpus,1987,"Mr. Chairman, I think this variant I as you've suggested is really the one that we ought to use for the reasons that you indicated. I was inclined to be sympathetic to Jerry Corrigan, but you made some pretty tough points on that. At the same time, I think Tom Melzer has a point, too. In a period when the risk of inflation seems to be increasing and the risks of [rising] inflationary expectations also are increasing, there could be concern about the dropping of M1 [as a target]. That's the reason, really, that we put forth that idea of putting an inflation target in there to reassure the public that we had not lost our determination to deal with inflation.",142
-fomc-corpus,1987,"Well, a lot depends upon the language that we use in the testimony and so forth. I would see at least as much danger there. It will be delicate to write it. I could easily write this in a way that locked us in more than we might want to be locked in to a lowering of M1 if we saw any sign of increasing inflationary pressures. I don't want us to be locked in too much either.",86
-fomc-corpus,1987,"Well, I think we should create that expectation.",10
-fomc-corpus,1987,"I think people have to be warned. My principal concern is that we should warn them that under those circumstances, which may or may not eventually occur, we expect a pretty low Ml.",37
-fomc-corpus,1987,And I think a continued depreciation of the dollar should be included among those.,15
-fomc-corpus,1987,"The question is the difference between expectations and actions, too. It may go beyond just expecting it; we might be prepared to take steps to achieve it.",31
-fomc-corpus,1987,Sure.,2
-fomc-corpus,1987,That is the desirable aspect of a narrow aggregate [target] because we can affect its behavior.,19
-fomc-corpus,1987,"If it's written with that warning, the fact that we dropped a specific range won't be interpreted as meaning that we're dropping M1 as something of significance or potential significance in the future.",36
-fomc-corpus,1987,And it avoids this problem of where we would start off the year if we used any M1 range. Where we would start off the year when we're so far behind in the cone? We'd have that problem to look at.,45
-fomc-corpus,1987,"I visualize, in just describing policy as the year progresses, that if we put in some range, we'd be stumbling all over ourselves to say there's a range but it doesn't mean anything under certain circumstances. I don't think that does us any good.",49
-fomc-corpus,1987,"What we'd be saying, I presume, is that at a future FOMC meeting we might announce a short-term target range for M1. It might be the case that that would even be announced prior to the next FOMC meeting, in some circumstances.",53
-fomc-corpus,1987,"Yes, I don't think that would exclude that at all. I haven't thought about that, but I think that's right--that in particular circumstances as the year progresses we might want to stick in an M1 target. And I think we can even say that.",52
-fomc-corpus,1987,"Well, that goes a long way in addressing my concern.",12
-fomc-corpus,1987,"I'm not saying that I can't anticipate the situation in which we would do that, but--",18
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,"But I think we can certainly say that in certain circumstances we might, in the short run, name a target for M1.",26
-fomc-corpus,1987,"To put this in a slightly different context: If you took the sentence in variant I that people are focusing on and the Committee decided not to establish a range--not a target, not a monitoring range, nothing--it's as though we're putting M1 lower on the ladder than debt. That's the danger.",61
-fomc-corpus,1987,"Operationally, I don't think it has to be interpreted that way.",14
-fomc-corpus,1987,"I agree with that, but that's the danger.",10
-fomc-corpus,1987,But the language should be changed. The language should be changed to say that and [to indicate] the circumstances under which M1 will be established rather than that we're not establishing it.,37
-fomc-corpus,1987,"Well, if we have a full paragraph devoted to M1, I doubt that people will view that as downplaying the significance from where it is.",30
-fomc-corpus,1987,"I think we need to be clear in this discussion that we're not really abandoning M1. I don't interpret this language as doing that. In fact, quite the contrary. This does indicate that there will be continuing observation and surveillance of M1. And I would think that, as the Chairman has indicated, the market would respond favorably to this because I think basically now they're just ignoring M1 completely. In this variant I, no matter how we change the language, the thrust of the language is important to get out to the market. I think that this really is just going to be a confirmation of past events and that they'll respond favorably. I don't interpret this at all as being an abandonment completely of M1 nor do I think, if the language is done correctly, that it puts M1 lower than the debt aggregate.",167
-fomc-corpus,1987,"Well, I like variant I with maybe a proviso that we might bring M1 back on an intermediate-term basis if we need it and if conditions arose.",32
-fomc-corpus,1987,"I have a little problem with the thought that we would, at a particular meeting, resurrect M1 for some limited period of time or forevermore. I don't think we know enough about it to do that unless we got into a real bind in which we needed to call upon M1 in order to move interest rates to 20 percent. I wouldn't want to use--",74
-fomc-corpus,1987,I don't think it's very likely that we would.,10
-fomc-corpus,1987,"I don't think we're going to move to 20 percent, but I can visualize a circumstance--suppose M1 were rising rapidly and some of these were moderating at a time when we were increasingly worried about inflation and saw some signs of the economy doing pretty well and, say, we wanted to tighten up. In that context I could well see a change in the particular arrangement we're doing. In the Committee's operating directive presumably we'd say we're putting more pressure on reserve positions and the Committee is looking toward a slowdown in the rate of growth of M1. I can quite see that.",118
-fomc-corpus,1987,That's a bit different than establishing a target for an intermediate period.,13
-fomc-corpus,1987,"Well, we might want to say the Committee is looking toward a slowdown to no more than [unintelligible], if we felt strongly enough in a particular circumstance. There's some variance between putting in 7 percent or 5 percent or something and saying we're looking for a clear slowdown. And all those [options] are open to us.",69
-fomc-corpus,1987,What would you say if the long end of the bond market had been deteriorating because of building inflationary expectations from a decline in the dollar or something like that and M1 was already decelerating quite rapidly because of the change in the interest rate spread. I don't know what you should say.,60
-fomc-corpus,1987,We welcome the slowdown in M1 under the circumstances.,11
-fomc-corpus,1987,But we may want to tighten under those circumstances and yet M1 is decelerating sharply.,19
-fomc-corpus,1987,But under those circumstances M1 is going to slow down later. Bond buyers are not going to be very pleased by that circumstance and rush into long bonds until they think the recession is tightly--,38
-fomc-corpus,1987,"We might see a rush out of liquid balances--if there's an interest sensitivity there--into CDs fairly quickly; I don't know. When that change in interest rate spreads develops and all of a sudden M1 starts falling quite sharply, that would have an expectational effect on the long end.",58
-fomc-corpus,1987,"I always wished that the bond buyers would behave that way, Manley, but I never found that they did. Once interest rates start up on the short end bond buyers get scared that it's going to continue. So it takes a while before that response--",51
-fomc-corpus,1987,"Well, that's their response to a tightening move. I think that you can see bond buyers move on inflationary signals without moving the short rates at all.",31
-fomc-corpus,1987,Does somebody else want to add to this discussion?,10
-fomc-corpus,1987,I think the bottom line still is that we have no idea what the demand for money function looks like. And to put in a quantitative target--,29
-fomc-corpus,1987,"I think you're overstating it a bit. In precise terms, I agree with you. But I think we do have a sense that it's very interest sensitive.",32
-fomc-corpus,1987,"Yes, but there are a lot more factors in it too. There's the whole deregulation angle still in it. And, as Mr. Morris said earlier, that makes it very difficult to do. The one trouble I have with the different economic scenarios in defining the alternative growth path is that if you mention the dollar--if the dollar should go down or if the dollar should do this--you're hooking yourself.",82
-fomc-corpus,1987,"The trouble is there are too many ""ifs"". I agree, but I think all we can do is give some sense--",25
-fomc-corpus,1987,"But what are you going to do if some senator then says: Well, what do you expect the dollar to do? And what will you do if the dollar goes down by 10 percent? And then what if it should do this? That's--",50
-fomc-corpus,1987,"We're going to have at least three variables and, fortunately, they're not all likely to be moving in the same direction. We have growth, inflation and inflation expectations, and the dollar. And it leaves us open to all kinds of questions. If growth is weak but inflation is strong and the dollar is mixed, what do you do? Those questions are just unanswerable.",75
-fomc-corpus,1987,"I trust you can dress it up well in the testimony. But I think one of the things we really should do is redouble our efforts to study M1 and the proper definition of M1 so that we will be able to sort out some of those behavior patterns. Maybe we'll be able to do that in a better way than we're able to do it right now. In any case, I would avoid setting a figure for M1 growth.",89
-fomc-corpus,1987,"Let me say if we don't set a figure, presumably we will say, in some words, that we're not going to establish a range for the year as a whole at this time--which is what this says. Probably some general language that we expect it to be lower this year than last year is appropriate. And then we give some clear flavor about the conditions in which we would expect it to be either high or low without being definitive about it. Those are the essentials we want to get in this paragraph.",102
-fomc-corpus,1987,And the idea that it might be or could be targeted [later].,14
-fomc-corpus,1987,"And at a particular time during the year, the implication is that we may specify a target. Those four thoughts somehow we should get in the paragraph. I know that's pretty vague. We'll come back with [specific] language; I think it needs a little massaging. Is that acceptable, generally?",60
-fomc-corpus,1987,I assume also that this M1 performance would be evaluated in view of the other aggregates that we have set targets for.,24
-fomc-corpus,1987,"Yes, that point would be made. The context in which rapid or slow growth would be appropriate would depend upon the other aggregates.",26
-fomc-corpus,1987,"Let me see. I think I've got five points. You have four, you're saying?",18
-fomc-corpus,1987,You can get but so many in the paragraph.,10
-fomc-corpus,1987,"No, no I think I've got it. You're saying: first, there's no target as such; second, there is some broad expectation that M1 will be slower this year than last year; third, you loosely specify some conditions under which it could be very high and loosely specify conditions under which it could be very low; and then--",68
-fomc-corpus,1987,"I would say ""should be."" That's one of my language changes here: not just passively ""could"" but ""should.""",26
-fomc-corpus,1987,Then you have some language that would suggest there are also conditions in which we would react to it.,20
-fomc-corpus,1987,"Oh yes, I think that's clearly the case.",10
-fomc-corpus,1987,"That's if the ""should"" doesn't come about.",10
-fomc-corpus,1987,Just a point of clarification. The way it has been discussed it's almost as though we're not talking about an operational target but we're talking rather about predicting M1 on the basis of the economy.,38
-fomc-corpus,1987,"Well, it has that flavor. But, as I see it, it's more operational than setting out a target that we don't know whether we should exceed or undershoot. In my view, I am trying to make it operational.",46
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"If the ""should"" provisos are violated, it would make it operational.",16
-fomc-corpus,1987,"That's right. As I see it, we face just the mere fact of complexity here. Now we look upon M1 differently depending upon what's happening. That's what we have to try to describe. And it is operational; it's not operational in a 2 percent range or something because we don't know that much about it. But we're pretty clear that we want it low under certain conditions or high under certain other conditions. If there are no violent objections to that, why don't we move on. We have to try and write this in a way that's precisely acceptable. But if we assume that that is the framework in which we will modify or fool around with this language a bit, we'll try to fool around with it. That's better than sitting around the table doing it, in my opinion. Somebody's got to be a draftsman, namely me. I'll try to get something typed up and you can look at it after the break. But why don't we pass on. I will assume that the M2 and M3 targets are going to be those in alternative II with the surrounding language saying that we think these are reasonable targets and the midpoints are appropriate. I think that temporarily closes the long-term ranges to which we will return. Let's turn to the short-term ranges. Mr. Kohn, do you have something to say about the short term?",270
-fomc-corpus,1987,"A little, sir. [Statement--see Appendix.]",11
-fomc-corpus,1987,"I will only comment that when I look at this, we are now in the middle of February and so little of what happens between November and March depends upon what we do now. That raises a little question in my mind about whether it's appropriate and whether it's conveying much information to stress these objectives in terms of a November-to-March period that included all this very exceptional stuff at year-end. Maybe we want to say something about M1, at least in terms of its direction, given that enormous bulge over the year-end. With the completely neutral statement that we have in the directive now, in line with the conversation we just had, I don't think we can be very precise. I don't know; it would be totally unconventional, but maybe this is the time we want to have a forward-looking range for M2 and M3 rather than one that encompasses almost 2-1/2 or 3 months of history and only a month and a half that is forward looking.",197
-fomc-corpus,1987,It might be better to say January to March than it would to say November to March.,18
-fomc-corpus,1987,Or else even make it--,6
-fomc-corpus,1987,Go to April.,4
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Go into the second quarter.,6
-fomc-corpus,1987,We could almost put it as the second-quarter objective or February to June or something. I don't know.,21
-fomc-corpus,1987,That has a lot of appeal.,7
-fomc-corpus,1987,"We could just set one for the first half of the year, January to June. Set the whole thing--",22
-fomc-corpus,1987,"Well, it seems to be that there's a lot that we don't know. I hate to look that far ahead. It seems to me that we're going to know more about what we would want it to be in June when we get to March than we do now.",53
-fomc-corpus,1987,I think we'll be looking at the second half.,10
-fomc-corpus,1987,[March is] only two or three more weeks.,11
-fomc-corpus,1987,"I agree with Wayne on that. We just set our long-run targets. And the purpose of these meetings twice a quarter is to set policy for the next six weeks, really. I think that's what we ought to do: set policy for the next six weeks rather than try to set it for the first half of the year.",66
-fomc-corpus,1987,"We can call it January to April, which would be under the control of this--",17
-fomc-corpus,1987,But with April--,4
-fomc-corpus,1987,"I don't know; the thought just occurred to me. But, is it so bad saying the first half of the year? Obviously, we can review that again, but right now that's what we're saying is consistent with our stated objectives for the year as a whole.",53
-fomc-corpus,1987,"I hate to get us in the position of having to back off or of having to change that. What we were saying previously would indicate that conditions might be such that what we say now would need some adjustments. So, I'd rather not stretch the time period out and then have to alter it. In the past we've found that once we set it and then needed to alter it that that created expectations--",80
-fomc-corpus,1987,"Well, I've been sitting on the side of being against altering it in the past from a quarterly period, although we do that now infrequently. We would do it this time if we--",38
-fomc-corpus,1987,If we did it for the first half of the year would we use December to June?,18
-fomc-corpus,1987,"Oh, no. We could do it from January to April but that's unorthodox, too, in getting in the middle of a quarter.",29
-fomc-corpus,1987,I know.,3
-fomc-corpus,1987,I think it would be best to use January for the base because that's really the latest date.,19
-fomc-corpus,1987,"It's kind of unorthodox, but in some ways it makes more sense than using November as a base in this particular case.",26
-fomc-corpus,1987,If you take the end of December as a base then you have a good chance that--,18
-fomc-corpus,1987,Let me approach it differently. Let's discuss what we actually want to do in terms of reserve pressures.,20
-fomc-corpus,1987,"I don't know, given what's been happening with the dollar and the stronger data we've had--although I think there's a lot of year-end influence on those data, and we don't have a clear picture yet. But I think, as Ed Boehne and some other people mentioned yesterday, there are some expectational effects out there that are starting to develop from a lot of this move in the dollar and some of the things that have been going on in the international sector. So, I don't know. I'm not for any major changes but I am for going back to tilting our nuances.",118
-fomc-corpus,1987,The other way?,4
-fomc-corpus,1987,Keeping a $300 million borrowing target but shifting the nuance back to asymmetrical language toward the tighter side.,21
-fomc-corpus,1987,"That's exactly the way I'd come out, I think.",11
-fomc-corpus,1987,"I agree with that, too. I think that's just right.",13
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"Well, maybe we don't have to go around the table. Is that the [consensus]?",19
-fomc-corpus,1987,That's good.,3
-fomc-corpus,1987,That sounds good.,4
-fomc-corpus,1987,"I'd like to make some comments. I came in somewhat predisposed to leaning toward a greater degree of reserve restraint. But I really wanted to hear the discussion; it has been a long time since we've gotten together. And I was really struck by the discussion yesterday [unintelligible] really the whole time I've been sitting in. I would characterize people's general feeling on the real side as one in which the risks, if anything, are that the staff's projections might be a little low. But I wouldn't put too much weight on that or necessarily too much weight on the December economic numbers. What struck me more was the broad expression of concern, made in a number of different ways, about inflation and inflationary expectations. There are some things that trouble me right now and there are some things down the road that I think could put us in a difficult position, possibly. The things that trouble me now are the extraordinary growth of money, reserves, bank credit, etc. over a three-month period--November, December, and January. Some of it has washed out but, still, over a three-month period it's quite extraordinary. We all know about the year-end factors, but I just have this feeling that there may be something more afoot than that. As I said yesterday, even some of those special year-end factors have the effect of liquefying unrealized profits. And that money is in there; that's grandfathered. The other thing that has been troubling me right along, as I have been saying, is that I'd be concerned about continued rapid growth in M1 against a backdrop of stable to rising rates. We still could have some lagged effects from earlier declines in rates, but basically we have been pouring in reserves at an extraordinary rate to try to hold funds somewhere around 6 percent, although some market observers have interpreted it differently. Now, that really begins to bother me in the context of these other things. There are some pressures building up, and as Jerry Corrigan pointed out, we're really pumping in reserves at an extraordinary rate to try to hold the line. Again, that's a straw in the wind that troubles me. I don't think I need to comment about the dollar, and we've talked about the buildup in liquidity before. As I look down the road, what bothers me is the box we could be in--really, as early as later in the first quarter. The staff's projection on the CPI is 4.6 percent; it wouldn't take much of a miss on the upside for us to be looking at a 5 percent CPI in the first quarter. Secondly, I really think that this year Congress will not be able to come up with anything close to credible in terms of that $108 to $118 billion Gramm-Rudmann-Hollings deficit target. Now, maybe this would come a little later than these CPI numbers, but I think we very likely could see--even though the progress on deficits might be in the right direction--a need to walk away explicitly from the Gramm-Rudmann-Hollings legislation and the general concepts and guidelines there. And that, too, I think could have a negative psychological effect. So, basically as I look at these straws in the wind now and then look at the position we could be in down the road--and I don't think we're ever absolutely sure at times when we have to move--what I say to myself is that if we don't start to lean against this now we very likely could be in a position where we're going to have to do a lot more down the road if we lose control of these inflationary expectations. One final comment I would have is that if we were to have tightened policy last summer and last fall there would have been a dramatic impact, in my judgment, on short-term rates--markets were discounting the possibility of further ease. I think all of that has been washed out now. The three-month bill is trading essentially even with the funds rate on a yield basis, whereas I suspect that at points in time it might have been 50-60 basis points below the funds rate. Would that be about right, Don?",833
-fomc-corpus,1987,I think it's still a bit below where funds have been most recently.,14
-fomc-corpus,1987,Okay. But it's around 6 percent now?,10
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,"It might have been trading substantially below the funds rate in the summer and fall--maybe 50 basis points. So, a little snugging on our part now, in my judgment, is not going to have a major adverse impact on short-term rates. It could have a salutary effect on long-term rates, although we haven't really seen the same kind of negative signals in the long-market to the extent that we did earlier in the year, at least in terms of the yield curve.",98
-fomc-corpus,1987,"I think, Tom, that because of this supposed shift in the borrowing function--which may be permanent from what we know--we've added to reserve pressures and done some snugging without changing our borrowing target. We've seen Treasury bills edge up toward the higher funds rate. We've actually achieved that, I think, without having to change our borrowing target.",70
-fomc-corpus,1987,"Well, I don't think we have achieved that, really. I think what has happened is that we are pouring in a tremendous amount of reserves to try to avoid it, and the market is sending us a signal. To the extent that we keep trying to do that, I think we are really going to create some problems in the longer-term market.",70
-fomc-corpus,1987,"I just want to be clear. You started out by saying that you came into the meeting thinking maybe we ought to tighten up a little; it sounds to me like you are ending up there, too.",41
-fomc-corpus,1987,Sounds like alternative C.,5
-fomc-corpus,1987,I am for alternative C.,6
-fomc-corpus,1987,"The difference, I suspect, between what you say, which is very eloquent, and what others have said, by implication, is that right at this moment in time the short-run business situation is not all that clear. It could turn south on us and [some feel that] we better wait a little while before [tightening]. You are quite persuasive; but it's a question of moving now or waiting for some more confirmation of the business situation over the next few weeks.",96
-fomc-corpus,1987,"There is a scenario that could develop in the next month that I would feel exactly like you do, Tom, but I would hate to think about releasing the minutes six weeks from now with that scenario in there after it didn't develop. I would rather have alternative B, as Manley specified, but with an understanding that our symmetric language would cause us--",70
-fomc-corpus,1987,Our asymmetric language.,4
-fomc-corpus,1987,Asymmetric language.,4
-fomc-corpus,1987,"--asymmetric language, which would give us a little flexibility over the six weeks if that were to turn out to be the real scenario.",28
-fomc-corpus,1987,"Yes. I was one of the ones who brought up inflation yesterday, but I am not yet ready to stand up and say let's tighten. I like the idea of preparing ourselves to tighten and having asymmetrical language, but I think we ought to be cautious about the [unintelligible] at this point.",63
-fomc-corpus,1987,"Remember a few months ago, though, we voted not to change policy but then when the minutes were released with asymmetrical language everybody jumped to the conclusion that we had. So I think we have to be sensitive about what we say.",47
-fomc-corpus,1987,"But in this context, I think that asymmetrical language would send a very healthy signal, because I think we have to convey to the markets that, yes, we are prepared to tighten in the right circumstances. And we ought to be clear about that message.",52
-fomc-corpus,1987,One thing we might want to keep in mind also is that our last directive was asymmetric in the other direction and that's what will be released.,28
-fomc-corpus,1987,I am not sure that is going to make a lot of difference because in this particular instance I will be testifying.,24
-fomc-corpus,1987,That's another factor.,4
-fomc-corpus,1987,"In the testimony, do you release the language?",10
-fomc-corpus,1987,"No. But de facto I do, yes.",10
-fomc-corpus,1987,Okay. And the minutes from the last meeting are going to be released when?,16
-fomc-corpus,1987,This Friday.,3
-fomc-corpus,1987,Friday.,2
-fomc-corpus,1987,"Now, there may be a little confusion because they are being released on Friday and I don't testify until next Thursday. I don't think that's bad if, in fact, we decide not to change anything between now and the time I testify. But the testimony--",51
-fomc-corpus,1987,You are going to get that whammy--the market is going to see the earlier language and a week later the tighter.,26
-fomc-corpus,1987,"I would guess, given where the funds rate is and so forth, that they will simply assume that we didn't do anything, which is correct. And I would confirm that, but I would add some warning language about the future.",46
-fomc-corpus,1987,Yes. I don't think that's a problem given where the funds rate is.,15
-fomc-corpus,1987,"Well, we have one point of view expressed. And we have other points of view expressed. Does anybody have any other point of view?",28
-fomc-corpus,1987,"I think Mr. Melzer makes a persuasive case. I wouldn't go as far as alternative C, but one thing that would have some appeal to me that we might want to look at is a borrowing target of $300 to $350 million, on the argument that we don't want the funds rate to slip back down below 6 percent for any successive number of days. That should help, if in fact it's true, that what really has been going on here is some change in the preference [for excess reserves] and the way banks are managing their reserve positions. I happen to think that there is probably more to it than that, but if that were the case, we could build ourselves a little protection that way.",144
-fomc-corpus,1987,"A more modest way of stating that is just that we don't lean over backwards simply to get the federal funds rate below 6 percent again, I'd say.",31
-fomc-corpus,1987,"That's right. The $300 million is what we aim for and I would not expect the funds rate to go below 6 percent with that, given the preference for excess reserves and given--",38
-fomc-corpus,1987,"I think where the funds rate goes will be dominated by the expectations in these very short-run circumstances. If we got some weak business news and the expectations turned toward more easing, the federal funds rate could easily go below 6 percent. If the markets don't have that expectation, then it probably wouldn't. If they have the expectation that, if anything, we would tighten up, the federal funds rate probably would stay higher.",84
-fomc-corpus,1987,Gary Stern is saying that he would like us to take action to stop it from occurring in the face of weak business news.,25
-fomc-corpus,1987,"But if the weaker business news develops, I am not sure that we would want to stop it.",20
-fomc-corpus,1987,"We always write the directive, though, with all of those caveats, in any event. So I don't think that what I am suggesting would preclude us from changing our views if we did get a lot of weak business news. It would seem to me that it is going to take a minimum of a month before we have enough evidence to change views on that; but even if we did, we still have those caveats in the directive.",90
-fomc-corpus,1987,"Well, we are not going to have much between now and next Thursday.",15
-fomc-corpus,1987,We certainly aren't going to have much between now and next Thursday.,13
-fomc-corpus,1987,That's what we are going to be listening for.,10
-fomc-corpus,1987,"How many weeks has it been, though, since the federal funds rate averaged below 6 percent?",20
-fomc-corpus,1987,"You have to go back into October, actually.",10
-fomc-corpus,1987,To October for 5-7/8 percent.,11
-fomc-corpus,1987,"Mr. Chairman, it looks to me like maybe we need a vote.",15
-fomc-corpus,1987,"Well, I think we are pretty close. I think we ought to look at this. If nobody else has anything to add to this discussion, why don't we turn to the language and how we want to phrase it. I assume that the prevailing view is not to change the [stance] anyway, which will be reflected immediately in this first sentence, but to be asymmetric. I am not saying there's unanimous agreement for that, but I sense that's where the central tendency is. In that case, I presume that we would simply say maintain in the first sentence. I am eliminating nuances now, which we can return to when we return to this question of how we express it. What projection do you have for M2 and M3 if we began in January and went through April?",156
-fomc-corpus,1987,"Well, I don't have a specific projection in front of me for April, but I would be tempted to maintain M2 and M3 at about their March growth rates. I don't see why they would deviate substantially, so that means 7 percent for M2 and 6 percent for M3. So January to April--",66
-fomc-corpus,1987,It would be 7 percent for both?,9
-fomc-corpus,1987,"No, I was thinking 7 percent for M2 and 6 percent for M3. It could be 7 percent for both, too. So January to April might be 6-1/2 percent, or a range of 6 to 7 percent for M2 and around 6 percent for M3.",66
-fomc-corpus,1987,"Well, that gives us one alternative--I am not sure that this is the way we want to say it--but if we wanted to say January to April, we would say we expected the growth of M2 and M3 over the period from January to April to be at annual rates of 6 to 7 percent.",66
-fomc-corpus,1987,That's narrow.,3
-fomc-corpus,1987,I don't think we ever make it wider than that.,11
-fomc-corpus,1987,6 to 7 percent?,6
-fomc-corpus,1987,I sure do like that idea of using the January base.,12
-fomc-corpus,1987,"Well, it's unusual and I would resist it ordinarily on the basis that we normally use quarters, but that great distortion at year-end--",27
-fomc-corpus,1987,The way you could present--,6
-fomc-corpus,1987,"It looks like the only way we could really get rid of that distortion is to use February as the base, but I--",25
-fomc-corpus,1987,Couldn't you preserve your position by just saying 6 to 7 percent over the balance of the quarter? That's right where all the numbers are anyway.,30
-fomc-corpus,1987,"Well, you use one month.",7
-fomc-corpus,1987,Use two months.,4
-fomc-corpus,1987,Two months: February and March. Vote for two.,11
-fomc-corpus,1987,"We are only talking about M2 and M3, so theoretically, the weekly numbers don't matter.",20
-fomc-corpus,1987,"Last April, we did have a big jump in the M2 and M3 numbers; it is the tax period and there has to be--. Of course, we had reduced interest rates in March and April, so--",45
-fomc-corpus,1987,"We always run into a lot of uncertainties at that time in terms of how fast tax payments are made. And this time we will have capital gains taxes that will have to be paid, so it's a very uncertain period.",44
-fomc-corpus,1987,That's the argument for saying January to June or something.,11
-fomc-corpus,1987,Or January to March.,5
-fomc-corpus,1987,January to March gives you what kind of a number?,11
-fomc-corpus,1987,That would be around 6 percent. Under alternative B January to March would be 6-1/2 percent for M2 and 6 percent for M3.,34
-fomc-corpus,1987,Those numbers were 6 percent and 6-1/2 percent?,15
-fomc-corpus,1987,6-1/2 percent for M2 and 6 percent for M3.,17
-fomc-corpus,1987,I think that makes the best choice.,8
-fomc-corpus,1987,What about February and March?,6
-fomc-corpus,1987,"Well, that would be 7 percent for M2 and 6 percent for M3.",19
-fomc-corpus,1987,"That pretty well covers the intermeeting period, too.",11
-fomc-corpus,1987,"Don, are you expecting February to come in as high as you have here now?",17
-fomc-corpus,1987,"We got some information yesterday that suggested that M1 might be a little lower, but we didn't get any new information on M2.",27
-fomc-corpus,1987,I am sorry: what are you projecting for February and March?,13
-fomc-corpus,1987,"On page 14 [of the Bluebook], Mr. Chairman, for M2 I have about 6-1/2 percent for February right now and 7 percent for March. For M3 I have 6 percent for both months.",50
-fomc-corpus,1987,"It sounds like we say 6 to 7 percent, whatever months we pick.",17
-fomc-corpus,1987,It doesn't make any difference.,6
-fomc-corpus,1987,Aim at 6 to 7 percent for whatever month you pick.,14
-fomc-corpus,1987,"Well, I don't think it makes a lot of difference. I guess somebody might argue that nothing we are going to do now is going to affect February or March anyway. That's the argument for going through June, but I--",45
-fomc-corpus,1987,That's the problem with M2 and M3 in general.,12
-fomc-corpus,1987,"I don't think it makes a great deal of difference. Do you want to say from January through March? The real choice, as I see it, is to say January through March or January through June. We could say April, but there's a seasonal problem in April.",54
-fomc-corpus,1987,"Yes, but that seasonal problem doesn't affect the three-month growth rate that much, does it, Mike?",21
-fomc-corpus,1987,"It could, depending. Last year, if I remember, we also had a delay in tax refunds due to IRS processing speed.",26
-fomc-corpus,1987,"The seasonal adjustment factors are supposed to take care of the seasonality, but I guess what you are saying is that it's very uncertain. It could be high or low.",34
-fomc-corpus,1987,"There's a high standard deviation, you mean.",9
-fomc-corpus,1987,"April is just an uncertain month. But the numbers are going to be the same anyway. Do we want to say January to March, January to April, or January to June?",36
-fomc-corpus,1987,January through March.,4
-fomc-corpus,1987,Through March.,3
-fomc-corpus,1987,Isn't that the same as January to April?,10
-fomc-corpus,1987,Is that what we want to say?,8
-fomc-corpus,1987,"January to March, 6 to 7 percent.",11
-fomc-corpus,1987,"The preference is to say January to March, 6 to 7 percent? We don't need the ""respectively;"" the range covers both of them. Now what do we say about M1? I think with respect to M1 we ought to say something. It's very easy to say that in the current circumstances we expect it to slow from the extraordinary rates of recent months. Maybe that's it: simply say that growth in M1 should slow from the extraordinary rates of recent months--period.",99
-fomc-corpus,1987,"""Should"" is stronger than ""expected."" I think ""expected"" is a little better.",19
-fomc-corpus,1987,"We expect it to slow appreciably from the high rate of recent months, or of earlier months. Is there anything else anybody wants to say about M1? ""Appreciably"" or ""substantially""? Decrease substantially from the rate of growth of 30 percent.",56
-fomc-corpus,1987,"I thought ""substantially"" went with ""chiefly"" but--",15
-fomc-corpus,1987,"Also say ""primarily.""",6
-fomc-corpus,1987,"Growth in M1 is [unintelligible]. We probably should say ""substantially,"" it's so high. Does anybody have anything to add about M1? Then we fiddle around with--",40
-fomc-corpus,1987,The nuances.,3
-fomc-corpus,1987,"""Somewhat greater reserve restraint would or slightly lesser reserve restraint might""? Does that do it?",19
-fomc-corpus,1987,I thought we agreed to make this [asymmetric].,11
-fomc-corpus,1987,That's what we just did.,6
-fomc-corpus,1987,"""Somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable.""",16
-fomc-corpus,1987,I would like to make it even more asymmetric and not mention the possibility of lesser reserve restraint because I can't see that as a possibility for the next six weeks unless the business numbers come through very much differently than we expect.,44
-fomc-corpus,1987,It's perfectly reasonable to discuss that. I don't think we have ever done that. Or have we?,20
-fomc-corpus,1987,Ever done what?,4
-fomc-corpus,1987,Yes we have on one or two occasions; but it is highly unusual.,15
-fomc-corpus,1987,Not recently.,3
-fomc-corpus,1987,It gives the right connotation.,7
-fomc-corpus,1987,"Well, let's suppose oil prices broke down; let's suppose Germany announced that they were going to grow at zero. You could--",25
-fomc-corpus,1987,Which way would that work?,6
-fomc-corpus,1987,"The way I wrote this, the language has two asymmetrical words: one is ""somewhat"" as opposed to ""slightly;"" and the other is ""would"" as opposed to ""might.""",40
-fomc-corpus,1987,It's the double whammy nuance.,8
-fomc-corpus,1987,Somewhat greater than an [unintelligible].,11
-fomc-corpus,1987,I think the markets are tuned in to this language.,11
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,They can use this double asymmetry. I can see the caption on that now. That may be symmetric double negatives.,24
-fomc-corpus,1987,Does anybody have any further comments? I take your silence as saying double nuance asymmetry is about right.,21
-fomc-corpus,1987,That's plenty.,3
-fomc-corpus,1987,"Well, let me assume 4 to 8 percent down in the federal funds range clause. Is there anything else in this language? It would then read: In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. This action is expected to be consistent with growth in M2 and M3 over the period from January through March at annual rates of about 6 to 7 percent. Growth in M1 is expected to slow substantially from the high rate of earlier months. Somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable depending on the behavior of the aggregates, taking into account, etc. Then 4 to 8 percent [on the range for the federal funds rate]. Any other comment? If not, we can vote on this one and adjourn while we work on the language of the other one. When we turn to the long term, this is highly consistent with what we would be saying in the long run. Ready to vote? If so, we will vote.",213
-fomc-corpus,1987,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes President Melzer No President Morris Yes Governor Seger Yes,41
-fomc-corpus,1987,Okay. Let's [break and come] back on the [long-run].,15
-fomc-corpus,1987,"Let me just describe the market today. We won't discuss this but the federal funds rate is 6-5/16 percent and we anticipate 6-5/8 percent. Oh! Now it is at 6-5/8 percent, not 6-5/16 percent, despite the fact that, according to the estimate, we are running $500 million or $600 million over target in providing reserves. So we decided to do nothing. Unless there is a wild reserves miss, we will end up way over target with a high federal funds rate, at least until the 7th.",122
-fomc-corpus,1987,"Mr. Chairman, many years ago--20 to 25 years ago -- the market at one time had a sentence that said, ""The federal funds rate is hanging at this level apparently out of respect for what the market thinks the Open Market Committee has done.""",52
-fomc-corpus,1987,That's when rates never moved anyway.,7
-fomc-corpus,1987,They had better respect then.,6
-fomc-corpus,1987,"Well, if the federal funds rate doesn't come way down this afternoon there really is something screwy.",20
-fomc-corpus,1987,"While we have a little time here, Paul could tell us about this story about Mr. Baker pushing target zones for currencies.",25
-fomc-corpus,1987,"Well, I think that's putting it in a more permanent or long-range context than he, or really his staff, would admit. There is, obviously, discussion about some agreement. You see something in the paper every day about his being more forthcoming about saying he is relatively content with the broad range [of exchange rates] currently prevailing and there ought to be a willingness to--I will say ""defend"" but that may be too strong a word -- to engage in joint and reciprocal actions in the markets. That obviously, as I mentioned yesterday, has implications beyond just what has been mentioned, if one really believed it. [It would] demonstrate that we are altogether content with the broad present range of exchange rates depending upon reasonable satisfaction that the other countries will do something to grow.",157
-fomc-corpus,1987,We are not thinking in terms of a formal system.,11
-fomc-corpus,1987,"No, no. But having taken that step, obviously it is consistent with and will be read by many, anyway, as a step toward something more permanent. Whether they are called targets or some levels of resistance, the word would be ""resistance."" There won't be any formal expression of that kind but, obviously, there won't be a lot of speculation. This is a step, at the very least, in that direction. Indeed, I think it is a tentative step in that direction without any sense of commitment.",104
-fomc-corpus,1987,You can bet the currency markets will try and search for those levels.,14
-fomc-corpus,1987,"Then there will be [unintelligible]! One of the problems, I think we ought to remind ourselves, is that there is a rather broad range--a much broader range than the currency markets will be probing for in the short run. So there is lots of room for misunderstanding. One of the problems is that without making a commitment--even to discourage a loose arrangement--it becomes more difficult in the short run because people want to make payments. You get caught unless you're willing to make a full-blooded commitment. The French might be willing to but I don't think anybody else is willing to [unintelligible].",127
-fomc-corpus,1987,Did the markets ever pick up broadly our intervention before?,11
-fomc-corpus,1987,I don't think they did right at first because they thought it was the Japanese. But they do have the impression that we intervened [unintelligible]. They assume that there was some.,39
-fomc-corpus,1987,"Well, it got reported. The last time there were reports in Japan and also elsewhere.",18
-fomc-corpus,1987,"Oh, the Japanese said so! I forgot that.",11
-fomc-corpus,1987,"But another low-key move like that, if it worked as well, together with heavy Japanese and German [intervention] wouldn't be too bad an environment.",31
-fomc-corpus,1987,"Well, that is the kind of thing they would look for, but the problem that I foresee is that that intervention took place well above where I would conceive the lower part of any broad range would be. I am not saying there is anything the matter with it; I think it is fine. But we don't want the market to think we are defending 152 yen per dollar, or something, with our life's blood if we are not, and then have market participants greatly disappointed when they see the exchange rate go above that. In my mind it's a very tricky, psychological, thing. I have no problems with what they are trying to do but it is a very tricky problem, operationally--that the market doesn't read much more into ranges or zones, whatever you call them, than anybody has in mind.",162
-fomc-corpus,1987,"But isn't there a case that could be made that, for the foreseeable future, that is about as high as the yen ought to go?",28
-fomc-corpus,1987,"The trouble is that we are in a range where that is debatable. It is just a question of whether you say 150 is the limit, which implies that on the other side--assuming you retain the concept of a broad range--you probably wouldn't mind if it was at 170.",59
-fomc-corpus,1987,Whether you would want it that high--,8
-fomc-corpus,1987,"Whether you wanted it that high [unintelligible]. Personally, I think 150 is fine, but I don't want to make that the absolute low point, probably because I wouldn't want to see it go all the way to 170. But I don't want to get caught with 150 to 155 or something like that.",67
-fomc-corpus,1987,How about 150 to 160.,8
-fomc-corpus,1987,"That still seems to me to be pretty narrow. I suppose substantively it may be all right. But it is narrow and when people talk about these, even on [unintelligible]. I don't want to get trapped into thinking something narrow.",50
-fomc-corpus,1987,I don't think we would find it easy to get the others to start intervening on the other side at very low levels if this was to be cooperative.,31
-fomc-corpus,1987,"Even if there is a judgmental agreement to this kind of thing, it is still a good idea to argue about where the range should be set.",30
-fomc-corpus,1987,Isn't a precedent condition of this arrangement that they agree to stimulate their economies? And is that to be a public announcement of some sort.,28
-fomc-corpus,1987,"I think it is very much a condition in Mr. Baker's mind for both substantive and symbolic reasons. But I think there is a real question as to what they would do, in fact, that would make much difference. Our talking in terms of concerted action against the background that their economic outlook seems to be deteriorating--",66
-fomc-corpus,1987,But is a Japanese discount rate cut likely?,9
-fomc-corpus,1987,It certainly would be in the context of this.,10
-fomc-corpus,1987,"Well, that certainly would make a difference regarding the spread between capital flows, I think.",18
-fomc-corpus,1987,It can't make much difference in terms of growth in the Japanese economy.,14
-fomc-corpus,1987,"I know, but it will make a difference in regard to capital flows.",15
-fomc-corpus,1987,I should hope.,4
-fomc-corpus,1987,"I don't know what the Japanese did. I think one of their problems before was [unintelligible] as much as they did, but their savings deposit rates are close to zero now. I know they were close to zero before they reduced the discount rate last time. I don't know what happened after they reduced it. That's the big savings vehicle for Japanese citizens as opposed to people with access to the money markets. They may be [unintelligible] but there are some very close to zero and some deposits may have--",107
-fomc-corpus,1987,What is their postal rate?,6
-fomc-corpus,1987,"The discount rate is above the postal rate, I think.",12
-fomc-corpus,1987,I think they have a variety of rates.,9
-fomc-corpus,1987,There has been some responsiveness.,6
-fomc-corpus,1987,"If they are going to deflate, a zero rate [unintelligible]. [Secretary's Note: A draft of proposed directive language, labeled ""Variant I for M1"" was circulated to the meeting participants at this point. See Appendix.]",50
-fomc-corpus,1987,"Just as a technical matter, where is this paragraph we are talking about inserting to be placed--before or after the discussion of the broader aggregates?",29
-fomc-corpus,1987,I guess after the discussion of the broader aggregates in the longer-run part of the directive: between the broad aggregates and the short-run part.,28
-fomc-corpus,1987,So you have this paragraph above stating that the FOMC seeks all these things.,17
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,"Then: ""In furtherance of these objectives the Committee established growth ranges of--"" What are we talking about, 6-1/2 to 8-1/2 percent?",38
-fomc-corpus,1987,5-1/2.,6
-fomc-corpus,1987,5-1/2 to 8-1/2 percent for both M2 and M3. Total nonfinancial debt was set at what?,30
-fomc-corpus,1987,8 to 11 percent.,6
-fomc-corpus,1987,"8 to 11 percent, the same as for 1987. With respect to M1, why don't we take a minute to peruse this? I don't argue that it is a literary masterpiece.",41
-fomc-corpus,1987,On page 2 is the word excessive--?,10
-fomc-corpus,1987,Why don't we just give everybody a chance [to read this]. Have you all had a chance to get some flavor of it?,26
-fomc-corpus,1987,"I think it very well reflects what we suggested. On page 2, I wonder if the word ""excessive"" in front of weakness of the dollar is a little strong. Would it be better to leave the word out or maybe use the word ""continuing."" I wouldn't want to indicate to the markets that it really has to be pretty bad before anything happens.",75
-fomc-corpus,1987,"How about ""significant""?",6
-fomc-corpus,1987,"Yes, that would be better, I think.",10
-fomc-corpus,1987,"In citing those conditions it is possible to use an ""and/or"" structure. In other words, I could imagine circumstances where you wouldn't necessarily have all four of those.",34
-fomc-corpus,1987,"Obviously. Oh, I--",6
-fomc-corpus,1987,That's why velocity is such a useful word. It captures all those things.,15
-fomc-corpus,1987,"Well, it seems to me, since that is an ""and"" list, that you could take ""excessive"" out and just say ""weakness in the dollar."" If all those other three--",42
-fomc-corpus,1987,"Of course, that is the problem. I was about to say that it is easier to list when all those things are going in the same direction than when you have some going in one direction and some going in another direction. I was just going to summarize our discussion in terms of the broad message we are trying to give. The message I would try to give is: It is not that M1 is meaningless, but that it can only be evaluated in the context of the surrounding circumstances. I can't read my own writing. It is not meaningless; it can only be evaluated in the context of the surrounding circumstances. That can't be a mechanical judgment but rather a qualitative judgment. [Unintelligible] enter into the qualitative judgment. We can [not] get a formula that can take all four of these factors and weigh one 20 percent and the other 32 percent.",176
-fomc-corpus,1987,"You could use ""in the context of signs of"" or ""in the context of surrounding circumstances"" and you could use an ""including"" structure and an ""or"" at the end.",38
-fomc-corpus,1987,"At the end of the sentence rather than using the word ""and"" I wonder if you used the word ""or"" if that would deal with the possible alternative situations.",34
-fomc-corpus,1987,"I don't think you can quite say ""or"" because we are not saying that any one of these factors is going to--",25
-fomc-corpus,1987,It gives you a little more flexibility.,8
-fomc-corpus,1987,"Now, what was this other suggestion rather than ""or""?",12
-fomc-corpus,1987,"I was suggesting that we could say: ""It would be appropriate in the context of surrounding circumstances, which could include, for example,"" and then just list the four and put an ""or"" there. If they are given as examples it doesn't necessarily imply that there will be just one or all four.",61
-fomc-corpus,1987,"You could say: ""In the context of signs such as...""",13
-fomc-corpus,1987,"You could say: ""In the context of many of the signs"" or something like that. Or use a word that is all encompassing: ""necessarily"" before the ""appropriate.""",36
-fomc-corpus,1987,Accumulating signs.,4
-fomc-corpus,1987,"Accumulating signs, or many of the signs, or intensifying, or growing, signs.",19
-fomc-corpus,1987,"I think that ""such as--""",8
-fomc-corpus,1987,"With the ""such as"" language the only thing I am not too happy with is the last statement: ""In the context of signs such as continuing economic expansion."" That does not cause us to reduce growth. It would have to be something like unsustainable economic expansion.",54
-fomc-corpus,1987,"Well, you could say all these other things ""in the context of continuing economic--""",18
-fomc-corpus,1987,"Without repeating the words ""in the context.""",9
-fomc-corpus,1987,"Oh yes, I'm sorry; that is already there.",11
-fomc-corpus,1987,"You could say: ""which might include a combination of...""",12
-fomc-corpus,1987,"Or ""along with continued economic expansion.""",8
-fomc-corpus,1987,"Or ""in the framework.""",6
-fomc-corpus,1987,"I think it is better as it is with the ""and.""",13
-fomc-corpus,1987,"But I have a big problem, too, with implying tightening just because the economy is expanding and none of the other things are occurring.",27
-fomc-corpus,1987,"But ""and"" answers that question.",8
-fomc-corpus,1987,"No, it is overly reactive.",7
-fomc-corpus,1987,With price pressures.,4
-fomc-corpus,1987,"It was meant to encompass it, but this get's [complicated]. Suppose we said: ""Much slower monetary growth will be appropriate in the context of continuing economic expansion accompanied by...""",37
-fomc-corpus,1987,Okay. That would do.,6
-fomc-corpus,1987,"Rather than using ""continuing""--not to stir the soup here--how about ""strong economic expansion."" We could get continued economic expansion in a modest proportion.",32
-fomc-corpus,1987,"How about ""rapid""?",5
-fomc-corpus,1987,"Don't stretch it too far. If all these other things were happening, even if the economy weren't growing I wouldn't mind doing something about it.",28
-fomc-corpus,1987,"There is something the matter here as I see this; something is garbled. ""In that connection the Committee believes, particularly in light of the extraordinary expansion of etc., much slower monetary growth would be appropriate in the context of continuing economic expansion accompanied by signs of intensifying, strong growth in this aggregate in recent years."" That doesn't belong there. The whole thing is crazy.",75
-fomc-corpus,1987,"We're talking about slower M1 growth in the first line and the broader aggregates in the second line, aren't we?",23
-fomc-corpus,1987,"Maybe I have two different pages, because mine doesn't read right.",13
-fomc-corpus,1987,"No, I think it is okay. I think you just have that clause there in front of the--",21
-fomc-corpus,1987,"I've got the wrong first page. That's what's wrong. ""In that connection, the Committee believes etc. Much slower monetary growth would be appropriate in the context of continuing economic expansion.""",36
-fomc-corpus,1987,"Do you want ""accompanied by increased price pressures"" or ""signs of""?",18
-fomc-corpus,1987,"You could say ""accompanied by some combination of"" and then use the ""and"" structure, which could mean all or it could mean one or two.",33
-fomc-corpus,1987,"Yes, it seems to me that there could be some circumstance in which the dollar, given strong economic growth--. Frankly, I just don't quite see how the inflation is going to come about unless we get a further [decline in the dollar]. It seems to me that the whole inflation scenario is dependent upon the dollar's position.",68
-fomc-corpus,1987,"Then what you are saying is that there may be times when we want to deal with the psychology, if nothing else.",24
-fomc-corpus,1987,"We can't cover every contingency here, but I can imagine that if the price pressures or some of the other things were bad enough we might have to tighten up even if the economic growth didn't look very satisfactory. But it is just impossible to cover every combination of circumstances here.",54
-fomc-corpus,1987,"The fact of the matter is that if economic expansion slows to a negative rate, it does limit you somewhat.",22
-fomc-corpus,1987,"Oh, it limits you!",6
-fomc-corpus,1987,It could be a very slow expansion.,8
-fomc-corpus,1987,"Say ""continuing economic expansion."" We've got a choice here. If we just leave it ""and"" it seems to me we are giving a pretty clear unambiguous signal that we would tighten under all these circumstances. If we begin saying ""such as"" or ""or,"" which is better in some respects, it is also vaguer.",69
-fomc-corpus,1987,"But with the ""and"" there, can't we take the ""excessive"" out before the ""weakness of the dollar""?",27
-fomc-corpus,1987,"Well, I put a ""significant"" in.",11
-fomc-corpus,1987,"But you are putting ""continuing economic expansion"" ahead, right?",14
-fomc-corpus,1987,"I don't know that it is perfect now. It reads: ""Much slower monetary growth would be appropriate in the context of continuing economic expansion accompanied by signs of intensifying price pressures, relatively strong growth in the broad monetary aggregates, and significant weakness of the dollar in exchange markets.""",55
-fomc-corpus,1987,"Did you say ""or""?",6
-fomc-corpus,1987,"No, I said ""and.""",7
-fomc-corpus,1987,"[Unintelligible] sounds like a bit of weakness doesn't bother us. If it doesn't, it's okay.",23
-fomc-corpus,1987,"Another way of doing it is to say ""signs of intensifying price pressures, perhaps related to significant weakness of the dollar in exchange markets and relatively strong growth in the broad monetary aggregates.""",38
-fomc-corpus,1987,That's how I would like it. SEVERAL. Yes.,13
-fomc-corpus,1987,That probably [improves it] a little; because otherwise it sounded like you'd need all three.,21
-fomc-corpus,1987,I like that.,4
-fomc-corpus,1987,"""Related to""?",4
-fomc-corpus,1987,"""Perhaps related to."" I didn't want to say that is the only source of--",17
-fomc-corpus,1987,All of this suggests that the relationship of nominal GNP to M1 is indeterminate. The stronger the economy the lower the growth rate of M1.,31
-fomc-corpus,1987,"Well, I think it's fair to say that if you could stabilize this interest differential that has created such a sensitivity and swings you would expect to see it run consistently. I may be wrong, but under a stable differential I would guess that would be the thing more than anything else probably would be.",59
-fomc-corpus,1987,Anybody want to focus on any other sentences?,9
-fomc-corpus,1987,"Yes, just a minor point in the last sentence of the first paragraph. Isn't ""appropriate changes"" a little misleading? Wouldn't it be better just to say ""changes""?",35
-fomc-corpus,1987,"We could say ""the appropriateness of...""",9
-fomc-corpus,1987,"That would be better. Or just leave it out. And if that is the case, it's the same thing in the last sentence of the second paragraph where it refers to appropriate growth. It is a little misleading--we are going to evaluate growth in M1 from time to time as to whether or not it is appropriate.",65
-fomc-corpus,1987,"It is a minor point, but why would you want ""appropriate"" in there? Let's have some sense of: we are going to evaluate whether we are going to have a short-run target for M1, which implies some appropriateness.",48
-fomc-corpus,1987,"No, it says here ""appropriate changes in M1 during the course of the year will be evaluated in light of"" etc. We are going to be evaluating changes as to whether or not they are appropriate.",42
-fomc-corpus,1987,"Yes, so I changed that to ""the appropriateness of changes."" I made just a couple of errors reading it; it reads a little more smoothly. This is only changing clauses. ""With respect to M1 the Committee recognized that, based on experience, the behavior of that aggregate and appropriate growth must be judged in the light of other evidence with respect to economic activity and prices; fluctuations in M1 have become much more sensitive in recent years to changes in interest rates among other factors."" Put ""among other factors"" at the end of the sentence. Then start the next sentence by saying: ""During 1987 the Committee anticipates that growth in M1 should slow."" [Unintelligible] in the next sentence. We're just trying to avoid repetition.",154
-fomc-corpus,1987,"On the last sentence of the second page: ""[The Committee] will evaluate appropriate growth in M1 from time to time in the light of circumstances then prevailing, including the rate of growth of the broader aggregates."" That says evaluate; it doesn't necessarily imply very explicitly that we might set a target. I am just wondering if we could add a phase ""and under certain circumstances might establish short-run target ranges."" That is very explicit about it.",88
-fomc-corpus,1987,"That makes it much more explicit. I don't know if that is desirable or not since we always miss these short-term target ranges. I mean to hint at that, but I don't know what the advantage is of being absolutely explicit. I don't know if there is anything inconsistent with it--",57
-fomc-corpus,1987,"This doesn't tie [together]. How about if we said ""The Committee during the course of the year will evaluate the appropriate role and growth.""",29
-fomc-corpus,1987,Rule out M1. It has no role any more.,12
-fomc-corpus,1987,No. I was thinking of the option.,9
-fomc-corpus,1987,It is not the appropriate role of M1; it would be the appropriate role of M1 in our decision-making.,24
-fomc-corpus,1987,"It already says that: ""The Committee hasn't reached any operational decisions.""",14
-fomc-corpus,1987,Maybe we can find a somewhat stronger word than evaluate. But I must say I am at a bit of a loss.,24
-fomc-corpus,1987,This sounds like stuff we say all the time.,10
-fomc-corpus,1987,"It does sound like what we been saying; I guess I put that on the other side of the ledger. There is no difference in some respect from what we've said before. Well, I am sure this isn't perfect but I am struck with the fact that it is cumbersome enough. That last sentence is certainly repetitious but I don't know if it hurts anything, with the last sentence in the first paragraph. We could use another word than evaluate, but I don't know what.",95
-fomc-corpus,1987,Would it be appropriate to have continuing sizable increases in M1 with the continuing weakness in the dollar?,20
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,I know. I would just like to have it be--,12
-fomc-corpus,1987,You don't know which way it will work. What are you trying to guard against?,17
-fomc-corpus,1987,"What he is saying, I guess, is that he doesn't want all that sizable an increase in M1, if we have some growth and the dollar is very weak.",34
-fomc-corpus,1987,That is right.,4
-fomc-corpus,1987,"What if you replace ""will evaluate"" with ""may target""? I think you want to stay away from that, but I am just--",28
-fomc-corpus,1987,Now we are on page 2?,8
-fomc-corpus,1987,The last sentence.,4
-fomc-corpus,1987,"You can say ""continuing sizable increases in M1 could be accommodated in circumstances characterized by sluggish business activity, maintenance of progress toward underlying price stability, and international stability,"" or something vague like that.",40
-fomc-corpus,1987,I like that.,4
-fomc-corpus,1987,"And ""progress toward international equilibrium."" How about that?",11
-fomc-corpus,1987,"Fine, if you can define it.",8
-fomc-corpus,1987,That's pretty wide. But that is all right.,10
-fomc-corpus,1987,That brings in the trade balance as well as the dollar.,12
-fomc-corpus,1987,"Yes, I like that better than not having it in there at all.",15
-fomc-corpus,1987,Equilibrium could be a much lower rate of growth.,11
-fomc-corpus,1987,I am afraid that is what it is.,9
-fomc-corpus,1987,I am a little worried about the repetitiousness of these two sentences. Maybe it doesn't hurt anything. I suppose this implies that the Committee in reaching operational decisions during the year might target appropriate growth in--,41
-fomc-corpus,1987,"I think that is the statement that adds something to what has already been said. Otherwise, you're right that it doesn't--",24
-fomc-corpus,1987,That presumes that we'll know what the appropriate growth is.,12
-fomc-corpus,1987,We'll only know it in the light of the circumstances then prevailing. Does that sound better to people?,20
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,It does to me.,5
-fomc-corpus,1987,They'll pay attention to the things that cause us to pull it off the shelf.,17
-fomc-corpus,1987,"Maybe I better read the whole thing while we are having our last thoughts here. This would follow the rather conventional paragraph, to say the least, regarding the 5-1/2 to 8-1/2 percent for growth in M2 and M3 and 8 to 11 percent for the debt. Then it goes on to say ""With respect to M1 the Committee recognized that, based upon experience, the behavior of that aggregate and its appropriate growth must be judged in the light of other""-- I'm just stumbling here, and I wonder whether we need the behavior of that aggregate and its appropriate growth. Why don't we just say: ""With respect to M1, the Committee recognized that, based on experience, the behavior of that aggregate must be judged in the light of other evidence with respect to economic activity and prices; fluctuations in M1 have become much more sensitive in recent years to changes in interest rates, among other factors. During 1987 the Committee anticipates that growth in M1 should slow. However, in the light of its sensitivity to a variety of influences, the Committee decided not to establish a precise target for its growth over the year as a whole at this time. Instead, the appropriateness of changes in M1 during the course of the year will be evaluated in the light of the behavior of its velocity, developments in the economy and financial markets, and the nature of emerging price pressures."" If I can make an editorial comment, I wrote this ""the nature of emerging price pressures"" rather than ""emerging price pressures"" because we all concede that there are likely to be some emerging price pressures that we have already taken into account. ""In that connection, the Committee believes that, particularly in the light of the extraordinary expansion of this aggregate in recent years, much slower monetary growth would be appropriate in the context of continuing economic expansion accompanied by signs of intensifying price pressures, perhaps related to significant weakness of the dollar in exchange markets, and relatively strong growth in the broad monetary aggregates. Conversely, continuing sizable increases in M1 could be accommodated in circumstances surrounded by sluggish business activity, maintenance of progress toward underlying price stability, and progress toward international equilibrium. As this implies, the Committee in reaching operational decisions during the year, might target appropriate growth in M1 from time to time in the light of circumstances then prevailing, including the rate of growth of the broader aggregates.""",482
-fomc-corpus,1987,That's fine.,3
-fomc-corpus,1987,Good.,2
-fomc-corpus,1987,I hope you people are satisfied on the other side there. There is no other--we have a consensus on the other paragraph.,26
-fomc-corpus,1987,"Could I just raise a quick non-M1 point about the long-run part? In terms of what we are saying about monetary policy, I am getting more and more concerned about that debt variable, even though nobody pays any attention to it. We are sitting here again this year saying we are going to monitor it, which implies a kind of quasi-sanction. We monitor a growth in debt up to 11 percent with GNP growing [2 or 3] percent. I know we can't do a darn thing about the variable, but for four or five years now running we have been monitoring it while it's behaving in a way that just does not make sense for the long term.",137
-fomc-corpus,1987,"Well, I am just thinking out loud--we might say, as you just noted, that we have had a fairly liberal monitoring range for this variable. It has exceeded the range; this year we really expect it to be within this range that we are talking about and we would be increasingly disturbed--",60
-fomc-corpus,1987,But what would we do if were disturbed?,9
-fomc-corpus,1987,I guess what we would do is tighten up.,10
-fomc-corpus,1987,Is anyone suggesting that that is what we should have done during 1986?,16
-fomc-corpus,1987,"I wouldn't suggest that. But I do think that when you look at the way growth in debt has departed from the growth in GNP over a period now of five years or so, there is simply a point where those chickens are going to come home to roost.",54
-fomc-corpus,1987,"But any time a preference for financial assets explodes like it has during this deflation, as well as every deflation in our history, you can't have financial assets expanding without debt expanding.",38
-fomc-corpus,1987,"And the problem with the corporate debt sector, anyway, is that we have had, in large part, no corresponding growth in corporate assets. The offset to the debt has been a decline in equity; so we haven't had an increase in assets.",49
-fomc-corpus,1987,We have had a run up in the price of assets--equity.,15
-fomc-corpus,1987,Whether it is sustainable or not is the question.,10
-fomc-corpus,1987,If you look at it on the basis of market values it doesn't look bad; if you look at it on the basis of balance sheets it looks pretty awful.,32
-fomc-corpus,1987,It depends upon how much weight you put on market value.,12
-fomc-corpus,1987,"I suppose nobody is saying that this is going to be our single judge, but I think it does lend some weight to our tightening. I would be very happy if we said something like that.",39
-fomc-corpus,1987,The only other choice is to drop it all together as something we in some sense monitor.,18
-fomc-corpus,1987,"I understand the monetary aggregates and I understand the validity of monitoring. But once those explode, the other side is going to explode too. The other side's problem is based upon the quality or the ability to pay. It is a microeconomic judgment, company by company.",54
-fomc-corpus,1987,If we have exploding monetary aggregates.,7
-fomc-corpus,1987,That's precisely the reason why I have this concern--because there is [impairment in] the ability to pay at some point. That is why in balance-sheet terms this is dangerous to the economy and I think there is a point where the chickens could come home to roost. Then the question for the Federal Reserve is going to be: What were you doing here?,75
-fomc-corpus,1987,"But, Jerry, it almost seems to me as if we are saying we've got a danger out here, so what should we do? Well, we should tighten. We are afraid people can't pay, and if we tighten then we guarantee they can't pay.",51
-fomc-corpus,1987,"I did not say we should tighten. I said that, at the very least, we ought to express some sensitivity to this. I think there is a danger in just letting that sit out there in a way that at least subtly carries the implication that we are prepared to sanction or underwrite that kind of behavior indefinitely.",64
-fomc-corpus,1987,"In my mind at least, debt should be more among the categories of things we are monitoring: prices, growth, interest rates, exchange rates. Debt should be in that category rather than as a target variable.",42
-fomc-corpus,1987,"I am not trying to make it a target variable. I am just concerned that we have had it in there, in effect, as a target variable. And it has been behaving in ways that I think over the long run raise some very difficult questions.",51
-fomc-corpus,1987,I don't know what handle we have. There isn't any margin requirement handle that would work. I don't know where we would begin.,26
-fomc-corpus,1987,I am suggesting simply that we be prepared in some appropriate words to acknowledge that there is a potential problem here.,22
-fomc-corpus,1987,"That is what we are doing anyway, in some sense. It doesn't have any operational significance.",19
-fomc-corpus,1987,"Look at the nonfinancial corporate sector: since the end of 1984, $230 billion in equity and $480 billion in debt has been retired. Now, some of that is the retiring of short-term debt with long-term debt. I know all the circumstances. But you just can't have that kind of thing indefinitely, in my judgment.",69
-fomc-corpus,1987,"Well, our tax law changes help because in the past it paid to not pay dividends, and to pay it out in the form of leveraging out and--",31
-fomc-corpus,1987,That should mean that debt growth should be--,9
-fomc-corpus,1987,It should be less. I think the tax law will reduce debt growth.,15
-fomc-corpus,1987,But not by that much; the basic incentive is still there. It is now less than it was.,21
-fomc-corpus,1987,And people who have learned to benefit from the other one will continue to behave that way as long as an economic incentive is there.,26
-fomc-corpus,1987,I'd be happy for us to carry on a campaign to allow [tax] credits for the dividends.,20
-fomc-corpus,1987,"Yes, but you can't use that. I have been carrying on that campaign in a not very effective way for some time. But I suppose your concern about it is more the corporate debt; that is one area. You have made your point. I don't know how operational it is.",57
-fomc-corpus,1987,It is not. I feel better having made it.,11
-fomc-corpus,1987,"If there are no other points to be raised, I guess we can vote.",16
-fomc-corpus,1987,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Guffey Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes President Melzer Yes President Morris Yes Governor Seger Yes,41
-fomc-corpus,1987,"You can always send in revisions of your projections. You are strongly encouraged, if you are so minded, to get them in and get them here in a hurry so they can be [incorporated in the group] projections.",46
-fomc-corpus,1987,We have to elect officers first of all.,9
-fomc-corpus,1987,I would like to start this by nominating Chairman Volcker to be Chairman and President Corrigan to be Vice Chairman.,24
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,"We have a second. Do we have any objections? If not, I won't commit any time. We have a list [of proposed officers]. I guess you want the names on the list. Will somebody read it?",44
-fomc-corpus,1987,"Secretary and Staff Adviser, Donald Kohn Assistant Secretary, Normand Bernard Deputy Assistant Secretary, Rosemary Loney General Counsel, Michael Bradfield Deputy General Counsel, James Oltman Economist, James Kichline Economist, International, Edwin Truman Associate Economists from the Board: David Lindsey, Michael Prell, Charles Siegman, and Thomas Simpson. Associate Economists from the Federal Reserve Banks: Peter Fousek, New York; Richard Lang, Philadelphia; Arthur Rolnick, Minneapolis; Harvey Rosenblum, Dallas; and Karl Scheld, Chicago.",111
-fomc-corpus,1987,Do I have a motion to vote?,8
-fomc-corpus,1987,I so move.,4
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Do I have objections? We have the question of the New York Bank as agent. Nomination or objection?,22
-fomc-corpus,1987,I move the New York Bank as agent.,9
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Is there a choice on any of this?,9
-fomc-corpus,1987,"If you would like to suggest it, yes. You will take the burden of suggestion.",18
-fomc-corpus,1987,"What if I recommend Kansas City, from the heartland--",12
-fomc-corpus,1987,"Wonderful thought, Martha.",5
-fomc-corpus,1987,"We have two Managers, both of whom I think are so able bodied and sitting here. Do we have a nomination?",25
-fomc-corpus,1987,I am not sure you can back that up.,10
-fomc-corpus,1987,I so move.,4
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Any objection? The Authorization for Domestic Open Market Operations has been distributed to you. Do we need to formally readopt this? Do I have a motion?,31
-fomc-corpus,1987,I move it.,4
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,"Do we have any objection? Next are the Foreign Currency Authorization, Foreign Currency Directive and Procedural Instructions. Do you have a problem with these, Mr. Cross, or what?",36
-fomc-corpus,1987,"Well, Mr. Chairman, I do wish to recommend that the Committee consider a change. In the authorized balances, we have an informal limit and a formal limit. The informal limit on marks is presently $6 billion worth of marks. We are now at $5.8 billion worth of marks and the simple accrual of interest earnings, if nothing else happens over the rest of this year, would put us over that $6 billion. The other--",91
-fomc-corpus,1987,That doesn't appear anyplace in this.,8
-fomc-corpus,1987,"That is an informal limit which does not appear in the published record. However, the authorized balances which [unintelligible] was $10 billion, including informal balances of the DM at $6 billion, the yen at $3 billion, and other currencies at $1 billion. The System's overall open position, which is $10 billion, is a matter of record. My proposal to increase the allowance for mark balances from $6 billion to $7 billion would go along with a proposal to increase the total from $10 billion to $11 billion for the authorized balances of all currencies and the total System open position.",125
-fomc-corpus,1987,"While we are making increases, why would we not want to allow more room than that? What reason is there to keep the limits that close?",29
-fomc-corpus,1987,I have no objection to increasing it beyond that.,10
-fomc-corpus,1987,"Well, if I understand it correctly, the only formal limit is that $10 billion limit.",19
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,"[Unintelligible] enough yen so that we are going to be comfortable within it, but I don't know about one-way [unintelligible]. We were up to $9 billion, but now--",43
-fomc-corpus,1987,"On yen balances, we have more room than we had because we have been spending yen recently. The reason to change it, since it does get published and it does draw some attention, is that now is the time to change it. And I think the $1 billion increase would give us room for what we do not anticipate, assuming we follow the same practices that we have followed in the past.",80
-fomc-corpus,1987,"I myself don't see any problem if we want to raise them further, say, to $12 billion, and consider that informal. We don't vote on it, I guess.",35
-fomc-corpus,1987,I would certainly be very pleased with that.,9
-fomc-corpus,1987,$7 billion is what you are saying?,9
-fomc-corpus,1987,I am proposing to raise the mark limit from $6 billion to $7 billion. If we raised it further we could--,25
-fomc-corpus,1987,"The issue we formally have to vote on is the overall limit, for which you are suggesting $11 billion. Governor Angell, I guess, is suggesting $12 billion.",35
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"Assumed under that would be an understanding that marks could go at least to $8 billion, if I may reword it that way, under that $12 billion. Do you want to go to $12 billion? Does somebody want to make a motion to go to $12 billion?",58
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,And I will second.,5
-fomc-corpus,1987,"If there are no objections to that, we will change the overall limit to $12 billion, with the informal understanding that mark balances could go to $8 billion. What's the informal understanding on yen now? I realize that you are going in the other direction on yen now.",55
-fomc-corpus,1987,"We have $3 billion on yen as the informal understanding. The present $10 billion breaks down to $6 billion in marks, $3 billion in yen, and $1 billion for other currencies. If we go to $12 billion, we could propose to divide that into $8 billion, $3 billion, and $1 billion [respectively].",71
-fomc-corpus,1987,"Okay, returning to the agenda--",7
-fomc-corpus,1987,It brings us to the regular minutes.,8
-fomc-corpus,1987,We have to approve the minutes. Can I have a motion?,13
-fomc-corpus,1987,I move we adopt the minutes.,7
-fomc-corpus,1987,Any objections? Mr. Cross' report.,9
-fomc-corpus,1987,"[Statement--see Appendix.] Thank you, Mr. Chairman.",13
-fomc-corpus,1987,"Sam, to what extent have the market participants been able to figure out how much we have done in exchange market intervention for our account and for the Treasury's account? Is there a pretty good idea?",40
-fomc-corpus,1987,"Well, on a number of these occasions we have been operating in a way to make it quite open and quite obvious that we were there. We have dealt with a lot of banks. We have dealt with them directly and we have done it quite visibly. It's very difficult to be absolutely precise about the amount of our intervention, but certainly market participants know that we have been in there in a very substantial way. And I don't think these numbers would shock them. Certainly, some people are expecting that these numbers are the amounts that we can go in. They have seen a lot. We have not made any statements and the Japanese have not made any statements about the precise amounts, but they know we have been in there very heavily.",146
-fomc-corpus,1987,Are we sharing this intervention with the Treasury on a 50/50 basis or has that changed?,20
-fomc-corpus,1987,"We are sharing it with the Treasury on a 50/50 basis with one minor exception. Generally, we are doing it on a 50/50 basis.",33
-fomc-corpus,1987,Where is the yen/dollar relationship this morning?,10
-fomc-corpus,1987,"The yen is just over 146. The Japanese have had some interest in trying to hold it around the 146 level and so they closed yesterday at just over 146; we closed yesterday at just over 146, although it declined in the course of the day and it declined again in the course of the day in Tokyo last night. They did another or so of intervention, but it closed again at 146. The dollar against the mark is at 1.80-1/2. The dollar did weaken somewhat against the mark yesterday in the course of the trading day and got down to about 1.79-1/2, but then it moved back up and is now at about 1.80-1/2.",150
-fomc-corpus,1987,"Do you attribute much significance to the Japanese fiscal year ending today? MR. CROSS, It certainly has been a factor.",24
-fomc-corpus,1987,"Will it help us, then, as we get past that?",13
-fomc-corpus,1987,"Well, that remains to be seen. It has been a factor; firms have had dollars to deal with because of their need to straighten out their books at the end of the fiscal year. This has been a factor over the past several weeks.",49
-fomc-corpus,1987,"Sam, what's the tone in the market? Is there some growing concern that we really could run into a significant [unintelligible] or is there some feeling that the intervention would prevent that from occurring?",42
-fomc-corpus,1987,"Well, it's hard to say. You pay your money and take a choice. It's hard to be too certain. I am sure there is a range of ideas involving a lot of people. Obviously, given this massive amount of Japanese investments, much of it unhedged, there is concern that a real loss of confidence in the dollar could lead to very [unintelligible]. That's obviously hanging over the market. But to what extent that view is held, it's pretty difficult to say. We do know that a fair amount of the dollar sales that they assumed in Tokyo in the past week or ten days has been in the form of investment firms like insurance companies, pension funds, and so forth, doing a certain amount of hedging. So that's certainly a big [unintelligible] supply and demand equation there.",166
-fomc-corpus,1987,"When the Japanese sell dollar-denominated assets, where then do they go with those funds? In what currency?",22
-fomc-corpus,1987,"I wasn't suggesting that they were selling on and off although what they have been doing recently is diversifying their purchases much more. They have been buying a lot more Canadian securities, Australian securities, and European securities; and they have also broadened out from government-bond types of investments toward more diversification. But there is also a certain amount of hedging, without selling the assets--hedging against these in order to protect oneself. And that is fairly important to do.",94
-fomc-corpus,1987,What kinds of techniques are they using to hedge themselves?,11
-fomc-corpus,1987,I imagine they use [unintelligible].,10
-fomc-corpus,1987,"Sam, are they all sterilized here and abroad?",11
-fomc-corpus,1987,"They are certainly sterilized here. I think, generally speaking, they are sterilized abroad.",19
-fomc-corpus,1987,"When you said that the Desk intervened when the dollar got to 1.87 marks, was your next comment sort of a suggestion that maybe we should [not] have done that?",38
-fomc-corpus,1987,"No, it wasn't that at all. It was that once it had gone up and we intervened in a very light way--we didn't go in with guns blazing by any means--and once the market realized that we were in there intervening at those levels with all of the attention to the Paris understanding and talk about [unintelligible] and all, it didn't take too much to say, well, now that we have established this [unintelligible], it is likely to be resisted. Now we can see where it is going to go on the other side. So it reduced the expectations of the possibility of a continued rise in the dollar. Fundamentally, I think the position was kind of bearish anyhow. Everybody looking ahead not just a matter of days but a substantial period [knows] we still have the big deficits and the Japanese have their big surpluses. That sort of gives you a fundamental position toward the dollar. And once this had been hit on the up side they began to look toward the down side.",210
-fomc-corpus,1987,And it's almost like [unintelligible] a mistake.,13
-fomc-corpus,1987,"Sam, with the appreciation of sterling and the mark, are pressures developing in the United States?",19
-fomc-corpus,1987,"No really, it has been relatively peaceful at times. There has been [unintelligible] had the ability to destruct itself, as it were, after the last [unintelligible] and to get back some of the reflows that had gone out in anticipation of it. Some of the interest rates have come down in some of the countries that had moved them up. So there has been a little return to normalcy on the [unintelligible] side.",97
-fomc-corpus,1987,What kinds of actions other than exchange rate intervention might be helpful in this kind of a situation either here or abroad?,23
-fomc-corpus,1987,Are you addressing that to me?,7
-fomc-corpus,1987,I asked a question.,5
-fomc-corpus,1987,"I think there is certainly going to be continued watching as to whether any of these policy commitments that were talked about in Paris are actually carried out via fiscal policy or monetary policy. The German economy is very soft; they haven't really taken anything new. They, of course, have been [unintelligible] at the time that they reconstitute their government. But their economy has been very weak, and people have seen that they have done nothing on monetary policy and don't show much prospect of doing anything in fiscal policy except in a framework of next year and the year after next. The Japanese economy is equally well below what it typically runs at, and nothing has been happening there. The problem is that they have to get through this fiscal year and get their budget passed before they can start with a new budget, they say. Nonetheless, nobody has seen anything.",173
-fomc-corpus,1987,They haven't taken the opportunity to leave some of this intervention unsterilized to give a boost to monetary policy?,23
-fomc-corpus,1987,"I think they sterilized it. They feel with their discount rate now at 2-1/2 percent that they have gone pretty far. Also, people don't see anything on the U.S. side. We make comments about the budget deficit and one thing or another, and there is not much evidence there. Still, the main issue that's in the newspapers is the dispute over trade matters and that raises in people's minds the possibility that the way to deal with the trade--if you really get into a trade war--is to pound down the currency in order to deal with the situation in that way. That has been the main issue in the newspapers, so the trade disputes have been a very negative factor. Also, in the present circumstances, a neutral statement by U.S. officials seems to be taken by the market as a kind of a negative. It's a lack of a positive firm commitment--I guess that's the way to put it.",189
-fomc-corpus,1987,"You put a lot of emphasis on these statements, but there was an awful lot of hot news that was very bad too. All of the trade numbers that came in were very bad. The current account numbers were very bad. I think that was the real substance that--",54
-fomc-corpus,1987,"Absolutely. I thought I had a sentence somewhere in there [in my statement]. We haven't seen any compelling evidence. We know that our exports are looking better, and so forth and so on; but looking at the trade deficits and things like that, all we get is the very bad nominal trade deficits and surpluses with little, if any, evidence of any reversal.",75
-fomc-corpus,1987,"But I presume, Sam, that the firm commitment implies, among other things, some unsterilized intervention or something else that would back up whatever statements are made.",34
-fomc-corpus,1987,"Well, I am not sure it would imply unsterilized intervention but I think that it's [unintelligible].",25
-fomc-corpus,1987,Fiscal policy area; we are not in monetary policy.,11
-fomc-corpus,1987,"Sam, would you care to speculate at what level of the yen you would think Japanese investors might begin to sell off dollar assets--143, 142?",31
-fomc-corpus,1987,"I don't really have any confidence in people's attempts to make estimates of that sort, because I am not sure there is a number out there. I think it depends upon people's attitudes and those are changing all of the time. I think we could have a confluence of circumstances that could lead them to sell. But what might go into it to require that? I am not sure about a specific number, but I think we are obviously in a very dangerous area where problems of that sort could build up very quickly and cause great damage.",106
-fomc-corpus,1987,You could also have it go so low that investors think the bottom has been hit.,17
-fomc-corpus,1987,"Well, that's right--if one were convinced of that. But, again, I don't think we live in the kind of world where there is a magic number that when you hit it, then everybody knows it, and says: Okay, now we buy.",52
-fomc-corpus,1987,"Mr. Chairman, our current published [foreign currency] directive limits our operations to countering disorderly market conditions. This last episode seems to me maybe not to fall into that category; rather it seems that we are getting awfully close to a managed float situation which--",54
-fomc-corpus,1987,Not very well managed float.,6
-fomc-corpus,1987,"To be sure. But the point is either that the directive should be changed if we are going to go the route that we have been on the last couple of weeks or, in the alternative, that we shouldn't be doing what we have been doing--other than the commitment that was made in Paris. That speaks to changing the directive.",67
-fomc-corpus,1987,"Well, we just approved the directive and I am a little hesitant to raise it, but I guess we can. It has been a while since I looked at this, but I take comfort in that it says ""shall be generally directed at countering disorderly monetary conditions."" It talks about behavior consistent with Article IV.",64
-fomc-corpus,1987,"Article IV, as I read it, is not a constraint or type of directive, so I go back to the simple phrase countering disorderly markets.",31
-fomc-corpus,1987,"The reason for that reference, President Guffey, was based on a little history; it was to guard against circumstances in which there was so-called manipulation of exchange rates. That was why we might be more aggressive. The other point, of course, is that this [directive] has been in existence since 1976 and has covered periods in the past similar to the one we had in the last few days.",84
-fomc-corpus,1987,I think it has been interpreted broadly enough to deal with all of the situations since then. It's similar to the undertakings which the United States has with the IMF as to what its exchange rate policy will be. So it's part of a broader--,49
-fomc-corpus,1987,"Well, I understand the term countering disorderly markets can be interpreted [differently] and I guess that's the prerogative of the Chairman's subcommittee or the Committee. In my mind, what we have been engaging in does not fall within that category.",54
-fomc-corpus,1987,"Well, I don't know whether it does or it doesn't. I guess we are going to be hard pressed to make up other language. Maybe somebody can look at it.",34
-fomc-corpus,1987,"Maybe somebody should look at it, at least.",10
-fomc-corpus,1987,I don't think we can do it sitting around this table right now. I designate Mr. Cross to look at this and see if he comes up with any better ideas.,34
-fomc-corpus,1987,"Yes, we will look at it in light of what we are doing now and see if it looks like there is something we should change.",28
-fomc-corpus,1987,"Sam, has any consideration been given to forward purchases and sales rather than spot?",16
-fomc-corpus,1987,That is one of those endless debates that goes on. We haven't really [unintelligible]. We pretty well had our hands full [unintelligible] spot. I am not sure I am convinced [unintelligible] but it's something we have been watching.,56
-fomc-corpus,1987,How many more bullets do we have in our belt as far as--,14
-fomc-corpus,1987,"Well, with the yen we have in our pocket about $700 million, but these are at a valuation that was set at the time they were acquired; they are now worth a third or so more than that. The Treasury has substantially more. They have $2.1 billion, again at the acquisition cost. And then, of course, we have a swap arrangement with the Bank of Japan of $5 billion dollars.",85
-fomc-corpus,1987,We still have about a billion dollars in current market value?,12
-fomc-corpus,1987,"Yes, a little over $1 billion. The Treasury has around $3 billion at present market value.",21
-fomc-corpus,1987,"And we have spent how much, again, in the last week or ten days?",17
-fomc-corpus,1987,A little over $2 billion.,7
-fomc-corpus,1987,We together?,3
-fomc-corpus,1987,We--the Treasury and the Federal Reserve and the Japanese--have spent over,15
-fomc-corpus,1987,So we have spent about half of our holdings?,10
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,That's right. Silver lining behind a cloud.,9
-fomc-corpus,1987,"Well, if there is no other discussion, we will turn to--",14
-fomc-corpus,1987,"We need the approval, I guess.",8
-fomc-corpus,1987,We have to approve the operations. [Moved and approved.],12
-fomc-corpus,1987,I am glad we had the election before my report!,11
-fomc-corpus,1987,Mr. Sternlight.,5
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Comments or questions?,4
-fomc-corpus,1987,"Peter, you have advocated buying coupons in the past. You said there was a possibility for an add need?",22
-fomc-corpus,1987,I think that's part of the add need ahead. It makes very good sense to buy coupons for some portion of that.,24
-fomc-corpus,1987,There has been some controversy over that issue in the past. I just wondered if--,17
-fomc-corpus,1987,"Well, we have been talking about it and I think as we work out this need, which runs to several billions of dollars, there is room for bills and coupons as part of the--",38
-fomc-corpus,1987,"At what point would you let the rising federal funds rate override your concern about a weakening dollar? If it got to 8 percent, would you--",30
-fomc-corpus,1987,"Well, if it got to 8 percent as a long-standing matter that would obviously be a concern; even 7 percent, I think, would cause one to sit up and take some considerable notice. We are getting a high rate today just because it's the quarter-end. The very early report I saw had today's funds rate opening at 6-3/4 percent. That was a surprise. To see it getting up to 7 percent or higher on this day--",95
-fomc-corpus,1987,I am not talking about a one-day shot.,10
-fomc-corpus,1987,"On a lasting basis, I'd feel concern about rates that were considerably over 6 percent, given the current set of expectations and the current kind of borrowing need that we have in our reserve paths.",39
-fomc-corpus,1987,"Clearly, though, if the bottom fell out in the context of the conversation that was taking place earlier between Mr. Cross and--I forget who it was--Si Keehn, maybe, the markets would do [unintelligible] in a very decisive way no matter what we did.",59
-fomc-corpus,1987,Like yesterday?,3
-fomc-corpus,1987,I wouldn't go on to admit that the more [unintelligible].,15
-fomc-corpus,1987,"Well, that's what got kicked so hard yesterday.",10
-fomc-corpus,1987,"I was reacting to Peter Sternlight's comment that our own estimate showed a need to add reserves, but that apparently it wasn't done to the full extent because of the concern about what was going on. I just wondered where those trade-offs come.",49
-fomc-corpus,1987,"In relation to the borrowing target, generally over the intermeeting period you have at least [unintelligible].",23
-fomc-corpus,1987,"Borrowings came in just close to the $300 million, and in this current reserve period they're running around $250 million, which is consistent with the recent period.",33
-fomc-corpus,1987,"What's coming up, Peter, in terms of reserve needs? Do we have a seasonal draining or adding period?",22
-fomc-corpus,1987,"There is a big seasonal add need, mostly from currency and partly from required [reserves]. We are adding to it somewhat by the foreign exchange intervention that [has occurred]--several hundred million a day at the recent pace. But for this current reserve period, at least on the numbers we were looking at yesterday, there is roughly a $3 billion need to meet in the remainder of this period, and we are just about halfway through; and then there is about a $5 or $6 billion need in the subsequent reserve period and slightly more than that in the period beyond that. These estimates are cumulative; there are some additional needs beyond the $3 billion, which accumulate to about $5 or $6 billion in the next period and to $6 or $7 billion in the period beyond that.",163
-fomc-corpus,1987,"So we don't have a contingency plan, then--that if all hell broke loose even more than it has so far--as to exactly what we would do when?",33
-fomc-corpus,1987,"Well, our basic stance has been to meet the needs, following the directive to the extent that there is some day-to-day discretion about the pattern of reserve needs as they unfold. We try to implement in a cautious manner, [and be aware of] anything that could be helpful or avoid exacerbating the international situation. I don't think it makes a tremendous difference; it's more at the margin.",79
-fomc-corpus,1987,"I have been on the call the last several weeks, Martha, and I think they have been very skillful at that, in terms of attempting to do what needs to be done domestically but dealing with this international situation that is overhanging the market. And I think they have handled it well.",61
-fomc-corpus,1987,Mr. Kichline.,6
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,I forgot to ask you to ratify the domestic operations. Would you like to ratify those?,20
-fomc-corpus,1987,I move it.,4
-fomc-corpus,1987,"If there's no objection, we can discuss the business outlook.",12
-fomc-corpus,1987,"Jim, I have a question. Inventory investment is clearly an important component of your forecast, especially in the first quarter of this year. One thing that struck me in terms of your forecast is the forecast of negative changes in farming inventories over a 9-quarter period which is clearly unprecedented in the postwar period. I wonder what you had in mind in assuming decumulation in the farm sector over that length of time.",84
-fomc-corpus,1987,"Part of what is going on there is our assumption that more crops are going to be placed in CCC programs. I am not an expert in the agricultural area but, given the change in some of the farm programs, apparently farmers have been induced to transfer more of their ownership to the government--essentially to CCC stocks, which are rising--and it's coming out of the farm inventories.",77
-fomc-corpus,1987,So that should show up in terms of more [unintelligible] purchases and federal nondefense.,22
-fomc-corpus,1987,Correct.,2
-fomc-corpus,1987,A little weak.,4
-fomc-corpus,1987,"Well, that's weak in part because of other things happening in the federal sector. Given the deficit-reducing actions taken last year, we think that real nondefense outlays will be negative this year and next year.",45
-fomc-corpus,1987,In spite of that CCC development.,7
-fomc-corpus,1987,"Jim, for the fourth quarter of 1987, your projection in this Greenbook shows personal consumption expenditures down about 1-1/2 percentage points from last Greenbook to roughly a half percent. What are the factors?",46
-fomc-corpus,1987,"Well, you are looking at an auto story. We decided to put in what has happened over the last two years [unintelligible]. In the third quarter we have personal consumption rising only 1-1/2 percentage points at an annual rate. Part of that, we think, is because of the increase in purchases of autos, with manufacturers once again trying to clean up their stocks in the third quarter. The offset is a weaker consumption growth picture in the fourth quarter. I just might note that, on average in this forecast, we are drifting into a range of very low personal consumption figures. A one percent [growth rate over the two quarters] is historically very low.",138
-fomc-corpus,1987,"Do you figure in very much of a kick from the home equity loans, from the standpoint of consumption? Do you see that helping very much?",29
-fomc-corpus,1987,We haven't done much there explicitly. Our assumption has been that a good deal of that is substituting for consumer credit and other second mortgage loans rather than leading to a substantial increase in consumer spending. That's an open issue.,44
-fomc-corpus,1987,The banks seem to be trying to push them pretty hard. I wondered whether or not that would be successful and what it would lead to.,28
-fomc-corpus,1987,"Jim, how about some of the price indices that you follow in a more current sense--commodities indices and so forth. What are they showing in terms of recent behavior?",35
-fomc-corpus,1987,"I think some of the commodity prices recently have calmed down; the big run-up was from August through early this year when there was a substantial increase. Since then, there has been some bouncing about, particularly in terms of industrial materials prices, but they have been relatively flat.",56
-fomc-corpus,1987,"Just to continue on with a question about consumption. If you look at services, particularly beginning in the second quarter of 1987, growth rates spend most of their time, actually, at less than 1-1/2 percent. Is there any time that we have ever experienced that other than in a recession? Secularly, growth of service expenditures is probably more in the range of 3 percent plus. I think on a cyclical basis we have seen it for a couple of quarters, but nothing like this.",106
-fomc-corpus,1987,"I was hinting in our personal consumption story, President Guffey, that basically I think a one percent growth, when we have 3 percent growth in real GNP, is a very [unintelligible] number. In putting this together, we have really looked at the income side as well. In forecasting, as you well know, one can view the saving rate as somewhat of a constraint. I didn't want to see saving rates without the first digit being at least 3 percent; and if that is the case, we really get [unintelligible]. We don't have much in the way of real disposable income growth. We think wealth is explaining the lower saving rate, in part. We are getting some increased spending [unintelligible] wealth positions. But basically, what comes out--if we view the saving rate as having some implicit strength--is that we are going to be forced into slow rates of increase in real PCE. But it is, as you point out, quite unusual.",207
-fomc-corpus,1987,This goes back to the old story. You are depending greatly upon the turnaround in net exports to make this a palatable forecast.,26
-fomc-corpus,1987,"If the circumstances that we presume will bring that about didn't occur, real disposable income would be a bit stronger and there would be at least some offsets. So we have to look at it simultaneously.",39
-fomc-corpus,1987,What is the automatic offset?,6
-fomc-corpus,1987,"For example, if we didn't get the great improvement because import prices didn't rise substantially, then consumer inflation would be less and, in the first instance, real disposable income would be higher so that consumption wouldn't be affected as much. Basically, our weak consumption is part of an overall adjustment process that is shifting resources away from domestic consumption.",66
-fomc-corpus,1987,I understand that. But suppose the external side did not improve because business was so weak abroad?,19
-fomc-corpus,1987,"Well, interest rate [unintelligible] and a whole assortment of different variables.",18
-fomc-corpus,1987,"That raises a point that I was asking about yesterday; I still haven't cleared it up quite in my head. I got an answer, but I can't repeat it. The staff's forecast for growth abroad was revised down by a significant amount, yet our GNP numbers haven't really changed. I need a review of how we would make that up.",69
-fomc-corpus,1987,"We make it up, I think, in the short run in two areas. When we do the forecast we take a look at some of the factors that go into it. Although the effect of the lower growth abroad would be less growth in nonagricultural exports, we also look at prices of those exports. Those we had moving up a bit more than we thought was comfortable and, as a result, we tended to offset the price effect on the volume. [Unintelligible] lower. Looking back over the last 6 months or so, since last July, there has been a substantial decline in [the outlook for] industrial countries; we have 3/4 percent lower level of real GNP at the end of this year than we had last July. There you see it more clearly; essentially, the growth effect is quite pronounced. There you get another offset because the dollar has been much lower. Looking at it from their side, those two [factors] also go together. The dollar was about 6 or 8 percent lower than we were thinking it would be last July. It's projected to be 6 or 8 percent lower at the end of this forecast period. We have gotten a lot of the movement actually [earlier] in the period, so that has had a slight offsetting effect on--",270
-fomc-corpus,1987,But is that helping us on the trade side any more?,12
-fomc-corpus,1987,"Well, I think it's part of the same [story]. Part of the answer to your question about the reasons why growth is weaker abroad is that the dollar has been lower. The direct effect of that in the first approximation is neutral. [Unintelligible] means weaker net exports, if you want to put it that way. The secondary effects, where you get into the big discussion you were just having with Mike but view it from the other side of the pond, [depend on] whether you have the kind of offsetting automatic stabilizers that come along with higher real [income] on the one hand, or on the other hand the negative impact on investment intentions and that kind of activity and [economic] activity in general. If you have nominal targets for your fiscal policy, for example, and inflation comes in lower, then in fact you might find that [government spending] would get better. There could be an offset. That tends not to be the case. It tends to be a taking of those benefits into the [fiscal] position and lower prices in the fiscal situation give you less of an automatic [stabilizer effect]. The third factor, looking back to last July, is that we were cautious about a forecast too strong in terms of exports. The models were saying exports were going to be very [strong], so we tended to judgmentally adjust that down because we didn't at that point see much evidence. Now, in the second half of the year, the evidence was that U.S. net exports were doing quite well; so, although we still have damped down our [projected] rate of increase in export volume relative to what standing historical relationships might produce, we have damped it somewhat less than we had done before. Again, that's one of the factors that is viewed from the side of the trade [balance] as shown on the lower growth [abroad].",383
-fomc-corpus,1987,It's the speed of the depreciation that made a big difference in your mind?,15
-fomc-corpus,1987,"Well, these factors net essentially. This [unintelligible] but my sense is that clearly it does seem to be strongly negative in both Germany and Japan. The investment [is negative], which is one reason why things are being marked out. The other factor is that in [Japan and] Germany they both were looking for growth in [exports] this year, and it doesn't look like it's going to be there. Maybe it shouldn't even have been there, but they were looking for it. The other problem, basically, is the extent to which policy is used to [cushion these effects]. We talked about this some earlier: [whether] these countries tend to push [policy] given the change in the exchange rates or to respond in terms of supporting the adjustment process, if you want to put it that way. The adjustment process coming on the external side may be going along faster than otherwise [anticipated] and that's [negative]. In neither Germany nor Japan do you have a sense that policy is out ahead of the adjustment process; it's being forced by the exchange rate [change]. Sam Cross noted that in Germany monetary policy is [unchanged] although there is a small [chance of] adjustment in the latter part of the year; fiscal policy adjustment is going to come in January 1988. And in Japan [policy] is paralyzed. What little they might be prepared to do, they have essentially been paralyzed by the [political] process. And as a result, any fiscal [policy action] or lack thereof that is likely to come along in Japan is not going to be here for another 3 months longer, later than one might have thought it was going to come last December.",346
-fomc-corpus,1987,"[Unintelligible] the last comment. I wonder if you have attempted to factor in this latest trade retaliatory measure that has been taken. Is that going to have any effect, or do you have to make some assumptions about retaliation for--?",51
-fomc-corpus,1987,"We didn't really have it in hand in time to put it into the forecast. Even with it in hand, we would have to [factor in prospects for] retaliation. The other issue is how long it would last even [unintelligible]. We did not want to let them have a strong pricing effect, because essentially they are saying [""x""] equals a certain amount of supply of imports that are just not going to be there anymore. Essentially, it's a question of what the price [response is]; it's going to be [unintelligible] but it's not 100 percent higher; it's [a function of] whatever you think is the [elasticity of the] supply curve absent Japanese suppliers and that's probably not terribly steep.",149
-fomc-corpus,1987,But you would expect some upward pressure?,8
-fomc-corpus,1987,"Well, there would be some upward pressure, but not [too large], assuming that the measures are taken and they are permanent and there is no retaliation. I think the big risk, which seems to be what the financial markets were reacting to yesterday, is that this could get out of hand. There is certainly some risk that it could get out of hand.",72
-fomc-corpus,1987,"What products are we putting these tariffs on, presumably?",11
-fomc-corpus,1987,The list of products is $900 million worth of potential tariffs--various consumer electronic products and those types of things.,24
-fomc-corpus,1987,[I didn't] see the list; it sounded like a lot more than the $300 million they talk about.,22
-fomc-corpus,1987,There is $900 million on the list; $300 million will be chosen and they might choose this side [of that figure]. There are two pieces of it: $135 million of third market effects and $165 million of Japanese market effects. They could choose to do one and not the other.,60
-fomc-corpus,1987,"I love this rationale, which is we [don't] want to put a tariff on the chips themselves because U.S. producers buy those. We will put it on the electronic equipment that's processed from those chips and [not] import it. It's just unbelievable analysis.",53
-fomc-corpus,1987,[Unintelligible] was called with the agricultural trade--,13
-fomc-corpus,1987,"Maybe I misread it, but I thought that one of the major objectives was to use this playing tough to get the Japanese to knock down some of the barriers that are keeping our products out.",39
-fomc-corpus,1987,"That's absolutely the motivation. The question is whether, rather than knocking down the barriers, they respond by pushing them higher. Then we have [unintelligible]. If I had to guess, I would think it's going to move in the direction of the [unintelligible] may not come down $300 million but they might come down [unintelligible] worth and you won't get the retaliation. But there is certainly some risk that things will go the other way.",97
-fomc-corpus,1987,What would happen if either Germany or Japan slipped into a recession? I am hearing about the weakening of their economies and their disappointments with their performance and the downward revisions [unintelligible] of their own governments.,44
-fomc-corpus,1987,"Both of those economies are large relative to [their neighbors]--Germany with respect to Europe and Japan with respect to the Far East. In fact, in terms of the world economy, the Far East has been one of the brighter spots in terms of overall performance. I would think that the issue of negative numbers is not so important. The point basically is [not] whether growth is above or below zero; the point is that growth in these countries, which is [unintelligible] at this stage [is slowing], partly because [unintelligible] lagging behind. Two percent growth in these countries at a time when non-U.S. [growth rates] are very modest and one was hoping for something like 3 percent--that is 1/3 of the way to zero.",162
-fomc-corpus,1987,Two percent for Germany when you have--,8
-fomc-corpus,1987,We have 1 percent [fourth-quarter to fourth-quarter] for Germany; we have 2 percent for the G-10 countries as a whole.,31
-fomc-corpus,1987,"Ted, I recently saw a chart that I think you produced that showed a comparison of the growth of real GNP and domestic demand in Japan. It was surprising to me, and also very dramatic, that their domestic demand was growing at a rate twice that of GNP, I think.",58
-fomc-corpus,1987,"All of these countries have had quite good growth in domestic demand. The problem and the puzzle is--and we looked at this before the February chart show because I was puzzled as to when [unintelligible]--we didn't seem to see corresponding things. I would say as professionally as we could [figure out] the numbers as to basically what happened in 1986, there seemed to be a counterpart with the developing countries--the oil and non-oil producing developing countries--in 1986 rather than the United States. OPEC pumped a lot more oil last year and the price went down. We all bought it. Their price went down and they cut back on their [imports]. Of course, then the terms of trade were going against other developing countries, [not] like Japan. So domestic demand has [generally] been holding up reasonably well, but the overall level also has been on a downtrend and that's--",189
-fomc-corpus,1987,"Domestic demand doesn't look so bad compared to the GNP. You couldn't call that great in absolute terms, considering what their potential is. Are there other comments on the business scene here?",37
-fomc-corpus,1987,Do you mean of a more general nature?,9
-fomc-corpus,1987,Of a more general nature.,6
-fomc-corpus,1987,"Let me make a couple of more general comments. I don't feel that there is any fundamental difference in the economic outlook today as compared to what we have been talking about for the past couple of months. As I said before, I tend to go hot and cold on this trade improvement situation and right now I guess I am cold, partly for the reason that has just been talked about and that the performance in some of the industrialized countries looks pretty sour. But even beyond that, I still am a little skeptical about the extent to which there have been broad-based opportunities on the import or the export side to see the kind of breakthroughs that would seem to be implied in the current forecast. Although one can be surprised, I am a little more skeptical on that front. I can't quite shake a question in my mind, too, about the inventory situation, even though I understand the auto part, and the CCC part, and all the rest of it. I sense, when I look at the production side of the economy against the backdrop of the inventory situation, that one of two things should be true that aren't showing up in the numbers. One would be that export growth is stronger than the numbers suggest. The other is that there is some demand in the economy someplace that isn't showing through. Again, I don't think there is anything decisive there, but it does continue to raise a bit of a question in my mind on the inventory side. In the context of the external situation--this point has already been made--the escalation of the tensions on the trade side is a new and troubling development which, in my mind's eye, simply reinforces the view that the greatest risk by far at this point lies with the dollar. Any material further depreciation in the dollar is going to exacerbate the situation in countries like Japan by extending the J-curve. It seems to me that you can make an argument that in relative terms Japan is already in a recession, although not in the statistical sense that we define recessions. But on top of that risk on the dollar side, the other risk that I think is closer at hand than we would like it to be is that a further dollar depreciation will trigger at least a mini chain reaction on the financial side that could be very, very destabilizing in the short run. So the net is probably a somewhat higher level of apprehension about the economy, which is Kentucky windage in nature. But I have a significantly heightened concern about the dollar situation in the immediate circumstances that we face right now.",505
-fomc-corpus,1987,What is Kentucky windage?,6
-fomc-corpus,1987,"Kentucky windage means I don't have any numbers to back up those hunches, just a bit of a feel in the air. You throw a piece of grass up and you see which way it blows.",43
-fomc-corpus,1987,It's the allowance you make for the errors in the accuracy of your rifle.,15
-fomc-corpus,1987,"Did you learn that in Manhattan, Jerry?",9
-fomc-corpus,1987,You could associate it a little if you thought--,10
-fomc-corpus,1987,That's all a very precise science; now I am really confused. Mr. Morris.,17
-fomc-corpus,1987,"Mr. Chairman, I have been getting anecdotal evidence from our New England manufacturers that their exports were doing pretty well. But when I looked at their employment numbers, the last four or five months of 1986 showed pretty quiet employment in manufacturing. The non-manufacturing economy is doing well; the unemployment rate had drifted below 4 percent, and now it's running about 3-1/2 percent. So I asked our manufacturers: If you are doing so well in exports why isn't this showing up in manufacturing employment? The answer was that domestic capital goods demand is so weak that it has been offsetting the strength in the exports sector. In January we had an uptick in manufacturing employment at a 7 percent annual rate. Now, one month in these numbers is not enough to give a signal, but at least it supports the proposition that maybe the improvement in exports is going to try to [unintelligible] the first time on the employment side. My Boston airport indicator is still looking pretty good. In the three months ending in January, air freight exports in pounds were up by 16 percent over the year-earlier numbers, and air freight imports declined for the first time on a year-to-year basis. It was down one point, so the numbers are still confirming the anecdotal evidence. The employment numbers still haven't shown through to any great extent, but we may be at a turning point in manufacturing employment, depending on the export side.",295
-fomc-corpus,1987,Do any of the exports go by ship or is it all air from Boston?,16
-fomc-corpus,1987,"I am told that about 90 percent of the high-tech exports go by air freight, because their value-to-weight ratio is high.",27
-fomc-corpus,1987,Mr. Parry.,5
-fomc-corpus,1987,"Mr. Chairman, discussions with our directors and others in business in the Twelfth District indicate that business conditions are improving to some extent. There clearly are exceptions, and the two that I would note would be Alaska and the central valley of California. However, California's total employment has been quite strong. California's employment represents 60 percent of the District and it surged in February, pushing the District's unemployment rate below the national average. Some fragmentary data that we have on retail sales for the beginning of the year indicate that the fall-off that was so pronounced at the national level in January was not shared by the Twelfth District. Also, data that we have on trade from the Pacific Coast ports provide some evidence of improvement in our net export position, as the trade deficit has narrowed significantly in the past 12 months. Turning to the national economy, our forecast indicates a somewhat worse trade-off between growth in output and inflation than is incorporated in the Greenbook. We have slightly less growth in 1987 and 1988 and inflation--at least in our forecast for 1987--is 1/2 percentage point higher. We have a similar inflation outlook for 1988 because we agree with the Greenbook that we are likely to see upward inflationary pressures arising from import prices persisting through all of next year. However, in contrast to the Greenbook, we expect these inflationary pressures to emerge as early as the second half of this year. Thus, we see a period of upward pressure on nominal short-term interest rates beginning soon and probably extending into the second half of 1988. In my view, it will be necessary to allow nominal interest rates to rise; if we don't, short-term real rates may be pushed too low. We also are looking for somewhat stronger growth toward year-end 1987 than the Board staff, as we have slightly higher consumption and, of course, the trade account begins to improve at that point. Thus, we believe that it may be appropriate to allow real interest rates to nudge up toward year-end. In our view, it would be a bit too risky to allow the pickup in demand pressures to the point where the temporary price shocks become a factor in longer-term inflationary expectations. In our view, the gap between actual and potential [GNP] is really pretty small. Some estimates that we ran suggest it's on the order of one percentage point. Therefore, available slack in the economy is also small, and we think that inflationary risks at the present time are fairly significant.",511
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"While the conditions in our District are largely unchanged from previous periods, at least in the fundamental sense, I do have a feeling that there is a better tone out there. It is entirely possible that this has been affected by the winter. We really have had exceptionally mild weather this winter and, as a consequence, anything that would normally be adversely affected by the weather is doing very well. Construction is the very obvious example. Home building is strong. Jim Kichline has commented on that, but in the Midwest in January and February home starts were up something like 40 percent over the previous year--obviously very heavily weather-affected. Commercial office building continues to be, I think, astoundingly active. There are a number of new buildings that are planned; despite a creeping up in the vacancy rate there are more buildings going up. As a consequence of all this, all the building materials people--cement, masonry, and the like--are doing really exceptionally well. There do continue to be plant closings, but I think they are slowing down a bit and there is some offsetting good news. Last week, or maybe earlier this week, Youngstown and Nippon announced a very sizable joint venture--a $400 million coal power plant. That is the first significant development in the steel industry like that for quite some while. Employment in the District is also a bit on the positive side. In January our employment increased by the national average; that is the first time we have had that in some while. Even the farm sector looks a little better or, at least, maybe not worse. Farm earnings are probably going to increase this year; that does not really reflect a fundamental change but rather the huge government subsidies. I will say, though, that the livestock business has been and continues to be pretty good. There is some improvement or expectation of improvement with regard to corn exports, offset a bit by lower soybean exports. We think land values are--we've been saying this for a while but we have a growing confidence--in a zone of stability that ought to be helpful to the banks. If that does occur, we have a hope that the whole farm sector may be at a zone of stability, if you will, albeit at a very low level, as it has been for quite some while. There is renewed concern out there about the Farm Credit System; but despite that concern there is, I think, the absolute expectation that at the end of the day the Government is going to be there and provide support for that. But certainly, that has put an air of uncertainty into it all. On the trade picture, we would have somewhat of a disagreement with the staff forecast. We have commented already on it, perhaps, but the people I talked to are not experiencing the improvements in exports that the Greenbook would suggest. They are concerned about weak conditions in foreign markets and, therefore, the opportunity for their products. But on the import side, there is very, very broad agreement that we've got some improvement. The companies that are manufacturing products for the domestic markets are finding a better receptivity there, a little less out-sourcing, and an increase in domestic production. And that is certainly an improvement. With regard to the exchange rates, just a specific comment: told us that the increase in the deutschemark has basically priced German equipment that is used in the paper industry out of the market for the first time in quite some while, noted that in the machine tool industry, U.S. labor rates are now lower than is the case in Japan. That is also a very significant change for that industry. On inflation, I think the picture is a bit mixed. The labor situation continues to be good. The people I talked to about contracts are continuing to get what they think are very favorable deals--some as low as 1 or 1-1/3 percent. Generally, most of them were under 3 percent with pretty good work rule changes resulting in productivity improvements. Pricing on other commodities and materials, everybody says, is fiercely competitive--that they can't raise prices, etc., etc. But I am hearing of more instances of the 3 to 4 percent increase and occasionally the 5 percent, so I think there is a bit of an upward movement on that. In a specific industry, the paper industry, a broad upward trend in [the prices of] the commodities that they use, and most specifically polystyrene resin. I think there is a special reason for this, but they have had a price increase on that of about 30 percent in the last year. In some ways we certainly are in very close agreement with the staff forecast; we see no recession or a strong break-out on the up side either. We are a little apprehensive that the export side may not be quite as strong as we expect. On the inflation side we see nothing yet to be alarmed about but are beginning to sense some upward pressure out there. It is not pervasive yet but I think it is the area that we want to watch.",1017
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,"I don't think I can contribute much to what has been noted on the national level or the international level. In our District things seem to be going along really very well. I am impressed with the drop in the unemployment rate that we have experienced. A year ago it was about 6-1/2 percent in our District and now it is about 5 percent and probably will slide under 5 percent. In places like New Jersey, where it was 5-1/2 percent a year ago, it is now under 4 percent; in Delaware it was a little under 5 percent and now is approaching 3 percent; and we have areas in our District where the unemployment rate is under 3 percent. So, we are experiencing a tightening in wage costs in the area. As in the whole Northeast, wages seem to be rising faster than they are elsewhere in the country. A good bit of it is in construction, especially residential construction; retailing is stronger than expected; and loan growth is running 1-1/2 to 2 times the national rate. We are getting the same kind of experience that Frank Morris has had in manufacturing. Growth in that sector has been about flat and yet they seem to have some positive things to say about export growth. But I think that has been offset by the capital goods area. So, in the Northeast and the middle Atlantic, especially in the eastern part of the District, things are going along really very well and for some areas I would call them boom kind of conditions.",309
-fomc-corpus,1987,Does this include the steel towns that I read about?,11
-fomc-corpus,1987,"No. If you take a look at our District, for example, areas like Lancaster and York and Harrisburg have unemployment rates of right around 3 percent. If you drive 100 miles west of that, in areas like Johnstown, you have rates of 8-1/2 to 9 percent. In Wilmington you have about 3 percent unemployment; you can go across the Delaware Bay into some sections of South Jersey and you will find 7 percent unemployment. You wonder about the mobility and the skills of the people. But overall, the general tenor in the District--especially in the Eastern part of New Jersey, in Delaware, and in the southeast quadrant of Pennsylvania--is that they are doing very well. Even in places like Johnstown and Altoona, and Scranton to some extent, people will say that conditions are not as good as in some other parts but they are better than they were a year ago.",187
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"The same general report can be given for the Sixth District as the one that Ed Boehne just gave. The reports that we're getting, both in terms of the data and anecdotal information, seem better to me than what I have heard for quite a long time. We are getting quite good reports on the service industry generally. Retail sales have been much better than most retailers had expected, and to a certain extent I suppose that is not very surprising. But what is heartening, I think, is that we are hearing increasingly optimistic reports from the manufacturing sector for the first time in a number of important industries. These include industries such as paper and chemicals and especially textiles and apparel. The petrochemical companies mention very strong orders, as do the apparel manufacturers, and some of this is export-related. We see the same thing Frank Morris mentioned in terms of manufacturing, where the orders are increasing due partly to export-related activity and employment is not moving up very much, if at all. But the explanation we get, and I think it is valid, is that there has been so much automation put in and productivity is so much higher--particularly in the textile industry--that you are not going to see a very rapid increase in the number of employed people. So, generally throughout the District it looks pretty good and confidence is very high. Even in the construction industry, where we had expected some downturn as a result of the tax act, I am hearing from people like architects, real estate people, and construction developers that their firms have never been busier in the month of February. This, of course, is basically in the large metropolitan areas like Atlanta and Nashville, and to some extent Miami, which are experiencing some boom. To be sure, we continue to have difficult areas. Agriculture may have reached the bottom; we're beginning to see that land values are coming back a little. And Louisiana continues to be in a depressed state. Even there, with the recent firmness in the price of oil and strong tourism, I think they feel a little better about their situation and, of course, they are putting a lot of hope and a lot of expectation in the visits of both the Republicans and the Pope! Looking at the national economy, our forecast is very much the same as the Greenbook. The outlook and expectations we have over the rest of the year have changed very little since the last meeting of the Committee. We differ a bit with the Greenbook with respect to inflation: we think the deflator will turn out to be more toward 3-1/2 percent rather than the 2.7, 2.8 percent that the staff has; and as opposed to the constant rate of increase in each quarter that the staff seems to be expecting, we anticipate that an upward trend will set in during the latter half of the year. Wage contracts and settlements continue to be on the modest side, although I am not sure what is going to develop at the end of the year with the UAW and others coming on stream. But I think the more important thing is that the second-stage impact of rising import prices could be a bit stronger than reflected in the staff forecast. And given the lesser deceleration in service sector inflation, I am a little concerned that in some sense we still have an underlying rate of inflation in the economy that is closer to the 5 percent area than it is to 3 or 4 percent. That is more a gut feeling than anything that I have in terms of statistics. I think there is a very serious downside risk to this outlook, if we agree that a significant portion of the year's forecast growth is attributable to a turnaround in the foreign trade balance; we keep revising downward our estimates of growth in other nations, particularly Germany and Japan, as someone else has just indicated. Obviously, that partly reflects a fall-off in U.S. imports from them; but with weaker growth abroad, I think that we could get weaker export expansion also. So it seems to me that there is very little reason to expect more improvement in the trade balance in 1987 than we did six weeks ago and, perhaps marginally, there may be some concern that it won't be as good as we had expected. But, as someone also has mentioned, the real threat is the dollar and the increasing likelihood of protectionist legislation of some sort that will bring retaliation by our trading partners. I am not sure that we have any particular way to solve this at the moment except through monetary policy, perhaps, and its effect on the dollar. But I think that this is a very, very important issue and one that I am very concerned about.",933
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"On this point about manufacturing, Frank, we not only saw a big pickup in January--8.1 percent at an annual rate--but an annual growth rate for the last three months of 3.2 percent. So we have been seeing the strength in manufacturing for some time now and it is reflected in non-agricultural employment more broadly. Retail sales are reported with a considerable lag, but I think that retailers generally feel pretty good about the way things are going. Someone made the comment before that economic conditions are a little better than they might have thought. I think retailers generally feel good about things on that side. A lot of these sectors could have been affected by weather, as residential construction was, but I think there is a sentiment that there is some fundamental underlying strength as well. The one area of weakness that has shown up more recently is nonresidential construction. Yet in one of the local businessmen who is in the commercial glass business, or quasi-commercial or whatever you call that, indicated that late last year and early this year they have put through two 5 percent price increases both of which stuck, after a long history of trying to put them through and they just wouldn't stick. And they are looking at maybe another 5 percent increase down the road this year. On a broader front, I personally am somewhat skeptical as to whether the effects of the lower dollar, which I think will filter through in many ways over a long period of time, can really be handled as a one-time level adjustment, as perhaps energy prices would be viewed, in terms of inflation. I would be somewhat concerned about the ability to contain, as Bob Forrestal mentioned, the secondary effects arising out of higher import prices. Finally, on another note, we had a group of institutional investors in for lunch last week--this is perhaps somewhat irrelevant at this point in that it has already happened--but I was struck by the level of anxiety about market valuation. Generally, people felt that the U.S. stock market on a valuation basis was overpriced but in comparison to other world markets it looked like a great buy right now. So in the cases where investors maybe had taken some U.S. funds offshore, where they have enjoyed tremendous gains both in the currency and those market movements, they now look at the relative valuations and say maybe the U.S. market isn't a bad buy. But there was this general anxiety that a rising tide lifts all ships and that that is not a very good fundamental underpinning for the level of markets.",505
-fomc-corpus,1987,Tide capsizes all the ships.,8
-fomc-corpus,1987,"Yes, I think. Again, I was struck--and maybe it was just because this was at our Reserve Bank and they were saying what they thought they ought to in the central bank--that, generally speaking, they felt that the liquidity that had been provided wasn't having a lot of impact on the real side of the economy. It was all going into the financial markets and it was blowing up this balloon and creating anxiety about what might happen should that balloon burst.",93
-fomc-corpus,1987,Mr. Guffey.,6
-fomc-corpus,1987,"Thank you, Mr. Chairman. With respect to the staff's forecast of the economy we have no great quarrel. I will just say that we are a touch stronger on personal consumption and less optimistic about the turnaround in net exports to the extent of about $5 billion or so. Where we would differ is on the projection for prices. On the deflator, for example, we are roughly a half percentage point or more higher than the staff. I think this has been mentioned two or three times around the table up to this point and we would be consistent with those comments. With respect to the District, I am delighted to tell you that over the past couple of weeks, in meetings with boards of directors, businessmen, bankers and others, there is a decided turn in the outlook. More optimism has been expressed over the past two weeks to a month, I think, than I have seen in our part of the country for three, or maybe even four, years. There isn't a great deal of good hard evidence that there has been a turnaround. It may be part of the optimism that comes in the Midwest when the sap begins to rise--people's outlooks become a bit more optimistic. I was accused of that by Governor Angell when I mentioned it to him earlier. But the fact of the matter is that there is some evidence of a turnaround. For example, in Oklahoma, there has been some leasing activity in the oil and gas area with leases on a three-year basis of $35 to $50 an acre. That is not a great amount compared with what they got two or three years ago, but it does provide a cash flow that eases some of the strains for the lenders, particularly those small banks located in the petroleum-producing areas. Also, as has been mentioned earlier, there seems to be some stabilization in the price of agricultural real estate. There are reports that some sales have taken place in remote areas such as western Nebraska in which fairly good prices were established; and some sales are actually moving property. There's an interesting development that's occurring with the Farm Credit System. It started with the St. Paul Farm Credit Bank, and perhaps Gary Stern can expand on it, but they are adopting a new program in which they are going to accelerate the sale of the agricultural real estate that they now have by using a program of incentives based upon term, price, and particularly interest rates. For example, they will go as low as 4.9 percent for 3, 5, or 7 years, and after that time the interest rate rises to a market interest rate for the 25- to 30-year amortization period of the loan. It is obvious that the price of the property that is being sold is not the true price because of the incentives being granted. But it is something that has received some rather positive comments. And if you are concerned about the amount of land that might be dumped on the market through this by the Farm Credit System or other lenders, let me just tell you that there are about 4-1/4 million acres now in the hands of lenders and that represents only about 5 percent of the agricultural real estate that is normally sold in any given year. So it is not a big amount but it may mask a bit the problems in the Midwest because much of it is centered there. There is an optimistic tone that hasn't been present in the past.",685
-fomc-corpus,1987,Mr. Stern.,4
-fomc-corpus,1987,"I have been impressed for some time at the ongoing employment gains at the national level. It seems to me that rather healthy employment gains have been underway for roughly six months or so now, going back to September. I must say that that kind of improvement seems to be evident, at least anecdotally, in many of the comments I hear around the District extending over roughly the same period of time. But it is not mirrored in many of the other national statistics that I look at, although maybe if one looks carefully at some of the consumer spending data, excluding autos, or some of the construction data, one can see some of it in there. I conclude from that divergence between what I am hearing anecdotally in the District on the employment gains versus some of the other statistics that the recovery remains uneven and unbalanced. But I also wonder if it isn't a fact that a lot of our statistics don't focus on services and trade, and finance, insurance, and real estate, and so forth, where a lot of this activity, in fact, lies. On the inflation side, I have been expecting, of course, that we would see some deterioration this year in any event, and I haven't changed my views about that. I would report that in talking to some people in the District, in two very different kinds of businesses--pulp paper, lumber, etc. and in health care which is a small but stubborn component in the CPI--prices, at least in general, have been rising more rapidly once again. There seem to be growing indications of some rebuilding of price pressures, at least in those two sectors out our way. Despite what I would consider my basic satisfaction with the immediate economic outlook and conditions in the District, I must say that, if anything, I am less optimistic about the longer term. It seems to me that some people have touched on this. Many of the things that we have talked about over the last several years that might go wrong seem to be in the process of going wrong at the moment, as I view it. The dollar has been touched on: what that means for Germany and Japan and what that means for domestic inflation. All those things are not looking good. Protectionism adds to those concerns. The LDC situation looks to me to be worse. Probably I could add to that litany if I really tried. But I guess my message is that as I look at that and what it might imply for economic performance here and abroad I am, if anything, more concerned.",507
-fomc-corpus,1987,We will hasten to Mr. Boykin.,10
-fomc-corpus,1987,"I did look real hard for something positive: I was able to leave the District for a few days! Mention has been made on the manufacturing side of exports and the effect of the dollar. That is, or appears to be, a positive factor in the Eleventh District --lumber, paper, and chemicals seem to be responding. Attitudes, which I think really are important, have not changed all that much. I would say that some people are not quite as pessimistic although I certainly would not consider people optimistic at this point. Looking at some of the negatives that remain in the Eleventh District, construction, which I've reported on, is a big thing, of course. We don't see much possibility for a turnaround in that. In commercial construction Houston had a negative absorption. Dallas does have a higher vacancy rate than Houston but our absorption is doing better. The thinking was that we probably were two or three years away from a major announcement on a new building. Now that has been extended to probably three or four years, indirectly, because we have had a major announcement of 900,000 square feet coming on the market in downtown Dallas with the InterFirst-Republic Bank combination; they are going to free up that much space--their prime or best space--through that consolidation. The rig count is off slightly after growing steadily for about six months. Retail sales are weak. I can confirm what you say, Roger, about leasing. In Oklahoma we just leased a little mineral interest that the Bank has there and we got $105 an acre but we went out for five years and I think it amounted to about $3,000.",329
-fomc-corpus,1987,The Bank has?,4
-fomc-corpus,1987,Are you speculating in oil?,7
-fomc-corpus,1987,"No, this goes back to the '20s and '30s. We were given quitclaim deeds and we haven't been able to get rid of this. We should have given it to you when you took Oklahoma, Roger! The employment numbers have been a surprise for us in Texas because we have been reporting eight consecutive months of growth in employment. Those numbers have now been revised and, as a matter of fact, we have had eight consecutive months of decline.",93
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"At the time of our February meeting we had slightly higher projections on real GNP and inflation than the Board staff had. The staff has not changed its overall projection, although it has changed the shape or the profile, and we left ours pretty much the same--partly out of conviction and also probably because we knew if we made another forecast that we would have two errors rather than one. The main point of difference that we have with the staff is in the area of residential construction. We think, given the sharp drop that we have had in mortgage rates, that it ought to be a little stronger than 1.3 percent. Even more important than that, the staff's downward revision in construction and personal consumption expenditures, to which several people have alluded, is pretty significant. It has come down from 4 percent in 1986 to 1 percent in 1987 and we have not had that low a rate of growth since 1981, which was a recession year. In view of the proliferation of home equity mortgage loans--which I would think would make a difference--and also the wealth effect of the stock market, we think that that's apt to be a little stronger. We come out about the same on the net exports of goods and services, although I think that is probably the most vulnerable part of all of our forecasts. Things don't look all that good abroad now but we would stick with about what the Board's staff has said. As I mentioned, in the area of inflation we are a little higher than the Board staff. Although we are still predicting a fairly moderate inflation in the implicit price deflator for next year, I think this price level bears some closer monitoring. There is a lot of money and liquidity out there and that is going to be felt at some time. We have had a substantial depreciation of the dollar and there has been an increase in capacity utilization, and all these things ought to work to put some upward pressure on the dollar at some point. It may come a little sooner than most people seem to think. Some of the pickup in industrial prices, as shown in the Greenbook and also reported in several of the District surveys contained in the Beige book, suggest that there may be a little more there than meets the eye. I hope not, but it is something that I think bears some watching for the time being.",475
-fomc-corpus,1987,Mr. Hendricks.,6
-fomc-corpus,1987,"Thank you, Mr. Chairman. The economic situation in the Fourth District is broadly consistent with what the staff has forecasted. Most sectors of our economy, believe it or not, are expanding begrudgingly and fitfully. Metal producers, of course, continue to suffer from excessive worldwide supply. Housing, on the other hand, seems to be holding its own and, in fact, is moving forward at a rapid pace. Some others have commented on housing starts in the Midwest and we are no different. The directors and others with whom we speak admit to feeling that the worst is now behind them in terms of the foreign trade front. You can twist their arms a little and they will admit it. Domestic producers say that it is easier to compete now against imports but that competition is still very intense; yet they seem to feel as though they are back in the ball game. Our staff feels that we still are a long way from being secure about the economic fundamentals governing the current account. The improvement could take longer and may require a lower dollar than we think today. Our people don't see as much strength, perhaps, in exports as is indicated by the Greenbook forecast. One interesting thing our staff did was to take a look at capacity in the various sectors, and there are spotty areas where capacity utilization is beginning to approach the highs reached back in 1978 and 1980. Several of the industries are at their long-term 20-year average. Somebody mentioned some pressure on prices in textiles; they're showing up to and beyond their 1978-to-1980 highs. So just as a general comment, there may be some spotty places in the economy where capacity [constraints] are beginning to show up. As I said at the outset of my comments, the staff's outlook in the Greenbook is very consistent with the conditions we see in the Fourth District.",377
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"I agree with the growth and inflation forecasts of the staff. I was happy to see that the first quarter was revised upward: I always thought that the tax would have an overall beneficial effect. Let me focus mainly on the external side. As many speakers have pointed out, our main problem is the high and persistent trade deficit. Sooner or later we will have to correct it. But at the going exchange rates that trade deficit will continue to persist, as the staff's projections have shown for the exchange rates and foreign growth, I should hasten to add. The staff projections in the Greenbook, I think, already have incorporated the decline in the value of the dollar. Obviously, if foreigners were willing to expand their economies that would help on the trade side. But as we have also learned they are unwilling to do so. So the question that will be before us here is whether it will be advisable for us to delay the adjustment in the exchange rate by letting interest rates drift upward. I think that that would lower the growth projections we have for the U.S. economy which are only running slightly above 2-1/2 percent. That wouldn't help the world economy; the LDCs would be hurt by higher interest rates and clearly their export markets would be hurt by having lower growth in the United States as well. I am willing to let interest rates drift up if it would be necessary in order to help on the price front. But in spite of the few hiccups that we have seen, overall the projections still show that inflation is essentially flat in the profile for the year as a whole, and I am comfortable with that projection. So I think that the debate we are really going to focus on in our later deliberation is whether we want to focus monetary policy on domestic or international projections.",362
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"There does seem to be a growing consensus about the world economy, so I don't think I need to elaborate much more on low world economic growth rates. That's certainly not good news, as all of us know, in regard to the LDC's debt and to many other things that are very important to us. Unfortunately, in the news on the U.S. economy it is hard to see any bright spots, because if we do get any rebound--and if it is rather significant--in view of the world economy that may very well overwhelm the exchange rate effects. So we would end up having a bad world even if we meet U.S. growth projections. So that is somewhat of a negative. I tend to be sympathetic with the staff's view on the inflation rate because I think a global perspective is very, very significant. I noted here today that I haven't yet heard a president of a Reserve Bank who has come in with an inflation rate that is lower than staff's. I hear a lot that are higher. I am about up to the staff's level now on inflation because there has been a development in regard to the spring storms that might have an adverse effect on food prices. That is, this blizzard in the Midwest occurred at a rather unfortunate time with regard to calving and there is a lot of livestock damage--anecdotal at this point. We don't know what the numbers are but the situation could be somewhat severe. I guess there is some benefit in that we have moved a lot of that cow/calf operation to Florida and that works pretty well for reasons I have not quite understood. You feed cattle, or start them off, on a very poor grass diet--I am not trying to draw aspersions to Florida--but then you transfer them to the good blue foothills grass and you get marvelous kinds of changes. So we don't have as much of the cattle exposed as we did before, but that undoubtedly would have an adverse impact. I would second what has been mentioned about agriculture. We are now beginning to see farmers who are having prosperity and ranchers who are having prosperity come forward. For quite a while farmers who were making any money tended to be very quiet about it in this kind of environment, but they're beginning to come forward. It does appear that most of the land purchases are being made by farmers, not by out-of-farming interests. It may very well be that our agricultural banks are going to get through this year to a period where in 1988 we may have some better news. I wish we could say the same thing about banks with LDC debt.",525
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I think just about everything has been covered. For my own benefit, I'll summarize my thoughts a bit. I have heard from a lot of the Districts that things look better. Production is picking up and employment looks a little better in the trade-related area and in some manufacturing. I think the aggregate statistics reflect some of that and that is encouraging. What concerns me a little is how much of this production that we are seeing is going into inventories. How much of it is really meeting domestic consumption? There seems to be some circumstantial evidence of some involuntary inventory buildup. It is more in the automobile area than anywhere else, but there are at least some signs of inventory pressure even in the non-auto area. That may be just the rebuilding of stocks to more normal levels but given the low forecast that we have for domestic demand--which a lot of comments reflected around the room--you just wonder if all that production and greater optimism we are seeing are going to be permanent or if there will be a flash into inventories. If so, there is some risk and a little concern as to whether this production activity is going to be continuing. That bothers me a little, especially when we are marking down growth abroad and the potential for our export markets. So, we may not be seeing the strength in the future from the export side that we had been expecting earlier. That is somewhat of a problem which brings me to the dilemma that I keep worrying about. I think we all agree that the dollar is at levels where we wouldn't like to see it go particularly lower. Having it go lower would make it counterproductive on the trade side as well as the inflation side at this point. But I think the concern is: should we get dragged down by trying to stabilize the dollar against some countries who are experiencing economic decline? I worry a bit about the overall macroeconomic effects of trying to stabilize the dollar against some weakening economy. At the same time I am at a loss for knowing what to do about it simply because I think there is a risk to our financial market stability, especially in the short run--and maybe even for inflation in the long run--if we don't try and do something about the dollar. It is a real predicament that we have to deal with and the protectionist sentiment that we are seeing surface is part of that problem now. I just hope we don't have to get into a situation where we are defending the dollar because of a confidence problem associated with destabilizing exchange rates against currencies whose countries are showing continued decline. That is a real risk; in my mind that seems to be the major problem and I just don't know exactly how we should deal with it.",535
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"My own forecast is a little below the staff's forecast, at least in terms of the overall growth for the economy. In going back to the time when the staff first presented its forecast for 1987, I have had this concern--which I have heard here at least seven times already today--about the ability of the trade picture to improve enough to make the contribution to our overall growth situation that we seem to have expected and we continue to expect. Also, I must say that I am still not convinced, even with exchange rate adjustments and even with more American businessmen interested in exporting, that we in fact can do a lot more exporting--because of not necessarily having the kinds of products, or enough of the kinds of products, that are wanted in other parts of the world. I have been lectured on this matter by some Germans over the last couple of weeks or months, so I hope they haven't unduly colored my view. But I think there is some of that going on. Also, I am not convinced that all the markets in the world are really open to our products; I think the events of the last few days have suggested that some other people have wondered, at least, whether the Japanese markets were open to our products. So, that concerns me. On the domestic side my nagging concern continues to be the auto industry. They already have very substantial supplies of new cars sitting in various dealer lots and showrooms. There have been some cuts in production and there have been some downward revisions of production schedules. But my woman's intuition suggests that maybe scheduling changes have not gone far enough and that we will see more of them. Therefore, I hope that the staff's forecast does prove to be right because I do want a good healthy economy, and I like faster growth rates rather than slower growth rates. But I really think we are putting a lot of our eggs in one or two baskets and I just hope we don't stub our toes.",392
-fomc-corpus,1987,"Mr. Kohn, can you be fast?",10
-fomc-corpus,1987,Okay. [Statement--see Appendix.],8
-fomc-corpus,1987,"I think we can proceed and decide what to do. I don't think this is the simplest situation we have ever been in. The course of action in one way seems pretty obvious. But whether that is really satisfactory to the situation, the answer is probably no. Things are not under our control. I'd say our decision is easy in one sense: It is a little hard for me to see, in listening to what everybody has said, that we would want to move importantly in one direction or another from where we have been just in terms of the business outlook and ordinary domestic criteria. I guess the question is: Under what conditions would we want to move at all significantly? The aggregates are coming in low, which can't upset me after a year or 18 months of coming in high. I don't see that as a strong reason for easing, for a fair amount of time anyway. That leaves us with the question of the dollar and the international situation and all those related concerns that have been discussed, which are very difficult issues. Obviously, they are by their nature a multilateral concern as well as our concern. I would just note in that connection that the G-10 meets next week. [Unintelligible] for all those numbers we ought to extract great wisdom out of the meetings next week. I wouldn't count on that but there is an opportunity for a closer discussion with our major trading partners next week. [We could provide] some sense of what we might think is useful in terms of entering into those discussions. Who wants to say something?",311
-fomc-corpus,1987,"I will if no one wants to. As I look at the situation now, in my judgment, we would have to be prepared to let interest rates go up a little for a little while in order to avoid a situation where they had to go up a lot for a long while. In the context of the alternatives in the Bluebook, following them in a conventional sense, that would lean me toward the alternative C side of things. But I don't think the alternatives in the Bluebook are really the best way to think about the situation at the moment.",111
-fomc-corpus,1987,"I am beginning to worry about that when I look at this, too. Let me just interject a comment. As I said, I don't see any reasons to change strongly. I am thinking about it in terms of borrowings right at the moment. It was implicit in what I said that if the aggregates continue to come in below 6 percent--or 6.9 percent, or whatever the staff has here--I wouldn't see that as a strong signal for easing at this point. I don't know whether those aggregates are too high or whether the staff always judges them absolutely correctly.",118
-fomc-corpus,1987,I think they are too high if interest rates pick up.,12
-fomc-corpus,1987,"Well, who knows what they are. But I don't think that is the crucial variable for this period.",21
-fomc-corpus,1987,"That's partly what I was just trying to say. I don't think it is very easy to think about policy in terms of conventional alternatives A, B, or C. The way I would state it is that I would be prepared, in the face of continued weakness in the exchange market, to see the borrowings level go up--in the extreme maybe even as high as $500 million, say--in the hope and the expectation that that would be temporary. The idea is to avoid having to permanently increase interest rates. But I do worry; I am not at all sure that we have seen the real test in this exchange market. If we were to see the kinds of pressures, or even more pressures than we have seen in the last few days, materialize in the very near term I don't think we could head that off just through intervention. And in those circumstances, I think we would have to be prepared to show our hand a little in the hope that that could get us over the hump.",201
-fomc-corpus,1987,"Just for purposes of clarification: If I understand you correctly, you are saying do nothing now but be prepared to raise borrowing if the exchange market comes under still more pressure.",34
-fomc-corpus,1987,And I would be prepared to go up to at least $500 million in those circumstances.,18
-fomc-corpus,1987,"Can I just comment on that? I think Jerry has a good point. My only concern about it is that I think we might need discretion for something like that. I would hate to see us make the fundamental move on monetary policy when I think [the move] even more clearly lies with the surplus countries. So, I would only want to do that if we saw some tendency for them to let money market rates drift down so that we would get that interest rate differential we need. To see the fundamentals change in the right way over there would seem to be the desirable feature.",116
-fomc-corpus,1987,"Oh, the best of all possible worlds would be that. As I have tried to describe this, I would not view this as a fundamental change in policy; I would view it as almost a tactical change that says we are prepared [to move] at least for a transitory period. To some extent we have been finessing that a little, as someone said earlier, just in terms of the way we have been conducting our open market operations from day-to-day. All I am saying is that I would be prepared to go a little further than simply finessing open market operations from day-to-day in the face of renewed downward pressure.",130
-fomc-corpus,1987,"You're saying do nothing today, if I understand you correctly.",12
-fomc-corpus,1987,Depending upon what's going on in the market. I think it means do nothing today.,17
-fomc-corpus,1987,I don't mean today; I mean on borrowing.,10
-fomc-corpus,1987,I know.,3
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"Mr. Chairman, this seems to me too like a good time to hold our policy steady. I would opt for ""B"" and I would maintain that tilt toward restraint in the language of the directive. There's a good case for making this language symmetrical, which is what I generally favor, particularly now with the aggregates slowing down. That case can be made; but I think over the last couple of years we assumed that at some point the rapid growth in the aggregates was going to be followed by a slowing in those growth rates as they adjusted to the downward drift in interest rates. That is what we may be seeing now. And, like you, I would be very reluctant to do anything in the way of ease if the aggregates continue weak for a while because, if anything, the economy looks a little stronger to me now than it did. So, that would not be any signal to me that we ought to act in that direction in the immediate future. I would not favor putting a greater weight in the written directive on the foreign exchange side, although I think we would necessarily emphasize that. We already have language in the directive now, and if we use the kind of language suggested in the Bluebook I would have some concern as to how the markets might interpret that. Although I certainly don't know, I fear that the markets might think that means more of a [unintelligible] than probably we have in mind. I wouldn't want to give that kind of signal. I would just ride with the reference that we already have in the directive about giving due attention to foreign exchange matters.",319
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"I come out in essentially the same place. Let me just mention a couple of things. While it is implicit, I think, in the discussion, maybe one thing that ought to be mentioned explicitly is that the problem with the dollar is not the level but the rate of decline that we have experienced--more than 7 percent between the December and February meetings. I am not sure what the decline is through yesterday, but it's probably on the order of 5 percent on a trade-weighted basis. So, one thing that is important in thinking about the dollar is that we are not necessarily saying that this is the right level but that some stability is desirable. Picking up on Governor Johnson's earlier point--it seems to me that the message being sent to us there is really quite a negative one if our real growth outlook is considerably more attractive than that of our major trading partners and yet our currency is weak. I think that is saying something about what people think about the inflationary prospects here. I recognize that there are a lot of risks on the table with respect to the economic outlook, but going back to what Jerry Corrigan said earlier, the most destabilizing risk would be that of losing control of the dollar on the downside after the very rapid declines that we've had. So, in my mind that alone takes away any thought of easing. In fact, it seems to me that the dynamics we've been witnessing here, with a weaker dollar and how that spills right back into the bond and stock markets, are what will unleash the liquidity that's in the economy that we've been talking about for some time. It's going to lead people to tend to want to liquidate financial assets and, I would guess, be much more inclined to spend. That could really add to the momentum in the economy, particularly on the price side, which is where my concern would be. It really comes down in my mind to a question of whether we tighten now or wait. I guess we can all take some comfort in the slowdown in the growth of reserves and money but, on a quarterly basis, we're really talking about M1 slowing down to 11 percent in the fourth quarter; for the average through March the projection is around 9 percent. Reserve growth also has slowed down from very extraordinary rates toward the end of the year. But we're still talking about historically high rates. In my mind, there's no reason to be at all concerned about slow money growth. Eventually, although it's not a very happy choice, it seems to me that we will likely be put in a position of having to tighten policy. I don't know whether it's now or later. It seems to me that the arguments against any move now are these international discussions that you mentioned, Mr. Chairman, and also the trade negotiations with the Japanese right now. While I don't necessarily agree with it, I could see that at this point--as a negotiating tactic, really--the dollar bashing is the club we have in trying to reach some agreement in a very short-term sense. So, all things considered, I'd be in favor of maintaining the existing degree of reserve restraint now. But if we can't hold the dollar at about this level, then I think we have to be prepared to move to a firmer policy much more quickly. Or if, at the present degree of reserve restraint, we see a pickup in the rate of growth of money in relation to what's projected here--let's say we have 9 percent on the table for the period ahead--I think we're going to have to pay more attention to that. I say that for all these other reasons: inflationary expectations are quite high now, and I don't think we have the latitude as a central bank to ignore extremely rapid money growth. The slowdown from the rapid rates of last year, from 13 percent down to 9 percent, is okay. But if we see either a pickup in monetary growth--and when I say pickup I mean in relation to this 9 percent projection for the quarter--or a weak dollar, those would be the things I'd be looking at as short-term indicators of the need to respond in the direction of further tightening. CHAIRMAN VOLCKER. For what it's worth, just to bring you up to date, Mr. Kohn tells me that the March figure is likely to be a little lower than what's been indicated to you--by more than a percent, I guess, for M1.",889
-fomc-corpus,1987,About 4-1/4 percent for March.,11
-fomc-corpus,1987,Mr. Parry.,5
-fomc-corpus,1987,"Mr. Chairman, I would favor alternative B and, like President Black, I would favor language that tilts toward firmness. As I indicated previously, I believe that inflationary pressures will require some interest rate increases in the second half of the year; and if inflationary pressures surface sooner, policy may have to respond earlier as well. With regard to the aggregates, I think it's quite likely that we will run into a period where they are growing toward the low end, or even below the low end, if we see interest rates rising. If that's the case, we're likely to tolerate that. I would think that we would have to change the wording of the directive because the way the directive is worded today any change from the existing reserve restraint depends primarily on the behavior of the aggregates, taking into account business conditions, etc. I think we almost want to reverse that and have as the primary determinants what we really are focusing on, which is business conditions and progress against inflation, and so forth.",200
-fomc-corpus,1987,Mr. Guffey.,6
-fomc-corpus,1987,"Thank you, Mr. Chairman. I think Jerry Corrigan captured my feelings very well. That is, I would favor no immediate change in policy but I would be prepared to move to a higher borrowing level. Having that in mind, and trying to capture that within the framework of the way we talk about these things, that is somewhere in the ""B-C"" area. I'm not sure that I would be prepared to go to $500 million. On the other hand, I feel that there may be some advantage to showing some modestly higher interest rates earlier rather than later--that is, to permit the market to understand that somewhat higher interest rates effected by the Federal Reserve, as opposed to just the technical factors, would be acceptable in the near term. However, the point is--and I think Jerry made this point very well--that this does not mean a change in Federal Reserve policy but rather the management of Federal Reserve policy at or about the level that we presently operate. The other thing that I would just mention is that, contrary to some other comments that have been made, I would move the reference on the dollar in the directive to a more prominent level; I would move it up in that sentence as proposed in the directive language and as mentioned by Don Kohn.",257
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"As I look at the domestic economy, Mr. Chairman, I don't see any case at all for doing anything with respect to policy at the present time. We have had reports around the table this morning that reflect perhaps somewhat better economic conditions than we had last time. The forecast isn't all that bad, although inflation looks like it's going to be ticking up toward the end of the year. But I think all of this is premature with respect to policy. For purely domestic reasons I would prefer to stay where we are. The only reason that I would favor a move in interest rates or a move in the borrowing is because of the dollar. Again, I think perhaps we are in a position where we can afford to wait a little longer to see what happens with the dollar. It's possible that this Japan bashing that's going on with respect to the semi-conductor situation may resolve itself. When we get past this quarter some of the window dressing that the Japanese are engaged in may sort itself out and we may have a little easing of the pressure on the dollar. If that doesn't happen I would certainly want to be in a position to move rapidly to counter any further significant drop in the dollar. With respect to Governor Johnson's point, I think it certainly would be wonderful if we could get the interest rate differentials to contract a little. But even if our trading partners don't make those moves, if the dollar were to fall somewhat more I'd be prepared to go ahead unilaterally on our own. With respect to the directive, I too would favor giving a more prominent place in that directive to the foreign exchange situation. One other point that I would make is that I'm not so sure that the word ""instability"" that is in the directive is the right one. The phrase ""in light of the recent instability"" strikes me as being a bit on the strong side. I would prefer language that would suggest recent weakness of the dollar.",387
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"It seems to me that no change, or alternative B, is the right place to start because we have so much uncertainty in regard to the direction our economy is going. We just don't have the facts out there that tell us exactly which move we ought to make. And the last thing we ought to do is to make a move in one direction and have it turn out to be the wrong move. I think we need stability when we don't seem to get too much stability from other Executive branches of this government. We need to stabilize here; we need not do something dramatic. The only certain thing I can see is the dollar's downward momentum; it just doesn't seem to me that that's apt to turn around. At some point in time, we're going to have to be willing to give that high priority or top priority. In fact, at some point in time, we're probably going to have to be willing to make it the dominant priority in order to change this momentum that exists. I do believe it would be very important for us to get West Germany and Japan and other G-10 countries also to recognize that this is a critical juncture and that at some point here we are going to have to be willing to [unintelligible] monetary policy. It would be most important that we have them prepared to make steps at the same time we might make a step. So, we really ought to be sure that any upward pressure on interest rates in the United States in this environment calls for downward pressure on rates abroad. I think the world economy dictates that. It seems to me that the transition for us ought to be to look at the monetary aggregates. I don't think we ought to announce anything different about the monetary aggregates now, but I do think we ought to look carefully at the M2 and M1 growth paths. If they are within this 3 to 7 percent range and conditions remain as they are and the dollar continues to move downward for some time, that might be acceptable. But at some point--",405
-fomc-corpus,1987,3 to 7 percent range?,7
-fomc-corpus,1987,"Well, there's no number like that in the Bluebook but it seems to me that a 3 to 7 range gives the path for the dollar--",31
-fomc-corpus,1987,"Okay. You just made that up, I guess?",11
-fomc-corpus,1987,"I just made that up, right. Given the path of the dollar, we want monetary restraint more than we otherwise would have wanted; but we don't want to have an abrupt movement there, and we want to negotiate with our--",46
-fomc-corpus,1987,3 to 7 percent is what you're thinking of for M2 and M3?,17
-fomc-corpus,1987,"Well, M2 and M1.",8
-fomc-corpus,1987,M2 and M1?,6
-fomc-corpus,1987,That is in this current environment of dollar weakness.,10
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"Like most speakers before me, I favor alternative B. I think it's important to keep U.S. economic growth going and also to maintain inflation at a subdued pace. I was very happy to see that the Ms have been slowing, and I think we should not do something that pushes them very sharply from their current paths. I'd like to note that short-term interest rates are already very high in real terms. With federal funds trading today between 6 and 7 percent, if you take the GNP deflator of 3 percent you're talking about a short-term [real] interest rate of between 3 and 4 percent. I certainly wouldn't want to follow Germany and Japan into their slowdown just for the sake of holding the dollar exchange rate against those two currencies at the present time, as has been noted many times before. The dollar has not depreciated very much against the broader basket of currencies. As is implied by the staff projection, if we prevent the dollar from falling we will get lower growth rates than are actually indicated here. So we're risking the chance of a substantial slowdown, if not a recession, in the United States. That certainly wouldn't help the world economy, as such. We've mentioned before that we should intervene in disorderly markets and I agree with that. With all that taken into account, I favor symmetric language in the policy directive and would not move the dollar to a more prominent place in the directive itself.",286
-fomc-corpus,1987,Mr. Morris.,4
-fomc-corpus,1987,"Mr. Chairman, I think the economy is strong enough that there's certainly no case for pursuing an easier policy even if the aggregates should come in for the next month or so below the projections indicated. I'd like to call your attention, though, to the fact that we've already had some tightening in the last few days. We've had the long-term government bond yield go up about 30 basis points. If that should stick, we should expect to see a similar rise in corporate bond and mortgage rates. As far as moving to a higher borrowing level and a tighter policy, I think that depends a lot on the nature of the overall circumstances. I'm inclined to take the same position that Governor Heller did: that with the world economy growing so slowly, if we're going to stay on a path of improving our balance of payments position we've got to be able to increase our market share in a world that's not growing very fast. And I'm not sure we can do that at the present level of the exchange rate. I don't know where the equilibrium rate is but I suspect the dollar has to come down somewhat further before we get enough momentum going to begin to restore our balance of payments position. So it seems to me that if we're going to raise the borrowing level we ought to have a conference call so that the members of the Committee really can appraise the situation in the light of what's going on domestically as well as what's going on in the foreign exchange market. If we're getting a modest, gradual, downward drift in the dollar I don't think we ought to be concerned about that. If we get a sustained number of days [of weakness], as we've had recently, of course, that's another matter. It depends on the conditions, and I think they're kind of hard to describe in advance. That's why I suggest that we should have a conference call.",368
-fomc-corpus,1987,Mr. Stern.,4
-fomc-corpus,1987,"Given all the current and prospective problems we face, I favor alternative B in terms of a borrowing target, at least as the starting point. I think we should not roil things here any further unnecessarily. I would maintain the kind of asymmetry that's in the directive and I would be in favor of greater emphasis on foreign exchange market considerations. As Jerry Corrigan mentioned earlier, in the period ahead we may be in a situation where intervention alone doesn't do it; we may have to be prepared to back that up with something more meaningful. Beyond that, I would add that I don't know what the right level for the dollar is, but I am concerned that a lower dollar as a consequence of accommodative monetary policy at this point will not solve our trade problem in any sustained or any satisfactory way. It seems to me that in the longer run that's going to produce either higher inflation or weaker domestic investment than we would like to see, or some combination of both over time. I'm quite concerned about that; that is a longer-term matter. I think we have to be very careful with the dollar here and I don't know that having it go lower at this juncture, as a consequence of monetary policy, is a helpful development at all.",247
-fomc-corpus,1987,Mr. Boykin.,5
-fomc-corpus,1987,"I would also favor alternative B for the reasons that have been given--the uncertainties. I do like Jerry's approach of starting with $300 million borrowing but being prepared to move fairly rapidly a little higher. It seems to me that what is really important right now in this very current environment is what's happening to the exchange rate, and that can move awfully fast. In terms of the response and implementation of policy, I differ a little with Frank Morris simply because of the logistics of taking whatever action might be required. I would be willing to go along with an understanding of being prepared to move and to move very quickly toward a little more restraint. Likewise, then, I would make the exchange rate a little more prominent in the directive because that's kind of what's guiding the policy decision right now, at least in my mind.",164
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"For the reasons stated it does seem to me that this is an appropriate time to maintain our current level of reserve restraint. That suggests a borrowing level of, say, $300 million. But depending on developments in the exchange market as they may evolve, if we were going to err I'd be in favor of erring a bit on the high side rather than the low side. And I think the wording of the directive ought to be phrased to reflect at least that level of restraint. Translating that to the federal funds rate, if the rate were to continue at the present level X--what's going on today, which I think is an aberration--or even trend a little higher I wouldn't necessarily fight that.",144
-fomc-corpus,1987,"It has moved down, I guess. So, before you make your case, the federal funds rate has come down since this morning.",27
-fomc-corpus,1987,It came down to the 6-1/4 percent area after having been as high as 6-3/4 percent. So it wasn't working out--,33
-fomc-corpus,1987,"Still, I didn't know what you were referring to.",11
-fomc-corpus,1987,6-1/4 percent was exactly what I had in mind.,14
-fomc-corpus,1987,"Okay, I just wanted to make sure that you were--",12
-fomc-corpus,1987,"It seems to me that that level is one that we ought not to necessarily fight. [From the discussion] around the table earlier, I think it's clear that our principal focus is on the international side, particularly the exchange markets. Therefore, I do think that the directive ought to reflect that. I think it's an honest statement that would not in any way be surprising to the markets. The kind of wording that Don Kohn has in the Bluebook relating to that is an appropriate statement.",98
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,"I think we have some breathing room on the domestic economy and our focus is on the international situation. I think it needs special emphasis both in the directive and in the conduct of policy. I find it hard to imagine a situation in which we would ease policy over the next six weeks. So I come out with the view that we ought to stay where we are for now, with a directive weighted on the side of restraint. Whether we have to exercise that restraint depends on how developments, particularly international developments, unfold.",103
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I agree with the statements that where the economy is headed is a little uncertain now. So I don't think that we want to make any clear-cut moves in monetary policy. That's why I support something like alternative B. But I am concerned about some of the potential destabilizing activities that are going on in the financial markets. So, even though I really wouldn't want a change in policy, I think that it may be necessary to at least reserve some potential discretion--or maybe the answer is to have the potential for a conference call--to deal with a situation that might require some uptick in the borrowing level. I would reemphasize what I said before: that my preference would be not to do anything like that, or at least to make our best effort to convince our trading partners who have these large surpluses to be less reluctant on their own domestic policy. That's where I think the real problem lies more than it lies here. I'd hate to see us dragged into their scenario by trying to defend the dollar when it's sinking against those currencies. And that is a real risk. But I think we have to deal with the destabilizing market activity. There is a real threat of inflationary expectations surfacing if we let it get out of hand. So there might be room for some discretion. I'm not sure whether having the discretion to run the borrowings up to a certain level is the right approach. We recently had some trouble figuring out what the relationship between borrowings and the interest rate spread is. So, if we were to say something like a $500 million borrowing target, I'm not sure what funds rate would be necessary to produce that. We might want to think more in terms of just adjusting the funds rate a little rather than trying to hit some borrowing level when we're not sure what funds rate it requires. I don't know what that means exactly--maybe a conference call or some sort of consultation. The problem is that the developments that surface require quick action and I'm not sure there's always the time to sit around and have a conference call about it. Maybe there's some room for some discretionary allowance there. I think we ought to at least give this upcoming G-10 meeting a chance. I hope we've got that much time without something happening in the exchange market to give us more of a problem, but--",465
-fomc-corpus,1987,So far it's getting weaker by the minute.,9
-fomc-corpus,1987,"Yes. Hopefully we can maintain the current approach until after that meeting. Anyway, that's the dilemma.",20
-fomc-corpus,1987,"There used to be a range in the directive for borrowings, which may be appropriate here. We could maybe skew it a little in the direction of the sentiment that has been expressed.",37
-fomc-corpus,1987,Where is the exchange rate?,6
-fomc-corpus,1987,"The yen is down to 145-1/2, which is down another 1/2 a yen in the course of today and below the levels where it has been for the past couple of days in Tokyo and New York. It is under pretty heavy speculative pressure right now.",57
-fomc-corpus,1987,Just a little longer and we can get it down to 145.,14
-fomc-corpus,1987,Then you get a different directive.,7
-fomc-corpus,1987,Mr. Hendricks.,6
-fomc-corpus,1987,Just delay the vote awhile.,6
-fomc-corpus,1987,It may be there now.,6
-fomc-corpus,1987,"Although the business statistics have improved in the last couple of months, they don't seem to be impressive enough to suggest a significant step-up in the pace of expansion. We're concerned about some price developments that we see on the horizon and the pressure on the dollar in foreign exchange markets. With respect to the prominence of the exchange rate in the directive we would favor not changing it. And, of course, the alternative that we support is the ""B"" path.",91
-fomc-corpus,1987,We have exhausted my list. Ms. Seger.,11
-fomc-corpus,1987,"Is it possible to vote with a question? How much confidence do we have that getting interest rates still higher would, in fact, stop the decline of the dollar? I hear that come through in these comments and in the votes, but could someone just lay some probability numbers on the table for me?",60
-fomc-corpus,1987,We can reduce the supply of reserves enough to get the dollar to be stabilized but we don't know what rate of interest that might entail.,27
-fomc-corpus,1987,"Isn't the important answer that term interest rates would [unintelligible] less of a problem now? With higher interest rates, the chances of success are greater than with constant interest rates.",39
-fomc-corpus,1987,As long as we don't spread the impression of seriously weakening the economy.,14
-fomc-corpus,1987,"Yes, and that is exactly my point. I would hate to be chasing the dollar with higher interest rates and take down an economy that in my judgment is performing okay, but not terrifically. Certainly, there's some unevenness about the performance. The expansion is getting old by historical standards, and not knowing what that exact relationship is I just get a little nervous. As Wayne keeps telling me, what odds do you play? Because I do find the uncertainties overwhelming, both currently and prospectively, I would vote for just staying put. I would hate also to give the impression that just international considerations are driving what we do. If you listen around the table, obviously, that's a major factor. But when the directive is made public I would hate to give the impression that we've thrown everything else out.",160
-fomc-corpus,1987,I think the international situation only comes in to the extent that we see it affecting the domestic financial markets and inflationary pressures here. That's where the feedback comes.,32
-fomc-corpus,1987,"It may become so destabilizing that the international situation may come to the front no matter what we do. It just seems to me that we must be prepared for rather decisive actions at some point; we may have to draw the line and say it, because once markets become destabilized--",57
-fomc-corpus,1987,It [unintelligible] for you.,10
-fomc-corpus,1987,Jerry makes a good point there; I'd rather build with some gradual changes in interest rates than have to force this with a big bang at some point.,30
-fomc-corpus,1987,I think it's axiomatic that there is some level of interest rates that would stabilize the exchange rate. The problem is: What level is it and what is the cost that goes with it?,38
-fomc-corpus,1987,"You'd have to pay along the way, too. Right?",13
-fomc-corpus,1987,"I certainly agree, Bob, with what you are saying: Heaven knows what the ""right exchange rate"" is vis-a-vis the yen or anything else. I don't know that either. But we're in a period now where, as best I can judge, the market risks are very asymmetric. Because they're asymmetric and because of the interdependencies, at least as I see them, between the exchange market, the domestic bond market, the stock market, and so forth, strategically we're in a position right now where a stitch in time can save nine. That's all I'm trying to say. If I had to take my chances in terms of snugging or [unintelligible] or whatever word we want to use to try to provide some protection against having to draw the line the hard way--to use your term--I'd rather take that chance. I'd rather err in that direction now in the hopes that it could forestall what I could easily conceive of as a much more difficult situation.",197
-fomc-corpus,1987,"Let me speak against that a bit. If we start to tighten up now and are unsuccessful at holding the dollar where it is at the present time, I think we will not see any improvement in the trade and current account balances, especially in view of the situation abroad. Then as the bad data continue to come in on the trade front, the markets will say: Well, the current level is clearly inappropriate for the exchange rate. They will test us, and we will not be able to sustain the current exchange rate. So I think it is probably more prudent to let the exchange rate drift down a little until it is at a level where we can see an improvement in the current account and the trade account. Then if you spend your ammunition you have a chance to convince the markets that you will hold it.",162
-fomc-corpus,1987,"But, Bob, the time--",7
-fomc-corpus,1987,"Bob, but the question is: What's going to take you there? The question is whether or not you're going to need somewhat higher interest rates to get that smooth movement. I think the interest rates that Jerry and others are talking about do not involve doing something to preserve the rate as it exists today necessarily, but to provide a more orderly movement. And I think that linkage is key.",77
-fomc-corpus,1987,"Well, okay. But take, for instance, the one suggested sentence in the operational paragraph that says ""In light of the recent instability of the dollar in foreign exchange markets, particular emphasis will be placed on conditions in these markets in operational decisions."" That [conveys the] feeling that we should be holding the going exchange rate with monetary policy.",69
-fomc-corpus,1987,"I'll be honest with you: I have a little difficulty understanding what that means. When I first read that I thought what it was telling the market is don't get confused by our sterilization actions, the fact that we'll be putting in reserves to sterilize our foreign exchange [intervention]. I'm not sure I understand what that sentence means. I think something probably ought to be in there, but I'm not sure this is it.",85
-fomc-corpus,1987,"Well, let me raise a few questions about the directive. I don't think we'll solve all these problems by the directive. I'm not sure the traditional type of directive at all meets the current circumstances, but let me assume it does. By saying ""maintain the existing degree,"" that ""maintain"" may be for a very brief period of time in some people's views. Suppose we really did something radical--I'm just thinking out loud here. We write that first sentence, and then forget about this sentence that's stuck in there about foreign exchange markets, and go down to the sentence that says ""somewhat"" or ""slightly"" and ""might"" or ""would"", whatever it says. I'll get radical here: Suppose we make it totally asymmetrical and say ""might be acceptable depending upon developments in foreign exchange markets""--put that first--then ""and taking into account the strength of the business expansion, progress against inflation,"" and so forth. Then go back and say ""This action is expected to be consistent with growth in the aggregates"" and so forth and so on.",215
-fomc-corpus,1987,I think moving the aggregates away from that position is good.,12
-fomc-corpus,1987,"Let me repeat it and see whether we've got a basis for something here. Maybe it ought to be tightened a bit because it's going to take a lot of changing. ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions."" Then we say somewhat or slightly or whatever--let me come back to that. ""Somewhat (or slightly) greater reserve restraint would (or might) be acceptable depending upon developments in foreign exchange markets and taking into account the strength in the business expansion, progress against inflation, and conditions in domestic and international credit markets."" That doesn't say anything about the aggregates. We just say--",134
-fomc-corpus,1987,"Just add a phrase ""and the behavior of the aggregates.""",12
-fomc-corpus,1987,"Just leave that in there: ""taking into account the behavior of the aggregates and the strength of the business expansion...""",23
-fomc-corpus,1987,But does the behavior of the aggregates at this point imply the ranges we've already announced? I don't think we--,22
-fomc-corpus,1987,"Let's leave out the aggregates then and go back to the other sentence. We can say ""This action is expected to be consistent with growth in M2 and M3 over the period from March through June at annual rates of ___ and ___ percent."" Do we want to say anything about M1? ""M1 is expected to remain substantially below its pace in 1986."" Okay. So, just reverse those and leave the wording. Somebody get that typed and we can talk about substance. I don't think there's any doubt, obviously, that if we move we would be much better off if the others moved also. In fact, we might be better off if the others moved without our moving.",139
-fomc-corpus,1987,"At this point in time, that's the best alternative.",11
-fomc-corpus,1987,That's probably about the best.,6
-fomc-corpus,1987,If we move we reduce their incentive to take action.,11
-fomc-corpus,1987,"Well, as they see it, they don't have much room to move.",15
-fomc-corpus,1987,But since the world economy would not be adversely affected by some increase in U.S. interest rates if we had an offsetting decline in rates [abroad]--,33
-fomc-corpus,1987,"Well, let's assume all that. It can take a lot of convincing; whether that's possible or not is another thing. [The problem with] fooling around with the level of borrowings is that, essentially, that's a very loose steering wheel. We could push for a higher level of borrowing for two weeks and before you know it the exchange market would be out there and not have any understanding that that was going on and the funds rate wouldn't move at all.",93
-fomc-corpus,1987,Maybe this is the time to think about publishing our minutes.,12
-fomc-corpus,1987,We have other vehicles that are less precedent-setting.,10
-fomc-corpus,1987,Was that a motion?,5
-fomc-corpus,1987,"No, it wasn't a motion. I don't think there are enough votes to make a motion.",19
-fomc-corpus,1987,We can always raise the discount rate--just to put another option on the table.,17
-fomc-corpus,1987,That might be appropriate at some point in time.,10
-fomc-corpus,1987,"We can more deliberately, as somebody suggested, try to push the federal funds rate a bit without worrying about precisely what level of borrowings it takes. It might take very little if we did it in a certain way.",44
-fomc-corpus,1987,"Yes, we might say $300 to $500 million, consistent with a federal funds rate and--",20
-fomc-corpus,1987,"Aren't there some operational advantages to perhaps running with a little higher borrowing level? We think of $300 million as being almost the low point that one can reach, and there might be some greater flexibility if we were working with a slightly higher borrowing target in our operations.",55
-fomc-corpus,1987,"That may be true, but it conflicts with no movement if that's what we want to do in terms of our present stance. The in-between course, which we've been doing to a very small degree, is trying to avoid actions that might inadvertently ease the market in the sense that where the federal funds rate is on particular days when the dollar is declining [unintelligible] but we have not been anticipating reserve needs. Somebody said--Mr. Keehn, I think--that what we ought to be doing is erring on the high side. If we keep the $300 million borrowing target that may capture what we ought to be doing at the moment. I don't know how we reduce this to a formula. So far as this consultation issue is concerned, I think if we were making a big step we would consult or if we were changing the discount rate a consultation would come about. But I don't know if we want to consult every time we nudge slightly here or there, if we know what direction we are nudging in.",208
-fomc-corpus,1987,Put a range in?,5
-fomc-corpus,1987,"Well, just for our own information I don't think we need a range in the directive. Certainly, nobody is talking about moving above $500 million without a reconsideration of the decision. We'd probably consult before we got there anyway, but as a deliberate matter, one never can tell where a particular week is coming in. I have no problem at all if you really want to change that.",78
-fomc-corpus,1987,"How about something like this: We would stick to the $300 million borrowing, but if conditions got disorderly we would let slide our reserve adding and that might spill over into a higher borrowings level. We don't really know what that might be. We would try to hit our $300 million on borrowing, but if we had to postpone--",69
-fomc-corpus,1987,I would be very cautious about how we do it. The way I would interpret it is erring a bit on the high side. I don't know what else we can say. I can describe it. We'll basically continue at the moment aiming at $300 million on borrowing. I hear a lot of sensitivity about the exchange rate. I hear very little sensitivity about coming in low on the aggregates side. If anybody is very sensitive to that they better say so; I didn't hear anybody being very sensitive on that.,102
-fomc-corpus,1987,"I would like the funds rate where it is, but I wouldn't want to push it.",18
-fomc-corpus,1987,It all depends on how the economy looks.,9
-fomc-corpus,1987,I think they want to flatten it out.,9
-fomc-corpus,1987,We don't have any guarantee at this point that these negative velocities will not return. That's why I want to go slowly.,24
-fomc-corpus,1987,"We are not talking about forever, obviously. When are we meeting again?",15
-fomc-corpus,1987,The middle of May--the 19th.,10
-fomc-corpus,1987,Right. Economic conditions could make what I think is now [unintelligible] at the lower end of the range--to be at 5-1/2 percent--seem wonderful. If the economy were to deteriorate--,48
-fomc-corpus,1987,"Well, there's no question that if the economy were going down the tank we would want it a little higher. We would begin getting more sensitive to these aggregate figures.",33
-fomc-corpus,1987,If interest rates drift up we can expect to see those aggregates slow even more from what we're predicting.,20
-fomc-corpus,1987,We are not predicting anything all that slow as I would read it.,14
-fomc-corpus,1987,I mean from what we've been seeing.,8
-fomc-corpus,1987,"It's pretty slow final demand isn't it? Isn't U.S. final demand almost zero, fourth quarter to fourth quarter?",23
-fomc-corpus,1987,Domestic final sales.,4
-fomc-corpus,1987,"You are talking about final sales, which run about 1 percent in the forecast.",17
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,"For the year as a whole, domestic final sales are what?",13
-fomc-corpus,1987,0.7.,4
-fomc-corpus,1987,That's private domestic final sales.,6
-fomc-corpus,1987,0.7?,4
-fomc-corpus,1987,"Private domestic final sales, consumption and investment.",9
-fomc-corpus,1987,Private domestic final sales. You haven't got government up much do you? There's probably not much difference for domestic final sales.,24
-fomc-corpus,1987,"But you have state and local, which is a little higher than that.",15
-fomc-corpus,1987,"Well, government purchases are down 0.3, so adding them in would make the number a little lower.",23
-fomc-corpus,1987,Adding them in would make what?,7
-fomc-corpus,1987,Make it lower.,4
-fomc-corpus,1987,A little lower.,4
-fomc-corpus,1987,That's not a very--,5
-fomc-corpus,1987,It's not a very good forecast. [Unintelligible] that's precisely what you would like to see happen if we do not get the expansion from the foreign side.,34
-fomc-corpus,1987,That's right. That's exactly what we'd like to have happen.,12
-fomc-corpus,1987,"Well, I think what we're talking about is starting at something like $300 million, pursued cautiously so long as the exchange rate is so sensitive. If the exchange rate really got weak we would contemplate moving up certainly to $400 million or so. Much above that, we'd want to have a conference, anyway. That would be the sense of it.",70
-fomc-corpus,1987,"Yes, I'd rather say more like $400 million, because of this problem with borrowings and the funds rate.",23
-fomc-corpus,1987,"Obviously, we would prefer to see the others come down; I'd prefer to see any distinct moves made in that direction. We can talk about other moves if different situations arose but not decide that here. We are putting a lot of weight on concern about the dollar--if it got too unstable--and we are somewhat less worried about the aggregates. So, let's read this. The first thing we have to do is decide, generally, this ""somewhat"" and ""slightly"" business.",99
-fomc-corpus,1987,"I think ""somewhat"" is a little more decisive in this environment.",15
-fomc-corpus,1987,"I would be inclined to say ""might""--not because I think it's a weaker word, but because we are really talking about a conditional thing.",29
-fomc-corpus,1987,"Yes, ""might"" is the word.",9
-fomc-corpus,1987,"Yes, but you need ""somewhat"" for reserve restraint.",13
-fomc-corpus,1987,"""Somewhat greater reserve restraint might be acceptable depending on foreign exchange market developments, taking into account the strength of the business expansion. This action is expected to be consistent with growth of M2 and M3 over the period from March through June at annual rates""--. Now, we had this one suggestion on the table that we stick in a rather wide range. That would be unusual but maybe it's what the doctor orders here in terms of capturing what people are talking about.",94
-fomc-corpus,1987,3 to 7 percent.,6
-fomc-corpus,1987,"3 to 7 percent. The upper part of that range, actually, goes a bit above what the staff has on alternative B but, obviously, the midpoint is below it.",36
-fomc-corpus,1987,But whether we want the upper or lower would depend upon developing conditions and portfolio preferences and the dollar.,20
-fomc-corpus,1987,"If we put in something like that, the meaning is, if I understand it correctly, that we would get concerned if growth got below 3 percent. That would become a factor saying we should ease regardless of what the rest of this says.",49
-fomc-corpus,1987,Couldn't you finesse that?,5
-fomc-corpus,1987,[We would] move in that direction and vice-versa if it's above 7 percent.,19
-fomc-corpus,1987,"Could we not deal with that in a less explicit way by just putting the behavior of the aggregates phrase in the second sentence and keeping the third sentence what it usually has been, which is really our best guess?",42
-fomc-corpus,1987,"I think the way to do that, which would capture what we have said, is to say ""Somewhat greater reserve restraint might be acceptable depending on developments in foreign exchange markets, the strength of the business expansion, progress against inflation and conditions in domestic and international credit markets, taking into account the behavior of the aggregates."" We've got it all there.",70
-fomc-corpus,1987,But the trouble with--,5
-fomc-corpus,1987,"We can do that, but it puts less emphasis on the foreign exchange markets than I thought people wanted.",21
-fomc-corpus,1987,"Well, it's there and it's first.",8
-fomc-corpus,1987,"Bob, the problem is that if we don't specify someone might assume that growth of M2 and M3 below the present target path would be unacceptable. Right now we have a target path that we have announced. What I am suggesting is that in light of the conditions in the international foreign exchange markets we need a lower band. That would give us some options between--",73
-fomc-corpus,1987,"I don't think we have reached an agreement on that, have we?",14
-fomc-corpus,1987,"I like what Bob Parry said. We don't want to look just at foreign exchange markets, and say everything else is secondary, which is what this phrasing says as it is written. I don't think we want to do that either. So what Bob is suggesting--taking out the first phrase--gets us there.",64
-fomc-corpus,1987,It depends upon how much weight you want to put in here. I would have read the Committee members as saying they want to put special weight on the dollar.,32
-fomc-corpus,1987,I think that's correct.,5
-fomc-corpus,1987,A lot more than on the domestic conditions?,9
-fomc-corpus,1987,"I think we have to distinguish here. It's not necessarily saying more in any fundamental sense. It's saying that looking at the next seven weeks--or however long before we meet here again--we think the most likely factor that would make us be tighter is the dollar, not all these other things. SEVERAL. That's right.",66
-fomc-corpus,1987,It's not saying we would tighten. It just says that we think the dollar is the critical or the most important variable for these seven weeks.,28
-fomc-corpus,1987,I agree with that to the extent that my concern about the dollar is its effect on the domestic economy. I certainly wouldn't worry about it so much if I thought it was going to have a neutral effect on domestic inflation.,44
-fomc-corpus,1987,"Well, that's not going to be an issue in six to seven weeks.",15
-fomc-corpus,1987,"No, I am just saying that in the long run it's got to have some feedback on the economy.",21
-fomc-corpus,1987,"Couldn't the M2 and M3 growth be handled, in view of what goes before it, by saying that the action is expected to be consistent with growth in M2 and M3 over the period at annual rates ""around 6 percent""? Just say ""around"" that. We don't really know.",61
-fomc-corpus,1987,"That's what we traditionally say. Governor Angell's formulation, I think, does add something. With that wide a range, it's quite unlike what we usually say. To go over that previous sentence again: It says that the Committee is putting particular weight on the foreign exchange markets during this particular period of time. In effect, it is saying that's the only reason why we are likely to tighten during this period. It doesn't expect the business expansion and all of that other stuff to lead to some tightening. It doesn't absolutely say it that way but it leans in that direction: that this is the one factor that--",123
-fomc-corpus,1987,"But by the same token, it doesn't say that if the economy just died next week--although to me that is highly unlikely--that we wouldn't ease either.",32
-fomc-corpus,1987,"It doesn't say that we would tighten, but it doesn't say that we would ease. I think we would have to change the directive if we were to ease. Obviously, that can be done. If the economy took a nose dive next week we would have a little consultation and say in light of the economy taking a nose dive we decide--",68
-fomc-corpus,1987,"I have the impression from the discussion around the table that the only tightening that would take place would be to manage the dollar to some lower level in an orderly fashion rather than that we would tighten policy for any other reason. That is to say, I think the original intent was not to tighten policy except to manage the dollar down to a lower level.",70
-fomc-corpus,1987,"The way this is written, I would read it in terms of likelihoods: that by all odds that's the most likely thing. It doesn't exclude [the possibility] that we would tighten if the aggregates got much higher, or if the business expansion were stronger, or if inflation rose. They are all mentioned here. But the way it is written suggests that what we are really worried about is the dollar.",81
-fomc-corpus,1987,"But I would suggest that if the dollar were to be under increasing downward pressure, long bond rates would move up on us anyway. We would have the worst of all worlds.",35
-fomc-corpus,1987,The anxieties in the markets are such that that's correct.,12
-fomc-corpus,1987,We have to show that we have control over what's happening--that we are not sitting here without acting when action is needed.,25
-fomc-corpus,1987,"Well, the choices are pretty simple. It's just a matter of emphasis. We can write a whole separate sentence about the dollar; Mr. Kohn has one example. We can do this in-between course. Or we can take out the ""taking into account,"" which is a small change from what we had before--so small that I think it's almost invisible. But we are left with [unintelligible] directive.",86
-fomc-corpus,1987,I like it the way it is. I have just one technical question. We say conditions in domestic and international credit markets. Do we mean that international credit markets are separate in our minds from the developments in foreign exchange markets?,45
-fomc-corpus,1987,"Well, I don't know if I do. We can say conditions in the credit markets to avoid that.",21
-fomc-corpus,1987,"The way this is worded right now, though, it seems to me that we are not looking at the aggregates at all, which I am not sure is right. I wasn't advocating putting them up there in the ""depending on"" phrase but I would put them in the ""taking into account"" litany of things that we look at. Otherwise, we're just saying we don't take them into account at all and we are just making a prediction of where we think they are going to come in.",100
-fomc-corpus,1987,That's because that's the way we traditionally do it. If you have any better wording--,17
-fomc-corpus,1987,I wouldn't read it that way. It seems to me that we are saying that we expect all of the above to be consistent with M2 and M3 at whatever rates of growth we decide on. And if M2 and M3 aren't consistent with that we would probably want to take another look at the situation.,63
-fomc-corpus,1987,During the 7-week intermeeting period?,9
-fomc-corpus,1987,Do you want to put that sentence back where it ordinarily is as the second sentence?,17
-fomc-corpus,1987,I wasn't suggesting that. I was suggesting just putting in this phrase that was dropped out when this was retyped.,23
-fomc-corpus,1987,I thought there was some feeling that the dollar should move up to the--,15
-fomc-corpus,1987,"Mr. Melzer would put it in after the taking into account, if I understand him right: ""would be acceptable depending on developments in foreign exchange markets, taking into account the behavior of the aggregates, the strength of the business expansion, progress..."" That's easy to do.",55
-fomc-corpus,1987,But how do we deal with the growth of M2 and M3? Suppose M2 and M3 continue on the 4 percent path and then go below the--,34
-fomc-corpus,1987,"We still have that sentence in here and we have to put something in there. We have at least two proposals on the table. We have Mr. Angell's, which was 3 to 7 percent. We have somebody else's, which was ""around 6 percent."" There is a substantive difference between those two.",65
-fomc-corpus,1987,6 percent or less.,5
-fomc-corpus,1987,"Just a thought: Does putting in a range now of, say, 3 to 7 percent, which is lower than the annual range of 5-1/2 to 8-1/2 percent, condition it with regard to time? Might that suggest to somebody that we're easing up on policy here? Would putting in a lower range than we have established for the year suggest that we are sneaking up on a policy change?",89
-fomc-corpus,1987,It just means that we are rebasing.,9
-fomc-corpus,1987,It's a different set of numbers than are generally out there and understood by the market.,17
-fomc-corpus,1987,"If we say ""about 6 percent,"" it's pretty clear to people that we are shooting for the lower end of the cone, and everybody knows the uncertainty associated with that. I think we've already sent the message if we say ""about 6 percent.""",51
-fomc-corpus,1987,It may be true that in the past we have not always hit the trajectory exactly.,17
-fomc-corpus,1987,"Bob, it is better than missing our cone.",10
-fomc-corpus,1987,But they are not precise.,6
-fomc-corpus,1987,Why don't we go up to eight?,8
-fomc-corpus,1987,I prefer six.,4
-fomc-corpus,1987,This is not too big a deal here. I rather like the 3 to 7 percent because I think it reflects the flavor of what was said. But whether or not 3 to 7 percent is precisely the right range--,47
-fomc-corpus,1987,"I would think the 3 to 7 percent conveys that we are tightening. After all, the midpoint of 3 to 7 percent is 5 percent. Five percent is really alternative C, and there were not many people who were speaking in favor of alternative C. So, implicitly, we're changing the thrust of what people around the table have said.",72
-fomc-corpus,1987,But it's not really tightening. It just indicates that we may be going to tighten. It sets the parameters out for tightening.,25
-fomc-corpus,1987,It depends upon what you think of as tightening.,10
-fomc-corpus,1987,Then you should be wanting to vote for alternative C.,11
-fomc-corpus,1987,"If you are talking about the aggregates pure and simple, it's tightening. If you are talking about borrowing as the measure [unintelligible]--",30
-fomc-corpus,1987,"If you argue for ""C"" then I think 3 to 7 percent would be appropriate; but if you don't argue for ""C""--",29
-fomc-corpus,1987,"Alternative C says $500 million borrowing, which is not what people are focusing on.",17
-fomc-corpus,1987,"Well, for growth rates of the Ms it says 5 and 5-1/2 percent.",21
-fomc-corpus,1987,"I don't see that at all. I think all we are saying is that we wouldn't be too concerned, other things equal, if the aggregates came in on the low side over the intermeeting period.",40
-fomc-corpus,1987,"We could say growth of M2 and M3 of around 6 percent, but the Committee would--",21
-fomc-corpus,1987,I am not concerned with that either; but I am concerned with our taking policy actions to get it down there.,23
-fomc-corpus,1987,I don't think that's contemplated.,6
-fomc-corpus,1987,I think we need to make it clear though.,10
-fomc-corpus,1987,I think we need to make that clear in the language.,12
-fomc-corpus,1987,We don't give that impression because we do say that a growth rate similar to that is consistent with alternative C.,22
-fomc-corpus,1987,"Then there is a substantial difference of opinion here, because in the environment of a weakening dollar and the commodity price effects that are associated with such a weakening dollar, I really do not want to go above, say, 7 percent. I really would want to tighten in that environment. So I think there is some policy difference that's cropping up.",69
-fomc-corpus,1987,"Look at what the first two sentences in the operational paragraph say. First, there is no change at present. The second sentence says there might be a tightening. And the third sentence says we expect that all to be consistent with something between ""B"" and ""C."" That's right because that's what the operational language says.",64
-fomc-corpus,1987,"Why couldn't the sentence on the Ms say that the Committee expects growth in M2 and M3 in the period from March to June at rates of about 6 percent and then add some language to say that we would be tolerant of slower growth rates than that, given the circumstances of the very rapid earlier growth.",62
-fomc-corpus,1987,"What might clarify the M2/M3 issue is to say what we would normally expect for M2 and M3, assuming no change in reserves.",30
-fomc-corpus,1987,"That is technically correct, but it attaches such precision to these estimates that are never that good.",19
-fomc-corpus,1987,I think what Jerry is saying--,7
-fomc-corpus,1987,Otherwise we may be assuming a change in reserve restraint. If we put a number other than what we say is consistent with no change in reserve restraint we are assuming a change in reserve restraint.,38
-fomc-corpus,1987,"The only reason I don't want reserve restraint right now is because it seems to me that we've got a very low money growth path right now. I don't know whether that's going to continue or not, but in light of a very low growth path to put restraint on right now runs a risk I am not willing to take. But if this growth path proceeds along the bottom edge of our target--",78
-fomc-corpus,1987,But that's not what the staff is projecting.,9
-fomc-corpus,1987,"Does anybody support 4 to 7 percent, for which the average is 5-1/2 percent?",23
-fomc-corpus,1987,"We have a projection here for M2 and M3 under certain assumptions. Assuming no change in reserve restraint, it's a certain amount; assuming differently it's a different amount. And that's building in what already has happened to the aggregates.",46
-fomc-corpus,1987,It's a half of a point difference.,8
-fomc-corpus,1987,"I am just saying I would be comfortable with changing those numbers if we said ""might"" or something--if we qualify it to say, assuming no change in reserve restraint, we would expect M2 and M3 to be 3 to 7 percent.",52
-fomc-corpus,1987,"Assuming that the dollar continues on its present path and assuming that the growth rate of M2 were to return to a 9 percent rate or an 8-1/2 percent rate, would you want any restraint?",45
-fomc-corpus,1987,All I am saying is that there is a projection consistent with a certain set of assumptions. If you change those assumptions you get different paths. There is no doubt about it; if certain conditions arose I'd want to change the conditions affecting that.,48
-fomc-corpus,1987,Let me talk you into 4 to 7 percent. We just change these numbers. You're putting too much weight on the staff's numbers. What we say is that we want to be where we are now or maybe tighter under certain conditions.,49
-fomc-corpus,1987,Under certain conditions.,4
-fomc-corpus,1987,"So, we say we expect that approach--I would say ""approach"" instead of ""action""--to be consistent with a range using two numbers that allow for our normal one percentage point uncertainty around the projection plus another one percentage point down on the low side in case we do tighten. Now, that ought to make it beautifully consistent with what the staff technically estimates. We often put in something like a 5 to 7 percent range that is consistent with the 6 percent [expected].",99
-fomc-corpus,1987,That's sort of extracting the midpoints. That's a range of midpoints.,15
-fomc-corpus,1987,But we often do it.,6
-fomc-corpus,1987,"In trying to be consistent, we are becoming inconsistent simply because we are saying that we don't want anything to change. But then we are saying if we have to change, the M2 and M3 growth rates relate to no change. We don't know what the monetary aggregates would do when we respond because we don't know what the response would have to be.",71
-fomc-corpus,1987,I believe that a continuation of M2 along a 5 percent path would be consistent with the dollar stabilizing.,23
-fomc-corpus,1987,That's not true. That's not what the staff says. They have already built the March numbers into their projection.,22
-fomc-corpus,1987,The staff would be the first to admit that there is a range of uncertainty around that.,18
-fomc-corpus,1987,We all agree but that's--,6
-fomc-corpus,1987,One percentage point was perhaps being generous to the staff.,11
-fomc-corpus,1987,But then that means that you expand on either side of that uncertainty.,14
-fomc-corpus,1987,We can say 6 percent or less; let me try that again.,15
-fomc-corpus,1987,"We can say 6 percent or less but I guess the substantive question is whether we, in fact, would be concerned if the aggregates came in at 4 percent, let's say. If they came in at 4 percent, all other things being equal, would that be a cause for easing?",60
-fomc-corpus,1987,Not if we had to restrain reserves.,9
-fomc-corpus,1987,Not [unintelligible] at this point in time.,13
-fomc-corpus,1987,I think the only feasible alternative to what you suggested is 6 percent.,15
-fomc-corpus,1987,"We can say 4 to 6 percent, or we can say around 6 percent or less.",21
-fomc-corpus,1987,That's the best one if we don't go with 4 to 7 percent.,16
-fomc-corpus,1987,There are no substantive differences.,6
-fomc-corpus,1987,"I prefer 4 to 7 percent, though, to 6 percent or less. That really tilts it; that lets it get to zero if you want it.",35
-fomc-corpus,1987,I don't think it would be interpreted as getting it down to zero.,14
-fomc-corpus,1987,There is some advantage in having us know what would precipitate a conference call.,16
-fomc-corpus,1987,"In this first sentence in the operational part of the directive we say maintain the existing degree of reserve pressure and we say there is a contingency there. But if we are going to put in an M2 and M3 range consistent with that operational sentence, it should be what the staff has projected, what the statistical alternative would be. We might follow that up with a sentence that says--",77
-fomc-corpus,1987,"Well, how about doing it like that. Use the first sentence and then say ""This approach is expected to be consistent with growth in M2 and M3 over the period of around 6 percent."" And then say ""Somewhat greater restraint would be appropriate, depending upon foreign exchange markets..."" and so forth.",63
-fomc-corpus,1987,"I don't view that third sentence as really the operational language. I can't ever recall a conference call, when I have been involved, over the aggregates misbehaving. This is simply saying--",38
-fomc-corpus,1987,We used to do that.,6
-fomc-corpus,1987,All I am saying is that we have these numbers in the directive that were [adopted] in the past and people could easily get the wrong impression.,32
-fomc-corpus,1987,"In the wording, these numbers are associated with our action to maintain, which is the first sentence. So, I don't think we have to put in ranges or other numbers because we are talking about something that might happen.",44
-fomc-corpus,1987,"It might help to move that sentence up, like Bob said, to immediately after the first sentence on the aggregates.",23
-fomc-corpus,1987,Somebody from west Texas; there's always been a [different] world down there.,17
-fomc-corpus,1987,"If we move the sentence up, we have a consistent directive up front and then we have our exception that follows.",23
-fomc-corpus,1987,I will just transpose the question. Do you understand the third sentence? The third sentence will then be that the aggregates might come in lower than that and that's fine. It's all the same substance.,39
-fomc-corpus,1987,"I think it's easier to assume that the aggregates would come in lower if the sentence on the aggregates is right after the first sentence and then we say ""Somewhat greater reserve restraint..."" Obviously, somewhat greater reserve restraint means lower aggregates.",46
-fomc-corpus,1987,I think switching the sentence really makes a big difference.,11
-fomc-corpus,1987,Greater reserve restraint would take place because the reserve aggregates are high. A comment about the behavior of the aggregates in that sentence might amount to the same thing.,31
-fomc-corpus,1987,"Yes, I see what you are saying.",9
-fomc-corpus,1987,"The way it's structured, I don't really care what we put in the second sentence about the aggregates.",20
-fomc-corpus,1987,I'd just say that we believe the staff projection [unintelligible].,15
-fomc-corpus,1987,4 to 7 percent is the staff's projection.,11
-fomc-corpus,1987,4 percent is below what they project with no change in reserve restraint.,14
-fomc-corpus,1987,"This allows for some change in reserve restraint, the possibility of some contingency. Where this sentence is located, it encompasses the contingency as well. I am going to have to look at what the staff puts down in these forecasts.",45
-fomc-corpus,1987,"It seems to me that if we are going to say ""this action is expected,"" we have to have some assumption that action is taken other than no change.",32
-fomc-corpus,1987,"I would change the word ""action"" to ""approach,"" which encompasses the first two sentences.",20
-fomc-corpus,1987,"Mr. Chairman, I think that's where I see the difference. If the third sentence says ""This approach is consistent with growth in M2 and M3..."", then that surmises both sentence one and sentence two. I would rather have it the other way around and say we are implementing a policy of the existing degree of reserve pressure and this approach is consistent with M2 and M3 growth. And then I would say if things in the foreign exchange market happen, then we could have a bit more restraint.",103
-fomc-corpus,1987,"Well, that's fine, if you interpret that as saying that if that next sentence happens then we can get slower growth in the aggregates. I think they are substantively the same thing, but I am not sure that's the way it would be interpreted. Ordinarily, just as it is now, the second sentence is read to mean we will seek greater reserve restraint if the aggregates are exceeding what we say. That is the ordinary construction of that sentence. It starts out with the aggregates and it says we will take note of the change in that.",109
-fomc-corpus,1987,That's why we moved the aggregates down--so that would be less of a problem.,17
-fomc-corpus,1987,I think the structure in the draft reflects the concerns about the exchange markets. The 4 to 7 percent range also encompasses alternative A.,28
-fomc-corpus,1987,It sure does. I am trying to understand why it was I used to enjoy Manley's persistence when he was on my side.,26
-fomc-corpus,1987,We better settle on something; we have to live with each other for the next two-and-a-half days.,22
-fomc-corpus,1987,"The original draft that Mr. Kohn produced is a good draft, in a way. You have taken out that sentence that's in all caps, but otherwise that basically hits what we are really trying--",40
-fomc-corpus,1987,It hits maybe what you are trying to get to.,11
-fomc-corpus,1987,There does seem to be a bit of a policy difference here.,13
-fomc-corpus,1987,"There is, but I don't think it's a very big one.",13
-fomc-corpus,1987,"I don't think there is a policy difference at all. I certainly support more restraint, and I think you will get lower aggregates out of that restraint.",30
-fomc-corpus,1987,"Then I think you ought not worry about this language if you really don't think there is a policy difference, because I think it's saying what you are saying.",31
-fomc-corpus,1987,"For the benefit of the newcomers at the Federal Reserve, I should note that the first statement Willis Winn made when he came to an FOMC meeting and we were talking about the directive was, ""This is the largest editorial committee I have ever sat on.""",52
-fomc-corpus,1987,I assume from the discussion that what we are talking about in terms of restraint is only roughly a quarter of a percent in any event.,27
-fomc-corpus,1987,What?,2
-fomc-corpus,1987,"It's only roughly a quarter of a percentage point, in any event, measured in terms of the federal funds rate. About 6-1/4 percent, I think, was the sentiment around this table.",42
-fomc-corpus,1987,"Clearly, without a consultation I think that is [true].",12
-fomc-corpus,1987,"As a practical matter, we have stuck every conceivable number in the book into these directives in the past, including ones that don't even appear in the Bluebook.",32
-fomc-corpus,1987,"We can say an annual rate of 6 percent or somewhat less, or 4 to 7 percent, or 5 to 7 percent, but I think it doesn't make that much difference.",40
-fomc-corpus,1987,Around 6 percent.,5
-fomc-corpus,1987,"There is nothing the matter with around 6 percent, depending upon what you think of it. These forecasts are almost always wrong by several percentage points. The substance here is: Are we more concerned if it comes in at 3 percent or at 9 percent? That's the question. As a practical matter, the staff is saying that they expect it to be somewhere between 3 and 9 percent and--",82
-fomc-corpus,1987,"If it's 9 percent, I think we better get excited.",13
-fomc-corpus,1987,Would you get more excited if it came in at 9 percent than at 3 percent?. I think that is the issue.,26
-fomc-corpus,1987,Tell me what has happened in the meantime.,9
-fomc-corpus,1987,Yes. What is going on?,7
-fomc-corpus,1987,And why is it coming about? There is a big difference whether it comes about--,17
-fomc-corpus,1987,"It's the only thing we know about it. We don't know about these other things. If everything was as it is now and it came in at 9 percent, would you--",36
-fomc-corpus,1987,"For M2 or M3 in seven weeks, I would have a stroke. M2 and M3 don't [unintelligible].",28
-fomc-corpus,1987,And the long bond would go to 8-1/4 percent.,15
-fomc-corpus,1987,"I think this is the substance. If nothing else changed visibly, would you be more unhappy with 9 percent than with 3 percent? I am one who would be more unhappy with 9 percent.",41
-fomc-corpus,1987,"I am, too.",5
-fomc-corpus,1987,I think everybody would be.,6
-fomc-corpus,1987,"I think that's true. Of course, we haven't found M2 and M3 to be very interest sensitive. They don't seem to be nearly as interest sensitive as M1. Maybe for M1, I would be.",44
-fomc-corpus,1987,"I don't know how interest sensitive they are. All I would say is that after what happened last year, and given what's going on, if they come in at 9 percent I would be more unhappy than if they came in at 3 percent. I am not saying that it would be the end of the world.",64
-fomc-corpus,1987,I would hate it because they are coming in at 3 percent and I don't want to ease when they are coming in at 3 percent. Aren't they coming in at 3 percent?,39
-fomc-corpus,1987,"What's happening now is built into the projection of the staff, which is around 6 percent. Now, unless you believe that it's going to continue this way--",32
-fomc-corpus,1987,Put 6 percent or somewhat less.,8
-fomc-corpus,1987,We can say somewhat less. I think Bob Heller doesn't want to say somewhat; he would rather say 4 to 7 percent than somewhat less.,31
-fomc-corpus,1987,If you change the words--the way you said it I would be happy.,16
-fomc-corpus,1987,"We have 4 to 7 percent, 6 percent or somewhat less, or around 6 percent. Of the members of the Committee, who would prefer to say, of these three choices, ""around 6 percent""?",46
-fomc-corpus,1987,I would say around 6 percent.,8
-fomc-corpus,1987,What were the others: 6 percent or somewhat less?,12
-fomc-corpus,1987,"Members of the Committee: Do you want to say around 6 percent, rather than 6 percent or somewhat less?",24
-fomc-corpus,1987,My preference is 6 percent or somewhat less.,10
-fomc-corpus,1987,The Chairman has given three alternatives.,7
-fomc-corpus,1987,Three alternatives: 4 to 7 percent; around 6 percent or less; or around 6 percent.,23
-fomc-corpus,1987,Will you explain the differences between the 6 percent and--,12
-fomc-corpus,1987,That's the Chairman's prerogative.,8
-fomc-corpus,1987,"Who would prefer around 6 percent, period? That's unmodified, symmetrically around 6 percent. Well, that's half the Committee already. I suppose the others don't care whether it's 6 percent or less or 4 to 7 percent.",51
-fomc-corpus,1987,I could live with all of them.,8
-fomc-corpus,1987,I would rather say 6 percent or less.,10
-fomc-corpus,1987,"I would, too.",5
-fomc-corpus,1987,6 percent or less is all right with me.,10
-fomc-corpus,1987,"Well, who prefers 6 percent or less? Then what do we get?",16
-fomc-corpus,1987,"Mr. Chairman, you get to vote if you like. It's 6 to 6.",19
-fomc-corpus,1987,We need to have 13 people on the FOMC.,13
-fomc-corpus,1987,"Who ""could live with"" an alternative might be a good way to get rid of this issue.",20
-fomc-corpus,1987,"Let's take a new vote. It's going to be around 6 percent and the vote will be on whether we add ""or less."" Who is in favor of adding ""or less""? I changed the word ""action"" to ""approach.""",49
-fomc-corpus,1987,"And the word ""approach"" is better.",10
-fomc-corpus,1987,"If you change the word to approach, then 6 percent or less I can live with very well; in fact, I would favor it.",29
-fomc-corpus,1987,"""Somewhat greater reserve restraint might be acceptable depending on developments in foreign exchange markets, taking into account the behavior of the aggregates, the strength of the business expansion, progress against inflation, and conditions in credit markets. This approach is expected to be consistent with growth in M2 and M3 over the period from March to June at annual rates of around 6 percent or less. Growth in M1 is expected to remain substantially below its pace in 1986."" And I presume we still have 4 to 8 percent or whatever we had on the range for the federal funds rate. We are ready to vote, so we will vote.",129
-fomc-corpus,1987,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Seger Yes President Stern Yes,46
-fomc-corpus,1987,Adjourn the meeting.,5
-fomc-corpus,1987,We'll proceed with approval of the minutes.,8
-fomc-corpus,1987,I'll move approval.,4
-fomc-corpus,1987,I'll second.,3
-fomc-corpus,1987,"Without objection. The Report of Examination of the System Open Market Account dated May 11, 1987 has been distributed to you. Any comments or questions? If not, I would entertain a motion for approval.",43
-fomc-corpus,1987,So moved.,3
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Without objection. Mr. Cross.,7
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Any questions or comments?,5
-fomc-corpus,1987,"I have a question, Mr. Chairman. What are your thoughts on the likelihood of additional stimulative actions, either fiscal or monetary, by the Japanese and/or the Germans?",35
-fomc-corpus,1987,"Oh, me! I thought you were talking to Mr. Cross.",14
-fomc-corpus,1987,He's looking at you.,5
-fomc-corpus,1987,"Very limited. I don't think either of them has the intention of doing anything, on their own initiative anyway, in monetary policy right now. Their discount rates are well below the market rates. They are both moving a little to lower their money market rates. I understand what's going on. It is going on [unintelligible]. On the fiscal side, of course, the Japanese said they would do something. They have had a bit of a political problem there getting the budget passed and all the rest. They have said that they will do something and will do something, I suspect. Whether it's going to be effective before fall, say, and just what it will be I think is questionable. For the Germans on the fiscal side, I think some of them, including some people at the Bundesbank, are quite worried about the business outlook. There was a lot of talk at the OECD meeting in Paris, and their representative there said well, of course, they would look over the situation again if things didn't develop in a favorable way in the next few months. When he got back home Mr. Stoltenberg said they have no intention of changing anything and they've done all that they can do. So, I don't think the talk in Paris was indicative of any reason to sit at the edge of the seat for any move on the fiscal side. I don't think it's terribly right but that's the--",281
-fomc-corpus,1987,Do you have any sense that any kind of unilateral action that we might take would have much influence on their thinking?,23
-fomc-corpus,1987,"I don't think it probably would make that much difference on the fiscal side. But maybe if all the other forces move in the direction of embarrassing--is that the right word?--the Bank of Japan or the Bundesbank--. I wouldn't expect either of them to make a deal right at the moment or to respond immediately if we took any action. I think it would improve the chances, but how much is beyond me. It pretty clearly would set up a situation where the next step was up to them; they would have to recognize that.",109
-fomc-corpus,1987,"Doesn't fiscal policy in those countries react with a lag as it does here? If they don't even consider it and then maybe move in the fall, it seems to me that the kind of impact--",40
-fomc-corpus,1987,"I think that's correct. You're not talking about anything very relevant for 1987 at this point without a sudden massive change in mind by the Germans, which we don't expect. Even if the law permitted them to act quite quickly on taxes and the circumstances arose to [warrant] triggering it, they don't appear to have any desire to trigger it.",70
-fomc-corpus,1987,"In Japan, it appears that what they're suggesting is mainly increased construction. And those kinds of projects take a long time. It isn't so much taxation.",30
-fomc-corpus,1987,"Well, they're going through this usual [routine]--it's almost an annual ritual now--of saying maybe we'll move the public works budget into the first part of the year and speed up construction and all that. I don't think that amounts to much.",50
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,Are we having ongoing discussions with the Germans and the Japanese with respect to their economies or have we given up for the moment?,25
-fomc-corpus,1987,"Well, I don't know what you mean by ongoing discussions. We have a certain amount of conversation with them but I don't sit on the edge of my seat, as I indicated, expecting that these ongoing conversations are certainly going to result in spurring them to new activities. The Bundesbank itself is quite split about what they should do--about 50/50. There is a lot of worry within the Bundesbank about the economic outlook.",88
-fomc-corpus,1987,"When you speak of Germany, do you include all of Europe or the major players?",17
-fomc-corpus,1987,"Well, I could say that Germany kind of [represents] the rest of Europe, frankly, except for the British who are outside the EMS. There the expansion is pretty good relative to other countries; it seems to be not a breakneck rate but a pretty good rate of expansion. Among the others, I think a lot of them would like to do more but they feel they can't so long as Germany sits there. They're worried about their exchange rate and so forth. I don't know if any economy in the rest of Europe is really growing; they're probably going backwards too. Am I wrong about that, Mr. Truman, in terms of the rate of growth slipping rather than the reverse?",139
-fomc-corpus,1987,"You are right, sir.",6
-fomc-corpus,1987,Except for the British?,5
-fomc-corpus,1987,"Definitely, and Italy.",5
-fomc-corpus,1987,The French [economy] slowed down quite a while ago.,13
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"So, it's not a very buoyant situation, wherever one looks. The last time I talked to he seemed quite worried about the outlook, even more worried than before. But he's been worried quite a lot [unintelligible]. It's a tone of voice; [he seems] more worried than he has been.",64
-fomc-corpus,1987,"He said the last time we talked that they don't get excited there unless the unemployment rate rises. He said it hasn't really gone up in the face of this weakening growth. If it were to start to rise he would have more of a political problem. Without it, will take the position he has.",60
-fomc-corpus,1987,"Sam, how do you reconcile this negative sentiment on the dollar with these very wide interest rate differentials that you mentioned? What is that saying here?",30
-fomc-corpus,1987,"I think the interest rate differentials are probably having some impact, but it makes it more costly to recommend [the dollar]. People think: If the dollar is going to be lower next week than this week, then we're better off to wait. They have a pretty short focus on how long they make these investments for these days. If the dollar is going down, it's better to wait. There are a lot of people who think it's going down further and there are certainly not very many who think it's going to go up. So, there's not much danger of losing [by waiting].",117
-fomc-corpus,1987,But doesn't the differential itself indicate that people think it's going to go down?,15
-fomc-corpus,1987,"The differential is partly because of what the markets have done. The Japanese long-term rates have declined quite substantially, and much of this is because money is going back into Japan.",35
-fomc-corpus,1987,"When you look at monetary policy in Japan in particular, these long-term rates have gone down primarily because of monetary policy--maybe because it has been relatively stricter. This one bond issue that people follow got down toward 2-1/2 percent to get this [unintelligible].",59
-fomc-corpus,1987,"Close to 2-1/2 percent, [the] number 89 [bond].",19
-fomc-corpus,1987,It has been a long time since we've seen a long-term bond rate at 2-1/2 percent any place.,25
-fomc-corpus,1987,The Japanese are really quite worried about their situation because of all the liquidity and the vast [unintelligible] or growth in the stock market where some stocks are selling at 250 times earnings and so forth.,43
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,"Sam, given the magnitude of the intervention so far and the results, what is the appetite of the other central banks to continue with this kind of magnitude?",31
-fomc-corpus,1987,I don't think we're going to see this kind of level of dollar purchases for a continuing period; there's no question about that. The market certainly has that view. So there are going to have to be some policy moves or we're going to have to begin to see some results from policy moves already taken. We haven't seen any very good statistical numbers to show that the trajectories have shifted and that things are going in the right direction. We haven't seen very much other than these monetary policy developments; we haven't seen developments on the policy front to show that something is being done that's going to do it. It's certainly the attitude of the market that intervention isn't going to remain at these levels for a continuing period. It's either going down or we're going to see some more adjustment.,152
-fomc-corpus,1987,"Of course, when we raise the question about what they're doing on fiscal policy they raise that question with us, too. It's rather a symmetrical question. Are there any other comments? We need to ratify the transactions.",44
-fomc-corpus,1987,Move it.,3
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Without objection. Mr. Sternlight.,8
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,They say that's enough. Comments or questions?,9
-fomc-corpus,1987,"Peter, just in a technical sense--and I know that extraordinary things were going on in this recent period--if you had a spread of 125 basis points between the discount rate and the prevailing federal funds rate, does that provide enough of an incentive to borrow that it makes it more difficult to hit a particular borrowings target? And does that, therefore, perhaps introduce a little more volatility in open market operations? I know that in the most recent period, as you've described, there were some other things going on. I guess my question really runs to the spread on an ongoing basis.",118
-fomc-corpus,1987,"It has been very hard day-to-day to predict what that spread is likely to be. We have such a mixture of expectational elements still in there. The high Treasury balance has receded as an operational factor; it's not entirely gone, but it has receded some. I think the fairly substantial anticipation that something may well happen on the discount rate--and that we are not too unhappy with funds in a 6-1/2 to 6-3/4 percent or even 6-7/8 percent range--contributes to the funds rate staying up there, even though in some pure theory sense, going back to earlier model relationships of what funds rate we'd expect with $400 million of borrowing, I would come out with something considerably lower than the recently prevailing rates. I would agree with what the Bluebook suggests of a tendency for the rate to drift back to, or below, the 6-1/2 percent level. One could even make a case for something like 6-1/4 percent on the funds rate with planned borrowings holding at $400 million.",221
-fomc-corpus,1987,"Peter, something you said earlier suggested to me that if you were to get that drifting back of the funds rate you would expect to see the dollar weaken right much. Is that a fair reading of what you said?",43
-fomc-corpus,1987,"If the funds rate drifted back to that, I think that would be cause for renewed pressure on the dollar, yes. Sam might want to comment on that, too.",35
-fomc-corpus,1987,"On what you've said about the market's reaction so far, are you saying that the market is probably assuming that the borrowing target is higher than it is?",31
-fomc-corpus,1987,"Yes. Most people I've heard comment on it would be thinking in the $500 to $600 million range for borrowing, though I've heard some talk about $400 to $600 million, and I've heard one who thought it was above $600 million. But most would put it in the $500 to $600 million range.",65
-fomc-corpus,1987,Do you think that's probably because borrowings have averaged about $700 million?,15
-fomc-corpus,1987,"Well, yes. But, certainly, the period when it was $1.1 billion they realized was extraordinary and unusual; and the period just before that, when it was nearly $700 million, they tended to think was on the higher-than-intended side as well.",55
-fomc-corpus,1987,"When borrowing actually turns out to be $600 or $700 million, I think they expect the policy to be there.",24
-fomc-corpus,1987,They think we've got alternative C instead of alternative B.,11
-fomc-corpus,1987,I think we've got alternative C.,7
-fomc-corpus,1987,"""C?""",2
-fomc-corpus,1987,"That's what Peter said, really, I think.",10
-fomc-corpus,1987,Any other questions? We need to ratify those transactions.,12
-fomc-corpus,1987,I'll move it.,4
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Without objection. Mr. Kichline.,9
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Questions?,2
-fomc-corpus,1987,"Jim, do you have any sense beyond what we've seen in autos, for example, that domestic producers are responding to higher import prices not so much by trying to grab off a bigger market share but by raising their own prices? I've sensed some anecdotal evidence of that. I was wondering if you have any sense of the extent of that.",68
-fomc-corpus,1987,"As you know, the auto case is one you can point to. Beyond that we don't have anything explicit. If you look at the producer price index for April, in fact, very little was happening there taking away energy and food and cars. Basically, we're talking about prices that seem to be moving up at about the same rate. It's something we've been looking for. We run across these comments about producers looking for every opportunity to increase their margins but, at this point, we don't really have any hard evidence in hand.",105
-fomc-corpus,1987,"a medium-sized manufacturing company that does a fair amount of export business as well as domestic business in office supplies and recreational supplies, that sort of thing. complaining for a couple of years about how they just can't make price increases stick. But in recent months they've been able to make some of these price increases stick. And not alone.",66
-fomc-corpus,1987,"Jim, your forecast for consumption is quite weak, particularly the nondurable and services components and I have a comment and a question. With regard to services, as I'm sure you know, there's a strong secular component for the growth of services. The growth rate that you have probably is the kind of growth rate that one sees in recession periods. To me, that's a bit surprising. I think I understand why this is occurring in terms of your forecast. I guess the decline in the value of the dollar causes the PCE deflator to go up, which hits real income and then slows the growth of consumption. What I'm not sure I see is this: Why doesn't that increase in the PCE deflator affect other prices as heavily? I don't think I see it in your inflation rate. I don't have these deflators, so I'm trying to--",171
-fomc-corpus,1987,"If you look at the GNP deflator or the GNP fixed-weighted index you have the persistent effect of net exports being subtracted, which tends to depress those GNP measures. If you look at private domestic final purchases prices, the PCE fixed-weight measure or deflator picks up very directly all of these import prices that we're talking about rising at double-digit rates. So you're right: we have prices for personal consumption expenditures rising even in excess of 4 percent--4-1/4 to nearly 5 percent in 1988. And that has the effect in this forecast of depressing real income growth. So you have it right in the sense of why we believe we will be facing a fairly weak picture on domestic consumption. I view it as part of the adjustment process and rising import prices depressing [consumption].",167
-fomc-corpus,1987,"Would you say, looking at the risks in the consumption area, that they might be on the high side? Well, not durables.",28
-fomc-corpus,1987,"Well, given everything, I'd say these consumption numbers outside of durables are at really very low growth rates. One might expect to find those rates happening in a recession environment. So in that sense consumption might be higher. On the other hand, we're starting with inflation picking up and the depressing effects of real income growth and other characteristics that I think would act to damp demand. You're quite correct; these are low rates of consumption.",86
-fomc-corpus,1987,"Jim, with regard to domestic auto sales, especially in the next couple of quarters, are you assuming anything in particular about incentive programs or anything that accounts for the strengthening you have here?",37
-fomc-corpus,1987,"Explicitly, we've assumed that in order to reduce the stocks on hand, which are running at something like 75 days' supply, they will have to maintain incentives of one fashion or another. As we get into the third quarter, we have assumed a further cutback in domestic auto production and probably somewhat limited sales incentive programs to continue to sell those cars. So, I think it's a combination of incentives as well as some further cuts in production.",90
-fomc-corpus,1987,"Jim, what is your assessment of the inventory situation other than autos?",14
-fomc-corpus,1987,"Autos are the only area where we sense that there's a problem lurking. The data lag, and at times they're hard to interpret. In the manufacturing sector, certainly, for a long period of time manufacturers have been running with very low inventories. In fact, in this forecast the inventory/sales ratios are flat or drifting down. So we haven't spotted any sectors where unusual things are going on outside of autos.",81
-fomc-corpus,1987,"Jim, do you really think that the producers of durable equipment will snap back after only one quarter of weakness? Isn't the tax reform impact going to, unfortunately, last longer?",35
-fomc-corpus,1987,"This is, in part, the arithmetic. January just plunged and plunged partly because included in business investment would be auto and light truck purchases. So part of the arithmetic is that as February and March came back, orders sort of flattened out. We know auto sales were rising a bit, and so for the second quarter, instead of the 13 percent drop recorded in the first quarter, we have a pickup in real terms to something like 6-1/4 percent. In part that's arithmetic; in part that's a pickup in auto sales. But I think one ought to read through that; and when we read through it we have essentially unchanged business spending for the year in real terms. I think that's a more accurate picture.",146
-fomc-corpus,1987,Thank you.,3
-fomc-corpus,1987,"Compensation per manhour, which I'm sure is the key element of your inflation forecast, seems to change dramatically in 1988. Why is there such a change so abruptly? I'm not questioning that it's going to rise. It just seems to be going at one level, and you have a step function, and then it stays at that [higher] level.",73
-fomc-corpus,1987,"There are a number of things going on. To begin with, in January 1988 there is a sizable increase in Social Security taxes and, along with that, an assumed further rise in the wage base. We've assumed that compensation will kick up by 4/10ths of 1 percent beginning QI '88 because of the large Social Security tax increase--the employer share. Other features are that we assume that we're going to begin to have a more forceful effect of higher prices feeding back into wage behavior in 1988. In this forecast, as you may have noticed, we have a lower path for the unemployment rate. We were caught by surprise by the numbers that have come out. We think there might be a little problem there. Essentially, in the forecast, we're going to be looking at an unemployment rate of 6-1/4 percent later on in 1988. Who knows what the natural rate is, but we think that we're probably in a range somewhere pretty close to that. So we're not going to have a damping effect on wage growth that we had previously.",221
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,"I'd just like to make a comment on business conditions generally. In our District, I think the economy has performed better so far this year than most people expected. Unemployment for the region, for example, is under 5 percent. States like New Jersey and Delaware are in the 3 percent range and even areas of Pennsylvania are doing fairly well. Strength continues in construction, both residential and nonresidential; the retailers are generally upbeat; loan growth in all categories continues to be above the national average. In manufacturing, I would say that the erosion of jobs in manufacturing areas has tended to cease and there is a modest comeback. So, I think the manufacturing [sentiment] has shifted from a negative attitude to one that's somewhat positive, although I must say I was with a couple hundred manufacturers last week and they still like protectionism and they don't like higher interest rates, or snugging up, or whatever we call it. Turning to the national scene, it seems to me that while our forecasts are generally on target, if anything, the economy is turning out to be a touch better. In the trade area, at least I feel better--not so much because we're exceeding expectations but because some evidence supporting the forecast of a turnaround, while not dramatic, seems to be there. There is some positive evidence that exports are improving and that we can expect some strength in that area. However, I think the real news on the national scene is what's happening to inflation. It's not so much that the indicators of inflation are going up; I think we expected that in terms of energy and import prices. What is of concern--and we see it in financial markets, but we also hear it in just talking to business people generally--is a heightened concern about the future course of inflation. I think it really comes down to some doubt about whether we can keep these adjustments to be one-time adjustments or whether we're about to set off a new upward trend in inflation. I think that is the real change in the last six weeks to two months--that concern about inflation is significantly higher than it was the last time we met.",424
-fomc-corpus,1987,Are we going around the table now? I wanted to ask Jim something before we did that.,19
-fomc-corpus,1987,You can insert a question.,6
-fomc-corpus,1987,Okay. The Board had a briefing yesterday on the Greenbook material. I'm going to ask you to go through the points about employment and the full employment unemployment rate. I think it's important that you try to reconcile again for everybody here this whole issue between industrial production and capacity and the unemployment numbers and work hours. The statistics don't tell the same story. And I've never gotten a really satisfactory explanation of which one makes the most sense.,86
-fomc-corpus,1987,"I don't think you're going to get one now either! It is curious that we are seeing what is really a fairly sluggish industrial sector, particularly for the last couple of months. We can explain the autos and trucks, and that's the bulk of the decline. But in the detail in the industrial production index, as I noted yesterday, in many of the sectors where we thought we'd see some rise because of export orders growing nothing is happening. There have been really widespread weaknesses for two months. We have some difficulty reconciling that, obviously, with total payroll employment, which gives the picture of a lot of spending. Virtually all of that is in the trade and services areas; it's not really spilling over into manufacturing. One of the concerns in the forecast is that we have built in, frankly even for the current quarter, increases of 0.3 to 0.4 percent in industrial production in May and June, which we think needs to occur to rationalize what has been happening. We have a month or two divergence between these various signals. We also have, as you know, the problem--",222
-fomc-corpus,1987,You have how big of an increase?,8
-fomc-corpus,1987,"We have about 0.4 percent per month in May and June. We think that would be consistent; it sort of reconciles the problem that Governor Johnson was raising that the industrial sector looks very sluggish. Whether or not that materializes is, for now, an open question. I can't really do a lot more than to say we do--",70
-fomc-corpus,1987,"No, I just wanted that repeated because it is confusing in that we have a situation where the unemployment rate is projected to get down to very low levels and yet we're still at close to record levels of excess capacity and low industrial production. I tend to believe the employment numbers a little more, but I don't know exactly how to reconcile them either. I'm just saying that's a dilemma I think everybody ought to know about.",83
-fomc-corpus,1987,"Well, I'm not sure that they're completely inconsistent. Almost all the increase that we've seen in the employment area has been in the services area, outside of manufacturing. As far as policy is concerned, the question is whether or not relatively full employment of labor resources could lead to demand pressures. That could occur in the services area and I wouldn't--",68
-fomc-corpus,1987,"Yes, I know; there's no doubt about that. But given the way the forecast is shaped, we've got a situation where there is low growth in the services area, which you already acknowledged, Bob, and a shift to trade-related, industrial-related, types of functions. It's not showing up in the numbers even though we are feeling better about it. Bob has just said he's feeling better about it, and I'm feeling better about it. It's just not in the numbers. And if there is going to be that re-composition, one would expect to see it in industrial production.",117
-fomc-corpus,1987,Wait a minute. Are you talking [unintelligible] the workweek number of--,19
-fomc-corpus,1987,There is nothing wrong with weak industrial capacity where we need it.,13
-fomc-corpus,1987,"Yes, I--",4
-fomc-corpus,1987,Take autos as the classic case in point.,9
-fomc-corpus,1987,The autos don't have [a] capacity [problem]?,11
-fomc-corpus,1987,Yes. They don't.,5
-fomc-corpus,1987,"Let me note that the 0.4 and 0.3 percent--pick whichever month you want that in--but we're stuck with minus 0.4 percent in April. On a quarterly average basis, that pickup will give zero growth in industrial output in the second quarter. We have 2-1/2 percent growth at an annual rate in the first quarter, but we need a pickup even to get zero, given that we are starting out at a low number.",97
-fomc-corpus,1987,Is that excluding autos?,5
-fomc-corpus,1987,It's still down; everything--,6
-fomc-corpus,1987,"Autos and trucks, for example, were worth almost 3/10ths of the 4/10ths decline, so 2/3 to 3/4 of the depressing factor came out of the motor vehicles sector. President Morris, you asked about the workweek. You're quite correct: the numbers in the workweek were depressed because there were religious holidays during that week. For manufacturing production hours, they're down something like 1 percent. Looking at the path over the last 20 years, in the few years in which this has occurred virtually 3/5ths to 2/3rds of that is alleged by our folks who do this to have been accounted for by the effect of the holidays. So, a lot of that has been discounted in putting together the industrial production data.",162
-fomc-corpus,1987,"Jim, I wanted to raise a question about commodity prices. Obviously, they shot up in the most recent month. Are there any special factors that would account for that or do you think it's a more permanent type of adjustment?",45
-fomc-corpus,1987,"Well, there are lots of special factors. It depends on which market. On the CRB futures, Don was reporting on Friday that before it rained it was the dry Midwest; and then the rains came in the Midwest and prices plummeted. So part of it, I think, is just heightened expectations in looking for anything [as a reason]. Some of the livestock prices, we think, reflect the late winter weather and the snowstorms in the Midwest. In lead and zinc markets, we've looked at Canadian strikes. When you go through all of it, you can look at special factors. The fact is simply that the markets have been very sensitized to inflationary expectations and sort of look for an opportunity to drive prices up. But there are lots of special factors, and perhaps some reactions have been very much overdone. It's clear to me that it's just heightened sensitivity to inflation at work.",182
-fomc-corpus,1987,Do you call that speculation?,6
-fomc-corpus,1987,If you wish.,4
-fomc-corpus,1987,"Mr. Parry, you wanted to make more general comments, I hope.",16
-fomc-corpus,1987,"Mr. Chairman, basically, I agree with the staff's forecast of real GNP for this year and next. The growth rates of 3 percent and 2-1/2 percent, respectively, certainly seem reasonable to me. I also would agree that the primary source of strength is likely to be an improved net export position. However, as would be indicated from some of our discussion, I would expect the improvement in this area to be somewhat less and the strength of consumption, particularly that of services, to be slightly greater. In the inflation area, I think a good case can be made for a 4 to 4-1/2 percent rate of inflation in the remaining quarters of this year, as compared to the staff's forecast of a gradual decline to a 3.2 percent rate in the fourth quarter of 1987. We have seen a large increase in the real price of oil, which could have significant effects on the inflation rate during the rest of this year. I think it's generally agreed--certainly in our forecast and the staff's forecast--that prices of non-oil imports are going to continue to rise in an area in excess of 10 percent. Moreover, the decline in the unemployment rate, I believe, takes us into the range of full employment of labor resources. And, finally, inflationary expectations seem to be more serious, judging from financial market developments for the last six weeks. As far as 1988's inflation rate is concerned, there is quite a pickup in the staff's forecast of the inflation rate. And I think the factors that I mentioned are likely to cause that to occur.",331
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"Mr. Chairman, I come out pretty close to the Board staff's forecast. We are a tad stronger than they are and had been even stronger; but we moved more closely to them because of the weakness in consumption in the first quarter, even abstracting from the automobile situation. I agree with the point that Bob Parry just made that the balance of trade is going to be the strongest part of it. I think Ed Boehne really put his finger on what is a more important issue there, and that is the extent to which the general outlook at the moment is correctly reflecting the amount of inflation that we're going to have. There are a lot of inflationary expectations around the economy, as indicated by the bond markets. And there's some question in my mind as to whether that's justified. I think all of you know that I believe the primary objective of monetary policy is price stability; but based on what knowledge we now have about prices I think there's at least some chance that the markets have overstated the extent to which there's a risk of acceleration in price pressures. We're clearly experiencing a lot of increases in prices in the energy area and in food prices, both at the consumer and the producer price levels; and we've gotten scattered price increases because of depreciation of the dollar. But these are all relative price increases; they don't necessarily mean that we're going to see that much increase in the overall price level. Of course, we've had this strength to which many people have alluded in the commodity prices and in commodity futures. But, again, there's a lot of noise in these data; there are a lot of special factors and there is some question as to how accurate these are going to be in predicting what the overall price level is really going to do. I don't want you to misunderstand me; I'm not saying that I don't think there's any chance that we're going to have a pronounced rise in inflation. I just simply am not quite convinced yet that those fears, as expressed in the changing nature of the yield curve, are really quite justified at this point. The economy still looks sort of weak in spots, so we ought to think about it pretty cautiously. But this is the point at which I think we usually have made our errors in policy in the past, so it's something to which we want to give a great deal of attention.",467
-fomc-corpus,1987,Mr. Boykin.,5
-fomc-corpus,1987,"Mr. Chairman, with respect to the staff forecast, in principle, I pretty much go along with it, although it's hard to be looking at it from the perspective of our District, which causes me to think that, if anything, it might be a little on the high side. But it's probably about right. On the inflation issue, I do share the concern that has been expressed by the staff, particularly in the Greenbook, about the rise in inflationary trends. I'm especially worried about that if it should translate into wage pressures next year. Our Eleventh District economy would be characterized as being flat and stable at a pretty low level, certainly for us. If the U.S. economy can maintain the 2-1/2 to 3 percent growth, I think that we have some possibilities or potential for our District. A few of the sectors that have been performing poorly have begun to show a little sign of improvement. Of course, what's happening to energy prices has caused a bit of encouragement, although to get a great amount of recovery there I think prices of oil are going to have to go higher. In agriculture, we think the financial strains are not quite as great as they were; certainly, the livestock prices and cotton look pretty good. We do think that we're probably seeing now the bottom of the decline in land prices, both in ranching and agriculture. In manufacturing, we're seeing some signs of general improvement with defense and electronics leading the way there. In real estate, I think we're seeing a little change in psychology as opposed to any real change in substance. Most people involved in real estate are saying that by year-end we will see rental prices and rental rates starting to move back up and some improvement in the price of land. We had a very real psychological impact with JC Penney moving out of New York to Dallas. For some reason, that seems to have convinced everybody in the metroplex that our worries are over now. I think there has been a bit too much euphoria regarding the interest of companies in moving to Houston and Dallas because of attractive real estate properties and other incentives that are there. Of course, we have had the sharp drop off in construction; we're feeling that. Banking conditions continue to deteriorate. We're leading, certainly, in bank closings. In Texas so far there have been about 27 and we're looking for maybe 3 or 4 this week. We don't see very much slowdown on that, although our new branching law in Texas has certainly made it much easier to find potential buyers and resolve these problems. On the whole, we don't have a lot of cause for optimism, but certainly, we think the economic conditions are no longer deteriorating in our part of the world.",548
-fomc-corpus,1987,Mr. Stern.,4
-fomc-corpus,1987,"Thank you, Mr. Chairman. With regard to the national economy, it seems to me that, at least on the real side, so far things are unfolding about as we expected. The first quarter growth was in inventories and in net exports, and I think that was largely anticipated. Some of the weakness in other components seemed to be due to changes in tax laws that accelerated expenditures in the fourth quarter--in auto sales and so forth. So, it seems to me that, basically, we're on course and the Greenbook forecast is certainly in the ballpark. If there has been any surprise, to me it has been the real strength in employment. If you go back over the last 4, 6, 8 months, the increase in jobs has been running at about a 3 million pace, at an annual rate. Even if the base is somewhat sensitive to when strikes did and didn't occur, there certainly seems to be no evidence to date of any slowing in employment growth relative to the last couple of years, to put it cautiously. One surprise that has occurred is in states in our District where I think it's true universally that both the fourth quarter of last year and the first quarter of this year were better than we had expected and better than most other analysts out our way had expected. Good weather may have had something to do with that; it's hard to know how to quantify that. Certainly, the employment gains and the income gains in our states in both the fourth and first quarters surpassed expectations. With regard to commodity prices, I did have a chance to talk to some of the people at the grain trading firms in the Twin Cities the last several days and I got a two-part explanation. Part of the explanation with regard to agricultural commodities was based on weather concerns here and abroad, coupled with the acreage set-aside program and the idea that this was the first time in several years where, because of those concerns, purchasers wanted to lock things in. But the second explanation I got was simply that commodity prices are low and the dollar is low--kind of an inflationary-expectations view that they were about to go up, or at least they didn't seem likely to go much lower. Frankly, I think it's the phenomenon we're seeing in the bond market as well. It's clear, or at least I think it's clear, that you can't explain what has happened to commodity prices with any real phenomenon today. It has to be largely expectations.",493
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"Our outlook for the economy is certainly consistent with the staff's forecast. As we look at developments in our District the situation really does continue to improve, and I think the general outlook is certainly more positive. Auto production is an exception; Jim Kichline has already commented on that. But I would say that maybe we have a slight difference on the truck side of the automotive business. From the people I've talked to in Detroit, they would anticipate a slight increase in their production schedule for trucks, both in the second and third quarters. The steel business has been surprisingly good, better than we would have expected. Some of the sheet steel producers are operating pretty much at capacity, with a lot of that going into appliances. Also, the demand for some categories of steel that in the past has been very slow is beginning to pick up. I am somewhat surprised, for example, that steel going into gas pipelines is improving, and even steel for railroad equipment is higher than it has been. Construction activity continues to be very strong. I never cease to be amazed, but commercial buildings in Chicago are continuing to be started and to go under construction. Residential construction has been very high in our District. Home starts this year so far have been significantly higher than the national average. As a consequence, the demand for building products has been strong. For example, they've produced gypsum in the first quarter at an absolutely record level. On the agricultural side, I'd confirm what Bob Boykin has just said. It seems to us that the land values really are beginning to stabilize. Our first-quarter survey indicated some stability there for the first time in a long time, and though one quarter doesn't a trend make, nonetheless it is certainly an improvement. Of course, the commodity prices--the increases for both corn and soybeans recently--have been a very significant help relating to land values. This has not gone through to the tractor and implement manufacturers where the situation continues to be very, very tough. Dealer inventories are low. There's a lot of floor traffic, I'm told, but very few sales. The farmers are reducing their debt; it certainly is a good thing that they're reducing their debt just as fast as they can. And, therefore, they're not in a position to take on new obligations for equipment. But it's possible that the agricultural situation is stabilizing, admittedly at a low level, and that it won't continue to decline. I must say that I find the inflation issue very, very perplexing. Absolutely everybody is talking about it and worrying about it, and I think that in itself can be a little self-fulfilling. [It's not in] the numbers we look at, as we have commented. Outside of the food and the energy sectors, I can find very few people who are talking about price increases that seem to be out of line. There are a wholesale series of price increases of the 2 or 3 percent category; those seem to be the norm. I guess the difference is that this time last year, and really until very recently, we were talking about price decreases; now we're talking about price increases of 2 to 3 percent. I think there's a very important shift in the psychology that goes along with that change of going from decreases to increases. Certainly, long-term rates are telling us something. They're either saying we're going to get very, very strong economic growth or the rate of inflation is going to pick up. And, related to Bob Black's comment, I think that it is perhaps appropriate that we take some steps to try and reassure the markets with regard to our commitment to price stability.",724
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"Let me say a brief word or two about the region first. Conditions in the Southeast are pretty much the same as I've been reporting over the past couple of months, with weakness in the energy states continuing and generally favorable outlooks for most of the other states in the District. Even in the stronger states, very little pressure is being reported on wages. Tennessee is a little different. That state has been pretty much functioning at the national average but we're now beginning to see some softness since many of the industries there are geared to consumer durables, which have been pretty weak. Many, of course, are suppliers to housing as well as to the auto sector. And, I guess symptomatic of what's going on in the automobile industry, there is a scaling down of GM's highly-touted Saturn plants near Nashville. Together with that, we've seen some unwinding of the speculative increases in the land prices surrounding that plant. Another interesting phenomenon is in the textile industry, which had been complaining bitterly about imports and crying for a long time for protectionist measures. They are continuing to report very good demand, high levels of activity, and record earnings in many plants. Maybe this is an example we can point to of how more efficient management, automation, and cost cutting can pull an industry that is dealing with import problems out of their problems without protectionist legislation. As others have reported, farm values are stable now and moving somewhat higher in some parts of the District due to the generally better agricultural outlook and partly to stronger economies in the area. In general, I think the outlook in the region is a little more favorable than it had been--outside of Louisiana, which continues to suffer from the energy-related problems. But even there, there is some feeling that things may be beginning to turn around. Inflation is clearly the number one topic of conversation among people I talk to. Interestingly, though, while they're talking about inflation and their fear of inflation, some of my directors are also reporting that they're unable to get any price increases. They report that as soon as they try to get a price increase, the customer puts the [proposal] out for bids. Very often, those bids are accepted at a lower level, so they have to run back and get the customer booked on the lower price. With respect to the national economy, our outlook is pretty much the same as it has been for some time. I had been concerned about the downside risks in the economy; I still have some of that concern but I guess it has diminished a little since the economy looks just a tad better than it had been. On balance, I think we're quite close to the Greenbook forecast although we, like some others, would expect higher inflation in the latter part of the year rather than a tapering off as the Greenbook suggests. All things considered, it seems to me that the outlook is generally favorable for the economy and I think we're doing about as well as we can. If we get 3 percent, we're probably going to be at about the potential for the economy. Although inflation clearly is a concern and I would share that concern, the big change I would note is that we've successively over the past couple of months lowered our expectations of growth in our trading partners abroad. And my major concern at the moment is that the world's economic performance is becoming increasingly dependent on our economy. Given the reluctance that was confirmed this morning of some of our trading partners to stimulate their economies, I think that we have the potential for risks globally. So, in terms of policy, I guess I'm willing to live with a little more inflation, if in fact that comes about, since it seems to me that the risks to the world from a significant slowdown in our economy are even more worrisome.",754
-fomc-corpus,1987,Mr. Guffey.,6
-fomc-corpus,1987,"Thank you, Mr. Chairman. As to the outlook on a national level, we're very close to the Greenbook forecast; I have no real quarrel with it. We're just a tad higher on inflation than the Greenbook, but beyond that, it seems to be a reasonable forecast. With respect to the region, it seems to me that there has been a bit of a change in the outlook of participants in the business, agricultural, and energy sectors. It isn't clear to me why, because the numbers don't really reveal that things have turned up. What has occurred includes developments that have been mentioned around the table: for example, the stabilization, or the lack of further decline, in agricultural land prices; and a bit of greater activity in the energy sector, both in the petroleum and natural gas area. It may be that, as a result of having looked at a decline over roughly the last 3 to 4 years, when people don't see the decline continuing then that's cause for optimism. As a matter of fact, in the agricultural sector, for example--and the comments about the agricultural land prices stabilizing are revealed in our most recent survey as well--there have been some fairly sizable agricultural land sales, but they are generally led by the Federal Land Bank. And those are all induced by concessional interest rate arrangements. That is, they will sell but they'll finance at 2, 3, or 4 percent and, therefore, it makes it reasonable for some of the producers to pick up that land. When it comes to other land sales, we find they are largely to the farmer next door who wasn't caught in the debt burden situation and who simply believes that the agricultural land values at the moment are such that he wants to add to his other land holdings and can make the numbers work at these prices. I would say that this quarter was the first time in six years that agricultural land values have not continued the decline. And they're roughly now 55 percent of what they were in value in 1981. That is coupled with other things in the agricultural area--for example, the projection that the wheat crop that will be harvested starting now and into June and July will be something in the neighborhood of the sixth largest wheat crop ever produced, which means that the government agricultural policy is the one that is going to pick up and buy that grain unless exports pick up. There has been some euphoria, if you will, among those producers because of the Russian agricultural wheat and grain sale and export prospects. In the cattle/red meat market, they are still making money and that should continue. With regard to the question of inflation, in talking with the agricultural and small business representatives, our Board of Directors, and other business people, I don't hear as much talk about price increases in our region as I've just heard around this table. As a matter of fact, I've heard of some price increases being put in place but not sticking; they are backing off from them. If we're concerned about inflation--which obviously we should be if our objective is price stability--it seems to me that the pressures are coming largely from food and energy and import prices. Those all should be one-time increases. As a result, unless one believes that inflationary expectations are going to be built into the wage levels, I don't believe we should be taking actions, at this point at least, to offset higher prices coming from those sources alone.",687
-fomc-corpus,1987,Ms. Seger.,5
-fomc-corpus,1987,"I continue to be concerned about the sluggishness that I see in the economy. I thought the industrial production figures for April showed widespread weakness. Admittedly, it was concentrated in autos, but that certainly wasn't the whole story. Even the March figures showed some weakness beyond autos. I discussed this with Jim Kichline and I am wondering if we have enough weakness built into our figure for 1987 for the auto industry because, in my judgment, we haven't yet seen the impact of the recent runup in interest rates on most of these indicators since so much of it took place in April and so far in May. So, I am concerned that the forecast may be a bit high there. Because I am interested in autos--and from the comments around the table some others may be too--I will share a couple of observations that I got from They are basically very disappointed in the auto sales figures in April and, particularly, in early May. At General Motors, they are using incentives selectively; generally, they have a combination of the rebates to consumers, the special deals on interest rates, and also some rebates that they are giving directly to the dealers themselves. For example, Cadillac will pay between $1000 and $2000 per car for every one that the dealer moves of certain slow-moving models. That's tremendous. Also, imports for the first time are not selling very well. The Japanese are not selling up to their quota, even with the incentives that they are offering, lost money in January and February; that's not a terribly good sign. Inventories, of course, are extremely heavy. The comment was that they have no more asphalt to put the cars on and now they are going to corn fields and wheat fields. Also, it was pointed out to me that the statistics that have been reported so far this year may, in fact, overstate the strength of the true retail demand because the fleet sales were concentrated in the first couple months of the year and they have been running 25 to 30 percent of the deliveries so far. Fleet sales do go through dealers and, therefore, are picked up in these numbers that we follow. A couple of comments again, they are very disappointed with the pace of auto sales, particularly in April and early May. They point out that trucks also were showing some weakness. They think forty thousand more units will be removed from production schedules over the next three months because of the continued oversupply of new cars. They don't have the same attitude about dealing with their retailers as what to produce and then dumps them on the dealers, takes into account more what the dealers would like to receive. Also, is using a negative real GNP growth figure for this quarter, about minus 1-1/2 percent seasonally adjusted at an annual rate, mainly because there is no inventory buildup. They expect auto sales of 10 million units for 1987 versus 11.4 million last year. If they are right, of course, that's around 400,000 less, I believe, than what we are using. But again, these are numbers that are being reviewed because of the recent uptick in interest rates. Across the board, there is a massive effort to hike sales because there are great economies to keeping the production lines running. Therefore, where it used to be that auto production was cyclical, now the production is more stabilized and profits are cyclical. A final point is--and this isn't a very good sign as I read it--that more and more people are taking the rebates, when offered, because they need it for the down payment. In other words, they are that marginally in the market. They are also going for the longer-term contracts in order to get a monthly payment that will fit into their budgets. So, those observations made me even more concerned about the fundamental strength of the economy. In terms of what's happening on the inflation front, I think in a way maybe we ourselves are contributing to it because we talk so much about it. I think it's wrong to read every wriggle in the bond market as a sign of inflation or inflation psychology. Having worked with investments for 10 years, I can tell you a lot of people who trade bonds don't have anything in mind; they are just throwing pieces of paper around. To attribute great analysis to the move, I think, can really be a mistake.",882
-fomc-corpus,1987,Mr. Hendricks.,6
-fomc-corpus,1987,"Thank you, Mr. Chairman. The mood in the Fourth District has improved. Some have said it has gone from lackluster to hopeful to reasonably satisfied. Much of the improvement seems to be due to the improving trade situation. According to our information, employment, orders, and output are expanding and labor costs of manufacturing continue to remain rather moderate. In a relative sense, I guess, we have not heard so much optimism around our board of directors table in quite some time. People in the metals industry tell us capacity is being used up here and abroad and that price increases are achievable in certain product lines. We are also told that the worst of the over-building in commercial construction may be behind us. With respect to agriculture, our lenders are anticipating a better year now than six months ago. Those who follow oil indicate that some oil company executives are even beginning to talk about the possibility of some drilling late in the year. This better mood is encouraging to us because it is consistent with what we feel the outlook is for the economy--generally moderate growth. And, we are pretty much in line with the Greenbook projections.",226
-fomc-corpus,1987,Mr. Morris.,4
-fomc-corpus,1987,"Mr. Chairman, I would like to reinforce the comments of Bob Black and others who have argued that the inflation hysteria on Wall Street is greatly overdone. We have manicured the numbers and we cannot find in the numbers any increased inflation other than that which we would have expected from the agricultural and energy areas 6 or 9 months ago. If you look at the broad indexes, the producer price index excluding food and energy, for example, was up at a 2.2 percent rate in the past 6 months ending April. For the past 12 months, it was up 2.6 percent. I don't see yet in either the consumer price index or the producer price index any evidence of increased inflation outside the agricultural and energy sectors. That's not saying it may not be coming at some point. I don't see yet in the numbers any significant impact of the decline in the dollar in the aggregate price indexes.",186
-fomc-corpus,1987,Non-oil import prices were up over 10 percent over the last quarter. That's strong. That's one area.,23
-fomc-corpus,1987,Pardon me?,4
-fomc-corpus,1987,Non-oil import prices were up over 10 percent in the first quarter.,16
-fomc-corpus,1987,"That may well be, but I don't see it showing up in the broad indexes. What we are going to see, I think, is a decline in the volume of imported products and a lesser share of imports in retail sales.",46
-fomc-corpus,1987,Were you talking about the CPI? You mentioned some very low figures. I have some here--,19
-fomc-corpus,1987,"I was talking about the producer price index, excluding all food and fuel. I would expect it to show up there first if there is going to be an increase in prices on the part of our producers in response to the greater market opportunities stemming from higher import prices. I am not saying it may not be coming down the road, but it is not there yet. It just seems to me that the Wall Street hysteria primarily reflects the losses that bond dealers have taken in their bond portfolios; that was a function of the decline in the dollar rather than any real change in our inflation outlook. On the manufacturing side, I have the sense that New England manufacturing is rising. It certainly is showing up again in my Boston airport numbers. The first-quarter export air freight shipments were up 35 percent and import air freight shipments were down 3 percent. This is the first quarter since the series began in the first quarter of 1984 where the physical volume of export air freight shipments exceeded the physical volume of import shipments. But what I don't see is any reflection in the employment numbers for manufacturing, which have flattened out; that has been essentially unchanged in New England since the middle of last year. That suggests to me that we are getting some pretty big gains in manufacturing productivity and that perhaps we are not going to see sizable gains in manufacturing employment but rather more sizable gains in productivity than we have seen. That is a tradeoff that I find quite acceptable, if that turns out to be the case.",299
-fomc-corpus,1987,Mr. Corrigan.,5
-fomc-corpus,1987,"I can be relatively brief. I am about where Mr. Boehne was an hour ago. As a matter of fact, Mr. Boehne captured my assessment rather well. I think there are risks in the real economy, here and abroad, but basically the way things have unfolded so far this year is pretty much in line both with what was expected and, indeed, with what I think constitutes a fairly satisfactory performance, given where we are. I do think that there has been a change in the past six weeks on the inflation front, and I think it goes well beyond Wall Street. I think six, eight, ten weeks ago, there was a whiff of inflation--that was the phrase--and that may have been more concentrated on Wall Street. But at this point I think there is more to it than that. Si Keehn's comment puts it in very good perspective. If you have a sector of the economy where you had price decreases and now you have small increases, and everything else stays the same elsewhere in the economy, the cumulative weight on the inflation side is obviously greater. As I look at the indices, I certainly would agree that some of the forces working in the direction of higher measured rates of inflation were predictable--energy prices, and to some extent, agricultural prices, and certainly import prices. But even if they were predictable, it seems to me one of two things, or both, may be operative: first, that the amounts of those increases may be larger than most people thought they were going to be; and second--I am by no means saying that--that there isn't any such thing as one-time price increases. I think there is a tendency for these things to cumulate. So, whether it's in terms of forecasts--and not Wall Street forecasts, but forecasts from any number of sources around the country--or what is in the actual statistics themselves, I come away with the view that either actual or forecast rates of inflation have stepped up by something in the area of a half point and maybe even as much as a point. We are looking now at consumer price increases, excluding food and energy, probably on the up side of 4-1/2 percent. It doesn't take a lot to get to 5 percent; and once you get to 5 percent, I think the argument that it will wash out becomes that much more questionable. So, I think there is a change on the inflation side.",494
-fomc-corpus,1987,"We seem to have disagreements about some facts and analysis. What is going on in the consumer price index outside food and energy, Mr. Kichline?",31
-fomc-corpus,1987,"Well, I don't have the monthly numbers, which may give a different pattern, but on a quarterly average basis for the first quarter all items less food and energy were up 4.4 percent at an annual rate; they were up 3.8 percent in the fourth quarter of 1986. When I mentioned non-petroleum import prices feeding through more visibly, in part our reading is in the CPI excluding food and energy, which we say is up 1/2 point or so in the recent numbers.",105
-fomc-corpus,1987,But that index was at least that high in the first quarter of 1986.,17
-fomc-corpus,1987,Correct.,2
-fomc-corpus,1987,"The other point is that the forecast has the rate--again excluding food and energy--at 5 percent and above for 1988; so it's not only that it has been running relatively high, it's anticipated to pick up as well.",48
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"I am not going to try to defend Wall Street, but I think there is another aspect to this market behavior we have observed, and that is, as we all know, that we have a tremendous growth in debt in the economy. And when you get markets whipping around like these have, there are losses out there. It would be fortunate, in a sense, if a $275 million loss ended up with Merrill Lynch; they can afford to take it. But what if one of those ended up in Financial Corp. of America or one of those? Maybe it has; I don't know whether it has or not. All I'm saying is that this kind of behavior tends to widen quality spreads; you see it a little in the new issues, though there haven't been many of them. But you can have a situation where somebody needs to realize liquidity with some of the lower quality paper they have bought and there might not be a bid out there. So one of the aspects that hasn't been brought out about this market behavior, which I think has been very much fueled by inflationary expectations, is the financial fragility that these kinds of swings can bring to the surface. Beyond that, as Jerry mentioned, six or eight weeks ago when we were talking about this initially, there was just a whiff of inflation; basically, it came through a weaker dollar and that psychology was transmitted into the bond market and so forth. But I think now what we are seeing is poor performance, if you will, in the bond market based on sources other than the lower dollar--other reports of commodity prices and so forth. I thought what the Board staff did in sections 23 and 24 of part II [of the Greenbook] really makes the case that there are a lot of things happening with spot prices that go well beyond the realm of what I would consider just speculative behavior. I think there is definitely a tendency out there to sort of poo-poo all of these developments by saying: this is just speculation on Wall Street and these guys deserve to take their losses anyway. In a sense, I don't think enough attention is paid to it. We had some corporate treasurers in last week and, in terms of how they are operating their businesses, I was a little surprised that they are not concerned about inflation. They are still enjoying the good wage performance that we have observed; of course, that would only adjust with lags. They haven't really changed their inventory behavior and, in a sense, I think that gives us an opportunity. If we nip this in the bud now--when maybe it is largely expectational, as Gary Stern said before--we can have some impact on it. But if it gets deep-seated enough that business people begin to change their behavior with respect to inventories and so forth, then it really becomes a much more difficult problem to deal with. As to economic activity in our District, growth both in manufacturing and non-agricultural employment in general continues to outstrip the national figures. I would say that the attitude is generally positive and that there are no major weaknesses in any sector.",623
-fomc-corpus,1987,Mr. Heller.,5
-fomc-corpus,1987,"I find myself much more in agreement with the numbers in the Greenbook than with the general tenor of the discussion here. Looking at the numbers, first of all, we have a sharp downtrend in GNP from 4.3 percent to 2.2 percent in the third quarter. Domestic purchases are going down to 0.9 percent in the third quarter and 1.3 percent in the fourth. On the inflation front, so much pessimism has been expressed, but the GNP deflator is actually declining to 2.6 percent in the fourth quarter of this year and nominal GNP is cut by about 1/3, from 7.8 percent in the first quarter to 5.5 percent in the fourth quarter. So both the real economy, as well as the aggregate inflation numbers, are trending downward for this year. Next year it goes the other way. As we all know, production in March and April was rather dismal in every single category except defense, where it was flat. Inventories were up sharply in the first quarter. Consumer credit was slowing down a lot. Thank goodness, in a way, there was also less federal stimulus. The one area where I disagree with the Greenbook is that I think it is probably a bit too optimistic on the very sharp swing in exports and the improvement in the trade performance it projects. It projects an export swing from a growth rate of minus 1.6 percent in the first quarter to plus 17 percent in the fourth quarter. The aggregate numbers go from a minus $134 billion to minus only $46 billion by the fourth quarter of next year. In other words, by the end of next year, 2/3 of our trade imbalance would have been eliminated. In view of the slow growth abroad that has been noted by many other speakers, I am rather skeptical that we actually will be able to achieve that.",386
-fomc-corpus,1987,Those are not real numbers. Practically none of the trade imbalance would be eliminated in nominal terms.,20
-fomc-corpus,1987,"No, they are real numbers; they are 1982-base real numbers. In addition, we have a real interest rate, as we were told yesterday, of 4 to 5 percent, which incorporates a bit of the extrapolation of current expectations. And we continue to have our problems in the financial sector. Overall, I come out on the rather subdued side, if not outright pessimistic.",81
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"I am very much of the view that inflation is a real problem for us at this point in time. If we wait until the GNP deflator and the CPI show a problem, we will have waited much longer than I think historical evidence would suggest we should wait. I recognize that a lot of the commodity price movements look like they are extra-sensitized to circumstances, but it's this sensitivity, surrounded with the attitudes concerning the dollar and commodities that are linked hand in hand, that is so worrisome. I have watched many times when a drought was actually underway and wondered why commodity prices didn't move; now commodity prices move based upon the forecast of a drought. I think that is an indication of how sensitized the players are to expectations. Some of you seem to believe that those people who are participants in the market--whether it be Wall Street or New York or Chicago--somehow or other may just have their own self interest at hand and that that's not a true test. I would be much more inclined to look at those who are putting money down than I would those who are making forecasts that are not backed by money, because it is really the shift in preference between holding financial assets and real assets that is involved. We have a phenomenon that is emerging that is significant, and it seems to me it will continue until there is marketplace realization that the Federal Reserve plans to follow a scarcity path for the monetary aggregates that will slow down. So I am somewhat of the opinion that we had some gains out of this because, certainly, it does give real sector stimulus any time you have commodity prices move upward. Our economy I thought was weak enough going into 1987 so that a little stimulus wasn't a bad thing. But it seems to me that we now have to face the test as to whether or not we really mean price level stability. I think that the Greenbook puts it very well: that if we choose not to do that, then that's consistent with a continuing decline in the exchange rate of the dollar. Over time, I think that will not give us any better improvement in our nominal trade balance than we would get if we dealt with it, because we will just incorporate a rate of inflation into the U.S. economy that I think matches this falling value of the dollar. So, I am of the opinion that we have given this plenty of opportunity to see that it's a real phenomenon.",483
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I must admit I am a little torn between which way things are going. I don't have a clear view myself. Obviously, the financial markets are indicating some inflationary expectations. The question is--and it has certainly been the question here--whether we think they will be realized or not and whether we want to bet against the markets or whether we think something more needs to be done or has already been done. In terms of the Greenbook forecast, I agree with a lot of it except that one of the major factors feeding into the projection of rising inflation in 1988 in this forecast is further expectation of a weakening dollar. Of course, that feeds right into import prices; so in the forecast you don't have a one-time adjustment in import prices that washes out over time. You have a continuous feed-through of a decline in the exchange rate that is causing continued upward pressure on the inflation rate. Now, if I really thought that was going to be the case, I would be a lot more concerned. It may be possible, so I think that we need to concern ourselves with stabilizing the dollar at some point. If I thought the dollar was going to deteriorate on a continuing basis, I would have some concern about the continued upward pressure on the inflation picture. So, I would hope that we could achieve some conditions that would stabilize the dollar without a continuing deteriorating trend. I think the question then is: What does it take to do that? We now see some growing spreads in interest differentials between the United States and our other trading partners. My own opinion is that, hopefully, we are getting to the point where the dollar is finding some legs under it and will have to stabilize. I think the real question is whether we have done or are about to do enough in monetary policy to convince the markets that we are dealing with the inflationary risks in terms of the dollar and other domestic pressures on inflation. As Peter Sternlight pointed out, borrowings--inadvertently or advertently--averaged $700 million over the last intermeeting period. I am not sure whether we want to go further than that or whether I personally want to continue that sort of a borrowing assumption. So I think the question is: What does it take to stabilize these conditions? I don't want to overreact and deal with more than just what the inflationary risk is.",476
-fomc-corpus,1987,"Mr. Kohn, maybe you can give us a brief analysis.",14
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1987,"Let me mention one thing that I was going to discuss later. I will discuss it later, but some rumors are flying around the markets so I thought I should identify it now, anyway. Citibank is making the great move this afternoon, unless the market forces them to announce it earlier. They are making a reallocation of their capital accounts and are going to put $3 billion into reserves against general contingencies, which will get pretty precisely identified with LDC risk. They say that is not their intention but the accountants are forcing them into it, looking for some explicit excuse. This will be a record loss for any bank, by some multiple, in a quarter, and a big loss for the year. I am sure the idea they have in mind is that they will then show very favorable earnings in subsequent quarters; they won't have this quarter-by-quarter drag of large provisions and everything is going to look much better. In fact, what's happening is that a couple of numbers on the balance sheet are changing. It is going to raise a lot of questions, obviously, in the minds of a lot of people about other banks. There are a lot of rumors about around the market. We can discuss later what is going on in the market.",250
-fomc-corpus,1987,"Paul, are the rumors sufficient that I could call an institution that I might have some concerns about?",20
-fomc-corpus,1987,The problem is that I don't know what you can tell them right now because we have inside [information]. We have this problem with some banks; that is right. I just don't know what you can tell them.,43
-fomc-corpus,1987,"Not to go out to lunch, I think.",10
-fomc-corpus,1987,"You can talk to them if you want and see what they know, because they are obviously the other bank that will be very much affected by the psychology. A lot of them will be but--",39
-fomc-corpus,1987,Why don't you say we were sitting around the Open Market Committee table and didn't know what was happening and wanted to--,23
-fomc-corpus,1987,"On our more immediate problem--I don't know, that problem could be pretty immediate in terms of the decision we have to make--it is obvious that one of the variables for the Federal Reserve as a whole, but not for the Open Market Committee, is a change in the discount rate. A number of Federal Reserve Banks have made a proposal and we have had some discussion. I don't know what I can say about that. We could change it immediately; we could change it if the dollar seemed to require; or we could change it not at all. I think those are the three options before the house. I just think we have to have those in mind as possibilities; it may affect one's judgment about how to conduct open market operations. For what it is worth--if I mention this there is a chance you will be overly influenced, but I suppose not these days--our latest M1 numbers look a little stronger than what we thought yesterday. Instead of unchanged in May, M1 may be up a little.",204
-fomc-corpus,1987,"Instead of down a little in May, it now looks like M1 may be up a little in May.",22
-fomc-corpus,1987,You might point out that there is a special circumstance in it.,13
-fomc-corpus,1987,"Well, for some of it. Even abstracting from that the numbers are a bit stronger.",19
-fomc-corpus,1987,Do you mean an unwinding from April? Is that the special circumstance?,15
-fomc-corpus,1987,"No, there is another transaction we are trying to track through the System that may be boosting demand deposits in the current week; we don't have a really strong handle on it, but that is what Governor Johnson was referring to. But even before the current week, it is still looking a bit stronger than we had expected.",64
-fomc-corpus,1987,What is happening in the money markets this morning?,10
-fomc-corpus,1987,"Federal funds are about 6-3/4 percent. Borrowing was about $600 million yesterday, so it is averaging a little over $500 million. We are well over our reserve paths for right now, at $600 million or so, and we plan to just let that work its way into the money market. If those estimates are right, things ought to ease off considerably. We ought to lose a bunch of the remaining repurchase agreements that are on, although so far that is happening quite slowly.",103
-fomc-corpus,1987,"Do you think it is going to reverse itself without help from you, Peter? Or do you think you will have to unload some?",27
-fomc-corpus,1987,"As the reserve period draws to a close tomorrow, if the numbers that we are looking at stand up, there ought to be a big easing at the end of this reserve period.",36
-fomc-corpus,1987,Who would like to say something? Mr. Parry.,12
-fomc-corpus,1987,"Mr. Chairman, I would support Bluebook alternative C. It seems to me that the prospect of high inflation is the main reason to support some tightening from the stated policy at the present time. As I mentioned before, it is my view that the economy is certainly close to full employment in terms of labor resources, and we expect the economy to expand this year at a rate which is slightly faster than its current long-run potential growth rate. It seems to me that this consideration is particularly important now because of the declining dollar and recent increases in oil prices, which are causing and will cause inflation rates to go up even without any demand pressures. I think there is a danger that increases in inflation this year and next could become imbedded in inflation expectations. And, given what I think is the apparent strength in the economy, the risk of cutting economic expansion short by such a tightening of policy seems to be small. I would have a preference, too, as to how that is accomplished if that is something you want brought up.",205
-fomc-corpus,1987,You were just saying alternative C; I was looking at it literally to say either an increase in [the borrowing built into] the reserve path or an increase in the discount rate.,36
-fomc-corpus,1987,Yes. I would prefer an increase in the discount rate. I was going to say that sooner would be better than later but I must admit that this little item that you brought up would suggest to me that maybe it should be a little later.,49
-fomc-corpus,1987,Yes. Mr. Boykin.,7
-fomc-corpus,1987,"I would agree with what Bob Parry just said and I really can't add very much to it. Alternative C does look like the best alternative to me. A lot of reference has been made to inflation and that it is probably not real; but there is some expectation there and it seems to me that what we really need to move against is the expectation. That was what was probably so hard to wring out the last go-round. So, I would go to alternative C. Likewise, I would probably favor an increase in the borrowing assumption from $400 million to $600 million versus a discount rate change right now.",124
-fomc-corpus,1987,You would prefer the borrowing.,6
-fomc-corpus,1987,Yes. Primarily with what is going on that we just want to--,15
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"Can I ask a question again? Alternative B is associated with $400 million in borrowing? Okay. This is kind of confusing because, in some sense, ""C"" is actually a more modest borrowing level than we have been experiencing. It is definitely below the average during this last intermeeting period. I think the question is: What would we expect to happen? Are we going to see a borrowing average of $600 million or what is it going to be? Are we going to try and truly target a $600 million borrowing level so that we are talking about a tightening of policy relative to the $400 million level that we sought? I guess that is what I am asking.",137
-fomc-corpus,1987,"I'm not sure I understand the question. We were truly seeking what we were seeking before; we may not have made it. When we say $600 million, or whatever, we shall truly seek it.",41
-fomc-corpus,1987,"Well, I don't think we truly sought $400 million. I don't think that there is any doubt: you can't go through an entire six-week intermeeting period with a $400 million target and hit $700 million and say you truly sought it. I think we could easily have offset that; it wouldn't have been--",64
-fomc-corpus,1987,"But we didn't start out there; we actually started out with $300 million, leaning in favor of moving that up depending on what happened to the dollar.",31
-fomc-corpus,1987,From $300 to $400 million; that is different from $300 to $700 million.,19
-fomc-corpus,1987,"I would submit that we've had two two-week periods, which is two-thirds of the time between the meetings, where we couldn't hit it.",28
-fomc-corpus,1987,"I recognize the serious problem with the Treasury account at the Federal Reserve. But as that continued and we could see that borrowings were going to run very high, we could have done more on the reserve side. Given what was happening to the dollar, we shouldn't have. But I am just saying when we are crossing over into something that is a change in policy, I would just like to clarify where that is. At some point, going to $700 million borrowing from $400 million or even $500 million seems to require something other than just saying--",111
-fomc-corpus,1987,I tell you. Let's defer those questions until we know what we want to do in concept. Mr. Keehn.,24
-fomc-corpus,1987,"I share Governor Johnson's confusion on this. I would be for alternative C, at least conceptually, because I think that represents a slight snugging and, for all the reasons we have said, I think that is appropriate at this point. I also think it is perhaps appropriate to take a step that is a bit visible in terms of reinforcing our policy of price stability and, therefore, I would be in favor of recommending to you a change in the discount rate. I don't know how to evaluate this Citibank issue as to what kind of effect that is going to have on the market. Certainly, that has to be behind us before we take any move on that. But I would be in favor of changing the discount rate. And alternative C is a way of moving a little against this.",161
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"Mr. Chairman, I am a little concerned about these inflationary expectations in the economy, but like some others here, I don't see it being translated at the moment into anything that is terribly worrisome in real numbers. My greater concern is with the state of the economy and what a higher level of interest rates would bring not only to the domestic economy but to our trading partners and the LDCs. So, if we need to do some tightening, I would like it to be small in scope and very gradual. The dollar has stabilized; maybe we are at a level we are not comfortable with, but it has been around the 140 level against the yen. I would prefer it to move up just a bit. I, too, am a little confused about what we are keying off of. If it is $400 million that we are using, I wouldn't mind moving to $500 million. I would suggest that a discount rate might be saved for a more significant development with respect to the dollar--if the dollar were to move down or inflation actually did move. I would prefer just to use open market operations in a very gradual, slight, way over the next intermeeting period. I am not sure whether that is ""C"" or ""B""; I suppose, conceptually, that I am somewhere between the two.",269
-fomc-corpus,1987,Mr. Hendricks.,6
-fomc-corpus,1987,"It seems to me that the best course is closer to ""C"" than to ""B"", unless the expansion weakens or the current turnup in prices subsides. Financial markets seem to have marked up inflation expectations. We don't see a pickup in prices working into the cost structure yet, but when it does occur, we feel it would be more difficult to deal with. Markets have snugged a little, with the funds rate up to the 6-1/2 percent area or slightly above. We believe that a borrowing level consistent with that outcome is appropriate. It would reduce the risk that inflation expectations would generate future price pressures and would provide some insurance against rising import prices becoming the basis for domestic price increases. We would prefer to set the borrowing level at $600 million and hold on the discount rate.",163
-fomc-corpus,1987,Mr. Morris.,4
-fomc-corpus,1987,"Mr. Chairman, I would support alternative C because, despite my earlier statements, I think if we were to go for alternative B, we might give the market an impression that we were easing policy and that could, of course, be very troublesome. I think ""C"" is more in line with what, in fact, we have been doing and, as was indicated earlier, represents more of a no-change policy than ""B"". With respect to the discount rate, I think we ought to keep that in reserve for use when we have the next downward fall in the exchange rate. I don't know when that is going to come, but it seems to me rather than raise the discount rate in a period of stable exchange rates, we ought to hold that to have something in our armory for use on that occasion.",164
-fomc-corpus,1987,Ms. Seger.,5
-fomc-corpus,1987,"I am in favor of no tightening. I am not sure which alternative that is, the way these things drift. As I said earlier, the real economy is very sluggish. Furthermore, I don't see any sign of real life in any sector; certainly, I don't see any sector overheating at the moment. As Manley said, we've already tightened. What I think we have is something that is beyond alternative C last time; I believe that the majority voted for maintaining, which was alternative B. Also, we have not seen in the real economy yet the effects of the tightening that we already did. The world economy is sluggish, and even the staff has revised its projections of the growth in industrialized countries. The important danger, I think, is that we will tighten monetary policy and the foreign countries are not going to offset with some easing on their side. Also, the monetary aggregates have slowed and are expected to be weak. I think a recession would be a disaster. It would certainly not make our budget deficit any better. It would hurt the lesser developed countries; it would make their debt burdens a lot heavier. It would not help the financial system, particularly the savings and loans that are already sort of shaky. And, finally, I don't think inflationary pressures can exist very long in an environment with excess capacity and commodity gluts worldwide. I would like to vote for ""B"" but not a ""B"" that would drift.",289
-fomc-corpus,1987,"""B"" is where [unintelligible] drift. Mr. Stern.",16
-fomc-corpus,1987,"I favor alternative C, which seems to me not very far from where we are at the moment. It seems to me appropriate under the circumstances, given the continued vulnerability of the dollar and what we are seeing--at least what I think we are seeing--in the price numbers. I know that it is possible that what we are seeing here is simply large relative price changes in some commodities and energy, and so forth. But I think the bond market is telling us something different. Given the policies that we have pursued over the last couple of years--not just monetary policy, but fiscal policy--and given what has happened to the dollar, in some sense, one could ask the question: What has taken the markets so long to react the way they have? So, ""C"" seems to me to be appropriate, and I would prefer to couple that in the relatively near future with a discount rate increase. At this point in time I think that has a chance, at least, of being salutary as far as the dollar and the bond market are concerned.",213
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,"I am for alternative C and I think we ought to have a discount rate increase. I think a discount rate increase now or relatively soon buys us more than if we wait a few weeks. I don't think they are of equal value. The longer we wait the more it gets discounted and just doesn't buy us very much. I think it would have been worth more a week ago and will be worth less two weeks from now. So, I would move fairly promptly on the discount rate in conjunction with ""C.""",102
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"I would be in the same position that Ed Boehne just expressed. I think that if we wait on the discount rate until there is another test on the dollar, there is a good chance that a 50 basis point move wouldn't be enough. By showing some resolve sooner, I think we have a better chance of dealing with that. Also, as Gary Stern pointed out, that deals with the inflationary expectations decisively.",86
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"Mr. Chairman, I apparently led some of our colleagues into thinking that I did not see any inflation pickup at all. All I meant to convey was that I thought that markets may be anticipating more than, in fact, is likely to happen. I do think that inflationary expectations and some indications of inflation have actually appeared. But, in view of the weakness in the domestic economy and even greater weakness abroad, and now this Citibank situation, I think maybe we ought to proceed with some caution. I was inclined to favor a position that was more a ""B-minus"", but after listening to comments around the table, I think what I really would like is a level of borrowed reserves that would produce a federal funds rate of around 6-3/4 percent, as it has been recently. I'd put that in either the ""B-minus"" or the ""C"" category. I would also favor going toward variant II [of the directive language], and moving that foreign exchange reference back to its usual position. And I would like to use ""would"" and ""might."" Also, I think it might be worth considering moving up that point on the concerns about inflationary pressures before the reference to the strength in the business expansion as a way of showing that that is now a more important consideration. This refers to what you'd find in the directive language with the brown cover on lines 110 and 111 or on page 15 of the Bluebook. And, I would hold that discount rate move in abeyance for a while in case we get some real pressure on the dollar so that we could move very quickly on it at that time. I don't feel terribly strongly about that.",339
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"I agree largely with what Mr. Black just said; I am also in favor of ""B-minus,"" especially in view of the fact that M2 is lying at a level substantially below the target cone and M3 is just at the bottom end of the target range. Like Mr. Black, I am also in favor of variant II, moving the foreign exchange language further down in the priority list.",80
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I stand in the ""C"" category, mainly because I think that is basically no change in current policy operations. I think that would be consistent with about a 6-3/4 percent funds rate, or something like that, maybe even less. But I see two things that could be done with ""C"" that could involve both the adoption of a higher borrowings and a discount rate change, without a further move upward [in the funds rate]. If we want to hold off on the discount rate, [saving it] as ammunition for a future event in terms of the announcement impact, we could go ahead and change the borrowing level to $600 million from the $400 million but have some sort of contingency where, if we decide a discount rate change is needed later, then we would lower the borrowing. The discount rate change would be a substitute so that there is no additional pressure on the funds rate but we get the announcement effect of the discount rate. So, it is not impossible to do both with the same policy. I would support ""C"" assuming--and that is why I had the technical question earlier--that ""C"" represents basically current operating procedure, and I would add the option of the discount rate substituting for that at a lower level of borrowing at some point when we might want to use it. I don't know what the possibilities are, but the Chairman made it clear that it is probably not very likely that we could work out some sort of coordinated move with Japan of Germany.",304
-fomc-corpus,1987,I think the probability is zero now.,8
-fomc-corpus,1987,"Zero. Yes, I think that is right. My suggestion is that we go ahead and adjust the borrowing but then reserve the discount rate for a point when--maybe not this week but next week, or whenever, depending on developing events in the exchange market--that might be something that could be used. So, to some extent, you get the dual effect of the announcement of the discount rate and the higher borrowing level within the same period without really having to make an adjustment. That would be my preference. I don't know what you would call that; I guess you would call that ""C"" with a variation.",124
-fomc-corpus,1987,"It is ""C.""",5
-fomc-corpus,1987,"Yes, acute ""C.""",6
-fomc-corpus,1987,Mr. Guffey.,6
-fomc-corpus,1987,"Thank you, Mr. Chairman. In my view, what has happened is not a result of Federal Reserve monetary policy management. The fact that we have a 6-3/4 percent, or a 6-7/8 to 7 percent, funds rate is largely a result of the markets' misconception or perception of what has occurred. That is, I still view our borrowing target as $400 million, with $850 million excess reserves; with the technical problems that the Desk has encountered, we didn't hit that simply because the market took it elsewhere. Further, given the forecast of domestic growth--which is fairly modest, it seems to me, at 2-1/2 to 3 percent--the only reasons that one could justify raising the interest rates at this point, either through open market operations or the discount rate, are: (1) if you were concerned about inflation, and I don't share that at the moment; or (2) to support the dollar. It is my understanding that for the moment the dollar is fairly stable. So, neither one of those two things looms very large to me and, as a result, I would probably generally opt to go with ""B."" But given the uncertainty in the market and the fact that they have taken the rate up, to come down too quickly would put some downward pressure on the dollar. As a result, I would go with a ""B/C"", with a borrowing level of about $500 million. But that would be simply to moderate the downward movement of interest rates if we can achieve that without putting pressure on the dollar.",324
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"I am very sympathetic to the point made by Ed Boehne, and seconded by Tom Melzer, that there would be more clout from a discount rate change if it were to occur prior to moving to, or confirming, a $600 million borrowing level. I think it would have more impact. But since the Governors of the Board will be the ones voting on that, I belong in camp ""C.""",84
-fomc-corpus,1987,Mr. Corrigan.,5
-fomc-corpus,1987,"I would be for ""C"" too. As far as the Boehne/Melzer/Angell twist, that is something I have some considerable sympathy for--trying to get out ahead of this a little. I think a discount rate change now would give us the kind of maneuvering room that Manley mentioned, as well. I might be a bit more skittish about the discount rate this morning than I was yesterday, just because the market has gotten pretty jumpy in the context of this Citibank development. But the right policy, in my judgment, is the Boehne/Melzer/Angell twist on this, which affects the timing, as far as I'm concerned.",142
-fomc-corpus,1987,"Another question. If we went for a discount rate change soon, and that was the policy, what borrowing would go with that?",26
-fomc-corpus,1987,"Well, it seems to me that a $400 million borrowing assumption should go with the discount rate move to give you ""C."" And then if conditions changed, that would call in the rest of our directive as to the room we would have later.",50
-fomc-corpus,1987,"Peter, is that how you and Don think about it?",12
-fomc-corpus,1987,"That is what ""C"" says.",8
-fomc-corpus,1987,"Yes. That is right. Now that I think about it, it is in the Bluebook that way.",22
-fomc-corpus,1987,All this perceived wisdom says that half the people would like to see the discount rate moved right away and half the people would not like to see it moved.,31
-fomc-corpus,1987,"Well, Mr. Chairman, you haven't voted yet.",11
-fomc-corpus,1987,"That is correct. I would interpret most people's comments as indicating that they are reasonably happy in a very general way with the way things are now. How do we express that in detail? I guess it depends on what we do with the discount rate. I will look at the wording to see what wisdom that implies. Very broadly, is the preference for variant I or II? A couple of people said they would like variant II and many didn't say anything. I am not worried about the precise words in either one, but variant I clearly gives more prominence to the exchange rate. Is that closer to the center of gravity or the reverse?",127
-fomc-corpus,1987,My preference would be to emphasize the inflationary expectations issue. I guess that is in variant I--it has the exchange rate mentioned in there but not as prominently as the indications of inflationary pressures.,40
-fomc-corpus,1987,"You've got that in Variant II, Manley. I wonder if you would be amenable to putting that in front of the strength of the business expansion, which is the idea that I threw out.",40
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,I think it gets to the same sort of thing.,11
-fomc-corpus,1987,"Are you saying, Bob, variant II but move the inflationary pressure phrase up in the sentence?",20
-fomc-corpus,1987,"Yes, that's what I would do: move it up to line 110 instead of 111 and put it right ahead of the ""strength in the business expansion.""",33
-fomc-corpus,1987,I think it is pretty close.,7
-fomc-corpus,1987,"Well, it is; I grant that.",9
-fomc-corpus,1987,"I think the argument is straightforward; we can move up the inflationary pressures phrase. I feel that a lot of comments suggested that maybe the timing of the discount rate ought to be primarily influenced by one thing or the other. Whatever one concludes about the timing is a foreign market question. And, if an inflation expectations question is really what we are talking about, then I am not so sure whether we're not better off putting inflation in with the exchange market in the first clause: ""developments in foreign exchange markets and indications of inflationary pressures""--or vice versa--""taking into account..."" etc.",120
-fomc-corpus,1987,"Yes, let's do that. Put inflation in front of the dollar. Let's go with variant I, but put inflation in front of the foreign exchange.",30
-fomc-corpus,1987,"""Depending on indications of inflationary pressures and developments in foreign exchange markets.""",15
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,I like that. SEVERAL. I agree.,11
-fomc-corpus,1987,"--developments in foreign exchange markets, taking into account the behavior of the aggregates,"" then why don't we just say ""and the strength of the business expansion""?",32
-fomc-corpus,1987,"The phrase ""conditions in credit markets"" is there at the end of that sentence.",17
-fomc-corpus,1987,"I know, but does that add anything?",9
-fomc-corpus,1987,No. Let's leave it out.,7
-fomc-corpus,1987,The aggregates are thrown out too.,7
-fomc-corpus,1987,"No. ""Taking into account the behavior of the aggregates and the strength of the business expansion."" We can leave in credit market conditions; I am not sure what it is supposed to mean in this connection.",41
-fomc-corpus,1987,"With inflationary pressures highlighted, I think the credit market conditions might be reflected by that same phrase. If it is, we don't need--",28
-fomc-corpus,1987,"I suppose that phrase is meant to say if conditions in the credit markets are too bad, we would get easier.",23
-fomc-corpus,1987,"Yes, at least the Committee would take that into account if a serious problem arose. At one point it said foreign and domestic credit markets.",28
-fomc-corpus,1987,"Well, I think we ought to leave it out.",11
-fomc-corpus,1987,If a problem--,4
-fomc-corpus,1987,Let's go back to the earlier part of that sentence.,11
-fomc-corpus,1987,It raises a question in my mind as to what we're thinking of.,14
-fomc-corpus,1987,"""This approach is expected to be consistent with growth in M2 and M3 over the period at annual rates of 6 percent or less"" is what we had.",33
-fomc-corpus,1987,I still like 3 to 7 percent.,10
-fomc-corpus,1987,What is the projection explicitly?,6
-fomc-corpus,1987,"Well, because M2 does run a little low; on M3--",15
-fomc-corpus,1987,"Well, it's ""the aggregates."" If M2 runs low--",13
-fomc-corpus,1987,M2 runs low.,5
-fomc-corpus,1987,"But the projection is about 6 percent for M3 and only 3-1/2 to 4 percent for M2. We can say ""4 and 6 percent, respectively,: or we can say ""6 percent or less."" SEVERAL. 6 percent or less.",59
-fomc-corpus,1987,Say around 6 percent. I don't care; I am not getting into this one again.,19
-fomc-corpus,1987,"Just reading what we have here: ""Growth in Ml is expected to slow substantially over the balance of the second quarter.""",24
-fomc-corpus,1987,I don't think that--,5
-fomc-corpus,1987,Compared with 18 percent.,6
-fomc-corpus,1987,That is a great daring statement: it may be below 18 percent for the rest of the quarter!,21
-fomc-corpus,1987,"It looks to me like you are apt to get double-digit rates for the quarter. What do you think, Don?",24
-fomc-corpus,1987,"Well, you could. We have an 8 to 8-1/2 percent growth rate in the path; but you can't rule out a 10 percent pace. The previous directive had something about M1 is expected to remain substantially below its pace in 1986, which is pretty safe since that pace was 15-1/4 percent.",72
-fomc-corpus,1987,We could say something even safer--below 18! We said it would be below 15; we now say below 18. Can we say something a bit more substantive maybe?,37
-fomc-corpus,1987,We don't know what will happen.,7
-fomc-corpus,1987,Say below its pace in the first quarter. It was 13 percent in the first quarter. I think it is safe to say it will be below 13 percent.,34
-fomc-corpus,1987,13 percent was the average?,6
-fomc-corpus,1987,The first-quarter average over the fourth-quarter average.,10
-fomc-corpus,1987,"What was it, say, December to March?",10
-fomc-corpus,1987,I'm not sure. November to March it was 11 percent. December to March probably was less than that because December was so high. I don't know what the December to March rate was.,38
-fomc-corpus,1987,"I can give you the December 31 to March 30. With the hump taken out, it was 5-1/2 percent. But with the hump on it was--",37
-fomc-corpus,1987,"We can say below its pace in the first quarter, but there are two ways of looking at the first quarter. It is--",26
-fomc-corpus,1987,"Q-IV to March was 10 percent. December to March would have been single digits. Dave Lindsey, I hope, is getting the number right now.",31
-fomc-corpus,1987,Doesn't over the quarter usually convey December to March?,11
-fomc-corpus,1987,It would to me.,5
-fomc-corpus,1987,4-3/4 percent.,7
-fomc-corpus,1987,It was only 4-3/4 percent. Say 10 percent or below. That's a little--,22
-fomc-corpus,1987,"That's all right. You may have to ease policy a little to achieve that, but that would probably be very appropriate.",24
-fomc-corpus,1987,Say 6 percent or less for the broader aggregates and growth in M1 is expected to be 10 percent or less.,25
-fomc-corpus,1987,"Yes, that would be fine. That would be appropriate restraint.",13
-fomc-corpus,1987,"Trying to make a little mental allowance that we have a special factor here that may give it a little boost, I would say ""around 10 percent or less"" to give us a little--",39
-fomc-corpus,1987,"Saying ""expected"" is--",7
-fomc-corpus,1987,"""Expected"" is what we say about the others. That worries me a little. Does this mean that M1 has the same importance as M2 or M3?",34
-fomc-corpus,1987,I definitely think we should downplay that.,9
-fomc-corpus,1987,"The problem is it is more influenceable than M2 and M3--that is, if you really want--",23
-fomc-corpus,1987,"We have already said we don't have a target for it. We can have a target for it, but is that what we are doing?",28
-fomc-corpus,1987,"No, I don't want to.",7
-fomc-corpus,1987,"But when you say 10 percent or less, what are you taking as the base?",18
-fomc-corpus,1987,You're taking the second-quarter average compared to the first.,11
-fomc-corpus,1987,End of March to the month of June.,9
-fomc-corpus,1987,In March you have a very low--,8
-fomc-corpus,1987,You're going from a low base to a big April number and that is going to be--,18
-fomc-corpus,1987,You're pushing way above the 10 percent.,9
-fomc-corpus,1987,"Yes, but April comes back off. It is not measuring April. It is point to point.",20
-fomc-corpus,1987,You are still raising the base from which it has to--,12
-fomc-corpus,1987,"I have a couple of problems with specifying a number. First, I think it conveys that we now know more about M1 specifically than we did a few months ago, and I don't think we really do. Secondly, in the same directive that we move inflationary pressures up to the top of the list, do we want to put a double digit figure for an aggregate like M1? I just think that sends the wrong message.",87
-fomc-corpus,1987,That's all terrific. What language do you suggest?,10
-fomc-corpus,1987,"""Growth in M1 is expected to slow substantially from its pace in 1986"" or ""to be below its pace in 1986.""",30
-fomc-corpus,1987,Just leave it the same as we had the last time.,12
-fomc-corpus,1987,Essentially.,3
-fomc-corpus,1987,"If you want to be vague, that does it.",11
-fomc-corpus,1987,"""Growth in M1 is expected to remain well below."" I was worried about ""this approach is expected to be consistent with M2 and M3."" Do we want a stronger phrase than that? We make this sound more like a target which it is supposed to be. ""Expected to be consistent""--the magic words. Oh, forget about it. We'll leave the funds range 4 to 8 percent. Now the substantive issue is--to go back to the beginning of the first sentence--we don't have to make it fully asymmetrical, but last time we didn't leave in the clause about slightly lesser or somewhat lesser. We just said the last time ""somewhat greater reserve restraint might."" One way to do it is ""somewhat greater reserve restraint would and slightly lesser reserve restraint might.""",160
-fomc-corpus,1987,"It seems to me that this time there is no contingency; we are stating a change in policy. ""Might"" and ""would"" are not necessary. We just state what it is.",39
-fomc-corpus,1987,"We do? It's nice to know--we haven't gotten to the first sentence yet. I think it probably should be not quite so asymmetrical as last time, which was fully asymmetrical. If we keep this general structure we can say: ""Greater reserve restraint would and somewhat or slightly lesser reserve might."" Or we can make them both ""somewhat"" and make one word a ""might."" Let's go back to the first sentence. I think we can either say ""maintain"" or ""increase."" If we say increase, we will say ""increase the degree of reserve pressures sought in recent weeks"" and it will all be explained in the policy record. Or we can say ""maintain the existing""--",142
-fomc-corpus,1987,"I think it should say ""increased somewhat."" Because from the last policy directive--",17
-fomc-corpus,1987,As long as it is made clear that that is relative to what we sought.,16
-fomc-corpus,1987,"Assuming that there is no great tidal wave here to release the minutes earlier than the next meeting, it would seem to me that what should be in the record is increased reserve restraint.",37
-fomc-corpus,1987,I agree with that.,5
-fomc-corpus,1987,I do too. I just think it should be made clear relative to what.,16
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,It is increased reserve restraint relative to the position.,10
-fomc-corpus,1987,"It says increased. Somebody thinks it ought to be ""the degree of reserve pressure sought in recent weeks.""",21
-fomc-corpus,1987,You have to read it against the background of what we said in the policy record earlier.,18
-fomc-corpus,1987,"One concern that I have is that all we have done, in effect, is just ratify the level of reserve restraint that we have right now. Listening to what Sam and Peter said, that there might be some expectation out there--",47
-fomc-corpus,1987,Presumably we could be very technical; the borrowing average in this two-week period will probably come out around $500 million.,25
-fomc-corpus,1987,Yes. I am not talking about the minutes now.,11
-fomc-corpus,1987,Reserves--,3
-fomc-corpus,1987,But we sought $400 million.,7
-fomc-corpus,1987,That is correct. But it is not going to be $600 million.,15
-fomc-corpus,1987,We may get a lot of borrowings tomorrow.,10
-fomc-corpus,1987,"Well, it seems to me that we have already decided what we want the policy to be. What we now are doing is discussing what we want the minutes to say when they are released in six weeks. It seems to me that the minutes should say that we have somewhat increased reserve restraint.",58
-fomc-corpus,1987,Going from existing levels.,5
-fomc-corpus,1987,No. I think going from seeking $400 million to seeking $600 million is a pretty good change. I agree from existing conditions it is not big; it shouldn't be noticeable in the funds market.,40
-fomc-corpus,1987,"Well, let's use the word ""sought.""",10
-fomc-corpus,1987,That's what is in there.,6
-fomc-corpus,1987,When is the last time we used this kind of formulation? You say we have used it several times?,21
-fomc-corpus,1987,I'm not sure. Maybe Mr. Bernard has that.,11
-fomc-corpus,1987,"When we have used it, I think we have had exactly this same problem. There is a debate about whether we want to get public credit for tightening up. We're actually tightening.",36
-fomc-corpus,1987,We are tightening after the fact.,7
-fomc-corpus,1987,"I wouldn't feel strongly about it, but in light of the fact that we have tightened and we are suggesting wording that we are, would there be any sympathy for moving toward the federal funds range consistent with ""C,"" namely 5 to 9 percent? That would put the rate we are getting about in the middle of that range.",67
-fomc-corpus,1987,"That goes with ""C"" anyway.",8
-fomc-corpus,1987,No. I thought the Chairman said 4 to 8 percent.,14
-fomc-corpus,1987,4 to 8 percent is what we have been using.,12
-fomc-corpus,1987,"I am suggesting that in light of changes that have occurred in the rate structure and the way this drafting is beginning to shape up, would there be a basis for changing the federal funds range to 5 to 9 percent?",45
-fomc-corpus,1987,Yes. I would think that is unlikely but it could conceivably happen. It is a question of how we want it to read. I think most of the time we have not moved the range when we are this far--and where we would anticipate being is this far--from the edge. That is much more frequently [the case] than not. We have not moved it until we get quite close to the edge.,86
-fomc-corpus,1987,From 4 to 8--,7
-fomc-corpus,1987,"But it is all psychological. Well, what do you want to say? ""Seeks to increase somewhat the degree of reserve pressure sought in recent weeks""? One question is whether we want to say--which we have also done at times--""depending upon the level of the discount rate,"" or ""taking into account any changes in the discount rate."" In the directive of August 19, 1986, we said ""In the implementation of policy for the immediate future, the Committee seeks to decrease slightly the existing degree of pressure on reserve positions, taking into account the possibility of a change in the discount rate.""",123
-fomc-corpus,1987,I don't think we need to mention the discount rate.,11
-fomc-corpus,1987,"I don't think we have to, but probably it will have to be mentioned in the text [of the policy record] that how we will conduct open market operations will depend on what the discount rate move is.",42
-fomc-corpus,1987,"I think I would because I think it would make a difference. Not knowing what the Board will do on the discount rate, I would go for the $600 million borrowing assumption. If I knew the rate was going to change, I would go for the $400 million.",55
-fomc-corpus,1987,"Well, I thought that was assumed by everyone.",10
-fomc-corpus,1987,I think the comment on the discount rate should be there for those of us who don't get to vote on that--that at least we have it in mind as a possibility.,35
-fomc-corpus,1987,I think that it has to be in the policy record anyway. There is a more limited question here: whether it has to be mentioned in the directive itself.,32
-fomc-corpus,1987,I am arguing yes.,5
-fomc-corpus,1987,"We will interpret the degree of reserve pressure in the text to mean a composite of borrowings and discount rate, which is what we have done before. I think that has been established many times. So, presumably this degree of reserve pressure will be read as some combination of discount rate and borrowings, whether or not the discount rate is explicitly mentioned in this particular sentence. I will declare that. Still, it doesn't answer the question of whether it is better or not visually to put some mention of it in there. It will be reasonably clear, I trust, in the last few paragraphs of the policy record leading up to the directive that the Committee very much had in mind that we might have a different level of borrowing depending upon what the discount rate is.",151
-fomc-corpus,1987,"Having said that, Mr. Chairman, what level of borrowing do you have in mind?",18
-fomc-corpus,1987,I will get to that in a minute. How many want the discount rate mentioned in this sentence?,20
-fomc-corpus,1987,I am neutral; I don't care.,8
-fomc-corpus,1987,We are going to be 5 to 5.,11
-fomc-corpus,1987,I'm not against it.,5
-fomc-corpus,1987,I'm against it. I prefer not--,8
-fomc-corpus,1987,I'm indifferent.,3
-fomc-corpus,1987,"Well, we have a number of indifferent ones.",10
-fomc-corpus,1987,"So, you have more votes to have it in.",11
-fomc-corpus,1987,"There are more votes to have it in, probably. ""In the implementation of policy, the Committee seeks to increase somewhat the degree of reserve pressure sought in recent weeks, taking account of the possibility of a change in the discount rate.""",47
-fomc-corpus,1987,$600 million borrowing goes without a discount rate change; $400 million goes with a discount rate change.,21
-fomc-corpus,1987,"What are the odds for getting an increase in the discount rate and borrowing--not the borrowing target, but actual borrowing--around $800 million? Could you conceive of that?",35
-fomc-corpus,1987,We are not going to hear of any huge [unintelligible] gains of a type that we are unable to offset.,26
-fomc-corpus,1987,"""In the implementation of policy, the Committee seeks to increase somewhat the degree of reserve pressure sought in recent weeks, taking into account the possibility of a change in the discount rate. Somewhat greater reserve restraint would or somewhat lesser reserve restraint might be acceptable depending on indications of inflationary pressures and on developments in foreign exchange markets, taking into account the behavior of the aggregates and the strength of the business expansion. This approach is expected to be consistent with growth of M2 and M3 over the period at annual rates of 6 percent or less. Growth in M1 is expected to be well below its pace during 1986."" The 4 to 8 percent range. How do we deal with [two] ""taking into accounts?""",147
-fomc-corpus,1987,"Put ""depending on.""",5
-fomc-corpus,1987,"Put ""depending on"" back.",7
-fomc-corpus,1987,"Now we've got two ""depending ons""!",8
-fomc-corpus,1987,"I think you can leave the second one out, but that may put more emphasis on the aggregates than you want to give them.",26
-fomc-corpus,1987,"""Given"" or ""in the light of.""",10
-fomc-corpus,1987,"If you want to separate it, you could have a comma and then ""as well as the behavior of the aggregates and the strength of the business expansion."" That puts it in two slightly different categories.",40
-fomc-corpus,1987,"Well, we could do it that way, I guess. ""...acceptable depending on indications of inflationary pressures and on developments in foreign exchange markets, as well as the behavior of the aggregates and the strength of the business expansion."" I think clearly what we are saying, and this is too simple is: If we change the discount rate in the next day or two, we would aim around $400 million or so and if we don't we would aim at $600 million. What is more questionable is what happens if time passes and we go to--I doubt we're going to $600 million right off the bat--as a way to procrastinate, go to $500 million or so.",137
-fomc-corpus,1987,On the way.,4
-fomc-corpus,1987,Initially. And leave open whether we go to $600 million on the borrowings or just change the discount rate.,23
-fomc-corpus,1987,I like that. It gives us a little more option than a discount rate change.,17
-fomc-corpus,1987,"Given what we are doing today, what would going immediately to $600 million look like in the market, in your opinion?",25
-fomc-corpus,1987,"What troubles me a little is that there is still this kind of overlay of expectation of a discount rate move. I wonder, even if action were delayed on that, if we would immediately, or starting next reserve period, put in $600 million and still look for a discount rate in addition whether that wouldn't give a little more than--",67
-fomc-corpus,1987,I think that is what we want to avoid.,10
-fomc-corpus,1987,"--what people are looking for. That would suggest, one would think, maybe $500 million or something as an in-between, to keep options open.",31
-fomc-corpus,1987,"That is what I am asking. You are saying $500 million. What do people think we are putting in there? From what you said earlier, they think we are putting in something well above that.",41
-fomc-corpus,1987,They think we are putting in $600 million now.,11
-fomc-corpus,1987,"Yes. So, I am just--",8
-fomc-corpus,1987,"Let me try this out. I think it could reasonably be $500 million or thereabouts now. If we move the discount rate we could go on the light side of $500 million. If we don't, it seems to me consistent with all this conversation that we might well go to $600 million, depending upon the exchange markets and the inflationary indications.",72
-fomc-corpus,1987,What happens if we decide to do the discount rate cut earlier?,13
-fomc-corpus,1987,Discount rate increase.,4
-fomc-corpus,1987,I mean increase. Wouldn't it also be possible to do a discount rate increase and go back to $400 million?,24
-fomc-corpus,1987,"I myself think it is a little hard to reverse by any sizable amount. I am not talking about a shading. That is why I prefer not to get very tight and then reverse anything. I think it gives peculiar signals. But, if we are around $500 million, we can shade it on the low side or the high side, depending upon what we do on the discount rate, and not be way off.",84
-fomc-corpus,1987,Are you suggesting that if we were to move on the discount rate today or tomorrow that going to a $400 million borrowing assumption would be--,28
-fomc-corpus,1987,The borrowing assumption would be around $400 million.,10
-fomc-corpus,1987,"Well, that's what I--",6
-fomc-corpus,1987,"If we don't do that, the borrowing assumption would be around $500 million.",16
-fomc-corpus,1987,"Yes, I understand.",5
-fomc-corpus,1987,It seems to me that if we raise the discount rate and try to get to $400 million it would still seem like an easing of conditions in the open market.,33
-fomc-corpus,1987,No it won't. You're going to have all the expectational effects that go with a discount rate move and the federal funds rate is going to tend to move.,32
-fomc-corpus,1987,"There is the further question: If we go with the $500 million and then the discount rate change doesn't happen, when do we go on to $600 million?",33
-fomc-corpus,1987,"That depends upon exchange markets and inflationary pressures, and so forth.",14
-fomc-corpus,1987,Yes. That would mean more tightening.,8
-fomc-corpus,1987,"That is what I am trying to get at. At least as I see it, some confirmation of additional tightness is desirable--whether it is through open market operations or the discount rate. I'd argue for going through open market operations right now, particularly given whatever is going on today. That seems to me to be the way to start out today. It may be a little different tomorrow.",78
-fomc-corpus,1987,"I would suggest something like $500 million now without a discount rate change--that assuming no discount rate change, there would be some predilection--. Something else would have to happen to go to $600 million, but we would be ready to do that without too much strain. If we moved the discount rate, presumably we wouldn't go to $600 million and would shade the $500 million down. If we moved the discount rate in the next couple of days, we'd never go to $500 million.",102
-fomc-corpus,1987,This policy implies a 6-3/4 percent fed funds rate?,15
-fomc-corpus,1987,That is a good question. Nobody knows anymore.,10
-fomc-corpus,1987,"I happen to think it is a good thing that nobody knows. It could well be consistent with 6-3/4 percent, but how much money I would put on that--? I don't think it is necessary--",45
-fomc-corpus,1987,It depends on what the expectations are about the discount rate.,12
-fomc-corpus,1987,I guess what the staff says in the Bluebook is that it could even be below 6-3/4 percent.,25
-fomc-corpus,1987,"What we had under alternative C, the $600 borrowing assumption, was a funds rate of something like 6-3/4 to 7 percent. So, with $500 million I would guess it would be around 6-3/4 percent.",52
-fomc-corpus,1987,No. I am talking about with the discount rate change. With $500 million it might be a little less. But $600 million borrowing or the change in the discount rate with $400 million on borrowing are more or less equivalent.,47
-fomc-corpus,1987,"That was 6-3/4 percent--or maybe a little higher, to 7 percent.",21
-fomc-corpus,1987,"There is also the question of how much the discount rate is raised, if it is raised.",19
-fomc-corpus,1987,"I am assuming we are talking about a half point, but obviously--",14
-fomc-corpus,1987,"Well, if the funds rate is at 6-3/4 percent, it seems to me a half point is a little [unintelligible]. Normally, one would expect a 6-1/4 percent discount rate. If we are doing it to get some impact on the foreign exchange market, which still makes sense to me, I think an increase above a half point might attract a little more attention. And it would certainly align the discount rate better with the funds rate than a move of a half point.",106
-fomc-corpus,1987,Assuming the funds rate stays where it is.,10
-fomc-corpus,1987,"Yes, assuming it stays at 6-3/4 percent. That speaks for itself.",19
-fomc-corpus,1987,But you're against moving the discount rate.,8
-fomc-corpus,1987,"Yes--only because I like to have something in the closet. Otherwise, the only alternative response is a still tighter monetary policy.",26
-fomc-corpus,1987,I think that is the argument about the discount rate. Do you pre-empt or keep it in reserve?,22
-fomc-corpus,1987,"That is what I would recommend to our Board on Thursday. But in the interest of Gramm-Rudmann, if the Board acts to approve a move on the discount rate before Thursday, we have to spend another $300 to get our executive committee together to go along with you.",56
-fomc-corpus,1987,"Well, I will discuss that too. I may save you $300.",15
-fomc-corpus,1987,There is going to be a bunch [of discount rate actions] coming in. There are more [boards of directors] that meet on this Thursday than at any other time.,35
-fomc-corpus,1987,"What we are talking about here is a kind of ""modified C plus,"" or something--$500 million without a discount rate change, with the readiness, certainly, to go up to $600 million or so--",43
-fomc-corpus,1987,For what?,3
-fomc-corpus,1987,"If the exchange markets and inflation or whatever seem to justify it, and the business expansion wasn't falling out of bed, and the aggregates were more or less as expected, we would be quite ready to do that. But we wouldn't do that unless there were some reason for it. We could raise the discount rate; and we could do that today or tomorrow, in which case we'll stick with borrowing of around $400 million or so with some possibility of going above that if we need help later. If we start out at $500 million, we could shade it lower if we raise the discount rate later. But if we raise the discount rate later, under those circumstances, we'd probably have some reason for wanting to tighten up some or we wouldn't do it--unless it was part of some international agreement. [The likelihood of the latter] seems a little thin to me at this point, but in that case we might want to be totally neutral. We have two ways of tightening up as we proceed if we don't move on the discount rate immediately: either change the discount rate or change the borrowings a little, which is quite a normal situation. On those understandings, can we proceed?",237
-fomc-corpus,1987,Would you read the wording as we now have it?,11
-fomc-corpus,1987,"""In the implementation of policy for the immediate future, the Committee seeks to increase somewhat the degree of reserve pressure sought in recent weeks, taking into account the possibility of a change in the discount rate. Somewhat greater reserve restraint would or somewhat lesser reserve restraint might be acceptable depending on indications of inflationary pressures and on developments in foreign exchange markets, as well as the behavior of the monetary aggregates and the strength of the business expansion."" The rest of it is ""6 percent or less,"" ""below the pace during 1986,"" and ""4 to 8 percent."" Okay? What it means is that without changing the discount rate, the borrowing assumption is $500 million right now, the possibility of going up to $600 million is reasonably remote, and if we change the discount rate today or tomorrow the borrowing assumption is $400 million.",167
-fomc-corpus,1987,"I do have a request. I agree with that completely. But I do think that we have to get a better understanding of this borrowing/funds rate relationship. I don't think it is acceptable that we continue on drifting, trying to figure out the relationship between borrowing and the funds rate if we are going to target borrowing as an approach to monetary policy. If we don't have some better understanding of the underlying funds rate associated with that, we've got to change because--",92
-fomc-corpus,1987,"Well, we can discuss that, because I disagree with that. I think it is a positive benefit almost--not getting driven into--",27
-fomc-corpus,1987,That is what gets you into interest rate targeting.,10
-fomc-corpus,1987,That's the problem.,4
-fomc-corpus,1987,If you don't understand it better.,7
-fomc-corpus,1987,I don't want to see us get to interest rate targeting and I would favor--,16
-fomc-corpus,1987,"Well, neither do I.",6
-fomc-corpus,1987,"I would favor the pegging of the nonborrowed, adjustment borrowings. But I would like to see us agree that we could sell coupons so that if we ever get into a situation like this again, we would thereby have enough coupons so as to let the markets know what our target was. If we have bought the coupons--",67
-fomc-corpus,1987,Why do we want to buy bonds or sell bonds?,11
-fomc-corpus,1987,I want to be able to buy bonds when there are not enough bills out there for repos.,19
-fomc-corpus,1987,What I am suggesting is that we still don't know if the discount window is going to act in an erratic fashion relative to what our intended policy is. I think that is an unacceptable degree of uncertainty. It has been a lot tighter than that in the past.,53
-fomc-corpus,1987,It is only unacceptable if you are very sensitive to where the federal funds rate is--that this might be a mistake. That's what the argument is all about.,32
-fomc-corpus,1987,"Well, I think there are times, obviously, when we are more sensitive to the funds rate. It varies. So, if we don't know what kind of funds rate is going to be associated with a certain amount of borrowing--. Am I right to say that that relationship has been much more stable in the past than it has been since the turn of the year?",74
-fomc-corpus,1987,"Maybe than in the last couple of weeks. But it has always been unstable and difficult to determine. Even when we were on a nonborrowed reserve target, we used to have to take into account shifts in the borrowing function--certainly in 1984 when Continental was in [borrowing at the discount window]. There was considerable uncertainty then, too. So there has always been a bit of wiggle room in that.",86
-fomc-corpus,1987,"Well, obviously, when there is special borrowing, you always--",13
-fomc-corpus,1987,"If you are really sensitive to where the federal funds rate is, the most efficient thing that you can do is target the federal funds rate.",28
-fomc-corpus,1987,The federal funds rate--,5
-fomc-corpus,1987,Do you want to do that?,7
-fomc-corpus,1987,No.,2
-fomc-corpus,1987,"I am not sure I want to, but the relationship--",12
-fomc-corpus,1987,You can decrease the uncertainty as to what the borrowing target is. What we've ended up with--,19
-fomc-corpus,1987,"Okay, but there are studies--",7
-fomc-corpus,1987,"Oh, those studies are a lot of [unintelligible]. They average everything.",18
-fomc-corpus,1987,We've ended up with a lot of participants and market watchers believing that our borrowing target is $500 to $600 million. It seems to me that it would be better to conduct policy in such a way that there would not be as much uncertainty as to what--,52
-fomc-corpus,1987,"Even that always exists. It is not unusual to miss these targets for several weeks. We had great big misses around the end of the year. Now people are more used to it around the end of the year, and they say: Okay, they are way off. Around the end of the year, we were way over a billion--",68
-fomc-corpus,1987,"There are obviously special borrowing [situations] that come up. But, in the pattern of breaks that we have seen recently I don't think you can identify a special borrowing in each of those cases. The staff's response was that the demand for borrowing had shifted. That is something that I don't think we have a good understanding about.",67
-fomc-corpus,1987,"The beauty of this nonborrowed target is that it allows for some ambivalence. You know you shouldn't be targeting the federal funds rate, but sometimes you would like to keep at least a broad eye on it. It makes for a nice kind of--",51
-fomc-corpus,1987,"I think we are getting diverted by this argument. I don't think we have voted yet, have we?",21
-fomc-corpus,1987,We have not.,4
-fomc-corpus,1987,No.,2
-fomc-corpus,1987,"I think we better adopt a directive. This is a continuing saga, but let's get this vote out of the way.",24
-fomc-corpus,1987,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Seger No President Stern Yes,41
-fomc-corpus,1987,I don't want to waste too much--,8
-fomc-corpus,1987,"It is a relevant question that comes up all the time, so maybe we should have a little paper on it for the next meeting.",27
-fomc-corpus,1987,I think there probably would still be a considerable debate at this table about which is more important to the conduct of monetary policy and which affects the economy more: levels of interest rates or the quantity of reserves.,41
-fomc-corpus,1987,"I don't know how big a discussion you want to have. We can have a great big discussion on operating techniques, but maybe we'll start it off, anyway, with a rather small paper on precisely [unintelligible]. [Laughter.] We will see whether that leads us into much deeper water, which it is very likely to do. I don't know if anybody is terribly happy about our current operating procedures. In fact, the weak [unintelligible] the money supply.",98
-fomc-corpus,1987,I know.,3
-fomc-corpus,1987,"It's appropriate to say a word before we start about Arthur Burns' passing. He sat at this table with many of us for a good many years. He sat over there about where Bob Black is; the seating has been rearranged since then. I don't know whether that had any implication for policy when the Chairman sat over in that area. But he was a very forceful Chairman who had a great dedication to the Federal Reserve and to this Committee. I think you have been notified that there is a memorial service on July 22 at 11:30 in the morning at the Temple here in Northwest Washington. If people can make that, I think it would be greatly appreciated. With that, we can get started and approve the minutes.",148
-fomc-corpus,1987,I'll move it.,4
-fomc-corpus,1987,We have a second. The minutes are approved. May we have the report on foreign currency operations?,20
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,"If I may interject before we discuss this: I was so preoccupied with Arthur Burns that I forgot to welcome Mike Kelley to the table this morning. Sitting there, you're almost [unintelligible] now as a governor; so, I say welcome. The plan of attack this morning and tomorrow is that I will interject the discussion on this report on borrowing that you all have after Mr. Sternlight gives his report and we have the discussion on the Desk's operations. That's the logical place to do that. We will break for lunch at about 1:00 p.m. and discuss extraneous matters informally, as we usually do, and then go back into session. If we finish this afternoon, fine; if we don't, we will reconvene tomorrow morning. And if the discussion proceeds beyond 11:00 tomorrow morning, it will be without a Chairman, which may be an advantage for some of you. Let's proceed to the questions or comments on Mr. Cross' report.",202
-fomc-corpus,1987,"Sam, on this re-emergence of two-way risks, would you categorize that as a fragile re-emergence or does it look fairly good to you? How is it categorized?",38
-fomc-corpus,1987,"Well, I think it is still somewhat fragile. As I said, I think the market paid a great deal of attention to, and was reassured considerably by, the willingness of the Federal Reserve to snug because of the dollar. Looking ahead, it's not clear that the market would feel that there will be the same kind of maneuverability or ability to untighten. I think, for the present, that we have quite a healthy sense of two-way risks in the market. But there is some skepticism; there are these feelings out there that some action will be taken, either in intervention or another area, if the dollar moves up very far from its present level. And as I said, if that should happen, I think what the trading community then would start to do with respect to [unintelligible] on the downside. So, I think we have a period of stability now, or even firmness, and this may continue for a period. Looking beyond that, there is still negative sentiment about the dollar because of the lack of any clear evidence of major adjustment in our current account position. And I would characterize the present sense of two-way risks as still rather fragile.",237
-fomc-corpus,1987,"In discussions yesterday, the staff pointed out that for the second quarter we could get more negative current account numbers, which could have some effect on that sentiment. I take it the oil-price situation has been driving a lot of the current account; it has been dominated by that. Even though non-oil exports have been rising, the whole thing has been overwhelmed by oil volume, to some extent. I take it the second quarter is going to produce a worsening current account balance number and that might add to some of the sentiment. Is there any perception that--",111
-fomc-corpus,1987,We just have one month of [data for] the second quarter right now.,16
-fomc-corpus,1987,We have one month of trade figures.,8
-fomc-corpus,1987,"Governor Johnson, I'd note that most of this deterioration in the current account in the staff forecast is in the non-trade current account items. It is true that there's a slight deterioration in the trade balance, which is based on one month, but it's essentially flat--",53
-fomc-corpus,1987,"There's no question that people are talking very, very intently about what these trade figures will be on the 15th of July when they come out.",31
-fomc-corpus,1987,I take it we're forecasting a worsening on the current account number?,13
-fomc-corpus,1987,That's right. But the current account number for the second quarter isn't going to appear until September--even assuming that we are right.,26
-fomc-corpus,1987,"Yes, but that's not that far away. I'm just saying that September, assuming we're right, could be the period you're talking about, then. Right now there is a good healthy two-way risk on the exchange rate, but I'm just saying that there might be some numbers in the future that hinge on that; I don't know. If this is going to be an uneven path on the way to improvement, maybe the markets recognize that but maybe they don't.",91
-fomc-corpus,1987,"Well, I think they recognize that in volume terms there has been some improvement. But they also recognize that in nominal terms there has been very little improvement, if any. And that, of course, is what you have to finance. Sometimes market participants over-interpret these figures and sometimes they respond by kind of knee jerk [reactions]. So, I think if we have bad trade figures next week--really bad trade figures--that could change the picture from what it is.",96
-fomc-corpus,1987,We're getting numbers next week?,6
-fomc-corpus,1987,On the 15th.,6
-fomc-corpus,1987,What is your guess on what those numbers will look like?,12
-fomc-corpus,1987,"The market is expecting [a deficit of] about $14 billion, I think.",17
-fomc-corpus,1987,"I would say that April was somewhat over-interpreted--that is, as listed in the forecast. That [deficit] number on a balance-of-payments basis was something like [an annual rate of] $140 billion and we have a little over $150 billion for the quarter as a whole. We think that May and June will be not as good as April, but not dramatically different in terms of the monthly figures. But to the extent that the market has been extrapolating the trend as the numbers came down in February, March, and April, even a leveling off [in the trade deficit] might produce some degree of disappointment.",131
-fomc-corpus,1987,"Sam, I suppose it's hard to forecast, but on the element of downside risk, has there been some improvement this time versus, say, the past several weeks? Is the downside risk about the same as it has been or has there been some fundamental improvement to relieve that?",55
-fomc-corpus,1987,I'm not sure I understand.,6
-fomc-corpus,1987,"Well, at the last few meetings we have been very concerned about the precipitous free fall, if you will, [of the dollar.] There seems to be some improvement in tone, but I think you're questioning that. And I wonder whether the downside risk now is as great as it has been.",60
-fomc-corpus,1987,"Well, no, in the sense that we are now comfortable with pressures not moving one way or the other. At some of these earlier meetings we had been sitting here with very heavy downward pressure facing us and the intensification of that raised much more serious problems.",52
-fomc-corpus,1987,"We have a lot on this in the presentation to be given later, I guess?",17
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,I suggest we defer these general discussions of the balance of payments outlook on the dollar until later. Are there any more operational comments or questions?,28
-fomc-corpus,1987,"I have one. When you refer to market sentiment, since there are obviously many hundreds or thousands of participants in the foreign exchange markets on any given day, are you talking primarily about traders that are commercial bankers in this country, or commercial bankers from abroad, or corporate treasurers, or central bankers, or all of the above? I'm just sitting here trying to get a flavor of what are you basing your sentiment comments on.",87
-fomc-corpus,1987,You're right that there are probably ten thousand people out there in this market and nobody can synthesize the view--,22
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,Except that the market reflects the view.,8
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"We do talk to large numbers of traders all day long. We talk to central banks all around the world and get their assessment of what's going on in their markets and we talk to commercial bankers and others here. And we try to keep up with what the economists are saying and absorb these various views to the extent we can. Now, there are times when a view sort of gets moving and the markets seem to all act like turkeys and fly in the same direction.",94
-fomc-corpus,1987,Right. I sensed that last time.,8
-fomc-corpus,1987,So one can profess a market view. But I don't think anybody can profess to be very confident at any one moment about what all these many different players are thinking. But we do the best we can by talking to many different kinds of operators. We also talk to treasurers of corporations about what they're doing.,63
-fomc-corpus,1987,Isn't it true that they are more important players on the scene now than they used to be 5 or 10 years ago?,27
-fomc-corpus,1987,They're certainly more important than they used to be. The market has gotten a lot bigger and a lot more complex; and it involves a lot larger universe than it did some years ago.,37
-fomc-corpus,1987,"Sam, do you see any changes in the pattern of the inflows of foreign capital?",18
-fomc-corpus,1987,"We can't really tell very much about it, but what we hear is that it's still fragile. Even if one is buying a long-term bond, that's not a long-term investment. There is not a lot of assurance that these present exchange rates are stable enough for one to be entering into a lot of long-term investments with assurances that there are not going to be further changes. At least that is what a lot of people tell us.",87
-fomc-corpus,1987,"Well, I meant mainly geographically--the Japanese versus the Europeans who--",14
-fomc-corpus,1987,"The Japanese, of course, are key because they are such big players. In the early part of the year, they had long-term outflows of $10 billion in January and another $10 billion in February. In March it fell down to about half that and in April it disappeared entirely. In May it has come back up and the last reports were that in June it was even bigger than ever--$13 billion. So the amounts seem to have come back up to very substantial levels. But the question is how solid that is now.",109
-fomc-corpus,1987,"The Japanese long-term rates were going up in this period when they resumed their investment in the United States, presumably?",23
-fomc-corpus,1987,"Right. The Japanese long-term rates have gone up by about 1/2 point during this period and ours have come down some. If you want to look at it in terms of differentials, at the beginning of the year the differential between U.S. and Japanese long-term rates was about 2-1/4 percentage points. It went up to as high as 6 percentage points and now it's down to about 4-1/2 points--maybe a little below that. So, it's still a lot higher than it was in the early part of this year, but it's well down from the peak that it reached in May.",130
-fomc-corpus,1987,As long as there's no major downside exchange rate risk that might be plenty.,15
-fomc-corpus,1987,"I think the exchange rate is the key part of the equation, yes.",15
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"And the stock market in Japan, probably?",9
-fomc-corpus,1987,"The stock market in Japan has declined somewhat. It got up as high as about 26,000; it's now about 24,000 or so--down maybe 10 percent, which is substantial. And the Japanese have been very worried about the liquidity in their whole economy, as reflected both in the stock market and the real estate market. It is a very worrisome and dangerous thing. That's one of the reasons why there are questions about what they should be doing in terms of their own longer-term ranges.",104
-fomc-corpus,1987,We need to ratify the transactions.,8
-fomc-corpus,1987,Move it.,3
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Without objection. Mr. Sternlight.,8
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,"Questions or comments? If not, we will ratify the transactions; that is all we have to do here.",23
-fomc-corpus,1987,So move it.,4
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,"Without objection. Why don't you introduce this report on borrowing just very briefly, Mr. Kohn?",20
-fomc-corpus,1987,"Okay, Mr. Chairman. The report was requested in response to some questions that arose over the previous intermeeting period--and perhaps really since last fall as well--about the kinds of federal funds rates and pressures on reserve positions we were getting relative to what the Committee and the Desk had specified. The paper breaks down the difference between actual federal funds rates and those that you might have expected to be associated with an intended level of borrowing into two separate kinds of misses. One is the miss that stems from the relationship between actual borrowing and the funds rate that comes to pass. We found that that was a pretty loose relationship. There was a standard error of about 60 basis points; two-thirds of the time you could expect to be plus or minus 60 basis points from the mean on that. There's a lot of short-term noise in that relationship, having to do with the pattern of reserves shifting, unusual borrowing that might occur, the pattern of reserve provision, actual demand--",195
-fomc-corpus,1987,Is that on a weekly-average basis?,8
-fomc-corpus,1987,"A two-week average. There are also some longer-term shifts in that relationship. One was identified during the period of the Continental Illinois crisis, when banks obviously became more reluctant to use the discount window because they were concerned about being seen as borrowing in that period. More recently, a smaller shift occurred last year when banks' desire to borrow also seemed to be less than might have been expected based on the long-term average. A second source of misses involves a deviation of actual borrowing from the borrowing that was intended, that is, the borrowing level that was put in the path. There we can have misses in excess reserves and estimates of excess and required reserves. Once again, the pattern of reserves provision and borrowing in the period can give rise to these sorts of misses. I think an important finding in the paper is that there tend to be some offsets among the different kinds of errors that can be found in this relationship. So, the looseness of a piece of the relationship--say, the relationship between borrowing and the funds rate spread--viewed by itself does not show through to the differences or the looseness between the actual funds rate and the funds rate that was anticipated by the Desk. There are actions by the Desk in supplying reserves and by the market in keeping the funds rate at levels that it believes consistent with the Desk projection that tend to reduce quite substantially the standard errors associated with the difference between realized funds rates and funds rates anticipated by the Desk. In the end, I think the relationship looks loose, but not all that loose. The current operating procedures, and the Desk and market actions that go with them, do provide an anchor to the federal funds rate. But there is room for market forces or for unanticipated misses in reserves to show through in this relationship. Sometimes that can occur in desired ways: that is, the market can push us toward higher or lower funds rates in anticipation of something we might end up doing; sometimes it could move the other way. With regard to the last intermeeting period, the problem was primarily the difference between the actual borrowing that occurred and the borrowing that was in the path. I think there were several particular problems that built on themselves in that period. One was the problem with the Treasury balance and the tax payments, which both built up the required reserves much higher than anyone had thought and drained more actual reserves than anyone had estimated as the Treasury balance came through. As a result, through almost the entire period the Desk found itself fighting reserve shortages, and much larger reserve shortages, than anyone--the Desk, the New York Fed, the Board, or the Treasury--was estimating. So it was constantly behind in that way. Secondly, of course, there were a lot of market expectations at that time that we would be firming. And the markets tended to push the federal funds rate up in anticipation of some firming of policy, given what was happening to the dollar and inflation. In some sense, I think borrowing rose in response to the market's push of the funds rate up; there was extra inducement to borrow at the window. So, there were a number of factors that came together in the intermeeting period before the May 19th meeting that tended to give much larger misses between actual and intended borrowing than we ever had experienced before, except at year-end periods.",667
-fomc-corpus,1987,Comments?,2
-fomc-corpus,1987,"First, I want to say that I found this to be a really outstanding review of the issue and a very good report. For our own purposes, it might be useful to go through this exercise every so often to re-address the issue and to feel comfortable with it. I think it was very useful. I don't have any major questions; the study pretty much explains a lot. But a couple of things struck me as I read through this that I wanted to bring up today. One is that I noticed, at least over the period I looked at, that there appeared to be an upward bias in actual borrowings relative to predicted. This was only over about a 3-1/2 year period, I think--",145
-fomc-corpus,1987,Relative to intended?,4
-fomc-corpus,1987,"Yes--relative to intended. I wonder if you have a good feel for what might be causing that? I think the Chairman mentioned yesterday a very plausible explanation for certain periods: obviously, when you get to very low frictional levels of borrowing--when you're targeting something like $300 million or less--the bias is going to be on the upside because there's not a lot of downside opportunity. But there's a positive bias that appears to occur over a long period. Chart 2 summarizes the information, and it does tend to show that when targeted borrowing levels were fairly low, that's when a lot of positive bias occurred. But I wonder if you went back over a longer period if you'd still see that positive bias and if it's related also to periods when targeted borrowings were very high.",156
-fomc-corpus,1987,I'm not--,3
-fomc-corpus,1987,If you look at chart 2 you can see a positive bias there. I just wonder what you sense there.,23
-fomc-corpus,1987,"I think a lot of the bias occurs in 1985, abstracting from the most recent period, which is a separate subject.",27
-fomc-corpus,1987,Right. And borrowings were averaging fairly low.,10
-fomc-corpus,1987,"Our findings were that low borrowings versus high borrowings didn't really affect that funds rate relationship very much. However, when borrowings are low, there is a tendency to come in a little high because if something unusual occurs--for example, a computer breakdown where some bank doesn't receive a wire and does just a little borrowing, particularly if it happens over a weekend--it can give a big boost relative to a very low two-week average.",88
-fomc-corpus,1987,"Yes, I agree. It just seems to me that that ought to be factored into the expected borrowings to some extent.",26
-fomc-corpus,1987,"We often do that. Peter Sternlight can comment on this. When we have an unusual amount of borrowings that pushes up borrowing relative to what we expect, we can't take it into account ahead of time because by its very nature we don't anticipate it. But Peter often takes that into account in his intentions through the rest of the period. I think that's one of the offsets that we get that keeps the funds rate close to [expectations]. As for the 1985 period, one thing that was going on then was that excess reserves were rising through that period more rapidly than we were expecting them to. We kept writing up the excess reserves numbers incorporated into the path; but, in some sense, we were lagging a little behind as that was happening. So I think that period has a particular explanation.",163
-fomc-corpus,1987,"Well, the question remains--and you may not know the answer now--but the one period on this chart when borrowings were fairly high, which was in 1984, that bias didn't seem to exist. Is that typical, in fact, of other periods when the target was $900 million, or $1 billion, or $1-1/2 billion?",75
-fomc-corpus,1987,I don't know; we can find out.,9
-fomc-corpus,1987,"It would be interesting to know that. I have two other questions. One major issue is this: I realize that there's a standard error plus or minus--I'm talking about borrowings relative to the funds rate and the standard error you mentioned of about 60 basis points--that creates noise in the system. If so, there's a certain amount of that noise that we have to accept; but that's plus or minus. There's a difference between that and the long-term issue of when we detect some sort of shift. I think the question arises there [unintelligible] policy shifts, that we're making a monetary policy adjustment whether we are doing anything or not. And the question is: If we detect a long-run shift in the borrowing function should we try and offset that in some way? Otherwise, we really accept a policy adjustment because nonborrowed reserves are going to be lower or higher.",179
-fomc-corpus,1987,If you equate policy with interest rates.,9
-fomc-corpus,1987,"Well, yes, but nonborrowed reserves would be affected.",13
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,"Maybe borrowings wouldn't, but the nonborrowed path would be affected to some extent. So I don't know--",23
-fomc-corpus,1987,"This question arose in the summer of '84, for instance. We got a much higher funds rate at a given level of borrowings than we had anticipated.",32
-fomc-corpus,1987,"My question is: What do we do about it when we decide that there has been a long-run shift in the function or when there's a consensus that that has developed? I guess it's just something that ought to be brought before the FOMC, to acknowledge there's a shift and then--",58
-fomc-corpus,1987,"It sure is [unintelligible] when it has already been that for a while, that's--",21
-fomc-corpus,1987,Sure it has.,4
-fomc-corpus,1987,It seems to me that it is the nature of the Bluebook discussion to bring that kind of shift to the Committee's attention in a normal way before it's in the--,34
-fomc-corpus,1987,To some degree this question arises at every meeting.,10
-fomc-corpus,1987,"Sometimes, though, we don't have enough information to decide whether it's just noise or real--",18
-fomc-corpus,1987,"Well, that's usually the case.",7
-fomc-corpus,1987,"That's usually the case, yes. The last question that I had was about seasonal borrowing. It seems to me that there's always been a bit of a question about whether seasonal borrowing should be included and, if so, to what extent.",47
-fomc-corpus,1987,"Our findings are that seasonal borrowing is interest sensitive--sensitive to the spread. It's not quite as interest sensitive as adjustment borrowing but, as I think is pointed out in the footnote here, when we fit the whole equation--total seasonal and adjustment borrowing--on the spread, we cannot find a seasonal influence that is separate from the influence of the spread. So, from that kind of finding, it would appear that including or not including seasonal borrowing wouldn't significantly affect--",94
-fomc-corpus,1987,What did you say? There's no seasonal in seasonal borrowing?,12
-fomc-corpus,1987,"Well, there is a seasonal in seasonal borrowing, but it's not large enough to come through in the overall--. When we look at seasonal borrowing by itself we find a significant seasonal; but when we lump it in with adjustment borrowing that seasonal gets swamped by all the other--",56
-fomc-corpus,1987,"But isn't that because we're aiming at a total borrowing figure including the seasonal? Otherwise, we offset the seasonal in the seasonal.",25
-fomc-corpus,1987,"Well, it's looking at borrowings as they relate to the spreads. So, what we're looking for is the seasonal in that relationship, not just in the quantity per se. As Don said, in that relationship for the total adjustment plus seasonal borrowing we're not able to pick up statistically significant seasonal effects, though they do appear in a seasonal borrowing relationship.",70
-fomc-corpus,1987,You say your relationship between the borrowing total and the funds rate doesn't change seasonally?,17
-fomc-corpus,1987,"In a systematic way, that's what we find.",10
-fomc-corpus,1987,Even though the seasonal total itself is seasonal?,9
-fomc-corpus,1987,"Yes. In effect, we're saying that the seasonal influence isn't strong enough to push the whole thing around. The Desk actually has a different view of that. Frequently, they see a higher seasonal [influence].",42
-fomc-corpus,1987,"But you're saying whether we include it or not, it's not really an important--",16
-fomc-corpus,1987,"Clearly, it works in the direction that in the summer--the seasonal peak is usually in July and August--we would have less adjustment borrowing and potentially a slightly lower federal funds rate than we would in the middle of the winter for a given level of borrowing.",52
-fomc-corpus,1987,I forget: How much does the seasonal borrowing swing in a normal year? Is that [unintelligible] or something?,26
-fomc-corpus,1987,"Yes, close to it. It would have a trough of $100 million and a peak of $300 million, and in a tight year such as 1984, maybe $400 million.",39
-fomc-corpus,1987,So you don't think that taking it out would have any effect on the standard error?,17
-fomc-corpus,1987,"I guess, consistent with the findings, it wouldn't reduce it very much.",15
-fomc-corpus,1987,But I think we did say--,7
-fomc-corpus,1987,But the problem is--,5
-fomc-corpus,1987,"But if we got to a lower level of borrowings that would probably aggravate the problem you were just talking about before. In other words, there would be less cushion.",35
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,In terms of the overall mechanism.,7
-fomc-corpus,1987,"I certainly don't think it makes much difference if the level of borrowings is $1 billion or something, but maybe if it is so low--",29
-fomc-corpus,1987,"The problem is that if you take seasonal borrowing out, it is no longer under control the same way that open market operations are. You have to ask yourself: Are seasonal borrowings more like adjustment borrowings or more like open market supply credit? And I think it's--",54
-fomc-corpus,1987,"Well, that's what I was--",7
-fomc-corpus,1987,"The answer, it would seem to me, is that it's more like adjustment borrowing than it is like open market operations.",24
-fomc-corpus,1987,To an extent.,4
-fomc-corpus,1987,"Well, maybe we should apply some adjustment factor to it to deal with just the seasonal element. I don't know if that's possible; but if it is possible, we might be able to correct the seasonal borrowing for seasonal.",44
-fomc-corpus,1987,"In other words, you'd like to have the seasonal borrowing have a seasonal influence; thereby, if we had a $500 million seasonal target, then it might be adjusted seasonally to be $540 million or $470 million?",45
-fomc-corpus,1987,Something like that. I don't know if it's doable; I'm just saying it's worth thinking about.,19
-fomc-corpus,1987,That would tend to give you--,7
-fomc-corpus,1987,"Otherwise, you are always counter steering with your adjustment borrowing and that's the variable that gets squeezed.",19
-fomc-corpus,1987,It's worth thinking about.,5
-fomc-corpus,1987,"Okay. One option would be to include the seasonal in with the extended credit. We could treat it as an exogenous factor affecting ""nonborrowed"" reserves. That would be just targeting on adjustment credit. Our feeling is that the seasonal is sufficiently responsive to interest rates and, as I think you or the Chairman said, that its behavior is somewhere in between adjustment and extended credit, and we've included it with the adjustment credit. I think it does respond to interest rate spreads; it's not truly seasonal, that's for sure.",105
-fomc-corpus,1987,Yes. I know.,5
-fomc-corpus,1987,I think it would be better to leave it in and put a seasonal factor on it than it would be to take it out and treat it like extended credit.,32
-fomc-corpus,1987,"Governor Angell put his finger on it in saying that you need to ask if it is more like the adjustment credit or more like something that we want to compensate for totally, like the extended credit. I think it has some elements of both, and probably is closer to the adjustment credit.",58
-fomc-corpus,1987,"I'm just saying that you might want to leave it in, but still make some adjustments to that number.",21
-fomc-corpus,1987,"Yes, possibly.",4
-fomc-corpus,1987,"The question is whether you have enough confidence in your seasonal factors to do it with any degree of precision. If you don't, then you're better off--",30
-fomc-corpus,1987,Yes. I don't want to send us off on some frivolous exercise; I'm just saying it might be worth thinking about if there's a way that you feel comfortable dealing with it.,36
-fomc-corpus,1987,"Why don't we look a little more closely at the relationship with and without the seasonal and see whether we can come up with a plan if, after looking at that relationship, it looks like it's worth doing.",41
-fomc-corpus,1987,Is that seasonal borrowing also concentrated in certain institutions?,10
-fomc-corpus,1987,"Well, it's in smaller institutions by policy--Regulation A. It's primarily in agricultural banks, but it's also in areas that have tourism and in some other areas subject to seasonal--",36
-fomc-corpus,1987,"Did you do any study as to how sensitive, let's say, the federal funds rate is--that is, what kind of relationship you get with net borrowed reserves or free reserves instead of borrowings?",40
-fomc-corpus,1987,"Yes, we did free reserves, net borrowed reserves, and it did not improve the relationship; in fact, it was worse in recent years. In the LRR period it was about the same; but in the CRR period the excess reserves have fluctuated and we've made more adjustments, so the free reserves--",63
-fomc-corpus,1987,"I guess if you're going to follow this general approach, it's better to target borrowings than free reserves.",21
-fomc-corpus,1987,"We do make adjustments in the excess reserve allowance as those demands change, over time; and that would be incorporated into a strict reserves--",27
-fomc-corpus,1987,What do the relationships look like if you don't wash out the variations within a maintenance period? It seems to me that by averaging that you would knock off quite a bit of the variation before you do your statistical study.,43
-fomc-corpus,1987,"Yes, that's right. The daily variation would be much larger than what we've shown here. We have looked at this in the past, and we've found that on settlement day over the last few years we have gotten more variation than we did previous to the introduction of CRR in 1984. On the other hand, the quarter-ends (except for the year-ends) seem to be somewhat muted by the two-week period.",87
-fomc-corpus,1987,"Don, your work indicates that the relationship between the spread and borrowing is linear. Is it more reasonable to think of that as a nonlinear relationship, since banks have a tendency to become more reluctant to borrow as that spread widens?",46
-fomc-corpus,1987,"In some earlier work that we did here, in connection with the evaluation of the new operating procedures in 1980, Peter Tinsley and his colleagues did estimate a borrowing function that, instead of being linear as we've drawn it, showed that as borrowings got to higher and higher levels the associated increase in the funds rate tended to rise faster.",70
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,"On the other hand, there has been some sentiment among commenters on this memorandum, that perhaps in some of the more recent data the relationship bends the other way since, after all, as borrowings increase more and more, each $100 million involves a smaller percentage change. So, confronted with two alternatives suggesting the opposite, we took a hard look at these data and just fit a straight line through them.",81
-fomc-corpus,1987,Mr. Corrigan.,5
-fomc-corpus,1987,"I react to this along the following lines. The whole thing, as a matter of perspective, represents a series of technical relationships that are the first step in a long, long, linkage between what we do and prices and all the things we really care about. Looked at in that light, I walk away somewhat amazed that it works as well as it does. Indeed, when you look at the net deviations as summarized either on chart 2 or chart 5, I'm hard pressed to conclude that any of them is likely to have any net effect on real economic variables or prices or anything else. Indeed, the deviations are in that sense, I think, astonishingly small. So, it's reassuring to me in that sense. But what is a little troubling about it to me is that it comes pretty darn close to saying that, despite all our protestations to the contrary, we're really operating on the federal funds rate.",185
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,I find that troubling because we've been down that path before; and to the extent we seduce ourselves back into that I think it could come back to haunt us in the long run.,37
-fomc-corpus,1987,"Maybe I didn't read this carefully, but I came out with the opposite conclusion: that the relationship is so loose that we're not doing that.",28
-fomc-corpus,1987,"I guess the point is that even if we are, we still think of the funds rate as a check against the borrowings. I know that from sitting in on the [daily] call. Many times the funds rate is used as a check to gauge whether the reserve estimates are correct. If the funds rate starts to move off from where we would have expected, given the reserve estimates, we seem to second guess our Treasury balance numbers and our excess reserve numbers and naturally assume that our reserve estimates are off because the funds rate is strange. Therefore, the Desk tends to do more or less in the open market.",123
-fomc-corpus,1987,"That's one thing. In that case, the funds rate is being used appropriately, in my judgment, as an information variable.",25
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,"It's telling you something. Indeed, some of those deviations--which, again, I regard as small in net terms--ultimately reflect a willingness to let the federal funds rate at times tell us something. But that's a little different.",47
-fomc-corpus,1987,"Yes, I agree. And that's a short-term view versus a longer-term policy issue. But I'm just saying that even if we were trying to target the funds rate, the question still remains: Are we targeting the funds rate to affect the aggregates or reserves or are we just trying to stabilize the funds rate? In other words, we could target the funds rate at various levels over short periods that would affect the aggregates, and I think that's basically what we're doing, as one means of sort of trying to--",102
-fomc-corpus,1987,That's always what I thought we were doing.,9
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,But when I got through reading this I got a little nervous on the other side of the ledger.,20
-fomc-corpus,1987,"If you let the funds rate drift off somewhere, over the long run it's eventually going to affect the aggregates. So you can't really look at one without the other.",33
-fomc-corpus,1987,The most important argument for using the borrowed reserve target is that it gives us a certain amount of political insulation so that we can let the federal funds rate move more than we otherwise would be able to do. That to me is the important decision.,49
-fomc-corpus,1987,"Well, there are all kinds of interesting questions and implications toward operating techniques which I will declare after this discussion will not be acted on at this particular meeting.",31
-fomc-corpus,1987,I think you're right.,5
-fomc-corpus,1987,"I assume that the operating techniques will remain the same, for this meeting anyway. Let's turn to the economic situation. I gaze down at the other end of the table and note that we have a few other changes. You are aware that Mr. Kichline will leave us in a couple of weeks. He has been at that end of the table during my whole Chairmanship; I don't know how I'm going to get along without him but I see some able-bodied, capable people down there to lead me through this meeting anyway.",106
-fomc-corpus,1987,"Thank you, Mr. Chairman. As usual, we've distributed to you a set of charts; they are entitled ""Staff Presentation"". [Statement--see Appendix.]",32
-fomc-corpus,1987,"Well, it was a comprehensive presentation, very complete in all senses. It can now be attacked. Are there any attackers? Mr. Parry.",30
-fomc-corpus,1987,"I have two questions. With regard to the inflation assumptions for 1988 and what might be the interest rate implications: We have a forecast of inflation that is really not very much different from what you have for 1988. But to achieve that, to keep a lid on inflation, we had to generate some slack in the economy and that was done by having short-term rates--in this case the commercial paper rate--rise a little more than 200 basis points to 9 percent. In your principal assumptions you referred to an appreciable rise in interest rates over the projection period. I wonder if you could be more specific. What is the extent of that increase in rates and where would you have the commercial paper rate at the end of 1988?",153
-fomc-corpus,1987,"We've made assumptions about both short- and long-term interest rates. As I indicated, we see Treasury bond rates moving back above the 9 percent level that we saw just recently. On the short end we are looking at federal funds trading above 8 percent by some time in 1988. That would be a shade less of an increase than you're talking about but in the same general ballpark.",80
-fomc-corpus,1987,"I see. The second question is [about inflation.] Your forecast for 1988 has a slight upward trend in the last three quarters in the fixed-weight deflator. And, if I remember correctly, you have import prices rising about 10 percent, the dollar declining less than 10 percent, and little slack in the economy given that the unemployment rate remains relatively constant around 6.3 percent. If you were to continue your projection beyond 1988, it sounds to me as though your forecast implies that inflation rates continue to move up in 1989. Is that correct?",118
-fomc-corpus,1987,"I think the answer is that much would depend on such things as what happens to the dollar in the latter part of the current projection period and into 1989. Another uncertainty is, of course, what the implication of any unemployment rate level might be for inflationary pressures. But our forecast certainly hints of ongoing pressure on compensation coming from the price increases that we have forecast and the risk that if the dollar continued to decline substantially into 1989 there would probably be some further acceleration in general inflation.",100
-fomc-corpus,1987,But even a decline in the dollar through 1988 would probably have some inflationary impact in 1989.,23
-fomc-corpus,1987,That's why I mentioned it for the latter part of 1988.,14
-fomc-corpus,1987,Yes. Thank you.,5
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,"Ted, I wonder if you could comment on how you see the business outlook for some of our major trading partners, Germany, Japan, England, etc.?",31
-fomc-corpus,1987,"Well, I think the answer to your question is not terribly robust. As that chart that I referred to shows, for those countries the growth is in the 2 percent range, on average. Growth in domestic demand is somewhat faster. The current situation presents a somewhat mixed picture. Germany, after a very weak first quarter, which was partly a seasonal weakness that is not seasonally adjusted [in the statistics], seems to have moved quite rapidly in the first couple of months of the second quarter, according to the available data. Unfortunately, Germany has shown more strength in their external accounts than one might want to see from our perspective. Japan, on the other hand, had a better first quarter and things seem to have become a little soggier in the second quarter. However, they have put in place the fiscal package that was announced just after the last FOMC meeting, and that was somewhat more than we had expected. That has led us to boost our forecast of growth in Japan for this year and next year. So, we have real growth in the 2-1/4 to 2-1/2 percent range in that country and in the 1-1/4 to 1-1/2 percent range in Germany. The somewhat prolonged slowdown in growth in Germany does seem to be having some effects on the rest of western Europe. I think the projection for France also has been marked down in recent months. The only country in western Europe that seems to be doing quite well is the United Kingdom. It all depends on how you read these things, but that in part seems to reflect a boost from the depreciation of the pound last year and the somewhat easier fiscal policy--they wouldn't describe it that way--that they seem to have gone into this year. We do see some drop-off in growth in 1988, in part reflecting the fact that the economy has recovered this year. And as far as Canada is concerned, we see things largely dependent on [unintelligible]; so you find growth in the 2 percent area next year. On balance, it's not much of a favorable picture and [there's] not much scope or willingness to foster very much [further growth]. We have built into the forecast some further downward adjustment in the interest rates in these countries, though I would say it's quite modest, presumably triggered by a discount [rate cut] or [unintelligible] some exchange market pressures to bring that about. Aside from the Japanese fiscal package, which we assume will pass before the [unintelligible] go into effect, and the German tax cut that comes in the first quarter of next year, we really have no other major policy that--",545
-fomc-corpus,1987,Have you given any thought to what the implications of the outlook in the United States plus the outlook that you just gave for Europe and Japan might have on the less developed countries and their external accounts?,39
-fomc-corpus,1987,"Yes, and that has deteriorated noticeably but not in demand for right now. Since April, for example, we have [been projecting] a deterioration in the current account next year of roughly $4 billion for the [unintelligible] of the developing countries. That reflects the influence of somewhat weaker growth in the industrial world and somewhat higher interest rates and slightly better commodity prices, on average, at least relative to early April where the [unintelligible] occur. But that effect has been negative--much of it coming from interest rate assumptions. Now, that's not enough to upset the apple cart, but it could rebalance the apples in the cart.",134
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"What surprised me about this forecast was your projection of real consumption, consumer spending. It's really a quite low level in 1988. It seems to me that on the one hand, you're projecting increased industrial production, which I would have thought would have increased disposable income, and yet you're not showing any increase in the saving rate. I would have thought that you would have a higher level of consumer expenditures. What am I missing in that equation?",89
-fomc-corpus,1987,"Well, we have some modest growth in manufacturing employment going with the stronger industrial production but those gains are not large by any means. We see overall employment growth slowing from the pace of the last couple of years. Layered on top of what would be moderate growth in nominal personal income would be more sizable consumer price increases--not more sizable than we've seen in the first half of this year but more sizable by far than we had over the past year or two. And thus, that's eroding real income, labor income, by a substantial amount. So, as I pointed out, we have gains in income and expenditures of a similar magnitude. This is very low growth in consumption expenditures, particularly in a nonrecession period. But consumption expenditures have been very high relative to economic activity. And consumer durables have been growing very strongly. There's probably much less pent-up demand for consumer durables than there has been. We think the financial situation on the whole is one in which we probably will not see the kind of aggressiveness of spending relative to income that we've seen over the past few years. So, that is the story behind our admittedly very weak projection of consumption expenditures.",235
-fomc-corpus,1987,It's a very optimistic projection from one point of view. That has to happen to release the resources for the improvement in the external account and produce some savings; it doesn't produce very much. Mr. Stern.,41
-fomc-corpus,1987,"If the dollar were to level off relative to foreign currencies about where it is now, what do you think that would do to our real trade position over this forecast period and to the aggregate forecast that you have?",42
-fomc-corpus,1987,"It depends a bit on what else goes along with that, in particular whether the dollar leveling off and presumably a little less inflationary pressure would lead to the same kind of interest rate projection or trend or a somewhat easier one. But, an obviously easier one needs to result in more gain on income. In terms of where you would be in the fourth quarter of next year, it would mean roughly between $20 and $30 billion, depending on which assumption you make on the real net export side. And it would be maybe between $5 and $10 billion on the current account side by the end of the projection period to keep GNP unchanged. In the worst case, using the higher number in terms of losses, if you keep GNP unchanged and you get the $10 billion and $30 billion (nominal and real)--if you essentially let the tighter policy show through--given the passage of the exchange rate pressures, you would lose a half percentage point or so on the level of GNP. You'll get $5 to $10 billion off--",212
-fomc-corpus,1987,"I guess what bothers me about this forecast is that you have the dollar going down somewhat further and interest rates higher than they were the last time we met, and you have taken something off real growth. The directions are all right but it seems to me that the adjustment is kind of small. If things work out that way, I would think we would be looking at slower growth than you have here and something that would be approaching a stagflation environment.",91
-fomc-corpus,1987,Ms. Seger.,5
-fomc-corpus,1987,I have one question for Ted Truman and one for Mike Prell. For Ted: How is the rundown you gave of the growth forecast for these various major economies consistent with our expectation of a substantial pickup in exports? I keep thinking our exports have to go someplace and England isn't going to buy them all.,61
-fomc-corpus,1987,"First, I think the answer to that question, and then you can ask Mike of course, is that domestic demand in these countries is growing faster--by 1/2 percentage point or more--than production in these countries. And it is the difference between domestic demand and production that is absorbing the net imports. It is generated not so much by relative income effects because of growth but price effects. To put it more clearly, it's the other side of the gap we had in the early 1980s between domestic demand and production, against a background in which domestic demand will be growing more slowly. There is less help from income effects; [we're] relying to a considerable extent on the price effects that produce increases in exports. And as I noted, one particular problem in that area has to do with the role of protectionism, in a generalized sense, in weakening the link between relevant price changes and foreign exchange. Of course, part of the protectionism thrust comes from a ""soggy"" or not terribly dynamic world economy.",210
-fomc-corpus,1987,"Well, do you think that there is enough zip or that it's not so soggy that it will sabotage our interests--",24
-fomc-corpus,1987,"First of all, the growth we are anticipating over this forecast period is not much different than we've had over the past four quarters, and we have only a slightly faster pace for growth of non-agricultural exports, as we are all aware. So we're not relying a lot on that further pickup in the rate of increase of our non-agricultural exports.",72
-fomc-corpus,1987,"But we were badgering Germany and Japan, I thought, to stimulate their economies so that there would be--",23
-fomc-corpus,1987,"I believe that we're better off, in some sense, than if they had chosen for their own reasons not to accelerate the tax cut in Germany and not to adopt the fiscal stimulus in the case of Japan. But that's not enough to boost the overall level of production in those countries; in fact, as I've commented, looking out into 1988 we now see domestic demand slowing a bit further.",79
-fomc-corpus,1987,"Okay, but it still makes me nervous.",9
-fomc-corpus,1987,I share your nervousness.,6
-fomc-corpus,1987,"For Mike: In reading the Greenbook and other materials that were distributed prior to the meeting, there's sort of an underlying tone of an economy that's about to go into orbit. It's not stated that way, and maybe I just read it wrong, but the forecast suggests that private demand suddenly is going to explode and that there's going to be this inflationary surge. I went through all the individual numbers and thought it through in my own mind, looking at the different sectors and so forth, and I must say that I can't find one that is about to go off in a bit of robustness.",118
-fomc-corpus,1987,"Governor Seger, if that was the impression we left, that was not our intention. As I've noted, we have in fact very modest growth of domestic spending in the forecast period. We think things may pick up a bit in the near term on the consumer side, but only because there are some autos that have to be cleared away before too long--before we get well into the '88 model year. I suppose the recent indicators on business fixed investment have been a bit cheerier and, indeed, if one wanted to be optimistic one could see some upside potential there relative to our forecast. Certainly, our forecast is considerably weaker than any of the major surveys--Commerce, McGraw-Hill, and Merrill-Lynch--would suggest for the remainder of the year. If one became particularly bullish on the basis of recent stories about the computer industry maybe we could be on the brink of another resurgence of high-tech spending. But basically, our thrust is not toward a boldness in the economy such as you've referred to.",204
-fomc-corpus,1987,What deflator does the Commerce Department use on their surveys? Don't they use last year's price experience?,20
-fomc-corpus,1987,"Well, I was thinking of the nominal [GNP], but yes, the Commerce Department takes the experience over the most recent four quarters and applies that as the deflator for the current calendar year's spending. That gives us--",45
-fomc-corpus,1987,So they're probably overstating?,6
-fomc-corpus,1987,"We're expecting a fairly low inflation in fixed investment prices this year. In fact, that computer factor that I mentioned for the second quarter would put equipment price inflation at essentially zero in that period. So it may be that they're not that far off; but looking at nominal spending, the trajectory implied to get their annual total is far steeper than we have in the forecast.",74
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"I also have a question about the consumption expenditures, which I think look on the low side, particularly for 1988. Cross-referencing a bit between [components of] the Greenbook forecast, specifically for autos, Mike, you are forecasting an increase in auto sales next year yet durable expenditures seem awfully soft. Maybe I missed it but what is your number for autos?",76
-fomc-corpus,1987,"Total auto sales next year are a shade over 10-1/2 million units. We have about 10.3 million units for the current year. The difference there is something of an artifact of the bulge that we had in the latter half of 1986 which borrowed some from 1987. Looking at it in terms of the year from the fourth quarter we have 10.7 million units in both years; auto sales provide essentially no contribution to growth for the period from the fourth quarter of 1987 to the fourth quarter of 1988. I would note that cars are not the only element of motor vehicle purchases by households at this time. The sales of vans and trucks and light trucks are really running quite strong and may persist; that's not something that should be ignored. There's little more I can add to what I said earlier about our consumption forecast. It's not inconceivable that consumers will not get over their increased bent for spending and that they will continue to spend. The short-run income developments, transitory for May, [could lead consumers to be] very optimistic about the future and push consumer spending up further. But we think that's not as likely as what we have forecast; we feel that the strength we've seen has been, in part, a reflection of those currents of trade movements or availability of imported [goods] at attractive prices and that has influenced a shift in the direction.",285
-fomc-corpus,1987,If you have a level of doubt about any part of the forecast is this one area where your doubt level is a little higher than in others?,29
-fomc-corpus,1987,"Oh, I don't know. I'm always very doubtful about the part that Ted is most [unintelligible]. But consumer spending is a very big sector, so a small error in one's thinking about it could have a big effect on overall GNP.",51
-fomc-corpus,1987,Thank you.,3
-fomc-corpus,1987,Mr. Morris.,4
-fomc-corpus,1987,"The number that I find rather depressing, and I want to make sure I understand it, is your projection that the Federal deficit next year is going to be about the same as in fiscal 1987. After $25 billion of deficit reducing actions and after what I recall was a fairly sizable increase in the Social Security surplus--which I assume is in these numbers--we still end up with no change in the Federal deficit. And on top of that you're projecting a wiping out of the state and local government surplus, a low consumer saving rate, and some decline in the inflow of foreign capital associated with the reduction of our current account deficit. To me, all of this adds up to the possibility that we will see much higher interest rates, as a consequence of all of these forces, than you have been suggesting. Now, perhaps you didn't want to scare us but--",175
-fomc-corpus,1987,"There is a complex of things involved here. Clearly, our overall nominal GNP growth is not very rapid relative to the kind of money that we have built into this forecast. It doesn't imply a large amount of interest rate pressure, certainly not more than we have built in. On the outlook for the Federal budget, the situation does look less favorable to us now than it did previously. In part, that's a result of our ongoing attempts to interpret the effects of tax reform; the pattern of movement from year-to-year doesn't look as favorable at this point as it did before. And, of course, with the kind of nominal income growth we have, we're not generating a tremendous growth of Federal revenues. Our Federal spending projection is not terribly robust but when we put all these things together, we come out with 1988 much closer--in fact almost identical--to what we have for 1987 now.",182
-fomc-corpus,1987,I suppose what could really cause us trouble would be if the improvement in our trade picture should lead to a larger increase in business investment expenditures than we're projecting here. That would put an awful lot of strain on the capital markets with the government deficit not declining.,51
-fomc-corpus,1987,"Yes, I think that's a possibility. We have built into our thinking some stimulus to investment coming from this improvement in manufacturing, and that's associated with the trade improvement. As we said, we think equipment spending will be fairly strong and we may see some increase in industrial construction, too, as time passes. I should note that one other factor that has changed in our thinking from earlier in the year with respect to the 1988 fiscal year budget is the higher level of interest rates that we have seen come about. We have that extended a bit into the fiscal 1988 period, so that is adding to the deficit. But in a sense that's sort of an artifact; many people would want to look at the so-called primary deficit without interest to get a better guide as to what the underlying movement is. But it's adding something significant to these numbers.",171
-fomc-corpus,1987,The increase in the Social Security surplus is not a very big factor for 1988. Maybe I was--,22
-fomc-corpus,1987,"Well, I must confess: I don't think we have specific numbers on the surplus. It's clear that the trend over the next decade or more is going to be in that direction; and for the 21st century I assume it's moving in that direction. It would be helped by the increase in Federal taxes that will occur the first of the year.",70
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"Mike, I wanted to pursue your assumptions with respect to money growth and your statement earlier. You have very slow rates of growth of M2 and M3 over the projection period. As you mentioned before, I guess that's associated in part with rising interest rates and increasing velocity. First of all, what's implied for M1 growth if you looked at that? And secondly, apparently you're comfortable that the liquidity that's being provided, if you will, is sufficient to sustain the type of expansion you're projecting. But I wondered what that implied overall in terms of velocity behavior.",112
-fomc-corpus,1987,We think there's--,4
-fomc-corpus,1987,"Well, I could say something, but I think we'll get into this later in some more sophistication presumably than Mr. Prell has indicated.",28
-fomc-corpus,1987,Don Kohn has an exhibit that he'll be giving for these--,13
-fomc-corpus,1987,I presume that Mr. Kohn's presentation is going to revolve around those issues.,17
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"Ted, you said something about oil prices. I thought you said something about rising oil demand so that we have potential upside risk on the price level. But we have a very depressed level of world demand it seems; I'm wondering where the rise in oil demand would come from out of this whole picture.",60
-fomc-corpus,1987,"All I was trying to suggest was that that's a reason why we don't have prices going up. There was some further secular decline in U.S. production and the leveling off of some of the production in other non-OPEC sources of supply like the North Seas. But there was at the same time [unintelligible] on the production side of the equation ex OPEC. And given some growth in GNP and production around the world--it's not bulging but it adds to demand, with the elasticity of something between 3/4 and 1 percent. So the question is whether that differential is going to be absorbed by the substantial excess capacity in OPEC, in particular in the Middle East, abstracting from military installations [unintelligible]. If it's going to be absorbed by Saudi Arabia increasing its revenues by increasing production--which it clearly has the scope to do if it wants to--that is one scenario. What happens to [unintelligible] in that way to stabilize prices and to not cause the kind of run-up in prices that would bring a presumption of exploration around the world in non-OPEC sources of supply. That is another scenario--a small gradual increase of 1 million barrels a day roughly in the demand for OPEC oil, which could easily be accommodated by OPEC itself.",267
-fomc-corpus,1987,How much is U.S. production down in the past year or so?,15
-fomc-corpus,1987,"So far it's down something like 600,000 barrels a day. The numbers are not great on this. And we have another couple of hundred built into the forecast.",34
-fomc-corpus,1987,"I also have are a comment on the interest rate picture and a word in terms of the deficit. It's true that by your projection the deficit is not improving in '88 over '87, but you have about $300 or $400 billion more nominal GNP. I think the deficit-to-GNP ratio declines by about .3 or .4. So you have a slackening of pressure there even with a constant number. In addition to that, you're estimating the same degree of capital flows. If I remember right, there is not a dramatic change in capital flows from abroad. So, under your forecast there is going to be a still significant amount of foreign capital inflow [in relation] to the declining deficit-to-GNP ratio. On the state and local front, Frank, your state and local numbers don't count the pension surpluses, which are very large. So, I don't see in this scenario big interest rate pressures coming from the government side. Now, if those capital inflows were really changing sharply you'd have a different picture. But that's not the forecast. And the deficit declines as a percent of GNP. So, there seems to be an improvement on that side rather than a change in the other direction.",247
-fomc-corpus,1987,"But if you look at the numbers on a quarterly basis you would see, for example, that our NIA deficit is moderating over the forecast period to the end of 1988. We have about $158 billion in the fourth quarter of 1988; and we have a projection of $187 billion for the current quarter. So there is a perceptible downward movement. You are quite right about the surplus of the social insurance funds in the state and local sector which is running about $60 billion and edging up in our forecast. That sector as a whole, at least as measured in the national income accounts, is moving in the direction of additional net saving to offset some of the Federal deficit.",141
-fomc-corpus,1987,"But you do have an absolute decline in the foreign capital inflows in 1988, right?",20
-fomc-corpus,1987,"Yes, of about $20 billion.",8
-fomc-corpus,1987,Not only as a percent of GNP but in absolute terms so that--,15
-fomc-corpus,1987,Yes. It's not dramatic but it's there. It doesn't change at all in 1987 I don't think. There is something in there--,28
-fomc-corpus,1987,"No, I'm talking about 1988.",9
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"What happens, Mike, to the net domestic savings gap in 1988? In other words, what happens to the financing requirements of the government plus the private sector relative to net domestic savings?",39
-fomc-corpus,1987,"I have to do the arithmetic to get to the net. Looking at the government sectors combined, as a percent of GNP we have a 3.3 percent deficit last year moving down to 2.6 percent this year and then to 2.3 percent next year. So there's a significant movement this year and then some modest further movement next year while net foreign investment declines by 0.7 percent over that period. That is almost, I'll say, 3/4 of the movement in the government sector. In gross terms private saving is about unchanged for 1987 and 1988 in our forecast.",126
-fomc-corpus,1987,As a percent of GNP or in absolute terms?,11
-fomc-corpus,1987,As a percent of GNP.,7
-fomc-corpus,1987,So the net is slightly worse off in 1988 than in 1987.,17
-fomc-corpus,1987,"Net, right.",4
-fomc-corpus,1987,One of the problems is that these statements are in nominal terms. If you look at the real terms you get a somewhat different picture because the real adjustment on the external side is--,36
-fomc-corpus,1987,But for financing purposes the real--,7
-fomc-corpus,1987,"Right, but the resource allocation implications of the reallocation exercise are more difficult, in some sense, on the financial side. They do get more reshuffling [unintelligible] side.",39
-fomc-corpus,1987,Does anybody else have a question?,7
-fomc-corpus,1987,I just want to ask: I assume the way you've stated interest rates as an assumption means they are more or less an endogenous variable here. Where would this come apart had you not projected the kind of increase in rates that you have?,47
-fomc-corpus,1987,"Well, I think we would have tendencies toward greater inflation and a weaker dollar. And the kind of acceleration we would see in the inflation rate next year would be a significant change from what we had. I think you would notice it; that up-tilt would be considerably greater. These are matters of degree. We haven't changed our interest rate forecast from last time to this time. The change is not drastic, really, by comparison to what we were looking at earlier in the year [but] we have a substantially greater increase in rates than we anticipated at that time.",115
-fomc-corpus,1987,Could you just run the numbers by us instead of just saying appreciable? I don't know what that means.,22
-fomc-corpus,1987,"Yes. Maybe you were out of the room when I gave the numbers earlier. We have federal funds, for example, rising above 8 percent by some time in the latter part of 1988. We have long-term Treasury bonds moving noticeably above 9 percent.",54
-fomc-corpus,1987,How about home mortgages?,5
-fomc-corpus,1987,We have them moving back to the highs--maybe toward the 11 percent area.,17
-fomc-corpus,1987,Mr. Guffey.,6
-fomc-corpus,1987,"Just to follow up on Tom Melzer's question: If you look at the quarterly pattern of prices measured by the CPI, the implicit deflator, or otherwise, you really end up 1988 at about the same level as the second quarter of 1987. But I think you may have just answered my question when you said to Tom that the rise in interest rates is what pulls that to about that level. Is it?",87
-fomc-corpus,1987,"Well, it's clearly an ingredient in the damping of GNP growth in our forecast. The fiscal side is one factor; but the financial environment we think will tend to damp domestic demand, and overall pressures on the labor markets will not increase. And so--",51
-fomc-corpus,1987,"Given the capacity utilization you're projecting of roughly 80-81 percent and the unemployment rate of about 6-1/2 percent, it could turn out not to show through in prices if indeed the dollar does not fall. We may not need the various interest rates that you have built into the projection.",61
-fomc-corpus,1987,"I can't quarrel with that. I would just reiterate my statement that there has to be a considerable uncertainty assigned to one's reading of the implications of a given level of the unemployment rate. We think it has gotten in the territory where it will [unintelligible]. There are areas of greater tightness; in nondurable manufacturing, for example, there are industries right now that have very high levels of capacity utilization and price pressures are evident there. But there's clearly a significant range of uncertainty around it.",102
-fomc-corpus,1987,"Does anybody else have any particular questions that are contrary on this presentation? If not, I would ask you to present your alternative scenarios, if any, that you think are important. I don't want to interpret the group as all being in full agreement with the staff. Mr. Parry.",58
-fomc-corpus,1987,"Our forecast really is in agreement with the broad outlines of the Greenbook forecast. We're expecting growth of just under 3 percent this year and a slowdown next year, although perhaps more of a slowdown than is included in the Greenbook. This greater weakness that we have is in spite of a little faster growth of consumption. It's a result of a smaller improvement in net exports than is in the Greenbook forecast and a somewhat weaker housing sector. Our inflation forecast for this year and next, as measured by the fixed-weight deflator is 4-1/2 percent for this year and 4 percent for next year. And higher import prices are certainly a significant contributor to these inflation rates. But I just want to repeat that the only way we were able to keep inflation to these levels was to produce slack in the economy by means of a fairly substantial increase in short-term interest rates on the order of 200 basis points. And frankly, I'd be very interested in what types of trade-offs other members of the Committee ran into as they addressed this issue of the relationship between their forecast of inflation and its implications for interest rates in 1988.",229
-fomc-corpus,1987,I think Governor Heller will tell us the answer to that question.,14
-fomc-corpus,1987,"I'm not sure. You asked where we were would differ with the forecast; let me focus on that. I think the Federal government deficit number of $168 billion is probably on the pessimistic side. I would expect that the tax reform which has taken place, and which is clearly difficult to model as far as econometric models are concerned, would result in a considerable broadening of the tax base and, therefore, that the tax revenues would be running higher than the projections indicate. That would be the one factor that I would argue would relieve some of the pressure in the financial markets and thus would yield lower interest rates in an overall economic environment where there is relatively slow consumption growth--with which I agree--and a lot of underutilized capacity and, therefore, lower investment. But the commodity markets still have quite a bit of excess capacity, on a global basis at least. I think that is the framework in which we could see interest rates staying roughly where they are, or maybe even drifting lower, and not having that inflation rate surge that would accompany the projections that the staff has here. Overall, as far as the level of economic activity is concerned, I'm roughly in agreement with the Greenbook. But as far as the financial implications are concerned, I'm not as pessimistic; and therefore, unless we do something to drive interest rates up, I think we can see probably the same level that prevails now, if not lower.",288
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"Well, Mr. Chairman, our forecast for this year is basically in agreement with the Greenbook but we depart somewhat [for 1988] on both the real growth and the inflation side. We think that real GNP is going to be more in the neighborhood of 2.8 percent, which is the number we used in our wire to the Board's staff. That's basically because of our belief that personal consumption is going to be stronger than the Greenbook indicates. We also think the investment forecast for 1988 is a little on the sluggish side in the Board staff's forecast; we think it's going to be a little better than that. Also, we don't see quite the improvement in the trade situation that the Greenbook implies and that translates into our forecast for inflation which we have rising somewhat faster than the Greenbook. In fact, we put the GNP deflator at 4.3 percent, which is about a half point higher than the staff expectations. Unlike Governor Heller, if I understood him correctly, I think the Federal budget deficit projection is a little on the optimistic side; I think it's perhaps going to be higher than the $167 billion that the staff is forecasting. And that might give a little stimulus to the economy as well. The one place where I think we are in agreement, if I understood the staff forecast correctly, is that we're likely to get wage pressures toward the end of this year and out into 1988 simply because we're operating probably at our potential in the economy at the moment. And if the inflation number that I have is right, that will in turn put some pressures on the wage front.",331
-fomc-corpus,1987,Mr. Corrigan.,5
-fomc-corpus,1987,"The New York Bank's Research Department forecast has basically the same bottom line as the Board staff's forecast but there are a couple of very important differences in the assumptions. In the forecast of the New York Research Department--I distinguish that from my own forecast, because sometimes they're not the same--they basically have no further change in the exchange rate over the forecast period from about the levels of the past month or so. Vis-a-vis the Board staff's forecast that really constitutes a very large difference because it reflects not just the 9 or 10 percent [decline that is forecast] for next year but also what happens over the balance of this year. So, the net difference is more like 13 or 14 percent from where we are right now. Now, because we don't have that further decline in the dollar we get some spurious feedbacks from that. For example, in nominal terms, our current account number for next year is actually better than the staff's number even though in real terms the opposite might be the case; it's hard to tell there precisely. But by not getting that further 13 or 14 percent of J-curve effects we actually end up with the spurious result, at least in the near term, of a better current account situation in 1988. The other thing that is true by assumption is that while we have some build up in interest rates I don't think it is quite as sharp, by implication, as maybe what you're talking about, Mike. But we get a different mix: we pick up a little more in terms of domestic spending and a little less perhaps in real terms on the net export side. It washes out in terms of GNP to about the same although, as I said, the current account--which for financial purposes is important--is actually better in 1988. The other thing that is troublesome is that, notwithstanding the fact that we have by assumption no change in the dollar, our price numbers are higher, if anything, than the staff numbers--not by a whole heck of a lot, but they are higher. Indeed, it seems to me that when you look at all the price forecasts that are around, certainly the overwhelming consensus of the forecasts, though not all of them, is for a situation for 1988 in which the deflator either bumps or passes through 4 percent and the consumer price index either bumps or passes through 5 percent. And in some cases the consumer price index gets up into the 5-1/2 percent range. Without being too precise, I am just thinking of those thresholds of 4 percent and 5 percent. I'm hard pressed at this point to see what, short of a recession or some major slowdown in economic growth, will prevent that from happening. In other words, given labor market conditions, import prices, and all the rest, that kind of result seems to me to be almost baked in already. To the extent that developments either in oil prices or other things work the wrong way, so much the worse. So, I find it troubling that--and I'm referring to my personal forecast on this--I end up with such a price outlook, again just focusing on those 4 and 5 percent thresholds, despite a different assumption about the dollar exchange rate. When looked at it in terms of a growth pattern of say, 2-3/4 percent, just to pick a number out of the air, that's telling us that we're at the point where we've got to pay for some of our past sins. If we have faster growth we're going to have more inflation and we're going to have less external adjustment. And when I look at that growth pattern for next year of, say, 2-3/4 percent, I think it's about the best we can possibly hope for.",767
-fomc-corpus,1987,What kind of interest rate increase do you have in that forecast?,13
-fomc-corpus,1987,"It's really quite modest, Bob. I don't have the numbers.",13
-fomc-corpus,1987,Modest?,3
-fomc-corpus,1987,Yes. That's partly because by assumption the exchange rate is unchanged.,13
-fomc-corpus,1987,But the higher inflationary rate doesn't feed through.,10
-fomc-corpus,1987,"This is kind of a mechanical exercise; not in any material way, no.",16
-fomc-corpus,1987,Mr. Boykin.,5
-fomc-corpus,1987,"Yes. My comments can be brief, Mr. Chairman, primarily because for all practical purposes we're right where the staff forecast is--for 1988 at least. We're slightly less optimistic for the remainder of this year; rather than the 3 percent, we see something more like 2-1/2 percent. We question whether there's quite that much strength there. We do see a little price pressure for next year--not anything particularly great, but slightly higher prices. On balance, we pretty much agree with the staff forecast that was just given.",111
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"I want to pick up on Bob Parry's theme, using a money-driven model and extending the debate about what money is growing at right now. Just extending the present growth rate--which for this purpose we assumed to be 8 to 10 percent in M1--into 1988 produced what I would consider unsatisfactory results, with the deflator getting up to 5-1/2 percent by the fourth quarter of 1988. So, in coming up with our projections, we assumed a further degree of restraint in 1988 vis-a-vis 1987, which I guess, Bob, would really translate into another way of looking at your interest rate assumption. The net result was that, basically, in 1987 we tend to be at the high end of the [Committee member's ranges] with a 7-1/4 percent nominal growth rate--3 percent real and 4-1/4 percent deflator. But then in 1988 we're more in the median area with 7 percent nominal, 2-1/2 percent real and 4-1/2 percent on the deflator. But we found, really, the same thing using another type of model.",247
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"Our outlook is quite similar to the forecast that Bob Forrestal gave just a moment ago; namely, we're really very much in sync with the staff with regard to 1987 but our 1988 number is 3 percent. The difference, as I alluded to earlier, is in the consumption area; in each of the three categories of consumption we have a higher level of growth than the staff has in its forecast. The services number seems awfully low, certainly by comparative standards with what we've had over the last few years. And we really wonder if that's realistic. So that's an area of difference. Our inflation numbers are somewhat higher but not much higher than the staff forecast, based principally on the export or the trade side. We feel that higher import prices are going to work their way through to a greater extent than in the forecast that the staff gave.",173
-fomc-corpus,1987,Mr. Stern.,4
-fomc-corpus,1987,"As far as the real economy and real growth are concerned, my own view is very similar to the Greenbook numbers; I think that may be the most likely outlook. But as I suggested earlier, if I were to use something like Mike's interest rate assumptions, I think I would get something that would be considerably weaker. Indeed, some of our more formal models suggested that that would be the case as well. On the other side of the coin, and really sort of putting the dilemma before us, I think the staff has appropriately raised concerns about the price outlook and inflationary pressures as the months and quarters pass here. Again, our more formal models suggested that, if anything, those pressures must come to fruition more quickly and somewhat more severely than the Greenbook forecast and my own judgmental view of how things are likely to unfold. So, I think we are facing some unpleasant choices.",179
-fomc-corpus,1987,Does anybody else feel compelled to say something? If not--you feel compelled to say something?,19
-fomc-corpus,1987,"No, I don't feel compelled.",7
-fomc-corpus,1987,I don't want to--,5
-fomc-corpus,1987,"No, I thought you were stopping the process. Right now I understand you want to eat lunch.",20
-fomc-corpus,1987,"Well, I'd rather eat lunch with everybody having talked on this subject before lunch so we don't return to it after lunch.",24
-fomc-corpus,1987,Issue complete.,3
-fomc-corpus,1987,"It seems to me that there's more assuredness, as I read it, in the 1988 numbers than I quite feel. I'm somewhat more optimistic in regard to the rate of wage pattern change than the staff forecast. But I hasten to add that I believe that if you wait until you do get the wage inflation change that accompanies the staff forecast then it's too late not to have a price impact from that. So I have a very strong resistance to creating an environment in which those wage patterns might develop as the staff and some of the rest of you seem to be indicating. It seems to me, if you look at the wage patterns over the entire decade of the 1980s, that you do see a rather slow, gradual, moderation of wage patterns. And when you look at the kinds of interest rates and unemployment rates that have existed, it seems to me that it takes more of a movement of the actual unemployment rate compared to the assumed natural rate to jar wage patterns out of the existing mold. So I would expect there to be somewhat more delay; consequently, it seems to me that there is some window of opportunity to bring price pressures more in line before a wage adjustment takes place. But I am grateful to the staff for continuing to indicate to me the danger of this because I don't want it to happen.",266
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I don't have too much to add. The numbers I had in mind for 1987 and 1988, at least in terms of real and nominal GNP, and maybe even the deflator, probably are a little more optimistic. Overall, the [Greenbook] GNP and deflator numbers are very close to what I had in mind. Like Governor Heller, I had a slightly different view of the financial implications of that. But there are so many ""ifs"" I really don't know the answer at all.",106
-fomc-corpus,1987,"You had a much lower deflator number for next year if this report is correct. In fact, you have the lowest.",25
-fomc-corpus,1987,"Deflator number? I had 2.7 or 2.8 percent, something like that.",21
-fomc-corpus,1987,"Well, 2.6 percent it says here, but--",13
-fomc-corpus,1987,"Okay. Well, maybe it is.",8
-fomc-corpus,1987,And you're way down at the bottom on the rate--,11
-fomc-corpus,1987,All right. Maybe I was thinking more on--,10
-fomc-corpus,1987,Along with Governor Angell.,6
-fomc-corpus,1987,"Yes. Well, what does the staff have for the deflator?",14
-fomc-corpus,1987,3-3/4 percent.,7
-fomc-corpus,1987,"3-3/4 percent? I guess it is different. But the main issue is that there are so many ""ifs"" I don't know where to start. One story that's being told here that I think would alleviate some of the financial implications is that we're shifting resources into an area where there's a lot slack in the economy. The whole trade area that we have growing here is one that has a large degree of slack. We are shifting from a service base into trade-sensitive manufacturing areas where capacity utilization rates are extremely low. I agree that there are some sectors that are doing quite well, like paper or others like that. But basically, we're shifting resources out of the service area toward the trade-sensitive areas; and productivity has been high in those areas. Employment growth has been very small, and whether employment demands will pick up in the area, I don't know. But, given the utilization rates and the productivity rates consistent with those sectors, there's a good chance that they won't increase labor demand dramatically and that output will be satisfied otherwise. If that's the case, we're [not] going to be seeing the kind of wage pressures that one might expect and we may not see a big reduction in the unemployment rate associated with the output growth that we're forecasting. So, that's sort of my expectation; the direction things are shifting would tend to indicate that the kind of pressures we might expect would not be as great. That's just a notion; I don't really know.",291
-fomc-corpus,1987,"I don't know; I would like to believe that. And if you look at just goods versus services it sounds right. But if you look at goods, I wonder whether that is a likely result. It cannot be resolved today, but if you look at it industry by industry where is the trade improvement likely to take place? Would you, in fact, find substantial amounts of slack? In some cases yes and in some cases no, I suspect. But where does the balance lie?",97
-fomc-corpus,1987,"Well, I think just as--",7
-fomc-corpus,1987,You're not going to tell me right away.,9
-fomc-corpus,1987,"I don't know the answer. But if you just accept the principle--which I think we've all accepted up to this point--that the trade-sensitive sectors have been severely damaged by the changes in the trade imbalances, it seems to me that you have to accept that there's slack there in reversing it.",60
-fomc-corpus,1987,"Okay, there is in some industries; paper, for instance, is a leading example. In lumber I don't know--maybe there is and maybe there isn't.",32
-fomc-corpus,1987,"Well, maybe it's not true that trade has been damaged.",12
-fomc-corpus,1987,"It has been damaged because some industries have contracted; and in some cases where it has been damaged it isn't going to recover. The recovery is going to be in different industries than where some of the damage took place, I think. But if we compromise--",51
-fomc-corpus,1987,"Yes, but capital goods, autos, that whole area--",12
-fomc-corpus,1987,"Well, look at it. How much capacity have you got on autos? I don't know.",19
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,I'm just saying the total rate is around 79 percent and that's very low. It seems to me that's got to be weighted toward the trade-sensitive sectors.,31
-fomc-corpus,1987,"I would like to see an analysis after lunch. Does anybody else have anything to say before lunch? If not, we'll go to lunch. [Lunch recess]",32
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,"Just a technical question: In 1987 what growth would be needed in M2 to hit the bottom of the current range for the year? Arithmetically, what does it take?",39
-fomc-corpus,1987,About 7-1/2 percent.,9
-fomc-corpus,1987,From June to December.,5
-fomc-corpus,1987,Yes. It would be about 6-1/2 percent on a QII-to-QIV basis. But given where we are in terms--,30
-fomc-corpus,1987,7-1/2 percent brings it into a [unintelligible] 5-1/4 percent.,24
-fomc-corpus,1987,That will bring it to 5-1/2 percent.,13
-fomc-corpus,1987,5-1/4 percent. Not just for December--,12
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,One historic question is bound to arise. What is the record in changing these targets at midyear?,20
-fomc-corpus,1987,We have never changed an M2 or M3 target at midyear; we have changed M1.,21
-fomc-corpus,1987,We have changed M1.,6
-fomc-corpus,1987,"We have rebased it, we have widened the range, and we have abandoned the range. We have done all sorts of things. We have never changed the M2 and M3 targets at midyear.",42
-fomc-corpus,1987,"Stated another way, we've changed the target that was the most operative.",15
-fomc-corpus,1987,"One down, two to go.",7
-fomc-corpus,1987,"Why don't we concentrate mostly on 1987 now? Somebody commenting on 1987 might want to say something about 1988 but primarily concentrate on 1987 where the choices are more limited. We are running within the debt range, so I presume that nobody is going to want to change the debt target. There's some bias against changing these things. Does anybody want to raise a big question about M3? I just want to see if I can narrow this [discussion] at all. Now we might want to say something or leave open the issue of our willingness to fall short or overshoot, or where we'd like to be in the range, or whatever. But so far as any formal change in the ranges, we are talking about M2. Who would like to say something? Mr. Black.",163
-fomc-corpus,1987,"Mr. Chairman, in reading this discussion of the alternatives in the Bluebook, I was struck by the difference between the way some of us used to view these ranges several years ago and the way in which we are approaching them now, which seems to me to be very different. In the past, some of us thought of these aggregates as intermediate targets and we selected ranges that we felt would be consistent with progress against inflation in the context of reasonable economic growth. And, of course, one of the advantages of this fairly direct relationship was that we made an announcement on the ranges and it was reasonably clear as a signal to both the public and Congress of what our intentions were. This present approach is, I think, very different from that. What we are doing now, as I think the Bluebook makes very clear, is projecting a broad path of interest rates that we think will be consistent with a desirable economic outcome and then we project the ranges for the aggregates that we think will be consistent with that interest rate path. Now, I realize that the increased sensitivity of the aggregates to interest rates makes this a logical move but I worry that this approach, if we follow it too slavishly, is going to lead us to deemphasize the aggregates to such a point that these ranges will cease to be reasonable signals to the market as any kind of confirmation of our longer-term objectives. Thus, I would have some reservations about reducing this 1987 range for M2 even though I recognize that a good case can be made for doing that on the basis of the prospective behavior of interest rates over the next 18 months or so. I think some professionals in the market would clearly understand what we are trying to do; but I think there would be a lot of other people who would not understand it. They would likely interpret it as a considerable move toward ease in the short run, which seems to me to be pretty unwise, given the uncertainties regarding the overall economy and inflation. So I think a better approach would be to leave that range unchanged and state explicitly that there is a possibility that it may be appropriate to come in under the range if the recent trends in velocity continue. If you want me to go on to 1988 I would say that I would take alternative II, which would reduce all the ranges. If we do that, though, I think we ought to have a sentence, which I would be glad to suggest if anybody has any sympathy with this, to explain the rationale behind why we are reducing these ranges--that the further reductions are going to be required over time if we are going to extend the recent progress we have made against inflation.",533
-fomc-corpus,1987,We can get back to M2 in 1988 in time. Mr. Parry.,19
-fomc-corpus,1987,"Well, I will confine my remarks to 1987 and M2. I think that there is a compelling reason to reduce that range. Projections that I have seen, including the Board staff's, would indicate that the growth is going to be about 4-1/2 to 5 percent. If indeed that is what the growth is likely to be, why don't we change the range? And 4-1/2 to 7-1/2 percent makes a lot of sense to me.",105
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"Well, Mr. Chairman, I think we ought to stay with the historical precedent that we have established and not move M2 at midyear. First of all, I am not really concerned very much about the shortfall in M2 that we have had. The indicators suggest that the expansion is not really in any kind of jeopardy and our discussion this morning, I think, confirms that. Also, it seems to me that to change the range now would suggest a degree of precision that I don't think we really have. So I would not be in favor tinkering with M2 at this point. I would rather explain it; and I think it can be explained in terms of a period of slower growth after a period of more rapid growth. And perhaps even more importantly, it could also be said that the growth was too rapid in the past. So again, I would leave M2 exactly where it is for 1987.",188
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"I would favor leaving the target for 1987 the way it is. It seems to me that it's better to perceive the targets as being what you are trying for and subsequently, if reasons cause you to miss, to miss. I would rather explain the miss than have new targets. Having a new target almost gives you the notion that it is more important. And if you choose that new target of 4-1/2 to 7-1/2 percent, it is entirely possible that conditions would be such that 7-1/2 percent would be too fast a growth path. So I think it would be confusing, non-helpful, and unnecessary.",135
-fomc-corpus,1987,"You confused me a bit. Let me ask you a question. I don't remember your exact words, but [the thrust was that] they are real targets and we don't change them but explain if we are going to miss them. Are you really going to try to make it [into the range] by not changing them?",65
-fomc-corpus,1987,"No, I would not at this point, unless developments in the economy gave us a clearer signal than we now have. I would not try for the 7-1/2 percent [second-half] growth path it would take to get there.",50
-fomc-corpus,1987,Not try for the 7-1/2 percent?,12
-fomc-corpus,1987,I would not try.,5
-fomc-corpus,1987,You don't really consider it a target in that sense. I am just trying to clarify your view.,20
-fomc-corpus,1987,I would consider it the best target we knew how to come up with in February of 1987. To try to adjust the target [unintelligible] the targets in my view. It was the best indication at that time of what we should have. And I think we've learned with M1 that there are conditions under which one better not try to alter--,74
-fomc-corpus,1987,You are not arguing to make 5-1/2 percent a minimum at this point.,19
-fomc-corpus,1987,That is correct.,4
-fomc-corpus,1987,Do you think that is the best target today?,10
-fomc-corpus,1987,"Well, I would prefer that we would have something in our language. As you may remember, in March we chose the words 6 percent or less [for the March through June period]. We can have a short-run range as an appropriate signal in the market that does not necessarily have to move growth back within the long-run target range.",68
-fomc-corpus,1987,"But if you thought that the best target was 5-1/2 to 8-1/2 percent before, and now six months later you think that it is something lower--which I think most people do even though they say don't change the target--why wouldn't you want to communicate that?",61
-fomc-corpus,1987,"The whole issue is--and Mr. Kohn, this is a question that you can answer--have we ever before said explicitly that we have this target but we expect to come in below it or above it?",43
-fomc-corpus,1987,"We did in the early 1980s, I believe. We were under the M1 range, and probably ended up--",26
-fomc-corpus,1987,"We have often said the low end or the high end, or whatever. I am asking have we ever said we expect to end up above or below the range.",33
-fomc-corpus,1987,"That, specifically, I don't know. However, M1 last year is an exception.",18
-fomc-corpus,1987,"Let me ask: One would have to look back at the February record, but I thought we had qualified our target by saying it was interest sensitive; we said something about the fact that if certain conditions developed, we might expect a more appropriate range to be--. Maybe I am wrong about that.",60
-fomc-corpus,1987,"We simply said it was interest sensitive. I don't remember the exact words, but we said something about particularly at the beginning of this year, which I just have no recollection of. It bears upon this question of whether we would more readily or not change the target. I ought to know; I don't recall.",63
-fomc-corpus,1987,"Finally, I would say if we choose to change the target, why 4-1/2 to 7-1/2 percent? It would seem to me at this point that that might be a higher path than we would want to use. I am not positive but perhaps a 3-1/2 percent growth path in M2 should be tolerated under certain conditions. So, I don't want to change it. If we changed it now to 4-1/2 to 7-1/2 percent then I would feel more--",112
-fomc-corpus,1987,Then you would feel more compelled to try to meet the 4-1/2 which you may not want to meet.,25
-fomc-corpus,1987,That is right.,4
-fomc-corpus,1987,"Mr. Chairman, I am looking back over the M2 and M3 targets, relative to where we were in June when we considered them. There is only one other year in which we were substantially away. In other cases we've been less than a point or so away and very well could have said something, as Mr. Prell indicated, around--",71
-fomc-corpus,1987,"We have often said we expected it to be higher or lower within the target. But I don't recall offhand our saying, though we might have--",30
-fomc-corpus,1987,"I think we have at times used the word ""near""--indicating that we expected to be near the upper end or near the bottom end, with ""near"" meaning we could be a little out of the range or a little within.",48
-fomc-corpus,1987,Who else wants to talk about the substance? Mr. Guffey.,15
-fomc-corpus,1987,"Mr. Chairman, I would opt to retain the ranges for 1987. In listening to Don Kohn, and if I read the Bluebook correctly, the reason that we would be at or below the range is the anticipation that interest rates will rise. If interest rates remain at current levels or somewhat lower, then I believe the projection is that we would come within the ranges established in February. I don't--",83
-fomc-corpus,1987,Is that correct?,4
-fomc-corpus,1987,I think we would just about make it. It makes about a 2 percentage point difference in our second-half growth.,24
-fomc-corpus,1987,With the current levels of interest rates?,8
-fomc-corpus,1987,"At the current levels of interest rates. It would be a close call but, at least if we believe the differences in the models, the interest elasticity in the models say it will be--",38
-fomc-corpus,1987,You say it will be at 5-1/2 percent or close to 5-1/2 percent?,24
-fomc-corpus,1987,Just around 5-1/2 percent.,10
-fomc-corpus,1987,"My point is that if we change the ranges now to lower them, it does imply that we believe interest rates will rise over the next six months. I am not prepared to make that kind of assumption.",41
-fomc-corpus,1987,Mr. Boykin.,5
-fomc-corpus,1987,"Mr. Chairman, I would not change the ranges here at midyear; most of the reasons have been given. One other thing does occur to me: it seems that if we did, say, want to go to alternative II, it would limit us somewhat as to what we were going to do for 1988. If we do the midyear correction, the change would imply some precision; I would rather wait and make that judgment. In the final analysis, looking out to 1988 and given my view of the economy for the second half of this year, I would not want to do anything that would give a signal that would imply possibly higher interest rates. So I would leave it alone.",142
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,"I would leave it alone. I don't think it's a big issue. Frankly, I am pretty close and could go either way. Whether we lower it or keep it the same, I doubt very much that it is going to have much impact on our policy decisions, because I suspect that our policy is going to be much more dependent upon foreign exchange markets and the domestic economy and considerations like that rather than the range. I would keep it the same and just indicate that it will be near the bottom and be a little vague as to whether it could go outside the range or stay in by a margin.",121
-fomc-corpus,1987,Mr. Stern.,4
-fomc-corpus,1987,"I have a mild preference for just leaving it at the 5-1/2 to 8-1/2 percent range. At this point I am not troubled by the shortfall. The only other thought I would add is that if, as a technical matter, we are troubled by the prospective slowing, we might simply broaden the range to something like 4-1/2 to 8-1/2 percent on the grounds that that is all we are doing, broadening it. It really has no other significance. It would raise the probability that M2 will come out within it.",122
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I don't think I would change the range either. I would leave it, mainly because I think it does imply some interest rate forecast. If interest rates stay where they are then this target is probably appropriate. And not knowing exactly what the course [of interest rates] is going to be at this point--that is more of a series of short-term policy decisions--I don't see any point.",79
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"I would leave it the same as well. I agree with Ed Boehne, [unintelligible] I don't think it is a particularly good intermediate policy guide. We know it is not how we are going to run policy. And looking at it on a long-term basis, it looks to me like velocity growth has been essentially zero over a long period of time. That would be consistent with our GNP forecast for the year; it would fall right about in the middle of a 5-1/2 to 8-1/2 percent range. And finally, I think this signal effect point that Roger Guffey and Manley Johnson raised is also an important one. I don't think that this is necessarily a time when we want to send a signal that we're somehow tightening up policy further. The recent actions have gained a lot of credibility in terms of the willingness of this group to respond to pressures. Those pressures don't seem to be on the table right now, so why send that signal and potentially destabilize things?",209
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"For once, I agree with everything that has been said so far, more or less.",18
-fomc-corpus,1987,Mr. Morris.,4
-fomc-corpus,1987,"I don't think this is a world-shaking issue, but I have a slight preference for a change to a lower range. We have a number of times gone before the [Congressional] Committee when we have been in a little embarrassing position of having the targets, particularly M1, running over the top. It seems to me we might pick up a couple of minor credibility points by revising the M2 guidelines down. I don't see any harm that could come from it. So I say, why not?",103
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"Well, for all the reasons stated, I am in favor of maintaining the current range. The only thing I might say that is slightly different is that I think there is a message effect in all this. I think the economic results have been and look to be pretty good. A change in the range might imply some kind of policy change and I don't favor that. On top of it all, it is an awkward time to be considering change.",89
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,I'll be brief. I favor maintaining the ranges of alternative I.,13
-fomc-corpus,1987,Mr. Corrigan.,5
-fomc-corpus,1987,"I'd keep the range, too. What I would be prepared to say is that, in a context in which velocity was continuing to [rise], I would be willing to tolerate a shortfall.",39
-fomc-corpus,1987,"I would leave it the same for all the reasons that have been stated and perhaps one that has not quite been stated. And that is that [given the precedent] of not doing it at midyear in the past, as I understand it, I think we might confuse the market unduly and unnecessarily and perhaps send mixed signals that could be counterproductive.",71
-fomc-corpus,1987,"I am not sure I understand the signal argument. I think it depends on what we say, not whether we change. If we said nothing and didn't change the target the presumption in the market would have to be that we were going to ease.",50
-fomc-corpus,1987,It seems to me that seeing the same target would leave the understanding that at the current level of interest rates we would get back to the target by the end of the year.,35
-fomc-corpus,1987,There are some odds on that.,7
-fomc-corpus,1987,That's the best guess.,5
-fomc-corpus,1987,Less than a 100 percent.,7
-fomc-corpus,1987,"Yes, but that is your best guess.",9
-fomc-corpus,1987,His best guess is that it's going to be in some range of outcome that is barely at the bottom of the target and that to be safe we would reduce the target.,34
-fomc-corpus,1987,"Well, it all depends. If the implication is that we are just reducing the target to respond to interest rate levels in the past, that is one explanation. If that is the explanation then I feel less uncomfortable about it. But another plausible explanation is that you expect interest rates to rise in the future. It would depend on which one of those we would use--",73
-fomc-corpus,1987,We have to decide what to say. I would not say we are reducing the range because we expect interest rates to go up. That would not be suitable. In fact--,35
-fomc-corpus,1987,We expect an increase in velocity.,7
-fomc-corpus,1987,"Over the year as a whole, given what has happened, given where we are, and so forth--",21
-fomc-corpus,1987,I think some people would read through that.,9
-fomc-corpus,1987,"Well, why don't we return to this issue of what we say. Let's look at the next issue, with a bigger range [of options] being displayed before us.",34
-fomc-corpus,1987,For 1988 I'd select alternative II. I think it is important to continue to give the signal that we are adjusting the ranges to move toward price stability and I think that all of those ranges are appropriate for what we expect for nominal GNP next year with some continued resistance against inflation.,58
-fomc-corpus,1987,"You would be explicit. You are saying alternative II is lower than--. No, we haven't set any tentative range.",24
-fomc-corpus,1987,The only thing I would say is that I might favor just a 5 to 8 percent range on M2 instead of a full one point reduction to 4-1/2 to 7-1/2 percent. I might be a little more comfortable with 5 to 8 percent rather than 4-1/2 to 7-1/2 percent.,77
-fomc-corpus,1987,"5 to 8 percent is alternative II, isn't it?",12
-fomc-corpus,1987,"No, alternative II is 4-1/2 to 7-1/2 percent.",20
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"That's exactly where I would come out, Mr. Chairman. I think it is very important that we send a message to the public that we are still committed to the fight against inflation. We have had that inflation this year and I think the markets need to know that we are not going to validate that. But having said that, I would be a little reluctant to send too strong a signal--which alternative II implies to me--that we would foresee a need to tighten aggressively. I think the middle ground of reducing it about one half percentage point, which is typical of what we have done in other years, would be appropriate. So, I would like to go with 5 to 8 percent.",141
-fomc-corpus,1987,Could I ask: What is our record of reducing the ranges over the last few years? Have we tended to move about 1/2 point?,30
-fomc-corpus,1987,"Yes. The Committee has reduced them nearly every year, and more often than not by a half point. In 1984, M1 and M2 ranges were reduced by one full percentage point, but usually it has been one half point.",49
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,I like alternative II as it stands. It is true that for most recent years we have reduced it by a half point. But I think this time we have a good technical reason for going to a full point reduction and I would take advantage of it because some years we may not be able to reduce it at all.,64
-fomc-corpus,1987,"I'd vote with Governor Johnson and President Forrestal for the 5 to 8 percent because it does send a signal. And it does give us a chance in January or February, when we reconsider this, to come back to the lower number. I would be very happy if conditions were such next winter that we would want to go ahead and take the range down another half point. But I would hate to take it down a full point now and have to bring it back a half point next winter.",100
-fomc-corpus,1987,Mr. Boykin.,5
-fomc-corpus,1987,"Alternative II is where I would be. I have a preference for going down the half point, although I am not totally hung up on it. I could go with a point, but my preference would be the half point.",45
-fomc-corpus,1987,Mr. Parry.,5
-fomc-corpus,1987,"I would favor alternative II as it is, mainly because the kind of growth rates of the aggregates that we see for next year are consistent with that. As a matter of fact, if one were to look at the projections more precisely, growth of M2 is at that lower end of 4-1/2 percent and one could even argue for a slower growth. I don't know, but perhaps the projections of those who are supporting 5 to 8 percent do have 6-1/2 percent growth of M2 in their forecasts. I just find that difficult to see.",118
-fomc-corpus,1987,"It all depends. If you have stable interest rates next year, you've got--",16
-fomc-corpus,1987,But if you have stable interest rates what inflation rates do you have?,14
-fomc-corpus,1987,"Well, I don't know.",6
-fomc-corpus,1987,"That's sort of the critical question though, isn't it?",11
-fomc-corpus,1987,"Well, no. I think the point, once again, is that we can't control precisely the mix of nominal GNP. You have to have some idea of what kind of nominal it would allow for and hope that most of that growth shows up in real. Most of the determination of the mix is structural.",62
-fomc-corpus,1987,I think that interest rates have an effect on the real side as well.,15
-fomc-corpus,1987,"Good. That's it, stable interest rates; it depends on what you say about it.",18
-fomc-corpus,1987,"On our staff forecast, from February you would end up with alternative III if you take [unintelligible] as certain.",26
-fomc-corpus,1987,"If you were to center on the staff's best guess, alternative III would be more like it. Our estimates are similar to President Parry's estimates. We have essentially the same underlying economic forces at work: a lower dollar, a little more inflation, and a little higher interest rates.",58
-fomc-corpus,1987,"What concerns me is that if one goes to these higher rates, one is implicitly saying ""I am comfortable with the potential for higher rates of inflation.""",30
-fomc-corpus,1987,"No, that's not true. No.",8
-fomc-corpus,1987,Show me the analytic work that leads you to a different direction.,13
-fomc-corpus,1987,It depends on your interest rate scenario.,8
-fomc-corpus,1987,"But that is not independent of what happens to inflation. For example, work that the Board staff has done and work that we have done would suggest that if you don't get those kinds of increases in interest rates, it has an impact on inflation. Would your work show that? What if M2 rose 6-1/2 percent or to the midpoint of the 5-1/2 to 8-1/2 percent range? What would happen to inflation?",95
-fomc-corpus,1987,I think you essentially asked Mike that question before about--,11
-fomc-corpus,1987,There are too many unknowns in this equation.,10
-fomc-corpus,1987,"If there are too many unknowns, what do you do? How do you proceed?",18
-fomc-corpus,1987,You've got to make some assumptions. We are making different assumptions.,13
-fomc-corpus,1987,"A lot depends on what happens to your Federal government deficit, and obviously, the difference between what the staff has said and what other people say.",29
-fomc-corpus,1987,I think it is dangerous.,6
-fomc-corpus,1987,"Bob, you see, I just want to leave room for selecting the range next January. I don't want to do it now. Why not make the gesture that we have always made, which is a half percent again? And then we have room to go further in January. The last thing I want to do is to go [down] too far and then end up having to back up. I might be ready to take the 4 to 7 percent, closer to alternative III, next January.",101
-fomc-corpus,1987,"If interest rates rise as in the staff projection in the end, in January we'll build that into our M2 forecast for 1988. I don't think there is any doubt. We are not saying that we wouldn't support the interest rate rise; it is just a matter of opinion about how the scenario is going to go.",65
-fomc-corpus,1987,I don't want to build in a possibility of an easing signal that is inappropriate because we got the number too low now.,24
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,"I'd also favor alternative II. I don't feel strongly between 4-1/2 to 7-1/2 percent and 5 to 8 percent but I would have a slight bias for the 5 to 8 percent. In July, February always seems like a long time away. But this year it seems like a particularly long time away. I would be very tentative in the language for the reasons that Governor Angell has pointed out. I would prefer to go to the 5 to 8 percent now, and if there is room to go to 4-1/2 to 7-1/2 percent when we get to February, I think that would be the appropriate direction, as opposed to the alternative direction.",150
-fomc-corpus,1987,Mr. Stern.,4
-fomc-corpus,1987,"I, too, would favor alternative II with the modification of 5 to 8 percent on M2. It seems to me that, in terms of the signal effect and working toward progress on price stability, at least at this point in time, alternative II would demonstrate that concern. The uncertainties in the outlook remain sufficiently large that I would be a little reluctant to want to overdo it at this point.",82
-fomc-corpus,1987,Mr. Hendricks.,6
-fomc-corpus,1987,"Our projections follow very closely those of the Greenbook and as we try to lay that against our forecast, we come up with the suggestion that interest rates can't stay where they are. And the alternative that best seems to fit our projection is really alternative III. So we would suggest that we make that move, whether we stick with it exactly the way it is put here, 7-1/2 percent or something in between there. Alternative II would be all right with us. But alternative III is the one that we would favor over the other two alternatives.",112
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"Well, just to take advantage of the full range of alternatives, I will vote for alternative I, primarily because the staff's beautiful forecast failed to convince me that the economy is as strong as we would like to see it and as they suggested it is. I am also less confident about the outlook for the economy. I would like, of course, to see the strong trade turnaround, and I hope it takes place; but I am not really convinced that it will to the extent that they are assuming. So I would prefer to go with 5-1/2 to 8-1/2 percent again, with the understanding that we have another crack at this early next year. If I am wrong and the economy is roaring along, then certainly it can be adjusted and I don't think anything will have been lost. We'll have plenty of time to send signals to the markets, in my judgment.",181
-fomc-corpus,1987,Mr. Corrigan.,5
-fomc-corpus,1987,"My preference is alternative II as is. But if there was something of a consensus to go 5 to 8 percent on M2, then I would make a formal suggestion that we make the ranges for both M2 and M3 4 to 8 percent.",54
-fomc-corpus,1987,"Make it 4 to 8 percent, Jerry, did you say?",15
-fomc-corpus,1987,"My preference is alternative II as is. What I said is, if there was a consensus to make the M2 range 5 to 8 percent, I would then suggest that we make both M2 and M3 4 to 8 percent.",51
-fomc-corpus,1987,"Don, what would you say is the trend velocity in M2 right now? I threw out zero before as the trend velocity growth. Is that fair?",31
-fomc-corpus,1987,I think that is as close as we can estimate.,11
-fomc-corpus,1987,"One of the things that concerns me a little is that we get down to ranges that embrace trend velocity growth and factor in what we expect in nominal GNP and the ranges roughly bracket that. If we start to take into account short-term velocity behavior to drop the ranges down even further, that's almost building in the fact that at some point down the road we are going to have to jack them back up and move them around. Maybe this is a historical question in terms of what the tradition is. But I would tend to view these, particularly for M2 and M3, as much longer-term. I would be comfortable, therefore, embracing a trend velocity concept together with a nominal GNP forecast; and that would lead me roughly to the 5 to 8 percent range for M2, which is what I would favor. I think there is a danger if we get these ranges down so far that, first of all, we are almost making it necessary to project interest rates to set the targets because of the sensitivity of velocity to interest rates. Also, later we might get into the situation Wayne described where just because we change our outlook and interest rate forecast, we're jacking them up and sending a false signal.",244
-fomc-corpus,1987,Mr. Kelley.,4
-fomc-corpus,1987,I would just like to go on record as saying that I prefer alternative II with the 5 to 8 percent range on M2 for basically many of the reasons that I've heard already expressed here; no others occur to me.,46
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"I would be hard pressed between alternatives I and II, but with the 5 to 8 percent modification I would go for alternative II.",28
-fomc-corpus,1987,"Is there anyone we haven't heard from here? Mr. Morris, then Mr. Guffey.",20
-fomc-corpus,1987,"I would go for alternative II as written, Mr. Chairman. I don't have the concern that Tom Melzer expressed that we are going to lock ourselves into a range for M2 that is going to be too low. I can't foresee in the years ahead when we would want nominal GNP growing faster than 7-1/2 percent. So that doesn't trouble me.",75
-fomc-corpus,1987,"I would opt for alternative II with the 5 to 8 percent, simply because I've been persuaded to keep a little of the powder dry. If indeed in February alternative II of 4-1/2 to 7-1/2 percent looks appropriate, we would have an opportunity to adjust it at that time. I wouldn't use up all my ammunition in midyear when it doesn't mean a whole lot for the next year.",87
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"Mr. Chairman, I indicated earlier at the time I was talking about 1987 that I would be in favor of alternative II. I still feel that way.",33
-fomc-corpus,1987,"There is one peculiarity about ending up with 5 to 8 percent [for 1988] if we say we are sticking with this present [1987] target which we expect, with a high degree of probability, to come in below. Are we saying we expect 1988 to be higher than 1987? What is the implication of that?",75
-fomc-corpus,1987,We have had that situation many times before in reverse--where we have overshot and then we still adopted a lower growth range and there wasn't necessarily any change in policy implied by that.,37
-fomc-corpus,1987,"Well, I'm going to make a little case. I think these are too high. What do we want to do? We have an outlook here which is always uncertain in real terms. It is quite satisfactory; it's about the best you could hope for if you believe the staff analysis of a slow growth domestically and a pickup externally. Nobody has discussed the point that Mr. Prell made initially that we had quite slow--people like to call it sluggish--growth and a decline of one half percentage point or more in the unemployment rate in the past year. I am not sure we could stand vigorous growth and a decline of 2 percentage points in the unemployment rate in the next year. I don't know how you resolve that little dilemma. It seems to me that it is perfectly evident that the forecast the staff has for prices--though I am not sure that it is right--leaves us in a totally unsatisfactory position a year from now, with the inevitability of a sizable recession if we are going to have any chance of restoring price stability. Once that gets built into the wage outlook, it is just a question of when; it is going to be messy. I am not sure that is the outlook. I find it a little difficult to think that the prices are going to be that high with the wages at the moment being as good as they are. But certainly, the recent evidence is not very good in terms of what is happening in prices despite the performance on wages. I would agree with what you said, Mike, that once it has broken the wages, you're dead. And a lot of hard work will come unwound. What can we do about it? We only have one tool. For one thing, I would play for stability of the dollar, unlike the staff forecast. And I would not take a further aggravation on the inflation rate or risk there and hope that a further decline in the dollar is not needed to produce the uncertain trade effect. I would certainly work on the budget deficit. There's not much we can do about it, but at least we get some protection on the growth of domestic consumption as well as on the financial side and interest rates. I worry about minimum wages and all that stuff. Now, when it comes to monetary policy, I would be cautious. I think it would be a big mistake not to be cautious. We have talked about a half percent here; it's imagery, but that is where I would come out. I think it is very hard to present a suitably cautious outlook without changing the range this year. I suppose we can decide that we will probably come in low and we are willing to. But we are going to have a higher rate next year that encompasses a more or less satisfactory nominal GNP growth but assumes a totally unsatisfactory price level. That is my speech for the afternoon.",572
-fomc-corpus,1987,"If you took one of these--the 1987 or 1988 ranges--and you changed one, which one would you prefer to have lower?",31
-fomc-corpus,1987,"For 1987 it is so much a matter of the way we present it; I think it makes very little difference. If we say we are not in the practice of changing the range--which isn't quite true when we are looking at M1--and we are going to keep the range but we really expect to come in low, Mr. Proxmire will say: ""Why the heck didn't you change the range?"" If I were testifying, I would be hard pressed to answer that question. I would mumble that the Committee didn't want to but nonetheless we think it is going to come in low and eventually we would go on to the next question. I can survive that. I think the way we're sending the message is more in the 1988 ranges than [unintelligible], providing that we say we are willing to come in low in 1987. If we are not going to come in low in 1987 then we are actually saying--these are going to get quite exaggerated--come hell or high water, we are going to get it up in the second half of the year with the implication that that takes a more aggressive easing stance for which we're going to vote.",243
-fomc-corpus,1987,"But let's suppose there is one chance in five that the economy in the third quarter and the fourth quarter will be lower than our estimate. Now, I don't think that's what is going to happen. But I don't feel certain enough that I am willing to make a big stand over a 1988 target range at this point, have the economy come in weak, and then have to reverse. That is, with 6-1/2 percent nominal, one can have very modest inflation--less than 4 percent; that's very plausible.",108
-fomc-corpus,1987,"Barely less than 4 percent. In GNP, I make an assumption, and maybe its wrong, that you cannot have the economy grow 3 percent from here on out through the next 18 months, just based upon recent experience. The unemployment rate is going to be 4-1/2 to 5 percent, which I think is going [down] too fast on the unemployment rate in terms of the future stability of the economy. Therefore, if it can't be 3 percent real and it is 6-1/2 percent nominal, we are going to see 3-1/2 percent on the GNP deflator and 4-1/2 percent on the consumer price index.",145
-fomc-corpus,1987,"Once again, it depends upon your view of how this whole scenario develops. If the growth is in the trade sensitive areas where there has been a lot of slack and the employment gains are not expected to be strong, then there might not be a reduction in the unemployment range consistent with 2-1/2 to 3 percent growth [in real GNP]. I think that is a perfectly plausible scenario. To remain competitive you want to maintain those productivity gains.",93
-fomc-corpus,1987,I grant you that; I hope that is what happens. We can get reasonable growth consistent with sufficiently less inflation than is in this forecast. If we can't we're in trouble.,35
-fomc-corpus,1987,"Paul, I very strongly share your view on what, in my view, is the most important issue and that is whether or not we are ready to have the dollar sustained.",35
-fomc-corpus,1987,That's one of the issues.,6
-fomc-corpus,1987,"Because it seems to me that we will quite likely have another period in which the testing of that will occur. But I would prefer not to have to test the dollar declining in an economy that is particularly weak. It seems to me that if we have an economy that is particularly weak and then we have a declining dollar, that is indeed the worst of all worlds. And so, I feel strongly and sympathize with you in regards to the dollar. But I want to be ready with ammunition to do the job when that needs to be done. I am not sure whether this is that significant an issue--",121
-fomc-corpus,1987,"For the next few months, I don't think this is an issue at all. That we will get to in a minute.",25
-fomc-corpus,1987,"Mr. Chairman, one of the reasons I suggested alternative I was that I thought it would be easier for you to explain to the public. You are saying to me that for 1987 alternative II, in your judgment, would be much easier to explain, I think.",55
-fomc-corpus,1987,"I think that is incidental. It is easier to explain at first blush, but we can do either one for 1987. I think if we've got a real [unintelligible] what we say for 1987. It's one thing to say we are staying with the range, but we are perfectly prepared to come in below it if that is the way things work out. Or we say we are sticking to the range and mean it.",91
-fomc-corpus,1987,"If we don't go with alternative II, I think we need to go with alternative III for 1988.",22
-fomc-corpus,1987,I don't want us to lower the ranges for this year and then say we mean it. Because then we get into a situation that requires another move.,30
-fomc-corpus,1987,You're saying lower the range for this year? Or do you mean lower the range now for next year?,21
-fomc-corpus,1987,"No, I said this year.",7
-fomc-corpus,1987,"I don't know what the arithmetic is. I am not arguing about it. I don't much care whether it is lowered this year; it's a little awkward to explain. If we didn't lower it this year, from now to the end of the year at what rate of speed would M2 have to grow to exceed the 7-1/2 percent?",71
-fomc-corpus,1987,To exceed 7-1/2 percent would probably take 11-1/2 percent. It takes 7-1/2 percent [from now until year end] to get 5-1/2 percent. I assume it would take about 11-1/2 percent to get 7-1/2 percent.,69
-fomc-corpus,1987,"11-1/2. I don't think it will exceed the upper end of the range, whatever we do.",23
-fomc-corpus,1987,Of course.,3
-fomc-corpus,1987,"There is really no expectation that we should change the range. The world isn't waiting for us to make a decision on changing or not changing. We have never changed an M2 or an M3 target. So, if we let the target--",49
-fomc-corpus,1987,"Yes, but we have never had an M2 or M3 target come in this much below, or even above, the range.",27
-fomc-corpus,1987,One thing I don't understand is what you think the interpretation of not changing it would be. Wouldn't not changing it indicate--,25
-fomc-corpus,1987,"Most people said don't change this year; that is what everybody [who has a vote] said. Now, what I don't know--we have to return to what we mean by that. What do we want the explanation to be? We are not changing it this year. We think it is inappropriate to change in the middle of the year unless there is a very strong reason. But, given what has happened in the first half of the year, we anticipate that it is quite likely that we could come in below the bottom of the range. I think that is what I heard most people say.",120
-fomc-corpus,1987,There is a high level of uncertainty. Our results so far have been quite different than one might expect; that level of uncertainty continues and that's how the rest of the year might play out.,38
-fomc-corpus,1987,I would say that the price level pressures became such that it was appropriate for us to undertake policies that resulted in coming in under the range because of our high priority on price level stability.,37
-fomc-corpus,1987,"When you put it that way, the next question would be: What is that level of prices that gives you that? I would be a little more vague.",32
-fomc-corpus,1987,"I suggest ""be prepared to tolerate."" I think that is a little different from saying we expect. We would be prepared to tolerate it coming in somewhat below.",32
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,"I would start with velocity: If velocity of M2 continues to [rise], as in the first half of the year--",25
-fomc-corpus,1987,"It seems to me that what you want to say is: given our modest tightening actions to deal with the inflationary pressures that have built up, interest rates have strengthened some; that has put some upward pressure on M2 velocity and M2 has weakened somewhat relative to the targets. Assuming no further changes, I don't know what you say about future policy, but [unintelligible] it's still plausible. I would want to say it is still plausible that we will reach the current target. It is doable.",103
-fomc-corpus,1987,"""Tolerate"" is a good word.",9
-fomc-corpus,1987,"""Tolerate"" leaves you open to hit the target.",12
-fomc-corpus,1987,"I am not sure that the best choice for 1987 isn't in part determined by what we do in the short run, because if we are not going to send a signal of any action there, then it makes it a little easier to explain no change for 1987. If we decide to take some action, I think it becomes a little more difficult to maintain the status quo for 1987.",82
-fomc-corpus,1987,"It just seems to me that commodity prices and the dollar this year might once again be a problem. And in that circumstance, that 3 percent might be a better growth path for M2 than any number that we are willing to put out there. I would prefer to send a signal that we have decided to come down in a systematic manner--we want to come down a half a point per year. I would fit that in with what Tom Melzer had to say: that that is gradualism regarding the long run. In the short run, the short-run variations in velocity may cause us to tolerate growth occasionally below the rates in the ranges.",130
-fomc-corpus,1987,"Lowering the targets this year, I think, would be interpreted as a signal that we want to be tighter than we were before. And with the dollar rising at the present time, I see very little reason to tighten right now. Why do it at the present juncture?",56
-fomc-corpus,1987,By lowering it you wouldn't be tightening. Why would you be tightening?,14
-fomc-corpus,1987,What are we talking about--1987?,9
-fomc-corpus,1987,1987.,3
-fomc-corpus,1987,Why would you be tightening?,6
-fomc-corpus,1987,Because now you are saying that I am going to change my ranges; I am going to be tighter than I intended to be before.,27
-fomc-corpus,1987,You mean you would adopt a different borrowings target as a result of that?,16
-fomc-corpus,1987,It would signal that.,5
-fomc-corpus,1987,If we suddenly announced lower targets--,7
-fomc-corpus,1987,Which we have no history of doing.,8
-fomc-corpus,1987,"Which we have never done before, right? Then we suddenly give a signal that we want to be tighter than we were before.",26
-fomc-corpus,1987,"It would seem to me that if we do announce a reduction to 4-1/2 percent, that would be immediately perceived as being the target that we are after.",35
-fomc-corpus,1987,"We found with M1, with the interest rate sensitivity of its velocity, that under non-normal conditions we were not able to forecast what its target path would be and we had to end up abandoning it. It seems to me that we don't want to force ourselves into this preciseness for M2 that might later cause us to say: Well, we just can't hit it at all.",78
-fomc-corpus,1987,"I am repeating myself, but I really do think this would come to a head if we would address the short-run target. I think it makes the long-run a bit easier because we either send a signal or we don't and that strengthens or weakens the case for the most favored alternative.",58
-fomc-corpus,1987,I think we need to reopen [unintelligible] 1987. I need to reopen what we say about it. There was a considerable feeling ranging from extremely mild to strong that we shouldn't change the 1987 range. That leaves open what we say about it. Have people who didn't want to change it before changed their mind or do I assume that we are going to keep the same 1987 range? I'm leaving open for right now what we are going to say about it. SEVERAL. Keep the range.,108
-fomc-corpus,1987,I don't hear anybody recanting. Now what are we going to say about it? We are not going to say at the one extreme that we are really going to make it period. Nobody is saying that.,43
-fomc-corpus,1987,Do we have to say anything at all about the next six months and the fact that we are coming in at or near the bottom or even maybe below the bottom? I don't think the market perceives that we are going to take any action at this table to try to come within the M2 range within the next six months.,66
-fomc-corpus,1987,I think that we can make that clear.,9
-fomc-corpus,1987,I think we've got to say something there. It will be rather obvious if we say nothing and we are at whatever level we're at.,27
-fomc-corpus,1987,"It seems to me that we can say, assuming no change in current policy, that it is plausible that we could still come within the M2 target. That is what the staff says.",38
-fomc-corpus,1987,Why not say that some of the same velocity problems that have affected M1 in recent years have spilled over to M2 and that the level of uncertainty is such that we can't be all that precise and would tolerate being near the bottom of the range?,50
-fomc-corpus,1987,"Okay, tolerate.",4
-fomc-corpus,1987,"Could I ask a question? Don, what was the forecast of M2 in February?",18
-fomc-corpus,1987,"About 7 percent, near the midpoint of the range, assuming no change in interest rates from the levels that prevailed at that time.",27
-fomc-corpus,1987,It was 7 percent for the year? Is that what you said?,15
-fomc-corpus,1987,Yes. Assuming no changes in interest rates.,9
-fomc-corpus,1987,The big capital gains tax payments--was that a factor in the slow growth of M2 and M3?,22
-fomc-corpus,1987,"If it was, I think it was very, very small. It would have had to have been a factor boosting the fourth quarter level. That is, people realized the capital gains; they put it in the fourth quarter. By the time you get to June--",53
-fomc-corpus,1987,We were high last year; we are low this year. We have to have a lot of tolerance.,21
-fomc-corpus,1987,"Well, Mr. Chairman, it seems to me that explaining this is an opportunity for us to say something about the recent actions that we took in order to provide for more price level stability. The dollar was under pressure and that resulted in market forces taking interest rates higher than they otherwise would have been. And that increased the probability that we might undershoot the lower boundary somewhat.",75
-fomc-corpus,1987,What did we say at mid-term 1981 on M1? We were below targets then and we didn't hit the range by the end of the year.,32
-fomc-corpus,1987,"The Committee indicated its expectation that growth in M1, adjusted for shifts in NOW accounts, over the year as a whole would be near the lower end of its annual range. Both of the broader aggregates on the other hand--and this was the instance when M3 was above the range--had been running at the top or somewhat above the upper ends of the ranges. Given their behavior the Committee said their growth might be toward the upper part of their ranges for the year as a whole.",98
-fomc-corpus,1987,At least M3 is in the range.,9
-fomc-corpus,1987,"We had shift-adjusted M1; that was the NOW account year with all the controversy. The measured M1 was actually below the range, but the measure we were using adjusted for NOW accounts and was within the range as I recall.",48
-fomc-corpus,1987,We could use similar language. Is that why we didn't change the range on Ml?,17
-fomc-corpus,1987,"What language did you use? I am not quite clear on what language we are supposed to use at this point. Are we supposed to say passively that we ""may be near"" or ""tolerate""? And if we say tolerate, under what conditions?",53
-fomc-corpus,1987,"Again, what's wrong with linking it to velocity?",10
-fomc-corpus,1987,We're in a situation in which velocity continues to be high.,12
-fomc-corpus,1987,The velocity figure that we don't know until the quarter is over.,13
-fomc-corpus,1987,I think this is a dispute about how we explain something that we almost all agree on.,18
-fomc-corpus,1987,I'm not even sure it is a dispute. I haven't got it clear in my mind as to what should be said at this point.,27
-fomc-corpus,1987,That is what I was seeking: the way we can explain it the best.,16
-fomc-corpus,1987,I am going to ask the staff. Do they know what to say at this point?,18
-fomc-corpus,1987,We are going to try to reflect the discussion.,10
-fomc-corpus,1987,They would eliminate the System!,6
-fomc-corpus,1987,"We could say: ""The Committee expects that M2 will come in at or slightly below the bottom of the range. However, if velocity were to continue to [rise], the Committee also recognizes that it might tolerate somewhat slower growth.""",47
-fomc-corpus,1987,"[Unintelligible] I think there is some language on page 16 of the Bluebook that says ""The depressing influence of the previous increase in market rates should begin to wear off reasonably promptly since offering rates on many components of M2 seem already to have adjusted to the current structure of market rates."" The impression is it's a temporary phenomenon or at least is thought to be.",77
-fomc-corpus,1987,I don't believe this.,5
-fomc-corpus,1987,"Previously someone said that it is pretty clear, or we expected to come in around, about, below or whatever. If that is what you want to say, that is fine.",36
-fomc-corpus,1987,"Yes, that's what I--",6
-fomc-corpus,1987,Put in some other qualifying words about what is happening in the real world. I just want to be sure that is what you want to say.,29
-fomc-corpus,1987,That's not too bad. It doesn't make the monetarists angry. It doesn't make anybody angry.,20
-fomc-corpus,1987,"I think that is fine. We just need the explanation for why it dipped below, which is what happened in the past.",25
-fomc-corpus,1987,"I don't know. I would rather have a word slightly less emphatic than ""substantially""; I'd rather leave ""substantially"" out. Is that page 16?",36
-fomc-corpus,1987,"Why not be prepared to tolerate M2 growth at or near, or whatever, the bottom of the range, depending on some of the things we usually use--like performance of the dollar, the inflation outlook, the real economy. It seems to me that that's really where we are. Assuming those variables more or less behave themselves, we just are not going to get all that worked up about M2.",81
-fomc-corpus,1987,"What you're really saying is--I just want to get this right--if it is going to come in around 5-1/2 percent, that means above or below 5-1/2 percent depending upon all these other things.",49
-fomc-corpus,1987,"Say ""at or near the bottom of the range.""",11
-fomc-corpus,1987,"""Around"" is a good word.",8
-fomc-corpus,1987,All right. Tentatively I think we [unintelligible]. Where are we now on the big issue of next year? We have lots of people who want 5 to 8 percent for both M2 and M3. We have some who want 6 to 9 percent. Are there any different thoughts on these ranges? Anybody on one side or the other who wants to change their minds? Mine is closed. Does anybody like Mr. Corrigan's 4 to 8 percent?,101
-fomc-corpus,1987,I thought Jerry's suggestion of 4 to 8 percent was an interesting alternative.,17
-fomc-corpus,1987,"One virtue of that is it does reflect a somewhat greater level of uncertainty, which I think is probably appropriate.",22
-fomc-corpus,1987,Does anybody like this 4 to 8 percent?,11
-fomc-corpus,1987,I think it is pretty good. Yes.,9
-fomc-corpus,1987,"Unless broadening the range to 4 percentage points has some meaning that would make it difficult, I think it is a good suggestion.",27
-fomc-corpus,1987,"I would prefer 4 to 8 percent over 4-1/2 to 7-1/2 percent. It seems to me it gives you more flexibility which [unintelligible]. And then if we wanted to become more precise in January, as long as we didn't change the top of it, and I don't think we will--that is, we may want to increase that bottom range some--I don't think it would be that damaging.",93
-fomc-corpus,1987,"I think the 4 to 8 percent is really going too far. First of all, it's a very, very broad range. Because then we [unintelligible] just fuzzy things over. We are not giving a real message there. Talking about the bottom end of the range, I disagree with the implications of the 4 percent growth for M2, certainly for next year. Actually, if we use the 4 percent growth as a matter of policy and get an unintended velocity change, where would we be? If we have anywhere near the inflation that is projected, we'd have either zero or 0.5 percent growth. That is all that's left for the real economy. So 4 percent growth, I think, would be too tight; 5 percent leaves some room to grow.",162
-fomc-corpus,1987,"But we might have a condition next year, like this year, in which we might need fuller--",20
-fomc-corpus,1987,"You would have to have 2-1/2 percent velocity growth in M2, which would be the implication of rising interest rates. That's what you would have to have to get the kind of splits you're talking about.",45
-fomc-corpus,1987,"Yes; that's really speculative. You're looking at the M2 velocity as it is projected on those handouts. It is almost horizontal--just a tiny bit higher for M3, a tiny fall for [M2]. I have never seen anybody who can project velocity with any great degree of confidence.",60
-fomc-corpus,1987,I would like to ask a question about this uncertainty issue and the 4 percentage point band. Are we suggesting that there is a greater uncertainty because the analysis that has been presented by staff and others suggests there is greater uncertainty? Or are we just trying to widen the band because there is a greater difference of opinion and we can't fit people within a 3 percentage point range? I think there is a big difference.,83
-fomc-corpus,1987,"In making the suggestion earlier, I was thinking of the analysis.",13
-fomc-corpus,1987,Nothing has been said about that.,7
-fomc-corpus,1987,"Well, if I take the arguments that Mr. Kohn and his colleagues are making about the interest elasticity of M2 seriously--and I am not sure that I do--but if I did, and if I had an economic outlook that very much parallels Mr. Prell's economic outlook, it is not at all difficult for me to envision circumstances in 1988 in which M2 could be growing at quite a low rate and I would be very happy. The real economy could be doing just what they are talking about--growing at 2-3/4 percent.",117
-fomc-corpus,1987,"Once again, to do that you have--",9
-fomc-corpus,1987,"Now, I don't think that that is the likely outcome; but certainly it is quite plausible.",19
-fomc-corpus,1987,Much lower [unintelligible].,8
-fomc-corpus,1987,We can ask ourselves whether 5 percent or 4 percent is more appropriate in conjunction with the economic outlook that we have presented. And push it to a [unintelligible]. You are really talking about an outlier of an outlier there.,51
-fomc-corpus,1987,"I don't think so, Bob. Again, I think part of the question to consider is how you judge the outlook in the first place.",28
-fomc-corpus,1987,"Next year, you're projecting what for M2?",10
-fomc-corpus,1987,Around 5 percent or maybe a little under that--4-1/2 to 5 percent.,21
-fomc-corpus,1987,"Well, I don't know whether I can get a [consensus for] 4 to 8 percent. Let's just have a show of hands of people who like this idea of 4 to 8 percent.",43
-fomc-corpus,1987,Let's ask the question to you. How do you feel about it? Do you feel that 4 to 8 percent helps you much?,28
-fomc-corpus,1987,It's a relatively small problem. Why is the range so large? I am not so sure about velocity.,21
-fomc-corpus,1987,That seems to me to be one of the things we have been confronting for the last several years now. It doesn't seem to me that that would be difficult to explain.,34
-fomc-corpus,1987,The only thing I can think of is that Senator Proxmire might react to that [by saying]: Well you never really widened the range on M2 and M3 before; it was just M1. Now you are focusing on M2 and you are broadening the range on M2.,60
-fomc-corpus,1987,"Historically, the range has been 2 to 2-1/2 points; we got that up to 3 points. It's a little embarrassing; if you believe in these targets, it is a pretty wide range. I am not sure it is wider than, in fact, the outlook has suggested it should be.",66
-fomc-corpus,1987,It is probably not as wide as the analytics here--,11
-fomc-corpus,1987,We had a decline in velocity last year of what?,11
-fomc-corpus,1987,It's about 4 percent.,6
-fomc-corpus,1987,4 percent.,3
-fomc-corpus,1987,"If I were a Senator sitting on the Banking Committee, it would look to me like a gradual undermining of the Humphrey-Hawkins Act.",30
-fomc-corpus,1987,Senator Proxmire would take that view. I don't think the rest care.,17
-fomc-corpus,1987,"No, I agree with that.",7
-fomc-corpus,1987,"We could say we are making it 4 to 8 percent now, in July, but the Committee intends to try to narrow the range next February. That is what we could say to respond to his question.",43
-fomc-corpus,1987,Or we could say 5 to 8 percent and the Committee is going to look at it again in February in terms of possibly lowering it again. We want to send signals.,36
-fomc-corpus,1987,"I think we have three choices: 4 to 8 percent is being proposed, if that appeals to anybody or most of you; we have alternative II as written, which has gotten quite a few votes; and we have alternative II as modified to 5 to 8 for both M2 and M3. Then there are further subdivisions. We could adopt that last one and say we were going to look at it hard with the thought or reducing it, or that we would have some inclination to look at that possibility next February, to take Mr. Angell's variant of that. Let me just test the three pure ones and forget about defining the third. How many prefer 4 to 8?",142
-fomc-corpus,1987,Which ones?,3
-fomc-corpus,1987,"How many members? We haven't got a huge following for 4 to 8 percent: five. Alternative II as written? Alternative II with the 5 to 8 percent? Well, that seems to be where the Committee is; so let's assume that's where we are for the moment. Let us turn to the short-term.",66
-fomc-corpus,1987,"Mr. Chairman, do you want to consider the directive language that would go with that?",18
-fomc-corpus,1987,"Let's return to that after we consider all the rest. I hear that you got all this new [unintelligible]. For the short run, the critical variable will be [unintelligible].",41
-fomc-corpus,1987,"Mr. Chairman, I think that we ought to stay exactly where we are. We have two-way risk again in the foreign exchange market; we have a diminution in inflationary expectations; and the real economy is going along reasonably well. And I think we ought to just take things as they are and not rock the boat. I would be speaking of borrowing at $500 million and language saying that we seek to maintain the existing degree of pressure on reserve positions.",92
-fomc-corpus,1987,Can I carry you one step further: is [your preference] symmetrical on the language?,18
-fomc-corpus,1987,Symmetrical.,3
-fomc-corpus,1987,"With ""woulds"" or ""mights""?",10
-fomc-corpus,1987,Mr. Corrigan.,5
-fomc-corpus,1987,"I'm precisely with Mr. Boehne: ""B"" and symmetrical.",15
-fomc-corpus,1987,Mr. Boykin.,5
-fomc-corpus,1987,I agree.,3
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,I agree.,3
-fomc-corpus,1987,Mr. Keehn.,5
-fomc-corpus,1987,I agree.,3
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,I agree.,3
-fomc-corpus,1987,This is very subtle analysis in terms of your--,10
-fomc-corpus,1987,You've got them all worn out!,7
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,I agree. I don't know what to fight about now.,12
-fomc-corpus,1987,I'll agree.,3
-fomc-corpus,1987,So will I.,4
-fomc-corpus,1987,I will not break the pattern; I agree.,10
-fomc-corpus,1987,"Well, does anybody want to express a contrary view?",11
-fomc-corpus,1987,Can we have a different tilt?,7
-fomc-corpus,1987,Let us resolve the language. Where is this language? Do you give any alternative here in the directive paragraph?,22
-fomc-corpus,1987,No.,2
-fomc-corpus,1987,That's good.,3
-fomc-corpus,1987,Not for the short run.,6
-fomc-corpus,1987,"Well, we're going to say ""seeks to maintain the existing degree of pressure on reserve positions."" Can we make it symmetric? ""Somewhat greater reserve restraint would or somewhat lesser reserve restraint would..."" Do you want it in that order or reverse order?",51
-fomc-corpus,1987,"No, reverse it.",5
-fomc-corpus,1987,Let's not reverse it. I don't want to send any other subtle signals.,15
-fomc-corpus,1987,Does the sentence otherwise look all right--to people who want it symmetrical anyway? I suppose we simply put in these numbers; we have faith in the staff. Are we [unintelligible] now? What they say is 5 and 7-1/2--we sometimes try to avoid using those fractions. If you believe the staff we've got to use different numbers this time; I don't know whether to believe them.,87
-fomc-corpus,1987,Sorry. You can say 5 to 7; that would encompass both.,16
-fomc-corpus,1987,Have we ever used a fraction here before? I guess we have.,14
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"I guess so, but not recently.",8
-fomc-corpus,1987,"7-1/2 is a nice fraction, though; it's not like--",16
-fomc-corpus,1987,That really [balances] off very nicely between 5 and 10.,15
-fomc-corpus,1987,Shall we say 5 and 7-1/2?,14
-fomc-corpus,1987,That seems to me to be somewhat expansive but that's--. I can imagine circumstances in which 5 to 7-1/2 might be--,30
-fomc-corpus,1987,"Well, this is a resource--",7
-fomc-corpus,1987,"This follows a very low [growth] period, let me say. That's not very expansive.",19
-fomc-corpus,1987,That's what's inconsistent with alternative II.,7
-fomc-corpus,1987,"I know--which is [unintelligible] the bottom of the range, again. Otherwise, you have a hard time explaining why we would be able to achieve the lower end of the target cone.",42
-fomc-corpus,1987,"Well, 5 percent on M2 isn't going to be in the lower end of the target.",20
-fomc-corpus,1987,"No, you need 7-1/2 percent arithmetically in order to be able to reach it.",24
-fomc-corpus,1987,"7-1/2 percent for 6 months. If it grew 5 percent for the next 3 months, what would you need for the final 3 months--11 percent or something--to reach the bottom end of the target?",49
-fomc-corpus,1987,"Yes. Presumably, it would be 10 percent, without taking account of the compounding.",20
-fomc-corpus,1987,"Yes, it would be 10.",8
-fomc-corpus,1987,"Yes, but without knowing the compounding. The 5 percent gets you to 4-1/2 percent--",24
-fomc-corpus,1987,"Well, if the 7-1/2 percent is right forgetting about the compounding, which is limited, it is going to be 10 percent.",32
-fomc-corpus,1987,"Well, that's 7-1/2; that's what it says.",15
-fomc-corpus,1987,Q4 to--,4
-fomc-corpus,1987,"Oh, but I think with the 7-1/2 percent for M2 that we get [unintelligible].",26
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,5 percent gets you to 4-1/2 percent in September.,15
-fomc-corpus,1987,It would be a little more than 10 percent because that's a quarterly figure.,16
-fomc-corpus,1987,"It might be less given the higher base. We'll be taking it from September, which is a higher base.",22
-fomc-corpus,1987,We're going to find out it's going to be even 12 percent that this implies for the last quarter; I'm not sure.,25
-fomc-corpus,1987,It's a lot.,4
-fomc-corpus,1987,"And for growth in M1, that's a vague enough statement. Are we going to leave that the way it is? ""Growth in M1, while picking up from recent levels"" or something--. Do we want to put something like that in there?",52
-fomc-corpus,1987,Still running--,3
-fomc-corpus,1987,March to June was 4 percent; and 4 percent is about what we're projecting for June to September.,22
-fomc-corpus,1987,March to June was low.,6
-fomc-corpus,1987,It certainly picked up from May in June but not from March to June.,15
-fomc-corpus,1987,"Well, I don't think it makes much difference. If we want to be reassuring to some of our monetarists, then we could say ""growth in M1, while picking up from recent levels"" --which would be May and June. And that was negative?",54
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"""M1 is expected to remain well below its [pace]""--",13
-fomc-corpus,1987,"""Of 1986.""",6
-fomc-corpus,1987,"""Growth during 1986,"" I think. Do you want to put that phrase in there?",20
-fomc-corpus,1987,That's fine.,3
-fomc-corpus,1987,"The word ""pace"" is kind of a funny word when I see it, but I know what it means. It was 6 percent last time; I guess we'll leave it then and use growth rate. We continue on with 4 to 8 percent. Does anybody have any further comments? That's stating it symmetrically with no change, the numbers or the projection [provided by the staff], and ""while picking up from recent levels"" inserted. Does anybody have any questions about that? Then we'll be turning to the other operational paragraphs. We'll go back to page 20. What's the difference between these variants? All right. You have nice language for us here; I might have read that before. Variant II just has the reduction in the range. Do people like Mr. Kohn's language? It's going to save us some trouble.",171
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Yes. It seems pretty good.,7
-fomc-corpus,1987,Good.,2
-fomc-corpus,1987,Where are you reading from?,6
-fomc-corpus,1987,The top of page 21.,7
-fomc-corpus,1987,"Do we just want to say ""the lower ends of the range"" or do we want to indicate that growth might be somewhat below?",27
-fomc-corpus,1987,"It sounds like ""around"".",6
-fomc-corpus,1987,"Well, ""around the lower end of the range"" I guess means that it could be below.",20
-fomc-corpus,1987,Does it mean that?,5
-fomc-corpus,1987,"Yes. MR. MORRIS(?). Sure. ""Around"" means both sides.",17
-fomc-corpus,1987,"Trust him, Bob. That's Boston--",8
-fomc-corpus,1987,Do you want to say aggregates or growth in M2--pin it down to one that's around the lower end of the range?,26
-fomc-corpus,1987,"They're both going to be ""around""--",8
-fomc-corpus,1987,"Being around [unintelligible], which takes care of that.",14
-fomc-corpus,1987,"They ""will be in the lower halves of their ranges, particularly M2"" or something.",19
-fomc-corpus,1987,That's fine.,3
-fomc-corpus,1987,I kind of like it the way it is.,10
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"When it comes in, if one falls out [of the range] we did exactly what we said we were going to do.",26
-fomc-corpus,1987,Yes. Right; one may be above and one below it.,13
-fomc-corpus,1987,How about that [wording within the] brackets?,11
-fomc-corpus,1987,That's right; put it in there.,8
-fomc-corpus,1987,That's all right.,4
-fomc-corpus,1987,"I'd rather put a period after ""appropriate.""",9
-fomc-corpus,1987,The rest of that explanation sounds all right.,9
-fomc-corpus,1987,"I think whether or not you put a period after ""appropriate"" the explanation you'd have to go on is incorporated in the bottom line of what's there.",30
-fomc-corpus,1987,"Yes, I'd leave it.",6
-fomc-corpus,1987,Is that satisfactory? SPEAKER(?) Yes.,9
-fomc-corpus,1987,"Now, where are we? On page 22. Is this a bit of boiler plate at this point? Have we said this before?",28
-fomc-corpus,1987,"Well, we condensed what's in the directive right now. This is adapted from what the Committee put in at the last meeting and at the February meeting.",30
-fomc-corpus,1987,"What do you say to monetarists who have focused on M1A and tried to take out the highly sensitive interest component and still find a similar pattern--maybe even a more pronounced pattern--in M1 growth? I think you can still use the interest sensitivity argument, but it seems to me that it may come up in the hearing; there may be some focus on M1A. Do you say take out the interest earning accounts and you've still got a pattern like--",96
-fomc-corpus,1987,"I think the question is likely to come up regardless, since the issue has been raised. We should have had a little discussion of what's the matter with M1A.",34
-fomc-corpus,1987,"I tried to include something in my presentation about velocity; that's why I had the velocity chart in there. Our view is that, while less is wrong with M1A than is wrong with M1, it's still not that good an aggregate. It's still interest sensitive; much of the trend in its velocity that's extended beyond the trend in M1 velocity is a combination of offsetting propitious events, including deregulation and interest rate declines. And in fact, its velocity trend did break in early '85. So, I think it's useful as a monitor and probably more useful than M1; but all our work suggests it's probably not as useful as M2.",133
-fomc-corpus,1987,Would you concentrate even further on compensating balances of corporations and their growing proportion of demand deposits?,19
-fomc-corpus,1987,"In my view, that's actually what's making this aggregate increasingly interest sensitive over time.",16
-fomc-corpus,1987,I think it might be useful to say that because that would really take a lot of the wind out of that.,23
-fomc-corpus,1987,"We had really good evidence, hard evidence, on the proportion and lots of input on the growth of bits and pieces of--",25
-fomc-corpus,1987,"Well, okay.",4
-fomc-corpus,1987,Except that households are a much smaller proportion than they used to be and businesses obviously are a higher proportion.,21
-fomc-corpus,1987,We took a look at that Treasury study and concluded the same thing that the staff did: that M2 is a little better.,26
-fomc-corpus,1987,I completely buy the staff study and--,8
-fomc-corpus,1987,"That's where we came out, quite independently of what they had done, much to my disappointment.",19
-fomc-corpus,1987,"I'm not crazy about this sentence that finishes with lower growth in M1; it says ""the Committee anticipates"". Shouldn't we say that ""In the light of what happened last year the Committee welcomes substantially slower growth of M1 this year than last year""?",52
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"""In the context of continuing economic expansion given the intensification of price pressures,""--maybe just leave that there. All this wording about ""associated with substantial downward movement of the dollar...and the abatement of the weakness in M1 velocity"" is saying the same thing as the first part of the sentence.",61
-fomc-corpus,1987,So you want to take the whole sentence out?,10
-fomc-corpus,1987,"No, just the second half.",7
-fomc-corpus,1987,"For the second half of that: ""The Committee welcomes substantially slower growth of M1 in 1987 than in 1986 in the context of continuing economic expansion and intensification of price pressures."" I'm not quite crazy about that ""intensification."" I don't like to admit that the intensification-",61
-fomc-corpus,1987,I don't either.,4
-fomc-corpus,1987,"Say ""the continuing economic expansion and a greater tendency for prices""--",13
-fomc-corpus,1987,"""Some evidence of greater prices""--",7
-fomc-corpus,1987,"""Some evidence of greater inflationary pressures."" How about that?",13
-fomc-corpus,1987,That's better.,3
-fomc-corpus,1987,Say greater--,3
-fomc-corpus,1987,Or inflationary expectations.,5
-fomc-corpus,1987,Yes. The only thing I can think of is that the monetarists would say that there's a lag and that to look at contemporaneous inflation and to adjust monetary policy is chasing the tail.,39
-fomc-corpus,1987,Milton Freidman predicted an explosion of inflation in 1984.,15
-fomc-corpus,1987,This is a vague sentence.,6
-fomc-corpus,1987,"Oh, I realize that, but I'm just saying that--",12
-fomc-corpus,1987,All this says is that substantially slower growth of M1 in 1987 than in 1986 with a [unintelligible] that ought to be--,33
-fomc-corpus,1987,That's fine with me.,5
-fomc-corpus,1987,"It seems to me the last sentence could be ended after ""prevailing"".",15
-fomc-corpus,1987,"Well, that's taken from before.",7
-fomc-corpus,1987,Any preferences? I'm--,5
-fomc-corpus,1987,Are we really planning to do that still? We're in the second half of the year. Are we really going to start targeting Ml?,27
-fomc-corpus,1987,Is this exactly what we said earlier in the year?,11
-fomc-corpus,1987,"This last sentence is exactly, which is--",9
-fomc-corpus,1987,We may as well drop the whole sentence.,9
-fomc-corpus,1987,"No, but--. Well, I think we might.",12
-fomc-corpus,1987,I don't think we should.,6
-fomc-corpus,1987,I think there might be some circumstance in which we would want to bring it back.,17
-fomc-corpus,1987,I think Tom Melzer's suggestion is probably a good one. I don't know why we would be particularly--,22
-fomc-corpus,1987,"What we actually should do is this. I'll make a more accurate sentence: ""The Committee in reaching operational decisions over the balance of the year will take account of growth in M1, and at some point in time, in the light of circumstances then prevailing if the Committee...""--",56
-fomc-corpus,1987,"That's better, yes.",5
-fomc-corpus,1987,"""The Committee in reaching operational decisions over the balance of the year will take account of growth in M1 in the light of circumstances then prevailing,"" [unintelligible] and all that business. The issue is if it's too low, we'll be a little easier than we otherwise would be. Now we get to 1988. We have 5 to 8 percent as the Bluebook number for M2 and M3, right?",88
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Leave this sentence about M1 just in--,9
-fomc-corpus,1987,"Apparently, we could put M1 back in tentatively.",12
-fomc-corpus,1987,I'm not sure it would fit.,7
-fomc-corpus,1987,I think we need it because we address it for 1987 and now we're talking about 1988.,22
-fomc-corpus,1987,Tentatively.,3
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"All you need is that one sentence: ""The issues involved in establishing a target range for M1 would be carefully reappraised.""",27
-fomc-corpus,1987,"Well, this is awfully thin. It says nothing about the targets. Did we write this sentence in the past pattern? It says we established the ranges for M2 and M3 and doesn't say another word about them. It goes on to a little baloney about M1.",57
-fomc-corpus,1987,I think that is the past pattern for the tentative ranges.,12
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,But I think we might have some language--,9
-fomc-corpus,1987,"What I was wondering about is this discussion of M1. Why shouldn't it all be combined in that one paragraph on M1? So what would we change? With respect to M1 and so forth [as shown]. Then, ""because of its sensitivity the Committee decided not to [target it] over 1987 and has established no tentative range for 1988."" And then start with ""currently the appropriateness,"" and then add this last sentence saying ""issues involved with establishing a target range for M1 will be carefully reappraised in the beginning of 1988."" I would make M1 all one sentence. I think it's a little more straightforward that way.",136
-fomc-corpus,1987,"I just wonder what, tentatively, we might think about. Although we may not want to put it in, what would we have in mind? If at this stage you had to suggest M1 ranges for 1988 what would you suggest, Don?",52
-fomc-corpus,1987,"Our projections, of course, are keyed to the prospects of rising interest rates. And in that case we have pretty low M1 growth--on the order of 4 percent. Without those rising interest rates, we'd probably have growth for 1988 in the 5 or 6 percent range.",60
-fomc-corpus,1987,"So, you'd want a range at least 3 percentage points wide?",14
-fomc-corpus,1987,"Well, with--",4
-fomc-corpus,1987,Or more?,3
-fomc-corpus,1987,"More than 3 percentage points wide would be my recommendation. If you had 3 percentage points on M2, a comparable [M1] range that would encompass the same kinds of possible outcomes, I think, would be close to 6 percentage points.",52
-fomc-corpus,1987,"So, you think 3 to 8 percent would be--",13
-fomc-corpus,1987,3 to 15!,5
-fomc-corpus,1987,3 to 9?,5
-fomc-corpus,1987,There's a lot of uncertainty about the interest rate scenario that goes with these nominal GNP numbers.,19
-fomc-corpus,1987,"I know, but I just want to have some notion in case we're going to discuss this seriously in January. I want to have some notion about how well we might do between now and then as to whether or not we will be able to redo it. Otherwise, I don't want to say we're going to discuss it seriously. You think it would take 3 to 9 percent?",77
-fomc-corpus,1987,"Right now, if you asked me, I'd say 3 to 9 percent, or 2 to 8 percent, or something along that line.",31
-fomc-corpus,1987,Then it would be--,5
-fomc-corpus,1987,This doesn't say we're going to establish a target range. All it says is that we are thinking of it; it just says we're going to reexamine whether we want one at all. I don't think it commits you to anything.,47
-fomc-corpus,1987,That's the same kind of range we were saying we had--,12
-fomc-corpus,1987,"Well, that just leaves it where we are.",10
-fomc-corpus,1987,"Yes, but it just doesn't--",7
-fomc-corpus,1987,"We have to have a target so we would--. Obviously, we wouldn't at all.",18
-fomc-corpus,1987,I'm just suggesting that sometime we will run out of ability to continue to say that.,17
-fomc-corpus,1987,I agree with that.,5
-fomc-corpus,1987,We've always said that.,5
-fomc-corpus,1987,"We've run out of some other things, too.",10
-fomc-corpus,1987,"Let me just [review]. Logically, I think this M1 sentence would come after both of them, then. The M1 paragraph would be as it is with a small change in the middle of the paragraph: ""The Committee again decided not to establish a specific target for growth in M1 over the remainder of 1987 and no tentative range has been set for 1988. The appropriateness of changes in M1 this year will continue to be evaluated,"" etc. Then right at the end bring up that other sentence: ""The issues involved for establishing a target range for M1 will be carefully reappraised at the beginning of 1988.""",134
-fomc-corpus,1987,I would be--,4
-fomc-corpus,1987,"You know, ironically, we took away M1 the year that we would have hit the target range if we had set one.",26
-fomc-corpus,1987,I've been telling them they were playing with fire.,10
-fomc-corpus,1987,"That would depend upon [unintelligible]. Well, this leaves us one sentence for the long-term ranges for 1988. Is that all right? It says ""the range is _ to _ percent;"" it doesn't say anything about [unintelligible].",54
-fomc-corpus,1987,The one you had last July.,7
-fomc-corpus,1987,"That also was the last one, August.",9
-fomc-corpus,1987,"Oh yes. We have a range on debt, which is what? Is debt 7-1/2 to 10-1/2 percent?",31
-fomc-corpus,1987,That's what I get: 7-1/2 to 10-1/2 percent.,20
-fomc-corpus,1987,"We start out with no change in the range this year but we agree that growth in the aggregates around the lower end of the ranges may be appropriate in light of developments with respect to velocity and signs of underlying inflationary pressures, provided that economic activity is expanding at an acceptable pace. We will vote separately on these things. That is the pattern, right?",71
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Are we prepared to vote on 1987 ranges? Unchanged ranges with that sentence--,18
-fomc-corpus,1987,"Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne * President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor Seger Yes President Stern Yes *--[Note: Mr. Boehne was out of the room at the time of this vote. As indicated below, Mr. Boehne voted 'yes' when he returned.]",83
-fomc-corpus,1987,Now we move to 1988. We have two sentences: one saying 5 to 8 percent and one saying 7-1/2 to 10 percent on the associated range for debt. But we also have this sentence or paragraph on M1.,53
-fomc-corpus,1987,Say that again.,4
-fomc-corpus,1987,"All it says is ""5 to 8 percent for M2 and M3 and 7-1/2 to 10-1/2 for the associated range for domestic nonfinancial debt."" It's two sentences. Then this paragraph on M1--",51
-fomc-corpus,1987,Can we establish that that's the way we've done it in the past?,14
-fomc-corpus,1987,Move toward price stability.,5
-fomc-corpus,1987,Or Governor Angell's thought about maybe looking at it again with a bias toward--,17
-fomc-corpus,1987,You can get a vote from Mr. Boehne now.,13
-fomc-corpus,1987,Last July we simply had a paragraph that gave the tentative ranges with a little extra verbiage about M1.,23
-fomc-corpus,1987,"I would prefer to have at least that sentence about why we're ratcheting the range down, saying--",21
-fomc-corpus,1987,I prefer to have one on why we are not ratcheting it down enough.,17
-fomc-corpus,1987,But we want to continue to ratchet a longer period of time--,14
-fomc-corpus,1987,"Well, I think we've got to say that in the explanation.",13
-fomc-corpus,1987,I think that operational language has always been that stark. It has been in the other part of the policy record and in the testimony that we had all the verbiage and the hallelujahs and hosannas.,46
-fomc-corpus,1987,"We have 5 to 8 percent, 7-1/2 to 10-1/2 percent and the paragraph on M1 for the record. Does anybody need that read to them? I will read it to you. Are you ready?",52
-fomc-corpus,1987,Can we pick up President Boehne on 1987?,13
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,President Boehne on the 1987 ranges?,11
-fomc-corpus,1987,What was the number? 5-1/2 to--,13
-fomc-corpus,1987,Unchanged.,3
-fomc-corpus,1987,Just vote no.,4
-fomc-corpus,1987,I vote yes.,4
-fomc-corpus,1987,For 1988: Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor Seger No President Stern Yes,48
-fomc-corpus,1987,"Now we get down to the operational paragraph. Just to remind you: It is ""maintain""; same language as last time, but totally symmetrical with ""woulds""; 5 and 7-1/2 percent, respectively, for M2 and M3; growth in M1 while picking up from recent levels is expected to remain well below the pace in 1986; and 4 to 8 percent for the federal funds rate.",90
-fomc-corpus,1987,"In other words, just like last time.",9
-fomc-corpus,1987,Please call the roll.,5
-fomc-corpus,1987,Chairman Volcker Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor Seger Yes President Stern Yes,44
-fomc-corpus,1987,"Anything else to discuss? We can just quit. If any members have changes in their projections, Mr. Prell would like to receive them by noon on Thursday.",33
-fomc-corpus,1987,"I'd like for the record to show, if I may, that of the other occasions to [unintelligible] us, in this particular case I think we have to acknowledge, at least I would do so, that this will be the Chairman's last Open Market Committee meeting, hopefully.",59
-fomc-corpus,1987,How do you know?,5
-fomc-corpus,1987,"Hopefully. But it has been, I think, 12 years and something like 119 or 120 consecutive--I don't think he's ever missed one--meetings of the Committee as a member and as Chairman. We've all come to learn the subtleties of ""mights"" and ""woulds"" and ""snugs"" and ""oozes."" But I think we've learned a lot more sensible things and I think that we should acknowledge this particular occasion.",93
-fomc-corpus,1987,"[Unintelligible] come back and bite you in August with another meeting where you could go off on your own ""woulds"" and ""mights"" and stuff. I appreciate the cooperation of all, in these recent years in particular. This is a wild and woolly venture sometimes, with so many people. But it works and I trust it will continue with all your intelligent and forceful efforts. Thank you.",86
-fomc-corpus,1987,That was a longer pause than I expected. [Laughter.] I'd like to entertain a motion to move the minutes.,24
-fomc-corpus,1987,I'll move that.,4
-fomc-corpus,1987,"If there are no objections, then they are approved. Mr. Cross.",15
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Comments anyone?,3
-fomc-corpus,1987,"I have one, Mr. Chairman. I was looking this morning at the Telerate. A lot of the reasons given on the dollar's decline are that oil traded down yesterday and oil prices are dropping this morning in foreign markets. And I wonder how much of an influence that is having on the exchange rate too; it seems to move in parallel fashion.",72
-fomc-corpus,1987,"It has been mentioned that oil prices have clearly softened. This morning's price is almost half a dollar below what it was yesterday and it's almost a dollar below where it was a week or so ago. This has been cited as another factor. Most of the people that our traders have been talking to seem to think that today's decline in the dollar is perhaps related to that, in part, but after the initial impact of the decline, it seems to be more a reflection of rather sour trade figures. Yesterday in New York, in the latter part of the afternoon, the dollar began to soften without anything very dramatic happening; it was just gradually declining. And we are told that the Japanese are saying that when their markets opened, they began to think that maybe they should cut some of their positions, so there was some selling both in Japan and in Europe subsequently, which brought us down to current levels. It's possible that oil prices are now a factor but more talk seems to be given to this general attitude resulting from the continuing serious problem with the trade deficit and the larger number announced on Friday.",217
-fomc-corpus,1987,"To what extent is the general apparent reduction of tensions in the Persian Gulf, which was obviously the cause of the decline in the oil price, actually the cause of this retrenchment? In other words, periodically, when we see tensions in the world, everyone rushes into the dollar; and, it looks to me as if we are just unravelling that particular position. It strikes me as rather difficult to believe that there is a secondary reaction to a published news event. Is it possible that the markets are just easing because of the decline in tensions, and people are just reaching for explanations of this sort? Or is there some reason to believe that it's really more than that and that there has actually been some Japanese reevaluation, rather than this view being just somebody's hypothesis.",157
-fomc-corpus,1987,"Really, we don't have enough evidence, other than what people are telling us. When the Middle East tensions flared up here a couple of weeks ago, it was hard for us to see why that, in itself, should have caused the dollar to go up so rapidly. We saw some increase in [the price of] gold, but it came back down. We did not see evidence that it was lots of [unintelligible] flows. It could be that there is a kind of writing down of the dollar in light of the somewhat less troublesome situation in the Middle East. But we don't see much evidence of a lot of movement from this back and forth which would lead to that conclusion; it's possible that people's attitudes are influenced by it and, therefore, they are changing their views about what is the proper level for the dollar, to some extent. It is pretty much a matter of guessing.",182
-fomc-corpus,1987,What happened to the DM this morning?,8
-fomc-corpus,1987,"Well, the dollar fell in terms of both the DM and the yen. It's now trading at about 1.85-1/4 DM and 147-1/4 yen. So it has declined about 3-1/2 percent, I guess, from the levels prevailing toward the end of last week before the trade figures were announced and whatever has happened that relates to them. It's a substantial move.",84
-fomc-corpus,1987,What about in relation to sterling?,7
-fomc-corpus,1987,I don't have the sterling quote today. But sterling has been under its own pressure because of the [unintelligible].,25
-fomc-corpus,1987,That may indicate whether or not it is related to oil.,12
-fomc-corpus,1987,"Well, sterling sometimes acts like a petro-currency and sometimes it doesn't. You can't rely on it reflecting what happens in the Middle East. Well, sterling is up to 1.60-1.65.",43
-fomc-corpus,1987,That's not oil.,4
-fomc-corpus,1987,But it should not move that way if you followed the hypothesis.,13
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,Anything else? May I have a motion to ratify Mr. Cross' actions?,17
-fomc-corpus,1987,So move.,3
-fomc-corpus,1987,"Without objection, they're approved. Mr. Sternlight.",11
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1987,"Mr. Chairman, I'd like to second that recommendation for the additional amount.",15
-fomc-corpus,1987,Why don't we hold that until we get through the total discussion of Mr. Sternlight's remarks. We'll go to that later.,26
-fomc-corpus,1987,"Peter, in light of the increase in Japanese interest rates, have you detected a decline in Japanese participation in either the debt or equity markets?",28
-fomc-corpus,1987,"At times, there certainly did seem to be an abatement in their interest in the debt market; as for the equity market, we are continuing to hear that they are pretty active. And they have certainly continued to participate in Treasury auctions; in this last auction they were there in the 10- and 30-year issues. As for purchases in the secondary markets, at times over the period we were hearing of some pulling away from buying in our market as their own rates were pushing higher.",99
-fomc-corpus,1987,"Can I follow up on that one? Both in Germany and Japan, do you see the run-up in rates as mainly a result of policy actions taken or do you see it as a result of general economic conditions in the country changing?",47
-fomc-corpus,1987,"Well, Sam Cross or Ted Truman might be in a better position to comment. At least as it was passed along to me, I got a sense that it was a bit more of the policy move type of thing.",44
-fomc-corpus,1987,"In Japan, the short-term rates haven't changed; the long-term rates have gone up sharply. It seems to be a little element of both of the factors that you talked about. Certainly, the market forces led to a substantial increase in their longer-term rates and they have been quite concerned about the vulnerability of their financial situation given the stock market rise, the increase in real estate prices, and so forth. They also have allowed changes in some of these rates, like the long-term prime; they tell us they are resisting this, but at the end of the day it is clear that the long-term rates have gone up substantially. In Germany, I think there has been a little snugging, but again, it is hard to say how much, because there have been some other things going on.",160
-fomc-corpus,1987,I don't have anything to add to Mr. Cross' comments.,13
-fomc-corpus,1987,Further comments?,3
-fomc-corpus,1987,"Peter, on your concerns about September: Are we anticipating, or is the Treasury anticipating, a cash balance problem?",23
-fomc-corpus,1987,"We are anticipating a sizable buildup. I wouldn't say it's an unmeetable problem at this stage. I don't think we'll approach the record levels that we had last April when their total balance got up to $54 billion or so, and the balance at the Fed was $30 billion. I think their total balance could get up to the $40-50 billion range and that could put the balance at the Fed somewhere at $25 billion, or something like that. It could be a substantial reserve-draining factor.",103
-fomc-corpus,1987,"Anything else? I need ratification of two items. First, I'll entertain a motion to ratify the open market transactions since the July meeting.",29
-fomc-corpus,1987,So move.,3
-fomc-corpus,1987,"Any objections? Secondly, we need another motion to approve the increase in intermeeting leeway.",19
-fomc-corpus,1987,I move on that.,5
-fomc-corpus,1987,I second that.,4
-fomc-corpus,1987,"I guess the question is: Why not ask for enough? If $10 billion might not do it, why not ask for $12 billion?",29
-fomc-corpus,1987,"Well, I considered that. But for almost any number I would pick, Governor, I could imagine circumstances that would take it a little beyond that. So, I'm picking what I think might well do it, but I just want to put the Committee on notice that it could conceivably come in beyond that. If I presented $12 billion, I'd like to feel more confidence than I can feel at this stage of [unintelligible].",90
-fomc-corpus,1987,My question is: Is there any real danger of erring on the side of having too much leeway to be able to manage the account the way we want to manage it?,36
-fomc-corpus,1987,"I wouldn't see it as a danger. I think it may just be that the Committee would want to keep close to the situation and realize that if some even larger increase were needed, you'd like to be informed in some formal manner and have a chance to note that.",53
-fomc-corpus,1987,"Governor Angell is raising the right question. This is an extraordinary circumstance. If it happens, I don't think there's any reason not to expand it, so why don't we increase it--what did you want?--to $12 billion.",48
-fomc-corpus,1987,As best our projections look.,6
-fomc-corpus,1987,Give us a number which you sleep well with.,10
-fomc-corpus,1987,"I was shrinking from that, Mr. Chairman, because I just did not have that degree of confidence, but I'll stick my neck out at $12 billion.",32
-fomc-corpus,1987,This is a technical problem which does not confront the Committee very often.,14
-fomc-corpus,1987,"It does get published and people will look at it and say: ""Gosh, did they really think it was going to go that high?""",29
-fomc-corpus,1987,And I guess the answer is yes. [Laughter.],12
-fomc-corpus,1987,"The answer is, we want to be prepared if it does.",13
-fomc-corpus,1987,"It is a simple matter, however, to get that authority by wire if the need exists.",19
-fomc-corpus,1987,"There has never been any difficulty in getting the authority as we needed it, if a situation arose.",20
-fomc-corpus,1987,Do you want to formally recommend?,7
-fomc-corpus,1987,We have to formally change the motion. Was it Jerry Corrigan who made the wrong motion? [Laughter.],23
-fomc-corpus,1987,I think I can make it $12 billion. [Laughter.],14
-fomc-corpus,1987,I assume it is approved. Thank you. Mr. Prell.,14
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,"I have two questions about the forecast. If you were to take another look at your forecast for the third quarter--incorporating the most recent data with regard to employment, retail sales, and production--do you think the number you'd come up with would be higher? And is it possible that the weakest quarter of the year, in fact, could turn out to be the second quarter?",78
-fomc-corpus,1987,"Well, we won't know for sure what the second quarter looked like even in next week's numbers. At this point, the incoming expenditure flow numbers don't point clearly to an upward or a downward revision. For the third quarter, I suppose if we were to recalculate today, our best guess is that our number would be fractionally higher; I would say that it would not necessarily differ significantly from the second quarter. But, just on the basis of the retail sales data, we could see a number that would be closer to 3 percent.",108
-fomc-corpus,1987,"My second question involves inflation. You have a very sharp drop-off, as you did last month, in the second half's inflation rate in terms of the GNP fixed-weight deflator. It seems a little surprising to me, particularly given the revisions to GNP data that we saw in the last month and also the somewhat brighter glow to the economic statistics. I'm not sure I understand what's causing that.",81
-fomc-corpus,1987,"Well, if we dissect the forecast, the deceleration is primarily in the consumption area and, in part, that reflects better food prices, as I noted. And, unless something goes seriously awry, the increase in energy prices in the second half will be distinctly slower than in the first half. We may get a little bulge in the near term, but for the second half as a whole, we are expecting considerable slowing. Also, we have been moderately encouraged by the trend in the non-energy services area for consumer expenditures; it seems to have decelerated a bit over the last 6-12 months, so that has carried through for a little while longer in our forecast.",139
-fomc-corpus,1987,"But you have more than a doubling of the growth rate of PCE, and final sales are up very substantially in the third quarter.",27
-fomc-corpus,1987,"Of course, part of that surge in consumption expenditures--and certainly a large part--is in the automobile area where, to get that surge, they're going to have to give some concessions in the way of lower interest rates or a more generous rebate program.",51
-fomc-corpus,1987,"I'd like to explore a couple of areas. You made the point that 6 percent unemployment, more or less, is getting into the kind of full employment zone where you start to get inflation pressures. It seems to me that as you look across the country, and even within regions, there is such a variability of unemployment rates that this average can be awfully misleading. Take my District, for example. We have a number of areas where the unemployment rate is around 3 percent. We also have a few areas where the unemployment rate is 8 percent. And I would guess that across the country, you would find unemployment ranges from 3 percent to, maybe, 10 or 12 percent. Doesn't a lot depend on where the additional growth comes from? For example, we're going to see the growth coming in manufacturing. Does that 6 percent mean what you would think it would mean, on average? It seems to me that is the kind analysis which, while it has an appeal, is greatly oversimplified, given the variability. That is one area you might talk about.",219
-fomc-corpus,1987,"Well, I did try to highlight some of the geographic disparities in the chart show [presentation to the Committee] last month, where I showed that, regionally, the unemployment rates are substantially different and we have been seeing different wage trends. Clearly, the Northeast is the area where the average unemployment rate has been distinctly lower, and we have not been seeing the wage deceleration, judging by the employment cost index, for example, over the past couple of years. Historically, obviously, the economy has never been perfectly level. We try to compress this into one statistic, but there are always disparities in unemployment rate levels. At the present time, the disparity might be a little greater than it typically has been. But, when you get into the question of where the pressure points are going to be, this is hard to say. Clearly, there is some slack in some of the prime heavy industry areas of the country. On the other hand, some of the industries that may benefit from the improvement in trade are located in areas of the country where the labor markets are a little tighter. For example, some industries in the Northeast will probably be benefitting from increased competitiveness. We approach this question with a degree of humility. We can't state precisely what the natural rate of unemployment is; we assign a fairly broad band, and we recognize that the question of bottlenecks or fortuitous precise matching of the increase in demand to the areas that have the most slack could create some variation in those spots. Basically, though, we think the anecdotal evidence is there. It's sort of a Sports Illustrated story: Once you're on the cover, it's the kiss of death. The Business Week type of headline that we are now in a crunch is overblown a bit. We have a sense that the labor market has tightened, though we have not seen the pressures on wages in--",375
-fomc-corpus,1987,"The other area I'd like to explore is the trade numbers. You made the point that, in the forecast, we count on improvement in foreign demand to more than offset the weaker domestic demand. And yet, if we're moving sideways in terms of real exports--in a context of weak activity in Germany and real doubts in Japan--how does all that fit together? How do you get a boost from the foreign side when real net exports are moving sideways and you have weakness?",94
-fomc-corpus,1987,"In nominal terms, you have a slight weakness. We are expecting, after all, that in the translation that you go through, we will end up later this month with a trade balance for the second quarter which is essentially the same, in nominal terms, as we had in the first quarter. But you would still have some small improvement in the second quarter in real terms on top of improvements in both the first quarter and the fourth quarter [of last year]. Basically, the effect of the sustained period of exchange rate depreciation that we have had, despite the slower growth abroad which you quite correctly point to, is now giving an added boost; in fact, it's striking something off.",136
-fomc-corpus,1987,So you expect the improvement in real net exports to continue. Is that--,15
-fomc-corpus,1987,That is correct.,4
-fomc-corpus,1987,Not in the third quarter.,6
-fomc-corpus,1987,"In the third quarter, we think we're going to have this special effect with the oil--",18
-fomc-corpus,1987,But out beyond that?,5
-fomc-corpus,1987,"Beyond that, we expect essentially the same forecast as this time--most of it accounted for by the exchange rate depreciation, taking account of the weak growth abroad.",32
-fomc-corpus,1987,"I have a gut feeling that the economy in the last half of this year and going into 1988 is going to be stronger than we have projected, and I've been examining numbers trying to figure out where the greater strength will come from. It seems to me that it could well be from the producer durable equipment sector where you show a continued rise in manufacturing capacity utilization throughout the period. In recent months, we've seen a very strong trend in new orders for capital goods. Yet in your projection, after the current quarter, you show only a very modest growth rate. Do you view this as an area of vulnerability in your forecast?",126
-fomc-corpus,1987,"I think if we were to identify the areas in which we would be most likely to get some upside surprises, that is one. Our forecast for this year for nominal business fixed investment continues to be below what the surveys were indicating a few months ago, and it's clear that orders are picking up. Basically, we have a forecast, though, that seems in line with historical patterns, giving consideration to the cost of capital and what presumably would be a rather modest accelerator effect here. We don't have output growth on the whole as all that strong, so we have a moderate increase in fixed investment. But that certainly is one of the areas where a surprise would be less shocking to us.",136
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I guess I just want you to play a ""what if"" game with me. With respect to oil prices--I'm not an expert on foreign affairs or any kind of affairs--but the disruption in the Persian Gulf, I think, definitely has had an impact on oil prices, as you mentioned earlier. But what if they sweep the mines away and the tensions are relieved. Then, if we were to see oil prices coming down, let's say, to $15 or $16 per barrel--that's not my estimate, just assume that would happen--what would that kind of change in this one factor do to your overall forecast? It just seemed to me, as I read through this material a number of times, that the high oil prices, and rising oil prices, were driving many of our concerns on the forecast over the rest of this year and into next year.",174
-fomc-corpus,1987,"If I may turn briefly to Mr. Morris' question, one thing that we've had in our minds as a sort of cautionary note on these orders figures and so on, is that we can't tell how much of that might be potential exports; so, at this point those numbers need to be read cautiously. Our view on the oil situation, as I tried to suggest, is that we could see a downside risk. Evidently, there has been a considerable move to stockpile oil. If we get into another one of these swings where there's a movement toward destocking, and the OPEC swing producers don't cut back promptly enough, we could see at least a temporary drop in crude oil prices, maybe to an even lower level than you've suggested. But, basically, we think we have perceived, since the end of last year, a reasonable enough coherence in the OPEC countries in containing production within levels that enable them to sustain prices at their target level. So we tend to think that any crunch is likely to be relatively short-lived and would, perhaps, introduce some [unintelligible] in prices of final products, petroleum products. But we would be quite surprised to see something that was permanent enough to produce a significantly lower trend in energy prices over the forecast horizon.",256
-fomc-corpus,1987,"Governor Seger, we have not raised our oil price assumption for next year; in fact, it's the same one we had in February. So, in some sense, you have to have some drawback in order for our forecast to be correct. Obviously, there are some risks: we were talking about the risk that the OPEC agreement that they made late last year would fall apart and that--",79
-fomc-corpus,1987,"I think there's no honor among thieves. As those prices rise, I think those people are going to be more and more tempted to cheat, and they will continue to cheat. They're cheating now in that they're exceeding their own quotas--ones that they set among themselves. I guess I'm not prepared to think that they'll get religion real quickly.",67
-fomc-corpus,1987,"Well, that's one of the reasons why you're damned if you do, and damned if you don't; it's one of the reasons why we had essentially stuck with an assumption that was close to what they were targeting six or eight months ago. What will come out over this forecast period, not certainly that there was cheating among--. The real issue has to do with the behavior of the key producers in the Gulf region--[whether] Saudi Arabia, just as it is now producing more oil, will cut back sufficiently to sustain the price at something like $18 a barrel. One of the factors which is [unintelligible] production over this period more than is necessary to take off being driven by the stockpiling.",145
-fomc-corpus,1987,"I think that the Saudis are a self-correcting mechanism because they have maintained that posted $18 a barrel light Arabian crude price, and if the spot price goes under it, their liftings will fall, because no one is going to pay $18 if the spot is $17-1/2. So, it's a sort of self-correcting mechanism, which worked in the very beginnings of this. And I think that's one of the reasons the cheating is really an issue and was relevant to bringing crude price from, say, $22 a barrel down to $18. But the Saudis have demonstrated that they can lock the price at that level.",134
-fomc-corpus,1987,"Mr. Chairman, of course, [unintelligible]. Governor Seger, if you wanted to adjust your thinking on this in terms of our rule--",32
-fomc-corpus,1987,That's not my forecast.,5
-fomc-corpus,1987,"But in terms of our rule-of-thumb, $5 a barrel is worth something like a percentage point on the CPI over the course of the year, and significantly less than that, obviously, in GNP prices, in domestic output prices.",48
-fomc-corpus,1987,"Wouldn't that also help our trade balance? Again, it seems to me that the higher price of oil that we are importing has been a negative. I would assume that that would cut current dollar imports, anyway, if nothing else changed.",48
-fomc-corpus,1987,"In the short run, I think it's going to be the other way.",15
-fomc-corpus,1987,President Guffey.,5
-fomc-corpus,1987,"Thank you, Mr. Chairman. Let me comment that I think our forecast parallels the forecast that appears in the Greenbook this time. But a question, I guess to Mike: With regard to the really sharp swing that you have between the third and fourth quarters in personal consumption expenditures, and the resulting buildup in inventories, which we have somewhat [unintelligible] for the period ahead, is that in your forecast totally as a result of the auto sales picture that you've described?",97
-fomc-corpus,1987,Effectively.,3
-fomc-corpus,1987,No other factors--,4
-fomc-corpus,1987,That's the key factor.,5
-fomc-corpus,1987,"The other question I would pose has to do with your outlook on inflation and your rather sharp jump in the unit labor cost that appears between the third and fourth quarters and continues on out through the projected period. It's my impression, at least, that other than the autos that come up in September, the union-labor negotiations [calendar] is very thin, and we can't see where you're getting that kind of a jump in the output, the decrease in productivity, and so forth.",96
-fomc-corpus,1987,"Well, maybe we didn't successfully answer this, but the productivity numbers are being bounced around by our expectation of what the timing of Labor Day will do to the hours numbers in September. We feel that this is a sound enough arithmetic point, in terms of our understanding of how the data have run over the years. We have a very low September level in these numbers, which affects the average level of hours in the fourth quarter; so we have this gyration of 2 percent growth in productivity in the third quarter going down to 1/2 percent in the fourth. On the compensation side, we have the beginnings of an acceleration in compensation over the second half of this year, but there isn't a big third- to fourth-quarter jump; the big jump there is in the first quarter next year when higher payroll taxes take effect.",166
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"We have already touched on this, but have you done some analysis of the impact of higher energy prices on the acceleration in inflation we have seen so far this year?",33
-fomc-corpus,1987,"Well, I'm not sure what kind of analysis you have in mind. It's clear that it has been a very significant factor. For the year as a whole, we have energy prices contributing 2-1/4 percent, roughly, to the acceleration in the prices of consumption and investment goods. It's clear, though, that the first-half acceleration in consumer prices is largely in energy prices; food prices haven't done so well, but that's a rather small contributor to the first-half acceleration; it's primarily energy prices.",102
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"Mike, I wanted to ask about short- and intermediate-term business demand. How do you conceptualize the slowdown that is occurring there? How would you explain that?",33
-fomc-corpus,1987,Short- and intermediate-term business credit?,8
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"Well, part of it, we think, is the move to longer-term financing after we had an interruption of the flow, so to speak, when rates backed up earlier this spring. The rates came down a little, and maybe [unintelligible] corporate treasurers began to think that they shouldn't be waiting for still more decline. They seem to have come to market in significant size. As best we can sort these things out, that's the one thing we can put our finger on that the data would seem to support very clearly. We don't see it as reflecting a sudden drop-off in inventory accumulation, for example; the data just don't show that.",133
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"Michael, in the federal deficit reduction to $123 billion that the Administration is projecting, can you provide us with more details? Is it mainly on the expenditure side or the revenue side?",37
-fomc-corpus,1987,I haven't had an opportunity to commit all this to memory yet. You're focusing on which year?,19
-fomc-corpus,1987,"On your handout, there is a drop from $158 billion to $123 billion, and then you say with policy action--",26
-fomc-corpus,1987,"Basically, we assumed, in addition to some Congressional action that has already occurred, that something akin to their program will be adopted--an action which gives you on the order of $35 billion in deficit reduction. That's on a par with the Congressional budget resolution number as well. The outlay number for 1988 that they have now is $8 billion a month above their January estimate. Obviously, the revenue is the other thing, and the receipts number is $7-1/2 billion below the January estimate. That's largely a reflection of the downward revision in their forecast of corporate income tax receipts. That's the major [unintelligible]. On the outlay side, they have had to respond to the higher interest rates they have seen. They're expecting somewhat higher interest payments and they're also responding to the higher inflation that we've had, which will feed through to a larger cost-of-living adjustment for social security recipients and federal pension recipients. These are the major features of the changes of the baseline for the 1988 budget number.",208
-fomc-corpus,1987,Thanks.,2
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"Mr. Chairman, I think the staff has done an unusually good job in describing the outlook, and I know Mike has done a very exceptional job in handling some very difficult questions. I guess I come out pretty close to where Frank Morris is on this. I think that the recent spate of statistics indicates that the economy is really beginning to strengthen quite a bit and a lot of that apparently is resulting from improved exports. I would sort of discount the last figures we got from Census on the trade balance on the grounds that you have a lot of price increases of imported goods in there, and price increases on oil, and probably some anticipatory buying because of the oil problems and also because of protectionist legislation. So, if this is true, then I think we could see some bigger figures than the staff is projecting. We are approaching the end of the fifth year of economic expansion at a time when we would expect bottlenecks to begin to appear, and I think they are in some industries. This is the kind of environment in which we could see wage and cost pressures begin to turn around from what we have been fortunate to have had in the immediate past, along with this further heightening of inflationary pressures and attendant upward pressure on long-term interest rates. So, I think it's a situation where we have to increase the care with which we look at the situation; we're now in a different era from where we were a couple of months or so ago.",293
-fomc-corpus,1987,Mr. Forrestal.,5
-fomc-corpus,1987,"Thank you, Mr. Chairman. Our forecast has changed very, very little since the last FOMC meeting. We still have growth in '87 turning out to be in the 2-1/2 to 3 percent range; if there is any change in the forecast, it is that we now think we may very well get closer to the 3 percent level than to the 2-1/2; so, the forecast really is for growth to be just a tad below 3 percent. If we have any differences with the Greenbook, they're very minor. In '88, I think we may very well get somewhat higher growth. I'm also not as optimistic about the deficit picture; I just have a gut reaction that, given the election year, and so on, it may be difficult to achieve any meaningful improvement there. Last month I mentioned that we had a sizable difference of opinion with the staff about personal consumption expenditures; I see that the staff has adjusted their numbers up, but I still think they're a bit on the low side; but the staff has come a little closer to our forecast, anyhow. On balance, Mr. Chairman, we don't have much difference with the staff forecast on growth. As far as inflation is concerned, we have the deflator rising to about 4 percent or a little more in 1988 and, I must say, this gives me some cause for concern. I think that we were all hopeful that the low numbers we saw in price gains in 1986 were permanent, but I'm beginning to think they are not; and I think that we still seem to be stuck with a trend of inflation that's somewhat higher than we would like to see. At earlier meetings over the past couple of months, I was worried that economic activity could fall on the short side of the forecast. Now I've changed my mind in that I think perhaps the risks are on the other side, as some other speakers have indicated. Revisions to the earlier data and higher activity in the first half suggest that the appreciable decline we have seen in the unemployment rate probably is not a fluke. We kept thinking that there was something wrong with those numbers and that the unemployment rate would go back up. But it hasn't done that. And with the rate at 6 percent, I think we are awfully close to the point where some pressure on wages is likely to emerge, as the staff has indicated. So, in this environment, it seems to me that the inflationary risks of economic activity turning out higher rather than lower are fairly substantial; and it wouldn't take very much, in my judgment, for expectations to build pretty significantly for higher inflation. I'd like to say a word about the District. Economic activity in the Sixth District continues to be fairly good and, in fact, it's gaining momentum. The weak areas in the economy, particularly Louisiana, are beginning to show improvement partially, or perhaps primarily, due to the increase in the price of oil. For example, the number of active rigs in Louisiana and in the Mississippi coast area of Alabama is the highest in two years. So that is fairly good news. The other thing that is perhaps interesting to note is that, whereas a few months ago, people that we talk to around the District were not reporting any significant price increases, now they are indicating that the prices of their raw materials, for example, are going up. And for the first time, we're hearing people say that they are, in fact, able to pass through some of these price increases to their customers. That's a significant change from reports that we had had previously.",726
-fomc-corpus,1987,President Keehn.,4
-fomc-corpus,1987,"Our forecast is certainly quite consistent with the staff forecast as it relates to this year. However, I will say that our outlook for 1988 is somewhat stronger. And, I would join those who have commented that, as we go along, the revisions are likely to be up rather than down. Our District has lagged the rest of the country in the recovery, but since the end of last year that has not been the case. As we look at our industries and our indicators, we are tending at least to equal the national numbers. This year, for example, as we have gone through the year, employment increases in our five states have been consistently equal to the national increases. The increases have tended to be on the nonmanufacturing side, but even in the manufacturing category, we are significantly above the low level of manufacturing employment prevailing at the end of 1982. Unemployment continues to be a little higher than the national average, about a percentage point higher; nonetheless, that margin seems to be coming down. And, I do think that some of the manufacturing sectors that have been going through a very difficult period are showing really surprising strength. In steel, for example, which is a very tough industry, the steel plants that are producing sheet steel are about at capacity. Those producing structural steel are lower than that, but nonetheless stronger than you might expect. And, there are a number of other categories in the machinery side that are showing improvement. A large manufacturer of diesel engines in our area is now really having a hard time keeping up with the demand; construction equipment is stronger; and even the railroad equipment business, which has been absolutely moribund, is beginning to show some signs of life. All of this, of course, excludes autos, though the sale numbers for autos, as Mike is suggesting, continue to look like 10 million or more [unintelligible] this year or next year. The production schedules in the third quarter will be down by about 13 percent; and for the fourth quarter, though the schedules are not final, it looks like they'll be down about 5 percent. And the inventories do not seem to be out of line. On the agricultural side, I have just a quick comment. I am almost hard pressed to say that, certainly, we have stabilized; and there are even some signs of improvement. The land values, which in the first quarter were level, at least, did show improvement in the second quarter; those land values continue to move up a bit, albeit from very, very low levels. Nevertheless, transactions that are taking place show some sign of strength in land values. There was, as you know, a recent revision in farm income; and the outlook for this year is for a significant increase and, therefore, those farm income numbers look pretty good. Surprisingly--or at least I find it surprising--the increase in farm income is not a result of higher subsidies, but rather of a decrease in production costs, which is an encouraging sign. So that part of the agricultural sector looks pretty good. Admittedly, we have a long way to go before the harvest, but at this point the growing conditions look good. We would anticipate good crop yields per acre and, in some areas, there will be record production. The overall production will be down by 12 percent; the acreage is down even more-- say, 14 percent; but, again, we have a net improvement in yield. So, I do think the conditions in the District are much improved for the rest of this year and into next year. But, as I pointed out, there are a couple of key areas. On this trade balance issue, I've had the feeling all year that we were seeing a correction; the people I talk to suggest that that is the case. The June numbers were certainly disappointing. I hope there's nothing fundamental there. But if the major economies in the world do not turn around and begin to pick up and take our exports, this obviously will have a big impact. On the inflation side, we are seeing some of the price increases that Mike mentioned. They are in a couple of categories. Specifically, in steel, one manufacturer increased prices 4 to 6 percent and this time they're sticking--again, at very low levels. But if these price increases begin to become pervasive, and then go through to the labor side, I think the outlook for inflation will be quite different. I don't yet sense that. All the people I talk to who are negotiating labor contracts are continuing to get very good results: reasonably modest increases on an annual basis, and importantly, very good work rule changes, so that productivity and unit labor costs seem to be better. But, I do think these are, of course, the two key areas: the trade balance and inflation. Net, I think the economy, both nationally and in our District, continues to look good and seems to be improving. As we go along here, there is the opportunity for increasing the growth forecast.",1011
-fomc-corpus,1987,President Parry.,4
-fomc-corpus,1987,"Mr. Chairman, our forecast is in basic agreement with the Greenbook forecast, but I'd agree that the risks, in terms of growth, are on the upside, for many of the reasons that have been mentioned. For example, we have assumed the $25 billion deficit-reduction measures which are indicated in the Greenbook, and it's possible that some portion of those measures will not be enacted. That's another area, in this case resulting from the government sector, where we could see a greater boost to GNP, at least until some of the secondary impacts of a greater deficit are felt. Moreover, when we look at the 12th District, the data to us, particularly in the area of employment and retail sales, indicate strong growth. And the discussions I've had over the past month with directors--not only at the head office but also at our four branches--indicate a greater optimism about business prospects than I have ever seen in the year and a half that I've been with the System. I'm more pessimistic on inflation than the Greenbook, since I believe that the fixed-weight price index will continue to advance at a 4 to 4-1/2 percent rate in the last half of this year and remain in that range in 1988. It seems to me that recent tightening in labor markets raises the chances of price increases in 1988, and it certainly heightens my longer-run concerns about inflation. It would appear to me that, at this point, our room to maneuver is rather limited, with the labor market around full employment, nominal short-term interest rates rising about 100 basis points next year--at least in our forecast--and real interest rates rising only slightly. The current forecast that we have and the one that is in the Greenbook hold out little or no prospect of the inflation rate subsiding in the near future.",374
-fomc-corpus,1987,President Boykin.,4
-fomc-corpus,1987,"Mr. Chairman, our forecast also is pretty much in agreement with the staff forecast. We have strengthened our outlook for the national economy for the rest of this year and going into next year. We think we do have a rate of expansion that is sustainable. Subjectively, it is a little hard for me really to believe all that, given what has been going on in our particular part of the country. While we are seeing a little improvement, we certainly are lagging the rest of the country. Both anecdotally and statistically, we can kind of show that we are working through the trough; but the recovery, to the extent that there is one, is so fragile that it would not take very much to have us continue the downturn that we've been in for the last couple of years. Reference has been made to energy. We have seen a little improvement there, certainly, in terms of perceptions. There has been a little improvement in construction, but it's not in building; it's in roads, public construction, that sort of thing. Manufacturing looks pretty good. In agriculture, we are continuing to see cropland values decline and we are not through yet; of course, we came into this a year or two after the Midwest, in particular. And, of course, everybody reads about the conditions of the financial institutions. One concern that we are hearing, primarily from people in mid-sized and small businesses, is that they're very concerned that they're not going to get credit. And without credit, they're not going to be able to grow and expand and create jobs. This is something that we're hearing more and more. The banks are not willing or able to lend, and a cutoff of credit has occurred; and they don't see very much end to it.",352
-fomc-corpus,1987,Is it because banks and thrifts are getting super conservative? Is that the idea?,17
-fomc-corpus,1987,"That's a lot of it, Jerry. The bankers say that there just is not any loan demand. The small and mid-sized businessmen say we have the demand but banks won't take the risk. So, I think it's probably somewhere in between--the banks are not seeing the kind of demand in the loans that they are willing to make.",67
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I agree in general with what the Greenbook says and what I've heard about the outlook. I do think it's picking up; it looks better and there is some growing upside risk. However, I have a number of concerns that really cause me to question this view completely, and there are a few problems that I have with the Greenbook forecast, in particular. So, I'm still uncertain, overall. First, the growth that we see appears to be primarily due to the improvement in real net exports; export volume is causing the stimulus that we see right now. And, if that is indeed the case--if most of the growth is coming in the external area rather than in domestic aggregate demand--you have to really ask yourself how much of the potential Phillips-curve type effects on pricing you can get from that kind of growth. And that modest expansion in aggregate demand, I think, is being verified somewhat by the aggregates, as well as by other types of evidence for consumption. You really have to ask how much inflation pressure can be produced by that type of a scenario. When you look at the broader inflation indexes, the CPI, excluding energy, shows some pressure, but the PPI shows no influence outside the energy area. As a matter of fact, it has been decelerating this year, ex-oil. So you really don't see a broad buildup yet on the price side. The staff forecast has rising interest rates, and I think some of their policy assumptions are inconsistent with the forecast. That rise in interest rates, at least if the aggregate models are correct, is going to produce a further weakening in the monetary aggregates. Looking at a further weakening in the monetary aggregates, you have to ask yourself: How much nominal GNP can you get out of those kinds of aggregate growth rates, and does the velocity number that is consistent with that make any sense at all to you? I don't think you can get too much from a rising interest rates scenario out of the aggregates to produce enough nominal GNP to produce a serious risk. The other point I have is on the movement of the dollar. One problem I have on the dollar is what I pointed out yesterday in the Board meeting: we really have had no net depreciation of the dollar this year. Now, there's always the possibility, and I continue to worry about the downside risks on the dollar. I know it has come off a little today; we've talked about some of the reasons. But the fact of the matter is that there has been no net dollar depreciation this year and we're late into the year. The forecast is contingent upon a 10 percent depreciation in '87 to produce the lagged effects on prices in '88. Of course, there are still four months of opportunity for that. But you have to ask yourself, if you're not going to realize that kind of dollar depreciation this year, how are you going to get those lagged effects for '88? The other point is that if the oil price is expected to hover in the $18 range--and it's my feeling that the dollar is being influenced some by the oil price--an oil price in that range will keep the dollar high relative to the currencies of major industrial surplus countries like the mark and the yen. And if the dollar stays stronger because the oil price hovers in the $18 range, how are we going to get the dollar depreciation? On all of these questions, I'm not saying that they can't be overcome, because I see the outlook picking up some, too. But I really haven't resolved these questions in my mind and I think they are serious alternative issues to deal with. So, given these problems, I don't think we have enough evidence to expect a big upward move.",746
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"In many ways, Manley, you've made my speech, because I think what I hear you saying is that there is more uncertainty than some of the comments might indicate. It does seem to me that it's appropriate for us to assume that inflationary pressures need to be dealt with, and that it's appropriate for us to have a monetary aggregate growth path such as we have been having. To me, a 4 percent M1, M2, and M3 path is, in itself, a rather significant antidote for these inflationary pressures that exist. Even though those inflationary pressures are there, and we are far from having turned the corner in abating these price increases, there might be some possibility that we will be successful if we are willing to maintain a monetary aggregates growth path such as we have. And there's something that I notice when I get out in the country and I talk to farmers and people in the oil business and realtors: there is a sense of unease that's in our country that really goes against what you were suggesting, Si, in regard to farm income. It is true that 1986 was a record year for net cash farm income; and 1987 is going to be another record above that record. But what I notice is that there is a conservatism, or even a super conservatism, that exists. Those people who are the survivors, and those businesses that are successful, are the ones that kept their borrowing down. I notice no rush to borrow; I notice no stories from the entrepreneur types about how it makes sense to borrow money to do this or to do that. I notice instead that the fast-food business is not quite what it was, and that owning houses doesn't seem to be quite the way to profit. And I notice some unease and a scare out there that moderates behavior. So, it might be that this growth path of the monetary aggregates could bring a stop to the commodity price rises that we've seen during the last year, beginning last August. And if these commodity price rises do abate and the inflation expectation goes away, there is some possibility that deflationary forces could once again return. I think what we need to do at this point is to be open: to look at the various possibilities and to see if we can do the trick of getting commodity price rises stopped in sufficient time before they feed back into the wage/price cycle. If that can be accomplished, then it seems to me that a 4.1 percent GNP deflator and a 4.5 percent increase in the fixed-weight index for 1988 is totally unacceptable. We just must not let that occur. But having said that, let's not get ourselves too ready for an overkill.",553
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"Well, I am considerably more comfortable with the Greenbook forecast at this meeting than I was in July, because it seems to me that the thrust of the latest statistics on the economy, with the revisions, serves to bolster the underpinnings and credibility of that forecast, at least in my mind. I think the revisions are important, as well, in this story because I think they help to put things in a more consistent picture. Throughout the expansion, it seems to me, we've had consistently strong increases in employment and we were seeing weaker increases than I would have expected in GNP and so forth; and at least in my mind, some of that gap has been reduced. I think we are looking at an economy that really has been performing rather well. That's certainly consistent with what's going on in the Ninth District. I have talked before about the two-tier economy and the divergence between what's happening in the urban areas, which are doing well, and the rural areas. But the latest developments suggest that that gap has diminished; that is, the rural economies are doing better, in part because agriculture is doing better, and in part because other aspects of the natural resource industries that the rural area of the Ninth District depends on are doing better. And that's encouraging. I might also comment on the fact that I've received a number of unsolicited reports from businessmen in the District about increased interest in export opportunities--that is, potential foreign customers coming to them to explore the possibilities of sales abroad of various products. This is everything from the high-tech end of the world to some very basic commodities. Again, I think that's consistent with what we have seen happening in the economy recently and what our forecasts suggest. I do think that, with all that good news, we probably are approaching a critical point when it comes to inflationary pressures. As Mike indicated, I think you can attribute much of the acceleration in the broad price indexes so far this year to the effects of higher energy prices. But I think that looking forward, we have a number of things on the horizon that give me some pause even if energy prices level off or maybe even come down a bit from here. One is clearly what we're seeing in the bond market here and elsewhere around the world, where there are some signs of heightened inflationary expectations that manifest themselves in long-term rates. Secondly, I guess I'm not confident at all that in fiscal 1988 we'll achieve a Federal budget deficit significantly below this year's level. In fact, it could could be higher, if we're not a bit lucky. And, finally, as far as the labor market goes, I don't know what the natural rate of unemployment is, but whatever it is, we certainly have to be a lot closer to it today than we have been recently. And not surprisingly, if you look at unemployment by various demographic groups, as you would expect, we are at the lowest rates of unemployment in general since 1980 and, in some cases, since 1977. For some groups you have to go back to 1977, at least using quarterly average data, to find unemployment rates that low. I think we have benefitted heretofore from the rigidities in the wage determination process with which we are all familiar; I'm not talking just about what goes on with unions, but just the way business is run. But I don't think that we can count on those rigidities in that wage determination process always working in our favor, particularly if price indexes start to move up here.",703
-fomc-corpus,1987,Vice President Hendricks.,6
-fomc-corpus,1987,"Thank you, Mr. Chairman. Our views of economic conditions closely parallel the staff's forecast in the Greenbook. As some others have suggested, there are a couple of areas where we differ a bit. One is in the growth of income, and the other is in consumption. On balance, it appears to us that the economy is picking up strength. Employment, output, and exports are expanding, as we see it, and we have noticed a jump in prices. Comments by our directors and others support this view. Even the hardest hit sectors --commercial construction, agriculture, and metals--are said, particularly by our directors, to be enjoying a period of stability and possible turnaround. So it's not surprising, I guess, that we would suggest that our forecast shows more strength, on balance, than is indicated in the Greenbook.",167
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I hope that the staff forecast is right on target, but I do have some questions and some doubts, I guess. One of them that I expressed yesterday at the staff briefing [to the Board] involves our emphasis on the trade turnaround. I'm just not convinced that we will get as much of a boost to the overall economic picture from the trade turnaround as we are counting on in the forecast either for the rest of this year or in 1988. It was mentioned earlier that some of the trading partners have economic situations that are far short of robust. So I think that's a key factor. Also, no one has mentioned it, but there are trade barriers out there that business people tell me about. And some of the obvious ones involve trying to get into the Japanese market. Also, I'm not convinced that the dollar is going to fall as much as we're assuming in our forecast. I realize it can be banged down but, as Governor Johnson said, there are things going on that may prevent that from happening. Also, the staff is talking about some gradual upward drift in interest rates. That may happen, depending, of course, on what policy stance we take. But I guess I don't see as much of a bite on the economy from that upward drift as I might have expected. Looking at autos--and this would be more of a near-term situation than for '88--I think it's going to be a lot tougher to reduce those inventories than apparently you think, Mike. Some of the specific makes have over a 100-day supply; that's not worked down easily even at 1.9 percent interest rates. One of the reasons they have so many is they haven't a lot of sex appeal in the models; they may have to just give them away on some Saturday night, I don't know. Anyhow, I think it's a lot greater challenge than --",375
-fomc-corpus,1987,That's pretty awful.,4
-fomc-corpus,1987,"That's right. I don't like it myself. My final comment involves inflation, and here Governor Angell made my point about commodity prices. I don't think it's guaranteed that these are going to just keep rising. We all know that commodity prices are very volatile and influenced by many, many things above and beyond monetary policy. And I believe, as he said, that there are factors at work that may, as a matter of fact, keep those under control. Particularly when I think about the crude oil situation, I'm not certain that we're going to get what's in the staff forecast. On the labor market shortage, I just don't think there is a labor market; I think there are all sorts of labor markets--for different skills, for different industries, and for different geographic areas. So I don't know that it makes any sense even to talk about a natural rate of unemployment because I just don't know how to use it as a guide. Finally, one of the things that I really don't think we're emphasizing enough is the real change in managerial attitudes. I see more backbone among corporate executives in their labor negotiations than I've seen in my whole working career, which goes back a long time. And I'm really delighted to see that they no longer assume that they can just pass through these higher labor costs--which they used to do, particularly in the major industries. Also, the company heads are more and more aware of import competition, more and more aware of the need to be efficient and to get even more efficient. They're pushing the employees for moves that would enhance productivity. This is going on all the time in the auto negotiations. The emphasis is on job security; there is even talk of freezes on actual wages. To the extent that there are pay adjustments, in a number of major companies they are making sure that the productivity gains do offset them because the 1.1 percent--or whatever the overall national number is--is not what the productivity gains are in specific companies. And so, I think, they are tending more and more to tie their own wage settlements to their own productivity enhancement moves. And I think that's all to the good. I put all that together and I don't see zero inflation, but I don't see 4-1/2 percent heading towards 14 percent either. Thank you.",460
-fomc-corpus,1987,President Corrigan.,4
-fomc-corpus,1987,"Well, Mr. Chairman, I think we'll probably get a little better sense of things when we get back to work in earnest in September and businesses start doing their planning for 1988. But, as I look at things right now, first, I think that the outlook for the economy is better--not that I thought that it was all that bad to begin with. And second, I have to conclude that the inflation risks have risen. In terms of the ""body english"" that can be put on that, some can say--as I think Mike Prell did a long time ago--that one way to look at it is simply with a higher degree of confidence that something approaching 3 percent real growth could be realized. I would simply add that, in the current circumstances, I do think we have to keep in mind that something like the staff forecast for real growth isn't far from what is optimal, considering the need to effect the external adjustments that we have all been talking about and to maintain some hope that the inflationary process does not get away from us, as a number of people have suggested. On this all-important question of the external adjustment, for what it's worth, the New York staff forecast is a little stronger overall in real GNP. Interestingly enough, it is also one in which there is no assumption of further dollar depreciation in 1988, but despite that, we get a better showing in the trade account and the current account in nominal terms and end up at about the same place in real terms. Now, the reasons for those differences, I think, are important. One is that we do have slightly stronger growth--not a gangbuster pace by any means--but marginally stronger growth in the non-U.S. industrialized world than is in the staff forecast. A second factor, of course, is that without the second or third J-curve effect, the nominal effects work in the right direction. And finally, we do have U.S. export prices going up more rapidly than the staff forecast does. Each one of those, obviously, is a big ""if"" and, taken together, they are a lot of ""ifs"". But the key point is that they do suggest at least the possibility that you could get an outcome that is better in nominal terms and about the same in real terms, without having to rely on a further depreciation of the dollar, with its inflationary implications and the risk, of course, that further depreciation of the dollar could get away from us. I think that is important for another reason. I tend to look a lot at what I call ""a domestic savings gap"" in trying to figure out where we are in terms of capital and savings requirements. As things stand right now, and assuming a Federal budget deficit in 1988 somewhere in the $150 to $160 billion range, the fact of the matter is that we have made precious little progress in reducing the so-called domestic savings gap. If the budget deficit next year is in that $150-$160 billion range, and if total net private investment is only about 5 percent of the GNP, which is darn small, the savings gap relative to GNP is still going to be 2-1/2 percent or more of GNP. It is still going to be $145 or $150 billion in absolute terms--not down at all from its peak in 1985 or 1986. So, that fundamental disequilibrium is still there. In fact, it has not improved much at all, despite the reductions that we have seen in the budget deficit, because the saving rate for the economy as a whole has slipped off its peaks of 1985 and 1986--not decisively, but enough so that the problem, both in relative and absolute terms, is still very much with us throughout the forecast period. That in itself says to me that we have to be especially cautious, because one way or another that residual is going to have to be filled from abroad, if interest rates and exchange rates are going to remain consistent with the kind of economic profile that the forecasts are talking about. On the inflation question, I can be very brief and simply say that a number of us, including myself, have fretted in the past about crossing that threshold of 4 percent in the deflator and 5 percent in the consumer price index; and it seems to me that the consensus view, though not the universal view, among private economists and others is that we are there. That, I think, is the reality. As things stand right now, I can postulate conditions that would produce a result better than that, but I certainly don't think that those are the likely outcome. Indeed, I guess I'd be on the side that says that I could also postulate conditions in which, heaven forbid, we could find ourselves looking at 5 percent on the deflator and 6 percent in the consumer price index. If we get to that point, then we are looking at a situation that inevitably carries with it the risks of highly destabilizing consequences for the real economy here and around the world. Indeed, I think the lessons of the past are clear: if you wait to see that kind of problem staring you in the face, the costs of unwinding it are going to be exponentially greater than the costs of checking it in the first place.",1083
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"Thank you, Mr. Chairman. I think the overall numbers, which are rather satisfactory, are good not because the aggregate economy is really good, but because the sectors which have been weak so far are the sectors that are picking up. If you keep that in mind, I think the inflation picture also will look a little different than it does when looking at the aggregate economy as a whole. We are eliminating the sectoral imbalances in trade and in the government sector as well as in the regional sectors that were pointed out before. Overall, I think that makes for a healthier economy because, in essence, we are pulling the weak sectors up without really hurting the strong sectors at the present time. Consumers are still moving forward but at a rather subdued 4-1/2 percent pace in the overall forecast. And I agree with what President Morris said earlier: that the investment picture may actually be a little better than the numbers of 3.8 to 4.2 percent next year suggest. I'd be slightly more optimistic there, but not all that much. On the export front, I think also that our growth will be sustained in the double-digit area; 12 percent in the Greenbook is certainly sounding good. Turning to the price area, because we're having that pickup in sectors that previously were very subdued, we should not experience the burst in prices that would be associated with an overall Phillips curve. Therefore, I also think the employment gains which have been achieved are in areas and in sectors, such as manufacturing and agriculture, that were previously very, very depressed indeed. Overall, I think the producer price index, as has been pointed out, is rather stable. And I agree with what Mr. Corrigan just said: the final user prices, the GNP prices, are drifting up at a 4.5 percent rate. But then again we have to ask ourselves--this really should be reserved for the next part of our discussion, but let me bring it up--if we're having monetary growth right now of 5 percent and we're having price increases of 4 to 5 percent, what does that mean for the real economy if you want to make that equation square? I certainly disagree with the view of the world that we're having a zero growth. So something else will have to give. Either we have to produce a lot more money or price increases will not be sustained at a very healthy consolidation phase of the economy; and I don't really see very major risks on either side.",501
-fomc-corpus,1987,President Guffey.,5
-fomc-corpus,1987,"Thank you, Mr. Chairman. I've already made comments with respect to our outlook and our general agreement with the Greenbook forecast. I'd like to make this very brief, in view of the time. The regional economy that we're experiencing in the Tenth District has some positive outlook to it in the sense that, as others have already commented, the agricultural sector is having and will have one of its best years, with this major rise in net farm income. There has been a good crop. The red meat industry is in very, very good shape. As a result, there has been some uptick, or at least modest turnaround, in what had been falling agricultural land values. One survey shows that from the first quarter to the second quarter, agricultural land values have increased about 1-1/2 percent; and that's to be contrasted with a long period of declining land values. I would just note, however, that the sales that have translated into that greater land value number are one of two kinds: 1) cash transactions in which neighboring producers are picking up depressed or troubled land ownership; or 2) the Farm Credit System is offering very attractive financing rates to move land off of their books in order to avoid any additional loss. I would just note that, as a result of this, the margins in the production of red meat are very good at the moment. However, the inventory is beginning to build, and we would expect that there would be little or no additional pressure on prices from the food sector as a result of the [uninteligible]--no real hope of increased commodity prices either in terms of crops or red meat. Lastly, there is some optimism being generated in the energy sector. There is some drilling now taking place; the rig count is up modestly from a month or two ago. So, psychologically, given what we see, we would expect things to continue to improve but at a very slow rate. In the commercial real estate area, we have overbuilding in Denver, Oklahoma City, and Tulsa, which is depressing that market; and those conditions, obviously, rose out of the depressed conditions of agriculture and energy that they depend on greatly. We believe things are looking up, but we have a long upward pull to get back to better conditions than we have now.",463
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"I wanted to pass on just one piece of anecdotal information that bears to some extent on what Jerry and Bob Heller were saying: one businessman in our District in the shoe business mentioned to me that they're running at essentially 100 percent of capacity now. I sense that's close to true in textiles, and, at least in some respects, in the steel area. So I mention that. I guess what concerns me, when you think about this external adjustment process that Jerry talked about, is that we shut down capacity so quickly over this period of years that I think we are bumping up against capacity constraints in those industries a lot sooner than anybody could have anticipated. I asked a logical follow-up question to this executive: ""Well, are you going to expand capacity?"" In that case, they have closed facilities that they could probably reopen without a major capital investment. But, basically, the message was that chief executive officers and financial officers, having been through this period of shutting capacity down for so long, are going to be very slow to make the investment to reopen. As a result, even in these industries that have been depressed, I think the pressures on the labor markets are apt to build a lot faster, because the investment is not going to follow as quickly as it might have in a more orderly period, if you will. I wanted to pass that on; I thought that was interesting.",280
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,"Thank you, Mr. Chairman. I'd like to spend just a second on a little different perspective. There has been a very good staff forecast and a lot of very good comment on it. But it might be worthwhile to put our attention just a little on whether or not there may be some very fundamental long-range changes running underneath the surface of the world economy and our economy. If there's an analogy there, it may be what happens in the sea: you have the Gulf stream running up the East Coast from south to north; the storms come and go and calms come and go; and the tide shifts back and forth with the Gulf stream still running north up the coast. It kind of dominates everything in the long run. I wonder if there's any of that effect going on in the world economy. I see several things out there that could be fundamentally deflationary in the long term. That's not to quarrel with the kind of forecast that we're seeing here over the forecast period. But it seems to me that if we can avoid falling into the protectionist sinkhole--and maybe we won't--that there is a super abundance of pretty capable labor across the world that's waiting to produce, and it's currently grossly underemployed. And there's capital that's mobile enough to get there to set up factories and economic capabilities, and do whatever is necessary to employ that still quite low-cost labor. And we're going to be competing with that labor. In a great many commodity areas there is a worldwide abundance of capacity. Absent political events, there's plenty of energy for the next few years at least. The world is coming into a surplus of farm commodity production on an aggregate basis; there are lots of metals, and so forth. The third factor may be that it probably was inflationary to increase the enormous levels of international debt that we now are struggling with, but it probably is going to be deflationary to try and service that debt, now that we have it. There's a lot of pressure on a lot of economies to produce in order to earn foreign exchange to try to service their debt. So there are some things out there which seem to me to possibly be exerting a [unintelligible] deflationary effect. And, while I see the pressures that we have over the forecast period, and I would not quarrel with those, I think that maybe these long-run deflationary effects under the surface might damp that, as they play through in the inflation numbers.",498
-fomc-corpus,1987,"Mr. Boehne, do you have any comments you'd like to make at this time?",19
-fomc-corpus,1987,"No, I have none.",6
-fomc-corpus,1987,"I'd like to make just a few observations. We spent all morning, and no one even mentioned the stock market, which I find quite interesting in itself. I think it's important in the sense that as an economic force, history tells us sometimes it works, and sometimes it doesn't. It's conceivable to me, however, that this may be one of the times in which we may begin to see some opening up in the capital goods markets. It's very dull; appropriations are not expanding at a rapid rate, but they are expanding. And I think what the new orders are showing is a mixed bag. Mike mentioned that there may be some exports in those orders, but we also may be seeing an increase in the share of the total domestic capital investment markets because, remember, those figures are orders at domestic facilities only. And the one thing that seems to be appearing in the numbers, in real terms, is that irrespective of the nominal trade figures, the share of capital investment coming from abroad has been increasing dramatically, although it's now beginning to taper off. That will create a much stronger set of new orders figures for equipment, as we see in the aggregate appropriation numbers and the aggregate investment numbers. I'm a little concerned that we may be looking at more than the opening up in this area that the staff numbers show, in part, because I think profit figures are moving fairly quickly. The ability to pass through prices is another way of saying margins are opening up. And we are beginning to see very clear evidence in a number of areas that we are picking up some form of potentially significant profit expansion. That would lead me to conclude that we could very well be running into trouble at these monetary aggregate levels; but my impression is--at least my hope is--to get to it a little later. But we may be looking at the possibilities of a turn in velocity numbers at this stage. I think the presumption that velocity will stay somewhere down in this area, or even approximate the staff forecast, may be wishful thinking. I think there is more of a potential on the inflation side, on the nominal GNP side, at fairly low credit and monetary aggregate expansion than I think we're willing to admit, if for no other reason than I think we're merely projecting the most recent past. I think that is turning; and if it turns, we'll have some possibly significant difficulties. On the exchange rate question, even though the staff forecast, as I understand it, has implied profit margins on imported goods flat at very low levels--meaning that the import prices of goods shipped into the United States are essentially reflecting very little change in profit margins--I think history tells us that that doesn't happen often either. The evidence suggests that, from these levels, the likelihood is for more of an increase in those margins--meaning an increase in import prices relative to the exchange rate. What I conclude from all this myself is that, while the staff forecast is in a way the most likely forecast, I'd be inclined to suppose that the risks are clearly on the upside, both on volume and on price. And my last forecast is that that's likely to be the way Mike will come out the next time around.",637
-fomc-corpus,1987,I wouldn't be surprised.,5
-fomc-corpus,1987,Got the message?,4
-fomc-corpus,1987,Sometimes he's hard to influence.,6
-fomc-corpus,1987,"In case there's any doubt, I think the real world is going to influence him. If there are no further comments on the economic outlook, let's move on to Mr. Kohn.",37
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Thank you. Why don't we break until 10 minutes to 12.,15
-fomc-corpus,1987,"As we sit here, the dollar seems to be dropping. Maybe we ought to adjourn for awhile. I would like to open the floor now for a general policy discussion and some indications on the directive and borrowing requirements and any tilt that you would like to express as we go on. The Vice Chairman starts off.",63
-fomc-corpus,1987,"Thank you, Mr. Chairman. I can be rather brief. As I said earlier, in the totality of circumstances that we face, I view something like the staff forecast as about as close to optimal as we can get right now. But I also regard the risks in that forecast as being strongly asymmetrical on the side of the economy being stronger and the inflation rate being higher. Because I have that view as to the asymmetries of the situation, and because I regard the risks of that type of an outcome to be potentially so severe, I would favor, at this point, a modest move in policy that would take the borrowing level to $600 million--in other words, something between ""B"" and ""C"". It's not that I think that kind of a move in and of itself is going to be decisive; but I do think that it will be enough of a move to show through in the marketplace, and to convey a sense of concern on the part of this Committee as to the potential for things working in an adverse way. I see that kind of an approach as relatively risk-free in that the initial change that it would carry, whether in terms of interest rates or things like that, is inconsequential as far as the forecast for the economy is concerned. I do not regard signal value as being inconsequential. So, on the theory that a stitch in time may indeed be worth nine, I would proceed along those lines.",293
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,"Mr. Chairman, I think that there is a case to be made for some tightening for all the reasons that have been stated: the risk of inflation in the economy and also the history of probably waiting too long. I am not ready to make that move at this point. I have enough doubts, and I think there are enough uncertainties, about the outlook for inflation and other aspects of the economy. The sentiment around this table has fluctuated a good bit in recent months, and I think we very well may be heading into a period where some tightening is appropriate; but I think it is premature at this point. I would favor a directive that would maintain the $500 million of borrowing, something along the lines of alternative B. However, I would give the directive an asymmetrical tilt indicating that if policy needs to be changed in the intermeeting period, that we would more likely lean in the direction of some snugging than some easing. So, I would be for no change, alternative B, with some asymmetrical wording that would tilt it in the direction of some tightening, should a change be necessary.",222
-fomc-corpus,1987,President Forrestal.,4
-fomc-corpus,1987,"Mr. Chairman, I was going to say that, ordinarily, I would have been in favor of some slight tightening, but I also was going to say that I would be reluctant to do that in light of the dollar's strength in the foreign exchange market. However, given what you have just said, perhaps my thinking will change a little. I also was going to say that I thought the strength of the dollar was temporary, so I guess the markets are proving me right in advance. Given my view about the economy and what I see as the potential for more inflation, particularly in early 1988, I think that we probably should make the move now, recognizing that there are some uncertainties in that forecast. I wouldn't want to do anything very dramatic, but I would opt for what I would describe as alternative B-plus with borrowing at about the $600 million level. That implies that I am willing to accept M2 growth that is below its range for the year; and I think it is pretty doubtful that we would be able to get it up to the bottom of the range in any case, unless we did a very pronounced easing of policy. I am willing to accept lower than intended growth, certainly, in preference to easing policy at this time. As far as the directive is concerned, I would suggest that we tilt slightly toward firming and keep an asymmetric directive that would enable us to firm even more, if circumstances required. As for the various clauses that the staff has indicated in the Bluebook, I would stress the indications of inflationary pressures and general business activity the most and downgrade the dollar. Also, I would keep that sentence in the directive that would allow for greater M2 and M3 growth--that we would tolerate that if it occurred.",354
-fomc-corpus,1987,"I would like to raise a point with respect to that. This directive goes through a very short period of time. And I'd raise the question as to whether or not it is really an operational directive at all, because by the time this is actually something that is likely to happen, we are beyond the period which we are focusing on, with respect to policy in any event. That's at least my view; I don't know how the rest of you read that.",92
-fomc-corpus,1987,Sounds like a good case for early release.,9
-fomc-corpus,1987,"I'm sorry, Mr. Chairman, I guess I don't understand the point that you are making.",19
-fomc-corpus,1987,"Well, I am referring to the sentence ""Somewhat faster growth in the broader aggregates would be acceptable in the absence of indications of worsening price pressures and substantial weakness in the dollar, given the shortfall of these aggregates from their annual averages."" What I am basically saying is that we are not going to learn a great deal more about what those aggregates are doing between now and the termination of the time frame to which this directive applies. So, I am not quite certain whether the directive has any operational significance because of the shortness of the time frame.",110
-fomc-corpus,1987,"[Unintelligible] with respect to the aggregates, not interest rates.",16
-fomc-corpus,1987,"Oh, no, no. Just the aggregates.",10
-fomc-corpus,1987,"I read that, at one point, to mean the opposite of what it is intended to mean. I think it could be interpreted that way. If you were worried about the slow growth, you might actually encourage--",43
-fomc-corpus,1987,"It seems to me, if anything, that is certainly too open-ended the way it is currently written.",21
-fomc-corpus,1987,That is all I meant. President Parry.,10
-fomc-corpus,1987,"Mr. Chairman, I believe a strong case can be made for alternative C and I would characterize that, at least in terms of anticipated effects on interest rates, as being a small move. In July, several Committee members expressed the view that a tighter policy would be necessary in the coming months and I think developments since then strengthen that view. Most data released since our last meeting suggest that the economy and inflationary pressures are picking up. Inflation in the first half was over 4 percent and real growth was at a very strong 3-1/2 percent rate. Data that we have seen so far on economic activity in July--particularly employment data, retail sales, industrial production--indicate that the economy remains strong in the current quarter. Given that it takes a long time for our actions to affect inflation, I believe we should make a policy adjustment. If we delay much longer, until inflation has really gained momentum, more severe action will be required to bring inflation under control. For those reasons I would support the adoption of alternative C as presented by the staff.",214
-fomc-corpus,1987,$700 million on borrowings.,7
-fomc-corpus,1987,$700 million.,4
-fomc-corpus,1987,President Morris.,3
-fomc-corpus,1987,"Well, Mr. Chairman, I would support Mr. Corrigan's formulation of a modest tightening--a $600 million borrowing level. I think that we might need to move further in the event we get a period of pronounced weakness in the dollar. There has been so much talk in the foreign exchange market about the inevitability of a further leg down in the dollar that that seems to be the conventional wisdom. For that reason, this recent weakness in the dollar has the potential, I think, of generating a test of the earlier lows; that's just potential; I am not forecasting that. If that should turn out to be the case, we probably would have to make another move prior to the next meeting. But I think the evidence of greater strength in the economy would certainly support a modest move at this time of the sort that Mr. Corrigan outlined.",172
-fomc-corpus,1987,"It seems to me that we need to remind ourselves that these minutes will be published six weeks from now, around the time of the next meeting. It just seems to me that we ought to be somewhat careful about making asymmetric statements when there is this much uncertainty. I think the real question is what do we do, not the question of symmetric or asymmetric. I would prefer a symmetric ""B"". Now, that puts me at the far end of those who have been speaking so far. I do believe that the monetary aggregate growth paths are quite different from those we had in the period that led to the price pressures we are now seeing; and I think it is a mistake for us to react with the monetary aggregates behaving in this nice 2 to 4 percent growth range, which might very well be the right path for the long run. Yet, as you anticipated, Mr. Chairman, and I would agree with you, we do have this change in velocity. It would be a mistake for us, then, to go to $600 million on borrowing, because $600 million will certainly be a vote for a lower monetary growth path. The members of the Committee know that I have not favored returning the monetary growth paths back to within our target ranges for the year; I have favored coming in below the ranges. But, just as a year ago, we were undoubtedly somewhat careless in not recognizing the 15 percent monetary growth path when we made that discount rate change last August, I think it could be just as much a mistake for us to move now before we see the need. I am prepared to make adjustments as might be needed if commodity prices and the exchange value of the dollar were to move in such a direction as to make inflation and our worst fears realized. I would want to move at that point, but I am not willing to take a hard position now for minutes to be published six weeks from now based upon our feelings.",388
-fomc-corpus,1987,President Boykin.,4
-fomc-corpus,1987,"Mr. Chairman, I would favor alternative B. I would favor basically no change from current policy, and I say that because I guess I am not totally convinced that the economy is going to be quite as strong as perhaps some others believe. I question that inflation is a problem at this point. Granted, when you determine or realize it is a problem, you are pretty far down the road, so that a certain amount of anticipation is desirable. But, given the fact that the interval between this meeting and the September meeting is pretty short compared to some of the intervals, and that the need for a policy shift is less than convincing--to me, at least--I would stick with alternative B, the $500 million borrowing assumption. Rather than being symmetrical, though, I would have a sentence in there that would allow a little tightening by the Desk, if that should become necessary.",177
-fomc-corpus,1987,President Keehn.,4
-fomc-corpus,1987,"Mr. Chairman, I would be in agreement with the position that Jerry Corrigan laid out. For reasons that have been well stated, it certainly seems to me that the economic opportunities at this point are on the upside and not on the downside. On the inflationary pressures, though admittedly far from conclusive, we may be going through something of a bubble here. Nonetheless, the signs are there and I do think it is appropriate that we begin to move against that. I find the aggregates' performance this year to have been erratic. They may emerge on a more predictable basis, but as yet I don't see the evidence of that. Therefore, I find the alternatives, in terms of aggregate growth rates, to be a little awkward. Accordingly, I would prefer to deal with the borrowing level and, given the circumstances, I think a borrowing level between ""A"" and ""B"", namely, $600 million, would be appropriate. In terms of the wording of the directive, I would be in favor of ""would"" for [greater] restraint and ""might"" for lesser restraint. And I do think that this sentence on the next page [of the Bluebook] does, at least preliminarily, convey the reverse meaning. I think we might fiddle with the language on that to get a more appropriate wording.",265
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"As Bob Parry indicated, Mr. Chairman, a number of us at the last meeting thought that we were probably going to have to let interest rates rise over the next 12 to 18 months if we were going to prevent this underlying rate of inflation from accelerating. And it seems to me that this expectation is even more likely now, in view of the information that we have had since then. At the same time, I am not exactly sure when it will be appropriate for us to take that action; but I believe that it will probably be sooner than I would have thought at the time of the last meeting. I am also well aware that the history of the System has been that, generally, we have not moved fast enough against inflation. So, I tend to try to compensate for that. Despite that, since there is a good deal of uncertainty out there, I believe the best case for now is to stick with alternative B. I would make it asymmetrical with the ""would"" on the tightening side and the ""might"" on the other. I think the Board staff's statement with regards to the ""as well as"" clause does suggest that it would be helpful to shift that around to deemphasize the borrowing side; as for the weakness of the dollar, that may deserve some further thought. I think there is also another argument: that we ought to put restraint of the business expansion high on that list if we are going to change the list around. And I would not put in that sentence on the undershoot of the aggregates at all. And I say this with the sneaking suspicion that later on down the road, I am going to look back and say, ""I wish I had been where Jerry Corrigan and those others were"".",354
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"Basically, I am for no change, as I said earlier. I believe that we are in a period of sectoral catchup and the monetary growth is very subdued at the present time. So, I would like to keep it at alternative B with a $500 million borrowing target and I would do two changes: 1) I would upgrade the importance of inflation, and maybe give it sole prominence in the first sentence; and 2) I would downgrade the dollar, as Presidents Forrestal and Black mentioned earlier. We are way above the lows that the dollar reached earlier, and to say that we want to react now to weakness in the dollar would probably be inappropriate.",135
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"Well, as I suggested earlier, I think that the principal risk we are likely to face, over time, is higher inflation. The key question in my mind is one of timing. I don't have the sense that the inflation problem is a fait accompli. On the other hand, I don't think we can afford to sit back and wait until it is obvious, for reasons mentioned earlier about the cost of undoing it once it is in place. Balancing those two considerations, I am not prepared to go as far as alternative C, but I do view something between ""B"" and ""C"" as perhaps a positive, helpful, preemptive strike at this point in time. That entails, in my judgment, relatively little risk to the economic outlook; also, if it turns out that we were wrong, it would not be terribly difficult to undo. And from that perspective, I think it merits consideration as well.",186
-fomc-corpus,1987,Is that $600 million?,6
-fomc-corpus,1987,"Right around there, yes.",6
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I'm in favor of no change, which is alternative B, $500 million borrowing target, for three main reasons. One is, as I think Governor Angell emphasized, the uncertainties that we are facing. Another reason is that there aren't that many weeks between this meeting and the next FOMC meeting; we have another chance, very soon, to look at things and change our approach, based on additional readings of the economy. The third reason is that I just don't see that the economy is currently boiling. The forecast certainly does look pretty good; but, again, I question whether or not we're going to see the hit from the trade turnaround in the way that many are expecting. So, for those reasons, I would like to propose keeping reserve pressures as they are. And, in the statement, I would deemphasize the impact of the dollar on what we are doing. Also, I don't want to tilt the directive.",187
-fomc-corpus,1987,First Vice President Hendricks.,7
-fomc-corpus,1987,"We see a further acceleration in prices this year and next, and believe that the risk is on the upside. Therefore, I believe it's reasonable, at this point, to increase the pressure on bank reserves by moving toward the ""C"" path. I'm not particularly picking the C alternative, but favor a $600 million borrowing objective.",66
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"I definitely would put the priorities on the side of worrying about inflation as opposed to the recovery. I would favor ""B"" with a tilt toward tightening. I could certainly accept a $600 borrowing target, although I'm not voting, so I don't need to accept it. I'd feel particularly strongly about moving if I felt that we were sort of maintaining a 6-1/2 to 6-3/4 percent funds rate against a very strong demand for reserves. Now, as you pointed out before, Mr. Chairman, on the velocity argument, maybe we won't see that. We're certainly not maintaining a lower funds rate than would otherwise prevail through rapid reserve injection here; but that's where I come out. I would be inclined to leave language in there about the dollar. I think if we lost control of the dollar on the downside, we could kick off that whole cycle that we dealt with just a couple of months ago; and I'd be very sensitive to weakness in the dollar in the language.",200
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,"Thank you, Mr. Chairman. I would prefer staying with ""B"", largely for the reasons I outlined a few minutes ago. I think that the underlying trends are going to tend to damp both the inflation that is showing up and also, perhaps, the robustness of the expansion that we're in. However, I do recognize the short-term tendencies toward some inflationary movement here. So, I would also like to see the language be asymmetric in the direction of tightening.",93
-fomc-corpus,1987,"What do you want [on borrowing], alternative B?",11
-fomc-corpus,1987,"I would stay with ""B"", the $500 million.",12
-fomc-corpus,1987,"I guess I see some firming signals and, as I said, a little more upside risk than I did before. But, a lot of the early warning signals--some of the financial market signals--are not showing us as strong a concern as they did at our last meeting. So, I'm a little reluctant to see us stick our neck out too far. I guess I'm somewhere around alternative B with asymmetric language to give us the option of a potential tightening if we see firmer signs. But, sort of like Wayne, I'm not sure I want to commit myself to anything on instinct; I've got to have a little more evidence. When people read the minutes in six weeks, they'll look at what was going on when we made those decisions. The thing that has happened since the last meeting is that the real economy is showing more firmness, but that's about all I see right now. Maybe we'll be ready for a tightening move later, but for now I favor alternative B, with asymmetric language. I am for deemphasizing the dollar a little because, as I said earlier, I see it somewhat influenced by the oil price; and I'm not sure that the declining oil price, which might send the dollar down, is something we should be worried about. The dollar declined significantly, consistent with the decline in oil prices in 1986, and we saw inflationary expectations break in the face of that; we tried to resist the dollar's downward move; it certainly wouldn't have been a resistance against inflationary expectations. I'd like to avoid that kind of a problem. I think the dollar is still an important issue, but I think it depends on what's influencing it. So, I would rather highlight inflationary expectations and just leave the dollar as a proxy for that.",354
-fomc-corpus,1987,$500 million?,4
-fomc-corpus,1987,"Yes, $500 million, with asymmetric language.",10
-fomc-corpus,1987,President Guffey.,5
-fomc-corpus,1987,"Thank you, Mr. Chairman. A good deal of comment has already been made about the growth--that it's perhaps a bit stronger than we were expecting last month. But, I would just note that if you believe the forecast, and I think virtually everybody agrees with the Greenbook, you're only looking at 2-3/4 percent growth in the third and fourth quarters. That doesn't seem to me to be overly expansive. And, there is considerable uncertainty as to the inflation outlook, at least in my mind. To be sure, prices are quite likely to be up, but as a result of feeding through on import prices; and I'm not at all sure that a bit tighter monetary policy is an appropriate prescription under those circumstances. As a result, I would favor ""B"", with $500 million borrowing, until some additional evidence comes along. I would note, in that respect, for those who believe that the aggregates are important and that there is some informational content in them, that they're growing at a very nominal rate now. As a result, to further tighten at this point, in anticipation of some higher prices, seems to me to be inappropriate. So I would go for ""B"" with a $500 million borrowing level until some more information surfaces that would lead us away from that. Lastly, I would prefer to leave the language with respect to the dollar in the directive because, in my view, monetary policy has to act against a depreciation in the dollar that becomes fast, no matter what the cause. And, as a result, I would leave it in, and I would even leave it at a fairly high level of visibility in the directive.",333
-fomc-corpus,1987,"Thank you. If we averaged everybody, we'd get a different result than if we averaged the voting members by themselves. I don't know if this is a typical result of this type of activity.",38
-fomc-corpus,1987,The people who don't vote don't have to be responsible.,11
-fomc-corpus,1987,"I'll put that on the record. It's fairly obvious that this is a unanimous vote for alternative B, and I would read it as a mild--maybe slightly more than mild--majority for a tilt in the language. There is some desire to move inflation and business expansion up in the language and the dollar down. The average borrowing requirement amongst the voting members is a shade under $550 million. For those of you who are keeping score, I'd opt for ""B"" with $600 million and a definite tilt. Basically, my own view is that the risk of snuffing out this expansion at this stage with mild tightening is extraordinarily small. My view is not so much that we know a great deal about what's going to happen in the fourth quarter and beyond. I just find it rather difficult to perceive a set of forces which can bring this expansion down when you have the following: lead times in the delivery of materials and investment goods as short as we have now, which presupposes that the markets are basically tight on inventories; clear evidence of an expanding capital investment market; and, in effect, pretty much a full adjustment in consumer expenditures [unintelligible] I think we are likely to get as a result of the income adjustments from the tax bill and other elements. I do not believe that this is strictly a [unintelligible] trade issue myself, but I think there is more to it than the trade balances that are emerging. And when you begin to see order impacts in some of the basic raw materials, such as in steel and aluminum, and the extraordinary behavior of the textile industry, which is surprising even with all the restrictions, I wouldn't join my colleagues here who consider this a set of very uncertain things. I think what is uncertain is how it materializes; but, I've seen this before, and this doesn't look uncertain to me. I may eat those words in six weeks, but it has a tone to it which I, frankly, find not really inflationary yet; there is no evidence in the wage data that I see. In any event, that's the way that I come out; and that's the way I read everybody else. I guess we can structure some language which I suspect would pretty much grasp the issue. Let me describe it. On the operational paragraph, it would read: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions."" As you know, we can either put this in terms of ""somewhat greater reserve restraint"" or ""slightly greater reserve restraint"". As I listened to the discussion, I read it as ""somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable depending on indications of inflationary pressures, the strength of the business expansion, behavior of the aggregates, and developments in the foreign exchange market. I don't know whether or not that would be acceptable or whether anyone would suggest some rephrasing. I think I was capturing what I heard, but I will accept revisions.",608
-fomc-corpus,1987,"I wasn't quite certain what the vote was in regard to the dollar's position. I would be among those who would like to leave the dollar as being an important indicator, somewhat more prominent. But I may be out-voted, I'm not sure.",50
-fomc-corpus,1987,"Frankly, it's a close vote.",8
-fomc-corpus,1987,"I agree with Wayne, in part because when this directive is published it would seem to me to be an awkward time to have downplayed the dollar if the dollar continues to do what it has been doing the last three or four days. I don't think you gain much.",54
-fomc-corpus,1987,"I agree with that, Mr. Chairman. I don't think we ought to downplay it. We may be feeling more comfortable about the dollar just now, but it wouldn't take very much for us to find ourselves in a very uncomfortable position. And six weeks from now it will be more attention-getting if we change the emphasis than if we leave it alone.",72
-fomc-corpus,1987,"Let me speak on the other side. I don't think we're writing here for the press release only; we're talking about the operational paragraph. If we have the dollar right up front, as soon as we get the kind of weakness that we are getting now, if sustained for another day or two, it could be seen as an indication that we have to tighten monetary policy. And that is not what the majority, at least of the voting members, was agreeing to. So, I agree with the Chairman in moving the dollar to a lower position. Let me note that it still is in the same sentence. We haven't split it into two sentences, as we have done many times before. So, it's a very modest downgrading; it's just the order in which we are reading it rather than a cardinal distinction.",163
-fomc-corpus,1987,"Can I ask a question? We had the strength of the business expansion at the bottom of the list the last time. As I read it, there's a fairly strong consensus to move that up. Would there be any objection to moving that as #2 after inflationary pressures? SEVERAL. That would be good.",64
-fomc-corpus,1987,"So the question really gets down to two things: the relative positioning of the foreign exchange markets and the behavior of the aggregates ""as well as"" phrase. If we move the business expansion issue up, I would be willing to leave the sentence the same as it was the last time.",57
-fomc-corpus,1987,That makes a lot of sense.,7
-fomc-corpus,1987,I agree.,3
-fomc-corpus,1987,"Is there agreement on that? On the issue of the M2 and M3 growth rates, which were 5 and 5-1/2 percent, there were some suggestions of going to 5 to 6 percent in this context, which would be reasonable as far as not wanting to be splitting M2 and M3 apart. As I read the data and alternative B, I would assume that we might want to say through the September period--that this approach is expected to be consistent with growth in M2 and M3 over the period from June through September at annual rates of around 5 to 6 percent.",126
-fomc-corpus,1987,"I would really favor making that broader and going 3 to 6 percent. It seems to me that you could have a circumstance in which the aggregates were growing at 3 percent and, for other reasons, you still might want to tighten.",49
-fomc-corpus,1987,One of the problems is that it's such a short time frame that that issue can be difficult to implement. Does anyone else have views on this?,29
-fomc-corpus,1987,"As long as we don't read a move to 3 to 6 percent as an indication that we are aiming for 4-1/2 percent, or something like that, and that is where the policy should be directed.",46
-fomc-corpus,1987,"I thought that maybe the 5 to 6 percent was really a forecast of what is likely to happen, irrespective of monetary policy.",27
-fomc-corpus,1987,I guess I'd want to hear Don Kohn's comments on that.,14
-fomc-corpus,1987,"Well, our best guess was that under alternative ""B"" we'd have M2 growth of 5 percent and M3 growth of 5-1/2 percent; but, as you well know, there is a wide range of error around that. As I said in my briefing and the Bluebook, that presumes that money and income grow a little more closely together than they have over the last couple of quarters. That could fall short; I can't rule out that possibility. The question is whether you would want to react; but with the aggregates after the ""as well as"" clause at the end of the sentence, I'm not sure how strong any reaction would be, in any case.",140
-fomc-corpus,1987,How about going to 4 to 6 percent then? It just seems to me that 5 to 6 percent is so narrow.,28
-fomc-corpus,1987,"Let me ask another question. In your judgment, what is the average lead time between monetary policy and the aggregates.",23
-fomc-corpus,1987,"Well, it's several months, clearly; as I think I indicated, whatever we do now will have its principal impact in the fourth quarter. But it is also true that this goes the other way a little: that is, whether incoming data that suggested the aggregates were running outside a range of 5 to 6 percent or 4 to 6 percent should have any influence on a proposal that Mr. Sternlight might make on the borrowing objective is not quite the same as saying you're actually going to have the effect. You can react and then assume that your effect would be somewhere down the road.",120
-fomc-corpus,1987,Let me ask you this. Does anybody object to 6 percent as the upper limit? Are there any objections to 4 percent on the downside?,30
-fomc-corpus,1987,"I wouldn't object. I would just offer a historical caution, for what it's worth. I think we have to be a little bit careful about jiggling around these quarterly objectives at mid-quarterly meetings, especially when we are so near the end of the quarter. It can convey something more than I think we had in mind.",66
-fomc-corpus,1987,I'd like to second what Jerry says.,8
-fomc-corpus,1987,I think it's better to leave them close to where they were at mid-quarter.,16
-fomc-corpus,1987,"I agree with Wayne's point that it is likely that they could come in there. I would want to change the whole language in terms of clarifying what we are saying if we go to 4 to 6 percent. I would want to make clear that though we're assuming no change in policy, the aggregates may come in in the 4 to 6 percent range. But that's not what it could imply. So, I'd rather just leave it alone.",92
-fomc-corpus,1987,"Leave it alone, meaning what?",7
-fomc-corpus,1987,You're going to leave it at 5 to 7-1/2 percent?,17
-fomc-corpus,1987,"Well, 5 to 6 percent may be okay.",12
-fomc-corpus,1987,"If we're changing the top one, why is there any harm in changing the bottom one?",18
-fomc-corpus,1987,The alternative is to state it in terms of about 5 percent for both.,16
-fomc-corpus,1987,About 5 percent would be fine.,8
-fomc-corpus,1987,Would 5 percent be acceptable to everybody? What's the general view on that next sentence? MR. STERN(?). Take it out.,28
-fomc-corpus,1987,The general view is for just dropping it. Anybody object to that? Strongly? That leaves us with the funds rate. VICE CHAIRMAN CORRIGAN &,35
-fomc-corpus,1987,Keep it the same.,5
-fomc-corpus,1987,4 to 8 percent.,6
-fomc-corpus,1987,I think that this is something we should consider sometime in the future. That 4 to 8 percent is such a barn door; it's very wide. At some future time we may want to narrow that down a little.,45
-fomc-corpus,1987,"That has always been the range used in the past, just to convey within the reserve target--",19
-fomc-corpus,1987,Wrong direction.,3
-fomc-corpus,1987,"If you narrowed it, you are really saying that you're targeting--",13
-fomc-corpus,1987,"--the federal funds rate. I think it would be the wrong signal, in light of the 1976 experience.",24
-fomc-corpus,1987,"Let me just ask, we haven't quite got to the borrowing target--",14
-fomc-corpus,1987,I thought there were seven votes for five hundred; that was the way I counted.,17
-fomc-corpus,1987,$525 million.,4
-fomc-corpus,1987,I don't like people who are good at arithmetic. $525 million?,14
-fomc-corpus,1987,I don't think anybody will know it's $525 million; you don't tell anybody.,16
-fomc-corpus,1987,"Well, you know something, I don't know the answer to the question. The point being that I don't know what the convention is here--whether you average these things, which you can, or whether you take the majority. What has been the convention?",51
-fomc-corpus,1987,"The convention, I think, Mr. Chairman, is that you do not average that.",18
-fomc-corpus,1987,"If you don't average, then the figure is $500 million.",13
-fomc-corpus,1987,The majority is--,4
-fomc-corpus,1987,"That is going to lead to other [unintelligible]. If it turns out to be an average number, you're going to have people low-balling it until it clears the average.",38
-fomc-corpus,1987,$536 million is the average!,7
-fomc-corpus,1987,"I think it is hard to average it. One other thing that is done, in terms of trying to sense where the critical mass is, if I could put it that way, or where the Committee might stand, is that the Chairman has been known from time to time to ask people what their preferences are as opposed to what they could live with. In this particular case, you may have some shadings of opinion around those borrowing numbers, for example, based on the question of symmetry or tilt that would go with them--in other words, the ""woulds"" and the ""mights"". I, myself, certainly would not dissent, at this meeting, over the difference between $600 million and $500 million in the context in which there was some tilt along the lines that Governor Johnson has suggested. So, you do have some play; but I don't think that most members of the Committee would be comfortable with averaging the borrowings. I think that can get to be quite awkward when there are larger differences, as there may be, than the difference between $500 million and $600 million.",222
-fomc-corpus,1987,"You also have the authority, of course, to call a telephone conference meeting to reconsider the borrowing level in the event, say, we get extreme weakness in the dollar, which I think is a possibility.",41
-fomc-corpus,1987,"We already have that in the tilt of the directive, anyway. That is, you can go firmer, based upon developments, without calling a Committee--",31
-fomc-corpus,1987,"If you start out with a base of $600 million and then you have the language with the tilt, it gives you a very different environment than if you start with a base of $500 million and have the tilt in. $500 million with a tilt in it gets you right to the range where everybody may well want to be--in the $520 to $550 million range, or whatever--while $600 million with a tilt in it would get you a lot closer to--",97
-fomc-corpus,1987,The tilt is worth $25 to $50 million dollars.,12
-fomc-corpus,1987,"In the operational paragraph, there's a problem that Mr. Cross and Mr. Truman pointed out on the factual portion of lines 24 to 26. The dollar, at least as of an hour ago, instead of having risen further, was unchanged. I don't know what the latest figure is, so that needs to be changed to make it factually correct.",72
-fomc-corpus,1987,Roughly unchanged.,5
-fomc-corpus,1987,About unchanged.,3
-fomc-corpus,1987,"It's, on balance, unchanged; it has been up and down.",14
-fomc-corpus,1987,I think that would be appropriate. Change that.,10
-fomc-corpus,1987,I'd like it reread just to be certain.,10
-fomc-corpus,1987,"""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable depending on indications of inflationary pressures, the strength of the business expansion, developments in foreign exchange markets, and the behavior of the aggregates. This approach is expected to be consistent with growth in M2 and M3 over the period from June to September at an annual rate of around 5 percent. Growth in M1, while picking up from recent levels, is expected to remain well below its pace during 1986. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate consistently outside a range of 4 to 8 percent.",171
-fomc-corpus,1987,"Excuse me, Mr. Chairman, I thought I heard the Committee express the view that they wanted to retain the ""as well as"" in front of the aggregates. Normand, just read--",40
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor Seger Yes President Stern Yes,44
-fomc-corpus,1987,"As I read it, the next meeting is September 22.   Thank you for your patience, ladies and gentlemen.",24
-fomc-corpus,1987,"Good morning, all. SEVERAL (in unison). Good morning.",16
-fomc-corpus,1987,Would somebody be good enough to move the minutes?,10
-fomc-corpus,1987,I move.,3
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Objections? Approved. Mr. Cross.,9
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Comments? Any motions?,5
-fomc-corpus,1987,May I ask just one question?,7
-fomc-corpus,1987,Sure.,2
-fomc-corpus,1987,"How much actual trading is going on in the foreign exchange market for what I would call corporate business use? In other words, not just trading for the sake of trading but for--",36
-fomc-corpus,1987,"Right now we have the feeling that corporations are not doing very much. It varies a great deal, of course, but typically the total turnover in the market is many, many multiples of what the final users get. It may be 10 times as much. But right at the moment we don't get a sense of a lot of corporate activity taking place. It may be that they are holding off, for the kind of reasons that I mentioned. It may be that they are waiting to see if anything emerges out of these dealings around the time of the IMF meeting. Or, from what I hear this morning, there is some expectation being talked about that the G-7 might do one thing or another that would give some greater strength to the dollar. They may be holding off for these kinds of reasons.",161
-fomc-corpus,1987,"I remember before when there was all this turbulence, a lot of corporate traders did just sort of sit it out and hold off on decisions.",28
-fomc-corpus,1987,"At times they do this. They can be very big players in this game, too, and they can do a lot of churning themselves.",29
-fomc-corpus,1987,"In general, based on a number of these periodic surveys that have been done, the thinking is that the percentage of transactions that will in some sense be related to the underlying exchange of goods is very, very small.",43
-fomc-corpus,1987,"That isn't what I would suggest at all. I am just trying to sense what the attitudes in corporate America might be. No, I don't think--",30
-fomc-corpus,1987,"This always seems to be a pretty important time for an assessment. We have the sense that they come back after Labor Day and reassess their position; and they may be doing that right now. Frequently, in recent years, we have seen trends begin shortly after the summer holidays and after Labor Day. As I said, it may be that they are holding off to see if anything emerges from these meetings next week.",83
-fomc-corpus,1987,"There is some comment in the press saying that the G-10 or the G-7 had adjusted their target levels from 140 or 160 to 131.50. Is that rumor, or is that--?",44
-fomc-corpus,1987,That's total conjecture. There was a rumor last week of exactly that--that the target range had moved down. And then there was a rumor two days later that it had moved up. The dollar went down a little when the first rumor occurred and moved back up a little when the second rumor occurred. But these are all purely imaginative.,68
-fomc-corpus,1987,I have a motion; do I have a second?,11
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,"Without objection, we'll assume the transactions are now ratified. Mr. Sternlight.",17
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1987,Any questions for Mr. Sternlight?,8
-fomc-corpus,1987,"Peter, you reported on the first 11 days; there is apt to be a pretty large borrowing spike Wednesday. How would you expect that to be interpreted in this environment? This is a period that has had some technical problems with the tax date, so I guess you are not going to be able to conclude much from that either.",67
-fomc-corpus,1987,"I wouldn't be surprised if there were some kind of a spike. I don't know what the average would work out to be. We'll be seeking to put in reserves, so that if our estimates are close and our estimates of the demand for excess are close, the average will come out around the $600 million level. There is always an element of uncertainty as to just how far a spike takes you. But I think there is a lot of realization in the market that this is a very difficult period for reserve management.",103
-fomc-corpus,1987,"Peter, you mentioned the market being nervous. I agree that there is still some of that, but I think we did achieve--though I realize it hasn't been fantastic--some flattening in the yield curve out of the discount rate move. Even though the long end went up to around 9.80 percent at one point, it has settled down around 9.60 percent; and we have seen a larger move on the short end of the market than we have on the long end, even though it has fluctuated.",106
-fomc-corpus,1987,"I think if you measure it just from the time the discount rate moved, there would be some flattening. The short rates came up more than long rates. I think if you looked at the whole intermeeting period, it is about similar at the short and long end of--",56
-fomc-corpus,1987,"I wouldn't do that because [unintelligible] it could have been some fear of Fed tightening preceding it. But I think the tone seems to be more inflation fears or psychology, or the dollar, and everything else, more than just--. I don't know how you sort all this out. But still it does appear that there has been some flattening achieved.",74
-fomc-corpus,1987,"On the other side of that coin, and at the risk of some overstatement, I had the impression that the discount rate change was received with a combination of indifference and resignation more than anything else. Could you comment on that?",47
-fomc-corpus,1987,"I am not sure what to say. I wouldn't say that there was a very widespread expectation; there was some expectation of the move, and there were even some people who were thinking in terms of a larger move. And, initially, there were some who expressed disappointment that it wasn't larger, although I would have to think that a small, vocal, minority was expressing that view. I suppose there is a sense in which [your observation] is true; people who recognized that the dollar had been under pressure and was likely to be continuing under pressure have come to expect that our rate structure and our policy formulation process will be under that kind of pressure. So there was that element of resignation to the process.",141
-fomc-corpus,1987,"Peter, is there an expectation in the market of further tightening by the Fed?",16
-fomc-corpus,1987,"Not in any imminent sense, but I think there is an expectation that the dollar is going to remain under pressure, given that we have this awful trade balance picture; and that would be the kind of atmosphere under which there would have to be further policy response.",52
-fomc-corpus,1987,"Peter, did I understand you correctly when the question was asked about the market response to what might happen to borrowings before this maintenance period is up? Did you say you thought we could come in around $600 million without stirring things up? Isn't the arithmetic to get $600 million in this period such that it would require tremendous borrowings today and tomorrow? And if those borrowings occur in the context of the knowledge of this meeting date, I think [market participants] might make something out of that rather than just saying, well, it is one way to get the average to work out right. I don't think they know what we are shooting for.",131
-fomc-corpus,1987,"It would take some bulge in borrowing to get up to the $600 million [average]. I don't have yesterday's figure yet, but borrowing had been averaging $460 million through Sunday. So there would have to be some bulge, probably, on the final day. And as I said, if you ask the people who follow these things closely, most of them would probably think of us as using $500 million, although some would say a range of $500 to $600 million. If they saw a number like $600 million coming out, some of them might regard that as indicative of a little firmer aim than they had estimated earlier. On the other hand, they also were aware that it was very tough to manage reserves in this period. So, I don't know that they are going to jump immediately to any very strong conclusion if the borrowing comes out at $650 million, or something like that.",184
-fomc-corpus,1987,"Yes, but if there is all this nervousness in general, and if you average, let's say, $625 or $650 million, with $2 billion of borrowing on Wednesday--which happens to be the day after we meet here--there must be weirdos, anyway, who will think maybe there is a connection. Maybe in New York they may figure all this out, but there are a few other market participants outside New York who might make something out of that whole sequence.",97
-fomc-corpus,1987,"Just because of the juxtaposition vis-a-vis the Committee meeting date, possibly more [than a few]; but I think more of them would just tie it to knowing that Wednesday is the settlement date of the reserve period.",44
-fomc-corpus,1987,"I think there will be critical questions regarding what happens, not so much on Wednesday, but because that type of spike is very difficult to interpret; they will look at borrowing very closely in the next maintenance period.",42
-fomc-corpus,1987,"Peter, you suggested that the increase in long-term rates is a combination of factors, with inflation being one. But, in the combination of factors, how persistent is the inflation concern and is it just one of those issues?",45
-fomc-corpus,1987,"Well, the concern is very much tied to the dollar. And when concern about the dollar [is high], the market is more concerned with what would tend to happen with respect to inflation. The market has been reasonably well impressed with the actual price index numbers that have come along in the recent period. But they do worry that, in the course of redressing the trade deficit, we are going to be imposing more demands on our resources--that there may well have to be further adjustment in the value of the dollar and that that will do things to import prices, and so on.",117
-fomc-corpus,1987,But it is more that side as opposed to domestic pressures?,12
-fomc-corpus,1987,"Well, I think that even with the trade picture, it is partly domestic pressure because, as you are redressing that trade imbalance, you'll be putting more pressure on domestic resources.",36
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"Following up on Chairman Greenspan's comment, Peter, suppose that in the next maintenance period you do come in pretty close to $600 million and the market now expects $500 to $600 million. Would you expect much rate movement if you got closer to that figure?",54
-fomc-corpus,1987,I would expect a modest firming. My guess is that you would get funds rates averaging in the 7-1/4 to 7-3/8 percent area. I think we are averaging 7.15 or 7.20 percent so far this period.,56
-fomc-corpus,1987,"Peter, has there been much discussion of the impact of higher interest rates on Treasury requirements? One hears a lot of discussion from the Administration recently about the deficit, at least in fiscal 1987, being somewhat lower than their estimates because of revenues going up. But I don't hear much discussion of the impact of higher interest rates on future requirements.",69
-fomc-corpus,1987,"I have not really heard discussion of that particular factor. However, while people are well pleased with the deficit coming out this fiscal year at $160 billion, or somewhat under, there is deep concern that without the Congress getting something together on fiscal restraint, it will be heading up by $20 billion or more next year.",64
-fomc-corpus,1987,"Any further comments or questions? If not, I will entertain a motion to ratify.",18
-fomc-corpus,1987,So move it.,4
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,Objections? Approved. Mr. Prell.,10
-fomc-corpus,1987,"Thank you, Mr. Chairman. I think I can be relatively brief this morning. [Statement--see Appendix.]",23
-fomc-corpus,1987,"Thank you, Mr. Prell. Questions for Mr. Prell?",15
-fomc-corpus,1987,"The only thing that kind of jumped out at me in your forecast this time, and I guess this has been there before, is on the real export side. You are showing a marked deceleration of the [trade] deficit; real net exports, for example, going from [an annual rate of $131 billion in] the third quarter of 1987 to $63 billion in the fourth quarter of 1988. Most of the other forecasts that I have seen would not indicate nearly that much progress. Can you tell me what that dramatic improvement is based on? Is it basically on the export side or in the diminution of imports or a combination of both, or what?",136
-fomc-corpus,1987,"Well, the greater strength is clearly on the export side. As we go out through the forecast period to the end of next year, we have very modest increases in imports; indeed, we would expect that real merchandise imports, not only [nominal] merchandise imports, will be going down slightly, largely in response to the past and prospective depreciation of the dollar. We are also anticipating, of course, that domestic spending--consumption, in particular--will be growing rather slowly, so we won't be sucking in great volumes of imports because of the continuation of the kind of demands we have seen previously.",121
-fomc-corpus,1987,"I don't think that should govern [unintelligible]. If you look at outside forecasts that go into detail on real exports you will [not] find that much difference between [unintelligible] and exports over the forecast horizon from ours. Generally, they do show very substantial declines over the period. DRI, for example, has something very close, almost shockingly close, to what we have.",83
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"Mike, you spoke about the sharp increases in business equipment spending. How does that break down between additional capacity and efficiency enhancing?",25
-fomc-corpus,1987,"That's very difficult to get a handle on. The anecdotal evidence--or if you want to characterize it in more solid terms than that, the kinds of survey information that are gathered by McGraw Hill and others--suggests that vis-a-vis historical experience, a distinctly above-average percentage of this planned spending is designated as being for replacement, modernization, and so on. Clearly, in many industries there is plenty of capacity; in others there is less. And one can identify some areas of significant expansion of capacity, with additional plants being built. But, generally, as we are looking at it, the major thrust will be on continuing to reduce costs, to modernize product line, and so on.",141
-fomc-corpus,1987,"It is most likely to show up first in increasing lead times on the delivery of materials. In other words, leaving aside the question of where the pressures are, that's the first sign that you are going to get something of that nature--that is, capacity expansion. There has got to be some evidence on the part of the company that it is having difficulty in maintaining deliveries on a relatively quick pace. Am I correct in assuming that there has not really been any major change, or that there has been a slight increase--",104
-fomc-corpus,1987,"For materials, the lead times have been lengthening. I think, implicit in your comment, is the question of whether they have increased to levels that are not comfortable, and I suspect that the strategy in many firms has been to run with a little tighter capacity than they might have in the past. And they may not be uncomfortable with what they are seeing. In the capital goods area, average lead times don't seem to have lengthened much yet; and that is probably consonant with the evidence that the capacity utilization in equipment producing industries is not especially high--not what one sees in some nondurable material areas, for example.",126
-fomc-corpus,1987,President Parry.,4
-fomc-corpus,1987,"I would like to ask two questions about your assumption with regard to fiscal policy. This time, as has been the case in the past, there is an assumption that there are spending cuts of around $25 billion. I think there is a substantial risk that that will not materialize. Some work we have done suggests that if policy is accommodative and you don't get that $25 billion deduction in spending, that it could add approximately a percentage point to growth in 1988 and a half percentage point to inflation. Would you think that to be roughly [the magnitude]?",114
-fomc-corpus,1987,I take it you are going to zero on the deficit reduction action with that.,16
-fomc-corpus,1987,You don't get the $25 billion reduction; you get zero.,13
-fomc-corpus,1987,"I think that is probably a little higher than our normal econometric results would give us, but it is clearly the direction in which we would go. At this point, the $25 billion looks like a reasonable ballpark figure, given what is being discussed currently in a compromise--a Gramm-Rudman revision that would be something like $23 billion, with no loan sales or that sort of thing. But I suppose there are still some risks that it would be less than what we have and the result might well be somewhere in between that zero and the $25 billion that we have.",118
-fomc-corpus,1987,"One further question: I notice the change in the assumption you have made with regard to the size of the deficit. I guess it would primarily be the higher interest rate assumption over the forecast horizon. Does that feed back into income? In other words, is the loop closed in the model so that you get higher growth of disposable income as a result of the higher interest payments on the deficit?",78
-fomc-corpus,1987,"Well, the forecast isn't generated by a model, per se. As we go through and estimate the income flows, we definitely do take account of the interest rate path that we've assumed and projected. And we do have substantial growth in personal interest income over the projection period.",54
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,"I would like to follow up on Bob Forrestal's question. Basically, the U.S. strategy for turning the trade deficit around is to shrink the value of the dollar and to get our trading partners to grow faster than we are growing. We have done fairly well on the dollar, but we haven't done so well on growth abroad. It's an appealing strategy, but it strikes me as being somewhat novel if you look at the history of these kinds of adjustments. What has happened most often is that the country that has the deficit ends up with a recession. In other words, you reduce domestic demand below what is happening abroad and you also get downward adjustments on the currency. And I would think that the longer it takes for us to make a turnaround in the trade deficit--as we get month after month of these disappointing trade figures--that it would put additional downward pressure on the dollar. And it might also begin to raise expectations that, well, as nice as it sounds to try this rather novel strategy, in the end, the U.S. is going to have to go through kind of a wringer, as most other countries do. My real question is: How much of a novel experiment are we really running in light of what is happening in other countries and what has happened over history? I am having a hard time thinking of a country that hasn't turned around this kind of a trade deficit without a fair amount of suppression of domestic demand. And the question is not aimed at [criticism]; I like the approach that we are on. But it does strike me as somewhat novel on the broader stage of history. I would just like to see if that is right or if we have had lots of company with this experiment.",346
-fomc-corpus,1987,"Well, the truth of the matter is, President Boehne, that there are some examples where this has been successful. A lot of them come from the early 1980s and, of course, during that period where you had essentially [slow growth of] GNP without going through a recession--that is essentially the question you are asking--in a relatively short period of time. There are several examples in the early 1980s and, of course, those were [unintelligible]. The other side of the equation, which you mentioned, is faster growth in the rest of the world, which was then the United States. And there are some other examples. We did look at this record about 18 months ago and that is basically what it showed.",157
-fomc-corpus,1987,Are these sizable countries?,5
-fomc-corpus,1987,"Germany and Japan [unintelligible]. We tend to forget that they had deficits in the late 1970s and at the beginning of the 1980s. They moved from small deficits to very large surpluses. One feature of the forecast is that, while we don't have a recession in a GNP sense built in, we do have relatively slow growth in domestic demand. In fact, we have a quite dramatic slowing of domestic demand built into this forecast. In some sense, as Peter was saying earlier in answer to your question, that's part of the process--the process that makes room for this external adjustment in an environment in which growth of production as a whole is kept relatively high but domestic demand growth is low.",148
-fomc-corpus,1987,President Guffey.,5
-fomc-corpus,1987,"Mr. Chairman, I have a couple of questions for Mike with respect to the sections that caught my eye in the forecast. You mentioned that a further decline in the dollar was assumed in your forecast. As I remember, the Greenbook only made reference to a decline much like that projected in the last Greenbook. Further, as I remember, that decline was 10 percent on an annual basis, and most of that had been completed in the first half of the year. Am I correct, or is there further decline assumed?",106
-fomc-corpus,1987,"I guess I wasn't clear. The assumption is that the dollar will decline further over the forecast period. For our purposes, we put in a straight line path that averages about 10 percent, at an annual rate.",43
-fomc-corpus,1987,"My second question has to do with your assumption about rising interest rates in the fourth quarter. To be very specific, do you have a level of interest rates in the fourth quarter that you assumed in this forecast?",42
-fomc-corpus,1987,"It isn't necessary that there be a precise course. We put in a smooth trajectory that moves the federal funds rate, for example, into the 8 to 8-1/2 percent range by next spring.",43
-fomc-corpus,1987,In the first quarter?,5
-fomc-corpus,1987,"We would be approaching it by the end of the first quarter. I don't want to be too precise about this. If there were flatness over the next few months and more increase later on, we wouldn't be able to distinguish the economic effects in the forecast for the period as a whole. But we do have a gradual rise here.",67
-fomc-corpus,1987,"My last question has to do with your comment about inflation picking up--I guess that's in 1988, if I read the Greenbook numbers correctly, because your forecast has it actually declining in the last quarter of this year, as measured by the fixed-weight index or the deflator itself.",59
-fomc-corpus,1987,"There's a difference in our forecast between the deflator and the fixed-weight GNP measure. In the fixed-weight index, we have 3-1/4 percent for the third quarter and 3-1/2 percent for the fourth, whereas there's a deceleration from 3-1/4 percent in the third quarter down to 2-1/2 percent in the deflator. The difference there is the peculiarities of weighting shifts that occur in the GNP deflator; and the decrease in oil imports, which have a relatively low weight in the deflator, actually tends to depress the GNP deflator relative to the fixed-weight measure. Basically, we have a fairly steady second-half inflation, as we see it; it's lower than in the first half, in large part because of lower food and energy price inflation.",169
-fomc-corpus,1987,"So is it fair to say, Mike, that inflation in the second half, and particularly in the last quarter and maybe even into the first quarter of 1988, is reasonably stable in your forecast?",41
-fomc-corpus,1987,"In some underlying sense, there is a fairly stable picture between the first and second half, but that's in this game of stripping away food and energy prices, which obviously are affected by special nonmacroeconomic influences in the short run. Of course, there are peculiar things that affect other sectors, as well. But, basically we have a fairly stabilized underlying trend, and some increase next year in the rate of price inflation.",85
-fomc-corpus,1987,"But the underlying inflation must pick up quite a bit, because you have a marked acceleration in labor costs.",21
-fomc-corpus,1987,"Some people would take that as an indicator of the underlying rate of inflation. And yes, we do, as compensation accelerates significantly next year. In that sense, the underlying trend is picking up.",40
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"Mr. Chairman, most of the comments have been directed at particular parts of the forecast. My feeling the last time was that the economy would be somewhat stronger than the Greenbook was projecting, and the staff, indeed, have moved their forecast in that general direction. So, we have very little quarrel with what they have done. We think the main driving force is going to be an improvement in net exports of goods and services; and plant and equipment expenditures, particularly in the equipment area, also provide a pretty good push. If we were to guess, we would say the risk might still be that the forecast is a little low. But really what bothers us, I guess, is the feeling that they might be right on this forecast. In saying that, I'm focusing on the inflation rate that they are projecting for next year--when it goes up to 4-1/2 percent. I think we ought to be able to do better than that for next year, and we ought to target something less than that. A 4-1/2 percent inflation rate could easily become 5 percent; and 5 percent is not really reasonable price stability. So, rather than thinking they may have overestimated, we're afraid that they might be about right and have come up with some results that are a little too strong on the price side.",271
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"Yes, I just have a couple of questions that are tied to a few matters that we discussed yesterday at pre-FOMC briefings. These involve whether or not we have completely factored in the rise in interest rates that we have already seen, plus wholly factored in the increases that we think are yet to come. In particular, on housing starts, which as of last month were at a 1.6 million annual rate, we know that there are problems with high vacancy rates in the multifamily area, at least in some parts of the country. The incentives built into that kind of housing have been shifted greatly by the Tax Reform Act. As for single family starts, at least some people say they are sensitive to interest rate changes. I guess I have a hard time believing that for 1988 starts will not fall below 1-1/2 million. I hope they don't, but I am sort of skittish about this.",192
-fomc-corpus,1987,"It's purely conjectural at this point. Various econometric models would suggest that, over the relevant horizon here, you are probably dealing with an interest rate elasticity of about 1. We have a rise in mortgage rates from around 10-1/2 percent to something in the high 11's, [an increase of] roughly 10 percent. We have roughly a 10 percent decline in housing starts, from 1.6 million to something around the 1.45 million area. In that sense, it's well in line with the historical patterns. The other thing that provides some comfort--",121
-fomc-corpus,1987,Is that true for both the single family and the multifamily?,13
-fomc-corpus,1987,"Well, I'm looking at it in the aggregate: clearly, they are both to be affected by the change in interest rates. Looking at it from another angle, mortgage rates are back up to levels we saw in 1985, and we had considerably higher housing starts then--in the 1.7 million area. Now, we've probably gone through some catchup period in home ownership, but that number seems fairly reasonable to us, looking at the response we've seen just so far to the substantial increase in mortgage rates. It hasn't made the market fall apart entirely. We may not have it quite right, but this is a stab at what we think is a normal response.",135
-fomc-corpus,1987,"What if it just means that the lags are longer? Maybe we haven't even seen the full impact of the spike we had back in April or May, which was quite dramatic.",36
-fomc-corpus,1987,"Well, clearly, we felt that we would be seeing much of that response by this summer, before we even elevated our rate forecast beyond what we had earlier. We only had a modest further decline below the 1.6 million level in our previous forecast. As we have taken the mortgage rates up more, we have lowered the housing starts further. It's very difficult to say. As you noted, there are other influences at work, and there may still be some adjustment to the tax law changes. There are still some problems of high vacancy rates in home rental properties in various parts of the country. Again, when you look at house prices, there too, the evidence suggests that, at least in many markets, there's still a pretty robust demand at these interest rates. And there is just no anecdotal evidence to suggest to us that we are way off the mark in our assessment of demand positions. Even the survey information suggests pretty high numbers of people whose attitude is that this is a good time to buy a house. That may be surprising, but that seems to be the pattern.",217
-fomc-corpus,1987,"The other question I have again ties into yesterday's briefing, and relates to our heavy reliance on the trade turnaround to produce a good 1988. If I'm reading the numbers right, about half of the real GNP growth, fourth quarter of 1987 to fourth quarter of 1988, is expected to come from improvement in net exports. Again, I think it's very, very difficult to get a $54 billion increase in exports in one year--namely, this year--and then tack on $57 billion next year. That's just a lot to produce.",115
-fomc-corpus,1987,"One of the main comforts we can find in the numbers is that it looks to us like the trend in real exports has been quite strong thus far. And based on our exchange rate projection and the assumption that there are probably still lags in the order and delivery process, that means that some of the improvement in exports is still not fully evident. We think that we are forecasting, basically, a continuation of patterns that are already perceptible. In some respects, I think a greater concern, given our outlook, would be that we get both the improvement in the net exports somehow, and also get greater domestic demand growth. That puts still greater pressures on resources than some people would have thought in the past. We have two years now, in our forecast, of consumption growth that is really subpar historically. So, in a sense, we have these things put together in a way that gives you a rather smooth adjustment to the picture.",187
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,I don't have a question. I would just like to comment on the outlook.,16
-fomc-corpus,1987,"Well, if you'll hold that for just a few minutes. President Parry.",16
-fomc-corpus,1987,"I just want to raise an issue to shed a little light on this concern about a slowing in the interest-sensitive sectors of the economy, such as housing. It seems to me that with the economy operating where it is, in terms of employment at least, if we did not get that slowing in the interest-sensitive sectors of the economy at the same time we are going to get the strength in net exports, we would have a real problem. So, one can be concerned about the implications for housing or for other sectors but the picture doesn't really fit together very well if you don't get that kind of slump. And I would assume that's the problem.",129
-fomc-corpus,1987,That's what characterizes our outlook and I think some of the comments around the table suggest that there is a hopeful aspect of this--that everything falls nicely into place.,33
-fomc-corpus,1987,Mr. Melzer.,5
-fomc-corpus,1987,"Mike, if this linkage between dollar weakness and inflationary expectations isn't broken, and you weren't able, for example, to achieve over the forecast period the 10 percent annual of decline in the dollar--let's just say that that becomes impossible--how would that affect the forecast in a broad sense? In other words, if you couldn't achieve some of the external adjustment through the foreign exchange price mechanism--",80
-fomc-corpus,1987,"In other words, the dollar--I wasn't clear what--",12
-fomc-corpus,1987,"What I'm saying is that the box we are in right now is that, as a practical matter, if we tolerate that dollar decline, it kicks off inflationary expectations. So, let's say that you just assumed that the dollar was stable. How would that affect the forecast?",55
-fomc-corpus,1987,"It depends a bit, I think, on what else is going on at the same time. Much of the impetus to net exports from the dollar, at least as far as this forecast horizon goes, is what is already in train. Less than half of the increase next year in net exports is directly traceable to a further projected dollar decline. But, presumably, if you didn't have the dollar decline, then you wouldn't have the same kind of pressures on interest rates. So you would have less pressures in the interest-sensitive sectors of the economy. So you have some compensation in terms of the economy's operation as a whole which, in turn, would tend to feed back again on the net exports, so you would have less improvement in net exports too. But, there is a certain sense of [unintelligible] that is basically the way we think about this.",175
-fomc-corpus,1987,"Wait a minute. You say that interest rates wouldn't be rising; but you can also come up with that scenario of a continued stable dollar that comes about because we are raising interest rates in this country. Then, how would your answer be different?",49
-fomc-corpus,1987,"Under that scenario, maybe instead of a $50 billion change in net exports you would have something like $20-$25 billion. So you would have less than 1 percent of GNP in this forecast, and that's well within the error. Mike put it that way in the overall forecast.",59
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I guess that was sort of what I was going to ask. One other question I had in mind: I'm not a big ""aggregates person"" but, in line with this whole issue of aggregate demand, it strikes me that this recent uptick in interest rates is going to have a further damping effect on the aggregates. I think that is fine, but at some point, you have to ask how much aggregate demand is plausible in that scenario. I think you are restraining it. You have to come up with some fairly implausible velocity growth numbers to get aggregate demand outside of a range that would present a real breakout in overall aggregate demand. It seems to me that we have it pretty well cornered here. In the long run, you could have a couple of bad quarters under that scenario but, given these recent moves in interest rates, what are we projecting on the broader monetary aggregates?",181
-fomc-corpus,1987,"As you saw in the Bluebook, we are projecting that the rise in interest rates, which is not all that large but is significant, would damp growth in M2 over coming months.",38
-fomc-corpus,1987,You have about 4 percent.,7
-fomc-corpus,1987,"If you abstract from September and you just have the fourth quarter. Now we have this August-to-December target. And then for next year, under the assumption of further moderate increases in interest rates, we would have M2 growth in the 4-1/2 to 5 percent kind of range. That implies--",65
-fomc-corpus,1987,Why would it pick up with higher interest rates?,10
-fomc-corpus,1987,"Well, first of all, the rate of increase in interest rates may not be quite as great. And there are some things that seem to have been depressing M2 growth that we really couldn't account for this year and we are assuming that they won't be quite as active next year. For example, the IRAs won't be around, and that might boost M2 growth a little; so, we have this assumed pickup in growth next year. If that came about, with our GNP projection that would imply about a 2 percent increase in velocity. But, remember, we're damping domestic demand here; we have slower domestic demand than we have GNP, so if you look at velocity from that perspective, it wouldn't be quite as big an increase. That's not all that large an increase--",158
-fomc-corpus,1987,"That's sort of what I'm getting at. You have it cornered a little, it seems to me.",21
-fomc-corpus,1987,"Could I raise a question about what the GNP demand numbers would really look like if we were to recognize that the way we calculate the numbers is a function of the fact that we are using 1982 as a base period? I was looking at the fixed-weight GNP deflator versus the GNP deflator, which tends to pick up a difference in the mix, which is essentially an issue of how far we are from the base period to a large extent. If I were to deflate the nominal GNP by the fixed-weight index--which is roughly, but not quite, the equivalent of moving the 1982 base up to 1987, the current year--it seems as though we're getting a good deal less in the way of real growth. Let's take a case in point: the fourth-quarter over fourth-quarter change this year and next, with respect to the difference between the GNP deflator and the fixed-weight deflator, is .3 and .4, respectively. Assuming that the nominal is the same, that would reduce real growth. The problem I have with that, however, is that I'm not sure whether the model is generating the real first and then, by implication, the nominal, or vice versa. How do you look at that issue? In other words, how do we interpret that?",267
-fomc-corpus,1987,"Well, it's difficult to dissect this precisely, but I think we are dealing mostly with a process that looks at the real first, infers from that the pressures on resources, which then feed back through a short-run Phillips curve relation to the wage and price side. That's a stylistic characterization.",59
-fomc-corpus,1987,"Let's be very specific. In 1982, oil prices, and overall import prices, were much higher than they are now. Therefore, a rise in oil imports on the import side of real GNP is a larger subtraction with 1982 as a base than with 1987 as a base. I guess I'm really asking if you were to restructure the total system so that say, 1987, equals 100 instead of 1982, how would your real GNP look in that context? Mr. TRUMAN. These two years, 1987 and 1988, oil imports don't rise very much. You may get some effect on GNP to the extent that you don't have the same rise in domestic production of oil or energy, measured in 1982 dollars. But there's not much subtraction, even in our forecast, from higher oil imports from fourth quarter to fourth quarter.",182
-fomc-corpus,1987,"Also, assume that the overall non-oil import price deflator is significantly lower than it was in 1982, which, as I recall--",30
-fomc-corpus,1987,"If I remember, it was just about 100; maybe I'm off by a few points. The non-oil price deflator was running about 100.3 in the second quarter.",38
-fomc-corpus,1987,Which means that it's a relative issue that the domestic thing is [unintelligible]?,18
-fomc-corpus,1987,"Well, you would get some impact, I guess, from that.",14
-fomc-corpus,1987,"The reason I raise the issue is that it's becoming a very crucial question, not of statistics, but for real evaluation here. We are trying to determine to what extent the net exports are the crucial issue. We are getting some signals out of the industrial production index. That is basically saying, if anything, that the cutting edge of the net export figures is much sharper, so to speak--much more positive--than the GNP numbers are implying, because we are getting extraordinary strength in industrial production. Do you read it that way? Or is that--",111
-fomc-corpus,1987,"I don't know about extraordinary; maybe some of the comments earlier suggested that. One problem is that, to the extent you get this going on, you're producing things which, of course, you're shipping abroad; and you don't see it showing up in consumption and things like that. And that is part of the adjustment that President Boehne was talking about. You are not going through a recession actually, but you are going through a much slower growth in [economic] welfare, as measured in current consumption.",101
-fomc-corpus,1987,"We could be building inventories for export, which affects the industrial production index but doesn't show up in the trade figures. I think implicit in all of this is that if the industrial production index stalls, it would raise some serious questions about this hypothesis.",49
-fomc-corpus,1987,"I might just note that, while industrial production is growing much more rapidly than we think GNP is growing this quarter--and the IP numbers must be regarded as still quite tentative--that growth is well within the range of variation in that relationship. And for the year as a whole, the gap is rather moderate. So, at this point, we don't see a big disparity in the signals coming from the industrial sector or industrial production estimates and GNP, particularly when you start [unintelligible] GNP goods output that most reasonably can be compared in industrial production.",115
-fomc-corpus,1987,"Any other questions for Mike before we go to the general comments? May I request that, in the general comments, you address one question that is bothering me particularly, and I think it's really crucial to the outlook. I would appreciate hearing any views you have on how to interpret the rise in long-term Treasury rates--that is, to what extent would you disaggregate the rise into inflation premiums, or expectations instability premiums, and what part do you perceive to be real? By expectations instability premiums I mean expectations that bond prices fluctuate so dramatically that, in fact, you're imposing a premium on the overall interest rate. It strikes me that much of what we are viewing out there, and how we view it, is going to depend to a very substantial extent on how we evaluate the various components in what is a fairly significant rise in the underlying bond rate. I think President Boehne wanted to open it up?",182
-fomc-corpus,1987,"Let me just comment on the Philadelphia region. It continues to perform well above the national experience. New Jersey, Delaware and eastern Pennsylvania continue to have very low unemployment rates. As a matter of fact, I think that if there's a drag on growth in these areas, it is that there's a labor shortage and business firms simply can't keep up with production needs. Even the traditional manufacturing areas in our District are showing improvement, and unemployment is coming down in those areas as well. Both residential and nonresidential construction are very strong; retail sales are healthy, except for autos; loan growth is running about twice the national average; and real estate lending is growing about three times the national average. So, we have a rather bullish region that is being constrained mostly I think not by a lack of aggregate demand, but labor. The concern that I have picked up in the last couple of months, mostly in the business community, is a concern about inflation. And I think it's being triggered by these labor shortages that people report, particularly at the entry level. If you look at the help wanted ads in the newspapers, and just the help wanted signs generally, they are at pretty high levels. While wage increases have been reasonably moderate, I think a lot of people in the business community are concerned that this is just the kind of situation that triggers a wage-price kind of spiral. On the national scene, I think the Greenbook numbers look reasonably good. In terms of the risks--and I am being influenced by where I sit and the people that I talk to--it seems to me that whatever risks there were of having too weak an economy, or even a recession out through 1988, have shrunk considerably. I see the risks now on the side of triggering some kind of a wage-price increase. There is one point, however, in the outlook that I think bears mentioning, and that is that both the fundamentals and the trade situation indicate a continuing downward movement in the value of the dollar. Indeed, this is reflected in the Greenbook forecast. We are in this ""inflation/dollar"" box, as you aptly put it a moment ago. But I think that fundamentals have a way of winning out, even over central bank policy. So, as we deal with these bouts of a falling dollar and falling bond prices, we have to bear in mind that this is really what we expect. We expect the dollar to go down. And I think we have to be careful that, as we deal with these episodes, we don't lose track of the fundamentals. That leads to the question that you posed, which is a very good question. I don't have an answer, but I have a suspicion that more of this increase in long rates is real than it is inflation. I say that because, if you look realistically at the fact that the U.S. is going to have to import lots of capital over the next several years, as we have the last several years, I think that calls for a certain premium over foreign interest rates. What we may be seeing here is some adjustment to what it takes to attract the kinds of funds that we need.",631
-fomc-corpus,1987,Thank you. President Parry.,7
-fomc-corpus,1987,"Mr. Chairman, with regard to your question about real rates, we look at it in two different ways: first of all, through a model approach and, secondly, at the survey that is referred to as the Hoey survey from Drexel Burnham Lambert. Both of these give us a similar reading with regard to your question. In both of those instances, much of the increase in nominal rates has produced an increase in real rates. For example, the Hoey survey shows an increase of only two tenths of 1 percent in inflationary expectations between January and June. So, in effect, what we got was a very sharp increase in real bond rates when we saw bond rates increase so sharply in the April-May period. This has a big impact on our forecast--and I think also on the Board staff's forecast--because it does damp the growth of the interest-sensitive sectors of the economy. In some respects, I draw a little comfort from that because we also have strong growth in the net export area and, in effect, it is the weakness in the interest-sensitive sectors that makes room for this growth in net exports. With regard to our forecast more generally, we estimate that real growth will average between 2-1/2 and 3 percent over the forecast period. We have actually shaded slightly our expectations with regard to net exports, but we still have real net exports contributing approximately 1 percent to real GNP growth, both this year and next year. Also, and here we have somewhat of a difference with the Greenbook forecast, we have greater strength in consumption in next year's economy than the Greenbook forecast. That has something to do with differences about the growth of real disposable income, if I'm not mistaken. We are concerned about the inflationary impact, not only of our own forecast but also that of the Greenbook. As you know, in the Greenbook forecast, inflation averages 4 to 4-1/2 percent, at least in terms of the fixed-weight deflator; and we are not much different from that. But what concerns us is that, in some respects, the composition of that inflation in our forecast changes rather dramatically. We are somewhere in a zone close to full employment, at least according to our staff work, and thus, in our forecast and in the Greenbook forecast as well, wage costs begin to accelerate. To the extent that the inflation in 1988 is more a function of what I would characterize as underlying factors and less a function of some of the temporary factors that we drew on this year, we think that the inflation problem will become more persistent. Finally, I do think that in some important respects, the risks to the outlook are on the upside with regard to real growth and perhaps in inflation as well. My primary concern here centers around government spending because I think that the assumption of the $25 billion cut used both by us and in the Greenbook may not materialize. And if it does not, then we are likely to get more strength from that sector than is included in our forecast. Thank you, Mr. Chairman.",625
-fomc-corpus,1987,Thank you. Mr. Corrigan.,8
-fomc-corpus,1987,"In terms of the forecast, it has been true for some time, and it's still true, that our staff work in New York has the same overall result as the Greenbook forecast but with an unchanged dollar and a slightly smaller adjustment in real net exports because we have a scattering of stronger elements of domestic demand, including inventories. So, while the aggregate numbers look very'much the same, what lies beneath them is quite different insofar as the dollar and real net exports. Our inflation outlook, despite the fact that we have the dollar stable, is about the same, or maybe a shade worse than the Greenbook. Mr. Boehne raised a question earlier in the discussion about this overall adjustment process that I'd like to comment on just briefly, and then turn back. I think, Ed, your question was: can it work? Or is the scale of the problem so big that you can't get from here to there? When you look at the big three countries--the United States, Germany, and Japan--the fact of the matter is that by conventional standards the adjustment is well underway in the sense that for both 1986 and 1987, and in our forecast for 1988, the growth in domestic demand in both Germany and Japan is stronger to significantly stronger than is the growth in their own GNP. In the case of the United States, we still had domestic demand stronger than GNP in 1986; but in 1987, and in our forecast and yours as well--although there are some differences there--you get a widening out such that GNP growth in the United States is something like a percentage point greater than growth in domestic demand. It is true that overall growth in Germany and Japan is perhaps lower than one would like to see. But, the dynamics of the adjustment have set in, in what I think is not an inconsequential way. Again, the evidence in all three of the major countries is basically working the way the textbook says it should. The problem, to some extent, is what Ed touched on earlier, and that is the scale of the adjustment that we are talking about and the scale of adjustment that is needed. When you look at it in terms of the behavior of exports--and this is all relevant to the outlook, I'm just getting there in a roundabout way--we all know these numbers are lousy, but the numbers for July 1987 versus July 1986 indicate that U.S. export growth really has been, I think we can say, almost spectacular. And it's not confined any more to a handful of products or a handful of countries; it's pretty much across the board, including very sharp increases in exports even to Japan. The strength of those export numbers in the context of the overall dynamics of the adjustment raises a couple of questions in my mind. What's offsetting it in part, of course, is imports. Our own imports are still very, very strong, across the board, with few exceptions--perhaps lumber. But, by and large, those imports are still humming and a lot of that is price. Then again, how many J curves do we have to see in terms of import prices? That's one of the reasons why I like our forecast--at least right now--better than I like the Board staff's forecast. But, when you put it together, it leads me to one or two possible conclusions. One is that there really is something systematically wrong with the trade numbers, at least as we see them month to month. The second is that the domestic economy is, in fact, stronger than we think it is, or at least than the conventional measures are telling us. My hunch is that probably both of those things are true: that the trade numbers are messed up and that the domestic economy, if anything, is actually a bit stronger than we think it is. Partly for the reasons I've just noted, I would certainly join those who have already said that, in looking at the outlook at this point in time, the risks are decidedly on the upside. I find it hard at this point to ignore the galaxy of numbers in the business fixed investment areas, industrial production, orders, and labor markets. They all seem to be to pointing in that direction, in a context in which I really do believe that the margin of upside error, if you will, is really quite slim. I think you can now make a pretty good case that actual GNP is brushing up against potential GNP; labor markets, no matter how you look at them, have to be at least near the danger zone; and I think it's not hard to visualize at least some selective bottlenecks beginning to develop, for example, in nondurable goods areas where we already see that raw and intermediate material prices are rising. Now, we could get a little help. There is a faint chance, at least in the near term, that the oil price pressures could be downward rather than upward. That would be temporary, but that's possibly a favorable straw in the wind. But when I put it all together, it seems to me that both the global picture as well as what we can derive from our own situation statistically lead me to view that the risks are on the upside. Now, on your question about the long-term Treasury rate, Mr. Chairman, I thought we were framing the question a little differently than maybe you were. I was prepared to answer this question: what do I think is driving the rate up? Is that what you are asking? I'm not sure it is the same.",1121
-fomc-corpus,1987,"The point is that, implicit in that, is the breakdown of the components.",16
-fomc-corpus,1987,"Well, the breakdown of the components to the increment and the breakdown of the components to the level may not be the same, though. But, let me try to answer.",35
-fomc-corpus,1987,Do both.,3
-fomc-corpus,1987,"If it were the increment in the nominal rate, which is the question I thought you were asking, I would put virtually none of that on volatility, which was the middle factor you raised. I would put the greater weight on inflation-related considerations, including the exchange rate of the dollar. But, I do think there is something real there too; I can't be very precise as to what. But I'd give zero weight on volatility, certainly.",88
-fomc-corpus,1987,So this is your increment?,6
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"It has been volatile; therefore, it can't be more volatile?",13
-fomc-corpus,1987,"Yes, but I would say that while I think the bulk of the increment has been driven by these inflation-related things, I also would say that the level of the real interest rate does come out higher. Maybe, just maybe, that's because there is something happening in terms of the marginal productivity of capital. It's possible.",64
-fomc-corpus,1987,"But, it's almost impossible to tell at this time.",11
-fomc-corpus,1987,"No, I agree.",5
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"With regard to our view of the economy and conditions in the District, I think what we are seeing is quite consistent with something like the Greenbook forecast. In general, economic conditions in the District are quite good and have been improving consistently for some time. The only areas I hear any reservations about have to do with residential construction, where reports have tended to be mediocre, and with loan demand, where bankers say there is no demand to speak of. Labor markets have tightened up a good deal, again, in general; but what is striking in that regard is that there is not any discernible increase in the rate at which salaries and wages are rising as yet. Apparently, at this point, people are just taking the strategy of not filling jobs or filling them more slowly than they otherwise would in this environment. With regard to your question about interest rates and so forth, I guess I would not have a definitive answer either, but I would start with the dollar. It seems to me that we sometimes talk as if all declines in the dollar are equal. I don't start with that position. It seems to me that it matters a heck of a lot why the dollar is falling. For example, if we had fiscal policy in a position where budget deficits were declining in a sustainable way over time, I might predict that real interest rates were going to decline sustainably and, therefore, the dollar might decline in that environment. I would say that would be fine; but I don't think that characterizes the current situation at all. I think we are in a situation where, in fact, the adjustment is unlikely to come through fiscal policy. Therefore, particularly in light of the June and July trade numbers, there are a lot of market participants who seem to feel the adjustment is going to have to come through other policy steps in this country. I think this is kind of what Mike and Ted Truman were talking about earlier--if you are going to get continued improvement in trade, that requires higher real rates here to damp residential construction, nonresidential construction, and so forth. Alternatively, of course, we may at some point get into the situation where we are not prepared for rates to rise in that fashion so that we sort of arrest the improvement in trade; that is, we get stronger domestic demand and stall the improvement in the trade balance. I think that's the kind of box we are in as long as we have the fiscal policy outlook that we have. That situation seems to me to be discouraging, as it has been for quite some time.",509
-fomc-corpus,1987,President Forrestal.,4
-fomc-corpus,1987,"Thank you, Mr. Chairman. I would start with the region, by repeating what I said last month--that economic conditions in the Sixth District are really booming and seem to be strengthening. The reports that we're getting from our directors and from other business people are extremely positive at this point and very optimistic. And, it's fairly much across the board. For example, we are seeing increasing evidence of improvement in the tradeable goods areas, certainly in textiles. We are also getting improvement in apparel production. Paper production and chemicals also are doing a lot better, and I might say that paper and textile mills and factories are going just flat out at the moment in our area. We are now hearing about labor shortages, particularly in the textile areas, and there are some bottlenecks beginning to appear. For example, we have had reports of shipments of carpeting being delayed because of labor shortages. But having said that, at this point at least, we have not seen yet any pressures on wages, since labor seems to be moving from the slower-growth areas into the areas that are picking up. So far, the wage pressures have not followed, at least immediately, from the labor shortages. Even on the commercial structures side, we are seeing excess supplies of space being absorbed more rapidly, and that is particularly true in the fast growing states of Georgia, Florida, and Tennessee. Construction figures are up also. We are not only getting absorption; we are getting more construction, particularly in the hospital and warehouse operations. Rising mortgage rates have cut into the housing sector, particularly in the multifamily area. In Louisiana--I would single that out because we've had nothing but bad news for a couple of years in that area--we are beginning now to get some good news, marginally better news. The rig count is up and all of the oil and gas support services are beginning to come back on line. Turning to the general forecast, our forecast for the last half of this year has strengthened a bit in comparison to what we had a month ago. Consumption seems to have picked up somewhat more than we had anticipated and we are seeing investment respond to higher plant utilization. Looking ahead to 1988, we are marginally lower than we were at the time of the last meeting, and just about in line with the Greenbook forecast. The only difference we have with the staff forecast is in the area of consumption which, of course, I've mentioned a couple of times before. And, as I indicated earlier, we don't see quite the level of improvement in net exports that the staff is seeing. But when you net that out, we are pretty close for 1988. Also, I think it is significant, as far as our forecast is concerned, that we did not build into the forecast any tightening of monetary policy, which apparently the staff did. On the price side, again, we're pretty close to the Greenbook forecast. So, when I put all this together, Mr. Chairman, it seems to me that the forecast is reasonable and even a little optimistic. And I would agree with those who would put the risk on the upside rather than the downside. Now with respect to your question, I think there are probably ingredients of both. At least from where I sit, there is some inflationary expectation in these higher rates, but to a large extent, I think they are real. But having said that, it seems to me from the few market participants that I've talked to, that there may be an element of irrationality in the way the market is reacting. The reactions to even minor declines in the value of the dollar are producing higher rates than might have been called for. I don't know how to assess this, really; I'm just talking to a few people in the market who are sitting in Atlanta and who have made this comment. They are saying, and I think there may be some validity to it, that there may be some over-reaction, although some other factors are involved. Now, if that's true, I think the policy implication is upon us, because they are going to be reacting perhaps adversely to the trade numbers for August, which probably will not be very good. We have just done some work which would indicate that the seasonal factors that are present in July are probably present in August as well. So, we may get some equally bad trade numbers. And, as the Gramm-Rudman fiscal policy debate goes on in the Congress and we don't get anything out of that, I think there's going to be a reaction in the bond market as well. It seems to me that the market is looking for every snippet of bad news that it can find and reacting to that, rather than trying to find something positive in the scenario.",950
-fomc-corpus,1987,Thank you. President Keehn.,7
-fomc-corpus,1987,"Thank you, Mr. Chairman. From a national perspective, our forecast is really very consistent with the staff forecast. I would say that we have been a little higher throughout the year and, therefore, the last revision by the staff brings it pretty much in line with our perspective. With regard to the District, whereas we have been a laggard throughout this recovery, certainly, at this point we have turned around. The conditions and the trends in the District I think are very favorable. Employment, for example, is very consistent with the national numbers. Our unemployment is still higher than the national average, but I do think the employment numbers are coming along quite well. I thought I would comment on just a couple of industries that are important to the District that I think are going through an interesting and positive adjustment. First, the steel industry is a very dramatic example of a shift that is taking place in a very troubled industry: We have had in the Midwest just a whole host of closings, bankruptcies, and near-bankruptcies, and, in addition, some shutdown of capacity; but those who have survived and those who have put some money into the plants, and have modernized them, certainly at this point are doing very well. The decline in the dollar and the import restrictions have helped tremendously, but the demand for domestic steel is strong, and as a consequence, the plants are operating at a much better rate. The demand for steel products seems to be quite broadly based, and now is as strong as any time since 1981. In getting to a point you raised earlier, many of these products are on allocation; the delivery times are clearly moving up from eight to nine weeks, so there is a slowdown in the delivery process. The service centers, as I understand it, are trying to build inventories but are not able to do it; inventory is going out as fast as it comes in. And, not surprisingly, there is something of a price increase going on in the industry and the price increases for the first time in this cycle may really seem to be sticking. A tangible sign of an improvement in this industry in the last six or eight months is that we've had an announcement of two new steel plants in Indiana: one a joint venture with a Japanese company, which is quite a significant installation; and the second a stand-alone facility.",473
-fomc-corpus,1987,These are both [unintelligible] integrated plants?,12
-fomc-corpus,1987,"No, the Japanese one, I think, is fairly specialized; but they are brand new plants centrally located.",22
-fomc-corpus,1987,Cold-rolling operations? Or importing slab?,9
-fomc-corpus,1987,"No, not importing--they are taking slab out of a Chicago mill and cold-rolling it in Indiana. So, I do think it's an industry that has gone through a tremendous transition. The other industry that is important to the District is heavy duty trucks--Class 8 trucks. Sales this year, I think, are going to be 13 or 14 percent higher than last year, and the outlook for next year is another increase of 3 to 4 percent. These will go up to 125,000 to 130,000 units and this is just a lot higher than what we were experiencing three or four years ago. There is still a lot of capacity in that manufacturing process but, nevertheless, this is a business that seems to have gotten better. Pricing is still tough, however. Nevertheless, from the District's perspective, it has been good. Let me say a quick word about agriculture by adding a little to what I've said in the past: namely, conditions seem to have stabilized, albeit at low levels. Land values are beginning to move; transactions are higher, and in a couple of instances, significantly higher. But, the point I'd make on what I find to be a new development is that general business conditions, not just agricultural conditions, in the area of Iowa seem to be better. Turning to the price issue, I must say that I find this a very, very difficult read. I keep hearing about price increases; I've commented on steel, but specialized chemicals, paper, paper products, brass, and copper all seem to be moving up in price. They don't show up yet in the CPI numbers. The competitive conditions for finished products are very tough and people are being squeezed on margins; but, at some point, you just have to think that this is going to poke through. On the wage side, I'd add to the comments that we are hearing about shortages. We were up in Michigan the other day doing a presentation and some of the people were commenting that they just can't get enough people to work in some of the operations there. I would think that, at some point, we are going to see something of an increase on wage rates that's beyond what we've had over the last year or so. Turning then, Mr. Chairman, to your question on long-term rates, which is a very, very key issue, like Jerry, I think it is awfully hard to analyze each part. But, I think that the underlying rate of economic activity here is pretty good; it may be a little more rapid than we expected and, therefore, there may be some real pressure on rates. Also--and I can't analyze what part equals what--on the inflation side, I think there is growing skepticism out there; there is concern about inflation, and something in the rate increase that we have experienced certainly has to relate to that. Thank you.",578
-fomc-corpus,1987,Thank you. Mr. Boykin.,8
-fomc-corpus,1987,"Mr. Chairman, I guess it's somebody's turn to say something not quite as positive as we have been hearing. I guess it falls to my lot, being from the Eleventh District. I would characterize our economy in the Eleventh District as still somewhat sluggish and a little fragile, although there have been tentative signs of improvement. Businesses around the District that serve a national or international market all seem to be saying that they are seeing some improvement. These would be primarily in electronics, livestock, chemicals, and defense. There is a little more optimism there. The businesses that serve their own local area or region, though, say that their business remains flat; they really have not seen any signs of improvement. Obviously, there is a correlation in attitudes and sentiment related to oil prices, since oil is so important in our region. With the improvement there, and with the increase in the oil rig count and additional activity going on, there is more optimism. There is a little more activity in related businesses; all but construction-related manufacturing are growing. Agriculture is stabilizing, and cotton and livestock farming are doing fairly well. Our retail sales remain fairly flat. We continue to worry somewhat about the condition of our financial institutions. Pick up a newspaper and you'll still find reports of foreclosures and bankruptcies continuing. Last week in Austin, which was really the bright spot for the last several years in Texas, there was the posting of a foreclosure of a fairly major hotel-office complex that was pretty new. There were foreclosure postings in Houston, also, of two or three fairly well known good projects. This doesn't mean the foreclosures will actually occur; the postings could be part of a renegotiation. Nevertheless, it is upsetting. We saw a report last week that Dallas had lost 40,000 jobs over the last year. That seems awfully high to me, but those are the kinds of reports we are hearing. Though we hope that we are on a comeback trail--and, if oil prices hold, I think we will be--I don't think we have seen the bottom of our commercial real estate problem. I think we probably are going to be worrying about that for at least two years, possibly three, before we can work through that. On the national picture, and possibly I'm somewhat influenced by our own Eleventh District, we would come out--looking out through the rest of this year to 1988--a little below where the Greenbook is this time. Although we moved our own forecast up slightly, we didn't come as far as the Board staff has in the Greenbook. On the long-term rate, I don't know that I have any particularly useful insight into that except that the evident concern about inflation does not seem to be quite as deep among the people I've talked to; certainly, in our District, there is not really [unintelligible] to the problem.",579
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"Mr. Chairman, I'm afraid I owe some apology for having discussed my thoughts on the state of the U.S. economy at a time you wanted to consign to questions. So let me just address that last question you posed as best I can, which is not very well. I think you have to look at the negative correlation we have had between exchange rates and long-term interest rates since the fall of 1986 to get an answer to that. There are three possible explanations: one is that this has resulted from still a third factor, which is the rise in inflationary expectations. A second--and maybe the most popular explanation of it--is that this decline in the dollar rate has been a decline in the real rate because of the persistently larger trade deficits that we have had, and fears that this will be reflected in higher import prices, which also will spill over into the prices of goods from those industries that compete with imports. And the third explanation is that the rates may be high because the market is responding to what it thinks we are likely to do; but if that is the case, tightening would clearly be inappropriate because that would mean, I think, that a large part of that was real. My impression has been that there really hasn't been that much response at the long end to actions that we have taken. For example, the response to what I thought was a very strong statement via the discount rate increase and also the raising of the borrowed reserve level was big at the short end; but we didn't really have all that much response at the long end. So, that suggests to me that some part of this is probably real. I guess I would end up with a view along the lines that Jerry first outlined, and some others have endorsed, that part of this is real and part of this is inflationary expectations. I don't know what the mix is and I guess nobody else does. But, I believe both factors are at work, I'm afraid.",395
-fomc-corpus,1987,I wish we knew the answer to this.,9
-fomc-corpus,1987,I do too.,4
-fomc-corpus,1987,Vice President Hendricks.,6
-fomc-corpus,1987,"I like the comments made by Ed Boehne. We are experiencing a bullish feeling with respect to business in our District. I'm really not sure how much significance, if any, should be placed on this observation but, at a recent meeting of our directors we did notice for the first time, perhaps, some concern about risk on longer-term loans, and some adjustments in their basic lending policies, at the margin. With respect to our outlook, it's quite similar to the staff's Greenbook forecast, but we still continue to see the consumer in a stronger spending pattern than indicated by the staff. We also see housing as less of a drag on the economy. We don't believe exports are going to be quite as strong as projected in the Greenbook. Despite the sectoral differences in the projections, we come out at about the same place, with real GNP growing at about the same pace as the forecast in the Greenbook. We would see that, however, being accompanied by some pretty strong wage and price pressures. With respect to your question, I don't know how much I can add on that, but recent changes in the rates do appear to us to be related to the rate of interest [needed] to attract foreign savings. We believe that some of the earlier increases that we saw might have been tied more closely to inflation.",267
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"First of all, I would say that over the last year or so, performance in our District has been somewhat stronger than the national average. Employment has been about in line, retail sales somewhat stronger, and I guess the most notable area of strength has been construction, both residential and nonresidential. Over the last couple of months, I would say things have slowed a bit, relatively speaking. We haven't kept pace with the employment gains nationally either in non-ag employment or manufacturing employment. Retail sales have held up well, relatively speaking. Residential construction is in line with the national averages and nonresidential is still somewhat stronger but growing at a much slower pace than it was. Anecdotally, we've picked up some evidence of the same thing that has been mentioned around the table today in terms of labor shortages. There was a company with about 90 semi-skilled employees that was shut down, and another big employer in St. Louis in town expected to pick up, I don't know, somewhere on the order of a third to a half of them. It ended up getting only five of them, because there were so many other people bidding. You hear that in other areas as well. One other thing I've heard in that regard is that companies that have generally been stable in terms of employment, or maybe even reducing employment here, recently have added employees. There are some noises about trying to negotiate some of the give-backs that were obtained over the last couple of years. I've heard just one example of that; it's not widespread. On the broader outlook, while I have been, and continue to be, in agreement with putting the priority on price stability versus growth, the projections that come out of our Bank, which are based on money-driven models, have been showing for some time--and I thought I would mention it this month--the risk of a sharp slowdown in the economy in 1988 and even the possibility of a recession. Given the behavior of velocity and so forth, I think it is hard to evaluate this exactly, but one of the things that people continue to feel reasonably strongly about is the effect of a sharp slowing in money in relation to trend, if it is sustained for two or more quarters. And, it's really on that basis that we come up with this forecast. So, that's a very different view than previously expressed. I think it's difficult to evaluate because you can't know the effect of all the liquidity that was put in over the last couple of years, and whether that might continue to have a stimulative effect looking forward. One last point on the interest rate question: I suspect it's a combination of an increase in inflationary expectations and some increase in the real rate. The only other thing I would mention that hasn't already been mentioned is that we are at, or have passed through, a major inflection point in terms of the interest rate outlook that's internalized in, say, the minds of traders and so forth; and people I would say, as we do, just follow markets quite closely, very quickly. But, in terms of broad-based behavior, I think that really gets built into prices over a surprisingly long period of time. I think one of the things we are seeing here is people continuing to adjust portfolios to a different interest rate outlook, and probably thinner participation in the market, at least on the buying side, by final investors. So, I think there's a certain element of uncertainty associated with this adjustment phenomenon.",693
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"In regard to long bond rates, I think what we are seeing has something to do with the development of an exchange rate policy that no one thought out that carefully ahead of time. It's unfortunate that there can't be some median ground between recognizing that monetary policy needs to be adjusted to take into consideration foreign exchange developments and trying to pinpoint and draw lines in the sand in regard to foreign exchange rates. If we had been willing to make monetary policy adjustments before we drew the lines in the sand, we probably would have avoided some of the difficulties we are now in. Nevertheless, the line got drawn in the sand. And when that happens, it is very difficult to unhitch during a period in which inflation expectations are on the increase--particularly, I think, when you have some commodity price pressures that would require stable exchange rates in order not to have commodity prices rise. So, in that environment, it seems to me that long bond buyers are mainly anticipating what monetary policy and future short-term rates are going to be, and it's kind of a win-win situation from their perspective, because they think that we might have to raise rates to support [the dollar in] foreign exchange markets or we might have to raise rates to resist inflation; and either one works in the same way. Second, I think the long bond prices are affected today more strongly than they were ten years ago by a kind of speculative cycle. That is, at one point in time, long bond buyers really intended to keep the bonds. But we have developed an environment in which we have investors and fund managers whose success is based upon their performance; and there are times when it doesn't pay to be owners of bonds and, consequently, you're going to have long bond rates move a little too far. In some ways, it doesn't bother me to see long-term interest rates high. I think it would bother the U.S. Congress. I hope it would bother them, and I hope it would indicate to them how much opportunity there is to help there by controlling spending. In regard to the Greenbook forecast, I really have no significant disagreement over the 1987 forecast. The staff has been lowering their inflation rates for the second half of 1987, so I don't see much disagreement there. I do have three areas of difference in regard to the 1988 forecast. I disagree, I guess, with Martha and some others who took one position with regard to real exports. I'm taking another position: I believe real exports will maintain a longer sustained growth path than is assumed in the forecast. I believe that we have many producers in the United States who have never learned to be involved in international markets. But once the United States became such a huge importer, we began to change the whole nature of the opportunities that exist. So, we have many, many small and medium-size businesses that have never taken that international market seriously, and now they are learning that they do have to compete in international marketplaces at home and abroad. And so I think we have a long learning curve involved here. We have a lot of financial institutions that have not done very well with regard to recognizing export lending. But I think that learning curve also will occur. Therefore, I expect that these present exchange rates will give us a wonderful opportunity for a long period of export increases. As for my second disagreement with the 1988 forecast--and I know that Mike, or maybe Ted, mentioned the GNP deflator and its strange behavior--I would point out the staff's numbers on the CPI. In July, the staff had forecast a 60 basis point increase in the CPI from the third quarter of 1987 to the fourth quarter of 1988. Now they are projecting a 150 basis points increase in the CPI. Now, that really is making things get worse rather rapidly. I think that's not likely, first of all, because businesses have found that the environment is one in which you do not make profits by being able to increase your prices but you do it by learning to control costs. So, I think we are in a different environment than we were. Second, we have already gone through the big oil price increase, which the staff is telling us should have occurred earlier. About the second half of 1987 is when it should hit us, and I think that has kind of passed us. Third, I think foreign exchange rates are not likely to fall by the amount [indicated in the forecast], because I would presume that the majority of this Committee would not believe that the inflation forecast that we have is acceptable and they would be willing to take the steps that are necessary to not have those inflation rates materialize. Consequently, the dollar should behave quite well in that environment. The third disagreement [with the forecast] is in regard to tax receipts. I think everyone is underestimating the effects of the Tax Reform Act, which is our first tax reform act since 1963. It is the first time we have broadened the base while decreasing the rates. All the evidence shows that the tax receipts are coming in higher than anticipated. We are going to have tax receipts that are going to be the largest percent of GNP in any peace-time year in our history. Not all that goes away with the one-time capital gains move, so I am somewhat optimistic in that regard. I am certainly willing to take whatever steps are necessary to make certain that the forecast for 1988 isn't correct because, if it is, then it is absolutely essential that we have policies that would lead to a tremendous slowdown in this economy.",1120
-fomc-corpus,1987,President Guffey.,5
-fomc-corpus,1987,"Thank you, Mr. Chairman. I will try to be very brief in view of the coffee being outside! With respect to the Tenth District, we do see some very, very modest recovery. Looking at various sectors of the economy, starting with agriculture: commodity prices are up; red meat prices are very good; government transfer payments are outstanding; and, as a result, there is some comfort in the agricultural sector--or at least among those who are still in the sector. Lastly, I would say that our most recent survey indicates that agricultural land prices have stabilized, and there is a modest uptick in those prices as well. So, agriculture, from a very low level, has a good outlook for the rest of 1987 and quite likely in 1988, depending upon what the farm subsidy program will be in 1988. When you look at energy, the same is true: from a very, very low base it looks a bit better. In July, for example, there were 373 rigs working in the Tenth District as opposed to [unintelligible] in June. That's not much of an uptick, to be sure, and it is only 20 percent of the level that was achieved in 1982, which was the peak of the energy boom. So, it is still at a very low level. [Unintelligible] supporting a bit. Commercial real estate has been very depressed in Denver, Oklahoma City, and Tulsa--those areas that built on expectations [generated by] the energy and agricultural booms back in the early 1980s, inflationary expectations, [unintelligible]. There is a very slow absorption rate of some very nice and new commercial structures. In the Kansas City area there has been some damping in commercial construction, but nonetheless, it still looks very prosperous. In some areas, there has been a bit of damping in residential starts and sales, but activity is still above a year ago throughout the District in the aggregate. One last point that I would make with respect to economic activity in the District would be on the manufacturing sector: the automobile industry is not working at full production and, as a matter of fact, there continue to be layoffs in plants, particularly in the Kansas City area, in the GM plants specifically. There has been a bit of light at the end of the tunnel in the aircraft industry in the sense that sales most recently have been up in dollar volume but down in unit sales, largely because the sales are of jet aircraft as opposed to the smaller units. Let me just address, then, our view of the staff forecast. They are a bit more bullish than we are. We look for about 2-3/4 percent growth not only for the remainder of 1987 but into 1988. In trying to look at their forecast in relation to our numbers, I believe the difference is that they have a buildup in inventories in the fourth quarter that goes out into 1988. That may be the difference in their forecast and ours, but it is such a modest difference that I don't think there would be a lot to argue about. To be perfectly honest, I hope their forecast occurs. I don't feel there is much risk on the upside, however, of this getting away from us. Lastly, as to your question on long-term bond rates, I suspect it is a part of all three of the things that have been mentioned. I guess I would come out on the side of giving more weight to the view that it is an increase in real rates necessary to attract funds to support this federal budget deficit as opposed to just inflationary expectations. The uncertainty created by all of this largely accounts for it; how you disaggregate it, I don't know.",760
-fomc-corpus,1987,Vice President Eisenmenger.,6
-fomc-corpus,1987,"Turning first to the regional economy, we may have the strongest regional economy in the nation, and I think a good monetary policy for the New England region would be an alternative D. When you get together with our businessmen, all they can talk about is the labor problem--that they can't get the labor they need. We hear scattered reports that people are spinning off their operations in eastern Massachusetts or Connecticut and putting them in the depressed areas of northern Maine, or they are talking about putting them in other parts of the country. They are not moving their entire operation, but are moving pieces of it. However, I don't think New England is typical. We have an overall unemployment rate of 3 percent, and in New Hampshire, it is 2.2 percent. And that is not typical of the nation, which is 6 percent. So, you can't really look at the world through our eyes. In our view, the Greenbook forecast for the U.S. economy in the next 15 months is almost the ideal scenario. If we have a sufficient guiding system to accomplish what that forecast suggests, that is almost as good as we can expect, considering the constraints. It is showing a real growth rate of something like 2-1/2 percent with the overall employment rates and capacity utilization rates only slightly different than they are now, which would suggest we would have only this minor uptick in inflation next year. And that is an ideal scenario. So the question is: Can we get there? At least as we read it, there is not much risk on the downside any more. The new orders that are coming in, the industrial production statistics, and the probable greater strength from foreign orders, suggest that the dangers of a recession, at least in the next 18 months, are pretty well washed away. On the upside--the possibility of having something faster than a 2-1/2 percent real growth rate--we have set in train two actions just in the last 25 days which provide us some insurance [against that]. And the staff talks about additional actions during the next year that--it is our best guess--would provide additional insurance. Our hope is that we can achieve the forecast that the Greenbook so optimistically puts forward. I don't think I have anything to contribute to what other people have said on the long-term bond rate.",475
-fomc-corpus,1987,What has the regional inflation rate been doing in New England?,12
-fomc-corpus,1987,"Well, wage rates are moving up faster.",9
-fomc-corpus,1987,"But overall, I mean the broader--",8
-fomc-corpus,1987,"Well, you would have to talk about pieces. If you talk about the price of housing, we used to be--",24
-fomc-corpus,1987,The Boston CPI?,4
-fomc-corpus,1987,"When you talk about rental housing, it doesn't show up that much. But, in fact, when you're trying to bring in professional people, you can't do it. All the businessmen we talked to say they can't bring in anybody to buy a shack that costs $250,000; so there is no labor mobility in view of the housing shortage. Eventually, we will not have that housing shortage, as we didn't have it in the long run in California. It may be three years away. So there is not much mobility, despite the fact that we pay somewhat higher wages, because the real cost of living for someone moving in and buying a house is almost impossible.",133
-fomc-corpus,1987,"Well, I agree with most of the discussion on the economy. It has been covered pretty well. I do think the economy has clearly picked up strength, and there is very little downside [risk] in the economy now. It is clearly in an expansion phase at a higher level than it was on before, but there's still an outstanding question--we've already discussed this and Mike went over it very well--as to how much of this is production-generated by the external economy and inventory building versus an overall expansion in aggregate demand. I think that is the key to what we would have to do on the monetary policy side. As I said earlier, I think that a lot of this seems to be trade-related. Some of it is not. I think there has been a buildup in inflationary expectations. I am fairly pleased at the moves we have taken; I think they were proper and should have the effect of eventually moderating aggregate demand to a level consistent with the forecast. Now, we are hedging against the plausibility of what kind of velocity number you could expect to go with those aggregates. Like I say, I think we are close to having the thing cornered. The lags are long; we may have to go through a few quarters of some pressure before we see the other side of that. But, I don't see a lot of room for nominal GNP under the kind of monetary policy we have now. The numbers don't seem to add up, except for maybe a couple of exceptional quarters, in the short run. A couple of other points I think are interesting: in spite of our concerns about the trade situation and the deficit--and I agree those are the major fundamental concerns--we seem to pass over those large deficit items. I think that's because we are concerned more about the longer run; but we pass over the really tremendous improvement in the budget deficit this fiscal year over the last fiscal year, without a dime's improvement in the current account. The amount of pressure that has been taken off has to be relatively substantial. We have gotten no real reduction in the current account and a $60 billion dollar reduction in the federal budget deficit. That has to be an important factor. Now, whether that continues is another matter. I think that is the question. But, if anything, we have relieved pressures on the capital import side. Maybe we are making up that difference on the domestic growth side and the demands of government are shifting more toward the private sector. But we have seen the dollar come down and we probably have seen net capital outflows. In terms of the question of long-term interest rates, I tend to think that what has happened is mostly inflationary expectations. I think long rates have gone up primarily due to that. My personal opinion is they probably overshot, and eventually things will settle back down a little in the market. As I said, the flattening of the yield curve from our discount rate change was somewhat comforting; even though we didn't actually see a decline in long rates, we did see a flattening. I don't see anything out there that would push up the real rate dramatically. I think some of that inflationary expectation--I really don't know how much--is sort of a risk premium, but that could be put in the inflation expectations category. I don't see anything that shocked the cost of capital that would, in a way, raise the real interest rate. In other words, I don't see anything that has improved real returns on capital investment dramatically. If anything, the repeal of the investment tax credit in the tax bill has reduced returns on equipment; and there probably has been an improvement in terms of inventories because of the lower corporate rate; but, overall, I don't see any big shock to the cost of capital. So, I think it is mainly inflationary expectations and, hopefully, it will run off over time.",779
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"I still think the hallmark of the recovery is really a better balance in the economy as a whole. The sectors that have been strong in the past are not growing quite as rapidly, or are actually shrinking, and I think that is something that we should keep in mind. If you look, for instance, at the projections in the Greenbook for 1987 and 1988, you still see quite a few minus signs. Durables are contracting this year at a 2.3 percent rate; nondurables are only up 0.8 percent; nonresidential structures are -2.7 percent; residential structures are -5.5 percent; and federal spending is -3.2 percent. So, there are quite a few sectors that are certainly not characterized by boom conditions, while others like agricultural, business equipment, and so on, are doing quite well. As a result, you get that better balance. Also, as many speakers pointed out, the great improvement in federal revenues, together with the restrained federal spending, really does a lot on the fiscal deficit side and brings a better balance on that score. I think it would be a mistake to hold up the dollar with further tightening of monetary policy, because we would be inviting a slowdown in those sectors that, at the moment, are really carrying the economy: real estate would be further depressed, and the capital sector would slow down. And, we also need the exchange rate change that is projected in the Greenbook in order to get that improvement in the trade balance that we are all hoping for. Turning to the the long-term bond question, I agree with most of the things that have been said before, but let me add one additional factor. If you look at the increase in interest rates that we have had over the last year, you see that there were noticeably sharper increases in the long-term Treasury bonds than in long-term mortgage bonds and long-term corporate bonds. I would put a lot of that, which amounts to 50 to 100 basis points, at the door of the many debt moratoriums that we have had, or the nonrenewal of the debt ceilings, in the last five months. I think there have been four of those episodes; and that certainly must have a chilling effect, particularly on foreign investors who are looking at the United States with a jaundiced eye and putting us in the same league with countries that can't service their debt. So, that certainly has been a factor contributing to higher long-term Treasury rates in addition to the real increase and the high inflationary premium we have had.",522
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"In a prior life, I worked with corporate planning, so I was just sitting here thinking of that in our discussion this morning. First of all, when you work with corporate planning, your bosses are always challenging your forecasts and they will not allow--at least mine didn't allow--you to utilize a single forecast. Or, if you did, they were always wondering about where the weaknesses were and whether or not something might hit them that would put them out of business. You are not allowed to bet the bank, or bet the company, on forecasts. So, I just wanted to mention a couple of things that I think we have to look at as we look ahead. One that I sort of hinted at it earlier is whether or not we are sufficiently incorporating the interest moves we have already had into this forecast. And if we are, are we incorporating the interest moves that we expect are yet to come? Also, there's the question: what if the dollar does not, in fact, decline more? So much of 1988 depends upon the trade turnaround; and if we think a weaker dollar is needed to produce at least part of that, then I think that is a vulnerability in this forecast. Also, and this has been mentioned by Wayne Angell and Bob Heller, I really think we are not paying much attention to the change in fiscal policy. When you go from a $221 billion deficit to $160 billion--and I've heard this morning that it might even come in below $150 billion--that's a major change from one year to the next. I am not necessarily a Keynesian, but I do think there is such a thing as fiscal policy, and it certainly works with a lag. I remember the summer of 1984, sitting around this table with many of the people who are here today, and it was very easy then to simply project the trends of early 1984, which looked tremendously strong. And, frankly, we missed the fact that business was going to slow down; just about the time we thought it was looking most terrific was when we got the 90-degree turn. I hope we are not doing that today. On the interest rate question, because I am an old lady I remember being in financial markets before inflation was a big deal, mainly in the 1960s. And interest rates moved up; one of the reasons that long governments moved up involved simply the volume of financing, which is, of course, tied to the deficit. And, as Bob Heller said, recently we have had these problems with bumping up against the debt ceiling and postponements of auctions. Then, all of a sudden, Congress gets religion and takes care of this, and you get five auctions pushed through in a very short period of time, and this jerks things around. And yet, if no one was talking about inflation, I think that would happen. It certainly happened in August. It's probably going to happen again in the next couple of weeks. Also, there is just uncertainty about what's going on, uncertainty about what we are doing here. I think we could help that problem if we released the minutes earlier so that people would not have to analyze every tea leaf to try to figure out what we're up to. I think that contributes to this situation. Also, there has been improvement in communications and information flow. If you go back to the 1960s and 1970s, not every person around America and around the world had a CRT on his or her desk. Now every gunslinger sits there and, whereas they used to be told that the one thing to watch was M1, now they have been told that the one thing to watch is the relationship between the dollar and the yen or the dollar and the mark in the foreign exchange markets. Most of these people are not economists; they are traders; and you give them two easy pieces of guidance and that is what they trade on. So they contribute to this instability, I think, as you get this transmission from the exchange market into the bond market with the speed of light almost. There are just a lot more players and I don't think they are necessarily really weighing what's going on in the real economy; and neither do I think that they are doing a thorough analysis of the inflationary forces at work or not at work.",872
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,"Thank you, Mr. Chairman. It seems to me, as I've listened to the comments made around the table this morning, that there's a very, very strong centralizing character to the projections that have been made by everyone--the Greenbook and the District forecasts. I think that they constitute, in their aggregate wisdom, a very responsible and good forecast; and I accept it. I would like to make this comment: the projections arise, as they must, from conventional economic analysis and historical experience; and I would like to suggest that maybe we should be a little open and alert to the possibility that there are some unconventional and untraditional things going on. Standing back from the trees and looking at the forest, I observe that we are about to end the fifth year of what has been called a recovery. I'm not sure how long you call something a recovery, but this one is going to be five years old in another couple of months; and I note that at the end of the fifth year the economy is, in fact, accelerating and inflation is declining by most measures. Inflation is projected to increase for some very good reasons, but right now you've got an economy that is accelerating and inflation that is decreasing--which is pretty unconventional. Industrial production is going up at an accelerating rate; unemployment has been dropping very strongly and is probably now somewhere near its natural rate. And yet, at the same time, we are seeing very, very small increases in the unit costs of production and a very flat producer price index. In fact, last month, the PPI was zero. That seems to be a little unconventional and untraditional. On the trade balance and the J curve, we are not getting the effects that would have been expected. They are stretching out; we still think they are going to be there, but that has been behaving unconventionally. Governor Johnson noted a few moments ago the fact that we have taken $60 billion of fiscal stimulus out of the economy, and yet none out of the trade deficit. And I think a lot of people would have been surprised ahead of time that those two things could have coexisted. Incidentally, as the economy is accelerating its growth rate, that is occurring while $60 billion of fiscal stimulus is, in fact, coming out of the economy. I would suggest the possibility that inflation may behave in an untraditional way also. Maybe that also will stretch out and not accelerate. I ask myself: What possibility is there that could occur? I see several possibilities. They are all soft, and I would hate to have to try to defend any of them. But, for one thing, I suspect that we may be undermeasuring our productivity increase. We may be doing better than we know. I've talked to Mike Prell and some others about this some. I think we have a much higher level of mobility in this economy that is helping us deal with imbalances as they show up, rather than just suffer from them. For instance, instead of just accepting higher wage costs in Boston, we are moving plants to the rural regions of New England where wage costs are lower. That's mobility. A lot of bankers who are out of business in Texas are going to places where the banking system is stronger. That's mobility. There's a lot of that going on and that didn't used to be there. I think we may be in an era of very intense competition from several different respects. For one, the U.S. is back. I think that our industry is waking up and beginning to compete. Governor Angell spoke about that a few minutes ago and I agree with him. Also, there are many more serious competitors in the world economy than just a few years ago. They are serious and they are fierce, and I think that is one thing that is going to tend to impede the advance of inflation. I spoke at the last meeting of this group about what seem to me to be basic long-running, underlying deflationary tendencies in the world economy. I won't go back over that ground but I do think they are still there. All this is to say that I would not quarrel with the projection that we have over the next five quarters, but I'd like to pique a little interest maybe--on the part of some of the research directors around here, and some others, who are far better at this sort of analysis than I am--to see whether or not there are some discontinuities going on that could be favorable discontinuities. And, I think we should be open to those sorts of possibilities and alert to them. Meanwhile, I think we definitely have to be ready to deal with these inflationary expectations and not let that genie out of the bottle unnecessarily. Thank you, sir.",950
-fomc-corpus,1987,"Thank you, Governor. Now let's move on to Don Kohn.",14
-fomc-corpus,1987,"Thank you, Mr. Chairman. As it turns out, and with no coordination ahead of time, I swear, the initial part of my briefing will deal with the question you asked and the answer will have no more precision than any [unintelligible]. And then I want to go on and talk about perhaps some of the implications of any increase in the interest rates. [Statement--see Appendix.]",81
-fomc-corpus,1987,"Thank you very much. I think it's almost dinner time, so let's break for coffee!",18
-fomc-corpus,1987,"Well, we better get back to the agenda. As to the general discussion, I find myself probably about in the middle of much of what I have been listening to. The point I would make at the moment is this: while the economy is clearly quite strong, I think the orders pattern and all the various elements we usually look at are fairly balanced; to a certain extent the outlook is being given to us far more concretely than it usually is. This is more classic than one realizes. I grant what Mike Kelley is saying: that there is something different. There is always something different; something that does not look like all the previous ones. There is never anything identical, and it is always a puzzlement. But there is nothing very unusual about this one. And, it seems to have fairly good momentum. The main issue, however, which I think Governor Angell mentioned, is that we do not yet have any evidence of actual inflation. By that I mean as distinct from expected indicators. The numbers really are remarkably soft. While we can anticipate the elements of labor tightening--and I think it is probably quite correct to say that we would expect wage acceleration to occur and labor costs to run up--that has not yet happened. And what that suggests to me is that, while we are tight and are likely to get tighter, we haven't yet triggered anything. I think that the time frame in which these events will occur is often somewhat difficult to pin down, and I mean by that on both sides. It is quite conceivable that three weeks from now we will all of a sudden begin to get some stories of significant wage patterns emerging. The Wall Street Journal will usually show up on the front page with a real [unintelligible] of stories about prices, profits, inflation, and the like, and that could very well be the first indication that something is happening. The point is that no one can write that story at the moment; it is not in the numbers. Consequently, as far as policy is concerned, where we are at the moment strikes me as quite appropriate to the outlook. I don't feel terribly strongly about it, but I would be inclined to start off merely by assuming that we stay at ""B"", and that we stay with the $600 million on the borrowing requirement, if for no other reason than it is not a significant edging higher from where we are currently. There is very little doubt in my mind that we can do nothing to the extent of the accumulation of economic activity that is occurring. But I think it does position us in the appropriate place. Having said that, I don't see the need to phrase the directive, as we did the last time, with a tilt toward further tightness. I think for the moment it is probably well enough to stay basically where we are. I don't know where that will fit me in the rest of this group, but I'd love to hear. Mr. Vice Chairman, would you like to voice your opinion?",600
-fomc-corpus,1987,"I'd be completely satisfied with that formulation--that is, staying with $600 million borrowing and using symmetric language. In a nutshell, I think that is where policy should be.",35
-fomc-corpus,1987,That's what?,3
-fomc-corpus,1987,"In a nutshell, I genuinely think that is precisely where policy should be.",15
-fomc-corpus,1987,President Boykin.,4
-fomc-corpus,1987,That's my policy prescription four square.,7
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,I am with the Chairman.,6
-fomc-corpus,1987,Mr. Boehne.,6
-fomc-corpus,1987,I support your proposition.,5
-fomc-corpus,1987,"Mr. Chairman, I would support the proposition. I would prefer, however, to drop back to the $500 million borrowing level. You said it doesn't take us much from where we are currently, but if, indeed, $100 million equates to about 1/4 percent [on the federal funds rate] you are looking at least at that amount more yet to take place that the market has not perceived. And, since the market doesn't know we have been at $600 million, the $500 million seems more appropriate to me, and that would be my choice.",116
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"I fully agree with these last remarks. I think we are at $500 million and, therefore, we should probably stay around $500 million rather than do further tightening. Let me make one further remark: some data that I have just scratched up indicate that, yes, there have been [similar] episodes before. As a matter of fact, there is a precise duplication of our current situation as far as the exchange rate changes are concerned. And that is that Germany and Japan, between 1980 and 1985, had exactly the same drop in exchange rates. What was their policy? The discount rate was lowered in Japan from 7-1/4 percent in 1980 to 5 percent in 1985; in Germany it dropped from 7-1/2 percent to 4 percent in that period of declining exchange rates. Interest rates on three-month money dropped from 11 to 6-1/2 percent in Japan and from 9 to 5 percent in Germany. As for the one thing that we all worry about--inflation--the CPI in 1980 in Japan was 8 percent and in 1985 it was 2 percent; in Germany it went from 5.4 to 2.2 percent. So, I don't think that the exchange rate really should be driving our policy. And in Germany and Japan, which successfully navigated that period, the exchange rate certainly wasn't taken as a cause to tighten monetary policy.",298
-fomc-corpus,1987,"In the time frame you were looking at, were they down more than we were in real terms in that time?",23
-fomc-corpus,1987,In real terms what?,5
-fomc-corpus,1987,"In other words, the differential between U.S. rates and German and Japanese rates in the time frame.",21
-fomc-corpus,1987,Their long-term rates essentially rose during that period.,10
-fomc-corpus,1987,They what?,3
-fomc-corpus,1987,Their long-term real interest rates rose during that period.,11
-fomc-corpus,1987,Real interest rates you are saying? I haven't looked at real rates; so far they have always been--,21
-fomc-corpus,1987,"Ours were coming down very significantly at the same time, so it is really a question of [differentials]--although I don't disagree with you, as you know, on the statement you made on the exchange rates at this point.",49
-fomc-corpus,1987,"So taking that into account--and for me it is important not to get overly tight on the exchange rate question--I would go with the $500 million, which is current policy, I would argue.",41
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"I would favor ""B"" as you specified it, including the $600 million borrowing target. And I think I would have at least a mild preference for retaining the current asymmetry in the directive for two reasons. One is, as you have pointed out, we really can't find concrete signs of acceleration of inflation in the price or wage data yet. And that, it seems to me, gives us an opportunity to do perhaps a little better on the inflation side than the Greenbook suggests--to lower inflation next year, if we are a bit careful here; and I think that asymmetry in the directive would help on that score. Also, as I think about the near-term outlook--the next six weeks or so--it seems to me the risks are still likely to be in terms of dollar weakness, or some disruptions in the bond market that produce higher long-term rates [associated with] signs of tightening labor markets and growing concerns about acceleration of inflation down the road. The asymmetric directive positions us better should that materialize, and, as I said, that's more likely to be the risk in the very short run.",225
-fomc-corpus,1987,Do you think we'll see it in some of the data before then or just in qualitative--?,19
-fomc-corpus,1987,I doubt that we would see it in the wage or price data in that time horizon.,18
-fomc-corpus,1987,So it is really a question of the evidence that emerges before the numbers begin to show?,18
-fomc-corpus,1987,Right. And people's attitudes about what is unfolding.,10
-fomc-corpus,1987,Si Keehn.,4
-fomc-corpus,1987,"I agree with alternative B, and I have a preference, at least, for the asymmetrical language as it is currently. Also, if there were going to be a bias, then I suppose the best nuance for the bias about borrowing would be up rather than down from the $600 million level. But I do think changing the fed funds range from 5 to 9 percent perhaps would accomplish that bias.",82
-fomc-corpus,1987,"So you're going look at ""B"", $600 million, and you prefer a tilt upward?",19
-fomc-corpus,1987,"Right. I would be for ""B"", $600 million, and a bias upward.",18
-fomc-corpus,1987,President Forrestal.,4
-fomc-corpus,1987,"Mr. Chairman, my preference is to maintain the current stance of monetary policy and I interpret your formulation as being somewhat of a tightening, albeit fairly slight. The reason I would like to maintain a current stance at the moment is, first of all, as you've indicated, we don't really see any evidence of inflation in the numbers. But, more importantly, as I think I said earlier, over the next several weeks we are going to get some numbers that might produce more volatility in the market. We have this linkage, apparently, between the foreign exchange market and the bond market; if we get a bad trade number again, we probably are going to see a fall in the dollar, and that will be translated into higher bond yields. And that suggests to me that, at that point, we may need to tighten a little; and I would prefer to wait until that time to do anything. So, my difference with you is fairly slight, I think; my formulation would be for borrowing at between $500 and $600 million, with the center of gravity probably in between there, and an asymmetric directive to take account of what I think is going to happen and our need to tighten.",238
-fomc-corpus,1987,"You're saying ""B"" with $500 million but a tilt upward?",14
-fomc-corpus,1987,"Yes, a tilt upward. It's a ""B+"" with an asymmetric directive. That's called fine tuning.",21
-fomc-corpus,1987,I must say I'm learning a new vocabulary sitting in on these meetings.,14
-fomc-corpus,1987,"You have only begun, I might say.",9
-fomc-corpus,1987,"We abrogate the English language every time I come here, it seems. President Parry.",19
-fomc-corpus,1987,"Mr. Chairman, at this meeting, I certainly could support alternative B, but I do have a preference for alternative C, for many of the reasons that I mentioned in the go around. The prospect, in my view, is for growth in aggregate demand at, or above, long-run potential. Given the fact that the economy is operating in the zone of full employment, this strength in demand, in combination with the declining value of the dollar can be expected to put upward pressures on prices. Also, growth in labor costs, which is part of our forecast and that of the Board staff's as well, should lead to an underlying inflation rate that is higher in 1988. Moreover, this inflation prospect could be significantly worsened if the expected reduction in Federal government spending does not materialize. Given that it takes a long time for our actions to affect inflation, it is important, in my view, that we not delay until inflation already shows signs of becoming more persistent. Finally, I'd make the point that, if I read footnote 1 on page 10 correctly, it looks to me like, in the not too distant future, alternative C is assumed by the Greenbook, as it is in our forecast. So when we talk about the economy and its performance, and particularly the Greenbook forecast, please keep in mind that that assumes alternative C in the not too distant future. At least that's the way I read that footnote.",291
-fomc-corpus,1987,"The assumption, of course, is that you agree with that forecast. Governor Seger.",18
-fomc-corpus,1987,"I am in favor of no change in the reserve pressure, which I guess is not really a stated option; I am somewhat between ""A"" and ""B"", $500 million borrowing target, and I would prefer symmetrical language.",46
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,"Mr. Chairman, I think that in the short run the risks that we have here in the inflation area are more expectations than anything else, and we should maintain a posture against that, and move against that. I think the economy can handle the slight tightening that going on to $600 million in borrowing would imply. So I favor ""B"" with $600 million, and would like to see symmetrical language.",82
-fomc-corpus,1987,Thank you. President Black.,6
-fomc-corpus,1987,"Mr. Chairman, you might think in view of how I stressed the unacceptability of the forecast for next year that I would be advocating ""C"" as Bob Parry did, but I really think the steps we have taken already have been pretty strong. In fact, we haven't even implemented all we agreed to do last time, so I would not favor anything beyond ""B"", particularly since I think that there has been a rise in real rates. Also, we have had pretty subdued behavior on the part of the aggregates. But I wouldn't want the symmetrical part of it because I just don't see the likelihood that we would want to ease during this period. As a general rule, I'd rather it be symmetrical because I don't think we usually know; but I think something would be read into it if we eliminated the asymmetry this time.",168
-fomc-corpus,1987,Thank you. Governor Johnson.,6
-fomc-corpus,1987,"I am sort of caught between the $500 and $600 million, but I am basically comfortable with alternative B with symmetric language. I had thought about $500 million with a tilt toward tightening for the same reasons that Bob Forrestal mentioned; there is something in that, too. But I don't feel strongly either way. I would appeal to Peter, though, that in maintaining $600 borrowing--which I think is fine--we ought to do that as smoothly as possible, and not give any obvious signals that might confuse the market into thinking that this is a tightening move. It is going to be perceived that way by some anyway, but I think that we ought to try to do it in as smooth a fashion as possible.",146
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"I would align myself with Bob Forrestal's position: ""B"", with a $500 million borrowings target and asymmetric language. The main thing that is influencing me is a longer-term view and, I guess, trying not to get out of position. And I think Bob Black said it: any way you look at this--whether you look at rates, at the provision of reserves, or at the behavior of the aggregates--over the course of this year, we have taken some significant steps. And I am not quite sure, as I expressed earlier, what the impact of that is going to be. But, being an old market participant, when everybody thinks the same there's a chance that it won't work out that way. Sometimes you get a little afraid of a consensus that is apparently that strong. Having said all that, I could certainly accept ""B"", with a $600 million borrowing target and symmetric language. But I have a slight preference for the position Bob Forrestal mentioned.",198
-fomc-corpus,1987,"Vice President Hendricks, would you like to comment?",12
-fomc-corpus,1987,"Our preference would be to line up fairly closely with Si Keehn's suggestion on the decision. We would go with $600 million, but would lean on the side of further tightening.",37
-fomc-corpus,1987,Vice President Eisenmenger.,6
-fomc-corpus,1987,"I support you, Mr. Chairman: $600 million and a symmetric directive.",16
-fomc-corpus,1987,"Well, it is clear that there is a fairly strong consensus here for alternative B, at $600 million on borrowing; there is a small support amongst the voting members for a tilt toward something stronger in the language, and something on the other side. I, personally, would go along with those vague notions of Governor Johnson on the issue of not fighting the world to try to get $600 million in this maintenance period, because it may be a futile endeavor. It may, in fact, give signals, which is a point that Governor Seger raised earlier in this meeting that struck me as a reason not to specifically fight that number. But, as I read the instructions that I've just been given, the language apparently should read: ""In the implementation of policy for the immediate future, the Committee seeks to maintain the degree of pressure on reserve positions sought in recent weeks. Somewhat greater or somewhat lesser reserve restraint would be acceptable depending on indications of inflationary pressures, strength in the business expansion, developments in foreign exchange markets, as well as the behavior of the aggregates. This approach is expected to be consistent with growth in M2 and M3 over the period from August to December at annual rates of around 4-1/2 percent and 6 percent, respectively. M1 is expected to continue to grow relatively slowly. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 5 to 9 percent.""",315
-fomc-corpus,1987,"Mr. Chairman, did you have symmetric language in there?",12
-fomc-corpus,1987,"Yes, it's in there.",6
-fomc-corpus,1987,Symmetric language.,4
-fomc-corpus,1987,I didn't catch it.,5
-fomc-corpus,1987,"It's ""would"" either way.",7
-fomc-corpus,1987,"Are they both ""somewhat""?",7
-fomc-corpus,1987,"Both ""somewhat"" and both ""would"".",10
-fomc-corpus,1987,"""Somewhat greater or somewhat lesser reserve restraint would be acceptable depending on--""",16
-fomc-corpus,1987,"My comment, and it's my fault for putting it in the Bluebook, is that the 4-1/2 percent for M2 sounds excessively precise to me, given my knowledge of how these forecasts are put together. I shouldn't have put it in there, I guess, and I wonder whether--",61
-fomc-corpus,1987,You mean you would be precise for us but for the public you don't choose to be precise?,19
-fomc-corpus,1987,"Yes, I wonder whether growth rates of from 4 to 6 percent or something like that wouldn't--",21
-fomc-corpus,1987,You mean for both aggregates?,6
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"Yes, wouldn't that capture the spirit? Well, 4 to 6 percent would encourage--",19
-fomc-corpus,1987,"In other words you'd say ""consistent with growth in M2 and M3 over the period from August through December at annual rates of between 4 and 6 percent.""",34
-fomc-corpus,1987,"I like ""around"" 4 and 6--",11
-fomc-corpus,1987,"Well, no. ""Around"" means a number--that there's only one number there.",18
-fomc-corpus,1987,"It says respectively, but you would take--",9
-fomc-corpus,1987,"I know, but, Don, you have a different number for M3 than you do for M2, don't you?",25
-fomc-corpus,1987,"Yes, it's 6 percent for M3 and 4-1/2 percent for M2.",21
-fomc-corpus,1987,"See, really, around 4, and around 6.",13
-fomc-corpus,1987,"Oh, I see. Around 4 and around 6. Is that what you're saying?",19
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"No. I was actually thinking of 4 to 6, going to a range; but around 4, around 6 would be--",29
-fomc-corpus,1987,You mean 4 to 6 percent for both?,11
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,That's what I thought you said.,7
-fomc-corpus,1987,But you're actually anticipating 4-1/2 percent and you're anticipating 6 percent.,18
-fomc-corpus,1987,That's correct.,3
-fomc-corpus,1987,I still think you could miss quite easily with a between 4 and 6.,17
-fomc-corpus,1987,You want to say 4 to 6 percent for the M2?,15
-fomc-corpus,1987,I just asked him--,5
-fomc-corpus,1987,Governor Angell's suggestion would be fine.,9
-fomc-corpus,1987,What did he say?,5
-fomc-corpus,1987,"Around 4 percent and around 6 percent, respectively.",12
-fomc-corpus,1987,"So be it. Around 4 percent and around 6 percent, respectively.",16
-fomc-corpus,1987,"When the minutes come out do you think a lot would be made of the fact that the fed funds range has been moved? I can just see someone looking at that and saying ""Well, clear the decks for the next big tightening of the screws; batten down the hatches.""",57
-fomc-corpus,1987,"Well, we really didn't.",6
-fomc-corpus,1987,We have set a range that is really merely plus or minus 2 percent from--,17
-fomc-corpus,1987,"I know, but people pick at everything that goes down here; and I can just see a big deal being made of this move.",27
-fomc-corpus,1987,"But quite often we really attempt to kind of keep it centered, don't we? We don't like--",20
-fomc-corpus,1987,"This is what would have been consistent with $600 million borrowings, even before, I think.",20
-fomc-corpus,1987,"Yes, but the interesting issue would be: if we are now at 7 or 7-1/4 percent and then we came in with the old 5 to 8 percent range, then I think that would really be a big signal.",51
-fomc-corpus,1987,4 to 8.,5
-fomc-corpus,1987,"But 4 to 8 would essentially be saying that--. You know, I think this reads perfectly. I think this basically says we are already here and we are not going anywhere.",38
-fomc-corpus,1987,"In the past when we have done this, we have explained it as a technical adjustment to keep the actual rates more closely centered around there.",28
-fomc-corpus,1987,So there will be an explanation?,7
-fomc-corpus,1987,"Yes, there would be some explanatory sentence.",9
-fomc-corpus,1987,"But, I do think it is somewhat important that we follow that suggestion of easing in to the $600 million so as not to cause the markets to believe that we have made a policy change at this meeting.",42
-fomc-corpus,1987,"Yes, I think the general language on the actions we are taking basically would indicate that we did nothing at this meeting.",24
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"As I hear the discussion, that is where we want to be.",14
-fomc-corpus,1987,Could we rephrase that and say we did not change policy rather than we did nothing?,18
-fomc-corpus,1987,"Although there will be a perception for a while that we did, I think, as the $600 million shows through--",24
-fomc-corpus,1987,Sure.,2
-fomc-corpus,1987,"Well, Peter's skills will take care of that.",11
-fomc-corpus,1987,Good.,2
-fomc-corpus,1987,"Yes, we have watched him before, and he just knows how to do that.",17
-fomc-corpus,1987,Not really [unintelligible] instructions; it means he will just do it.,18
-fomc-corpus,1987,"But he hasn't been too well the last two maintenance periods, have you, Peter?",17
-fomc-corpus,1987,I haven't been very good.,6
-fomc-corpus,1987,Unless there are further comments can we vote?,9
-fomc-corpus,1987,Chairman Greenspan            Yes Vice Chairman Corrigan        Yes Governor Angell               Yes President Boehne              Yes President Boykin              Yes Governor Heller               Yes Governor Johnson              Yes President Keehn               Yes Governor Kelley               Yes Governor Seger                Yes President Stern               Yes,55
-fomc-corpus,1987,"Good morning, everybody. Will somebody please move the minutes? [The minutes were moved and approved at this point.] Mr. Cross.",27
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Any questions of Mr. Cross?,7
-fomc-corpus,1987,"I have a question that may be broader than for Mr. Cross. A week ago, we were talking about walking a thin line between the dollar and the domestic economy and I get the feeling that that thin line has broadened out some since a week ago. How wide is it and do we have a policy or don't we have a policy? Is it the Treasury that's making U.S. policy or are we just kind of letting the market take us where we go or do we have some sense of where we want to go with the dollar? There have been a lot of changes in seven days.",120
-fomc-corpus,1987,"Why don't I respond to that, and then Sam Cross can correct me. There have been significant disputes over the years as to precisely what the relationship is between the Treasury and the Federal Reserve with respect to the question of exchange rate intervention. As I understand it, even though there are disputable issues here, we largely tend to follow Treasury's lead in this question. The Treasury's position, while basically favorable to the Louvre [Accord] as a general procedure, is that they nonetheless are interested in making certain that we don't endeavor to defend a particular position which is indefensible. And, I would think that while the general view of the Secretary sort of backed and filled on various occasions, ideally, he would like to see the markets stabilize on their own without any actions on our part, whether through monetary or intervention policies. But, should that not occur, his willingness to commit U.S. resources is limited. And the general impression that I get, although it is not articulated necessarily sharply at all times, is that if the market moves us down gradually without any secondary consequences until we reach a market equilibrium, that would suit the Treasury just fine. There is, however, I think a general awareness that this all could get out of hand and that there could be a lot of dangerous, secondary problems. But it is the Secretary's view--maybe I should use the word ""hope"" because that is more relevant--that that will not materialize. So, I would say at the moment, that while the Louvre [unintelligible], it is clearly fading; and it will continue to do so unless and until there are dramatic policy shifts on the part of the Treasury, which I must say to you, I think would not be appropriate. Irrespective of what has been happening recently, I would say that we are not freely floating but we are floating in a way in which the degree of intervention that the Treasury is willing to commit is very minor.",394
-fomc-corpus,1987,"Mr. Chairman. Is there, if you can tell us, any plan to reconvene the G-5 or G-7? Things have changed markedly, obviously, since the Louvre agreement. I must say that the reason I ask that question is that I find it a little anomalous that we are draining reserves to defend the dollar while, at the same time, we are adding reserves to add liquidity to the domestic economy. Maybe it's considered to be a disorderly market at this point, or potentially disorderly, but it seems a little anomalous to me to have this divided policy in a sense.",122
-fomc-corpus,1987,"There is an element of that. There is a very fundamental question that we never seem to confront: How successful is intervention under various, different conditions? I think that the major thrust of our policy, as I understand it, is basically to exhibit our hand [to show] that we have not completely lost interest in the exchange rate, leaving the impression that should something really significant occur, we would be in there with both feet. But, that is a very mild position, I think, relative to what it was several months ago, and certainly at the beginning of the Louvre agreement. But, as best I can read it, there has unquestionably been a significant change in the position at Treasury in the last several months.",144
-fomc-corpus,1987,Do you think that they will be thinking about another Louvre-type meeting?,14
-fomc-corpus,1987,"Well, not necessarily. Do you mean to reset the exchange-rate question or just to get the G-7 meeting for coordination?",26
-fomc-corpus,1987,"Well, I was thinking of both.",8
-fomc-corpus,1987,"At the moment, I think that there's a disinclination on our part to do it unless we have something to bring to the table. If something significant materializes out of these negotiations currently going on, then I would suspect that we are dealing with the possibility of a G-7 meeting which, in effect, would endeavor to exchange fiscal actions on our part with comparable actions on the part of Germany and Japan. Presumably, at that point, they would revisit specific paragraphs of the Louvre agreement, probably to reset where the intervention points would be. We have now run through all intervention points of which I am aware.",124
-fomc-corpus,1987,"Do you have any insight as to why Karl Otto Poehl was so blunt last night? In one sense, they had a lot to lose with a weaker dollar, and the sense I got out of his remarks was, if the dollar weakens, so be it. This strikes me as--",59
-fomc-corpus,1987,I think they are very much concerned about too much intervention increasing the German money supply as it did in 1978; and they want to avoid that.,31
-fomc-corpus,1987,"I think they are more concerned about that than the dollar exchange rate. They pretty much got all their trading partners pinned down in the EMS, and I think that's about all they care about. If the EMS were to break up, you would see them concerned.",52
-fomc-corpus,1987,"There is concern of that. I found that President Poehl is, I would say, somewhat less firm than Mr. Stoltenberg on this question. And, I think what Manley Johnson is talking about is really to the point: they have constructed for themselves a series of monetary targets carved into granite by means unknown to anybody; and the credibility of the Bundesbank is at stake. If you go into the market and intervene heavily, you may think you are fully sterilizing [unintelligible] but it sort of leaks all over the place. I think that there are significantly different views. I would gather, but I'm not sure, that what President Poehl was saying last night necessarily is speaking for the German government in total, but it does reflect a significant part of his views. You were there, Jerry. Is that your impression?",171
-fomc-corpus,1987,"I don't think it's just the money supply question. I think that President Poehl, in particular, believes that if push comes to shove, the Germans and the German economy can handle a somewhat stronger mark and weaker dollar. And he quite firmly believes, whether anyone happens to agree or not, that the risks are squarely on the side of the United States--that the risks of a weaker dollar are greater risks to the United States than they are for Germany and--",93
-fomc-corpus,1987,"And that's probably correct, too.",7
-fomc-corpus,1987,"I think it is correct. I was just going to say that I find it hard to violently disagree with that. The question that I think Ed Boehne is raising goes beyond the technical mechanism of the Louvre or anything else and that is: What are the risks? At least that's how I think of it. What are the risks of one set of policies, however broadly defined, versus another set of policies? I ask myself this question: What event of a foreseeable nature could really get us in the soup again? And I'm thinking, in part, of the events of the past couple of weeks. I must say that I think the dollar is still high on that list. If the dollar were to fall out of bed--however one might choose to define that--first of all, whether we like to admit it or not, I think the dollar/domestic interest rate linkage is still there. I'm not quite sure it is--or ever was--as precise as some people thought, but I certainly think that linkage is still there. I think the danger is clear; I can't assign probabilities to it but the danger is clear that you can end up with the worst of both worlds: a lower dollar and higher interest rates. The collapse of the exchange markets could easily trigger a renewed outburst of chaos in the financial markets. There is one particular thing that we have to keep in mind, and that is that a decidedly weaker dollar could be the straw that breaks the camel's back, especially for the Japanese stock market. I think that is a very real danger.",314
-fomc-corpus,1987,Why don't they do something about it?,8
-fomc-corpus,1987,What could they do? What they should have done was do something several years ago. But what should they do right now?,25
-fomc-corpus,1987,I'm just saying that's their responsibility rather than ours.,10
-fomc-corpus,1987,"Well, that may be; but we can't be indifferent to it.",14
-fomc-corpus,1987,"Let me go back for a second to Germany. I think you are quite right. There has always been a split between the Finance Ministry and the Bundesbank. The Finance Ministry, as well as all the regional presidents of the State Central Banks, has always wanted to have a strong dollar because they were more concerned about the employment effects, while the Bundesbank clearly was more concerned about inflation. I think it is questionable whether President Poehl would have a majority on that council if he wanted to have a policy that would defend the exchange rate at the present time. So, in essence, he has to give in to a majority on his governing board. As far as the dollar is concerned, however, I disagree with you a little, Jerry. The danger of the dollar falling out of bed has been very substantially reduced during the last week because we now have [an exchange rate against the mark of about] 1.70, and not even the [unintelligible] that will go below 1.60. When you are on the high perch, the danger of falling is not much higher; so a freefall becomes less and less of a likelihood because the markets will support the dollar at some level. I think we are getting reasonably close to that level.",255
-fomc-corpus,1987,I would read it the other way: that it gets more precarious as we get into these new and heretofore unseen levels. The possibility of people getting really frightened and responding in some way--,41
-fomc-corpus,1987,"Like the stock market, I think it's going to bounce back.",13
-fomc-corpus,1987,"At this stage, really, the perception in the markets, given the new world we are in, trying to defend the dollar with higher interest rates here--I think that's where you would see a tailspin.",42
-fomc-corpus,1987,"I think we have to remember what the issue of the dollar is. It is not that it is falling per se, but that whatever it is doing creates a judgment in the market that it will continue to do that. There are really two ways to look at this and that is really, I think, what divides the economic fraternity at this stage. If, somehow, somebody could wave a wand and move the exchange rate down sharply to a point where the expectation of future change was zero, then the yield spreads between intermediate or long-term issues in dollars and those denominated in the other currencies would dramatically come together; and we would get the type of stability that we would like. The problem, unfortunately, is that the other potential is that a sharply [falling] dollar merely will be extrapolated, as Sam Cross has implied. Here, we don't know, largely because we don't know where the bottom is. Obviously, the lower we are the closer the bottom is, by definition. Exchange rates tend to be non-negative, though sometimes you wonder. Judging from the way the markets have been behaving the last several weeks, I think the probabilities that a freefall is about to happen or could happen have diminished. Unfortunately, the trouble is that even if the probabilities have diminished, the consequences of that event are extremely dangerous. Even if we get to the point where we are all fully, unequivocally, convinced that there are no secondary reaction problems in the exchange rate, I think we had better keep up our guard.",306
-fomc-corpus,1987,"If we were to go back to 1983 and 1984 and have people look at it in terms of where the dollar should have been at that point in time, the dollar didn't stay within what anyone would suggest was a workable U.S. balance-of-trade level. When the market could go to the extreme on the upside and run the dollar up to 161 on our index--when any careful analysis would say that that didn't make any sense--why do you have such confidence that somehow or other on the downside true market forces will prevail in the midst of political whims and a political climate that could be devastating? A truly floating exchange rate environment is really quite different than an environment in which you have political posturing and then it appears that [the floating exchange rate environment] is gone. It seems to me that there is extreme danger that at some point in time the dollar could become a serious problem. Given the Treasury's policy, I think we have only one choice: we have to make domestic price level stability our primary objective and, if the world believes that, then I think the dollar will be okay.",225
-fomc-corpus,1987,"The only way we can do that is to eliminate intervention, assuming it works in the first place, and do it through market rates.",27
-fomc-corpus,1987,Of course.,3
-fomc-corpus,1987,"And you will find, as you just heard, that you have people who don't agree with you on the other side of this table.",27
-fomc-corpus,1987,I don't think it's quite that black and white. I think there is something of a workable middle ground and we have to try to find it.,29
-fomc-corpus,1987,That's what we're doing at the moment.,8
-fomc-corpus,1987,"Manley, when you're talking about a brave new world, the thing that is most new and most brave about this world right now is that we have no policies. We have no fiscal policies; we have no exchange rate policies,",46
-fomc-corpus,1987,That's exactly what I mean. There are a lot of things new here; there are a lot of changes in expectations. We really don't know. We are on uncharted waters.,36
-fomc-corpus,1987,"But instability breeds instability, and that's something we have to be very careful of.",16
-fomc-corpus,1987,"Maybe I'm off in the bushes somewhere, but I think it's clear to the market that the risk on the dollar today is mainly being caused by foreign central banks who are resisting the kinds of pressures on their markets and are forcing the dollar down. For us to try and deal with that situation here would be catastrophic.",62
-fomc-corpus,1987,"Being in such a position, with our fiscal deficit and our balance of trade deficit, as a net debtor nation, I don't understand how we think we ought to blame all these problems on someone else. To me, that's naive. We have to run policy in a manner that is consistent and sound. And what's appropriate for our domestic economy can very well be appropriate for the others, if we consider price level stability important.",84
-fomc-corpus,1987,We are now on agenda item 12 or 13. May I ask you to hold such remarks until we discuss policy questions? Are there any more specific questions of Sam? He never had a chance to answer questions.,44
-fomc-corpus,1987,"I have one question--and this is back on the dollar again--and it has to do with your sense of any large short positions currently in the market. In other words, is there a perception that the only risk is on the downside and not on the up? If that is the case--",60
-fomc-corpus,1987,"We don't get the impression that there is an opportunity to flip it and get a big run on the other side. The corporations have been noticeable nonparticipants for some time, generally speaking; everybody tended to sit on their hands during all of this chaos that was occurring in the market. So, the short answer is, I'm sure there are a lot of people shorting the dollar but we are not, so far as we can tell, in a technical position where we could flip that and get a runup.",102
-fomc-corpus,1987,Doesn't the futures market support that conclusion?,9
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Does anyone have any further questions for Sam?,9
-fomc-corpus,1987,"On the question of [unintelligible], the Federal Reserve does have the legal authority to intervene and the Treasury has the legal authority to intervene. But there are a number of statements and letters and so forth to the Congress which indicate that from the point of view of the Federal Reserve, we will operate in cooperation and coordination with the Treasury on these matters, given the Secretary of the Treasury's role in international financial policy. And it is important that we not act in direct violation of Treasury's stated views; or if we did, it would be such a major event that we would feel it necessary to tell the Congress. So, basically, we have operated for many, many years on the basis of trying to work these matters out with the Treasury.",151
-fomc-corpus,1987,There's a constitutional basis for that position.,8
-fomc-corpus,1987,I'm not disputing that.,6
-fomc-corpus,1987,"There's a wonderful debate that goes on in the legal literature, which somebody gave me earlier on and which I found fascinating. I came away from it deciding that this [arrangement] works in ways that are very mysterious.",44
-fomc-corpus,1987,"I have another comment, Mr. Chairman. We have been operating through this period more or less simply to resist the downward pressures and not in an aggressive way, as you can tell from the numbers. We have done $500 million since last Monday; the Japanese have done about almost and the Germans have done almost And there have been very, very heavy purchases of dollars by the British, partly for reasons other than the dollar situation, but it adds up to total dollar purchases in the past week or so of, I would say, over $5 billion. So, we have done a relatively modest amount.",121
-fomc-corpus,1987,"If there are no other questions, I will seek a motion to ratify Mr. Cross' activities. I also need a motion to approve a one-year extension in the swap line agreements. Approved. Mr. Sternlight.",45
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Why don't we wait [on the leeway recommendation] and see first if there are any questions on your report?,23
-fomc-corpus,1987,"Peter, on your assumption of excess reserves of $1.2 billion, how long do you think that will be in place?",26
-fomc-corpus,1987,"Well, in fact, we upped that a little further yesterday, President Melzer, to $1.5 billion based on what we were seeing from actual holdings of excess by some of the smaller institutions that already had a lot, and because some of the major institutions had built up such a lot of excess that we didn't think they could get rid of it all and still have some positive balance on the day. That's relevant to this current reserve period; we will be looking again at the next reserve period. I have no reason to think that we would be thinking in such high terms for the next reserve period, but we'll have to evaluate it as we get into it.",135
-fomc-corpus,1987,"Peter, during most of the year, the bond market has been very sensitive to the foreign exchange rate, but in recent days we have seen the dollar under a lot of pressure and that has not been transmitted significantly to the bond market. How do you appraise this?",54
-fomc-corpus,1987,"I think it's a bit of an on-and-off thing now. It certainly is not the overwhelming presence and the tick-for-tick linkage that was there early in the year, although on some recent days the bond market has weakened in response to the dollar weakening. But, as I mentioned, I thought one reason for that linkage having been muted recently was that [market participants] saw the earlier weakening of the dollar as likely to be followed very rapidly by some tightening of monetary policy, whereas in the current context, they don't see that as following on so quickly. There is still concern, though, that a weaker dollar is a discouraging factor either to new inflows of foreign capital into our market or perhaps a reason for foreigners with existing holdings in our market to want to pull out. So there does remain some sensitivity, but I think it's less.",170
-fomc-corpus,1987,"I think we have to be careful here when we say that a lower dollar basically induces individuals to be less interested in dollars. Obviously, that goes against everything else we know: that the lower the price, the greater the demand. In a technical sense, every time we get a change in the exchange rate which leads to a change in long-term yields, what we are looking at, in effect, is a change in the far-distant forward position of the exchange rate. In other words, if the exchange rate is falling and the bond market is collapsing--assume it's against the yen and the yen-denominated securities are not moving--what effectively is happening is that the short-term decline in the dollar-yen relationship is creating an expectation of a very much sharper decline in the future. That's the critical issue. It is the expected rate of forward deterioration in the exchange rate which translates into basis points on the yield spread in the long-term, risk-free instruments. And, it is conceivable that we will get to a point--at some point, I hope--that the exchange rate will arrive at a level which the markets perceive will not go very much further, and the forward position of the dollar will begin to rise and we will get a decline in long-term interest rates. The danger here is that with the huge block of U.S. dollar-denominated securities outstanding, psychological cracks could induce tremendously rapid changes and create high degrees of instability. So, I think that something happened last week. I think one can argue that there has been an odd form of delinking--that there is a presumption that declines in the dollar do not imply that there will be future declines in the dollar. The trouble is that it might be what happened last week, and it may be what's happening this week, yet next week the markets might turn right around on us and go in the other direction. But, I do think it's important not to think of it in the sense of a tight linkage about what Federal Reserve policy is going to do, although it does seem that way. I think we have to remember that we are dealing with real variables and that the markets tell us a great deal in this respect.",440
-fomc-corpus,1987,"Peter, my interpretation of what has gone on in the bond market lately is simply that it was just some backing off from some of the flight to quality. When things were extremely sensitive and unstable, we had a lot of movement in the Treasury securities on the long and the short end--maybe a little more on the short end, but a lot all over the yield curve. And I think as the stock market has shown some stability over the last several days, we probably have seen less pessimism there, and probably some movement back out of the quality assets--I don't know if back into the stock market, but maybe into other types of instruments. I don't know what your reading is, but if that really is going on, it seems to me that maybe those excess reserves will start to wind down a little. My guess is that quality spreads look a little better than they did before; maybe not, but that's my impression.",186
-fomc-corpus,1987,"I have some impression of some of those tensions abating, some subsiding of the flight to quality. Somebody was saying a couple of days ago that the flight to quality has landed; I think that is probably going too far. But I think there is some backing away from that. Nevertheless, I think it remains a basically sensitive picture. I just had a report a few minutes ago indicating a further stock price decline today. It was down 40 some points in the opening half hour or so.",100
-fomc-corpus,1987,It was down 60 points at five after ten and bill rates were going back down again.,19
-fomc-corpus,1987,What was the bond market doing?,7
-fomc-corpus,1987,"It was essentially unchanged, but it had been down sharply earlier and has rallied.",16
-fomc-corpus,1987,I have a question about borrowing. Since October 19th there has been a change in the willingness to borrow. What are your assumptions about how the demand for borrowing may change over the next week or two? Are you assuming that basically the shift is going to continue over that period or that there is going to be a restoration of more normal relations?,70
-fomc-corpus,1987,"I think it's terribly hard to say. My sense would be, as you say President Parry, that there has been some reluctance to borrow; but it's very, very difficult to come up with even the rough and ready kinds of pronouncements that we have tried to make in the past about a relationship between borrowing and expected funds rates.",68
-fomc-corpus,1987,Wouldn't that suggest that as long as there is that uncertainty it's probably wiser to focus on rates rather than borrowing levels?,24
-fomc-corpus,1987,"Well, I think there has to be a lot of flexibility in anything we try to--",18
-fomc-corpus,1987,"I'm sorry, I'm not used to using words like that!",12
-fomc-corpus,1987,What's the funds rate expectation at $450 million borrowing under normal conditions?,14
-fomc-corpus,1987,Probably 7 percent or a little below.,9
-fomc-corpus,1987,Seven percent or a little below. I guess the equations that we estimated might say a bit below 7 percent--perhaps 6-3/4 or 6-7/8 percent.,39
-fomc-corpus,1987,That's what I think.,5
-fomc-corpus,1987,"Let me ask Peter a question. I might be too sensitive to the markets, having just left those wharves. But in this environment if, for technical reasons, the funds rate were to trade above 7 percent, what in your judgment would the perception be with respect to either Federal Reserve policy in general or the linkage to the dollar?",69
-fomc-corpus,1987,"I guess it would depend partly on whether it was perceived that what was happening was occurring for some deliberate reason on our part or despite what we were doing. The interpretation of it would depend on how our role was seen in the whole thing. A good many people would say that's in the range of their expectation, I suppose. If I had to pinpoint an expected range now, narrowly, it might be 7 percent or a shade under; but I don't think 7 or 7-1/8 percent cropping up occasionally would be terribly disturbing in that context, either.",115
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I just have two questions in areas that I need to be educated on. First, when you were talking about our policy of lending securities, did I hear you say that we had not been willing to lend for a short sale? Maybe I just didn't hear you.",53
-fomc-corpus,1987,"Yes, that has been the past standard.",9
-fomc-corpus,1987,How do we know? Do you ask them in advance what they are going to do with the proceeds?,21
-fomc-corpus,1987,They certify that they are not borrowing to facilitate a short sale.,13
-fomc-corpus,1987,"I see. My second question: When we have been so-called ""accommodative"" in the last couple of weeks, why have we done all these transactions with repos? I realize a million dollars worth of repos has the same reserve impact as a million dollars of direct purchases of T-bills, but I think the market perception of what we are doing is different in the one versus the other. I guess I just don't understand why we have done it [that way].",95
-fomc-corpus,1987,"In mid-October, the beginning of that period, the outlook was that we had a reserve need for what is now the current period but that in the following period there would be only a modest reserve need. So, if we had done a lot of outright buying then we would have had a concern that we would come up to an overabundance of reserves and it could be awkward, as these are not the kinds of markets where we would want to try to be going in and draining reserves. As the period went along, we kept getting revisions of the out periods, so it looked as though we would have a more long-term need. If one had it to do over again, it might have made sense to have done some purchases outright. I don't think our broad purposes of providing liquidity were ill-served by concentrating on repurchase agreements, though. This gave us a chance to have a rather continual presence and to be providing relief to what was potentially one of the very sore points in the system, the ability to get day-to-day financing. So I don't think that part of it worked out too badly.",224
-fomc-corpus,1987,Thank you.,3
-fomc-corpus,1987,Any other questions for Mr. Sternlight? You have a recommendation?,14
-fomc-corpus,1987,"Yes, Mr. Chairman, I have a leeway request. Current projections suggest a somewhat enlarged need for outright purchases in the upcoming intermeeting period. Normal seasonal needs for currency and increased required reserves could be enlarged even further if current financial market tensions persist. While we may want to leave a sizable margin of needs to be met with repurchase agreements, it would also be useful to have the flexibility for substantial outright activity. I recommend a $3 billion temporary increase in the normal $6 billion leeway, although we may not need very much of the enlarged amount.",113
-fomc-corpus,1987,Why don't we separately move on the actions the Manager has taken since the September meeting and then settle the motion on the specific request? Motions approved. Mr. Prell.,35
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,"Mr. Chairman, yesterday I talked to Tom Jester of the Survey Research Center at the University of Michigan and he said that in a survey taken after the stock market decline, that decline turned out to have had a very sharp effect on consumer confidence. He said they think the big effect is not going to be the wealth effect on consumer spending but the uncertainty. He thinks consumers' reduced confidence level as to the future, generally, is likely to produce a major slowdown in consumer spending. He thinks the confidence index they report will be showing about a 10 percent drop when it next comes out.",119
-fomc-corpus,1987,"We also got the Conference Board index in a post October 19th [survey] and it didn't show that at all. So we have a problem on how to read these things. Mike, why don't you report on the differences for just a second?",51
-fomc-corpus,1987,"Well, both of them were down. The Michigan survey's sentiment index was down, as President Morris noted, in the period after October 19th. Basically, they had about a third of their month's sample in that period and they looked at that group alone. Obviously, the statistical reliability is less, but they felt that the sharp drop was statistically significant. That put the level well below the plateau we have been at, and that is the clear distinction from the picture that one gets in looking at the very limited poll that the Conference Board did after October 19th. That showed a drop, but it was only a small departure from a very strong uptrend in the last several months; it seems to have reflected people's perceptions that the job opportunities were very good, and that propels that index directly in a way that the Michigan index doesn't reflect.",171
-fomc-corpus,1987,President Parry.,4
-fomc-corpus,1987,"Mr. Chairman, I have a comment and two questions concerning the Greenbook forecast. My comment: considering the modest wealth and cost of capital effects of the stock market decline, and also what is referred to as an expected appreciable fall in interest rates, it's surprising to me to see real growth for 1988 at less than 2 percent. Now, my first question deals with real disposable income. We have talked about this in the past but I think it has even greater importance today. Real disposable income in the Greenbook forecast rises so slowly relative to real GNP that I really doubt that that forecast will occur. The difference in growth rates is 1.2 percentage points. In our forecast, there's a difference of one tenth of a point; in the Blue Chip consensus of 30 economists, it's two tenths of a point. A distinction of that magnitude is, I think, pretty much without historical precedent. It is my understanding that the way that occurs is that you have an increase in inflation as a result of higher import prices, which causes the PCE deflator to rise very substantially relative to the GNP deflator. And, as I am sure you know, the relationship between the PCE deflator and the GNP deflator is one of the most stable relationships we have. We looked back to 1973 and that relationship varied between .988 and 1.021. In the forecast, it gets up to 1.026, which is an incredibly high level. I don't think it has ever been that high. And my question is: If you had a ratio between the PCE deflator and the GNP deflator which is more traditional, how would that affect the staff's forecast of both?",351
-fomc-corpus,1987,"Clearly, one of the things in our forecast that all along has been a key factor affecting the pattern of output growth happened we believe, in large part, because of the exchange rate depreciation. Partly because of the oil price movements earlier, we believed that we would have some erosion of real disposable income growth and thus some damping of consumer demand, which would release the resources to support the substantial improvement in real net exports. I might just say that the pattern we are projecting is not a departure from what we have been seeing over the past year or so. Rather consistently, PCE prices have been rising faster than GNP prices in a period in which real disposable income growth has been considerably slower than real GNP growth. We have a continuing decline of the dollar in our forecast and we have a continuation of this pattern of relative price movements. We looked at the historical record. We think there are perceptible relative price movements that can be seen during a period of the dollar's appreciation--an interruption of a previous trend. We have seen this ratio of PCE prices to GNP prices rising rather markedly over the past year and we expect that to continue. Clearly, if somehow this didn't occur, there would be implications for income shares and output patterns that could significantly affect the outlook. We think this really has been a perceptible trend recently and that the conditions that brought that about will be prevailing still in the future.",283
-fomc-corpus,1987,"Bob, I think it rests on two issues: one is the movement of import prices at a rate higher than domestic prices; second, and just as important, is the renewed share of imports in total domestic demand. You need both to have this effect. The interesting question is: How do you get this small a number? Is it the fact that your import price estimates are much lower than the staff's?",82
-fomc-corpus,1987,No. I think what happens in their forecast is that the higher import prices show up very dramatically on the consumption side but not on the investment side.,30
-fomc-corpus,1987,But we are importing computers on which the prices are going down; that's probably the reason that it's happening.,21
-fomc-corpus,1987,"Well, perhaps this will happen, but I don't think it has happened to date. I'm not sure. I will have to look at the 1987 data; I'm not sure we agree on that in the second half.",45
-fomc-corpus,1987,I think you're raising a terribly important question here. I think it's important that we get that right.,20
-fomc-corpus,1987,"If I could just cite some figures: Going back to the third quarter of 1986, the PCE fixed-weight price measure rose 1 percentage point faster than the GNP prices; in the fourth quarter it was 0.7 faster; in the first quarter of 1987 it was 1.2 percentage points faster; in the second quarter it was 1.1 faster; and in the third quarter it was 0.8 faster. We have a more moderate relative movement in the forecast than we have been experiencing. We also have looked at outside forecasts and, generally, they have this relative movement in a similar range; some of them have it less than ours, some of them have it considerably more than ours. When we look at the fixed investment prices and what might be going on there, there may be some wrinkles in terms of the construction of the index. As I understand it, that is constructed largely out of PPI data, which would be the domestically produced goods. You might not have the direct kind of import price measurement in the way these numbers are constructed as you do with consumer goods, which would sample imports directly as well. That's a minor factor.",241
-fomc-corpus,1987,The statistical work that we have done indicates that all of the increase in the PCE over that period that you just cited can be attributed to oil and none of it to foreign exchange.,37
-fomc-corpus,1987,"We would certainly be happy to consult further with your staff. In the second half of last year, energy prices in PCE were falling rapidly.",29
-fomc-corpus,1987,"Yes, but it depends on the lag, of course.",12
-fomc-corpus,1987,"Well, I guess we differ on this. We have had some discussion with your staff who raised the question with us and--",25
-fomc-corpus,1987,It's a difference in the forecast.,7
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"One number that surprised me a little in the Greenbook--especially the contrast between the 1988 number and the 1987 number--was the capacity utilization in manufacturing, which is inching up. If you look at producers' durable equipment, it is still going up at a rate that is in excess of real GNP. The unemployment rate, as you pointed out, is leveling off. Is the driving force just the composition of imports--that they have such a heavy weight in manufacturing? Or what explains the increase in the utilization rate?",110
-fomc-corpus,1987,"Obviously, as you know, it's a confluence of two things. One is how fast industrial output is growing, which is quite sensitive to the mix of output in the economy; and the improvement in trade is reflected in growth of industrial production and a manufacturing component that is stronger than overall GNP growth by a point or more next year. The other component in this calculation, obviously, is an assessment of capacity growth. Business fixed investment, which had been weak for a while, rebounded in the last couple of quarters; some of this rebound reflected a spurt in automobile sales which presumably will not be sustained. Of course, it takes a little while for growth in PDE to feed through the substantial increases in the stock of capital goods. We have a relatively weak investment outlook, so from that side of things we wouldn't see tremendous additions to capacity over the coming year. We have a relatively moderate growth in capacity--about 3 percent or a bit below--",192
-fomc-corpus,1987,But that's higher than your GNP number. That's precisely the point.,14
-fomc-corpus,1987,"It's higher than GNP but it is in line with the growth of industrial output and slightly below the manufacturing growth rate. So we get this very slight inching up--it probably should not be called inching but milimetering up--of the capacity utilization rate. Assessing capacity utilization is always difficult. As you know, we recently put out our annual revisions; the revisions didn't really adjust the overall level very much but there were noticeable changes in some of the industries. We have to be alert to whatever we can pick up on what is going on in actual capacity. The linkage between investment and actual capacity is not all that tight.",128
-fomc-corpus,1987,"Mike, with businesses having become so much leaner and meaner in recent years and increasingly willing to bring about permanent layoffs and temporary layoffs, some of our contacts have been telling us that if the downturn does intensify, they would expect the unemployment rate to jump pretty sharply because of this changing attitude on the part of businesses. Does that seem reasonable to you? If so, have you factored it into these high unemployment rates that you are projecting here?",91
-fomc-corpus,1987,"Well, I hope so. Of course, to the extent that they are currently lean and have not been hoarding extra labor, as there are dips in output, there is not going to be as much room to reduce employment. Of course, once we have determined how aggressive they are, then we would [know more about] how persistent the effect of weakness will be. We have distinctly slower employment growth in our forecast than we have been experiencing; and we do have the unemployment rate going up, read literally here, 0.4 of a point over the next couple of quarters from the 5.9 percent level we saw in the past month. It's hard to say how far this would go once the process is underway; but our forecast is one in which we have only a brief interruption of the recent growth path. And under those circumstances, we presume they would not have unloaded tremendous amounts of [unintelligible] labor.",189
-fomc-corpus,1987,"I agree pretty much with your forecast. It just struck me as an interesting thought, since business people seem to feel that they will not hesitate this time like they sometimes have in the past.",38
-fomc-corpus,1987,"Many of them clearly have more flexibility than in the past because of their use of workers who were not strictly on their payrolls but were hired through temporary help firms. So, those workers probably would be laid off during--",44
-fomc-corpus,1987,It is interesting that they got so much leaner with such a big rise too in the participation rate in the labor force. It seems to have happened.,31
-fomc-corpus,1987,Mr. Corrigan has probably perceived one of the sharpest jumps in unemployment.,16
-fomc-corpus,1987,He may see some jumps of other types too.,10
-fomc-corpus,1987,"I don't know about the demand for BMWs and Mercedes, but that shouldn't affect the productivity numbers too much. Actually, they should go up.",29
-fomc-corpus,1987,Are there any further questions?,6
-fomc-corpus,1987,"It appears to me that recent developments have had a very substantial impact on [your forecast for] final sales and inventories in the fourth quarter. There's a very large impact on inventories in the fourth quarter and then these unintended inventories are worked down over 1988 and that's in large part why growth is so weak in 1988. Why is there such a large impact on final sales in the fourth quarter, given the assumptions about modest impacts of wealth and cost of capital effects in recent developments and also the lower interest rate? What if you have an inventory situation that really colors that entire forecast very substantially through the end of 1988?",127
-fomc-corpus,1987,"Well, it's very difficult to assess precisely what the demand and production adjustments are going to be in this short period of time. As I suggested in my remarks, we built in a fairly prompt response of consumption and we also built in a fairly prompt response of production. The inventory accumulation we have is a combination of the automobile inventory rebuilding that is occurring as sales have dropped off after the special incentive period, and the automakers' having moved up their production a bit from the very low third-quarter level. We also, though, have some significant accumulation outside that sector. Some of that is involuntary but, going into the early part of this quarter, some is still voluntary in the manufacturing sector where it appeared that inventories were very lean and that there was some desire to at least keep the stocks in line with sales. So, I think it's a mixture of voluntary and involuntary elements that leads to some adjustment early next year in production. But, we have assumed a relatively smooth path for developments in the next several months.",204
-fomc-corpus,1987,After the fourth quarter?,5
-fomc-corpus,1987,Apart from the auto situation.,6
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I just wanted to tell Mike that I admire his courage for attempting to put specific numbers down on a sheet of paper because, although I'm older than most of the people sitting at this table, I can't think of a time in my lifetime when we have had comparable events in the financial markets. So I'm not sure I know how your econometric models can pick anything up when the data fed in are like what we have just been through in the last couple of weeks.",93
-fomc-corpus,1987,"Well, we don't rely totally on our econometric models, of course. Sometimes we depend on them very little when the circumstances suggest that there are just tremendous departures from the historical norms--shocks that would disturb recent trends. But, I guess in this case I'd say that they are reasonably supportive of this kind of view. It's clear, though, that there are downside risks in this forecast, should the stock market have a more dramatic effect than we have gauged it to have at this point.",100
-fomc-corpus,1987,"One thing that concerns me, as I said before--whether you formalize it or don't formalize it mathematically--is that not having experienced this kind of period, I just suffer from uncertainty about what it will bring. Also, I wonder if a 20 some percent decline in the Dow on one day is really the equivalent of four months' worth of 5 percent declines each month. I have a feeling that it's not comparable. I don't know, but I have a feeling that there are a lot of things in here that, at least based on my inexperience, I cannot really judge.",121
-fomc-corpus,1987,"I did try to highlight the fact that this might have greater shock value than it otherwise would have, if that's possible.",24
-fomc-corpus,1987,"I think we are now at a point where not only Mr. Prell has to be adventuresome, but the rest of us do as well.",30
-fomc-corpus,1987,I think the amount of courage that is required is far less for the staff than for the policymakers.,20
-fomc-corpus,1987,Does anyone want to open up [the discussion] around the table? Mr. Boykin.,19
-fomc-corpus,1987,"Mr. Chairman, uncertainty certainly prevails down my way. In looking at what might be appropriate for forecasting, we really would not have much basis for argument [with the staff forecast], but in our own forecast we have come down a full point; that is very judgmental, obviously. As far as the effect on our District economy, our initial reaction is that probably whatever the effect, it is likely to be a little less in the Eleventh District than in the rest of the country, simply because we are so much farther behind the rest of the country. We have seen signs of sluggish growth in the District. We think the situation continues to be extremely fragile. The real estate problems keep coming up and are a pervasive cloud in the psychology. The earnings reports that we have just gone through with our financial institutions, and the added provision for loan losses--most of it triggered by real estate--just put another damper on that. The cautious optimism that I tried to express for a couple of meetings seems to have abated somewhat. I'm not sure we can even be cautiously optimistic right now.",220
-fomc-corpus,1987,President Parry.,4
-fomc-corpus,1987,"With regard to developments in the Twelfth District, I think economic conditions remain relatively upbeat and, at this point, very few effects of recent financial developments have shown up yet. But, it's clearly too early to see the real effects. We are, however, seeing broad-based effects of the reduced value of the dollar, in addition to the greater exports of lumber and selected agricultural products that I mentioned previously. For example, a Utah steel plant which was formerly owned by U.S. Steel recently reopened and it was interesting to note that part of the decision to reopen was based upon a German firm's five-year commitment to buy 40 percent of the plant's production. I think that is rather interesting. In addition, the price of titanium dioxide, which is a key ingredient in paint, has increased substantially due to the dollar's decline; and a major paint manufacturer in our District is turning increasingly to domestic suppliers. So wherever we look, we seem to be seeing some effects of the declining value of the dollar in terms of expanded export opportunities or increased import substitution. With regard to the overall economic outlook, we estimate that the wealth and cost of equity capital effects of the stock market decline would reduce real GNP by slightly less than 1 percentage point, assuming an unchanged path for interest rates. Given the easing that has already occurred and the expected lower path for interest rates that is mentioned in the Greenbook, we would have growth closer to 2-1/2 percent than 2 percent and the employment rate basically unchanged.",304
-fomc-corpus,1987,President Keehn.,4
-fomc-corpus,1987,"Well, like Mr. Prell, I think I will divide my comments into pre-event and post-event. Starting with the pre-event activity: certainly, the District continued to operate on a reasonably favorable basis, much along the lines that I previously have been reporting, with the exception of the auto industry. The manufacturing sector has been moving along pretty well and the employment statistics have been good, very much in line with the national numbers. The steel business is operating again at very, very high levels; the demand for steel products is the best we have experienced in our area since 1981. The delivery times have stretched out very considerably and many products really are being sold on allocation. Construction activity remains reasonably good. The conditions in agriculture are continuing to improve; land prices are up and commodity prices have improved somewhat. By and large, the harvest is in and it really has been a very good harvest in our area. Moving to the post-event comments, it is too early to assess the damage but, so far at least, I don't sense from any of the people that I talk to that any of these fundamental trends that I've just noted have been badly affected. Certainly at the outset, consumer spending was affected; there was a decline in retail sales as we went through the market trauma, but that seems to have leveled out. I am told from people who have October retail numbers in our area that, by and large, retail sales came in this October about level with last October. Looking ahead to next year, the retailers are reducing their expectations but, so far, nobody has suggested a negative trend on retail sales. On the auto side, it's awfully early to tell, but one of the major producers that I talked to yesterday said that they are reducing their sales [estimates] for 1988 cars and trucks together by about 800,000 units; but they do emphasize that it's very, very early yet to assess how the consumer will react. On capital expenditures, so far I have been quite impressed that there are no early signs of a sharp curtailment. Most of the companies that I've talked to--those that have significant programs in place--intend to continue, unless there is a very sharp downturn in the economy. They have embarked on programs that they say they will, by and large, stay with. And I do find that quite encouraging. So net, I think it's still too early to assess the damage. I keep being favorably surprised that our early assessment isn't a little more negative than it is. I think our expectations for next year will certainly be down a bit, but it is far too early to quantify. We are just going to have to go through a period of some uncertainty. Nonetheless, so far things seem to have come through better than I might have expected.",564
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,"Well, there haven't been any actual changes that I can see in my District. It's more that the worry level has risen. What I sense is that the psychology is more important than the wealth effect; if we have another shock in the market I think we would have a real tumble in psychology; if we continue to mend without another shock I think the effects may be minimal. This psychology is apparent in some of the conversations that we have had with regional retailers. Their merchandise for the Christmas season is already on hand, so they are stuck with it one way or another. While no one we've talked to has observed any decline in sales yet that they can attribute to the financial markets, their view is that if Christmas sales do run below plan, then they are going to run their inventories much lower than they ordinarily would, and that would affect their spring ordering. So, I think they just don't know. They are thinking beyond the Christmas season if that turns out poorly. The same attitude is apparent in manufacturing as well, where I think most manufacturers feel that the orders that they have on their books are there and they are going to fill them. What they are concerned about is six months out. But, overall, my sense is that the risks have changed in the economy. Whether they have changed a lot or a little remains to be seen; but they have changed in the direction that real growth will be lower than we thought. If we are wrong, then we'll probably be wrong in the sense that we'll have still lower growth. And I think the risks have shifted, too, on the inflation side; to some extent, concerns that we had about inflation six weeks or so ago are alleviated. I admire the bravery of Mike Prell and the staff for forecasting precise numbers and I think their numbers are reasonable--not because they are necessarily right, but because I can't improve on them. They seem to be broadly reasonable. Just one other point: I do keep hearing some very favorable news on the export side. At my last full board of directors' meeting and other meetings around the District, people spoke almost with one chorus: the news coming in from their salespeople is that they are able to compete in the export market, both by selling abroad as well as by competing with the imports that have been coming in.",464
-fomc-corpus,1987,President Forrestal.,4
-fomc-corpus,1987,"Well, Mr. Chairman, the statistical information on the evaluation of the economy in the Sixth District that we had prior to October 19th reflected continued improvement in the District. Economic activity seemed to be very good pretty much across the board. I would echo what Ed Boehne just said about exports: they seem to be increasing, and we also are getting reports about better export performance. It's very difficult at this time, I think, to assess any impact in the region of the events of a couple of weeks ago. Everyone I talk to says it is business as usual, although I find that a little hard to believe because I am sure that many businesses are re-assessing their plans for the future. But, at the moment, nobody has indicated to me that they have made any change in their business plans. I think what they are really saying is that they feel that it is too early and they are adopting a ""wait and see"" attitude. The only preliminary indication that we have that people might expect less robust activity is that many firms--the majority of those that I talked to--are, in fact, repurchasing their own stock. And, of course, the Christmas sales are going to be very critical. One concern I have is that I have been hearing scattered reports that deposits have been moving out of thrift institutions into the banks, reflecting greater public confidence in the FDIC than in the FSLIC and the thrifts. That's not a widespread movement, but it is something that I have noted. The regional banks see very little impact from the weak equity markets, given their loan portfolios and the relative strength of regional growth. That was reflected in their stock declines, which were much less than for money center banks. Like others, I think it is very, very difficult to come up with a precise forecast on the national economy, although I think we have to make an attempt to do that in order to set policy. We have moved our forecast down somewhat, although I think we would show a little greater strength than the Greenbook. But it's not a matter of great difference. We would move our forecast down further if we continued to see increased volatility in the markets. I might just note, in passing, that we are developing an alternative forecast which is a less comprehensive one than others; I don't want to place a great deal of emphasis on it at the moment, because it only has one quarter of experience. But that one quarter was very good--better than most of the comparable forecasts. That model shows much less growth in the fourth quarter and through 1988 than most of the others that I've seen. So we will continue to develop that model and watch it carefully. But, in general, I think the Greenbook forecast is about on target.",557
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"This seems to be a day of confessions, Mr. Chairman, and I will have to join those who confess that they don't have much confidence in their own projections. I have less now than I typically do, of course, which is saying that I don't have a great deal. We have these two elements of uncertainty to be sure: first, we don't know what the impact of the decline that has occurred in the stock market thus far is going to be; second and more importantly, we don't know how much further domestic and foreign markets may decline. And I don't think a further decline is a risk we can completely rule out. So, the uncertainty level is extremely high. But we don't know the answers to these questions. Assuming that the market settles down somewhere in the 1900-2100 range, I think the staff's forecast is pretty reasonable; I don't think we could improve on that a great deal. That seems to be what the business people in our District feel; at least that's what we have been able to uncover up until now. But I do think there's a lot of risk in this, regardless of where you come out. It is clear to me that there has been a big blow to inflation and to inflationary expectations in the short run from this. But if the decline turns out to be as moderate as the staff has projected, and as we have endorsed, I don't think it's unreasonable to suppose that by the middle or last half of next year the same kind of worries that we had on the inflation front earlier might reemerge. And I think that we ought to have that in mind as a definite possibility as we address what we do in the immediate future, because the effects of actions we take now are going to be felt down the road, and we ought to be well aware that that possibility is at least out there.",373
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"Responses in our District to what has happened in the financial markets have been all over the lot. Of course, people have been preoccupied with the baseball season until recently!",34
-fomc-corpus,1987,I missed it. What happened there?,8
-fomc-corpus,1987,"I am sure the staff can prepare a memo! Initially, there was a lot of concern coming from the financial community; that seems to have diminished. There have been some scattered reports of postponement of purchases of big-ticket items but first of all, it seems to me, that is to be expected. Second, I would reiterate the word ""scattered"" because it by no means is universal at this juncture. One of our contacts who is pretty well plugged into the retail picture--not just locally but nationally--reported that his company opened six new stores the day of the collapse of stock prices and business in all of them was terrific.",130
-fomc-corpus,1987,That's because they were giving things away that day.,10
-fomc-corpus,1987,"Well, I'm sure they highly promoted the openings; on the other hand, these were all in new communities for them. He also had been to a national retailers' trade convention and reported when he came back that, basically, people were reasonably confident about the Christmas season. Again, though, I think you would have to make a distinction between those people selling big ticket items and those selling more normal kinds of goods. I think his statement pertains particularly to the people who are selling the broad-based, moderately priced, kinds of consumer goods. We have heard some more generalized comments about people reassessing their capital spending plans for 1988. I guess that's the one thing I would point to at this juncture. With regard to the national economic outlook, I certainly support the general tenor of the Greenbook forecast although I guess my own view, and the one that comes out of our forecasting model, is that the economy will grow more slowly pretty much throughout 1988 than indicated in the Greenbook and, of course, more slowly than we had thought previously. I think the major difference is in capital spending and, for what it's worth, that does seem to be consistent with the view that people are reassessing their capital spending intentions and will probably do some postponing. At the risk of perhaps going beyond courageous to foolhardy, we did run the model out through 1989 to see what it produced. While originally I thought that was maybe just an ill-advised exercise, in fact, it produced some reassuring results. It showed a resumption of growth pretty close to 3 percent and a continuation of moderate inflation. I would not put a lot of emphasis on all this, obviously, but it seems kind of consistent, if you think that what is going to happen is some postponement of expenditures in 1988. That ought to suggest that 1989 could be a reasonably good year, assuming we don't get further large down [unintelligible] in things here. So for what it's worth, I simply report those results.",411
-fomc-corpus,1987,But we will hold you to it.,8
-fomc-corpus,1987,I have lots of time to revise.,8
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"Echoing what Gary Stern said on the retail front, I talked to national retailer in our area and he said they looked at the week-by-week comparison of sales at their outlets throughout the country in the two full weeks since October 19, and only one store showed a decline in that first week. That was the World Trade Center store and sales picked up in the second week. He is really quite optimistic; his attitude is that this is not going to have an impact. Now, you have to believe that the loss of wealth, long-term, will have some impact. But I guess my own feeling, based on this isolated comment and other comments I have heard, is that it's a little too early to try to sort it all out and to decide how to respond in a long-term sense. The other comment that I wanted to make is that the area that shows particular strength in our District is manufacturing employment. Implicit in what Jerry Corrigan was saying about the risks of a lower dollar, it seems to me, would be the inflationary risk at a micro level. I think what we have been seeing in terms of pressures on capacity and wage rates has really been on the manufacturing side. When I say that, I base it on anecdotal evidence; I don't mean that it has been reflected in the data. And to the extent that a rapidly declining dollar causes a more rapid external adjustment in [the manufacturing] area, it seems to me that we could get greater price pressures in those industries that are producing for export or are import competitive--the shoe industry, the apparel industry, and some other industries where even before the most recent developments, we were already hearing reports of some pressure. So I think on the inflation front, that is something to be mindful of on the micro level.",360
-fomc-corpus,1987,Vice Chairman Corrigan.,5
-fomc-corpus,1987,"In the very near term, Mr. Chairman, I don't think there's much doubt that the stock market and related developments do work in the direction of weaker spending and lower inflation. But I am not at all sure as to amounts and I am not at all sure what one should infer for the longer term. There are probably several dozen scenarios that anybody could think of. Unlike Mr. Prell, I don't have to put one on paper but, in my thinking, there are two more likely scenarios in the near term. One is that the financial markets, and by that I mean all of them--exchange markets, bond markets, stock markets--kind of settle in more or less where they have been in the last couple of days. I don't know where they are right now, so I have to qualify that. But suppose the Dow settles in at the 1900-2000 range, the long bond settles in at 9 percent or a little more or a little less, and the exchange markets are roughly in line with [the levels of] recent days. Now, in that scenario, my hunch is that economic performance will be respectable but not spectacular over the intermediate term--probably something like what I heard Mr. Parry describe, which I don't consider to be all bad, by the way. The other scenario, which I think has to be thought about along with that one, isn't so pretty. And that's a scenario in which for whatever reason--because the exchange markets go south or the budget negotiations rupture--there's a sudden hit to the system. Who knows what the exact trigger might be, but we could find ourselves confronted with another very, very difficult and turbulent set of conditions in the financial markets. Obviously, I can't put a probability on that. But if I were to just think of the two broad scenarios that would warrant the closest attention from a policy point of view, I guess those are the two that stick out in my mind. Interestingly enough, at least from my perspective, they both seem to me to have the same immediate policy implications in that they both imply the need for a great deal of caution in policy, and a very measured and disciplined approach to policy in which we maintain maximum flexibility for the future. I would also, if I may Mr. Chairman, like to make a comment or two about the longer-term situation as I see it, because I think it's extremely germane both to where we are and to policy options for the future. There is, of course, a great deal of discussion in all circles about imbalances in the U.S. and the world economy, whether in terms of trade or payments or whatever. But, we should not lose sight of a couple of powerful forces on the domestic side that I think are germane. One is the dramatic increase in debt, in leveraging, that we have had in recent years: the ratio of overall nonfinancial debt to GNP--and I understand all the limits in the data--has risen from something like 1.41 in the early 1980s to almost 1.81 early this year. It may be coincidence--it probably is--but the fact of the matter is that the last time we saw that ratio in a range that high was in the late 1920s. And it's not all government debt, although government debt has a lot to do with it. Since the first quarter of 1984, the net issuance of equity is down $270 billion and corporate debt is up $600 billion. Again, if you look at this problem of government deficits and savings, it's really quite dramatic. In the late 1970s, the general U.S. government budget deficit as a percent of net private savings averaged about 10 percent. It has risen sharply throughout the 1980s, peaking at 66 percent in 1986. Indeed, in 1986 the federal budget deficit itself absorbed more than 90 percent of net private savings. And even in 1987, that absorption rate relative to domestic savings will fall only to the mid-50 percent range. I stress that because in the context of all this discussion about budget packages and all the rest, I think we have to keep in mind that, even under the best of circumstances, the kinds of things that are talked about in the area of budget reform are really quite small. Indeed, there is a great likelihood that the budget deficit in 1988 in absolute terms will be larger than in 1987. It is in that context, I think, that a lot of these acute dilemmas and very, very sharp risks have to be evaluated and considered.",938
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"It seems to me that the economy was headed for a box in a corner and it wasn't going to work the way it was [earlier]. We had really slow money stock growth for a nine-month period. But we had something else going on that it seems to me has been missed somewhat--that is, the dramatic improvement in labor productivity. Now, I know you wouldn't expect me to mention the manufacturing sector of the U.S. economy, but it is much larger than agriculture. Manufacturing is 24 percent of our economy and we have a 4-1/2 percent growth rate in labor productivity in that sector. And that improvement is running faster than any edging up of wage rates, so we have unit labor costs falling in a dramatic way while the dollar exchange rate is adjusting. That leads, of course, to what I think we expected to have happen--dramatic increases in real exports: 17.9 percent in the second quarter and 16.8 percent in the third quarter. And it seems to me--and here's where I differ somewhat with the staff forecast--that that is apt to continue. I see no reason why that won't tend to continue as far as the eye can see, because there are just so many adjustments underway, given the wonderful new opportunities of labor productivity. That, of course, carries with it a need to have higher capital expenditures in the Rust belt, the manufacturing sector; and so that makes our economy stronger than it otherwise would have been. Then, on top of that, instead of reducing government deficits by $73 billion, according to the staff forecast we have a $16 billion increase in the deficit. So that's an $89 billion [swing] and it just seems to me the economy wasn't going to work. The stock market event seems likely to bring some relief in that it might be expected to slow consumer spending enough so that there is room for this other rather rapid expansion to continue. But this doesn't give us a bad inflation environment at all; it indicates, of course, with this productivity going the way it is that you have less inflation. In fact, it seems to me that the inflation rate in 1987 is just unbelievable, in view of the oil price rebound and the import price adjustments. To have the CPI, which should have more imports than other measures of inflation, peak out at 6.2 percent in the first quarter, and move down to 4.6 percent in the second quarter and 3.6 in the third was just unbelievable. So, in a way, everything was going all right except that expectations were bound to derail the train; and those expectations came out of the lack of understanding as to how inflation wasn't going to return; it wasn't there in spite of the fact of a falling dollar. I don't know that there's any appreciation of the way in which the Federal Reserve's commitment existed in that environment. So, we have a rather unusual occurrence. With regard to the forecast, the one item that I think seems like a rather rapid reversal for the fourth quarter would be the income velocity of money. The income velocity of money spurted up to about a +4 percent annual rate in the third quarter from zero in the second quarter; and then it looks to me like it falls at about a 6 percent annual rate in the fourth quarter, which would be a swing of velocity of 10 percentage points. That seems a little stronger than I might expect. The real trick is: how can we maintain confidence in the domestic value of money in a period of declining foreign exchange rates for the dollar?",723
-fomc-corpus,1987,President Morris.,3
-fomc-corpus,1987,"Mr. Chairman, I too agree that the outlook is extremely difficult to forecast because we are in a fairly new situation here. But, it seems to me that the events of recent months suggest that the Louvre Accord was an agreement to maintain the U.S. exchange rates at levels that were not sustainable. We have had difficulty financing the deficit this year with private capital inflows. In the first quarter of this year, that reluctance of the private foreign investor to keep on providing money at the pace needed was reflected in the downward movement in our exchange rate; but that was stopped by the Louvre agreement. Subsequently, it seems to me, the pressure generated by this reluctance of foreign investors to put as much in as they had so willingly in earlier years was reflected in rising interest rates. We had marvelous stability in the exchange rate but our bond rate was under upward pressure because of reduced foreign demand. And that is what ultimately led to the big drop in the stock market. The market had become extremely overvalued relative to bond rates of return. Standard & Poor's 500 was yielding 2.7 percent at a time when intermediate-term governments were yielding almost 10 percent. That was the biggest spread between dividend yield and intermediate-term bond yields in history. So it was clearly an unsustainable situation. Now we have to try to figure out how we permit the dollar to adjust downward without that being transmitted into upward pressure on the long-term bond markets. And I think that's going to be a very tricky proposition for us. But there is no doubt in my mind that we have to go to a much lower level of the dollar. The question is: How can we keep the domestic economy moving ahead even at a relatively modest rate in that context? I attended a meeting at the St. Louis Federal Reserve Bank where a couple of bright young people from the Board presented a superb paper. I hope that it has been distributed at the Board because it tells a lot about why we have not had any more adjustment in our trade account than we have had thus far. And the reason is that the import price levels have gone up at an amazingly low rate. In the most recent period, reported yesterday I think by the Bureau of the Census, import prices went up in the third quarter by less than 2 percent; I think that reflects, and the paper supports this, that foreign producers who have gotten into this market are very reluctant to give up markets here and are going to try to hang in here as long as they can. It seems to me that it is going to take a level of the dollar well below any long-term equilibrium level to begin to make the kind of progress I think we have to make in reducing our foreign deficit. So our problem for the next few months is going to be a very tough one: How do we handle this ball of wax on the declining dollar and avoid not putting all kinds of pressures on long-term bond rates that are going to be very destabilizing for the domestic economy? If we have another runup in rates, we are going to see a new low in the stock market. I don't think there's any question about that. So, I think it's a most unstable financial situation. I wasn't around in 1929--at least I was not old enough to know what was going on--but I can't recall a period when we have had such an unstable financial system as we have right at this moment.",689
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"At the last meeting, I argued that we were moving toward a much better balance in the real economy and I think that is still on track. I think we now are moving also toward a better balance in the financial economy. While there is uncertainty around, we have eliminated some of the excesses that Frank Morris was taking about a minute ago. If you look at the stock market, after all, we came from a high of over 2700, so the glass has been drained by about 25 or 30 percent but it is still three quarters full. And that is not a bad position. Essentially, we are back to where we were at the beginning of the year. In one fell swoop, we have wiped out inflation, or sharply reduced inflationary expectations, and that has given us a lot more breathing room on the interest rate front as well. And now I think what's in train is a better balance in the world economy as well, with exchange rates now getting very close to levels that would be sustainable on a long-term basis; and the imbalances in the world economy will be reduced, as a lot of people have talked about before. By the way, on the budget deficit side, the lower interest rates also clearly will help in holding the budget deficit to approximately current levels. And nobody has been talking about the threat of protectionist legislation; that has also gone away, I think, to a large extent. So, I think there are a couple of bright spots in a gloomy situation that we shouldn't overlook. I agree that there is all this uncertainty but, if we keep following that path, I think we will see the light of day pretty soon.",337
-fomc-corpus,1987,Is there anyone else?,5
-fomc-corpus,1987,"I really don't have much to add but I'll put in my two cents' worth. I basically agree with Ed Boehne's view about the domestic economy that it's too early to tell what the effect is going to be of all this. We really don't have any serious data at this point to evaluate the situation. I think we are probably not going get data that we are going to feel confident about, in terms of being symptomatic of the effects of this, until a couple of weeks, maybe. Retail sales data are three weeks away; we may have some early car sales data and things like that but the orders impact of this is down the road. There's a lot of information that still is not available; the only thing we really have at this point is some of the sentiment indexes. So, we don't know how to read the overall impact, although I agree with Ed that it's hard to imagine sentiment improving as a result of this. I think it's pretty clear that there is an additional air of pessimism about the outlook that didn't exist before and that expectations definitely have changed. What effect that's going to have is difficult to tell. If you look right now at the fundamentals in the economy, they do look good; I agree with Bob's point on that. Things are adjusting fairly nicely in the way that we expected and in the way the staff had described in the forecast. We are seeing a transition, I think, from domestic aggregate demand to more externally generated growth. I think that is positive and it still seems to be continuing. One of the things I worry about now--after the fact, with this change in the financial markets--is that that export-led growth may come under some pressure. Even though the dollar is obviously weaker, it is going to improve, I think. In that relative sense, other problems are going to [damp] the prospects for export-led growth. One of the issues in the financial markets is that foreign stock markets around the world actually have fallen more than the U.S. market. In percentage terms, they have all come down by more than the New York Stock Exchange composite. So, the stock market impact abroad is greater than it is here. What that means is really not clear. But combine that with [these other developments]: the fact that interest rates in those countries are relatively higher because of the fall in interest rates here recently and the not very large adjustment in interest rates abroad; the fact that their currencies are appreciating, and therefore, damping their ability to export; and the fact that if income is going to be falling here, we are going to be demanding less in terms of imports from those countries. So, not only is there going to be an income effect on them, there is going to be a substitution effect. And I think the question is: How strong are those economies going to be? And how strong is our external performance going to be under those conditions? I don't really know; I just think there are big uncertainties. And I agree with what Jerry said: we need some flexibility at this stage, but it's really too early to tell what is going to happen. We need to maintain our flexibility, but we need to face the reality that the world has changed. Sentiment and expectations are different, both in real growth and in inflation; and I think we have to acknowledge that.",672
-fomc-corpus,1987,"The two words that I think describe most completely what is going on are confusion and uncertainty. All of the business economists and business people I have spoken with in the last couple of weeks admit to both of those. Practically no one pretends to know exactly what the impact of the financial market disturbances will be, but almost everyone expects some sort of an impact. Probably the most dramatic adjustment that I witnessed was at where, unfortunately, the event caught them in the middle of the planning season for 1988. They immediately knocked 5 percent off their sales forecast up through the next year and also looked for two plants to close--a truck plant and a car plant. Their view was that back in the early 1980s, when the auto industry was going into the pink, they said they were cutting off a finger at a time rather than doing major surgery. So, this time around they want to be prepared for more dramatic and significant adjustments if, in fact, they are needed. They are watching very carefully what is actually going on so that they can do additional adjustments if necessary. They also have made some dramatic changes in the management of their pension funds, which are very, very large. They have cut back on the percentage invested in equities. They also have cut back on the percentage in long bonds and have moved into a very liquid position. I just mention that because I think it is one specific example that some people in the business world are reacting. Not knowing what is going to happen, I guess one of my nightmares is that what might happen is that consumers will cut back on their spending, as Mike has laid out in the Greenbook estimates, except that they will cut back a little more dramatically even than we are estimating in the next couple of quarters. The rich lawyers will continue to buy Mercedes and Peugeots and Hondas and things like that that are produced abroad but they will cut back on their consumption of domestically produced items and, therefore, we will get sort of a double whammy: we will have the weak consumption but, also, we will not see the import situation improving as much as we are expecting now, and as much as I certainly would like to see. Yet, I am not saying we are going to get a recession; I don't really know. But I think we ought to think about what the risk is, and ask: If we do get a recession, is that going to help the problems that Jerry Corrigan has ticked off? I don't think so. Going into a recession with a heavy debt load doesn't usually make the debt load any lighter; it just makes it look a lot heavier to service. Also, I don't think that a recession here would help our trading partners. As I read the growth numbers in Germany, Japan, Canada, and some other countries, it seems to me that they are not all that robust anyway. They do depend a lot upon their business dealings with us and, therefore, I can't imagine that we wouldn't take many of them with us, which in turn, would make our new-found ability to export a lot more difficult to take advantage of because you have to have somebody to buy those exports that we now can produce efficiently. So, to summarize, I just am concerned. And I really think that we ought to watch the incoming data extremely carefully for signs of more weakness than we are now expecting.",682
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,"Very briefly, Mr. Chairman, I think most things have been said, but just to get on the record here: While I agree with Bob Boykin and others that the situation is fragile, particularly in the Eleventh District, which I am still pretty close to, I share Bob Heller's view that there is a lot of room for being optimistic about a light at the end of the tunnel. The risks here, I think, are two primarily. Number one, as Ed Boehne and others have said, no more shocks is the key. If we can avoid that, I think things will be enormously optimistic. I also agree with Governor Seger that it is very important that we--and I mean we in the corporate sense--do whatever we can to avoid a recession, which is in nobody's interest at a time like this. So, those are the two things that I would like to keep a weather eye to: have no more shocks and avoid a recession to the extent that we can do that. I would like to comment briefly on Jerry Corrigan's concern about the high level of debt, which has been one of my favorite themes also. I think that ties together with Frank Morris' comment about the pressure for market share that people feel. The creation of all of this debt has put people in a situation where there is enormous pressure to produce; that's not only true for foreign economies and their pressure to maintain market share here but it is also true domestically. People who are in debt need to keep their jobs. So perhaps if there is a good side to all of this debt creation, it lies in the fact that it puts tremendous pressure on everybody to be productive and, thus, it should have a long-term downward drag on the inflationary concerns that we all have.",362
-fomc-corpus,1987,We haven't heard from Presidents Guffey and Hoskins. Do either of you wish to add to the body of knowledge?,25
-fomc-corpus,1987,"Well, Mr. Chairman, I don't think that I can; so I will respectfully pass.",19
-fomc-corpus,1987,"I would speak only with some trepidation, since my first FOMC meeting by telephone resulted in a 508 point drop in the stock market. I will make another observation, however. I have been a Reserve Bank President about three weeks now and I've probably participated in more FOMC meetings in that time than any other three-week President. In terms of the Fourth District, it is probably very typical--similar to what Si Keehn has indicated. We polled [District contacts] prior and after the problem in the market and, basically, heard of no major pullbacks in either capital goods or on the retail side. The only comment I would like to make is that I do have some concerns about the dollar and any attempts to keep it at a level that is other than what the market wants, particularly, if we signal that as policy makers through interest rates.",176
-fomc-corpus,1987,"In view of the time, it's probably advisable to break for coffee, assuming that it hasn't gotten cold yet. Then we will come back and Don Kohn will brief us on monetary policy.",38
-fomc-corpus,1987,Mr. Kohn.,5
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Are there questions for Mr. Kohn? Mr. Stern.,13
-fomc-corpus,1987,"Given all the uncertainties and everything, what do you have for the forecast of aggregate growth for the first quarter or two of next year. You seem to have a sharp, or at least what I would call a significant, slowing late this year. I'm just curious about what you have.",57
-fomc-corpus,1987,"We would have growth picking up in the first couple of quarters of next year, primarily because of the effects of the lower interest rates in the fourth quarter. For example, we have M2 picking up a little to a range of 6 to 7 percent in the first half of next year rather than the 6 percent we have this year. We have M1 slowing down a little, but that's partly because demand deposits push up the fourth quarter. Basically, we have these offsetting effects: we have interest rates declining and that tends to push up growth, especially as the previous increase in interest rates wears off toward the end of this quarter and the beginning of next quarter; but, of course, we have lower income growth and reduced wealth, and that tends to keep monetary growth down. We see some stronger growth--",165
-fomc-corpus,1987,Why is there such a significant change going from November to December?,13
-fomc-corpus,1987,On M1?,4
-fomc-corpus,1987,"Yes M1, and a little on--",9
-fomc-corpus,1987,It's partly the monthly averaging results of the gyrations in demand deposits.,14
-fomc-corpus,1987,All right.,3
-fomc-corpus,1987,"In fact, we had demand deposits not declining until another week or two; they declined earlier than we were expecting, so I'd expect a lower November and then a little stronger growth rate in December. It wouldn't affect the September-to-December path.",49
-fomc-corpus,1987,Any more questions?,4
-fomc-corpus,1987,"I have an impossible question for you, Don. If the dollar goes down significantly in the next couple of months, which I think is going to happen, how do we prevent that from spilling over into a rise in bond yields? That is the conflict we are going to be faced with in the next month, it seems to me.",67
-fomc-corpus,1987,"I'm not sure you can. But my thinking on this is that the important variable here, as to whether or not that happens or the degree to which that happens, is the way people are assessing the economy. Think back a year or a year and a half ago, to 1986, when we had easier monetary policy, dollar declines, and the bond market declining for the first part of the year. Now, oil prices and inflation expectations were important there; [they were expected] to be stable through the rest of the year even as the dollar continued to decline. But that was in an environment in which inflation wasn't expected to pick up: incoming data were suggesting very little inflation and the economy was widely viewed at that time as being quite weak. So, I think if a dollar decline occurred in an environment in which people thought that the economy was weak or that the chance of a pickup in inflation wasn't large, then the bond market effect would be muted; but if the economy didn't look [weak], as a response to the stock market, for example, and the dollar started dropping rapidly, we could be back where we were this summer.",230
-fomc-corpus,1987,"Any other questions of Don? Let me start off with a review of where I think we have been. In a certain sense, we have been very fortunate for the last couple of weeks. We chose to supply the demand for excess reserves in the system. We did it essentially by endeavoring to target the funds rate because, obviously, if we target the funds rate then we automatically supply the demand for reserves at that interest rate. And, in that context, it's crucial that you come out with the right rate. I think we fumbled into it and, at least in retrospect, it looks as though it came out to be about where it should be: namely, slightly under 7 percent. As a result, I think we have seen a marginal return toward the normal relationships, defined in this context as reflecting the differential yield spreads and the basic flight--or crash--to quality that seemed to be occurring at that point. We can go on with this policy for a while, and my impression is that we have very little choice but to do that. I think, however, it is important to remember that we have a number of sequential dangers out there. I think the one of utmost importance, against which all efforts have to be directed, is what I would call a flight from the future. At the moment there is investment going on in the longer term of this country. In other words, people are buying longer-term bonds; they are still buying stocks, and yields are not all that bad; the exchange rate is soft but it's [not] falling on its face. It is not all that difficult to imagine a less developed country scenario where what we had would have led to a dramatic collapse in the exchange rate, a huge rise in long-term bond rates, or the effective disappearance of the long-term bond market. Obviously, under those conditions the stock market would fall away and everything would implode into the short run. And the bill rate would collapse, and we would have all these crazy, horrible events that none of us thinks can happen until we see them. Now that's the type of scenario that would force us, just to preserve the system, to move the discount rate up two or three points. And then we would get into the types of problems that a historic monetary collapse always creates. We are far from that at this stage, but I suspect a lot nearer than we would like to believe, because financial markets have been so inherently unstable, just looking at the variations in volume and prices. The evaluation process which runs stocks the way they have been running in the last two weeks suggests a degree of uncertainty--especially a degree of uncertainty, potentially, in the foreign exchange markets. We could very readily see a major endeavor to shift portfolios out of dollar-denominated securities into those denominated in other currencies. That obviously can't be successful, after the fact, but it can have powerful effects on the exchange rates. I think, as a consequence, this is a potential danger out there. Obviously, we have to be very cautious about how we move from the path that we are on toward a more stable regular policy-oriented position. Consequently, as I said, I see no real alternative to trying to operate, roughly, along the lines of what we are calling alternative ""B"" at this stage. Hopefully, if this situation continues to stabilize, we will be able gradually to pull away from funds rate targeting and allow the supply of excess reserves to fall with the decline in demand. At that point, obviously, we will be seeing a closing of the bill rate/funds rate spread and presumably we will be seeing the longer-term corporate Baa less U.S. Treasury spread come back down, and the junk bonds even will look almost saleable. But we are still a goodly way away from that; we are still not normal. These are not anywhere close to normal relationships, normal credit conditions, or normal attitudes in the market. I think there's a sense of relief out there, but I don't think it's anywhere close to a sense of stability. The fact that we have had a 500 point drop in the Dow, as far as I'm concerned, has now changed all the program trading, all of the different types of risk operations [unintelligible] people take. It's hard for me to see the stock market going all the way back to where it was. I think the risk premiums that are now associated with what could happen have [unintelligible]. It is conceivable, therefore, that in retrospect this whole thing could turn out to have been a remarkable blessing. I must tell you that the odds of it coming out that way cannot be very large, but they are not zero either. In any event, strangely, I don't think we have a policy problem, at least as I see it, as to what our policy should be, because it seems that it should be just an automatic continuation of what we have been doing, so we can phase into something more permanently. There is also the issue of how we portray ourselves to the public. And that's not only the issue of what we do but of how we say it--how we write down the directive--because this particular directive is going to be disaggregated in such detail that periods and misprints are going to be read as having great, great importance. So, I merely wish to say that I'd appreciate not only your thoughts and your usual comments here on the issue of policy--the borrowing--but also your recommendations on how we portray ourselves to the public at large in the specific formulation of the directive, taking any revisions from what we tentatively put down in the Bluebook. Governor Angell.",1139
-fomc-corpus,1987,"Yes, Mr. Chairman I'm delighted to have you take that position. I support you and alternative ""B"" and borrowings of $450 million. But I'd like to suggest somewhat of a variation on that in regard to the fed funds range. Ordinarily, we would leave it at 5 to 9 percent; but it seems to me that there are about three reasons why we might lower that to 4 to 8 percent under alternative ""B"". And in part, this speaks to how that would be interpreted as people read these minutes. In regard to President Morris' comments about upward movement in interest rates, a dramatic movement upward to the 9 percent fed funds level seems to me very unlikely; that probably would be destabilizing in financial markets. So I'd really rather have that upward bound down a point. I'd also like to have the lower bound down a point to 4 percent because, while we are not anticipating it, there might be some circumstance between Open Market Committee meetings that would give us the flexibility [to move] downward, and that might be appropriate. So, 4 to 8 percent on the fed funds range, even though it would maintain the policy stance about where we are, would give us a slight variation. Frankly, I would prefer staying with variation II of the language [shown in the Bluebook], which is the more normal expression. It just seems to me that the additional language shown in variation I could pose difficulties. The very nice thing about the statement that was released by the Board Tuesday morning, October 20th, was that it was very simple and short. And I would prefer in variation II to have the words read ""slightly greater ... might"" and ""somewhat less ... would"" be acceptable.",354
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,"Well, Mr. Chairman, you're very persuasive in terms of keeping things where they are, but I have a somewhat different interpretation of where we are. It seems to me that we are somewhere between alternatives ""A"" and ""B""; we may be closer to ""B"" than to ""A"", but I think that we are in the ""A"" - ""B"" range for policy, with a federal funds target of something under 7 percent, perhaps 6-7/8 percent or just a touch higher. It strikes me, therefore, that if we go with ""B"" that we will, in effect, be tightening somewhat even though it's a subtle tightening. And I sense that if we deviate at all from where we are, that it might be better to ease just a touch. So I come down being in the alternative ""A"" column. It's true that we have a lot of uncertainty and we don't know what's going to happen. But I do think there have been enough changes, at least in terms of shifts in the direction of the risks, that it is important for us to help anchor the lower rates that we have achieved the last couple of weeks. And it seems to me that something closer to ""A"" than ""B"" helps to do that, because those lower rates that we have had are important for offsetting the effects that we are going to get from the stock market. I think that it ought to be clear that the Federal Reserve is trying to do that; and I think that alternative ""A"" does that less ambiguously than alternative ""B"". Clearly, there is a risk in the dollar but, as I judge the situation, we're not talking about very much of a change in rates and it seems to me that the environment is such that we could probably absorb that risk at the moment. I would prefer Variant I of the language because I think it says more clearly what we are doing, and I think it's important that the directive that we put out says what we're doing. Even though the language is different, and we have words like ""being flexible"" and so on, that's exactly the situation that we are in. So it seems to me that's what we ought to go with. If we go with alternative ""A"", then I think some symmetrical language is appropriate, with ""somewhats"" and ""mights"" on both sides. Now, we are effectively operating on a federal funds strategy. When we were on a federal funds strategy in the 1970s, we tended to have Open Market Committee meetings every three or four weeks. As we moved more into a reserve-based strategy, we were able to lengthen out the meeting intervals to every six weeks or so. So it seems to me that wherever we set the funds rate today, we are going to have to look at it very frequently. And I would think that we ought to plan at least one telephone meeting two or three weeks hence, simply because if you're going to operate on a federal funds target, by necessity you have to have more meetings.",617
-fomc-corpus,1987,"May I just interpose that we have interpreted what we are doing as alternative ""B"". Let's try to make certain that we are not dealing with differences of current perception. Don, do you want to address this issue? What I don't want to happen here is to have differences which really relate to what we are doing as distinct from where we want to be.",72
-fomc-corpus,1987,"We, of course, wrote ""B"" as $450 million because that's what we have been writing into the reserve path. I think you can make an argument, and Peter perhaps will want to comment on this, that we really have been operating a bit easier than a $450 million borrowing level might suggest. If you wanted to be certain, or as certain as you can be on this sort of thing, that the center of gravity for the funds rate really was below 7 percent and that it's more likely to average in the 6-3/4 to 6-7/8 percent area and touch 7 percent only seldomly, then a $400 million borrowing target might give you a little more assurance in that regard than a $450 million borrowing target. And maybe that is a little more consistent with what we have actually been doing. Peter, do you have more?",178
-fomc-corpus,1987,"No, I think that would make my point; I regard that kind of thing as within the flexibility that is stated in the directive.",27
-fomc-corpus,1987,"Well, rather than say alternative ""A"", ""B"", or ""C"", let me say that I would prefer to have the funds rate centered on 6-3/4 to 6-7/8 percent rather than around 7 percent. Now whether that's ""A""--",57
-fomc-corpus,1987,"Well, that's actually where we are.",8
-fomc-corpus,1987,"That's where ""B"" would be.",8
-fomc-corpus,1987,That's where we think we are at the moment.,10
-fomc-corpus,1987,"But we are talking here about alternative ""B"" delivered--",12
-fomc-corpus,1987,Just take whatever borrowing is consistent.,7
-fomc-corpus,1987,"Right, but as I read the Bluebook, under alternative ""B"" we're talking of a funds rate centering more around 7 percent.",29
-fomc-corpus,1987,"No, no.",4
-fomc-corpus,1987,"That's what ""B"" says.",7
-fomc-corpus,1987,"That's what ""B"" says, yes.",9
-fomc-corpus,1987,I think that's a rounding question.,7
-fomc-corpus,1987,"Well, I'd like to round it to 6-3/4 percent, if that's current policy. I'm for current policy; if that's ""A"", I'm for ""A"".",36
-fomc-corpus,1987,"Mine also would be [current policy]. I would presume that bringing the wide range for the fed funds rate down to 4 to 8 percent would be more consistent, in the short run while we are in this period of greater flexibility, with a short-run policy in which we would really hold it and not let it go to 7 percent and not let it go above 7 percent.",79
-fomc-corpus,1987,"Ed, what borrowing number were you thinking of? Are you thinking of $250 million, which is what the ""A"" number actually is?",29
-fomc-corpus,1987,"Well, I am not very concerned about the borrowing figure. I want a 6-3/4 percent funds rate.",25
-fomc-corpus,1987,You are targeting the funds rate?,7
-fomc-corpus,1987,"If that takes $300 million in borrowing, I'm for $300 million; if it takes $400 million, I'm for $400 milion.",28
-fomc-corpus,1987,"Well, the borrowing assumption is in there. When you're dealing with this sort of market it just breaks away from--",23
-fomc-corpus,1987,"That's right, so I don't think--",8
-fomc-corpus,1987,You have to make a distinction of whether you want to do borrowing or you want to do the funds rate.,22
-fomc-corpus,1987,I want to do the funds rate; that's what I want to do.,15
-fomc-corpus,1987,You have made your point. President Black.,9
-fomc-corpus,1987,"I think the point at which you arrive has to be dependent in part on what you think really happened to the stock market: whether it came from real shocks or liquidity shocks or some combination. I lean to the view that it was more real, along the lines of what Frank Morris was describing earlier, in that the earnings-price ratios had gotten totally out of line with the bond yield. And then there were a couple of sparks that set it off: the problems in the Persian Gulf and the likelihood that we were going to enact some very severe protectionist legislation. At the same time, I think there were liquidity shocks once this happened. And I think we met those liquidity shocks, as we ought to in such a case, when we issued a statement that we would provide liquidity. But as far as these real shocks are concerned, I don't think there's a lot that we can do about that through policy. So, I would come out, I think, right where you did on this, Mr. Chairman. And like Ed Boehne, I would look through the borrowing to the federal funds rate and [seek a rate] of around 6-3/4 to 6-7/8 percent, which I had interpreted as being a little on the easy side of ""B"" as it was written in the Bluebook, but which you now have convinced me is really what you had in mind. In view of the way in which this directive is going to be dissected, I think it would be good to go with Variant I. But there are a couple of references in there that would bother me and might confuse the market. If you look at the references to greater flexibility on lines 105 and 106 of the draft that was distributed with the brown cover, that need for greater flexibility, I think, could be a little confusing to the market. It isn't clear to me what it means and I don't think it would be clear to the market. I would hasten to add that this reference to our intention to ensure adequate liquidity is perfectly clear to me and I think it's obviously appropriate. So, on the wording of this, I would tend to end up the same way Governor Angell did in saying somewhat lesser restraint ""would"" and slightly greater restraint ""might"".",459
-fomc-corpus,1987,President Parry.,4
-fomc-corpus,1987,"Mr. Chairman, I would favor Bluebook alternative ""B"", which I would interpret to mean a funds rate of around 6-3/4 to 7 percent. It seems to me that with rates at that lower level relative to what we had been looking at six weeks ago, we will offset most of the negative effects of what has happened in the stock market. In addition, I would favor Variant I and it seems to me that, given the uncertainties, symmetrical language would be appropriate.",100
-fomc-corpus,1987,"I'm sorry, what language?",6
-fomc-corpus,1987,Symmetrical.,3
-fomc-corpus,1987,President Forrestal.,4
-fomc-corpus,1987,"Well, Mr. Chairman, I agree entirely with your analysis of the situation, given the uncertainty and the potential for additional instability in the market. I think that alternative ""B"" is the correct alternative for policy in the short term. I would target the federal funds rate at 6-3/4 percent; I wouldn't worry about borrowing. In order to get the message across to the markets as to what we are doing at this very critical time, I would favor Variant I. One point I would make is that the foreign exchange market developments seem to me to be more significant than indications of inflationary pressures, so I would be inclined to move that up in the hierarchy of expressions there. And I think it is important to keep the language related to frequent consultations. We need to let the market know that we are aggressively and actively involved in this whole situation. I would prefer a tilt in the directive towards easing, which would lead me to favor asymmetrical directive language.",195
-fomc-corpus,1987,President Boykin.,4
-fomc-corpus,1987,"Mr. Chairman, I'm right along with everyone else. I favor the 6-3/4 percent funds rate, which I guess I would have described as ""A-"" or ""B+"" going in [to this discussion], but your description of ""B"" puts me there, so I don't have any problem with that. On the borrowing number I was thinking $300 million, but I guess that becomes whatever it becomes, given the funds rate that we're looking for. On the language, I favor Variant I; I think saying as well as we can what is going on is important. Of course, that won't be released for about six weeks and that's a while down the road. If any misinterpretation seems to be going on in the markets as to what we are doing, maybe another statement such as the one released earlier would be called for. I thought that was very, very appropriate. I like things even on both sides as a rule, so symmetric language always appeals to me.",200
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"I favor alternative ""B"". I have one question I want to raise. If you look at the directive in the policy record that comes out Friday and then you look at this language here, it's really not clear what ""existing"" means. Nowhere in the policy record is it memorialized that there was an adjustment in the borrowing target; we don't put borrowing targets in there. I think it was generally perceived, but it is not recorded there in any fashion. That may be something to think about. In any case, I would like to express a little concern along the lines of what Jerry said about balance here. There has been a major shift in policy; and the broad perception of policy, I think, was that we were headed toward further degrees of tightening at the last meeting. That has been washed out and there has been some easing. Now, on the balance side my argument would be this: I guess I never felt that we could defend a particular level of the dollar--that's going to be set by market forces. So, maybe now the fact that the dollar has moved down and there haven't been major adverse effects to that is okay. In the short run I think we can influence how that transition to the different levels takes place and whether it's orderly or not. But it seems to me that any changes in monetary policy that we make now add to the perception that all that is happening is that the dollar is adjusting to reasonable market levels. What I'm trying to say is, if it's perceived beyond that that monetary policy is being conducted in a fashion that we really think we have the latitude to run out of sync with the rest of the world, that would be very damaging to that future psychology that you've described. In other words, I think we have lost the flexibility to ignore what goes on in the rest of the world here. Policy coordination is important and I hate to see us take a policy stance in the short run that might fuel that perception that we somehow backed off the need to do that for all the reasons we have discussed on the financial and the real side today. So, in any case, I favor ""B"" and symmetrical language. I think Variant I is fine but I come out where Bob Black is: in a sense there are too many statements in there dealing with the extraordinary circumstances; it might convey more of a sense of uncertainty about current conditions than we want to convey. I think I'd stick with what Bob suggested on that first statement--",495
-fomc-corpus,1987,"What did Bob say? Did he say just take out that other sentence, or what did he mean?",21
-fomc-corpus,1987,"Well, I think what he was saying was stay with the desire to ensure the provision of adequate liquidity. But the statements about flexibility in open market operations in lines 90 and 91 and then around line 105 or so in the part about the frequent consultations would be thoughts I would be inclined to take out. I think our actions are more important than our words, and I think the perception of our actions in the financial markets is a positive one. I think the perception is we are doing the right thing.",103
-fomc-corpus,1987,Norm tells me that the adjustment and the switch will be noted in the next policy record.,18
-fomc-corpus,1987,It will be?,4
-fomc-corpus,1987,"That's our normal way to do it, yes.",10
-fomc-corpus,1987,But not in the one that will be released Friday; you're right about that.,16
-fomc-corpus,1987,Right; so in the verbiage that leads up to this directive we are indicating--,18
-fomc-corpus,1987,"Right, the one that will be released Friday leads up to the last meeting.",16
-fomc-corpus,1987,I think that's fine.,5
-fomc-corpus,1987,"It does have a paragraph in there, however, noting that the Committee has been consulting daily over this period; so it says that the Committee has been meeting and reviewing operations.",35
-fomc-corpus,1987,"If we are adopting the existing degree of reserve restraint now, that somehow implies that a change, in a policy sense, occurred prior to this action.",30
-fomc-corpus,1987,Right; and that would be covered in the policy record associated with this meeting.,16
-fomc-corpus,1987,"But let me ask you this, Don: If there had been a telephone call at which that was specifically put to a vote would it then have been reported as an addendum?",36
-fomc-corpus,1987,"In the one that comes out Friday, yes.",10
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"You know, that's a small subtlety.",9
-fomc-corpus,1987,"A possibility, if the members would want it, would be to expand the paragraph that has been added [to the policy record that comes out Friday] that mentions the consultations. We could reference something about some easing in policy to go with that language. MR. MORRIS(?). Yes, I think it would be desirable to do that.",68
-fomc-corpus,1987,That would be released this Friday.,7
-fomc-corpus,1987,I think that would make some sense.,8
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"I am happy to get on the ""B"" band wagon, or some variant of the ""B"" band wagon, I guess. It seems to me that that is the appropriate posture for us at the moment. In my mind, we have moved a significant degree already, and I think the results generally have been satisfactory. One danger that I think we want to avoid here is what I might call oversteering; and I think holding with something like ""B"" is a step towards avoiding that reaction. I think Frank Morris has posed a dilemma: How do we keep weakness in the dollar, if it persists, from spilling into the bond market? I bring up that subject just as a reminder that I think the most logical way to get out of that trap is to actually succeed in doing something meaningful in fiscal policy here. But that's still a very much unresolved matter.",175
-fomc-corpus,1987,Indeed it is.,4
-fomc-corpus,1987,But that's another reason why I would--,8
-fomc-corpus,1987,It is something we don't have a lot of control over.,12
-fomc-corpus,1987,"No we don't; we probably don't have any. But I think that's another reason not to oversteer or overreact at the moment. We don't know how that is going to play out and we don't have much influence on it. I would prefer some language like Variant I just because, as Tom [Melzer] and some others have suggested, these are extraordinary circumstances and I think our language should reflect that. I guess I'm not all that concerned about exactly how we fine tune that language at the moment. I would pick something like ""B"" as a starting point, and I personally would prefer asymmetric language in favor of lesser restraint because it seems to me that it is highly more likely, as we go forward here, that if we are going to move at all that is the direction we are likely to want to go.",166
-fomc-corpus,1987,If your concern is about the dollar why would you then go in that direction?,16
-fomc-corpus,1987,"No, I didn't say I would resist declines in the dollar; I just said that I think the outcome may be largely out of our hands.",29
-fomc-corpus,1987,"By a variant of ""B"", did you mean the revised version of ""B""?",17
-fomc-corpus,1987,"In my mind, it's something like a $400 million borrowing target with the expectation that the federal funds rate will be 6-3/4 or 6-7/8 percent or thereabouts.",41
-fomc-corpus,1987,"Okay, that's what ""B"" means from now on, right?",14
-fomc-corpus,1987,"Yes. We do have a problem here, though. Let's focus on it because I may have to re-poll [those who have commented already]. Listening to everybody so far, everybody is locking into a funds rate that is very much more narrow than the funds rate that we are stipulating in this directive. The question that we have to decide is this: In the process of formulating this directive do we go with these very broad funds rate ranges, which is what would be consistent with a specific borrowing target, or do we go with a much narrower funds rate target, however we publish it, and have a much broader range on the borrowing side? It's very difficult to encompass the type of funds rate targeting that we have been hearing around this table in terms of 5 to 9 percent or 4 to 8 percent. This is a choice.",172
-fomc-corpus,1987,"Mr Chairman, I might request that we eliminate that last sentence in Variant I, because we are talking about stabilizing the funds rate for a short period. It is a temporary policy, and I don't think it makes any sense to talk about a range of 4 to 8 percent or 5 to 9 percent. I think we ought it admit that we have temporarily changed the operating procedures; and that would imply that we ought to get rid of that last sentence and not talk at all about ranges that way.",104
-fomc-corpus,1987,"Mr. Chairman, I don't think it's all that different from what we have, in fact, done. We have had this wide range but it has been understood that we have had a borrowing number that was associated with a much narrower federal funds range. And we didn't change that [sentence] then. I think we probably would have met and changed that borrowing level or changed it without meeting.",78
-fomc-corpus,1987,"Well, I would certainly be opposed to our going to an announced narrow fed funds target. It seems to me it is very important that we do not have the semblance of returning to the 1970s style, which would really require frequent consultations to move it, and would give some the impression that over the long run we might be willing to allow whatever reserves might be consistent with that. I would much prefer to have the wider range but with a temporary understanding, as we have had in these recent weeks, that we expect it to be in the 6-1/2 to 7 percent area.",123
-fomc-corpus,1987,"Let me just make a couple of comments about policy generally, and then I may have some language here that can encompass a lot of what is being said. First of all, to return briefly to this exchange rate question, I don't approach the exchange rate as a matter of theology; I approach it as a matter of trying to balance the risks. And my principal point on the exchange rate is that I do see very real risks of a further substantial depreciation in the value of the dollar. I know certain things that it will do: it will add to inflationary pressures at home; it will work in the direction of putting greater pressure rather than lesser pressure on interest rates at home. I don't know how it works; but I know the algebraic signs. And I also know that, at least in the short run, it raises more questions about growth prospects abroad, in part, because of another elongation in the J curve. Now, I have to balance those risks against the hope that it will somehow accelerate the turnaround in the U.S. trade deficit, in a context in which there are a host of uncertainties--such as growth prospects abroad--that I think are more important than the exact level of the exchange rate. So again, it's not a matter of theology for me; it's a matter of where are the risks and what are the greater risks. Then, there is this question of debt deficits and debtor nations. The point that I was trying to get at in bringing that up before is that whether we like it or not, history tells us in rather unmistakable terms that a country that finds itself in the position that we find ourselves in right now is going to have higher interest rates than would otherwise be the case. There may be an example someplace, somewhere in history that's contrary to that, but I don't know of it.",368
-fomc-corpus,1987,It doesn't exist.,4
-fomc-corpus,1987,"I don't think it exists. The only other point I'd make is on this question of a measured approach to what we are trying to do here. I favor alternative ""B"" as Governor Johnson defined it a moment ago. But let me, if it's agreeable to you, Mr. Chairman, suggest some language here.",63
-fomc-corpus,1987,"Go ahead, sure.",5
-fomc-corpus,1987,"This is built on Variant I, and I think it gets at a lot of the things that you have been saying. The first sentence, without prejudging decreasing or maintain or whatever would read: ""In the implementation of policy for the immediate future, the Committee seeks to [decrease somewhat/maintain/increase slightly] the degree of pressures on reserve positions sought in recent days."" Tom, I think that gets at your point. And I would remove the next sentence after the semicolon completely. Go down to the next sentence ""The Committee ...""",110
-fomc-corpus,1987,What was your first your sentence again?,8
-fomc-corpus,1987,"Take out all that stuff after the semicolon. I'm at Variant I. The first sentence reads: ""In the implementation of policy for the immediate future, the Committee seeks to [decrease somewhat/maintain/increase slightly] the degree of pressures on reserve positions"" and I would insert ""sought in recent days.""",65
-fomc-corpus,1987,You think the markets know what that means?,9
-fomc-corpus,1987,"Yes, I think they do.",7
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,Recent days or recent weeks--either one?,9
-fomc-corpus,1987,"Well, either way; we can come back to that.",12
-fomc-corpus,1987,"Jerry, what's wrong with the next phrase?",9
-fomc-corpus,1987,"Well, let me come to that in a minute because what I was going to suggest in the next sentence, Si, deals with that, I think. ""The Committee recognizes that the volatile conditions in financial markets and uncertainties in the economic outlook may call for a special degree of flexibility in open market operations"" and then insert ""depending, in particular, on demands for liquidity growing out of recent or prospective developments in the financial markets.""",86
-fomc-corpus,1987,"Would one be willing to say instead of ""may call for"" just ""calls for""?",18
-fomc-corpus,1987,Sure.,2
-fomc-corpus,1987,"But the idea, Si, is to get that all into one sentence so it's not too overburdening. Then the next sentence--and in my mind this is crucial--would start: ""Apart from such considerations"", in other words apart from the providing liquidity, etc. Then you would have your regular sentence with the somewhat or slightly lesser or greater reserve restraint. In other words, that next sentence would stay as it is. Others may not agree with this, but contrary to what somebody said, I personally would take out the sentence on the next page about relatively frequent consultations. We certainly can do that and may do that, but I think we ought to be trying to project not business as usual but not that we are ready to jump out the window ourselves. So, as I see it, Mr Chairman, a directive couched more or less in those terms would allow us to do what you certainly want to do and I gather what a lot of other people want to do. But it would stop short of a directive that becomes a federal funds rate directive. And at least in my judgment, it provides a bridge to go from these extraordinary conditions right now to a more ""normal"" environment, if circumstances permit.",245
-fomc-corpus,1987,What would you do about the very last phrase on the funds rate range?,15
-fomc-corpus,1987,I'm agnostic on that; I would have a broad range there--5 to 9 percent or 4 to 8 percent; I wouldn't worry too much about that.,35
-fomc-corpus,1987,"Okay, I will put your variation on the table. President Morris.",14
-fomc-corpus,1987,"I think I've already said my piece, Mr. Chairman. I have nothing to add to it.",20
-fomc-corpus,1987,President Keehn.,4
-fomc-corpus,1987,"Mr. Chairman, I'm certainly in favor of maintaining the current policy, which I interpret to be alternative ""B"". And I must say I like the Corrigan wording of Variant I; I prefer Variant I to Variant II because I think it is a more honest statement of what we are doing, particularly with the language that he is proposing to amend it. I'd have a slight bias in the wording toward easing, and using ""would"" [for easing] and ""might"" [for tightening]. I'd be in favor of maintaining a broad range for the fed funds rate. And I don't feel strongly about it, but I think in the interest of consistency and stability I'd stay with the 5 to 9 percent.",143
-fomc-corpus,1987,"I'm sorry, what was the last phrase?",9
-fomc-corpus,1987,"In the interest of consistency and stability, I'd stay with 5 to 9 percent, but I don't feel very strongly about it.",27
-fomc-corpus,1987,Okay. Governor Heller.,6
-fomc-corpus,1987,"I'm also in favor of ""B"" and I like the Corrigan language. Like Mr. Keehn, I'd go with the asymmetrical version. But on the fed funds rate, I think we should narrow it just a bit. You know, 5 to 9 percent--that's a barn door. I think the old practice of centering it around the expected value is useful. So if we narrow it a little--and everybody seems to be saying 6-3/4 percent--and insert 5-3/4 to 7-3/4 percent we have a 2 percentage point range rather than a 4 percentage point range. Maybe that gets a little of that feeling in there without moving to a very narrow fed funds rate specification.",154
-fomc-corpus,1987,That barn door is no wider now that it has been for years.,14
-fomc-corpus,1987,"Oh no, it's different in the sense that it depends on what you are targeting and what you are leaving as a residual. So in that sense there is a meaning in doing that; the question is whether in so doing we also suggest a change in policy that we don't want to communicate.",58
-fomc-corpus,1987,I think so.,4
-fomc-corpus,1987,"I think that would, though.",7
-fomc-corpus,1987,I think that would; that would indicate 6-3/4 percent. I wouldn't do it.,21
-fomc-corpus,1987,"Well, I'm in favor of making policy clear rather than obfuscating.",15
-fomc-corpus,1987,"I think if the Desk comes in on either side of the market around 6-3/4 percent, it is going to be pretty clear to the market very quickly where we are; and they are not going to pay much attention to the borrowings.",52
-fomc-corpus,1987,I think that's right.,5
-fomc-corpus,1987,"[Unintelligible] but it's one thing to be pegging the funds rate, which is not what the Desk is doing, and it's another thing to sort of be taking a shot at it in some direction. To peg the rate would have some interesting implications. Governor Kelley.",57
-fomc-corpus,1987,"Mr. Chairman, I'm very much a mainstreamer here. And I have nothing to add in the way of new reasons from what has been said around the table. I would go with Variant I because I think we need to be seen as being on the accommodating and concerned side here, with asymmetric language in the direction of ease. I favor alternative ""B"", and I would cut the announced funds rate range back to 4 to 8 percent, again to indicate tilting in the direction of ease.",101
-fomc-corpus,1987,For the Corrigan language?,6
-fomc-corpus,1987,I like the Corrigan language.,7
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"Yes, I think I'm right in line with everyone else: alternative ""B"" as we have defined it, Variant I, Corrigan language, and asymmetric. I think we are going to have a bit of a problem if during this intermeeting period we finally decide that we can move to a borrowing target. Making a transition from funds rate targeting to that could be a little touchy, even though we don't know when we will decide all of a sudden that things are stable enough to go from a 6-3/4 percent center of gravity on the funds rate to a $400 million borrowing target, or whatever. I don't think it's going to work that smoothly. We may need to think about how we make that transition at some point; that might be a good time for a call.",160
-fomc-corpus,1987,I'd like to respond to that: I don't see how we can do that without a conference call. Governor Seger.,24
-fomc-corpus,1987,"I guess I can go with ""B"" but as I reread the Bluebook here for the seventh time, it looks to me as if Don Kohn was saying that all of these alternatives--""A"", ""B"", and ""C""--assume financial markets will return to conditions of normalcy, whatever that is.",66
-fomc-corpus,1987,Well--,2
-fomc-corpus,1987,"And down deep in my stomach I'm just asking myself: What if, in fact, we don't? Which alternative should I vote for? Should I vote for ""A"" now because that possibly would allow us the greater opportunity to deal with abnormal times or do I go with ""B"" and assume that if the roof falls in we will at that point make a policy shift?",75
-fomc-corpus,1987,If the roof falls in there is nothing to choose between those two alternatives.,15
-fomc-corpus,1987,"Then you go to ""E"" and ""F"" or something like that. So having said that, I would go with ""B"", the Corrigan language, and the asymmetric language tilted toward ease. And on targeting the fed funds rate, frankly, I would rather see it a little on the soft side of 6-3/4 percent rather than between 6-3/4 and 7 percent, because I think the fed funds rate is viewed as out of line now with other short-term rates. If we are really interested in communicating clearly what market participants--",116
-fomc-corpus,1987,You want what on the fed funds rate?,9
-fomc-corpus,1987,"I would put a range in the statement, but I'm saying as an operating matter that I'd rather see us go to the low side of 6-3/4 percent rather than going 6-3/4 to 7 percent. I would rather see us really targeting somewhere between 6-1/2 and 6-3/4 percent because I think that the funds rate is quite a bit out of line with other short-term rates.",91
-fomc-corpus,1987,President Guffey.,5
-fomc-corpus,1987,"Thank you, Mr. Chairman. I would join those who would opt for ""B"" with asymmetric language towards ease--that is, if ""B"" as it has been defined means a funds rate around 6-3/4 percent or a bit higher, and I think it clearly does. I also would adopt the Corrigan language, particularly if I understood Jerry correctly, that he wants to delete from Variant I the language referring to relatively frequent consultations. I think that highlights something that six weeks or eight weeks from now, when this is released, perhaps will have more meaning than we want to give to it. On the federal funds rate range--although quite clearly we are targeting the federal funds rate within some very narrow range, it is under very unusual circumstances--to change that language in the last sentence from 5 to 9 percent to 4 to 8 percent is a bit meaningless and, in my view, unnecessary. I'd leave it at the present range and keep it as broad at it is.",204
-fomc-corpus,1987,President Hoskins.,4
-fomc-corpus,1987,"I don't have anything to add to what has been said with respect to alternative ""B"". I think I like the Corrigan language; I'd prefer the funds rate about where it has been--I don't have any problem with that. I would not want to err too much on the high side in terms of a federal funds rate over 7 percent because I think that might sent the wrong signal to the market. I think the point that Manley Johnson raised is an important one: that it may be difficult when do we shift from a mode of providing liquidity back to some kind of monetary aggregate. And I think I would be remiss if at my first opportunity with all of you I do not mention the monetary aggregates. In that regard, they have been growing slowly relative to trend for six months or more. The staff projection for M2 is 4-1/2 percent, fourth quarter over fourth quarter and that's down from a trend rate for two years of roughly 9 percent. That usually is considered a significant change with some real impacts; however, that's not for this meeting.",218
-fomc-corpus,1987,"I think we can feel the consensus, which surprises me in a sense but--",16
-fomc-corpus,1987,Could I ask a question about the Corrigan--,10
-fomc-corpus,1987,We didn't listen to what Governor Heller--,9
-fomc-corpus,1987,"It's a very minuscule point: in the draft directive with the brown [Class I] cover, lines 20-21, we say ""business capital spending was strong in the third quarter and forward indicators pointed to continuing gains."" I think that's a little strong. It's certainly getting a lot slower. Maybe we could just drop ""forward indicators pointing to continuing gains.""",74
-fomc-corpus,1987,"It is not ""pointing""; it's ""pointed"".",12
-fomc-corpus,1987,"Yes, ""pointed"".",6
-fomc-corpus,1987,"No, that's an important difference.",7
-fomc-corpus,1987,"Yes but pointed to continuing gains, though.",9
-fomc-corpus,1987,"Well, it's technically correct if you think about it. It is past tense: that the indicators in that period pointed to continuing gains.",27
-fomc-corpus,1987,Since then it has changed.,6
-fomc-corpus,1987,"It's not discussing the continuing gains, it's discussing the indicators.",12
-fomc-corpus,1987,"Well, I certainly misread it and I think others may misread it too.",17
-fomc-corpus,1987,Does anybody else feel strongly about that issue?,9
-fomc-corpus,1987,"Well, mine is not a strong feeling but I just thought there was a--",16
-fomc-corpus,1987,"Technically, that statement is correct. It's only a question of how you read it.",18
-fomc-corpus,1987,"I think it sets the wrong tone a little; that ""continuing gains"" is what bothers me. Maybe you want to say: And while forward indicators pointed to continuing gains, this is no longer true.",42
-fomc-corpus,1987,You can say way back when they--,8
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"Yes, I'd like to look at the Corrigan language. Where it says ""may call for a special degree of flexibility"". I think that's that first sentence where he added a phrase. Would it be okay to say ""may continue to call for a special degree of flexibility because""",56
-fomc-corpus,1987,I'm not sure what it says right now because it was sent out to be typed about 10 minutes ago; it hasn't come back yet.,28
-fomc-corpus,1987,"Well, I understand, but I'm just looking at the amendments.",13
-fomc-corpus,1987,May I make a suggestion? This might not be a bad idea since it is a very crucial directive. I think it would be useful to have it xeroxed and circulated so everyone has a chance to take a shot at it. Is that--,50
-fomc-corpus,1987,"That's all I'm asking, yes.",7
-fomc-corpus,1987,"Does anybody have any further comments at this particular stage on substantive questions? It's fairly obvious that there is a consensus basically on ""B"", however we define it, and asymmetrical language towards ease. Everyone is talking, essentially, 6-3/4 to 6-7/8 percent on the funds rate, but I presume, to depict it in the usual wider range. And Jerry Corrigan is getting rave reviews and we will use his language. However, before we finalize it, let's take a look to make certain that we are all talking from the same set of notes.",118
-fomc-corpus,1987,Let me see it.,5
-fomc-corpus,1987,Would our transition borrowing be expected to be $450 million or $400 million?,16
-fomc-corpus,1987,I would say $400 million.,7
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,Let me just take a look at it.,9
-fomc-corpus,1987,"The words that I wanted to look at here would be to continue to call for a special degree of flexibility, which would be an indication of continuing what we have been doing rather than of some new policy. And then I have trouble with that sentence: the outlook for monetary growth over the months ahead is subject to unusual uncertainty. I'm not sure what that means; it seems to me that the only uncertainty when you look at Don's new figures is that it looks as if we have had a liquidity bulge. But certainly we don't expect uncertainty in regard to the downside do we?",116
-fomc-corpus,1987,"No, that's why I had in that reference to somewhat greater than expected. If you keep reading, it says on lines 100 and 101: ""but more rapid growth is possible should preferences for liquidity be particularly strong."" That was exactly the point I was making. You may not need the sentence on ""subject to unusual uncertainty"" if you have those sentences that follow.",75
-fomc-corpus,1987,I'm just not sure what that sentence says. It seems to me that the uncertainty is somewhat directed at one side.,23
-fomc-corpus,1987,"When you say ""apart from such considerations,"" it seems that it's not necessary down below to have ""conditions in the financial markets"" in there again.",30
-fomc-corpus,1987,Right; that's right.,5
-fomc-corpus,1987,So we have to make this asymmetrical right?,10
-fomc-corpus,1987,I guess so.,4
-fomc-corpus,1987,I thought it was lesser reserve restraint would and slightly greater might. Isn't that what we--,18
-fomc-corpus,1987,"The sentence I think should read: ""Apart from such considerations slightly lesser reserve restraint would or slightly greater might"".",22
-fomc-corpus,1987,"No, somewhat, slightly.",6
-fomc-corpus,1987,Somewhat lesser reserve restraint--,6
-fomc-corpus,1987,Would or slightly greater restraint might.,7
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,"You need a comma after ""would,"" too.",10
-fomc-corpus,1987,"And the economy, strength of the business expansion, etc.",12
-fomc-corpus,1987,"Governor Angell, are you still concerned about that money growth reference?",14
-fomc-corpus,1987,"Oh, it's not--. I think the way it is now changed would [unintelligible].",21
-fomc-corpus,1987,"Earlier, somebody suggested that in line 5 we change that ""outlook may call for"" to ""may continue to call for"". That's appropriate.",30
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,Should we put 4 to 8 percent in for the funds rate range or would you prefer 5 to 9 percent?,26
-fomc-corpus,1987,I'd prefer just to maintain 5 to 9 percent.,12
-fomc-corpus,1987,"Can I have a quick rundown on the copy of this Corrigan language for 4 to 8 percent or 5 to 9 percent? Vice Chairman Corrigan - My own preference was 5 to 9. Mr. Angell - 4 to 8. Mr. Boehne - 4 to 8, but not a strong preference. Mr. Boykin - 5 to 9. Mr. Heller - 4 to 8 Mr. Johnson - Totally indifferent. Mr. Kelley - 4 to 8 Ms. Seger - 4 to 8 Mr. Stern - 5 to 9 Mr. Keehn - 4 to 8 MR. JOHNSON - I'm totally indifferent, but you might even drop the whole sentence.",157
-fomc-corpus,1987,You're not voting on that?,6
-fomc-corpus,1987,"Yes, I'll just be agnostic.",8
-fomc-corpus,1987,"Well, 4 to 8 is closer to zero.",12
-fomc-corpus,1987,[Unintelligible] around 6 to 7 percent.,14
-fomc-corpus,1987,"Before we vote, let's have Norm Bernard read the directive.",12
-fomc-corpus,1987,"In the implementation of policy for the immediate future, the Committee seeks to maintain the degree of pressure on reserve positions sought in recent days. The Committee recognizes that the volatile conditions in financial markets and uncertainties in the economic outlook may continue to call for a special degree of flexibility in open market operations depending, in particular, on demands for liquidity growing out of recent or prospective developments in financial markets. Apart from such considerations, slightly lesser reserve restraint would--",88
-fomc-corpus,1987,Somewhat.,3
-fomc-corpus,1987,Somewhat lesser.,4
-fomc-corpus,1987,"--or slightly greater reserve restraint might be acceptable depending on the strength of the business expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates. While the outlook for monetary growth over the months ahead is subject to unusual uncertainty, the contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from September through December at annual rates of about 6 to 7 percent, but more rapid growth is possible should preferences for liquidity be particularly strong. Over the same period, growth in M1 is expected to be well above its average pace in the previous several months. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 4 to 8 percent.",179
-fomc-corpus,1987,"I also read from everything I've been listening to that the official borrowing target, to the extent that it's required, is $400 million.",27
-fomc-corpus,1987,"Yes, that word respectively isn't needed is it? The word respectively should be out?",17
-fomc-corpus,1987,"It's out, if you put it the way--",10
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,"Since it is 1:30 p.m., I think we ought to vote on this and get to lunch.",23
-fomc-corpus,1987,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor Seger Yes President Stern Yes,44
-fomc-corpus,1987,"The vote is unanimous. The date of our next meeting is Tuesday and Wednesday, December 15th and 16th. Do I hear a motion to adjourn?",34
-fomc-corpus,1987,So moved.,3
-fomc-corpus,1987,"Without objection, to lunch.",6
-fomc-corpus,1987,"I think we are all present, with the exception of Frank Morris who, hopefully, is on his way from the airport and Si Keehn, who never was able to make it. I trust you're on the other end of the wire, Si.",50
-fomc-corpus,1987,"Mr. Chairman, I'm here with Karl Scheld and I hope you can hear us.",18
-fomc-corpus,1987,"We can hear you quite well. I'd like to alter the order of the agenda and ask our Managers to report tomorrow morning rather than today and use this afternoon for the more generic discussions. I hope and I trust that Messrs. Kohn, Sternlight, and Lindsey are prepared. Is that okay? Without objection, I will request a motion to approve the minutes of the November 3rd meeting.",81
-fomc-corpus,1987,So moved.,3
-fomc-corpus,1987,Second.,2
-fomc-corpus,1987,"No objection. The first topic of discussion, item number 4 on the agenda, is a discussion of borrowings and the federal funds rate as guides to open market operations. Mr. Kohn.",40
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1987,"Mr. Sternlight, would you like to add anything to that?",14
-fomc-corpus,1987,"I have very little to add to either what was in the memorandum or what Don has just outlined. Maybe the one point is that, as Don just mentioned in his comments, the market is fairly well aware of this current emphasis on the funds rate in the implementation of policy, with greater weight placed on day-to-day funds rates. From comments that I hear, the market seems to be fairly understanding of it. Some of the people I regard as more thoughtful observers in the market would be troubled, I think, if they thought there was a long-term reversion to something that could be called ""pegging of the funds rate."" That's exaggerated, but I think that's what it would tend to become to be known as. That carries with it the baggage of a past association with periods of what many regarded as inadequate policy responses in times of excessive money growth. I don't think that argues that one has to go back immediately to what was being done--particularly since in the very near term, we will have all the uncertainties associated with the year-end period--but it is something to keep in mind as we look a little further at it.",228
-fomc-corpus,1987,Are there any questions for either Mr. Kohn or Mr. Sternlight?,16
-fomc-corpus,1987,"In your opinion, if we were to make a change, is the tenor in the market a lot different now than it was, say, right after October 19th?",35
-fomc-corpus,1987,"Well, I think the market has calmed down considerably from the extremely turbulent and nervous state of late October. I would hesitate to say it's totally back to normal. I think there is still some background nervousness and we are getting into a period when there's a lot of uncertainty anyway, just because of the possibility of pressures associated with the year-end.",70
-fomc-corpus,1987,"Well, that has been true in certain markets but in terms of demand for borrowing, things are still very different from the pre-October 19th period. In fact, it looks as though that difference now may be as great as it ever has been. Isn't that correct?",56
-fomc-corpus,1987,"Yes, I agree with Bob on that. Borrowings actually have declined under the same spread, or even a wider spread for a while.",28
-fomc-corpus,1987,"Borrowing has been very light, and we have scratched our heads about what the reasons for that might be. We do hear some comments to the effect that some banks are saving their recourse to the discount window, perhaps anticipating pressures around year-end. There may be some who just want to take extra pains to avoid the window because they are concerned that their own credit ratings could be coming under some review, and they just don't want to subject themselves to any additional attention that might come from using the window. Seasonal borrowing is just about at its low point. I know it doesn't stand up all that well in the correlations, but I still think that some--",131
-fomc-corpus,1987,"Just a technical question: Based on the research, which has a larger variance in normal times--borrowed reserves or the funds rate?",27
-fomc-corpus,1987,Do you mean under which circumstance would the funds rate vary more?,13
-fomc-corpus,1987,"Well, assuming that we're targeting borrowed reserves, is there more noise around borrowed reserves or the funds rate?",21
-fomc-corpus,1987,It's hard to compare them; one is dollars and one is basis points.,15
-fomc-corpus,1987,"I know that, but I mean in terms of the percentage variation or standard error.",17
-fomc-corpus,1987,"You can get a good deal of variation even when you're following a borrowings target more closely, just because one incident can bring banks in for some special reason and you have to make allowance for that. Even on a borrowings target, I have often had to report to the Committee that borrowing was considerably higher for this or that particular reason. But--",70
-fomc-corpus,1987,I'm not even sure that you could get an answer without adjusting for the fact that there is not a unitary elasticity between the change in the funds rate on the one hand and the change in borrowings on the other. I think it is mainly the case that a percentage change in borrowings would be a lot larger unless you normalize it to the--,70
-fomc-corpus,1987,I'm trying to think of some way to normalize it and I can't; I'm thinking apples and oranges but I'm just simply--,24
-fomc-corpus,1987,"I think the answer is self-evident, if you think about it. It is feasible to peg the funds rate, but there is no possibility of pegging borrowing.",35
-fomc-corpus,1987,"If we are trying to hit a borrowings target, I'm just asking whether we get as much variation around that target as we get around the funds rate that results out of that borrowings target. I don't know whether there is any information there, but I still think it might be interesting to know.",60
-fomc-corpus,1987,"Okay. The standard deviation of borrowings around the path assumption from early 1984 through mid-1987 has been about $170 million; excluding the year-end periods, it has been about $160 million. The root mean square error of the funds rate around what the Desk thought it ought to be was about 20 basis points over that same period.",72
-fomc-corpus,1987,Unless you have [unintelligible] to answer that question.,14
-fomc-corpus,1987,"I don't know how you compare the two, but it sounds like similar magnitudes of variations.",19
-fomc-corpus,1987,"[You could] use coefficients of variation, but it would seem to be smaller for the funds rate.",21
-fomc-corpus,1987,"The funds rate? I guess what I'm saying is that if you could hit your borrowings exactly, it's really a loose way of targeting the funds rate. There's only a certain band in which the funds rate is going to vary under a borrowings target. And I guess the question is: Can you pursue the same goals by a lot of adjustments in the funds rate versus a few adjustments in the borrowings target?",83
-fomc-corpus,1987,"You can, although pegging--or whatever word one uses--the funds rate is much more addictive than the borrowing because there is much less--",29
-fomc-corpus,1987,"Well, the political risks are fairly--",8
-fomc-corpus,1987,"But even in the decision-making process of the Committee, there is much less emotional attachment to a given borrowing level than there is to the funds rate, so it gives you a little more flexibility in the process. You're right, theoretically, that you can do it either way. But the way the decisions are made and carried out and perceived, you end up with more flexibility to change policy through this borrowing procedure than through the funds rate--not in theory but in practice.",94
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"Don, there was one thing that surprised me. It seemed to me that after the first few weeks following October 19th banks would have had some excess reserves which they could carry over to the next period. But with $150 million to $250 million, I would presume that quite a few banks were running very heavy excess reserves and that the carry-over period for those excess reserves is lapsing, so that it's a financial cost. Is that true?",91
-fomc-corpus,1987,"I think that was true in only one reserve period--right after the reserve period in late October and early November--when there were more excess reserves than could be carried into the new period. Since then, we have not observed that. Excess reserves have varied over a wide range, but on average--mostly because of the carry-ins and carry-outs--they have not really differed substantially from what we might have expected over time. But we can't see a real effect on excess reserves, and I don't think we see banks losing.",105
-fomc-corpus,1987,So behavior will not necessarily be modified from these very low levels of adjustment plus seasonal borrowings then.,20
-fomc-corpus,1987,"Of course, we have tried to estimate the excess reserves that banks want to hold and have built that into the path or made allowance for it in putting out nonborrowed reserves. So, in some sense, we are trying to compensate for this phenomenon that you are trying to identify. But the excess reserve behavior has not been unusual even though the borrowing behavior has.",73
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,"Well, I found it a very interesting paper and helpful to have the options in front of us, some of which we haven't discussed for the last year, at least. The current period clearly is a very important period as we are coming off pegging the funds rate. It is the same sort of thing as taking off wage-price controls. You have to ask: Where do we go from here? I was wondering why you didn't give consideration to a broader array of options such as targeting total reserves, or targeting nonborrowed reserves, or other techniques that have been used in the past. Maybe you did and you rejected them. In particular, I'm wondering about this because during the last three quarters of the year--I think at virtually every FOMC meeting--we have had projections for increased reserve growth and we have had projections for increased M1 growth and in virtually all of those cases the projections haven't come true. So, maybe there is something in our operating technique that doesn't get us where we want to go. I was wondering whether the other techniques might be more suitable to get us to the targets that we actually want to reach. Obviously, a lot of people here have been through the periods when targeting total reserves or nonborrowed reserves was the technique and, being new to the game, I was wondering why you rejected them.",268
-fomc-corpus,1987,"A decision to go to nonborrowed or total reserve targeting presupposes the decision to target the aggregates very closely and to accept very wide swings in interest rates, as we had from 1979 to 1982, as a result of allowing overshoots or undershoots in required reserves to be absorbed in the borrowing to keep on a nonborrowed reserve objective. We didn't have a sense that that's what the Committee wanted to do; that was our presumption in writing the paper. Perhaps that can be discussed in item number 6 on the agenda. In discussing that item, if the Committee decided it wanted to target monetary aggregates very closely, we could come up with that kind of alternative. But an alternative of nonborrowed or total reserve targeting presupposes that you really want to hit the aggregates and you're willing to accept very wide swings in interest rates.",176
-fomc-corpus,1987,It assumes you know a lot about money demand.,10
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"Not necessarily. You can also argue that your general path for nonborrowed reserves might be 5 percent, say, but you would be willing to tolerate quite a bit of variation to mitigate interest rates swings that would be implied in following it week by week right down to the ""T."" One probably can make compromises along that line, too, but it brings in the broader issue of the Humphrey-Hawkins testimony and setting targets. Why do we go through the motions if it isn't something that we take seriously?",104
-fomc-corpus,1987,Vice Chairman.,3
-fomc-corpus,1987,"On the question that Governor Johnson raised before, it does follow that if you use borrowings as the operational target, you will see more variability in the funds rate than you would see, obviously, if you target the funds rate. But from my perspective, that's a desirable result for two reasons. One reason is that the short-run variability in the funds rate often has very valuable informational content. It may be telling you something that you don't know or can't find out if you literally have the funds rate pegged. The second reason I think it's desirable is something of an extension of Ed Boehne's point: not only does pegging the federal funds rate tend to result in people being more inhibited about moving it than they perhaps otherwise would be, but neither borrowings nor the funds rate is what we are ultimately concerned with. What we are ultimately concerned with is the economy. The experience of the 1970s--a period that was much more tranquil in many respects than the 1980s--leaves me at least with a very bitter taste in my mouth, because the implication of an approach to policy that seeks to peg interest rates is that, in fact, we can do that with great precision. But we end up with an economic result that is far, far removed from what we are after.",263
-fomc-corpus,1987,"No, my view would be that you'd only want to do that if you had the flexibility to adjust it very often in a way that met your larger goals. I think the problem before was that the interest rate got so politicized that the Federal Reserve didn't really feel it had a political--",58
-fomc-corpus,1987,"Well, I think it's more than being politicized. First of all, as I said, I think there is an inhibition to changing the federal funds rate, quite apart from the political side of it, but there shouldn't be. And Peter touched on this: once the market knows that that's what you are doing that's what the federal funds rate is going to be. It simply loses--",77
-fomc-corpus,1987,"But I think that's true of the funds rate under the borrowing target. Once the market knows the borrowing target, the funds rate is going to move in a narrow range. It's only when you miss that borrowing target that you get a lot of variation in the funds rate.",54
-fomc-corpus,1987,Well--,2
-fomc-corpus,1987,"If you set a borrowing target, your ability to hit it depends on how good your estimates of other reserves are; if your other reserve estimates are off, then you're going to get a lot of variation in the funds rate, which is going to affect your borrowing and throw your borrowing off.",58
-fomc-corpus,1987,But that reserve estimate being off can have information in it.,12
-fomc-corpus,1987,It can be off for a lot of reasons.,10
-fomc-corpus,1987,"Well, that's right, it can be off. One of the vulnerabilities to targeting borrowed reserves is that you have to estimate so many things in order to decide what your open market operation should be for the day. So you use the funds rate as information that your reserve estimates may be a little off.",60
-fomc-corpus,1987,"But, the other way around would work, too. I'm not arguing for it, but if you fix the fed funds rate and then you see the borrowing fluctuating, that also gives you information.",40
-fomc-corpus,1987,"Yes, you can do it either way.",9
-fomc-corpus,1987,I don't think so.,5
-fomc-corpus,1987,"Mr. Chairman, Vice Chairman Corrigan expressed it just exactly the way I would. If there is, as I sense, a desire to return to a borrowing target, then it seems to me that the question is: How do we best get away from this situation in which the market is in danger of interpreting our actions as pegging the fed funds rate?",72
-fomc-corpus,1987,"It's not ""in danger of"". They are making that judgment. Now the real danger is--",19
-fomc-corpus,1987,Of course they are.,5
-fomc-corpus,1987,--how do you get off of it without creating--,11
-fomc-corpus,1987,"Having them think that means that getting off of it is somewhat problematic because, in the period following this meeting, if we begin to read things differently they may assume that we have made a policy change when we don't think we have made a policy change.",50
-fomc-corpus,1987,That's always the case.,5
-fomc-corpus,1987,"Well, to even consider getting back to targeting borrowing, which I think is just as good an approach as targeting the funds rate, you have to have a predictable relationship between borrowings and the funds rate. You don't have that now. You can't take any given spread right now and predict the level of borrowing that is going to result.",67
-fomc-corpus,1987,"It seems to me it has been very predictable; borrowings have been very close to a $200 - $250 million range and in these weeks we have had a federal funds rate very close to 6-3/4 percent. So, it seems to me, it is somewhat predictable.",59
-fomc-corpus,1987,"Well, let's ask the experts.",7
-fomc-corpus,1987,Not from the context of the past.,8
-fomc-corpus,1987,Not from what I've seen.,6
-fomc-corpus,1987,"These last few weeks borrowing has diverged from what we would have predicted based on experience, looking back a few quarters.",24
-fomc-corpus,1987,Borrowing would have been $400 million.,9
-fomc-corpus,1987,Tom Melzer.,4
-fomc-corpus,1987,"Don or Peter, the question I want to ask is this: Other than the experience in the marketplace, do we have any evidence of a shift in the borrowings function? I think we have to look at that. The reason I'm asking is that in the most recent reserve period we missed by roughly $80 million, I believe. Isn't $220 million where borrowings came in?",77
-fomc-corpus,1987,"Right, relative to the $300 million [in the path].",13
-fomc-corpus,1987,"Okay. If we had forced the target at $300 million, that would have meant only $1 billion to $1-1/2 billion in borrowings on the last Wednesday; I don't know that that would have produced disastrous results, being the end of a two-week statement period. Even if we had forced that level of borrowings on a Wednesday and had had that measure of volatility, generally over that period the equilibrium funds rate might still have been perceived to be 6-3/4 to 6-7/8 percent. My question about evidence stems from this: I asked our discount officer whether he had seen anything unexpected in our District, and he hadn't in terms of unwillingness to borrow. But the issue came up, I guess, at a recent meeting of the discount officers that you might have attended. They have seen a shift in the borrowings function, but it's not really associated with October 19th in particular; it has been going on for a much longer period of time. So, we are talking about an operating procedure here that was based on the response to October 19th, and I don't think the shift we are looking at was necessarily associated with that. I should give Don a chance to respond, but I have one final comment. If we were to go back [to a borrowing target], I think year-end would be an ideal time to go back because there will be seasonal pressures, as there often are at the end of a quarter. In fact, if we didn't, and we stabilized the funds rate through the year-end, we might encounter some serious technical problems in getting those reserves back out.",331
-fomc-corpus,1987,"Let me address this question of the shift in the borrowing function. As I heard the reports from that discount officers' meeting, they were discussing a kind of trend since passage of the Monetary Control Act in the way they have been administering the window over a period of time, rather than anything that had happened very recently. When our staff came back from that meeting we ran some equations trying to detect that trend and it was difficult to find. We also responded to their concerns and what we heard by trying to reinforce in their minds that there has been no change in Regulation A and that any tightening up on the supply side was inappropriate. This is a theme that we play constantly from this end. I think the most recent shift has been very large, as Governor Johnson said, relative to the $400 million to $450 million we might have expected. That really seems to have occurred very recently. I don't know if I can pinpoint October 19th, but I don't think it is related to anything that the discount officers were discussing at their meeting. In terms of what we hear or see in the data, Peter has heard anecdotally from at least one large institution and they in turn thought they knew of other large institutions that were staying out of the market and saving up their chips for year-end. Secondly, in the data, we do see that the lack of borrowing is very much at the large institutions with deposits over $3 billion. At small- and medium-sized institutions, regional institutions, the borrowing may have dropped a little but not nearly so much as you might expect, given what seems to have happened with the large institutions. That led me to think that it's not just the stock market decline, but the whole atmosphere around banks--uncertainties about their credit, quality of assets, and other such things--that has been making them be very, very careful. It's not related necessarily to the stock market; that just came in on top of a situation that was already bad.",398
-fomc-corpus,1987,That's also what we hear.,6
-fomc-corpus,1987,President Parry.,4
-fomc-corpus,1987,"I was just thinking that it certainly would be very desirable to get back to where we were, with the emphasis on borrowing, but it seems to me that as long as we have the demand for borrowings along its current track that will be extremely difficult to do. With the relationship between the discount rate and market rates at its present level, we are so close to frictional levels, your alternative (4) probably ought to be deferred until we see something that would be more of a traditional relationship in terms of demand for borrowing.",106
-fomc-corpus,1987,Higher interest rates.,4
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"Mr. Chairman, I think there are two key questions here that we need to consider. One is whether or not the funds rate gives us the right signals if we target borrowed reserves, which has been addressed by the staff. The other is whether or not it's really easier--from a political standpoint, or to follow up on Jerry Corrigan's point, because of inertia--to [make a policy] move under the borrowed reserve procedure. Generally, the federal funds rate probably does move in the right direction to give the correct signal when we are using a borrowed reserve target. But there are times when it doesn't. For example, in 1984, around the time of the Continental Illinois Bank crisis, Chuck Partee had to reassure the markets through an article in The New York Times that we were targeting borrowed reserves and that the rise in the federal funds rate did stem from banks' unwillingness to borrow--that it really didn't have anything to do with a tightening of policy at that particular time. Also, right before the market crash on the 19th, I think there was a perception in the market that we probably would tighten at a time when we really didn't want that to happen. In general, a borrowing target probably works [to give the right signal] but it doesn't always work that way. There's a lot to Jerry's argument that there is inertia when operating under a federal funds target; the Committee, just because it doesn't know where the funds rate ought to go, is less apt to move. There is also some substance, I think, to the political argument that it gives us a certain degree of protection if we can say we really don't control the federal funds rate, we control borrowed reserves. At least at one time I think that did alleviate some of the concerns of Congress and gave us some protection. I'm not sure that's the case much anymore, except maybe in the case of some Congressmen. The market seems to look through this and be reasonably certain that we have in mind a certain level or range for the federal funds rate. Moreover, if the borrowing really doesn't change and the federal funds rate does change, they tend to think that's really what we want. So, I would be inclined to do something like alternative (3), which is to go back to borrowed reserve targeting but pay a little more attention to the federal funds rate when it is not behaving in the way we think it ought to, and deal with it on an ad hoc basis. But my real hope is that we can do what Bob Heller suggested--if we can ever get the aggregates behaving more normally--and that is, make some institutional changes and move toward a nonborrowed reserve target, which would have certain desirable automatic features that would enable us to ease or tighten without having to take discretionary actions. I would hope that at some point we can move in that direction because now what the market gets is largely demand-determined and I think there ought to be a larger element of supply-determined in there than we have now because of the misbehavior of the aggregates.",614
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I'd like to think of this in two stages. One is what I think is useful in normal or typical times, if there are such things. In those times, I'm perfectly willing to support an approach that emphasizes a borrowings target, even though I have learned that because we don't have nice stable relationships, we cannot predict exactly what a certain level of borrowings will produce in the way of fed funds rates. But there are times when conditions are more unusual and abnormal, and I personally believe we are still in one of those modes at the moment. And in times like these, I think that we ought to pay a lot more attention to fed funds because the markets are very, very nervous and skittish--not as much as they were October 20th through October 26th or 28th or whatever, but I don't think it's back to normal. I would hate to see us give the message inadvertently that we were tightening or engineering a major policy change because fed funds rates shot up at the end of the year when we really didn't want to give that message. I don't think that everybody out there in the real economy and in the markets is that comfortable with what's going on. Therefore, I would just urge us in the next few weeks to be triply sensitive, even though in two months or so we may go back to what we were doing prior to October 19th, emphasizing the borrowing targets. But I personally wouldn't feel comfortable with going back to business as usual starting tomorrow.",301
-fomc-corpus,1987,"If banks are saving up to have free access to the window, would they be most likely to choose the two-week period ending the 30th or would they choose that [next] four-day period?",41
-fomc-corpus,1987,The particular comment that I heard related to just that four-day period beginning the 31st.,19
-fomc-corpus,1987,"So, if that's the case, then you might expect a very large jump in borrowing--",18
-fomc-corpus,1987,That could be.,4
-fomc-corpus,1987,That might also mean that borrowing could be at lower numbers during the period that begins the day after tomorrow.,21
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"I think it's important to know that banks have been very poor at making estimates of what their demands would be at the end of the year. Typically, it has been almost a perfect, opposite indicator of what the demands were going to be. Last year there was a large demand that some people said was associated with the new tax legislation. To assume that that's going to carry on into 1987, I think requires some--",85
-fomc-corpus,1987,"But, Bob, people in the marketplace are making that assumption and have been positioning themselves for over a month.",22
-fomc-corpus,1987,"Well, the mere fact that they are positioning themselves, for example, in the CD market to go out beyond year-end probably--",26
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,It probably indicates that you won't get the borrowing at the end of the year. That's what I'm saying.,21
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,"But if you do, it should not come as any big surprise. This is certainly one of the most well advertised potential events in a long time.",30
-fomc-corpus,1987,"Then, the fed funds rate would tend to drop rather dramatically in that period.",16
-fomc-corpus,1987,"I agree with that. That's why I'm saying that, with all these instabilities, we probably need to continue to focus on the funds rate for a while until we feel more satisfied that we are back to normal. I favor going back to a borrowed reserve target when we feel more confident about the relationship between the funds rate and the discount rate spread and borrowings. But I just don't see any evidence that we are there, and it certainly seems to me that we are not going to get any closer to it between now and the end of the year.",111
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,"I think a useful way to look at this question of whether you want to go back is, as Martha pointed out, to look at where you want to get to. There probably is general agreement, and I share that view, that we ought to get back to a borrowing objective. It's a question of when and how. My sense is that the longer we wait, the more difficult it's going to be. It may be a long time before we get back to normal times. While there clearly are still unusual pressures, I think the longer we wait the more difficult it will be to get back. And we have more at stake here than just the technical side of how we operate. Clearly, there are technical difficulties because it's hard to measure the demand and the relationships. But beyond that, there is this credibility issue in the marketplace; and my sense is that the longer we stay with this procedure, the more the credibility issue is going to come to the fore. Also, I think it's just good to have some specific kinds of goals, internally. So, I think we ought to begin the shift back and do something along the lines of alternative (3), which still gives a fair amount of emphasis to the funds rate but sets us on a path back toward where we want to be. That is where I come out on this for now.",269
-fomc-corpus,1987,"I think that's right. In fact, I think we're already beginning to see the problem emerge. I have been rather struck that in the last two or three days the funds rate all of a sudden has been locked.",43
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,It hasn't budged at all.,7
-fomc-corpus,1987,It's the 1970s all over again.,10
-fomc-corpus,1987,"It's an extraordinary thing to watch the screen and see high: 6-3/4 percent; low: 6-3/4 percent; last: 6-3/4 percent. I know that the markets are not functioning. I think the more interesting question is the one that Ed Boehne has raised--namely, that the longer you wait to effect the transition back to something else, invariably, the greater the jolt. What we have to think about is not only the question of do we, as I suspect everyone does, want to get off this procedure at some point, but also we have to figure out how we do it. If we have this very large ""add factor"" in our equations between the funds rate on the one hand and borrowing requirements on the other, the implication of shifting back before things have returned to normal is that we know what the phase-down of that add factor is going to be--unless Tom Melzer is right that this is really just a long-term trend and it's never going to go back. But, right at the moment, if we were to shift and not have the cover of the year-end period, the actual transition mechanism would have to be very subtle. And the longer we wait, the greater the length of the transition. I guess I come down pretty much where Governor Johnson does. I get the impression that we are not there yet; in other words, I think abnormal yield spreads are still there and skittishness is still there. But, frankly, I think we are now getting to the point where whatever benefits we are getting out of this funds rate procedure are rapidly falling relative to the benefits of the stability it's creating. I think it has been very effective; it has created a great deal of stability in the market. But, very shortly, it's going to start to become counterproductive. The only question is when.",383
-fomc-corpus,1987,What would you try to do as a first step? Would you try to take current borrowings and the result from the current funds rate-discount rate spread and try to target that unless something really changes dramatically? Or what?,45
-fomc-corpus,1987,"Well, I think that's where I'd start. It depends on the Committee's decision tomorrow. Suppose, for the sake of argument, that the Committee wanted to maintain something like current reserve conditions. I don't know what the outcome of this current two-week period will be, but I'd be tempted to write down something on the order of $250 million of borrowings, or maybe a little lower--perhaps $225 or $200 million--and then be alert to see how things were coming in. That's very low, and I would expect it to be higher after the new year. I think you're right, Governor Johnson, that there's a lot of uncertainty; but I also think that we can interpret incoming information and adjust the borrowing objective if it looks like we are wrong. Now, there's a very fine line between that and [focusing on the] federal funds rate.",173
-fomc-corpus,1987,"I guess I'd worry that what Bob Parry is saying is right--that everybody has gone to the CD market to lock up their funds and that all of a sudden, if there is no willingness whatsoever to borrow toward the year-end, we could get extreme funds rate pressures out of that scenario.",59
-fomc-corpus,1987,"One of the interesting things, of course, is that 30-day CD rates are about 25 basis points higher than the 90-day rates.",30
-fomc-corpus,1987,Definitely.,2
-fomc-corpus,1987,"Yes, that's right.",5
-fomc-corpus,1987,"Unless the uncertainty is completely behind us, I think if we were to try to go in that direction, we'd have to make a public announcement that we thought enough of the uncertainty was behind us that we were going back to a borrowed reserve target. We should do that so the swings in the federal funds rate that would probably result would not be misinterpreted.",72
-fomc-corpus,1987,Don't you think the market will figure that out pretty quickly?,12
-fomc-corpus,1987,"Yes, pretty quickly; but the first two or three days they would read all sorts of changes in policy into that, I would think.",28
-fomc-corpus,1987,"Well, this market is going to get just as fragile as we cause it to be: and the longer we cause it to believe that the fed funds rate is 6-3/4 percent, the more fragile it's going to be about getting away from there. It seems to me that we [unintelligible] variance in the fed funds rate and yet have a 50 basis point limit on it if we want. If we would like to have a 50 basis point limit on it this week, and we want it to be in a range of 6-1/2 to 7 percent, then we could do that. But at least we would get the market used to some variation. Then when we get to the first of the year the transition is not going to be nearly so abrupt.",164
-fomc-corpus,1987,"I think you can use the cover of year-end, as I alluded to before. I think it would be a mistake to start right after the FOMC meeting; that's how you would get the misinterpretation that Bob's afraid of.",50
-fomc-corpus,1987,President Boykin.,4
-fomc-corpus,1987,"I agree that the longer we wait, the more difficult it is. I agree with going to alternative (3), which I would interpret as a gradual move back, but certainly one with enough latitude to back off if we're not getting the right reaction. With respect to how to do it, I don't know that we can be this precise--and maybe this is an oversimplification--but I would say go for alternative (3) but postpone it until after year-end. I would stay where we are for the next couple of weeks, or certainly through the year-end, and then start the gradual move. At that point, there would be enough flexibility that we could back off if we're not getting the reactions in the market that we're anticipating.",149
-fomc-corpus,1987,President Guffey.,5
-fomc-corpus,1987,"Thank you, Mr. Chairman. As to the fundamental question of whether to stay with the federal funds rate or go to a nonborrowed or a borrowed reserve target, I think I would be one of only three or four here who sat around this table when we targeted federal funds back in the 1970s. And I can tell you that our experience was not very good, as everybody knows. There was a lot of tugging and pulling to go an eighth of a point on the federal funds rate. As a matter of fact, we even got to the point of setting a zone of indifference where the federal funds could move a quarter of a point between two established points. And the fact is that the information that came from that procedure was well behind the facts and got us into trouble, in my view. I think we have to move back to a procedure of targeting nonborrowed reserves. Also, I would join Tom Melzer in his proposal to do it, first of all, as quickly as possible, and secondly, under the umbrella of uncertainty that surrounds the year-end. I would opt for alternative (3) in the sense that we shouldn't totally ignore the federal funds rate over this next three-to four-week period. But I think the focus should be on the borrowing level and--",262
-fomc-corpus,1987,"Well, you said nonborrowed reserves. Did you mean that?",14
-fomc-corpus,1987,"No, no, I beg your pardon, I didn't. I should not have said that; I meant a borrowing target. And I'd do it under the umbrella, or the smokescreen, of the year-end uncertainty.",45
-fomc-corpus,1987,Vice Chairman.,3
-fomc-corpus,1987,"It seems to me that nobody in the marketplace would expect the Federal Reserve literally to seek to target the federal funds rate on an hour-by-hour basis over this year-end period. I think that would be a terrible mistake. I felt that we did too much even last year, in terms of the situation. So I would associate myself very strongly with Tom Melzer's suggestion that, given that people expect some movement in this period, we should take advantage of it. As I've mentioned to you before, it seems to me that one way or another we are probably going to have to remind people, no matter what we do with policy, that we are coming into a period in which we could see rather extraordinary amounts of churning and volatility in the money market. I don't think we should ever get ourselves to the point where we literally are going to run policy so as to avoid that kind of working of the marketplace, which I consider healthy.",188
-fomc-corpus,1987,I don't sense any desire around this table for that.,11
-fomc-corpus,1987,"Well, if you say you're going to continue literally day-in and day-out to target the federal funds rate over the next three weeks that's what you're saying.",31
-fomc-corpus,1987,"Well, I don't know if we physically do that.",11
-fomc-corpus,1987,"Well, my point is--",6
-fomc-corpus,1987,Pumping a lot of reserves in there.,9
-fomc-corpus,1987,We don't really know. We could see the funds rate collapse at year-end just as easily as we could see it soar.,25
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,"It doesn't seem to me that we would want to overreact in those circumstances either. There is at least a 50/50 chance that at some point over this interval, one way or the other, a very large aberration will set in. I don't know which side it will be on, but regardless, I don't think that the operating policy of the Federal Reserve should be to try to offset it literally dollar-for-dollar. But if we say that the funds rate is going to be at 6-3/4 percent, period, that's what we are saying, in effect.",118
-fomc-corpus,1987,"Today is the next to the last day of a two-week reserve maintenance period, and the fed funds rate is locked on 6-3/4 percent. If it locks on 6-3/4 percent through tomorrow, I think we would have told everyone that's where we are.",58
-fomc-corpus,1987,What if it comes in at 9-1/8 percent?,14
-fomc-corpus,1987,It comes in at 9-1/8 percent.,12
-fomc-corpus,1987,Everyone will say it's the last day.,8
-fomc-corpus,1987,"People then say, well, it's the last day.",11
-fomc-corpus,1987,"Yes, but having something like that in the context of having had flat reserves since April, a declining M1 in December, and missing our M2 targets--. I think you have to look at it as the whole ball and not just--",49
-fomc-corpus,1987,"Yes, but suppose it comes in at 2 percent; substitute 2 percent for 9 percent--",21
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"If you don't want to go to 9 percent, then put a ceiling of 7-1/2 percent on it: or put a floor if you want to. I just want to have more variance than we have been getting.",48
-fomc-corpus,1987,That would be the zone of indifference.,9
-fomc-corpus,1987,That's alternative number (3) as a transition back to where we want to be.,17
-fomc-corpus,1987,"It seems to me that we are arguing about pretty trivial issues. If you take a borrowing target and the possible variations of the funds rate around that--I don't know, maybe Don can help me--except in very extreme circumstances, where we grossly miss reserve estimates or something, there can't be much variation of the funds rate around that borrowing target.",70
-fomc-corpus,1987,20 basis points is what we--,7
-fomc-corpus,1987,Yes. Don has quoted you the standard error: 20 basis points.,15
-fomc-corpus,1987,There are some possibilities in it.,7
-fomc-corpus,1987,"Yes, but I'm just saying we're talking about angels on the head of a pin here.",18
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"Mr. Chairman, as Governor Angell was talking about the federal funds rate being what the market thought we wanted it to be, I remembered a day back in the early 1960s, which was before Peter Sternlight was Manager, when the open market wire said, in effect, that the federal funds rate was hanging at around 2-7/8 percent, or whatever it was at the time, out of respect for what the market thinks the Federal Reserve System's intentions are. That has always stuck in my mind and I think there is some of that right now.",117
-fomc-corpus,1987,"Well, of course. It is because people out there are saying, ""My goodness, 6-3/4 percent is the rate. I guess maybe I'll sell funds. I'm not going to sell for less than that if that's what the rate is.""",52
-fomc-corpus,1987,And I'm not going to get more.,8
-fomc-corpus,1987,I'm not going to get more.,7
-fomc-corpus,1987,"Si Keehn, do you have any thoughts on this issue?",13
-fomc-corpus,1987,"Mr. Chairman, I think I hear a consensus for moving away from what we are currently doing and in the direction of alternative (3), and I certainly would favor that; but in my mind, it's really a question of timing. I'm a little uncertain as to how the rest of the year is going to play out and what kind of pressures will be emerging. Rather than using the year-end as a blind, if you will, to accomplish a change, I'd favor going through that period, and then as soon thereafter as possible, begin to implement the change.",113
-fomc-corpus,1987,"Well, I think that was one of the recommendations--is that right? Yes, that after the first of the year, coming off the instability of year-end, is an ideal time to phase in, if we're going to do that.",48
-fomc-corpus,1987,"I'd be in favor of that--in other words, alternative (1). Or more precisely, I guess, I favor alternative (1) for now, but moving to (3) as rapidly as we can after the turn of the year.",49
-fomc-corpus,1987,President Hoskins.,4
-fomc-corpus,1987,"It seems to me that we are struggling with the issue of trying to tell the markets where we are. Perhaps one way to do it--and I think Jerry has already referred to it--is simply to indicate that we are returning to an operating procedure that is more normal. There are a couple of reasons for doing that. We are trying not to give a miscue with respect to two things, it seems to me: first, whether or not we have tightened or eased policy; and secondly, whether or not we have moved to a different kind of interest rate policy. Because we don't want misconceptions out there about those two issues, it seems to me we're better off providing more information rather than less. Now, Peter did that before by protesting--by coming in early--and the market caught on very quickly. I'm not sure he can do that in reverse. So, I guess to some extent I would support Jerry. I'm not sure I caught the gist of his comments correctly, but [unintelligible].",204
-fomc-corpus,1987,"Any further questions or issues that any one wants to discuss on this question? If not, why don't we move on to item 5 on the agenda, the definition of the borrowing objective and the appropriate discussion. Mr. Lindsey.",46
-fomc-corpus,1987,What was the decision on the first?,8
-fomc-corpus,1987,None.,2
-fomc-corpus,1987,I just wanted to make sure I understood what we decided.,12
-fomc-corpus,1987,"Well, the point is that there is no need to make a decision on this. Essentially, that will be part of our decision tomorrow.",28
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,"[No transcript record exists of Mr. Lindsey's remarks, in which he summarized a memorandum (circulated to the FOMC on October 29, 1987) that he co-authored with Mr. Gillum. See appendix for the memorandum and a covering note from Mr. Kohn.]",61
-fomc-corpus,1987,"Mr. Sternlight, would you like to add anything?",12
-fomc-corpus,1987,I don't think so.,5
-fomc-corpus,1987,"I understand what you said, but the only question I have is: If there is a seasonal component to seasonal borrowing of any sort, why have it in there? If it has no effect whatsoever on the variation, what is the point of having it in there unless it's just more confusing or more complicated at this stage to pull it out?",68
-fomc-corpus,1987,"Don, do you--",5
-fomc-corpus,1987,"Well, I think there is a certain amount of inertia.",12
-fomc-corpus,1987,"Well, it's a certain amount in a series.",10
-fomc-corpus,1987,"Dave commented on the original reason it was in there: It was felt that seasonal borrowing behaved a lot like adjustment borrowing in that it was sensitive to interest rates. If you have more seasonal borrowing, other things equal, then you're going to have a little more pressure in the funds market. [Unintelligible] seemed to be just as good. So, given that you had something else that was also related to the funds-rate/discount-rate spread, why not include it in the target variable? Right now--",103
-fomc-corpus,1987,"To me, that implies that you have decided that there is more of that [interest-sensitive] component to it than there is seasonal.",27
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"If there is more of a seasonal nature to seasonal borrowing, it seems to me that you'd want to leave it out just because it's seasonal.",28
-fomc-corpus,1987,"Yes, well--",4
-fomc-corpus,1987,There's a large seasonal component and whether it has any effect on the--,14
-fomc-corpus,1987,"Given the results, my view would be that the [borrowing] relationships have been just as close under the current procedure as they would have been taking it out completely. It seems to me that there is a presumption on the part of those who would advocate taking it out that the [statistical] results actually suggested it would improve things to take it out. Since the results don't show that, I think the inertia you referred to--having to do with the market misunderstanding, that they've gotten used to what we're doing, and so on--would argue for just standing pat.",116
-fomc-corpus,1987,"Okay, I buy it. I think a good argument for not taking it out is that it might be confusing to Fed watchers who have gotten used to it being done this way. But that's the only argument I can think of for not taking it out.",51
-fomc-corpus,1987,"Obviously, it could be done easily; but if it were out, our reserve projectors would then have an interest-sensitive factor that-they would be projecting every week. It would become part of ""nonborrowed reserves"" the same way extended credit is. Generally, those factors affecting nonborrowed reserves aren't interest sensitive; they are market factors. Now, we would be putting a little interest-sensitive element in there and we would still end up estimating that seasonal relationship in order to help the reserve projectors make the right projections. So, I'm not sure how much you'd gain. Perhaps that's why there is no improvement on reserve things.",127
-fomc-corpus,1987,Another vote for funds rate targeting!,7
-fomc-corpus,1987,"Well, in view of the fact that we are funds rate targeting anyhow, we can't possibly confuse the market by changing our procedure right now. So I think that argument doesn't hold at the present time. David, I read the paper a long, long time ago. You said it targeted only adjustment borrowing and there was no significant difference in the fed funds rate. Now, I know it wasn't significant, but which direction was it actually moving?",88
-fomc-corpus,1987,"Well, actually it moved a little in favor of the present procedure. If you look on Table B-3 of the memorandum, using the spread as the variable the equation tries to explain, the R square is a little higher--.75 versus .70; and the standard error of estimate is a little lower--32 basis points using adjustment plus seasonal borrowing versus, say, 35 basis points using adjustment borrowing alone. You could argue that that only comes about because we were examining a regime that had been generated under the current procedure. You could argue that if we really had switched some years ago to using only adjustment borrowing, then there might be reason to think that result might have reversed and adjustment borrowing alone might have shown up better. But that's pretty speculative and I'm not sure it would be true. I would view these as little to choose between, really.",172
-fomc-corpus,1987,President Morris.,3
-fomc-corpus,1987,"Are there any advantages in your mind to making it more difficult for the market to understand the significance of the borrowing levels? In other words, would there be any disadvantages to publishing a special situation borrowing number?",41
-fomc-corpus,1987,"Only if it were known that only one or two institutions were in the discount window and, therefore, we would be telling the public what those institutions were borrowing. It is our policy not to do that.",41
-fomc-corpus,1987,But how would they know there are only one or two institutions?,13
-fomc-corpus,1987,"Well, they might know that a particular bank in New York had a wire problem or that a particular bank in Oklahoma or Texas had just come in to the window. The [unintelligible] banks would know. If there were a lot of banks involved, it wouldn't be a problem; but if a special situation involved one bank or another, I could see a confidentiality problem.",77
-fomc-corpus,1987,I see.,3
-fomc-corpus,1987,"I can tell you, Frank, having had several of these special situations, that the market knows about as early as the Federal Reserve does that a bank is in for special borrowing. They do discount it, in a sense, I think.",48
-fomc-corpus,1987,Much of it got into extended credit.,8
-fomc-corpus,1987,Pardon me? STERNLIGHT(?). When it gets to--,14
-fomc-corpus,1987,"Before it gets to extended credit, it's fairly well known and the banks are fairly well identified. But suggesting that we would actually--",26
-fomc-corpus,1987,"In that case, it doesn't make any difference whether we publish it or not.",16
-fomc-corpus,1987,They don't know the amounts.,6
-fomc-corpus,1987,"Yes, the dollars--",5
-fomc-corpus,1987,"Well, a New York press officer does announce that there is a special situation borrowing in there without giving an exact amount.",24
-fomc-corpus,1987,"So-called seasonal borrowing, it seems to me, is simply adjustment borrowing without a time limit on it for those institutions that qualify. It has all the characteristics of adjustment borrowing and it's not taken unless there is an ability to utilize the funds. That is, if banks could lock up that seasonal borrowing and sell it in the fed funds market, then it would be like extended credit. So, it seems to me, it's more like adjustment borrowing, as the statistical tests suggested.",95
-fomc-corpus,1987,Anybody else on this subject? Governor Seger.,10
-fomc-corpus,1987,I just have one question as I sit here listening to comments about why bankers borrow on a seasonal basis. Do we not administer the discount window in regard to requests for seasonal borrowing in the same hardnosed manner that we do for adjustment borrowing?,49
-fomc-corpus,1987,"No, no.",4
-fomc-corpus,1987,No.,2
-fomc-corpus,1987,Maybe we should. That's the answer to make sure that their--,13
-fomc-corpus,1987,"Well, it's hardnosed in the sense that we have certain standards that they have to meet.",20
-fomc-corpus,1987,"They have to demonstrate a seasonal swing in the difference between their loans and deposits over the previous two years. And, on that basis--",27
-fomc-corpus,1987,It's one situation where we go out once a year and advertise come on in and see if you can qualify.,22
-fomc-corpus,1987,I'm surprised.,3
-fomc-corpus,1987,"Well, if I recall, the origins of that were that it was precisely to try to get--",20
-fomc-corpus,1987,"""Get""--that's right.",6
-fomc-corpus,1987,"--to get at banks that had these seasonals and so forth. That was very much an ""eyes open""--",23
-fomc-corpus,1987,Just a bit of populism peeking out.,10
-fomc-corpus,1987,It was in the days of trying to sell membership and this was one of the--,17
-fomc-corpus,1987,"Also, we don't have very many takers on seasonal.",12
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,Some of you don't.,5
-fomc-corpus,1987,"Si Keehn, do you have any comments on this?",12
-fomc-corpus,1987,"No. I very much agree with Governor Angell that it has all the characteristics of adjustment borrowing, and that being the case, it's appropriate to include it. But this certainly would be an inappropriate time to be making a change.",46
-fomc-corpus,1987,"One last trivial comment: I agree that this is not the time to make a change, but is it too complicated to try to separate out the adjustment versus the seasonal component of seasonal borrowing?",38
-fomc-corpus,1987,How many Johnsons on the head of a pin?,11
-fomc-corpus,1987,"Actually, in a sense, we have estimated seasonal factors for the seasonal borrowing. Presumably then, one would call that the seasonal component with the rest being the adjustment component. That's what we adjusted the total for in the tests I referred to earlier.",50
-fomc-corpus,1987,"Oh, that's what you--",6
-fomc-corpus,1987,"That, literally, is what we did. And when we did that, it didn't make a dime's worth of difference in the results in terms of the predictability of the funds rate. So, we actually made a stab at doing that.",49
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,"Anything else on this subject? If not, let's move on to agenda item 6, with discussion of the monetary aggregates as long-range policy objectives in 1988. Mr. Kohn.",39
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Questions of Mr. Kohn? I can't believe he was that definitive!,15
-fomc-corpus,1987,"Don, I was trying to remember a discussion that we had last February. My recollection is that the econometric work that was done by your staff, and obviously some of the other staffs, would have supported setting targets which were somewhat lower than the ones we did set and would have indicated a distinction between M2 and M3 growth of perhaps a percentage point. And, of course, that's the way things have worked out. But, the complicating factor is that the economy has changed a bit since we were looking at it at that time. Nominal growth in the economy has been higher; probably, if we had had that nominal growth when we did the analytic work, we would have expected faster growth in the aggregates. But I don't remember what we were assuming about interest rates.",158
-fomc-corpus,1987,"I don't think we were assuming they would rise that rapidly. My memory of the February exercise was that we said that M2 would grow within its range, but in the lower part of it.",39
-fomc-corpus,1987,Right. Right.,4
-fomc-corpus,1987,"Then, in July, I think we tried to make a strong case to the Committee that at that point there was a distinct danger that even without a further increase in interest rates the aggregates could well fall short of their ranges. And if interest rates rose--which, in fact, they have--the chances were pretty good of their falling [below the ranges]. So, perhaps the point here is that the models are not perfect, but they generally catch the drift. And they are not bad in that they can explain most of the deceleration in M2 and most of the deceleration in M1. So, we have a reasonably good, though not perfect, fix on the demand side; but the problem is that in order to target an aggregate, you have to know where interest rates and income are going--particularly interest rates. And, if it requires much higher or lower interest rates at the beginning of the year than you think, then you anticipate that in order to get the income growth you desire, you're going to have much lower or higher monetary aggregates consistent with that income growth.",218
-fomc-corpus,1987,"Well, the point I wanted to make here is that the aggregates--or at least M2, in this case--are well below their current target ranges, but I don't fault our analysis. I think our analysis was leading us down the right track, but we were in some ways reluctant to make that kind of a change in the targets--at least in February and to some extent in July--because we thought that might be telegraphing to the markets greater restrictiveness than, in fact, we were trying to accomplish. Do you agree with that to some extent?",115
-fomc-corpus,1987,"Yes, to some extent.",6
-fomc-corpus,1987,Good.,2
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"First of all, in view of all this impressive evidence, I was wondering how people used to conduct monetary policy before we had all these high-speed computers.",31
-fomc-corpus,1987,"Targeting the federal funds rate, I think.",10
-fomc-corpus,1987,"Right. I'm looking at your chart 18, which in a way talks about what you can call the efficiency with which you know of the various measures. Especially for the first year or two, or the first six to eight quarters after your shock, M1A seems to be so much more superior to M2 than M1.",67
-fomc-corpus,1987,This follows page 16 in the thick memo.,10
-fomc-corpus,1987,"Yes. One could argue that that is a very powerful argument in favor of M1A, especially over a horizon of a year or two. I was wondering, first of all, why you don't give a lot of emphasis to that particular measure. And, second, would you address the argument that the narrow aggregates are more closely under our control and therefore particularly suited as targets, rather than as broader indicators of what is going on in the economy?",90
-fomc-corpus,1987,"Okay. With regard first to M1A, I guess we haven't given it more emphasis because we really didn't trust the results. This is derived from results over the 1970s into the very early 1980s and is specific to the model; that is the period over which the model is fit. Over that period, we find that the income elasticity of demand deposits, M1A--which was M1 for much of that period in any case--was very high relative to the interest elasticity. When we extend the models out to the last few years, we find fairly large misses in the demand deposit model. Furthermore, those misses seem to be correlated with interest rates--that is, we had much more growth in demand deposits in 1985 and 1986 than the model that generated this chart would have predicted. And we had much less growth in 1987 than the model that generated this chart would have said we should have. Our conclusion was that this ratio didn't represent reality in 1987--that interest elasticities were probably much higher than in the time period that went into this modeling exercise and the historic relationships it represented. That's why we didn't put more weight on it. In addition, we did look at a more complete exercise in which we ran the whole quarterly model assuming a certain path for money growth. And that helps; that puts in some of the errors in the equation that feed back into that modeling process, more so than just comparing elasticities. And that showed M1A as better than M1 or M2, but the superiority was not nearly as clear as this. So, even within the period of fit, the errors in the M1A equation are larger, and it looks like the out-of-sample errors are even larger. That's why we didn't put so much weight on it. In terms of controllability, it seems to me that we have a tradeoff here in terms of what we can control versus what is related to income. Obviously, we can control currency and reserves very closely, but the question is whether they have a reliable relationship to income. What we are finding is that the narrow aggregates, which I agree we can control more closely, are less well related to income. They seem to be more interest elastic than the broader aggregates, which I agree are more difficult to control. But, I do think that over a targeting period of a year, we could have hit our M2 target if we had wanted to. That is, if we had come to the middle of the year, and M2 was at the bottom or below its range and the Committee had said to Mr. Sternlight, ""Operate to hit your M2 target"", he could have done it. Interest rates would have been a lot lower. The whole world would have looked different, but we could have operated to control that aggregate if that's what the Committee had wanted to do, even though it doesn't fit with reserves very closely.",597
-fomc-corpus,1987,Are you saying that--,5
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"Don, I think you made an excellent case for not targeting M1A or Ml for the coming year. Do you entertain any hope, as I do--although it's becoming a lingering hope, I guess--that at some point depository institutions are going to alter their pricing procedures on NOW accounts and OCDs so that they will reduce the interest elasticity of M1 and make it a better target? Or is there hope that the demand for M1 will become more stable as this adjustment process to deregulation goes further?",104
-fomc-corpus,1987,"Yes, but I guess the honest answer is that a year ago, I had more hopes than I have now. We have had a year of additional experience with NOW account adjustments and part of what has happened is that they continue to be very sluggish. I harbored the same hope that you did a year or so ago. And, in fact, the Super NOW accounts used to adjust more rapidly; but now those accounts behave as one big lump and tend to adjust more slowly. It could get more rapid. Or if we do get into a noninflationary situation, or back into a situation in which interest rates fluctuate over a narrower range around a lower level, then you might have a situation in which these interest elasticities are less important. But if we have swings in rates of the sort we have had over the last 7 or 8 years, then I think we would have huge movements in velocity as a result. I haven't given up hope entirely, but I have to confess I'm less hopeful than I was.",207
-fomc-corpus,1987,"I will confess to this group that, with considerable pain, I share that feeling.",17
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"You used the wealth variable in your demand equations too, right?",13
-fomc-corpus,1987,In M2.,4
-fomc-corpus,1987,"In the M2 demand equation that was used in this paper, which is not the same one that is used in the quarterly model, we used wealth only as a short-run adjustment kind of thing--that is, a big change in wealth will cause velocity to deviate for a short period of time from its long-run equilibrium. And, in fact, the wealth variable that fit best here was one that didn't include stock market wealth. Now, in the quarterly model equation, which hasn't done as well as the one reported here, it builds up from M1 and adds the non-M1 part of M2 and then wealth comes into play more directly as the scale variable rather than income as the scale variable. But we have found the one reported here to be much more successful over the last few years.",161
-fomc-corpus,1987,What wealth variable did you use? What was the one without the stock market?,16
-fomc-corpus,1987,I think it was household wealth excluding land and stock market [holdings].,15
-fomc-corpus,1987,What kind of coefficient is on that?,8
-fomc-corpus,1987,It's a very low coefficient; it's not very significant and it's very transitory in its effect.,19
-fomc-corpus,1987,"I see. But, it had--",8
-fomc-corpus,1987,"That includes M2, then?",7
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,And if you take the stock values out that would not be an insignificant part of the wealth variable.,20
-fomc-corpus,1987,You would have homes and consumer durables; I think that probably dominates the levels of the series.,20
-fomc-corpus,1987,But that means [unintelligible] taking the M2 out before you do the--,19
-fomc-corpus,1987,I'm not aware of--,5
-fomc-corpus,1987,We have to find that.,6
-fomc-corpus,1987,"Excuse me, the model [expert] is here.",12
-fomc-corpus,1987,"I believe that's right; M2 is still in that wealth variable as it exists in the model. We have tried excluding it and leaving in the stock market in some of our equations. [Unintelligible.] I would add that that wealth variable is a little problematic, as was pointed out. It's something we would prefer not to have hanging around the edges of this equation. But, it has come in significantly [in the regressions] and until we can figure out how to handle it in a better way, in a structural sense, and figure out, for example, what is really determining money demand that isn't captured in services, food, [and other expenditures], it makes a lot of sense to leave it in and sort of--",149
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"I have a couple of comments that I'd like your reaction to. As I understand what you're saying, one of the reasons you're uncomfortable with the narrow aggregates is that this relatively high interest elasticity makes them, in some sense, not very good as automatic stabilizers.",52
-fomc-corpus,1987,That's correct.,3
-fomc-corpus,1987,"But I guess I would ask: What is the alternative? It still seems to me that these aggregates are preferable to targeting interest rates, for example, and trying to adjust interest rates if you get a positive or negative spending shock. Secondly, I agree that the body of evidence you have here doesn't demonstrate very convincing superiority of M1A or M1 relative to M2, but I think you can turn that statement around: I don't think it demonstrates the superiority of M2 versus M1 or M1A either. In fact, I view all this as somewhat of a tossup. I was a little surprised at Bob Black's negative reaction to this because I don't see any very strong reason for preferring one to the other on the basis of all we have here.",155
-fomc-corpus,1987,"M1 does lose most of the horse races, however they are handicapped. But so far as M1A and M2 are concerned, I have to agree with you--there isn't much to choose from there. But the issue is whether the Committee wants to view this as a question of ""Should we target interest rates or should we target the aggregates?"" I think the exercise really [addresses the issue of] what weight we want to put on any one thing, given that we're looking at a whole array of things.",105
-fomc-corpus,1987,"Don, if [unintelligible] implicit in both M1 and M1A is the required projection of the growth rate, which is a much larger number than in M2. Can you hear me?",43
-fomc-corpus,1987,"Yes, of the growth rate, you said.",10
-fomc-corpus,1987,"In other words, the trend.",7
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,"If one is dealing with a trend value of say 1 percent, or something like that, versus 0.2 or something close to 0 with M2, one should at least intuitively argue that the potential variation in any particular period in the trend value is more likely to be mis-estimated with the narrower monetary aggregates than a broader one. At least that's what history seems to suggest. I wasn't aware in the memorandum that that element was brought into the horse race evaluation.",97
-fomc-corpus,1987,"It was indirectly, in the sense that the way the horse races were run, to the extent that the trend embodied in the equation was wrong, that would show up in the error. So we simply discussed--",42
-fomc-corpus,1987,"Unfortunately, the problem is that you can't pick that up with the particular history you are dealing with.",20
-fomc-corpus,1987,I don't know that it would necessarily be the case a priori that one would have more confidence in a trend of 0 than in a trend of 1 or a trend of 1-1/2. I think in this case--,48
-fomc-corpus,1987,I would.,3
-fomc-corpus,1987,"In this case, it's true because the nature of the narrow aggregates has been changing, with the addition of OCDs into M1 and the deletion of those deposits that used to be in demand deposits.",40
-fomc-corpus,1987,It has.,3
-fomc-corpus,1987,"So, because of the changing character of the aggregates, I think you're right.",16
-fomc-corpus,1987,"Well, I think what is relevant here is the time frame. If I would tell you 20 years, clearly the argument would have to be that it's more likely that the M2 trend would be more projectable than the M1A or the M1 trend. Therefore, if it's true with 20 years, then the argument really gets down to what time frame you're talking about. Well, I've always been worried about that because I was convinced that at some point or other, we would project and find out it went in the other direction. Bob Parry.",114
-fomc-corpus,1987,"Don, when you were talking about chart 18, you made the comment that you thought the current interest elasticity on M1A was probably greater than what showed up in that statistical exercise. That's probably also true of the other aggregates as well, isn't it? My question is: What has happened to the relative elasticities of the three aggregates and do you have conclusions on that?",76
-fomc-corpus,1987,I think M2 is less of a concern because a lot of the [unintelligible] we are talking about are within M2.,29
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"Surprisingly to me--and I think it's perhaps a touch of luck here--we haven't done all that badly projecting the OCD component of the M1 equation, considering that it has swung around by 10 to 20 percentage points in growth rates over the last few years. If I look at the errors in the equation, the largest ones are in the demand deposit portion of the equation.",78
-fomc-corpus,1987,The biggest change would be in M1A?,10
-fomc-corpus,1987,That would be my conclusion.,6
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"Well, I have another idea that I want to lay on the table. Would this be an appropriate time?",22
-fomc-corpus,1987,It depends if it's on this subject matter or not.,11
-fomc-corpus,1987,"Well, it has to do with aggregate targets.",10
-fomc-corpus,1987,That's about it.,4
-fomc-corpus,1987,"I have two comments about the environment we're dealing in. First of all, there is a lot of uncertainty about exactly how policy is being conducted in the long run. It's not unusual, but I think this is one of those times when there are those kinds of questions in the marketplace. And the kind of discussion we are having right now is very, very healthy in terms of talking about different approaches. But, on top of the uncertainty that I perceive in the marketplace and some of the difficulties with the aggregates and with interest rate targeting that we have talked about, I'd say that we are now in a period--and I think it will be exacerbated--when there is going to be a conflict between the pressures we face domestically and the pressures we face internationally in terms of how policy is conducted. And, I think there would be no better time to have some kind of an intermediate target or guide. What I wanted to put on the table was the idea that had been mentioned earlier of looking at a monetary base target of some sort. There is no question that we can control that, and I think it's a good indicator of the thrust of policy. I don't have any delusions about the ability to pick a specific growth rate of the base and say we therefore expect nominal GNP to do ""Y"". Some of the work we have done on the base and income relationships would indicate that the relationship is no worse than M2, for example. But, that's not really what I have in mind. I think it is possible to select a relatively narrow channel in terms of possible growth rates for the base that in the long run would be consistent with satisfactory economic performance and, at the same time, preserve in the short run the latitude to react to all the various types of incoming data that we react to now. In other words, this approach I'm describing would allow for discretion in the short-run conduct of policy but at the same time--assuming we were to stick with it --it would take away some of the extremes in possible policy results in either direction: that is, very simply, either too tight a monetary policy, or too easy a monetary policy. Right now, I don't think we have a lot of confidence in the other aggregates and I don't think the marketplace pays that much attention to them. If we were to substitute some kind of a base target, first of all, I think the announcement of that would carry with it a considerable positive impact just because the market would know in general what policymakers are going to be looking at in the conduct of policy. And this channel that I have talked about would tend to eliminate uncertainty and increase credibility. I think the existence of a target like that--if I'm right about the type of environment that we are in and that we're apt to be in next year in an even more important way--could be used to diffuse domestic and international pressures, to do something in the short-run conduct of policy, particularly to influence rates. And in the long run, if pursued religiously, I think it would tend to result in more stable and more balanced economic results. So, I guess what I wanted to do was put the idea on the table. We've done some work, and I think we have to do a lot more work, but if there were any support for that kind of idea, maybe with more background work done it's something that could be discussed more thoroughly at the February meeting.",686
-fomc-corpus,1987,Would anyone like to comment on that?,8
-fomc-corpus,1987,"Mr. Chairman, I share Tom's longing for something like that that we can anchor our decisions to; otherwise we have nothing but a series of ad hoc decisions that are disconnected to a certain degree. I feel very uncomfortable with that because I don't think we're really smart enough to do it. If there is something we can hang our hats on, I sure would feel a lot better. That's why I'm so disappointed that M1 has lost some of that value that it once had. I would encourage experimentation along these lines. There has to be something out there that we can hang our hats on.",119
-fomc-corpus,1987,I'd like to comment on that.,7
-fomc-corpus,1987,Go ahead.,3
-fomc-corpus,1987,"I think that's right. [It would be desirable] to have a sense of credibility that we could set a target and hit it consistently. But the problem is that I don't think the base velocity has done much better than the velocity of other aggregates. So, if we consistently hit a target set on the base, we certainly would have credibility in hitting the target, but would that credibility extend to economic performance? There is still the question of where to set the target, and whether or not the target is accurately set relative to what we want to achieve in terms of the desired results for the economy. And I think there is still a big problem with a base target from that point of view.",139
-fomc-corpus,1987,"Well, just to repeat one thing I said: obviously, you would not use it in the short run to operate policy. But I think you probably could pick a band of something like 2 percentage points or so --just looking at data for the 1980s, for example--that you could argue would give you plenty of latitude in either direction to get satisfactory economic results, to meet your long-term objectives.",84
-fomc-corpus,1987,"Well, one of the problems is that the base is so dominated by currency; it's two-thirds of the base. We have a period right now where there's a big surge in currency; and to hit a base target, even with some variation [allowed], we probably would have to drain a substantial amount of reserves.",63
-fomc-corpus,1987,"Well, this is an extraordinary time.",8
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"It may be one of those times when we wouldn't stick with the target. But we would have to announce that and we could explain it very straightforwardly; it doesn't come down to explanations like, ""Well, velocity changed"", which is not all that credible after a while.",55
-fomc-corpus,1987,"But you don't know what part of that currency item is drug money or what. That used to be a joke, but I suspect that it's probably getting to be something that would require some--",38
-fomc-corpus,1987,Would you believe it? I heard something on the radio that's just incredible: that samples of currency were taken and 9 out of 10 of them had traces of cocaine on them.,37
-fomc-corpus,1987,Is that right?,4
-fomc-corpus,1987,Yes. Did you hear that report? It's just incredible that you can find significant traces of cocaine on 90 percent of the currency.,27
-fomc-corpus,1987,"See, I told you Wayne, it's too dirty!",11
-fomc-corpus,1987,That was in Berkeley.,5
-fomc-corpus,1987,"A long time ago, before Tom dropped his bombshell, Governor Seger wanted to say something. Did we distract you or--",26
-fomc-corpus,1987,"No, I just had a question.",8
-fomc-corpus,1987,Go ahead. Why don't you raise it so we get back on track?,15
-fomc-corpus,1987,"I just wanted to ask Don what would happen if all of a sudden Congress saw the light and allowed interest to be paid on demand deposits. Individuals can go into NOW accounts and, in effect, receive interest on checkable accounts, but corporations or businesses can't. It seems to me that part of the problem is having these two groups treated in a different way.",72
-fomc-corpus,1987,"I presume there would be a surge in demand deposits at that time. Interest is paid implicitly now, to the extent that firms get credits for their compensating balances in terms of services they receive. But, it is also the case that they don't get any credits for excess balances any more; and there are a lot of zero balance accounts, where the excess is put into RPs or whatever. The incentive to engage in that kind of deposit-minimizing behavior obviously would be very much reduced if interest were paid on demand deposits.",106
-fomc-corpus,1987,"Also, the Treasury doesn't collect any revenue when balances buy services.",13
-fomc-corpus,1987,"But that would raise the interest elasticity, wouldn't it?",11
-fomc-corpus,1987,"Secondly, didn't you say--I read so much for this meeting I may have just dreamed it--that within the demand deposit category most of that is, in fact, business accounts? If that's the case, then I think the interpretation ought to be different, because I've never met a big business or small business that decides to buy a new dump truck or put an addition on a building because they have more money in their checking account. I just don't think they operate that way. Maybe I would as an individual, or my cousin would, but I think we have to look at how we interpret these things because of the change in the ownership of the accounts.",132
-fomc-corpus,1987,"I think only about 26 percent of demand deposits now are household deposits; and before the advent of NOW accounts, it was closer to 40 percent. So, the composition has changed and I think that accounts for some of the change in interest elasticity. I guess I was never a fan of that real balance effect--that you throw money at people and they automatically spend it. It seems to me that for households as well as businesses it was part of a complex process in which the Federal Reserve changed the liquidity in the economy, and that changed interest rates, incentives for spending and saving, and exchange rates.",122
-fomc-corpus,1987,Vice Chairman.,3
-fomc-corpus,1987,I'd like to speak to Mr. Melzer's suggestion. I would have great difficulty with anything even remotely resembling a monetary base operating procedure in the immediate time frame.,33
-fomc-corpus,1987,"Could you speak up a little, Jerry, please?",11
-fomc-corpus,1987,"I'm saying, Roger, that in the immediate time frame I would have great difficulty with anything even approaching a monetary base operating target. I say that for several reasons. First of all, I have never understood the base to begin with. I have read all the great work that has been done in St. Louis and every place else. But, to me, the thing itself is kind of a pig-in-a-poke. And since I don't really know what it is, I'm not about to put too much reliance on it as a steering mechanism for monetary policy. More importantly, in the current circumstances, I'm very skeptical that the market reaction would be the one that you are suggesting. Having said that, I certainly share the frustrations associated with the current approaches to policy. But, given all that has happened in the last few years, especially with any formulation of monetarism that I'm familiar with, including a base formulation, I think the reaction of the marketplace to a policy approach like that would be, ""Oh no! This ensures a renewed and high degree of instability in interest rates."" And I suspect that people would take to the hills rather than raise the flag, because of fears of a great deal of instability and volatility in interest rates that we haven't seen in many years. Finally--I keep coming back to this--I, too, am frustrated by the lack of a nice firm handle for monetary policy. But let's not lose sight of the fact that despite all the limitations, the performance of the economy over the past several years has hardly been something we need to apologize for. I think economic performance, all things considered, has probably been as good as it reasonably could have been. Again, that does not mean that I am insensitive to the frustration that you're speaking from, Tom; I share that completely. But I'm very dubious that the base is a way out.",375
-fomc-corpus,1987,"Jerry, the only thing I would say is that if you look back over the experience--and I just eyeballed it, this isn't econometric analysis--at the points in time where there were inflection points in policy in one direction or another, this sort of approach I have outlined would have been consistent with what I said. That indicates to me that, at the extremes, something like this could be helpful.",83
-fomc-corpus,1987,"But that's, in part, because you have an identification problem. One of the reasons you see that commonality in inflection points, of course, is that when you look at the base, or at least part of the base, you are looking at the same things that people were looking at anyway--reservable deposits, as they have changed over time. I could almost argue that what you really should do is go to the opposite extreme. I don't really believe this, but to overstate it a bit, I could make a respectable argument that something like debt--to go the Frank Morris or Ben Friedman route--actually has been more useful in many respects than any of the other money or credit aggregates in recent years. I don't really believe that, but certainly I could make a point of argument out of that. In other words, if anything--forget about debt--it should be going in the direction of something broader rather than something narrower. As I said, the big worry I have is the market reaction. I really do think that if we went out and told the markets tomorrow, ""Guys, come hell or high water, we're going to make the base grow by 5 to 7 percent, or 3 to 5 percent, or 4 to 6 percent"" the marketplace would batten down the hatches.",269
-fomc-corpus,1987,"Jerry, how about the European central banks that have a base target?",14
-fomc-corpus,1987,"First of all, in the notable case of Germany, it's different; it's not the same thing. Second, if you take Germany as a case in point, right now of course, they are missing the target in a very systematic way. That is part of their problem.",55
-fomc-corpus,1987,You can argue that they hated it being a miss.,11
-fomc-corpus,1987,"Yes, but I think Tom wouldn't argue that you would stick to the target in the German situation right now. He would say that if circumstances make you believe that the demand for money has increased, you would be willing to go above the target. You would set a series of short-range targets so that you would accommodate that increased demand for money--an increase in demand for central bank money, in that particular case. I think that's what I heard Tom say: to handle it not in a rigid way by saying ""here's the target and you are playing along with it"", but to adjust it in the light of circumstances as you see the economy and prices evolving, and so on.",137
-fomc-corpus,1987,That's what we're doing right now with the monetary aggregate targets.,12
-fomc-corpus,1987,It's the same problem: base velocity and monetary velocity itself.,12
-fomc-corpus,1987,Except that he says that some of that we can control more readily than the broader numbers.,18
-fomc-corpus,1987,"Yes, but if it's not reliably related to income, the fact that you can control it is not very relevant to policy. I've been sitting around this table for 19 years now, and I've concluded that the search for an indicator for monetary policy that will overcome this yearning is a complete waste of time. I think history shows that there is no suitable indicator for monetary policy that is going to give you reliable nominal GNP results. It's a waste of time to look: the world is too complicated; the world is just too complicated. What we really have to do is go back to the kind of thinking that was around the table when I first came to the Federal Reserve under Bill Martin, and that is leaning against the wind. And I think the--",151
-fomc-corpus,1987,Then the wind becomes the target.,7
-fomc-corpus,1987,"Really, leaning against the known wind when nominal GNP is really the target, except we don't want to admit that in public for very good reasons.",30
-fomc-corpus,1987,I hope you wouldn't let the public know!,9
-fomc-corpus,1987,"But it's the same problem. If you don't know how velocities behave, you still can't hit nominal GNP. You have the same problem.",28
-fomc-corpus,1987,But you know what direction you want monetary policy to move. The amplitude is where the problem of judgment comes in.,23
-fomc-corpus,1987,"But, if this is as unreliable as you say, suppose nominal GNP is not growing fast enough and you push interest rates down and the money supply slows down. You really haven't necessarily moved in the right direction, even though--",46
-fomc-corpus,1987,"Well, if interest rates are going down, you're going to have an expansionary movement in the economy regardless of what your money supply does.",28
-fomc-corpus,1987,Sometimes.,2
-fomc-corpus,1987,Roger Guffey has been trying to get a word in.,13
-fomc-corpus,1987,"I've forgotten what I was going to say. Well, given the fact that we have to set growth targets for something under the Humphrey-Hawkins Act, what has come out of this paper, it seems to me at least, is that M2 is perhaps the best of what may be bad choices. M1A may be about the same, but given the fact that M2 is better understood by the public and the markets, I would continue with M2. There's one other aspect--and I'm not quite sure that this is correct, but my recollection is that Canada has in recent years set a target over a longer horizon than one year. I think perhaps it's a two-year target with a moving base and they use that merely for the purpose of determining whether they are above or below the trend line of growth that they were shooting for. That has some attractiveness to me, and I think that may be what we should be doing with M2 over a longer-term horizon. I think Canada abandoned that, simply because they determined that it was more important for them in current times to focus on exchange rates, relative to the dollar principally, rather than to hit a monetary target, however they defined it. So, it seems to me that we are talking about two different things. One is how we would manage monetary policy in the very short run through these intermediate periods; the other is what we should be focusing on, and that is a horizon, and probably for M2, over a one-year or two-year period.",307
-fomc-corpus,1987,"With respect to the Canadians, part of what you said is certainly correct: they had a longer time period. They didn't adjust [each year]; they didn't always go from fourth quarter to fourth quarter.",40
-fomc-corpus,1987,Sure.,2
-fomc-corpus,1987,"That is correct. They abandoned the target partly for exchange rate reasons, because it was so sensitive, but there also was the conflict between the relationship of the monetary aggregates to the economy relative to what they were [unintelligible] the exchange rates. The main reason they abandoned it was because the relationship between the aggregates and nominal GNP broke down for financial deregulation reasons. And, in fact--",81
-fomc-corpus,1987,"And, in the short run--",7
-fomc-corpus,1987,"Well, for a long period of time. They abandoned it in 1982, five years ago. I don't know if they can go back, particularly to something like an M2 target, because they have this financial deregulation in mind to play with. It is true that they had a somewhat longer horizon, though I don't think you described it exactly the way--",74
-fomc-corpus,1987,"They were hitting the target, but nothing else was happening right.",13
-fomc-corpus,1987,Because of deregulation?,5
-fomc-corpus,1987,Probably.,2
-fomc-corpus,1987,"They had different base points. And sometimes they extended the targets longer into a year, until they changed the base, and then they went back and picked up a new base. I think it would be rather difficult for us to do that, given the structure of Humphrey-Hawkins; I suppose it might be more difficult to do it for Humphrey-Hawkins. Also, the base period could be varied--like taking the base in the second quarter and projecting up to the end of 1988. That would put you partly in the Canadian-Japanese [unintelligible].",119
-fomc-corpus,1987,"Tom, after hearing all those positive contributions, you may want to think about it and write a memorandum or something like that for circulation. Perhaps we could discuss it at the luncheon meeting the next time or something.",42
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,"I think Frank Morris is right in that it's a futile exercise, but I don't think--",18
-fomc-corpus,1987,"If you could rationalize--and this is a big if--the whole structure of reserve requirements and all the rest of it, that would make a base measure at least more understandable. In other words,--",41
-fomc-corpus,1987,It's the currency that's bothering you?,7
-fomc-corpus,1987,"Well, it's partly the currency, but it's also the crazy quilt pattern of the relationship between reserves and other things because of a crazy tiering of reserve requirements, and the reserves on nonpersonal deposits and certain Euro-liabilities, and all the rest. If you had a clean, plain-vanilla kind of structure of reserve requirements that would help a bit, because one problem you get into here that complicates it further--beyond the currency problem--is the so-called multiplier between the reserve component of the base and ""money"".",107
-fomc-corpus,1987,Of course--because of the huge differences in the reserve requirements on the various different elements.,18
-fomc-corpus,1987,That's what I mean by the crazy quilt structure of reserve requirements.,13
-fomc-corpus,1987,But it was a politically determined structure of reserve requirements.,11
-fomc-corpus,1987,"I wouldn't want to dismiss the base too quickly, though. We have done some of these horse races in the last several months as well; and somewhat to my surprise, in terms of the stability of the relationship to income, the base tends to win, though not by wide margins.",57
-fomc-corpus,1987,"Yes, but all horses lose.",7
-fomc-corpus,1987,"Yes, right.",4
-fomc-corpus,1987,Some are better than--,5
-fomc-corpus,1987,Some lose.,3
-fomc-corpus,1987,"I think Frank is right: we are not going to find one variable. On the other hand, if we're looking at a range of variables, I think the base deserves some consideration.",37
-fomc-corpus,1987,President Hoskins.,4
-fomc-corpus,1987,"I guess this has been a nice trip back through Federal Reserve policy in the last 10 years. I think the only term I haven't heard was RPDs. Some of you may remember that one. Do you remember that? That [unintelligible] when I left the Federal Reserve System the last time. So, it was a fascinating trip, and the debate about the base certainly brings back the old fervor for everybody. But I don't think Tom's suggestion was that we ought to install the base as a target and use it right now. I think the suggestion was that we ought to take a look at it and maybe get the Board staff to take a look at it, too, since some new work has been done. We just had a paper presented at the Cleveland Bank by Ben McCallum that you might want to take a look at. From my point of view, policy has been wise for five years, but the inflation rate has not been down for five years. Not that the base is going to cure that, but if we're looking for a long-term message or consensus on inflation, then we may want to take a look at something like the base to help us get there, not as the end-all.",249
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"It seems to me that the important thing that has been mentioned here is that even if we don't find something to stay with forever, it is certainly true--and we all recognize it--that price levels and inflation do have some long-run relationship to the money stock, however we define it. And I guess that's why I would depart a bit from Frank's observations. It seems to me that it makes some sense to stay with some [unintelligible]. I get a feeling that the monetary base reflects a lot of the other, but it has a little of a true believer element to it and it may not be all that helpful at this point. The question I want to direct to Don would be this: Since the Humphrey-Hawkins Act does require, in a sense, that we think there is a long-run relationship, those long-run income and price level elasticities were very impressive, I thought.",184
-fomc-corpus,1987,"Well, that's partly by assumption. I am completely up front about this. In the--",18
-fomc-corpus,1987,"Well, there's just no doubt; I think everyone accepts the fact that in the long run the rate of growth of the money stock is related to the rate of change of the price level.",38
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,"And that is important. The Humphrey-Hawkins Act, as Roger Guffey mentioned, does not require us to target M3, and we have not been talking about M3 here, yet we continue to target M3. If we are going to target two aggregates, would we be better off targeting M1A and M2 or would you suggest targeting M1A, M2, and M3? What is there to be said for targeting M3 over targeting M1A?",101
-fomc-corpus,1987,"We haven't done as much work from the demand side on M3, which is a good reason why it doesn't get the emphasis here. That's because we consider M3 to be primarily a supply-determined aggregate [unintelligible] to the growth of bank and thrift credit. But to the extent that that credit has some relationship to underlying activity, then M3 would have some--",77
-fomc-corpus,1987,"Well, I'm not all that impressed by the fact that we can hit it; I'm more impressed with the fact that if we have a money stock target that we are aiming for and we miss it, we ought to be able to explain why we are missing in the direction we are missing. I suppose commodity prices might help to explain some of that.",70
-fomc-corpus,1987,And you miss [unintelligible]. Bob Black.,12
-fomc-corpus,1987,"Mr. Chairman, I would just like to take issue with Jerry Corrigan a little about the reserve requirement system being irrational. It is rational if you think M1 is the thing that you ought to control because all the requirements are lagged except those against M1 deposits. So, if M1 were really what you wanted to control, you would figure out how much you needed in reserves for those other types of deposits, supply that, and anything else you put out would be used to support M1 and only M1. If M1 is your target, the only thing that would be more rational, I think, would be to have 0 percent requirements against everything that wasn't in M1; but, if M1 is of no value anymore--although I think it once was--then it is irrational. The reserve requirement system was set up that way because at that time the prevailing feeling was that M1 was really the best of the targets. And I think it was.",198
-fomc-corpus,1987,"I don't think that's the reason. The reason was that, in order to get the thrifts to sign onto the Monetary Control Act, we had to have a system that didn't generate [unintelligible] with reserve requirements on the thrifts. And, that's the reason for the structure. It had nothing to do with--",66
-fomc-corpus,1987,"No, I'm talking about the fact that we lag some reserve requirements and don't lag the others.",19
-fomc-corpus,1987,"That wasn't my point, though, in the first place.",12
-fomc-corpus,1987,Okay. I thought I finally understood something and now I find out I haven't understood that either!,19
-fomc-corpus,1987,"That's only one part of my point. My point simply is that the relationship between the reserve component of the monetary base and anything else, whether it's an M, or GNP, or whatever, is itself subject to a lot of distortion because of what I call the overall crazy quilt--not necessarily irrational--pattern of the structure of reserve requirements.",69
-fomc-corpus,1987,"I agree with that on the monetary base. And when I said I had sympathy with Tom, it wasn't that I was favoring a monetary base. I meant that I had sympathy for some kind of an anchor to hang policy on, and if he could demonstrate [unintelligible]--",59
-fomc-corpus,1987,"[Unintelligible] of the reserve requirements are on demand deposits. And hence, we assume that the required reserves are a proxy for demand deposits and currency in use. We have some noise, but substantially what we have now is reserves on M1A plus some reserve requirements on large CDs and a variety of other reserves on other things. It's interesting, when you take a look at the monetary base, to subtract those elements out and see whether, in fact, you're getting the M1A effect that Don was getting, or whether there is something independent there.",114
-fomc-corpus,1987,The weight of currency is much higher in the monetary base and that's--,14
-fomc-corpus,1987,"Of course, sure.",5
-fomc-corpus,1987,That's a major difference.,5
-fomc-corpus,1987,"Well, I don't think the use of the base as a target will necessarily imply a steady rate of growth in that. You would figure out what non-monetary liabilities were using up in the way of reserves, supply that and then supply the amount you thought was necessary to support whatever kinds of monetary aggregates you wanted. That doesn't say to me that it has to be a steady rate.",78
-fomc-corpus,1987,I think that's right.,5
-fomc-corpus,1987,"Si Keehn, have you any thoughts on this that you'd like to express to your colleagues?",19
-fomc-corpus,1987,You might not want to ask him; he may have gone to sleep!,15
-fomc-corpus,1987,"At this point, I have nothing to add to the discussion that hasn't already been said a couple of times at least. But, hearing the conversations and reading the paper, I don't find any compelling reason to shift to M1A or to add it as a target. I would not be in favor of targeting a narrow aggregate. Jerry Corrigan made the point earlier that I think is very appropriate: whatever we are doing, we are doing pretty well. I think the economic results have been good. Utilizing, say, M2 and M3 in the way that we have has been an appropriate way to do it; the results have been good, and we ought to continue with that.",138
-fomc-corpus,1987,"Anyone else have anything more to say on this subject? Si, are you going to be able to make it tomorrow?",24
-fomc-corpus,1987,"Well, while this conversation has been going on, we were told that it is snowing again and both airports are again closed. But, we're a bit hopeful that we can get out.",38
-fomc-corpus,1987,We wish you well.,5
-fomc-corpus,1987,It sounds like M1.,6
-fomc-corpus,1987,"Si, are you counting on me to come in tomorrow?",12
-fomc-corpus,1987,"I'm counting on you, Bob!",7
-fomc-corpus,1987,"Why don't we do this? On the presumption that Si will be able to make it, why don't we adjourn the meeting as of now and reschedule for 9:00 a.m. Eastern time tomorrow morning, if that's okay with you. I don't know whether or not that makes it more difficult for you, Si.",67
-fomc-corpus,1987,"We'll work with it. It's either going to work for us both or not. And if it doesn't, if we could again participate on the phone tomorrow, I'd appreciate that. I'm not going to know for another hour or so whether or not we can make it out. I'll let Norm Bernard know.",60
-fomc-corpus,1987,"Okay, 9:00 a.m. it is. Thank you. December 16, 1987--Morning Session",25
-fomc-corpus,1987,"In reconvening the meeting, the first order of business is Mr. Cross on foreign currency operations.",21
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Questions for Mr. Cross?,6
-fomc-corpus,1987,I would just ask Sam: How much do we have--I am talking about the System and the Exchange Stabilization Fund--as a cache of marks and yen that we can draw upon in the future without swap arrangements?,44
-fomc-corpus,1987,"We have far more marks than we have yen for the Federal Reserve and the Treasury combined. We have about $11.6 billion worth of marks, but only about $1.6 billion worth of yen.",42
-fomc-corpus,1987,"That means, if we were to continue [intervention purchases of dollars] for a very long period of time, we would have to use our swaps.",31
-fomc-corpus,1987,"We would have to get some more yen from someplace; $1.6 billion is not all that big. The fact is, for example, that we did $1.6 billion in all currencies in the past six weeks.",46
-fomc-corpus,1987,"Sam, if the official intervention dries up--I don't mean totally dries up, but if it shrinks--what dynamics does that set in motion? The market still has to clear. Does it clear at a lower level by sucking in more private sources or--",52
-fomc-corpus,1987,"I assume it tries to suck in some financing from some source. But that raises the question of on what terms and whether the dollar would have to become more attractive both through stability and through interest rates to attract any funds, official or private. We still have a pretty big deficit; we're predicting a $135 billion deficit for next year in the current account. So, if you look ex ante and ask people how much they plan to increase their exposure to dollars next year, I doubt that it would come anywhere close to that number. Ex post, undoubtedly, somehow or other our current account deficit will get financed. It's a question of how.",128
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,"One of the reasons we haven't had a faster turnaround in our current account deficit is that the fall in the value of the dollar has not even come close to being matched in terms of increasing import prices. It seems to me that exporters to the United States can have shrinking profit margins and try to hang on to market share, but with the kinds of shrinkages in margins that are at least implicit in this kind of drop in the dollar-import price relationship, I think a lot of these exporters to the U.S. have to be hurting pretty badly. I don't know how one measures that--whether there's any anecdotal evidence or any evidence whatsoever. But do we have any sense that we might be seeing more of this dollar shrinkage showing up or coming through more in higher import prices?",156
-fomc-corpus,1987,"Well, I'm sure everybody has his own experience on all of this. There are these factors: obviously, people who have markets don't give them up very easily; also, a country like Japan has a big import component in a lot of its exports and, therefore, the exchange rate can affect both sides of the equation. I agree with you that when a currency falls by 50 percent--and we're just about at 50 percent of the level of the mark and the yen--that can't be absorbed through lower profit margins. The people we talked to on the export side seemed to be sounding a lot better. Now, another problem is that some of the deficit is shifting, or is covered by countries such as Taiwan. Taiwan has a surplus of $25 billion all by itself, and it's a tiny economy relative to that size surplus. So some of this deficit is coming from countries that have not had anything like that kind of change in the exchange rate vis-a-vis the dollar.",196
-fomc-corpus,1987,"We have taken a look at this question recently in trying to get a better handle on domestic production costs and how they have been moving in some of these countries over the last several years. The work that we've done suggests that there probably has been more saving on domestic production costs than aggregate measures of prices in some of these countries would suggest. That, in turn, would suggest that there has been less of a [decline in] profit margins than a 50 percent decline in the dollar would lead one to think initially, though all things working together do produce the results that you'd like, President Boehne. As a consequence, we have had less price increase and less decrease in quantity on the import side, though most of the aggregate equations have price elasticities that are close to 1. So, in terms of the trade balance and what you have to finance, it washes out. You get less price and, therefore, you get less quantity adjustment. Anyhow, the mix is a little different. As far as our forecast is concerned, partly based upon these considerations and perhaps some reluctance to project these trends in the future, as well as some factors like the rise in commodity prices, which have increased more over the last eighteen months than over the previous eighteen months, we have projected a much more rapid rise in import prices in the forecast period than we've had to date.",277
-fomc-corpus,1987,President Morris.,3
-fomc-corpus,1987,"Mr. Chairman, told me last week that their new problem loan area is in loans to which suggests that maybe some of these countries are beginning to hurt in trying to maintain their market share in the U.S. market.",44
-fomc-corpus,1987,That's a very interesting piece of new information.,9
-fomc-corpus,1987,"Of course, a lot of those manufacturing and export companies, up until recently, were making up for their income losses in exports by their activities in the financial sector. There's no question that--",38
-fomc-corpus,1987,That's a euphemism; speculating is all part of the picture.,15
-fomc-corpus,1987,"There's no question about that. That works in the same direction, of course--and land.",19
-fomc-corpus,1987,Any other questions for Mr. Cross? Si?,10
-fomc-corpus,1987,"Sam, lacking intervention, what's the comment in the market with regard to the lowest level that the market would expect against the mark and the yen? How much more [decline] can we get here?",41
-fomc-corpus,1987,"In what terms? Market pressures are down, and every time you pick up a newspaper, you have more economists talking about the need for x, y, z, including some who say it needs another 10 percent; while it was 12 and 15 percent they had been saying the same thing. I think the market people are pretty agnostic about this sort of thing. They look at these trade deficits, which are enormous; and they look at the government policies, which are ambiguous in this regard. They see the pressures and the consequences are pretty clear.",113
-fomc-corpus,1987,"My sense is that the forecasts, essentially, [unintelligible]. If anything, the prognostications are for an increasing rate of decline. Last year you might have seen something projected in the 3 to 5 percent range; now you frequently are seeing it built into the international component of a blue chip business. They are talking about an expected 10 percent decline through the end of 1988, or whatever point they set, whereas a year ago they were saying in the 5 percent range. Forecasters were wrong about the turning point. If anything, in that part of the market they are projecting a more rapid decline than they had been before by maybe--",136
-fomc-corpus,1987,"Ted, what is the futures market saying about the yen and the mark?",15
-fomc-corpus,1987,"The rate of decline against the G-10 countries is something on the order of 1 or 2 percent over the next year. If you look at just the yen market, it's on the order of three or four percent. So that's not anything like this. Essentially, that's where we have been for the last 2-1/2 years.",71
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I have one comment and one question. In the last ten days, I've been at two different embassies for dinners and the dinner table talk among business people involved how they thought the dollar had actually become undervalued vis-a-vis European currencies. Now, they were not talking [unintelligible], which I thought was interesting, because it wasn't a central banking group; it was a mixture of business people and embassy personnel. My second point is a question. You mentioned the Taiwan case and their gigantic trade surplus, etc. I'm mystified as to the process of getting some of those devils to adjust their currencies. What does it take? Does the Treasury have to lock them in a room? Does it take legislation or does it take negotiation of some sort? I honestly don't know the process.",162
-fomc-corpus,1987,"Well, the Treasury has been working on it. I think the Treasury so far has used all of the above: they've locked them in a room and they've tried everything. There has been some movement.",40
-fomc-corpus,1987,"But, it has been pretty pathetic, when you compare it to--",14
-fomc-corpus,1987,This will make it 20 percent in the past year.,12
-fomc-corpus,1987,What has Hong Kong's movement been then?,9
-fomc-corpus,1987,"Zero. But, if you look at it in terms of the surplus, Taiwan stands alone as having the largest imbalance. And, in fact as everybody knows, they have a large reserve. The three largest reserves are Germany, Japan, and Taiwan; and I think Taiwan's is higher--",58
-fomc-corpus,1987,Not necessarily in that order.,6
-fomc-corpus,1987,"No, not in that order. Taiwan, I think, is number two.",16
-fomc-corpus,1987,"Isn't it true, Sam, that the dollar did not appreciate against those currencies very much?",19
-fomc-corpus,1987,"That is true, it did not go up as much as they claim; it didn't [unintelligible]. Again, we are generalizing, but in terms of the Taiwanese dollar it did not appreciate as much when it was going up. But the surpluses have grown really unbelievably large. Meanwhile, there are these reports out there now that their dollar holdings have gotten to be so large that the governor of their central bank has been under enormous political pressure to get rid of these depreciating dollars and get some D-marks and so forth; and he seems to be doing that. So, that's not a very encouraging sign at all.",129
-fomc-corpus,1987,Isn't the decline since the beginning of the year of the Taiwanese dollar--,15
-fomc-corpus,1987,"Twenty-two percent is the figure I have in mind, but it's--",14
-fomc-corpus,1987,A little less than 10 percent against the yen.,11
-fomc-corpus,1987,I still think that the trade statistics suggest that something has to be done about those currencies if we really are going to improve the situation with regard to imports without building walls.,34
-fomc-corpus,1987,"Well, the Treasury is working on it.",9
-fomc-corpus,1987,"Including the question of [unintelligible], the closest thing to getting legislation without legislation. [Unintelligible] that Taiwan in particular enjoys, [unintelligible] all the events you have cited [unintelligible] legislation.",51
-fomc-corpus,1987,I can send them some alley toughs from Detroit.,11
-fomc-corpus,1987,[Unintelligible] Mr. Volcker's speech.,13
-fomc-corpus,1987,President Hoskins.,4
-fomc-corpus,1987,You used the number of $100 billion spent for six months of this year by G-10 countries.,21
-fomc-corpus,1987,"No, so far [this year]--11 months. That doesn't include Taiwan which is another and a lot of other countries. It includes only those that are on our concentration network, which is the G-10 plus some assorted European countries.",49
-fomc-corpus,1987,"I'm just curious: Has anybody speculated as to what we bought with that $100 billion and where we would be had we not spent it? And, secondly, you described a situation that seems to me to be indicating some strains amongst the G-10 countries regarding the notion of further intervention. Does that imply that we are going to alter fundamentally some monetary and fiscal policies? In other words, are we not going to sterilize?",87
-fomc-corpus,1987,"What I was saying was that it's not going to be as easy, looking forward, as it has been in the past. Everybody has substantially higher dollar balances; countries are under pressure; there are public commentaries. For example, in London in the Financial Times, there's an article by Sam Britton asking why the British are holding all of these weak and depreciating dollars, and saying they should be moving into marks [unintelligible] in this story. There undoubtedly are going to be pressures on a lot of countries to be a lot more reluctant than they have been to add to their dollar holdings.",122
-fomc-corpus,1987,Has this switching to diversified portfolios had much downward effect on the dollar?,14
-fomc-corpus,1987,"Well, it is one of the elements. I don't know how widespread it is. We hear reports of a few countries here and there.",28
-fomc-corpus,1987,"President Black, President Hoskins' question is that if the intervention has no effect, then the switching from dollars to DM also has no effect, other than the effect on psychology. Essentially, if it doesn't work, it doesn't work.",47
-fomc-corpus,1987,"Well, if intervention doesn't work, to me it's obvious, then, that you can draw any conclusion you want to.",24
-fomc-corpus,1987,"I would say switching had to have had some effect, even though I'm not much of an interventionist.",21
-fomc-corpus,1987,"I'm sure it has. To my mind, it certainly has an effect. It has an effect as one country sees another country shifting away. Every time we get into periods like this, certainly there is a tendency for Latin American countries--those that have any reserves--to switch a little; some of the Asian countries have a great desire to make the best of their reserve holdings and do some switching. I don't want to exaggerate what we have seen to date but there are some important [unintelligible] as the dollar has continued to weaken. It's not surprising that you see these kinds of pressures.",122
-fomc-corpus,1987,It has a clear effect on how we finance our external deficit.,13
-fomc-corpus,1987,That's the crucial point.,5
-fomc-corpus,1987,That's the main piece of it because the market discipline would have been much stronger on the U.S. to get the adjustment process moving forward more rapidly without this foreign official financing.,35
-fomc-corpus,1987,If they hadn't bought $100 billion worth of dollars then I would ask the question: How would we have financed the deficit last year? There's a big hole there somewhere.,34
-fomc-corpus,1987,You can't finance it if it doesn't exist. Maybe it would have been small.,16
-fomc-corpus,1987,"If we had adjusted and eliminated the deficit, that would be a different story.",16
-fomc-corpus,1987,Are there any further questions for Mr. Cross?,10
-fomc-corpus,1987,"Nobody really knows which way this is going but currently there is some downward [movement] in oil prices. How is that likely to affect the currency markets? Last year it seemed to have put downward pressure on the dollar relative to the deutschemark and the yen, and some downward pressure on the pound sterling, too. I don't know if you have any idea about that, given these low levels, but--",81
-fomc-corpus,1987,"It seems to have different kinds of effects. There is the fact that Germany and other countries are more dependent on oil than we are, for example. There is also the fact that oil is very heavily a dollar-financed phenomenon. So there have been times when changes in the oil price seemed to affect the dollar one way and times when it affected it another way. I would assume that the reluctance that we are seeing now might be, on balance, helpful.",93
-fomc-corpus,1987,How is it affecting the pound?,7
-fomc-corpus,1987,"Well, sterling has been a little softer in the past few days. One possibility is that it has been reflecting what has gone on in the oil market but there are some other things going on, too. The British seem to have had this policy of trying to maintain the pound at 3 DM and they have held that pretty firmly and have undertaken an enormous amount of intervention [unintelligible]. Some people think that maybe the message that they are going to hold it is beginning to be accepted and that part of the decline in sterling reflects that.",110
-fomc-corpus,1987,"Up until that oil price change, the pound had pretty strong upward momentum and they were really fighting to hold it down.",24
-fomc-corpus,1987,"Quite apart from what they did recently, There was heavy upward pressure on the pound during much of that time. And, there are questions about whether the British will, and should, reduce their interest rates.",41
-fomc-corpus,1987,"Any further questions for Mr. Cross? If not, I'll entertain a motion to ratify the transactions of the Manager since the last meeting.",28
-fomc-corpus,1987,So moved.,3
-fomc-corpus,1987,"Without objection, approved. Mr. Sternlight on domestic open market operations.",15
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.] I also have a leeway recommendation, Mr. Chairman.",25
-fomc-corpus,1987,Bring that in after [the questions].,8
-fomc-corpus,1987,"I have a question regarding liquidity and quality concerns. Is central bank intervention in foreign exchange markets also a factor? And if it is, doesn't that imply that we will have to see not only quality concerns go away but also greater stability in exchange markets before we can see more traditional relationships reestablished?",60
-fomc-corpus,1987,"I think that at the short end that probably is true and that a further factor is the Treasury debt management, which has been continuing to shrink the supply of bills very slightly recently. But that [unintelligible] also.",46
-fomc-corpus,1987,Do you think that's a big factor involved with the quality?,12
-fomc-corpus,1987,"The quality concerns have been the more major factor there, I would judge. MR.BOEHNE. Looking ahead to year-end, how do you go about dealing with a period like this operationally? We expect much more funds rate volatility; how do you proceed operationally through this period that we have coming up?",64
-fomc-corpus,1987,"Well, it could take a certain amount of feeling our way as we go along, because every one of these periods is kind of unique unto itself. But just the way the calendar works, this time is particularly unusual. We have a maintenance period that ends December 30 and another that begins December 31. How much of the normal year-end pressures might work into that December 30 period right now is a big question mark in my mind. I think we just have to get a sense of it as we go along through that period. I'm sure there will be some particular pressure that is left for that December 31 date. That Thursday begins a long weekend. Right now our reserve estimates do not show a very large reserve need coming up to that period, partly because some of the weakness of money has brought down expected required reserve levels. We probably will have to make some allowance--maybe in the December 30 period and almost certainly in the next period that begins December 31--for additional demands for excess reserves. I think we will get clues from the money market itself as to how to respond as we go along.",225
-fomc-corpus,1987,Any other questions?,4
-fomc-corpus,1987,"Given your reference to divine intervention earlier, would you figure that this is an appropriate time to think about starting option (3)? Would you be comfortable with that?",32
-fomc-corpus,1987,"Well, I think it's appropriate to begin thinking about it, and letting it work if it didn't cause too great a swing in money rates. I would want to be a bit leery about it through the year-end period, and maybe just let a little show through--",54
-fomc-corpus,1987,What was the question?,5
-fomc-corpus,1987,"The question was that we have a fluctuation in the funds rate on the down side, and therefore, we could perhaps begin to move toward [accepting] more volatility in the funds rate right now since it moved in the right direction for us first off.",52
-fomc-corpus,1987,"Well, that very well may be due to the fact that we're so sensitive to any increases in the fed funds rate above the 6-3/4 percent level and we're not sensitive about it moving below that.",43
-fomc-corpus,1987,"That's not true Wayne. Earlier, when the funds rate fell below the 6-3/4 percent level, we put off reserve add needs, giving a strong signal that we didn't want it lower either.",42
-fomc-corpus,1987,"Well, my view was that yesterday we had a need to take reserves out of the system and we didn't because funds were trading at 6-3/4 percent. So, we said we won't take the reserves out of the system that policy would have called for; we, in effect, put a ceiling--",63
-fomc-corpus,1987,"But Wayne, what is policy? Policy was the funds rate range around 6-3/4 to 6-7/8 percent, not a borrowings target.",35
-fomc-corpus,1987,"If that was the policy, then this morning I presume we should have gone in immediately, acting to keep it at 6-3/4 percent.",31
-fomc-corpus,1987,"Well, I think [unintelligible] postponed.",12
-fomc-corpus,1987,How did the fed funds rate get to 6-1/4 percent this morning?,18
-fomc-corpus,1987,Float?,2
-fomc-corpus,1987,"Well, I know, but if we had a fed funds policy, what would you have done if it got to 6-1/4 percent?",31
-fomc-corpus,1987,"Just what I said before: When funds were on the weak side earlier, we postponed an add need, and that was a signal in the markets that we didn't desire funds trading below 6-3/4 percent.",44
-fomc-corpus,1987,"My view is that we did have some notion about the amount of borrowing that would be associated with a 6-3/4 percent funds rate and the need came yesterday to drain reserves. And we didn't drain reserves, it seems to me, because we were sensitive to having the rate go above 6-3/4 percent. Is that right, Peter?",73
-fomc-corpus,1987,I think that's right.,5
-fomc-corpus,1987,"Okay, Peter says that's right.",7
-fomc-corpus,1987,"Wait! I think you have to ask yourself what the policy is. What's the basis for adding or subtracting reserves under these conditions? The policy is to maintain the funds rate around 6-3/4 to 6-7/8 percent. There's not any other independent factor deciding whether we have an add need or a subtraction need. So with the funds rate trading at 6-3/4 percent, why would you? There is no add or subtracting need.",97
-fomc-corpus,1987,"I declare this a draw. I don't care whether or not there are Johnsons or Angells on the head of a pin! Are there any other questions for the Manager? If not, I'd like to entertain a motion to ratify his previous actions.",51
-fomc-corpus,1987,I will move it.,5
-fomc-corpus,1987,Without objection. Do you want to now [make a recommendation] on the leeway?,18
-fomc-corpus,1987,[Statement--see Appendix.],6
-fomc-corpus,1987,Would someone like to move that provision?,8
-fomc-corpus,1987,I move it.,4
-fomc-corpus,1987,"Without objection, approved. Now we'll move on to Mr. Prell and the economic situation.",19
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.]. Mr. Chairman, I think I'll conclude on that decisive note.",27
-fomc-corpus,1987,I thought you were going to go further. Any questions or clarifications for Mr. Prell?,20
-fomc-corpus,1987,"I have a clarification on the National Association of Business Economists survey. Mike correctly reported that nearly half of them expected to see a recession in 1988. However, that's a general question asked to them about recession. But the data with respect to questions on their own firms are inconsistent with their forecasts of recession. In other words, most of them commented that the order books in their own firms were fairly strong.",83
-fomc-corpus,1987,"Mike, you talked about the decline in interest rates and I wonder if you could give us some idea, in terms of numbers, of what kind of short-term rates you expect in the first half in that Greenbook forecast.",45
-fomc-corpus,1987,"Basically, we have both long and short rates declining between 1/2 and 1 percentage point by the middle of the year.",27
-fomc-corpus,1987,That's fairly significant.,4
-fomc-corpus,1987,"Given the elasticity of response of some of these sectors, that's not an enormous amount; but it's certainly noticeable in terms of the increments that we have been talking about around the table.",36
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,I have a follow-up on that particular question. My understanding is that you have a funds rate change in there of about that magnitude. Is that right?,31
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,What would the forecast look like assuming no change in the funds rate?,14
-fomc-corpus,1987,"We used our quarterly model to try to answer that question and, essentially, if we just held the funds rate where it is, that tighter monetary policy would chip off a fraction of the GNP growth over the coming year. Most of the effect would be in the second half of the year, so that we probably would not see a very noticeable pickup in the second-quarter rate. For the year as a whole, growth would be somewhere approaching 1/2 percentage point less, according to the model.",101
-fomc-corpus,1987,"Yes. I was looking at your linkage model estimates and I guess I would have the same sort of assumptions. Those estimates are -.6 percent for the first quarter, and that's a downward revision since the last estimate, since supposedly it incorporates trade and retail sales numbers. But I notice it has a standard error of about 3 percentage points around it, which means it could be anywhere from -3-1/2 to +2-1/2 percent, I guess; but the center of gravity is on the negative side. I was just wondering what kind of discretionary factors you have added to that to bring it up to where you are.",129
-fomc-corpus,1987,I wouldn't--,3
-fomc-corpus,1987,They have revised down and you revised up and that's why--,12
-fomc-corpus,1987,What is that forecast?,5
-fomc-corpus,1987,The linkage model forecast.,5
-fomc-corpus,1987,"That is just an experimental tool that has been under development for a while and we don't approach our forecasting by add factors, so to speak, to that model. That model was done with a minimal amount of judgmental add factoring and tended to be very responsive to incoming data, and we've been working to moderate that. As a matter of fact, the one that you have doesn't incorporate the inventory data we received or the housing starts released today, and it has a fairly strong short-run sensitivity to the stock market. I think that is one of the factors that yielded the negative result for the first quarter. But let me just say that, given those confidence intervals, I wouldn't want to try to distinguish very much between that reading and growth in the 1 percent neighborhood in the first quarter of next year.",160
-fomc-corpus,1987,Sure.,2
-fomc-corpus,1987,"I think that model has difficulty picking up such things as incentives in the automobile market and many other things. So, I wouldn't want to make much out of that difference. As I suggested, if you apply any reasonable confidence interval around our projection, you certainly can't rule out a negative quarter in the first or second quarters.",64
-fomc-corpus,1987,"All right. On the housing numbers, I notice permits are still trending down. I realize there's not much of a correlation, but do you read anything into the fact that permits continue to trend down versus starts?",42
-fomc-corpus,1987,I think that the permits number was about unchanged in November from the October level.,16
-fomc-corpus,1987,It was down 0.7.,8
-fomc-corpus,1987,"Given the volatility of these numbers, that's certainly an insignificant change. Basically, the number doesn't appear to be inconsistent with the starts level running somewhere between 1.5 and 1.6 million over the next couple of months. So, I think that's very much in line with our sense of not very much going on at this point in the housing market. Our forecast doesn't show much of a movement in coming months.",84
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,"Mike, as you're well aware, there's a school of thought out there that the economy has been running on the strong growth of the aggregates of a year or a year and a half ago and that the economy is about to go downhill as a result of the much flatter growth of the aggregates in the last 9 or 10 months. If that's not your expectation, then would you assess that expectation?",80
-fomc-corpus,1987,"I suppose it is possible, if the outcome is similar to our forecast, that people who would want to read the money stock numbers as having those kinds of implications would feel that they had been vindicated; that would be a noticeable slowing from what we have seen over the first few quarters of this year. We don't approach the forecasting process with that kind of simple connection of money stock to nominal GNP and real GNP outcome. But obviously, if we had forced money stock growth to be faster this year, then we would have had, at least for a while, lower interest rates and possibly a lower dollar, and a number of other events which might have strengthened the outlook for nominal GNP in the coming months. So I don't see an inconsistency; but we're not putting a heavy weight on that monetary deceleration per se now.",168
-fomc-corpus,1987,At what point in time would you start to give more weight to it? How long can the growth in the aggregates stay very modest without beginning to be a drag?,33
-fomc-corpus,1987,"Well, I think much depends on money demand behavior. Our forecast is not built on an assumption that we will continue to have that kind of slow growth. We have M2 and M3 growing at rates that are well within the target ranges tentatively set for next year. So that would represent, particularly in the case of M2, a noticeable acceleration from what we've been seeing.",77
-fomc-corpus,1987,"I think the related point is that the aggregates just haven't been very good predictors of what's going on in the economy in the last couple of years. I have here a simulation of the Darby model using M1A, and it has the economy slowing down. It has much slower growth for 1987 than it looks like we have been getting and a picture for next year that isn't all that different, assuming some pickup in the aggregates, from the forecast in the Greenbook. But it has much more rapid inflation both this year and next year--on the order of 7-1/2 to 8 percent this year and 7-1/2 percent next year. I wouldn't put much confidence in that, because it plays off the very rapid money growth, which we never really saw feeding through in 1985 and 1986. Those aggregates in and of themselves have not been very good predictors of future developments in the economy.",190
-fomc-corpus,1987,"When you're looking at the monetary aggregates, I think it's important to recognize that when they were working and you could see the plumbing operating--meaning you could see the effect of changing monetary aggregates reflected in real GNP and the price level--the relationship was in sync. The problem that we have now in evaluating these data is that, essentially, we have gone through a cycle and a half in which the plumbing has been disconnected. In a sense, we're getting very significant changes in these monetary variables, but we don't see any filtering through. The argument that slow money growth will inevitably lead to a recession may turn out to be true. The trouble is that there is no mechanism which can tie it together at this stage. We're caught in a situation where I suspect that the plumbing is going to get reconnected at some point and it's going to work again. The real trick is going to be figuring out when that's going to happen. The assumption that it is already happening is not verifiable in the information, at least as I see it.",207
-fomc-corpus,1987,"It probably happened when we started our monetary targeting, because according to Goodhart's law, anything you want to control will get out of hand. But that isn't my question. According to your projection, the deficit is going to worsen by about $20 billion to $165 billion. According to the Administration, it's going to improve by about $20 billion to $123 billion. I was wondering what would happen to your forecast if the Administration were right.",90
-fomc-corpus,1987,"I don't think we have a really current set of numbers from the Administration. I suspect that if the Administration is right, in essence it would be because there is a stronger [economic] performance. That's the answer itself. I think that's largely where we differ with the Administration in terms of their mid-session review prognostication for FY 1988.",70
-fomc-corpus,1987,"Mike, your forecasts are quite far apart on the expenditure side, too. Some of that is cyclically related, so you wouldn't see much of a weakening of the economy if the budget cutters actually succeed in [unintelligible].",47
-fomc-corpus,1987,"Well, we built into [our forecast] their succeeding, in essence, in what they agreed to in the compromise session. That is a moderate restraining influence on aggregate demand in the coming year, but it's not an enormous effect. It's one more ingredient that one wouldn't want to overlook. It's a magnitude of roughly half a percentage point on GNP.",71
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I was quite influenced by an article I read in this morning's Wall Street Journal about Marshall Fields, where Si Keehn lives, in the suburbs of Chicago. He has to get out and do more shopping! Anyhow, it made me think about the retail sales report and your comment that the numbers were revised downward in September and October and showed only a modest gain in November. You said this is causing some downward revision in your real GNP estimate for just this quarter. You're not thinking of this as something that will spill over into the new year also? I wasn't sure I heard the--",119
-fomc-corpus,1987,"I tried to suggest that if indeed we get that kind of greater weakness in consumption expenditures, there probably would be some higher level of inventories, which would tend to weaken the early part of next year. At this point, given the uncertainty of these numbers, I am more inclined to think of it as enhancing the likelihood of our getting the kind of deceleration that we forecast in the first part of next year rather than influencing the [unintelligible] level we forecast. But I think we had a rather brave forecast in that we were looking for a very noticeable slowing in production growth without having any real sense that there was an inventory accumulation going on to trigger it. Basically, we have a very rapid response of producers to that incipient weakening. If it turns out that consumption is weaker in this quarter than we think it has been, it's almost certain we would get that kind of slowdown.",179
-fomc-corpus,1987,"That leads me to my next question. If that's happening--if there are inventories building up that are not planned--in the past that has often led to some sort of liquidation. Maybe it is just because I've been around for a long time, but that's typically what happens at the retail level, wholesale level, etc. So, at what point might that kick in?",74
-fomc-corpus,1987,"As I said, we would expect a fairly prompt response in which production would slow down considerably in early 1988 if we do get that pattern. I must say, some of it would probably show up in reduced import demand, thus not affecting domestic production so heavily. But at this point I just don't have the feeling that the inventory position, by and large, is that uncomfortable. Certainly, it didn't show up in the Beige Book, which is the information from two or three weeks ago. While you hear these stories, and they vary in the retail sector, there isn't much else to suggest we're getting massive inventory accumulation.",125
-fomc-corpus,1987,"My final question involves the trade statistics. I guess the numbers were disappointing on both sides, but the exports ran quite a bit below what we had expected. Again, at what point would you think that this might mean more serious trouble and not just a one-month blip on the screen? We have a lot of eggs in the one basket next year--mainly an assumption of a strong trade turnaround--in order to get the kind of real growth that we have for 1988, as I read the forecast anyway.",105
-fomc-corpus,1987,"Well, Governor Seger, as Mike said, most of the disappointment was on the nonagricultural export side. The press was disappointed by the imports, and if there was a surprise it was in the oil. That seems to build up imports of products, which seem to fall into the inventories, and I could tell a better story [unintelligible] statistical effect in the first half of 1988. The surprise was on the side of the nonagricultural exports and if that's a true indication of the trend, then obviously they are much weaker than the outlook that we have [unintelligible]. I don't think there's anything in the anecdotal evidence that suggests that month is anything other than a fluke; but if the next two months of the quarter begin to look like October, then I would be worried about the outlook.",172
-fomc-corpus,1987,"From my less informed standpoint, the anecdotal evidence and the manufacturing employment numbers and physical products data that go into our industrial production index just don't jibe with that kind of disappointment on the export side. I think everything is pointing to substantial export growth. In fact, that gives us some confidence that probably this will turn out to be noise and that there will be some offsets in coming months.",78
-fomc-corpus,1987,"It's just that I'm a cautious person, and when you put a lot of eggs in one basket I think you really have to make sure you check the assumption very, very carefully.",36
-fomc-corpus,1987,"Well, we think we will have something close to $40 billion or a bit less in nonagricultural exports, in 1982 dollars, over the four quarters of 1987; and we have a little more in [our forecast for] next year. In percentage terms it is slightly less, but with a higher base it's essentially the same pattern of growth as over the four quarters of 1987. Now, there are people who have forecasts that are much more optimistic than ours. We have tried to be a bit conservative. That's not to say that we can't have a boom in exports, but not an explosive pattern. And the forecast, while it probably is off by several billion dollars one way or the other, is a reasonable projection, I think. I am much more comfortable about making the forecast for the four quarters of 1988 than I was a year ago when I was making a similar forecast for the four quarters of 1987.",194
-fomc-corpus,1987,Was $40 billion what we estimated?,8
-fomc-corpus,1987,"Essentially, we have had nonagricultural exports right on--plus or minus a few billion dollars--since the beginning of the year.",29
-fomc-corpus,1987,I know we expected a big turnaround; I couldn't remember the exact number.,15
-fomc-corpus,1987,"There was some slight offset in GNP terms but where we have been wrong has been on the nominal import side because we haven't had the price, we haven't had the quantity trade balances [unintelligible]. We've had more imports; therefore, the statistical GNP has been not quite what we thought it would.",63
-fomc-corpus,1987,"Just to cite the numbers: in our February Greenbook we had forecast 10 percent growth in real exports, and we have 15 percent at this point. And our confidence has definitely increased since [several] months ago.",46
-fomc-corpus,1987,How much of an adjustment would you make to the fourth-quarter net export number given October's rough order of magnitude? We have $18.5 billion included in--,33
-fomc-corpus,1987,"We went back maybe about $4 or $5 billion. Now again, part of that is in oil. [Unintelligible] because consumption picked up on that side; and on the export side, if you don't take the [unintelligible] out of production, the exports going into inventories might drop by a billion dollars, in 1982 dollars, in the fourth quarter; so we have [net exports] going down from $18.5 billion to $13 to $14-1/2 billion GNP [basis]--",112
-fomc-corpus,1987,"With a small change like that, it might be too early to give up on that 3 percent for the fourth quarter.",25
-fomc-corpus,1987,"Looking at the labor market data, we could easily see 3 percent [GNP] growth. But I recall that a year ago in the fourth quarter we were looking at very strong labor input, and even after GNP revisions we only ended up with 1-1/2 percent. So there's considerable looseness in this; but there is the potential for it being strong if, as we hope, it wasn't all inventory.",87
-fomc-corpus,1987,"Any further questions for Mr. Prell on substance? If not, let's now go around the table on our own views on the economy. Who would like to start off? Mr. Boykin.",40
-fomc-corpus,1987,"Mr. Chairman, as far as the national economy, we certainly agree with Mike Prell's presentation. In our District, we're seeing some slight improvement, we think. Of course, with what little improvement we do see, we're growing at a slower pace than other parts of the country. There is considerable improvement in manufacturing employment; in fact, we're keeping pace with the national statistics in that regard. We don't see the possible $2 or $3 drop in the price of oil doing a great amount of damage to our District in terms of oil exploration, primarily because most of the planning has been done assuming an oil price of about $15. However, there are implications other than just for exploration in terms of revenues to the state and subsidiary effects that could go along with that. The peso reevaluation is probably a somewhat neutral [event] because we've had diversification along the border, with not so much reliance just on the retail side. While that does affect retail sales [negatively], it improves the myceladora, the twin plant concept. So that turns out to be somewhat of a wash. We feel pretty good about agriculture; it has been considerably better this year. Energy, so far at least, has held its own. Construction, we think, is leveling out. Granted, energy is at the bottom and nothing is going on, but no further deterioration is indicated. Manufacturing plus services are remaining fairly even, although we may see more improvement in services than we are forecasting. So, while it's not a really bright picture, I do think and hope that, aside from the situation of our financial institutions, we are at the bottom and that there is improvement coming along.",336
-fomc-corpus,1987,Vice Chairman.,3
-fomc-corpus,1987,"Mr. Chairman, I don't have any particular new insights on the immediate outlook, but I have become more and more preoccupied with the longer-term question of how to deal with these fundamental imbalances in the world economy. What I've done, for a change, is ask myself the longer-term question rather than what's going to happen next quarter. And the way I went about that with my colleagues was to say, let's take the 1988 forecast as is--and there's no great difference between the Board staff and the New York staff forecast--but then superimpose on that by assumption, different patterns of behavior over the 1988 through 1991 period to see what kinds of conditions in that overall period can get us out of the box we're in. And there are really four questions that seem to me important: (1) Can we get out of that box without a recession? I think the answer is yes. (2) Can we get there without entailing very, very clear risks on the inflation side? I think the answer there is no. I'll explain these answers in a minute. (3) Can we get there with the current exchange rate structure? And the answer to that is yes. (4) Can we get there without a long period of subpar growth in domestic demand in the U.S. economy, and by implication, a slower rise in the standard of living than we've been used to? Unfortunately, the answer to that question I think is unambiguously no, we can't. No matter what you do, all scenarios that I can visualize involve, among other things, a large increase in U.S. market share abroad and also a large increase in our external financing requirement over the period. With my colleagues, the way I tried to get a fix on the dynamics of the long-term problem was to just take a couple of simple arithmetic examples and work back. The first is one that simply postulated a trade deficit of $50 billion in 1991 and then asked what it takes to get there given a 1988 forecast like that in the Greenbook. What it takes is something like this: growth in U.S. domestic demand of about 1-1/2 to 1-3/4 percent over the entire period; growth in U.S. GNP of about 2-3/4 percent, growth in foreign domestic demand of about 3-1/2 percent and growth in foreign GNP of about 3 percent. And by implication, it will require, over the entire period, U.S. manufacturing output increasing by 4 percent and growth in capacity of plant and equipment in the United States from year-end 1988 levels of something like 3-1/2 percent.",553
-fomc-corpus,1987,That's annual?,3
-fomc-corpus,1987,"Yes. Achieving either one, in the context of the kinds of things that have been going on, is a long shot. But to put up an argument, even if all of those things worked right, the end-of-period situation, by assumption, would still leave a trade deficit of $50 billion and using very conservative interest rate assumptions, a current account deficit of $77 billion, or 1.3 percent of GNP. Our net foreign indebtedness at the end of the period would be $900 billion, or 15 percent of GNP, and a country with a net foreign indebtedness of 15 percent of GNP--other than in war time or in the early stages of development--is quite unusual indeed. That's the kind of gradual adjustment scenario. Incidentally, that case also assumed no change in the real exchange rate from current levels. Another way to think about it is to impose a constraint on our current account balance by the end of 1991, again assuming no change in the standard of living which means, among other things, no change in the real exchange rate. In that case, U.S. domestic demand kind of by assumption is 2-1/2 percent but real GNP would have to be 4 percent. Now, here's the killer: foreign domestic demand would have to be 6.6 percent and foreign GNP would have to be 6 percent. The point, of course, is that I don't see any conceivable way to get from here to there under those kinds of assumptions--that is, maintaining domestic demand growth and expecting that the whole adjustment, in effect, is going to take place externally. That kind of scenario would require growth in U.S. manufacturing output of about 5-1/2 to 6 percent and growth in physical capacity of about 5-1/2 percent. Again, I just don't see how that could happen. But it would result in a trade surplus at the end of 1991, a $25 billion current account balance, and our net external debt would be about $785 billion, or 12-1/2 percent of GNP. The third approach that one can think of is something that combines a little of both: to superimpose on case 1, if you will, a 10 percent further devaluation [of the dollar] that is front-end loaded--in other words, it comes mostly in the early part of next year. Then again, if the constraint is a current account balance in 1991, in order to get there, U.S. domestic demand growth would have to be something like 1.2 percent; GNP growth, 2.5 to 2.6 percent; foreign demand growth, 3.5 percent; and foreign GNP growth, 2.9 percent or so. That would require manufacturing output growth in the U.S. of about 4-1/4 to 4-1/2 percent and capacity growth again of about 4 percent. That would also get you a current account balance in 1991. These estimates are obviously nothing more than an exercise in arithmetic and there's no suggestion that they are anything more than that. Obviously, one could quibble with any one of them, or all of them, but I think the broad profile that emerges from that kind of an exercise is right. That broad profile says to me that any way you cut it, we have a situation involving a huge unfunded external liability sitting out there that is going to have to be attended to. It says to me that domestic spending, at least by historical standards, is going to have to be restrained and that there is considerable force to the argument to stabilize exchange rates sooner rather than later. I can see very little to be gained by further instability in the exchange markets and further downward pressure on the dollar. As a matter of fact, it seems to me that the risks of further downward pressure on the dollar are rather asymmetrically on the side of making things worse, not better.",819
-fomc-corpus,1987,"Thank you, Mr. Vice Chairman. Do I assume, incidentally, that implicit in that is that if we are going to [unintelligible] some of these very large external funding liabilities, we may have to do it in currencies other than the dollar?",54
-fomc-corpus,1987,"If things started to rupture, that's right. There's a lot of risk, and I should say that right now, at this precise point in time, I think the risks are on the financial side. I regard those risks as a matter of particular concern. What I am trying to say is that, as great as those concerns are right now, I think the longer-term problem remains; and, in order to try to deal with the problems today, we need to do it in a way that recognizes what we are up against over a long period of time.",112
-fomc-corpus,1987,A point of clarification: Are you saying that policy today ought to be directed at preventing the dollar from declining?,22
-fomc-corpus,1987,"I didn't quite say that. But the question is what kind of policy would produce that result? I don't think that is totally within our control. I think it has a lot to do with the attitudes of the U.S. government as a whole. But if I had no constraints, and you asked me if my preference would be a policy that puts heavy weight on stabilizing the dollar, my answer is yes--not exclusive, but heavy--yes.",91
-fomc-corpus,1987,Would you go so far as to say that recession is almost inevitable to get a desirable result?,19
-fomc-corpus,1987,"No. In my mind, that's the value of doing this kind of exercise, because it does tell me that we can avoid a recession. It tells me that we have a very thin line to walk and very little maneuvering room. But the comforting thing is that it does say to me that there is a conceivable set of circumstances over a period of time that can produce a desired result without a recession. If we make too many mistakes, one of the biggest risks in this long term is that it involves a lot of inflationary pressures over a long period of time. Obviously, if those inflationary pressures escape us, that is one of the things that increases the risks of a recession. But the comfort I draw from this is that it does suggest you can get through this without a recession.",159
-fomc-corpus,1987,Where are the inflationary pressures coming from in this arithmetical scenario?,16
-fomc-corpus,1987,"Well, part of it is what's already built in. But when you have growth, say, in manufacturing output, in the ranges that are implied even in the gradual adjustment scenario, and the need to increase plant and equipment spending in sufficient magnitudes--",50
-fomc-corpus,1987,[Unintelligible.],6
-fomc-corpus,1987,"That's true, but we're talking about a pattern of behavior over a number of years with a starting point of an unemployment rate of 6 percent, when the starting point in terms of capacity utilization--and in this scenario we use the rate forecast for the end of 1988--is 82-1/2 percent. The overall rate is [projected to be] up to 82-1/2 percent, but there are about 8 or 9 two-digit SIC industry groups that are big exporters where those capacity utilization rates are already pushing de facto full utilization. So, it does take a not inconsequential amount of hard investment to be able to sustain that kind of export-driven output in manufacturing.",144
-fomc-corpus,1987,Do you make use of sources and uses of investment and savings in this study?,16
-fomc-corpus,1987,"What it implies is that the budget deficit comes down in proportion to the reduction in the current account, in rough order of magnitude, so that in the so-called gradual adjustment case the budget deficit in 1991 is down around 1 percent of GNP. But it also implies that the saving rate comes up more in line with early to mid-1980s experience as opposed to the experience of last year. Of course, if either or both of those things don't happen, then you have problems because if the saving rate doesn't come up, and then you superimpose a higher level of consumption spending than what it is already, then your domestic demand --",132
-fomc-corpus,1987,Then you won't get the adjustment in unemployment.,9
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,What are your inflation rates? You said they were increasing?,12
-fomc-corpus,1987,"In this? The inflation rate in this is basically held stable at 4-1/2 percent by assumption. That's one of the things that permits an orderly interest rate outlook here. Again, I want to emphasize this is just arithmetic; it's not a model or anything like that.",57
-fomc-corpus,1987,"It's not exactly, but you do have relationships between foreign demand and U.S. exports.",18
-fomc-corpus,1987,"Oh, yes.",4
-fomc-corpus,1987,Is business saving rising as well as personal saving?,10
-fomc-corpus,1987,"Excuse me, the overall saving rate--",9
-fomc-corpus,1987,"Mr. Chairman, the one thing I want to say about this is that it's got 1 percent more growth abroad than any foreign official is prepared to target.",32
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,"And, if you put their growth not at 3-1/2 percent, but at 1-1/2 to 2 percent--which has been the experience so far--then I think you get a very different set of scenarios.",50
-fomc-corpus,1987,I hate to admit this but I find the scenario that the Vice Chairman has been outlining more benevolent than any of them that I've been contemplating.,29
-fomc-corpus,1987,"It's not without risks. But, Bob, to answer your question, it's not all that precise. The overall saving rate goes up, almost by assumption; it's the only way you can get that result.",41
-fomc-corpus,1987,But that is only arithmetic.,6
-fomc-corpus,1987,That is right.,4
-fomc-corpus,1987,"Because, if you start with the GNP that will relate to income, you have a consumption element fit in--",23
-fomc-corpus,1987,It has to go up.,6
-fomc-corpus,1987,"You almost have to have a rise in business saving as well as personal, I would think, under that scenario.",23
-fomc-corpus,1987,I think that's probably right.,6
-fomc-corpus,1987,"Well, as Alan said before, in this scenario--assuming there's no generalized outburst of inflation driving up wages--presumably the profitability in manufacturing would be fairly robust in these circumstances.",37
-fomc-corpus,1987,That's what I was implying: that you would have rising capital consumption allowances and profits.,17
-fomc-corpus,1987,"But, there's a whole bunch of things that have to work right. As Mr. Truman said, even this gradual adjustment case assumes foreign domestic demand growth of 3-1/2 percent and foreign GNP growth of 3 percent.",48
-fomc-corpus,1987,"That's what really bothers me more than anything else, I guess.",13
-fomc-corpus,1987,Mr. Black.,4
-fomc-corpus,1987,"I really don't have much to say. I think the staff did an exceptionally good job on the Greenbook, and Mike really covered all the caveats that we now are throwing out. I'm sympathetic with what Governor Kelley said about worrying about the aggregates. To use your metaphor, Mr. Chairman, we don't know if the plumbing has been reconnected or not; but I do strongly suspect that it will be reconnected before we know it has. And I'm wondering if these could be flashing danger signals. But, on the other side of that, the employment [outlook] from the National Association of Purchasing Managers report was extremely strong. We went back and telephoned the contacts that we usually talk to when we produce the Beige Book to see if we could find any evidence that there were changes in expectations or sales. We looked at 25 retailers, for example, and 18 said that recently their sales definitely had been running well above what they were last year; only three said they were down.",201
-fomc-corpus,1987,What is well above?,5
-fomc-corpus,1987,"Well, Martha, I was going to get to this in a minute, and say you were spending more than Si Keehn, because the in Washington, Baltimore and Philadelphia, said that sales were exceptionally strong. In Washington, they were running 16 percent ahead; in Baltimore 13 percent ahead; and in Philadelphia 18 percent ahead.",68
-fomc-corpus,1987,Is that dollars or volume?,6
-fomc-corpus,1987,Dollars.,3
-fomc-corpus,1987,Probably volume as well.,5
-fomc-corpus,1987,"There's a lot of discounting, so I don't know if it's more or less. If there's more, then that means that you have more volume, really, than these figures would imply. We also looked at our industrial--",45
-fomc-corpus,1987,Is that for one month?,6
-fomc-corpus,1987,"It's since Thanksgiving, which is really the beginning of the Christmas season. She was very optimistic, much more so than But it was really amazing to us that we couldn't find more evidence; nobody had scaled down estimates of what would happen next year. In looking at the industrial contacts it's pretty much the same sort of thing. So I guess you can just summarize their responses by saying that going into the details just didn't show any real signs of weakening at this point. So, for what that's worth-It makes me feel better than I thought I would feel at this time following the crash on October 19.",120
-fomc-corpus,1987,President Keehn.,4
-fomc-corpus,1987,"Mr. Chairman, looking ahead to 1988, I too definitely think the October events [unintelligible]. I agree with Bob on that. While obviously those events were hardly positive, they have not had a fundamental effect on the economy as I had thought they might, at least as yet. Therefore, our outlook is not at all inconsistent with the staff forecast. We may be a touch on the more positive side. I have just a couple of specific comments. On retail sales, I certainly agree with Bob Black. I talked to somebody Monday who has important operations in the Midwest and, for the Christmas selling season so far through Sunday, their sales have been 5 percent over last year; and he thinks that for the balance of this Christmas season their sales will improve over that. The outlook for retail sales appears really quite positive at this point. Capital spending programs have not been cut and I've talked to an awful lot of people about that over the last two or three weeks. Most companies have contingency plans in place and they are taking a very careful look. They have a cautious attitude but, so far, nobody is reducing their plans and they are really carrying on with them in a pretty good way. There are two dichotomies here that I have a hard time understanding: first, on inflation, I keep hearing these anecdotal reports about very significant price increases for a variety of raw materials, steel in particular. I have heard some huge numbers on steel from some people--30 percent increases on an annual basis; and I have heard of paper products and chemical products also moving up pretty rapidly. But these are offset by comments of other people. I have met with major companies, and one very, very large manufacturing company that I talk with pulled out their material prices for me. For 1987, excluding steel, their material prices have only gone up .7 percent; and for next year they are forecasting an increase of .5 percent. For steel for this year, they in fact had a price decrease of 1.8 percent; for next year they are expecting an increase of only 0.4 percent. So, there is this tremendous difference between large companies that have big power and the smaller companies that really don't. Certainly, the increases are not showing up in the inflation numbers. On the labor side, the news continues to be very good. Three-year contracts, at least in our District, are very standard. In some cases, annual increases in all costs are under 2 percent and certainly, 2 to 3 percent is quite standard. The productivity work rule changes have been very important. Therefore, the productivity increases for some companies have been very impressive, so that unit labor costs indeed are coming down. So, with regard to the inflation problem, at least as I talk to people, certainly the pressures at this point are not nearly as great as I would have expected last summer. In fact, at least some of the heat has come out of this problem. The other dichotomy, which we have talked about a little, is this trade balance issue. A lot of people I have talked to are really getting much better results on their exports; they are operating at high levels in some specialized industries but, at the current level of the dollar, they can easily compete in Europe and the Far East. But again, this is not universal. There are other people who are not having a similar kind of experience. I am reminded by people that when the dollar was so very high, dealer and distribution networks really came down very significantly; and those who were dependent on such networks are having a bit of a problem re-establishing them. But for the long run, I do agree with Ted Truman and Mike Prell that the fundamentals have to be very, very good and that, at some point, we're going to begin to see these improvements on the export side. On net, given the reduction of the dollar, and if the foreign markets hold up and indeed begin to improve, I think that we are going to see this increase in exports. If the consumption numbers hold up--and certainly I have this early look that they are moving along better than I might have expected--I think the staff outlook is a little soft on the consumption side. I do think the outlook for 1988 continues to be positive and not inconsistent with the results that we've had this year.",884
-fomc-corpus,1987,It's the sort of scenario that would worry Jerry Corrigan.,12
-fomc-corpus,1987,"Yes, that's right.",5
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,"As far as the overall Greenbook forecast, I think it's reasonable. In our own District, we continue to see strong employment gains. And in those areas where we've seen some slowing in the growth--Delaware, for example--I think it is more because of supply constraints than demand constraints. We've been seeing the same thing that Si Keehn has: the manufacturing sector is picking up handsomely and I think that's largely attributable to improved exports. Growth in construction, while slowing, still is at a fairly healthy level, particularly in the nonresidential area. On retail sales, we've been picking up; as I've heard around the table, they are doing really rather well. Our retailers say that they are holding up to pre-stock market crash expectations and it is very hard to see the effect of the stock market on retail sales. So, in a nutshell, the regional economy continues to do well. I would like to piggyback very briefly on this adjustment process issue that Jerry brought up because it seems to me that we have to view the economy and the outlook a good bit differently with this overhang of the adjustment process than we ordinarily would. In the past, we've gone through periods where inflation was a problem and we've had to make some adjustments. We've gone through periods where aggregate demand was too weak. We've had recessions and we've had to make adjustments. I think this is the first time that any of us has gone through an international adjustment process of this magnitude with the U.S. because I don't think we've been in this kind of a situation. We'd have to go back to before the World War I period. We may get this shift from consuming more than we produce to producing more than we consume; we may be lucky and get that magnitude just right. We may get the changes in exports and imports so that we can keep aggregate demand going along at what most of us would consider an acceptable growth rate. But we may not be so lucky; we probably won't be. There are a lot of scenarios here, but my sense is that we are going to have to be prepared to accept slower growth than we would otherwise think of as being desirable in the interests of this international adjustment process. Some of this slower growth may be forced on us by market discipline of the kind we were talking about earlier. We may have to begin to settle our foreign liabilities in other currencies rather than the dollar. But, I think there will come a time--probably sooner rather than later--when monetary policy decisions are going to have to be increasingly influenced by this adjustment process. We can lean toward helping the adjustment process or we can lean against it; but I think we are going to have to think more in terms of what we can do to lean in the direction of helping it. It just may mean that we will have to accept growth rate increases that are less than we ordinarily would in order to do that. But I think it is better for us to get ourselves in that kind of thought process rather than have the market disciplines coming down on us very hard, which they will if we don't.",619
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"With regard to the regional economy, as some people have already suggested, it remains quite difficult out our way to find any pronounced negative effects as a consequence of the stock market decline in October. Most sectors in our District continue to do reasonably well. Anecdotal evidence is generally positive, particularly with regard to manufacturers and what they are seeing in terms of trade and international competitiveness. It leaves me, at this point, with very little doubt as to where we are going in that direction. I'm not sure that this continuing strength in domestic demand is all to the good at this point, as Bob Black already commented. As for my view of the national outlook, I'm going to echo Ed Boehne here to some degree. The Greenbook may be certainly a satisfactory outlook, and it may be about as good as we can expect. I happen to think that we are probably in the midst of this transition to an economy in which growth will be driven by growth in trade and, for a time at least, in inventory building and that domestic final demand will be subdued. I'm not sure that we can go through this kind of adjustment process, this transition, and avoid a recession. It seems to me that that's a risk that we have to run and that we may not have much choice about it. I have been struck that--at least until what's been happening with OPEC the last several days--the bond market, as far as I can read it, has been reacting to declines in the dollar kind of the way it was back in April and May and again in August and September. That's one form of the market discipline that would be foisted upon us if we don't take steps to promote the transition ourselves, or at least to allow it to occur.",351
-fomc-corpus,1987,President Morris.,3
-fomc-corpus,1987,"Well, Mr. Chairman, after looking at the surprisingly strong October-November employment gains, it would seem that when the stock market decline hit us we had an economy with a very strong head of steam, particularly in the manufacturing sector. Perhaps the stock market drop will turn out to be a blessing in disguise in that it has taken at least a little of the speculative euphoria out of the system. The only impact we see in New England from the stock market decline is changed expectations as to the growth rate of the financial services industry, which had been growing very rapidly in New England, particularly the mutual fund business. Looking at the forecast, it seems to me that the risk is that the economy will grow more rapidly than we are forecasting, particularly in the business fixed investment sector. I know that the current quite modest projection is in line with the forecast, as Mike Prell said. But if we keep moving in the direction of greater utilization in manufacturing capacity, which I think is in the cards, I wonder whether the rate of growth of business fixed investment in 1988 may turn out to be substantially higher. Then we could have a situation in which the economy is growing faster than we can afford to see it grow. Maybe we could grow at a 2-1/2 percent rate without generating acceleration of wage increases. But if growth is much beyond 2-1/2 percent, I think we run the risk of making a fundamental change in this benign wage environment that we've had. So, I don't see that we have a lot of room to maneuver here. And I think the risk in the forecast is that we forecast too low a rate of growth in business fixed investment.",339
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"In our District, the real strong point is employment. Non-ag employment has kept pace with national growth rates. And we've seen particular strength in manufacturing employment; in the three months before October, that was up over 4 percent. Construction has been notably weaker in both sectors but for a long time it was stronger than the rest of the economy. I would say that the retail sales situation is a little more moderate than described in other areas. I talked to a major national retailer about two weeks ago and they were disappointed with their November results. December started off better, but their profit plan for February through August has been nudged down significantly; and they're taking about 10 percent, or $75 million, out of their capital spending plan for next year which, in a sense, doesn't surprise me. This individual also mentioned that apparel manufacturers are talking about double digit price increases for the spring line and he does not see that that's in the cards at all, based on his outlook of demand. Adding to what Jerry Corrigan and Gary Stern said about the adjustment process that Jerry was describing: it seems to me that the big risk--and I'm talking in the broad sense, not about monetary policy specifically, though it certainly fits into the picture--is that if we are perceived as not pursuing underlying policies that are consistent with that adjustment process, then it will trigger prices in exactly the way Sam Cross was describing before. As I said at the last meeting, I don't believe in defending the value of the currency; but the fact of the matter is that I perceive that we are in a financial situation where we just don't have a lot of room to ignore it. I wouldn't put my view in the context of specifically defending the currency but I do think that we have to run policies that are consistent with that adjustment process. That gets back to Ed Boehne's point that we have to be looking at lower demand growth than we might otherwise be willing to accept.",391
-fomc-corpus,1987,President Parry.,4
-fomc-corpus,1987,"Mr. Chairman, the generally healthy Twelfth District economy has experienced few significant changes since the stock market decline. The firms we surveyed indicated that they were going ahead with planned capital spending projects for next year. Moreover, retail sales appear to be holding up well, according to representatives of several major department store chains. from September to date, which of course, is the most important part of the Christmas period up to this point, his sales were up 13 percent. He has had no price increases so that is basically a volume increase. Evidence from the mortgage market in our area is mixed but, on balance, activity in the residential area appears to have weakened slightly in the wake of the stock market decline. One little vignette in terms of exports comes from a large lumber company. He said that, unless there is a significant decline in the demand for lumber domestically, there is no room for further exports of lumber; capacity in the industry is not going to be added to significantly for the next two years, and you just can't count on lumber exports at a higher level unless there is a significant decline in domestic demands. Our economic forecast has a little more strength in activity next year and the same rate of inflation as the Board staff's forecast. The slowdown that we have in the first half, of course, is a result of the negative effects of the stock market decline. It is important to point out that both our staff's forecast and that of the Board staff--and I think a lot of the forecasts that have been mentioned around here--have included a fairly significant decline in interest rates in conjunction with the slowdown. It would also appear that those forecasts imply an easing in policy in the near term. Now, I want to emphasize the point that the forecasts all assume the negative effects of the stock market. And it seems clear to me, at least at this point, that as yet there haven't been any signs of such slowing. The second-half pickup, which is a little stronger in our forecast, results from the dissipation of the adverse wealth effects. In addition, the decline in interest rates in the first half has a role in causing the economy to grow more rapidly in the second half and, finally, the recent sharp drop in the dollar also adds strength to the second-half growth rate. Finally, although short-term prospects for inflation appear comforting, I don't think I could describe the expectation of 4 percent inflation next year, following a similar increase this year, as comforting at all.",499
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"I have just a couple of comments. A few weeks ago I met with the chief financial officers of about 125 Fortune 500 companies. One of the things that I asked them about was their reaction to October 19, both individually and corporate-wise. Basically, they were sort of frozen in place. They hadn't dealt with that kind of situation before so they hadn't recommended dramatic changes in plans to their CEOs nor had they changed their profit plans. Most of them were right in the middle of the profit-planning season for 1988. Because most of them hadn't been through this experience before--and, unlike us, they didn't have models that would predict the impact when there hadn't been a similar event--they were playing it by ear, I would say, and trying to get readings on what the sales of their companies were doing, and so forth. They were going to continue to look at them and there might be changes forthcoming; but, at that point, they were simply not sure. They said the biggest impact was on the bonuses and the value of the stock options. As one fellow said, one of the biggest shocks was having to get his CEO out of a board meeting and tell him that their stock had stopped trading on the New York Stock Exchange. That shook things up quite dramatically. The one company that really has reacted to this, though--and I think I mentioned this before--is They have done such things as: cut back on a major plant modernization job; pushed the completion date into the future for an addition that was going on at a similar plant and delayed a new tech center they were going to be building out in Also, they continue to fiddle with their pension plans, building more liquidity, raising cash, and cutting back on holdings of stock and also of long bonds. In addition, they continue to fiddle with their production schedules. As you know, Ward's announced that the auto industry as a whole was planning for production for the first quarter of about 14 percent below the first quarter of this year; but is making plans that are more pessimistic than that. Also, I was told by them that some of the other auto companies probably would be cutting their first-quarter plans more deeply and that, therefore, the Ward's number would probably turn out to be a little overly optimistic. Also, the inventory situation in autos is really, really severe. As of November 30th, the days' supply was 86 days as compared with 73 days a year ago. At the end of December, they think it will be 98 days. That certainly is consistent with the idea of cutting production because these incentives that they have tried to use for the last year and a half have less and less ""oomph"" every time they drag them out. And so, they just have to do something else. The final point is that there is great concern about the deterioration in consumer confidence, looking both at the University of Michigan survey and also the Conference Board's. One of the points made to me was that averaging the results of these two surveys, the latest number showed the lowest reading in this recovery after registering the highest level for this recovery in September. So, they are concerned about what that will do to future consumer purchases of their products. If you want a group that isn't rolling in the aisles with optimism, I would recommend that you talk to some of these people.",682
-fomc-corpus,1987,President Hoskins.,4
-fomc-corpus,1987,"The manufacturing side of the Fourth District is strong and it is strong based on the dollar. From what we can tell, it is strong in steel, chemicals, and capital goods. The emphasis on the customer side has been more on delivery times as opposed to price, which implies some increase in price of very [unintelligible] commercial side. It is very consistent with respect to not bringing on [line] a lot of old plant; they want to wait a while longer to see if the demand lasts. On the retail side, it's very much the same as everyone else has reported. Higbee's, May's, and Federated all have reported strong sales gains since Thanksgiving. None of the weakness that we've all been anticipating has shown up, to date. In terms of the longer-term forecast, we have no really major differences with the Greenbook forecast. In terms of the adjustment process we were talking about, I suspect surprises in the future rather than disappointments will be on the side of a quicker adjustment rather than a slower adjustment than we have seen lately. And the reason for that has to do with what is going on, at least in some companies, with respect to their profit margins. The profit margins of foreign companies are being squeezed; they are holding market share, as everybody has discussed. But they are doing the same thing that the Americans did six or seven years ago: they are putting plants in place in domestic markets or buying plants in domestic markets to retain their market share. So, they are going to suffer a profit squeeze for a while, and then they will be up and running with domestic plant production which would then imply less imports from abroad. So, I have some view that the adjustment process, at least as forced by the marketplace, is going to go a little faster than perhaps we are expecting at the moment. It doesn't mean that we shouldn't worry about the things that Jerry Corrigan and everyone else are worrying about. But my emphasis would be that, obviously, we don't have a lot of control over all of those variables. One we do at least have some influence on is price stability. And I would find a consensus around the table for moving more towards zero over the next four or five years more comforting than 4-1/2 percent.",459
-fomc-corpus,1987,Vice President Guynn.,5
-fomc-corpus,1987,"This is my first time here, and this process is fascinating. Economic development in the Southeast appears to be very similar to what I've heard others comment on in the national picture. Manufacturing and trade-related activity--and in our case that includes textiles and chemicals--clearly are doing better. In Texas and Oklahoma the oil and gas industry is finally showing some signs of life. Yet, I think there's a little concern that some of the projects that are still on the shelf and that haven't been restarted could be discouraged, or at least put off further, if the price of oil does fall back or stay at lower levels. So, that's a minor concern in that oil patch of ours. in the paperboard packaging business, reports backlogs have grown and he can't even shut his plants for normal maintenance. So somebody, somewhere, thinks that business is going to be good. Very much like I've heard others say around the table, our retailers also report that their sales have come in close to expectations. But we've had a number of people point out that they had scaled back their expectations for the last half of this year even before mid-October, so I don't think we would use words like strong. We've even had a few retailers, as Tom Melzer indicated, point out that they have a little concern about the early part of next year, after we get past the Christmas season. Finally, with regard to the region, at our last board meeting a bit of uneasiness about the early part of next year was expressed from Tennessee, which has become kind of a mini- Detroit with a lot of automobile and consumer durables-related businesses. But Tennessee has done well and they are looking through that and see that it is only a temporary problem with a little disappointment perhaps in their minds for the early part of next year. Nationally, we, too, are comfortable with the Greenbook forecast; our differences are marginal. We might see modestly less improvement in the trade deficit but we see the prospects for manufacturing investment perhaps being even a little stronger than indicated, as Frank Morris suggested; so, those tend to balance out. Overall, we are reasonably comfortable that we will get moderate growth in 1988. I am a little concerned that perhaps the downside risk in the early part of next year might be a little stronger than the upside risk.",468
-fomc-corpus,1987,"I agree with a lot of the comments. I'm picking up the same thing: that the export side of things is very strong. You don't hear anyone complaining about orders coming in and their ability to compete at these exchange rates and the activity of their businesses at this stage, so I think that on the production side things do look very solid at the moment. What's starting to trouble me a little though--and maybe I'm smoking something because I seem to be a bit out of sync with some of the other views--is certainly not on the production side right now but on the sales end of things. We got revisions on October and September retail sales, which were down considerably and down relative to the Greenbook, if I remember right. We have revised down the retail sales figures even [for the period] before the stock market crash; our view of domestic demand is weaker going into the stock market crash than in fact we thought before, relative to the forecast. Now, I agree with everyone else: I haven't seen the impacts of the stock market decline on consumption at this point. Retail sales were actually up modestly in November; automobile sales seem to be holding up, although that's mainly an incentive issue. But we haven't seen a really severe hit to domestic consumption since the stock market crash. What I'm worried about a little is that we may not quite be seeing it yet but, given the fact that sales are running below what we anticipated them to be before the stock market crash, there's a little more downside risk, in my mind. I think some circumstantial evidence is that we have seen weak credit demands in November. How you translate that, I don't know; but it's the first time in a while that we actually have had a decline in overall credit demands for the month of November. I don't place a lot of emphasis on the aggregates but the fact that we are now projecting an actual decline in M1 growth in December, when we were hoping for an increase, is a little bothersome. I can't really explain it and I don't want to have just a knee-jerk reaction, but it bothers me that I can't rationalize it either. So I think there is some near-term risk, but I agree overall with the longer-run view that we have to see consumption run lower than we have in the past to get the adjustment we need. I think the external adjustment is taking place; exports look very strong, and even adjusting out oil imports, non-oil imports don't look bad at all. But my concern is that things don't sneak up on us on the domestic demand side--that while we are expecting slow domestic demand and we are sort of looking the other way, the numbers go down sharply. I don't want to get caught in that side of things. We do have to resist a strong expansion in domestic demand or we have to have a very conservative expansion in that area or maybe even almost flat; but that's different from a sharp decline. But, once again, I don't see the sales numbers sharply weaker since the stock market crash. I'm worried more that we went into that on the weaker side than we thought. That's sort of where I am on the adjustment process. What I'm worried about, though, is that if we end up with a sharp downward reduction in consumption as the adjustment mechanism, we're just simply going to replace private sector demands for financing with public sector demands for financing, because we are going to see a huge swelling in the budget deficit. I'm not sure that our needs for foreign capital flows are going to improve under that adjustment process at all, substituting government financing needs for private financing needs. And the interest rate implications of dependence on foreign sources of capital flows are pretty scary.",742
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"My outlook and the staff's are very, very similar. There is only one modification and that is that I see as strong an economy as the staff sees only without the 1 percentage point decline in interest rates. I guess that would mean that I see an underlying strength of capital spending that would be able to accomplish the contribution that the staff has laid out even without getting the interest rate decline. That adjustment, I think, can still give us strength. There are three uncertainties that we are all faced with: consumer spending; the impact from net real exports and the dollar; and the foreign exchange rate/capital market adjustment problems. Let me mention, first of all, consumer spending. It seems to me that the consumer spending effect of the episode of October 19 and the days following is less than the impact of the exchange rate and interest rate changes that have occurred since then. That is, consumer spending is not apt to be affected in a worrisome way, given what has already happened. If we do not have another event, it seems to me that, of course, we will have employment effects in some of the financial service industries and that would be consistent with some slowdown. But I would note that personal consumption expenditures for the third quarter 1987 over the third quarter 1986 contributed about 1.5 percent out of a 3.1 percent economy. So, Jerry, I think this adjustment you're talking about is really already under way. My view, Jerry, is that it's helpful to lay out before us, as you did, the kind of adjustment scenarios. But it seems to me that there's just no question that these adjustments are going to take place. We are not going to be able to operate with the kind of imports of capital and the kind of balance of trade deficits that we've had; the market is going to bring some adjustments. The question is whether the adjustments come in the way we would like them to come or in a way that would be very unfavorable and maybe close to disaster. I was very pleased to hear Tom Melzer, Bob Parry, and Lee Hoskins all mention the fact that inflation of 4 percent is not satisfactory. Of course, if we have low wage rates and high inflation rates, that's one way we could get an adjustment. I would join them in saying that's not a satisfactory way of getting an adjustment. Our real net exports, as you know, have been increasing in a rather dramatic way. I guess, Martha, I'd be on the side of calling the November numbers a fluke or a one-time occurence. I'm not willing to rely on that as compared to twelve months of movement in the other direction. When we look at third-quarter rates of 18 - 19 percent on real exports, it seems to me that one of the problems we are faced with is that real exports are growing at such a dramatic rate. We pick a high [unintelligible] exchange value of the dollar and we say we don't want to tie monetary policy to that. I understand why, but we may have overlooked the fact that that foreign exchange value of the dollar is producing a real export role and a crowding out of manufactured imports at a rate that's going to be difficult to maintain, even given the heavier capital spending taking place there. So, it seems to me important for us not to make any gesture in the direction that would tend to exacerbate that problem. I tend to think, as Jerry Corrigan and Sam Cross and some others do, that that's the real factor that could give us the recession that everyone is worried about. I don't think it is going to come because of slow money growth. The money growth path that we've had, it seems to me, is not a Federal Reserve starvation growth pattern. It isn't because we shut off reserves. If that were the case, I think we would see some other factors occurring: I'm sure that the foreign exchange markets would show more evidence if we really were being that stringent on reserves; that the Treasury yield curve would show it; and that we would be getting some declining commodity prices. But I do believe that the real risk that we face is a foreign exchange rate upset that could, in a sense, give us another financial market episode in equities. I understand why the monetarists argue for floating exchange rates, but you just don't get something for nothing. If we have floating exchange rates, then we'd have to accept floating interest rates also. And it would scare me as to what a precipitous move in exchange rates might do to U.S. interest rates. Frankly, I think that the stock market episode and the recent oil price move have simply given our bond markets some opportunity not to face the real consequences that a continuation of the dollar on this course would mean. It's in that context that I've been, I suppose, oversensitive to any tendency on our part to peg the fed funds rate. I'm just afraid to peg the fed funds rate in an environment in which we would not have interest rates responding to those real forces. I share the view that letting the dollar go is a recipe for disaster. We're not getting the kind of help we ought to be getting on Capitol Hill, but it seems to me we either have to take some steps in that direction, or we're going to get an experience that none of us wants.",1075
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"I was quite surprised to hear the high degree of optimism from all parts of the country expressed around the table here. I was surprised because an awful lot of people talked about their agreement with the Greenbook. And if you look at the Greenbook, the next quarter's GNP is down 1.1 percent: consumption is negative; durables and nondurables are negative; industrial production is down to a 1.0 percent increase; housing starts and auto sales are at the lowest levels since 1983. Yet everybody is extremely optimistic.",111
-fomc-corpus,1987,[Unintelligible].,6
-fomc-corpus,1987,Martha hasn't spoken yet? Well--,8
-fomc-corpus,1987,I haven't spoken yet.,5
-fomc-corpus,1987,"The optimism is also in contrast to what I would almost call a barrage of visits and letters that have been coming in here during the last couple of weeks and days. Curiously, many of the remarks by those representing the national associations--often of the industries that some of you were talking about--were very much on the pessimistic side. Obviously, we have some problem here of looking at the trees versus the forest. And, having lived off Coricidin for the last three or four days, I really don't know how to sort it out. I come down with Mike Prell, who says I see a lot of good things and I see a lot of bad things, and I really don't know which way the evidence is pointing. But there is a marked contrast between the optimism that seems to be being picked up in the anecdotal evidence and the outlook that I would argue is not at all optimistic, according to the Greenbook. Also, if you look at some of the monetary statistics, we have a real money supply that has been falling now since May, and reserves are flat. So, if all that optimism is out there, I'm still curious why people don't hold that money. Those are also some of the remarks I seem to be hearing, at least from our Desk people. They say, well, the demand for money just isn't there. So, I'm puzzled. Obviously, I hope it will turn out the way the vast majority here describe it to be, but I think that there are a lot of reasons for unease in that optimistic outlook, because I think some of the more macro forces may not be all that sanguine.",331
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,"Well, I'm glad to follow your speech, Bob, because I think I'm coming from very much the same place. I have some concern, too, because I'm getting somewhat different reports than I'm hearing around the table this morning. In fact, the reports I'm hearing around the table this morning encourage me greatly from where I was when I came in here. My suspicion is that we are getting this adjustment, as Governor Angell suggests; and I also suspect that it may be this very slow aggregate growth and reserve growth that Bob Heller was talking about that's doing it. I'm not confident that retailers are doing that well. The sales I hear about across the country--when they started and the extent of them--make me wonder how strong things are. Indeed, there are a lot of reports coming in from associations that are not as strong as we are hearing here this morning. Martha, you were quoting from I had a visit from an economic consultant who works with and this fellow is telling that the economy is going to fall off the cliff in the first quarter on account of the growth in the aggregates. That may be part of what's going into their planning. In short, Mr. Chairman, to go back to your analogy about plumbing and Bob Black's comment on it, I wonder if the plumbing may not be beginning to work again. In any event, I suspect it will work a while before we realize it is working. Given that the retail economy is as important as it is to the overall picture, I think that we should be very alert to the state of the plumbing--what the aggregates are doing and what effects that may be having. I would be very happy with the staff forecast for 1988, and I basically agree with it. But that's where my concern about it would lie.",359
-fomc-corpus,1987,"President Guffey, do you want to say anything?",12
-fomc-corpus,1987,"Well, it's getting late, Mr. Chairman. I would just add to the optimism in a sense, particularly from the District perspective, although we are lagging the national recovery both in terms of employment gains as well as personal income gains. Nonetheless, looking back from where we started, in energy, agriculture, aircraft, and so forth, things are looking much better. That's particularly true in the agricultural area, where things such as agricultural real estate values actually have increased in the second quarter--very modestly to be sure, but nonetheless there is an increase. Energy rig exploration is something in the neighborhood of 35 percent greater than a year ago. However, given what's happening now with the potential fall in the oil prices, I'm not sure that will continue. With regard to retail sales, the report that we have is that they are modestly higher, some 5 percent higher, than the same time last year, with a lot of sales and discounting, which means volume should be moving through those retail elements. As a result, I guess I would say we feel better than we did a year ago, and better than we did six months ago. The clouds on the horizon might be a drop in energy prices as the result of OPEC's problems and/or a change in the agricultural subsidy provisions from the federal government, both of which would impact the Tenth District. However, looking at 1988, the latter would suggest that it will be a fairly good year, given current commodity prices--if they hold up. Agricultural exports are very encouraging to the people in our area. Those are mostly government-subsidized exports, I might say, but the inventories that built up in the last couple of years are being worked off.",350
-fomc-corpus,1987,Why don't we take our break at this time and continue with Don Kohn's report.,18
-fomc-corpus,1987,"Don, why don't you get started?",8
-fomc-corpus,1987,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1987,"Thank you, Mr. Kohn. What I would appreciate everyone doing in the process of expounding your views on policy is to first address the issue of whether or not we should be shifting to some other basis, in the context of our discussion yesterday. What I'd like to do is merely reiterate the four different options that were outlined yesterday and ask that as part of your exposition you stipulate where you would like to be in those various options. As you may remember, option (1) was to retain the current emphasis at least until markets calm further and borrowing behavior returns more to normal; (2) was to place even more emphasis on achieving a predetermined federal funds rate or a narrow range; (3) was to shift back toward more emphasis on achieving the borrowing objectives, but with greater flexibility and attention to the federal funds rate than before October 19th; and finally, (4) was for the Committee to return to the previous emphasis on borrowing and reserve pressure objectives. In the context of that, it also would be useful to indicate your general view on where you think the funds rate should be as well as the borrowing objective. Also, in expressing the borrowing objective, differentiate between the current borrowing levels, which are subnormal relative to the funds rate, and the normal borrowing levels so that, in the event the relationships started to return to normal, the Desk could make the appropriate adjustments in the context of the wishes of this Committee. At the moment, I would gather that the abnormal spread is approximately $100 million to $150 million.",311
-fomc-corpus,1987,"Yes, I think it is. I think it'd be fair to say that the normal borrowing for a funds rate of about 6-3/4 percent would be in the $400 million area. As we said in the Bluebook, we expect about $300 million after year-end, allowing for some downward shift, but not as much as we've been getting recently.",74
-fomc-corpus,1987,So you'd say it's a $100 million shift?,10
-fomc-corpus,1987,"After year-end. Right now I'd say it's probably closer to $200 million, but I'm guessing that some of that is saved up for year-end.",30
-fomc-corpus,1987,"Mr. Chairman, I have a question. If we specify what we want the level of the fed funds rate to be will that then go into the minutes? I'm assuming that if we come up with a fed funds level that it would be appropriate for that to be in the minutes.",57
-fomc-corpus,1987,"Well, it will depend, I think, on the answer to the first question. If it is the consensus of the Committee to target the funds rate--if we go with, say, either option (1) or (2)--then I think probably that's appropriate.",54
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,"If we go with option (3) or (4), I would suspect not.",17
-fomc-corpus,1987,I agree with you.,5
-fomc-corpus,1987,How was it done last time? We went to a funds target last time.,16
-fomc-corpus,1987,"Well, we did it sort of by analogy with the borrowing. We never mentioned the borrowing specifically in the policy record.",24
-fomc-corpus,1987,"It sounds like we didn't go quite as far as we apparently went, either.",16
-fomc-corpus,1987,"Yes, I agree. I didn't think we--",10
-fomc-corpus,1987,We didn't mention a specific funds rate.,8
-fomc-corpus,1987,"I think it would be a real mistake to indicate that we're following a funds target for the short term because I think it will really confuse the market, particularly if we intend to switch when things become more normal in a couple of weeks. I think handling it the way we did before is a better --",60
-fomc-corpus,1987,"Well, I misspoke. I really meant if we did (2).",15
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,We actually did option (1) and we didn't put the funds rate [in the policy record]. So it's only if the Committee chooses option (2) that I think it will require that.,39
-fomc-corpus,1987,"I wouldn't agree with that. If we do (1), it seems to me that we would have to report that in the minutes.",27
-fomc-corpus,1987,"Why don't we do this. Let's actually see what evolves, and then we'll deal with it.",19
-fomc-corpus,1987,Okay. And then we'll look at that question.,10
-fomc-corpus,1987,"Let me just open up by commenting that in listening to this discussion I was surprised, in a way, about the spread that exists between the Board members on the one hand and the presidents on the other. I suspect that's a short-term phenomenon because the real world is going to impinge on us very shortly and push us together. The trick is to figure out where. I must admit I'm somewhat surprised at the strength of the economy. You can see it in the orders and you can see it in the burgeoning capital goods markets, which in many respects have been getting less emphasis here than the retail sales figures because in one respect, it's pretty easy to forecast retail sales. They're going to be dull and the reason they're going to be dull is that the saving rate is very low and it's very difficult to come up with an optimistic scenario on retail sales no matter how you play the game. Fine tuning the Christmas selling season I find is a wonderful experience fraught with failure. The reason is that customers go to the best deal. Unlike the numbers for capital goods orders which, if you get a sample of five or six major capital goods producers in a particular industry no matter where they are in the country, would all look the same because they're arbitraged; retail sales don't arbitrage. You don't get the same retail sales pattern in Boise as you do in Atlanta and as a consequence, you need a very large sample. What all of the data suggest to me is that none of us has been able at any time in the pre-Christmas season to get enough of a sample to give us a really good judgment. I suspect no matter how Christmas comes out, it's going to surprise us, either plus or minus. And we really won't know what Christmas sales were until February, probably. In any event, I think we have to assume that the retail markets are dull and that basically nothing is going to happen there. The crucial issue is going to continue to be the basic plant and equipment numbers. It's becoming fairly obvious why the stock market has not had the effect that a lot of us were concerned it might. I guess the best way [to describe it] is to draw the analogy of the market going up 500 points in one day then going down 500 points the next day; it's unlikely to affect anybody's behavior. I think we're all aware of the fact that if we had had a 500 point drop back to levels of 5 years earlier, we would have had some really significant effect. But the issue is that we have wiped out a substantial amount of unrealized gains; what we were not aware of was that nothing was heavily committed; the extent of leveraging against the stock market gains was apparently really not all that large. I think that's the answer, but I must say at the moment that I feel uncomfortable with it. I still do not believe we are out of the woods on the market; I don't think all of the yield spreads have gotten back to where they were. All objective measures of stock market levels suggest that, if anything, we are still above normal and that we are vulnerable to a significant decline. Consequently, even though under normal circumstances I would say that in this type of environment we probably should be in something of a tightening mode, if rates go up under these conditions I suspect the stock market would go down, and I'm fearful of the extent of that particular decline. On the other side of this, I feel uncomfortable about the money supply figures mainly because, as Governor Kelley said, we don't know when the plumbing will be hooked back in and something could give at some point before we know it. More importantly, despite the 4-1/2 percent inflation rate, the debt levels, the aggregate levels, are all performing reasonably well now even though the Ms are all over the place. If we take the oil price decline realistically, I think inflation is in the process of easing. So, on the other side of this, one could argue--and I'm sure a number of you will--that we should be easing from here. But, if we ease from here in the context of still soft exchange rates, I'm fearful that the system will crack, with the huge holdings of dollar-denominated assets in the world. Despite the heavy central bank accumulation, those holdings actually have never been other than a net plus for the private sector of the world. If we ever had private holders starting to try to liquidate, I think the effect would be a real free fall that could bring the stock market down and that would crash us. So, between Scylla and Charybdis, I sort of come out for alternative ""B"".",936
-fomc-corpus,1987,May I just ask one question about what Don said these new numbers were for the aggregates in December? I didn't hear what--,25
-fomc-corpus,1987,They were revised down.,5
-fomc-corpus,1987,"I heard him say revised down, but I didn't hear--",12
-fomc-corpus,1987,The December aggregates--is that what you're asking?,10
-fomc-corpus,1987,Yes.,2
-fomc-corpus,1987,"We're now looking at about a -4 percent on M1. That is composed of a further drop of about 16 percent in demand deposits and a small rise in other checkable deposits. And we have about a 2-1/2 to 3 percent increase in M2. Some of the revision to M2 is not only this demand deposit drop showing through, but the overnight RPs and Eurodollars also came in quite weak. That's a highly volatile series, so I'm not sure how much emphasis I'd put on that. The household parts of M2--the bank and thrift savings and time deposits and money market funds--don't look much different than they did last week.",138
-fomc-corpus,1987,Thank you.,3
-fomc-corpus,1987,President Melzer.,4
-fomc-corpus,1987,"I also would favor ""B"". I would define that as a $400 million borrowings target. In my mind, that's where we were and what we've done since then was really to accommodate the special conditions.",42
-fomc-corpus,1987,This is on the normal part.,7
-fomc-corpus,1987,"On the normal relationship. I would expect that to be associated with a 7 percent funds rate and I would be symmetrical in terms of the language. As to the other--I guess I should have done that first--I would favor alternative (4). I wouldn't go back to it abruptly; I think I'd use the year-end as a cover, but I would get back to that relatively promptly. I really don't know what (3) means.",90
-fomc-corpus,1987,Three means to give discretion to Peter.,8
-fomc-corpus,1987,"I like Peter, but I think I like number (4) better.",15
-fomc-corpus,1987,How about Peter in consultation with the Chairman?,9
-fomc-corpus,1987,President Parry.,4
-fomc-corpus,1987,"I would favor alternative (3) and probably would move in that direction after year-end. With regard to the alternatives, if I were to follow the analysis of my staff and that in the Greenbook, I think it would lead to a recommendation that monetary policy soon be eased in response to a significant expected slowing of the economy in the first half of next year and the accompanying declines in interest rates. However, to date, I haven't seen the signs of the negative effects of the stock market decline. Consequently, I would support alternative ""B"" with asymmetrical language providing us with the flexibility to ease before the next FOMC meeting should that become necessary. With regard to the specifics of the funds rate and the borrowing, I'm completely satisfied with the work that the staff has done in the Bluebook. It seems to me that the 6-3/4 to 6-7/8 percent funds rate is reasonable. In light of what we've seen with regard to the demand for borrowings, I also would accept their $300 million borrowing number, expecting that it probably would be below that between now and year-end. Conceivably, we could get to the $400 million level after that, but I don't know how fast.",249
-fomc-corpus,1987,Governor Heller.,4
-fomc-corpus,1987,"I'm essentially for ""B"" but a bit split as far as the timing is concerned, maybe along the lines that Bob Parry was just talking about. Through the year-end, and as long as the dollar is under pressure, I would stick to the fed funds rate at 6-3/4 percent. If the pressure on the dollar eases, and once we get through the choppy weather of the year-end, I would switch more towards a (3) type policy with emphasis on the borrowing again. I would be asymmetrical in the easing direction, too, so that might allow the fed funds rate to drop a bit. Probably a normal borrowing target of $300 million would be appropriate for that.",144
-fomc-corpus,1987,"Actually, that is three that would be consistent.",10
-fomc-corpus,1987,That's right.,3
-fomc-corpus,1987,President Boehne.,5
-fomc-corpus,1987,"I'm for alternative ""B"" with normal borrowing of around $300 million, which would give us a federal funds rate presumably of 6-3/4 to 6-7/8 percent. I would prefer a symmetrical directive and --",48
-fomc-corpus,1987,"Sorry, that was symmetrical?",6
-fomc-corpus,1987,"Yes, symmetrical. And I like option (3) in terms of implementation. As to whether one begins the process before year-end or starts after that, I think that's a judgment call. One can't make that call at this point and I think we're going to have to let Peter and the Chairman decide that.",62
-fomc-corpus,1987,Governor Angell.,4
-fomc-corpus,1987,"I'd take ""B"" and I would want the normal borrowing, which I guess would be $400 million after the first of the year. I will not mention any fed funds rate. I want no tilt and I want (4) just like Tom Melzer. But I do think if we're going to do (4) that we might consider an announcement. Someone mentioned yesterday that we might make a very simple statement indicating that we were reemphasizing adjustment plus seasonal borrowing so that the markets would not assume that we had made a policy move.",110
-fomc-corpus,1987,Symmetric or asymmetric language with that did you say?,11
-fomc-corpus,1987,I want no tilt.,5
-fomc-corpus,1987,"No tilt, I'm sorry.",6
-fomc-corpus,1987,President Stern.,3
-fomc-corpus,1987,"I, too, would favor the specifications of alternative ""B"", although I'm a little uncertain about exactly what normal borrowings means in this context. Let me come to that. In terms of implementation, I would prefer alternative (3). My guess would be that we might as well start around the turn of the year and use that as a cover because I don't think we're going to have much choice. There's a chance that the markets are going to do something unusual. There will either be pressure or maybe a lot of excess reserves around, depending on how people position themselves. I don't think we want to sit there and work real hard to try to offset all that. But it seems to me to be a logical time, maybe an unavoidable time, to start. As I said, whether the borrowing that would be associated with that is $300 million or $400 million, I'm really not quite sure. I would start with the intention of keeping the federal funds rate roughly where it has been; but as the period develops, obviously, I wouldn't expect that it was going to stay there precisely. And I would prefer a symmetric directive.",226
-fomc-corpus,1987,President Hoskins.,4
-fomc-corpus,1987,"I guess I'd go with alternative ""B"", with some reluctance, over the concern about the aggregates and the continual downward revisions. That causes me some concern about going forward. Obviously, the optimism we see right now is related to some events that have already happened, if we believe in lags. So, I'm concerned about going forward. If we're going to look at an aggregate, I would try to pay a lot of attention to M2 and whether we're going to get the growth there or not. If we get continued shortfalls in that, then I'd be concerned more than I would be otherwise. I'd want to go with option (4) if we're going to use the announcement. I don't see any reason not to announce to the markets that we're making a change. We're sitting here looking for year-end cover and all that kind of thing; it seems to me we can get where we want to be very quickly with less misinformation or miscues by making an announcement. If we're not going to do that, then I'd worry a little more about markets and go with option (3).",218
-fomc-corpus,1987,Symmetrical?,3
-fomc-corpus,1987,"Symmetrical, and $400 million borrowing.",9
-fomc-corpus,1987,$400 million?,4
-fomc-corpus,1987,That's as good a guess as I can come up with.,12
-fomc-corpus,1987,No funds rate?,4
-fomc-corpus,1987,7 percent.,3
-fomc-corpus,1987,President Boykin.,4
-fomc-corpus,1987,"I would go with option (3) and begin the movement when it seems appropriate. I'd go with alternative ""B"" and probably a $300 million borrowing assumption. I would assume that it could be adjusted up the same way it was adjusted down in the interim between our meetings. And I would have symmetric language.",63
-fomc-corpus,1987,Do you want to say anything about the funds rate?,11
-fomc-corpus,1987,About where it is now.,6
-fomc-corpus,1987,President Black.,3
-fomc-corpus,1987,"Mr. Chairman, I would maintain our basic policy stance that's indicated by a federal funds rate centered on 6-3/4 percent. I think we ought to continue the present operating procedures for the period immediately ahead but I'd like to take advantage of some of these year-end pressures to allow the funds rate to begin to move around a bit more than it has. Then as we move into the new year, I'd like to go to alternative (3) whether or not there's an announcement effect, as indicated in Don's and Peter's memo. I guess that would call at that time for about $400 million in borrowing. I would keep the asymmetrical language unless we remove the sentence that says, ""still sensitive conditions in the financial markets.""",149
-fomc-corpus,1987,"So, you're saying you would stay with symmetrical or what?",12
-fomc-corpus,1987,"No, I'm saying I would keep it asymmetric, as it now is, unless we remove the reference to still sensitive conditions.",25
-fomc-corpus,1987,President Keehn.,4
-fomc-corpus,1987,"Mr. Chairman, I'd also be in favor of alternative ""B"". With regard to the other four alternatives, I kind of like all of them in proper order other than alternative (2) which I do not like. Certainly between now and the end of the year, I think it would be appropriate to keep current procedures in place until we are satisfied that we've come out of that particular adjustment period; then I would shift to alternative (3) but lean toward alternative (4). Specifically, a fed funds between now and the end of the year at 6-3/4 to 6-7/8 percent would be appropriate, with a borrowing level not unlike what we have now. But I think as we come out of that year-end period, we would want to get back toward alternative (3) and then move from alternative (3) to alternative (4) with a borrowing level of about $400 million. I wouldn't necessarily want to judge a federal funds rate that would be appropriate for that borrowing level; I'd rather let the market determine what would be appropriate. In terms of the language, I would be in favor of symmetric language. But I'd also pick up on the same directive language that Bob Black mentioned with regard to sensitive market conditions. I think that phrase ought to be dropped and I would use symmetric language.",267
-fomc-corpus,1987,Governor Kelley.,3
-fomc-corpus,1987,"Mr. Chairman, I like Si Keehn's concept of moving in the right order from (1) to (3) to (4). I would go to (3) after the first of the year, moving toward (4) later on. And I would encourage some sort of an announcement at a proper time. I favor alternative ""B"" with probably a $300 million borrowing target and asymmetric language on the easing side. I'd keep the funds rate about where it has been, calling that 6-3/4 percent, tending on the downside rather than the upside from there.",119
-fomc-corpus,1987,Governor Seger.,4
-fomc-corpus,1987,"Thinking back to the market reactions early in December when the fed funds rate passed 7 percent going north, I'm convinced that market participants are very sensitive to what happens to the fed funds rate on particular days. So, I would prefer, short-term anyway, to stick with option (1) which really watches the funds rate very carefully. If there's a decision to tighten that's one thing; but if there isn't, then I think the message that comes from a fed funds rate hitting 7 percent or higher is one of tightness and I'd be now very cautious about that. Eventually, I certainly would be willing to go (3) or even (4), but I don't think that now is the time to do it. And it may not even be the time to do it until we get to the February meeting. In terms of the choices facing us here, I guess I'm going to be a nonconformist and go with ""A"", which gives us a slight easing. I certainly hope that the exports stay very strong but I just feel that there is some risk there. Also, I remember how difficult it has been in the past to read consumption events and consumer behavior. It seems to me it was back in 1980, when I wasn't here but some of you may have been, when the credit controls were put on in March of 1980 because consumer demand was so terribly strong. Of course, later on we learned that we were already in a recession. And I think back in 1974 a similar thing happened when we handed out ""WIN"" buttons and that encouraged people to slice up their credit cards and so forth only to find again that we were already in the recession. So, I am really concerned about misreading the retail sales reports. We're all hearing different stories--some of strength, others of weakness. And consumption is a big chunk of GNP, as we all know; so I think there is some risk here. I also feel that maybe there's more of an inventory problem out there than we have yet identified. And I'm impressed with the fact that the inflation numbers look far better than any of us thought they would if we go back to our discussions in the spring or even in the summer. I think inflation psychology has simmered down. The Dick Hoey survey, which I didn't believe then and probably shouldn't now, nevertheless, for those who follow it, does show some cut in the inflationary expectations going forward. So, I think that's good. I'm not a monetarist but I am paying close attention to what's happening to the reserves and the monetary aggregates; and I think that is something to be slightly concerned about. Having said all that, I would like to go with the modest easing identified as alternative ""A"".",555
-fomc-corpus,1987,What's the borrowing with that?,6
-fomc-corpus,1987,"Well, because of the sloppiness of the relationships, I'm not sure what that would be. I guess I would just concentrate on a fed funds rate of somewhere between 6-1/2 and 6-3/4 percent.",49
-fomc-corpus,1987,President Morris.,3
-fomc-corpus,1987,"Mr. Chairman, I think you're right that, at least temporarily, we're really locked into a no-change policy, which I would interpret as alternative ""B"". I would make the directive symmetric. With regard to operating procedures, I would stay with our current stance of trying to stabilize the funds rate over the next few weeks in the 6-3/4 - 6-7/8 percent area. But once the Desk has concluded that the year-end adjustment is over and the relationships appear to be moving back toward normality, I would move to option (4), our pre-October 19 operating procedure, with a borrowing level of $300 million.",133
-fomc-corpus,1987,Governor Johnson.,3
-fomc-corpus,1987,"I would choose alternative ""A"", I think, if I weren't somewhat concerned about the potential effect on the exchange rate and the fragility of the financial markets right now. I still lean that way, but I guess I would be happy with something like alternative ""B"", with asymmetric language toward ease if events unfold in support of that. Like Frank Morris, I would prefer current operating procedures in terms of emphasizing the funds rate. So, I'd support alternative (1) until we see a stable relationship develop. Once we see that, I'm for going back to our old procedures. In other words, I'd stay with (1) and, when we are sure that we are back to a traditional relationship, go to (4). So, I'm at alternative ""B"", with the 6-3/4 - 6-7/8 percent range on the funds rate, and asymmetric language. I have no real borrowing number because I don't see how we can decide on that.",196
-fomc-corpus,1987,Vice Chairman.,3
-fomc-corpus,1987,"I have a multitude of problems. My first problem is that, going back to the last meeting, I frankly did not realize, or did not fully appreciate at the time of the meeting, how far we seem to have gone in terms of an operating strategy that so narrowly pegs the federal funds rate, as indeed emerged over the period. It may be that I missed the nuances of the discussion, but I certainly didn't view policy quite in that strict light of literally resisting even one-eighth of a percentage point wiggles in the federal funds rate. As I said yesterday, that approach to policy, even on a very short-term basis, is one that I find very, very troubling. So, on the strategy question, I would favor going back to (4) as fast as possible. I don't think I would condition that on a stable relationship because there has never been one and never will be one. The whole idea is that part of what we're providing is room for the market itself to play a role in the process. So, moving back to (4) promptly is something that I put some importance on. I don't want to beat a dead horse here, but it seems to me that doing so at year-end is the perfect way to do it. The Chairman could say in testimony or in the question and answer [session] at the end of this week that we expect, as always, some volatility or churning in the markets at year-end, so don't read any policy significance into it, because there's none there. In my judgment, that provides the easiest way to get back to (4), but I think that is your call, Mr. Chairman. If you prefer to do it otherwise, I could live with (3) over the next couple of weeks. But getting stuck on something like what current policy has turned out to be would be a very big mistake, I think. As far as the basic thrust of policy is concerned, were it not for the proximity to October 19th, I would actually favor tightening policy right now on the grounds that I regard the current exchange market situation as perilous. I recognize that there are risks on both sides. The exchange market could trigger a blowout in the stock market; or, the other way around, a blowout in the stock market could trigger a blowout in the exchange market. But what lies beneath both of those concerns, at least in my judgment, is a great deal of agnosticism or skepticism or cynicism about the thrust of U.S. economic policy in general. And I don't think that is going to go away very easily. However, I can't ignore October 19th, and I don't want to throw out the baby with the bath water, so I could live with an alternative ""B"" that would have borrowings, depending upon what we want to do with the strategy question, at $400 million, at least after the year-end. I would associate that with a federal funds rate roughly in the range of recent experience, but I would define recent experience in somewhat broader terms than an eighth-of-a-point spread. On the language of the directive, I have no trouble with a directive that is asymmetric toward easing in a context in which the pattern of economic statistics is distinctly weak. On the other hand, I would strongly favor a directive that is at least potentially asymmetric to tighten if we run into another rout in the exchange market.",689
-fomc-corpus,1987,That's basically symmetric.,4
-fomc-corpus,1987,"Well, it's not because if the circumstances are not significant--",12
-fomc-corpus,1987,"But, you could say it symmetrically both ways. You could say that if your weakness--",20
-fomc-corpus,1987,"Well, I know [unintelligible]. In other words, it's not the list of items that we have to determine how we are going to behave; and we have both of those in the instructions.",42
-fomc-corpus,1987,"The difference is that the only condition under which I would be willing to ease would be because of the economy itself. The ideal order [in the directive language is a problem]. In other words, I wouldn't be persuaded by--",45
-fomc-corpus,1987,"I understand what you are saying. The only argument seems to be, I would assume, that everyone who was talking about symmetry would not have the same problem.",32
-fomc-corpus,1987,Do you want a tilt to tightness?,9
-fomc-corpus,1987,"No, he doesn't.",5
-fomc-corpus,1987,No. The condition under which I would tilt to ease is only one and that is decisive weakness and evident weakness--,23
-fomc-corpus,1987,Evident weakness.,5
-fomc-corpus,1987,But all of us who favor symmetry would have that.,11
-fomc-corpus,1987,"No, that's not what this says.",8
-fomc-corpus,1987,"Well, we can get the directive.",8
-fomc-corpus,1987,"The directive says: depending on the strength of the business expansion, indications of inflationary pressures, developments in foreign exchanges as well as the behavior of the monetary aggregates.",33
-fomc-corpus,1987,I've always interpreted that to mean you'd ease depending upon any one of those.,15
-fomc-corpus,1987,No.,2
-fomc-corpus,1987,"Well, I've always interpreted it to mean that each individual who talked about asymmetry would be willing to tighten or ease depending on how any of those four behaved.",32
-fomc-corpus,1987,Correct.,2
-fomc-corpus,1987,I can't seriously believe that we'd all put the same weight on all those variables; it's inconceivable.,21
-fomc-corpus,1987,That's my point.,4
-fomc-corpus,1987,"Yes, I've always assumed that--unless I'm naive as a newcomer.",14
-fomc-corpus,1987,"I get hung up on the language, so let me stress the point that I'm trying to make. Under what conditions would I be willing to tighten? There are several conditions under which I would be willing to tighten: the exchange market or strong economic numbers or a buildup in inflation or--",57
-fomc-corpus,1987,But only one in which you would ease: the economy.,12
-fomc-corpus,1987,"But only one where I would be willing to ease. That's the distinction I'm trying to make. That's a long-winded ""B"".",27
-fomc-corpus,1987,I'm going to put you down as symmetric because that's the way I interpret it.,16
-fomc-corpus,1987,"Well, we'll see what the language says.",9
-fomc-corpus,1987,Vice President Guynn.,5
-fomc-corpus,1987,"Basically, I favor no change in policy at this time, although I must confess that I have a nagging gut feeling that we could be in for a little disappointment in growth in 1988. Because of that, I have a very mild preference to tilt the directive very gently to suggest that we would ease more quickly than we would tighten. I don't profess, after one meeting, to know whether maintaining policy is $300 million to $400 million borrowing in normal times. I, too, would favor shifting back at the first opportune time to targeting borrowings rather than fed funds. If that can be accomplished around year-end, I would be in favor of that. I assume that would imply some tolerance of more fluctuations in the fed funds rate, but I would not want to let the fed funds rate gyrate to a great extent over year-end. We have a great deal invested in trying to keep things calm and stable; if that means stretching out the adjustment back to borrowings into next year, I'd be in favor of that.",210
-fomc-corpus,1987,I think that we're missing President Guffey. Do you want to give us a summary?,19
-fomc-corpus,1987,"Well, the summary would be very short. I would favor alternative ""B"", with a symmetric directive. With respect to the operating procedures, like several others, I would like to move to alternative (4) as quickly as possible. I'd do it under the cover of the year-end uncertainty. Alternative (3) has some attractiveness to me, but it seems to me that this Committee ought to be making the decisions rather than putting that burden upon you, Mr. Chairman, and Peter on a day-to-day basis. As a result, I think alternative (4) ultimately is where we should be. And with regard to alternative ""B"", I'd associate that with a federal funds rate in the range of 6-3/4 to 7 percent, with whatever borrowing is commensurate with that, which I assume would be around $350 million to $400 million.",176
-fomc-corpus,1987,"As I add these numbers up, there's a majority for (3), and alternative ""B"" with $300 million borrowing seems to be prevalent. There's one alternative ""A"" and, in this type of analysis, I'd put that as asymmetric to ease, which makes four. So we come out with symmetric language on ""B"". We didn't specify the directive range on the funds rate but I would read that, to the extent that it's relevant, as 4 to 8 percent. Is that what we had? Do you read that pretty much the same?",112
-fomc-corpus,1987,Right.,2
-fomc-corpus,1987,"The language for the operational paragraph then reads: In the implementation of policy for the immediate future, the Committee seeks to maintain the degree of pressure on reserve positions.",32
-fomc-corpus,1987,It should say the existing degree.,7
-fomc-corpus,1987,The existing--,3
-fomc-corpus,1987,"Okay. Several individuals, but not all, raised the question about that ""still sensitive"" portion. In view of the fact that most did not, I infer that that was acceptable. Those of you that did not mention it and would prefer that that be deleted, I would appreciate your speaking up. If not, I will assume that the sentence remains as is.",73
-fomc-corpus,1987,"We could take the ""still sensitive"" out and leave the ""uncertainties"" in. It seems to me you might leave in the reference that uncertainties may call for a special degree of flexibility; that would be consistent with (3) rather than (4).",53
-fomc-corpus,1987,"In what sense do you mean? The words still sensitive imply a bit more emphasis on certain fragilities. There are always uncertainties in the economic outlook. I don't think the word uncertainties captures it. It is saying something different. I inferred from what I was hearing that there was no objection to that remaining in, although a couple people did raise the question. I want to make certain that it wasn't inadvertence that--",83
-fomc-corpus,1987,"Well, I didn't mention it and I would like it out.",13
-fomc-corpus,1987,Okay. Let's quickly run down the members of the Committee and poll on this. Just say in or out.,22
-fomc-corpus,1987,Vice Chairman Corrigan.,5
-fomc-corpus,1987,It's hard to answer that question without knowing what else is going to be in. I guess I'd say out.,22
-fomc-corpus,1987,President Boehne In President Boykin In Governor Heller In Governor Johnson In President Keehn Out Governor Kelley In Governor Seger In President Stern In,30
-fomc-corpus,1987,"Well, the ""Ins"" clearly have it.",10
-fomc-corpus,1987,"You were correct, Mr. Chairman.",8
-fomc-corpus,1987,"One never knows. [The language would read]: ""The Committee recognizes that still sensitive conditions in financial markets and uncertainties in the economic outlook may continue to call for a special degree of flexibility in open market operations. Taking account of conditions in financial markets""--I would tentatively read that as ""somewhat lesser reserve restraint would or somewhat greater reserve restraint would be acceptable depending on the strength of the business expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates. The contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from November through March at annual rates of about--"" What are we using for these?",141
-fomc-corpus,1987,About 5 and 6 percent.,8
-fomc-corpus,1987,"""5 and 6 percent, respectively. Over the same period, growth in M1 is expected to remain relatively limited. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 4 to 8 percent.""",74
-fomc-corpus,1987,But is that really what's going on? We put this broad range in there and it sounds--,19
-fomc-corpus,1987,We have that question at virtually every meeting.,9
-fomc-corpus,1987,"Oh, I know that. For 3-1/2 years I've--",16
-fomc-corpus,1987,"If we were targeting federal funds, I would say that would be irrelevant. The trouble is that in this context everyone is used to that language and I'm not sure they take it very seriously any more. If we were to change it, it might be a slippery thing.",54
-fomc-corpus,1987,I was just wondering whether there couldn't be some way to suggest that there might be situations where consultations would be helpful even if the fed funds rate were in the range.,33
-fomc-corpus,1987,"I think that's generally implicit, Governor. If such a situation arises, I think the Chairman would call--",21
-fomc-corpus,1987,"Mr. Chairman, if we're going to (3), and that does involve a transition, it seems to me that we do not know at this point how the $300 million on borrowing that we've specified will turn out. Would it be appropriate for a telephone conference call to take place at the first of the year to get a better feel of that so that we would not have eased inadvertently in going to that number.",83
-fomc-corpus,1987,"Well, (3) itself has language in it that provides for increasing flexibility on the borrowing level, as I read it. Is that correct?",29
-fomc-corpus,1987,"Well, increasing flexibility around the funds rate.",9
-fomc-corpus,1987,Using a borrowing objective?,5
-fomc-corpus,1987,Right. It does still suggest that the Desk would be attempting to hit the borrowing number but would be willing to adjust if it looked like the relationship were way out of whack.,36
-fomc-corpus,1987,"In other words, if the fed funds rate were moving down decidedly, you might not pursue the borrowing objective as precisely as you did before October 19?",31
-fomc-corpus,1987,"Well, as the Manager saw that that was consistent with market conditions--",14
-fomc-corpus,1987,But you would be pursuing the borrowing as your primary operating strategy?,13
-fomc-corpus,1987,I see (3) as moving in that direction.,11
-fomc-corpus,1987,"Yes. Now, my question relates to the transition from where we are to that. If the transition entails an acceptance of $300 million of borrowing and that turns out to be easier than we thought, would it be appropriate for us to have a conference call?",52
-fomc-corpus,1987,"I think it probably would. Even though we have what seems to be relatively firm language here, we are in an environment in which the potential volatility that exists is far greater than normal. And I think it is incumbent upon us to seek guidance from the Committee if something rather different than what is currently in the economic environment or the financial environment begins to emerge. It's quite possible that when we get into the beginning of the year things will look different. If so, I would say that some sort of consultation would be desirable and advisable.",106
-fomc-corpus,1987,"Could I ask a question? I had a similar question last time. How will the policy record reflect what happened here? I think some people interpret the $300 million as kind of where we were and as no change in policy; others interpret it as a change in policy in that we're moving the borrowing target down from $400 million to $300 million, albeit under that flexibility arrangement. If somebody reads the policy record next time and the directive talks about the existing degree of reserve restraint, where does it get memorialized that the degree of reserve restraint was changed, if in fact it was? How will that be read?",124
-fomc-corpus,1987,"Well, it really wasn't changed.",7
-fomc-corpus,1987,"No, it hasn't been changed.",7
-fomc-corpus,1987,"It wasn't changed, but the particular borrowing objective number came about largely because as the Desk read the directive in conjunction with our appraisal, which was pretty much the same--although I guess it's different from Jerry's--the emphasis was on the funds rate and secondarily on the borrowing target. Thus, when the divergence occurred, we stayed with the funds rate as distinct from the borrowing target. But in no way was the Desk trying to [unintelligible] what was inferred and was the directive of this Committee as the extent of pressure in the markets.",111
-fomc-corpus,1987,"Leaving that aside for a minute, I interpret the combination of a consensus for number (3) and the consensus to leave in that second sentence on still sensitive conditions in the context of your remarks still to be consistent with an operating strategy (3) and a prompt move to (4). That, in turn, means that before we get to $400 million on borrowing we are not, even in the next couple of days or weeks, slavishly seeking a federal funds rate of 6-3/4 or 6-7/8 percent.",110
-fomc-corpus,1987,Well done.,3
-fomc-corpus,1987,Pardon me?,4
-fomc-corpus,1987,What you're saying [unintelligible]. That's correct.,12
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,What would be the equilibrium borrowing assumption?,8
-fomc-corpus,1987,"Let me put it this way: If the relationship between the funds rate and borrowing objectives goes back to where it was, I would interpret this to mean $400 million, not $300 million.",39
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,Fine.,2
-fomc-corpus,1987,Then borrowing at $400 million could be associated with fed funds trading above 6-3/4 percent.,22
-fomc-corpus,1987,"If it worked the way we thought it would work, that would not be the result.",18
-fomc-corpus,1987,It would not be the case. Okay.,9
-fomc-corpus,1987,What if it does come to that?,8
-fomc-corpus,1987,"Well, it does; and if it goes below it, it goes below.",16
-fomc-corpus,1987,"Well, there was quite a consensus, though not a total consensus, for symmetry; there was a very substantial minority that was asymmetrical toward easing. Implicit in that view was [an understanding] that the fed funds rate would come down from the 6-3/4 percent level rather than go up as we move to a borrowing target. That was implicit, at least in my mind.",80
-fomc-corpus,1987,"That wasn't a majority though, was it?",9
-fomc-corpus,1987,"No, but which way are you moving? As you get up to the 6-3/4 percent and you move to a borrowing target we all figure that the 6-3/4 percent is associated roughly with $300 million, right?",51
-fomc-corpus,1987,Currently.,2
-fomc-corpus,1987,"Currently. And, as you move toward the $300 million--",13
-fomc-corpus,1987,"Let me ask a question. I thought we had assumed it to be $300 million before the end of the year, but would assume it to be maybe $400 million after the end of the year. Is that right, Don?",47
-fomc-corpus,1987,"No, I don't think so, Governor Angell. Peter and I had extensive conversations on this, I would add, and we were equally uncertain about it. But our presumption was that some, but not all, of the reluctance to borrow would go away because we still would have a sensitive economic environment. We would have the Bank of Boston situation and a lot of things going on which might make banks a little reluctant to be seen at the discount window. So, our presumption was that $200 million was more appropriate now and that would rise to $300 million after the end of the year; but there would still be a margin below the $400 million.",135
-fomc-corpus,1987,"Well, I think Tom Melzer has a very good point: that the FOMC has not voted at any time to take an easing step and we ought not to get a translation of this into an easing step without a vote to ease.",49
-fomc-corpus,1987,"Let me put it this way. I think you're correct in raising the issue. If the issue becomes ambiguous and if, in fact, Peter and Don are wrong about the judgment as to where the relationship between borrowings and funds would be at the end of the year, in order to make a judgment with respect to how it is played then I think it would be advisable to come back to the Committee for a judgment at that point.",87
-fomc-corpus,1987,Good.,2
-fomc-corpus,1987,"Just a footnote on Don's comment: If it turns out that a number of banks borrow on December 31, on that long weekend, that could throw the borrowing number for that particular period into--",41
-fomc-corpus,1987,Let me put it this way: I will stipulate further that the judgment as to whether that is happening is yours.,24
-fomc-corpus,1987,"He likes you too, Peter.",7
-fomc-corpus,1987,"Today--oh, yes, a good point. In this context, how do you read the issue you raised about--",24
-fomc-corpus,1987,"I feel satisfied that with the $300 million to $400 million that we not go through the process of mentioning it in the minutes. I would not have felt satisfied before because there are people in the market who do read these minutes on a belated basis very carefully, and I would feel a responsibility that if we ever make such a move that we should let the markets know. I believe the markets work best when people have accurate information.",88
-fomc-corpus,1987,If we make it into what?,7
-fomc-corpus,1987,"Well, this number doesn't appear in the policy record or the directive; it's not in either one.",20
-fomc-corpus,1987,"No, but the language on reserve restraint--",9
-fomc-corpus,1987,"Yes, but it only talks about the level of the borrowing target.",14
-fomc-corpus,1987,"No, I feel satisfied that it's not the end under this specification.",14
-fomc-corpus,1987,Peter is [unintelligible] this. Can we get a vote on the directive?,19
-fomc-corpus,1987,Can I just ask one other question?,8
-fomc-corpus,1987,Go ahead.,3
-fomc-corpus,1987,"I want to come back to this dollar business--not that it's necessarily directly relevant to the vote, but let me raise the question anyway. In the circumstances that we face right now we literally have risks all over the table. And everybody is talking about this. There are very few things that we can influence directly, but I continue to be deeply concerned about our ability to have any constructive influence on any of this so long as it is perceived to be the policy of the Federal Reserve on the one hand and the United States Government on the other hand to be indifferent, to the point of embarrassment almost, about the exchange rate in the circumstances that we face right now. If there is anything that can be done--through G-7, G-5, G-10, or any other mechanism available--to try to stabilize that situation, that is something I want to be strongly associated with.",179
-fomc-corpus,1987,What specifically do you have in mind?,8
-fomc-corpus,1987,Do you mean if I had my druthers?,11
-fomc-corpus,1987,No. What I'm trying to ask is: Do you mean some joint venture by the G-7 in which the basic purpose is in that direction?,30
-fomc-corpus,1987,That's correct.,3
-fomc-corpus,1987,Do you mean specifically the use of monetary policy to add to exchange rate stability?,16
-fomc-corpus,1987,"That was the point I was making before. That's implicit here under certain circumstances, but I don't think that's enough. I think what is needed is going to have to go beyond that.",37
-fomc-corpus,1987,Are you talking about a discount rate hike? I'm a little confused.,14
-fomc-corpus,1987,No.,2
-fomc-corpus,1987,"No, Jerry's talking about fiscal policy.",9
-fomc-corpus,1987,I thought you meant monetary policy.,7
-fomc-corpus,1987,"I'm also saying that I do think there are things that can be done in the G-7 context that would be compatible with that objective. And unless, or until, there is some movement in that direction, the risks that we are running in terms of these massive unfunded liabilities constitute, in my view, the largest single risk of the many risks that are in front of us right now. And if push comes to shove, whether it's monetary policy or not, the answer is going to come in the form of higher interest rates with or without monetary policy. What I'm trying to avoid is getting there the hard way. There's no choice here.",129
-fomc-corpus,1987,You say unfunded liabilities. I agree that they are unfunded to the extent that they're financing the deficit for consumption purposes. They're not unfunded if they're private sector investments; they are funded.,39
-fomc-corpus,1987,"Prospectively, they're unfunded.",8
-fomc-corpus,1987,If there's a rate of return included in the interest rate it's not unfunded.,16
-fomc-corpus,1987,Let me ask you this: Is this relevant to the vote that we're--,15
-fomc-corpus,1987,"It's relevant to my reservations about the vote, yes. Even though I have to vote--",18
-fomc-corpus,1987,You're just talking about what the minutes say then?,10
-fomc-corpus,1987,"No, I'm--",4
-fomc-corpus,1987,You're not talking about the minutes?,7
-fomc-corpus,1987,I don't care about the minutes.,7
-fomc-corpus,1987,Okay.,2
-fomc-corpus,1987,The reason I asked is that we can have a formal discussion on this if you want.,18
-fomc-corpus,1987,Fine.,2
-fomc-corpus,1987,Let's vote.,3
-fomc-corpus,1987,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson No President Keehn Yes Governor Kelley Yes Governor Seger No President Stern Yes,44
-fomc-corpus,1987,Do you want to reopen this?,7
-fomc-corpus,1987,"Well, as I see it, we're on a tightrope and I'm at the point where I think that a real effort should be made to try to stabilize the exchange market. By that I mean that the dollar has gone down enough. What policy tools are available to do that? The problem is damn few. We're not going to get anything more on the fiscal side or elsewhere. We could tighten monetary policy, including raising the discount rate, but that entails all these risks in terms of both the real and the financial sides of the economy. Or we could try to paste together some kind of a Louvre II agreement backed up perhaps by using swaps or some foreign currency borrowings. But I'm dubious that that by itself, without some kind of policy initiative, would be convincing. On the other side of the coin, if the skepticism about policy continues and if we have a renewed run on the dollar, it seems to me that that's going to produce precisely the kinds of things that we're all so afraid of, including a further break in the stock market. And that's the dilemma. But in order to solve that dilemma, there has to be some movement someplace. And I ask where? And this is the thrust of my argument: that at this point some of that movement has to come from the United States. As I said, there are several ways to do it; but with the vulnerabilities that I see right now, it is a very high-risk approach and I don't like it. I think it's very dangerous.",301
-fomc-corpus,1987,"I would like to associate myself, as you probably understand, with the remarks that Vice Chairman Corrigan just made. I believe it's a high-risk approach. And I also believe that a very clear-cut policy on the part of the U.S. Government and the Federal Reserve would not require as much interest rate cost as we otherwise will have to bear. It would be more consistent with lower interest rates and faster money growth than our ignoring the exchange value of the dollar.",93
-fomc-corpus,1987,Does anyone else want to address this issue?,9
-fomc-corpus,1987,There's not enough time.,5
-fomc-corpus,1987,"If not, I just want to confirm that the next meeting date is February 9 and 10. I will entertain a motion to adjourn.",30
-fomc-corpus,1987,I so move.,4
-fomc-corpus,1987,I second it.,4
-fomc-corpus,1987,No objection.,3
-fomc-corpus,1988,"Ted, on this alternative C, what are the interest rate movements? 3 percent? 2 percent?",22
-fomc-corpus,1988,"Yes, [unintelligible].",8
-fomc-corpus,1988,Questions for the two gentlemen?,6
-fomc-corpus,1988,"Mike, the pattern of inventories is pretty critical for the forecast and I think you've made an effective case that we are not going to go through what is considered a drastic inventory cycle. But the thing that strikes me is that, really, this is almost the best of all possible worlds in nonfarm inventories where there is basically no cycle. And I wonder if it's more likely that you would have a greater reaction in terms of production than what you've shown, in which case we might have somewhat weaker growth in the first half.",104
-fomc-corpus,1988,"As we see this, we don't believe that the overhangs are widespread or that they are very large.",22
-fomc-corpus,1988,I agree with you.,5
-fomc-corpus,1988,"As for automobiles--indeed, the automobile inventory reduction is progressing a bit faster than we had anticipated, since auto sales in January were stronger than we had built into our first-quarter forecast.",38
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"It's conceivable, certainly to the extent that there isn't a response early on to any excessive inventory accumulation, that we could build up a larger problem, which subsequently could give us more of a cycle. [Unintelligible] we'd have an even more dramatic inventory correction earlier in this upswing--and we have been through a number of short-run corrections--and, of course, that's a critical ingredient.",81
-fomc-corpus,1988,"Following up on that inventory question--the distinction between manufacturing inventories and retail inventories. I think what you show here in the charts is consistent with the anecdotal evidence that one picks up. However, there's one area where I, at least, haven't been able to get very much anecdotal evidence. You mentioned it and I've heard it elsewhere. And that is that some of the accumulation in retail inventories was planned--was desired in effect--to beat higher prices for imports. Could you expound on that?",101
-fomc-corpus,1988,"Well, I think that's very hard to pin down. And it isn't just prices, but also perhaps in the case of apparel in the earlier part of last year, the concerns about quota restrictions. The more general issue on prices is whether manufacturers, for example, saw the materials input prices increasing very sharply in some cases, and [since] interest rates looked negative in real terms, whether one saw some effort to accumulate inventories in the manufacturing sector. There was accumulation. It wasn't any faster; in fact, it was slower, than the increase in output. And it's not inconceivable that there could still be some significant desire to build up inventories further. We do have some moderate accumulation of manufacturers' stocks. For example, in the latest purchasing managers' report for January, there is explicit comment to the effect that there was some reaction not only to some shortages of goods and the lengthier delivery times, but also to some anticipatory price increases.",190
-fomc-corpus,1988,"Mike, I don't know whether this is an appropriate question for you, or maybe for later discussion, but our first monetary policy objective states, essentially, that we want maximum output without a significant acceleration in inflation. One could reverse that and say we want to achieve a deceleration in inflation without significantly damaging employment and output. Did you choose that assumption or are we to discuss that assumption?",77
-fomc-corpus,1988,"Well, I suppose that is certainly something fundamental to the Committee's decision-making. I don't think we've misread how the Committee has behaved in terms of putting a significant importance on maintaining growth and avoiding increases in unemployment. In terms of overall resource utilization: to have anything significantly slower than the GNP growth we have would basically bring about some greater degree of slack. It is conjectural whether we have precisely captured the desires of the Committee, but ultimately, we ended up with a forecast that sort of gave you about as much growth as we think you can get without putting enough pressure on the economy to get a real momentum developing in the inflation process.",129
-fomc-corpus,1988,[Mr. Morris.],5
-fomc-corpus,1988,"I have two questions, Mr. Chairman. One, the part of the forecast I have a problem with is business fixed investment. [Given] sustained strength in the manufacturing sector, except maybe in automobiles, the staff is showing the manufacturing industry operating at higher levels of capacity. That is going to produce, unfortunately I think, some price strains as the year goes on. The staff projection shows a deceleration in business fixed investment against last year. Now, I find that hard to reconcile not only with normal cyclical patterns but also with the orders figures for the past four months. The projection has real plant and equipment spending up at a 2.9 percent annual rate and nondefense capital goods up at a 3.5 percent annual rate. These are unusually strong increases; it would lead me to conclude that I should discount the plant and equipment surveys as being a bit out of date and [not] factor in a bigger increase in fixed investment this year.",194
-fomc-corpus,1988,"Indeed, the plant and equipment surveys would suggest a stronger year-over-year gain than we have for nominal business fixed investment. Those surveys, as you know, were taken before the stock market [developments] were probably fully assessed. The Commerce surveys overlap that. We think this is consistent with the general output growth path that we have in terms of the usual accelerator effects. We don't have any particularly favorable developments in .the cost of capital. We think there will be areas of significant strength, and I've tried to relate that to those areas of capacity utilization. On the other hand, there are other areas in this economy, if we are right about the overall level and pattern of demand, where the stimulus to investment will not be as great. Obviously, in the financial sector, which is shrinking, they probably are not going to be buying as many computers and other office equipment. Demand for office space may be lower. There are drags in a number of sectors of business fixed investment as we see it: the office area in general, hotels, and probably areas that we have missed in other commercial construction. So we have balanced these divergent elements in what we think is a forecast that is really consistent with historical patterns, given the overall level of growth in final demand and the financial commitments.",257
-fomc-corpus,1988,"You know, Mike, there is a problem with the new orders series, in the sense that these are orders placed at domestic facilities. And a very big part of the strength is in aircraft orders, a substantial part of which has to be for exports and long forward 1989-1990 deliveries. There's an awful lot of export demand in those numbers as well as, probably, some tilting down in the proportion of imports to domestic purchases. So we probably are getting an upward bias in both the nondefense capital goods shipment figures and the orders figures. I would suspect that when one makes the types of adjustments on exactly those numbers, one comes out very close to where Mike's numbers are coming out.",143
-fomc-corpus,1988,"Well, that may be; but I looked at the only series in the capital goods area, that I know of at least, where they differentiate domestic and foreign orders--in machine tools. You have this very big rise in December in machine tool orders; it's almost entirely in domestic orders.",58
-fomc-corpus,1988,The question is whether this is indicative of what's going on in domestic demands.,15
-fomc-corpus,1988,"We have no evidence of that. What we get is that there is very strong export demand, orders coming in. We can see it in--",29
-fomc-corpus,1988,"I think the Chairman's remarks do raise a very important point on this trade picture. If you look at the nondefense capital goods orders, the average lead time--when you take out the aircraft, which really has enormous backlogs that will keep them in business well into the 1990s--showed very substantial growth in the earlier part of last year. I think we may have shown this in the Greenbook. But then the fourth-quarter increase wasn't really very great. So with that caution--",102
-fomc-corpus,1988,I'm skeptical about that fourth-quarter number.,8
-fomc-corpus,1988,"It's a volatile series from month-to-month. But I think, perhaps in terms of its leading indicator value--and it probably doesn't point very far into the future--that it's one little hint that there may be some moderation in that area.",48
-fomc-corpus,1988,"Isn't the consensus forecast of the P&E probably in excess of 5 percent growth? Most forecasts, that I've seen at least, have much more strength.",32
-fomc-corpus,1988,"I'd have to look. But I think our BFI forecast is not much out of line with some of the other major ones. For example, for our 1988 forecast, we have 4.5 percent--[turning to staff] is that an annual average? DRI has 5.1; the Bluechip indicators 5.1. They're comparable; it's a very small difference.",82
-fomc-corpus,1988,Questions for Mr. Truman?,6
-fomc-corpus,1988,"Looking at the long-term interest rates in Germany, real long-term rates are unusually high. Is there some--",22
-fomc-corpus,1988,"Well, I think it's puzzling. If you ask the Germans why they're high, they say that German savers won't accept interest rates that are lower than 6 percent because they assume that the long-term inflation rate will be much higher than it is currently. No matter how you talk your way around that, that's the answer you get back. And it is true that even during the last year, or a couple of years, when [market] interest rates have come down, [rates] have stayed above 6 percent. In fact, this series that we used here slightly understates the movements in rates, because it's an average of all longer-term or under ten-year public authority issues. And some of it is much less than ten years in maturity. So we have some sluggishness in that series. For example, for the ten-year bonds they have outstanding, the rate is above 6 percent, about 6-1/4 percent. It has come down a bit more than that series itself showed recently, but it is still very high. And other than the savings story, some people would point to some critical imperfections and cartelization of the financial markets in Germany; but it's not much of an explanation.",245
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"Yes. Since President Hoskins mentioned the monetary policy objectives, I guess I'd like to make even a stronger statement in regard to that. The way you stated it was somewhat different than it's written. The way you stated it was less offensive to me than the way it's written. The way it's written is so contrary to everything I believe about what our job is, that it causes me to wonder: Have I missed something all these two years or have we had this stated before?",95
-fomc-corpus,1988,It's the Employment Act of '46.,8
-fomc-corpus,1988,"Whatever it is, it seems to me that if that's what our objective is, we are always going to be on the edge of a disaster. And I don't know how else to put it. Back on chart 19--and here again I want the Presidents to realize that I'm very impressed with the scholarship of this forecast, and I indicated that to the staff--but I haven't yet seen what happens on chart 19 if we have an unchanged dollar and tighter U.S. monetary policy. Now, I presume that means that money growth is about like it was in 1987. Is that approximately correct?",122
-fomc-corpus,1988,For '88 it would be about the same; but for '89 it would be several percentage points less.,22
-fomc-corpus,1988,"In other words, M2 growth for '88 under this scenario would be 4 percent?",19
-fomc-corpus,1988,Approximately.,2
-fomc-corpus,1988,And what would it be for '89?,9
-fomc-corpus,1988,One to two percent I guess--in that area.,11
-fomc-corpus,1988,"Oh! I see. That is quite a restrictive path. But what bothers me is the outcome. I disagree with you in regard to the sign of the result in interest rates. It would seem to me, if you adopted a smaller money growth path and if you had the lower real GNP as detailed here, that the fed funds rate might be 2 to 3 percent less than, rather than 2 to 3 percent greater than. Would you comment on that?",96
-fomc-corpus,1988,"I think the exercise involved moving from interest rates to the impacts on the economy and then back to money demand, as measured by standard money demand equations. That is the way it works, and there are lots of ways of cutting this. But, essentially, the slowdown in nominal GNP, which was about 1-1/2 percentage points this year--a little less, 1-1/4--is associated with this kind of interest rate rise on the one hand, and you get the sharp reduction, too, partly because of what Don and his colleagues have been saying for quite a while--because of the considerable interest elasticity in the money numbers.",133
-fomc-corpus,1988,"Well, apparently it's the model. And I guess from time to time that bothers me. The model that you use is not close to the model of the way I would assume the economy works.",39
-fomc-corpus,1988,"Ultimately, I think one should differentiate between the short-run simulation that's presented here--where you slow money growth, interest rates go up, and that slows the demand for money and the real economy--and the longer-run effect where you might slow money growth, and ultimately you get the price level down, so that you would have lower inflation and then would come back to the trend rate of growth in the economy. In fact, all these models have that characteristic: that if you slow down money growth, you would come back to, essentially, the trend rate of growth in the economy as a whole. As you may remember in the discussion yesterday [during the staff briefing to the Board], we had that question about the function of economic forecasts as a whole. They have that characteristic. But in the short run, I wouldn't pay much attention to the extent of the tighter monetary policy; but it would give a calibration of what that kind of monetary policy would produce.",192
-fomc-corpus,1988,I guess that depends upon how soon you expect expectations to be realized. The model that I would be using would have a different chain of events. It would seem to me--,35
-fomc-corpus,1988,"Yes, but just so you could see that in the consumer prices measure here in 1988. If you thought that there was a big expectational component in the rate of inflation, then with slower, or deliberately slower, monetary growth--of course, it is something very difficult to capture in the model--you would get much less nominal GNP. You would then have some feedback effects; in fact, you would have lower interest rates.",89
-fomc-corpus,1988,"I consider this to be somewhat important, because if I believed that a fast growth rate of the money stock would result in lower interest rates, I would be very inclined to choose such a policy.",39
-fomc-corpus,1988,In the short run.,5
-fomc-corpus,1988,"Governor Angell, let me just say--I don't want to be unduly defensive about this assumption--we aren't making this a normative prescription for the Committee. As I tried to emphasize, we saw the economy and its current position, and looked at this question of how much room for growth there was. But in a sense, to us, the issues in the forecast and in this context are sort of asymmetrical--we were looking at how much room we felt there was to grow without moving the inflation trend much away from what it has been. That's all we were trying to communicate with that assumption.",121
-fomc-corpus,1988,"But you would admit, wouldn't you Mike, that ""C"" isn't a very pretty picture?",19
-fomc-corpus,1988,"Well, for one, I think there is this question of dynamics in expectational effects. I think we always run into this question when we take into account a tighter policy. It always requires higher interest rates in the short run. And you have to get the lower growth to have money balances in line with desired levels, and you could then get some different paths thereafter. But this is our best guess, using our models, of what the difference would be from the forecast we have made. And yet it's not prescriptive; it's just trying to give some sense of the sensitivity of our forecast to the assumptions about exchange rates and monetary growth.",128
-fomc-corpus,1988,"Well, it just seems to me that the sounder money policies that we've had in place tend to result in intermediate-term interest rates coming down and some confidence in regard to this institution. And it seems to me that it's been very beneficial for us and will result in the higher growth path of the monetary aggregates.",62
-fomc-corpus,1988,The 300 basis points tagged on to that scenario --it really does stretch one's macroeconometric credibility.,21
-fomc-corpus,1988,It certainly wouldn't put rates out of the range of recent years.,13
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I've been in Frank Morris' camp in thinking that expenditures on plant and equipment, along with net exports of goods and services, would be the real driving force in the economy. You pointed out that he may have overlooked the foreign part of that. But that would suggest that one of the two, anyway, increases a good deal. I guess the thing that puzzled me so much in the fourth-quarter figures that were released was the sharp decline in producers' durable equipment. One of our contacts who specializes in watching the computer industry attributed this to the And he feels that this is a much weaker pattern of expenditures than we really had. Does that sound sensible?",134
-fomc-corpus,1988,"There has been a great deal of commentary on this number. 1 think we pointed out, perhaps in the Greenbook, that there were subsequent shipments data that on the surface looked stronger than BEA had on this. But the translation, with the limited data they have, is a very complicated one. There are shipments of exports as well as domestic purchases; there are intermediate goods, which shouldn't show up in the end; there are questions about the seasonal patterns and the seasonal adjustment that goes into this because of tax law changes. And the P&E number was dragged down by automobile sales, which are not part of the shipments data. So, it's a very complicated calculation. And I guess, while we certainly expect it to revise to some degree, it isn't clear that we won't still end up with a decline in P&E in the fourth quarter.",170
-fomc-corpus,1988,"I guess I still find that hard to believe in view of what I thought was happening. I know you mentioned in the Greenbook that a good part of this was computer equipment. And that's the reason I raise this question about That is different from the way most of the other computer companies report the figures. I don't know whether there is any truth in what this fellow said or not, but he seemed to know what he was talking about. And it confirmed my suspicions, though I was hoping you could lend some support to that hypothesis.",108
-fomc-corpus,1988,They are concerned about their competitors looking at that Department of Commerce series and I guess there are all sorts of rumors about how serious--,26
-fomc-corpus,1988,"This fellow said he talked to That probably was the exact reason; I hadn't thought about that, which is now [unintelligible]--",29
-fomc-corpus,1988,"Yes, but I thought the decline was 3.8 percent. If I read this one [correctly,] it's 7.2 percent in the fourth quarter. Where did I get that 3.8?",45
-fomc-corpus,1988,"The PDE decline was 7 percent. It's 3.6 percent for total BFI for the fourth quarter. I'd just like to emphasize that this seasonal adjustment phenomenon will bounce the numbers around for some time in the future. Under the old depreciation rules, a company could buy something in December and get, I guess, a half year's depreciation. With tax reform, if you pile too much into the fourth quarter for tax purposes, you are penalized. And so the seasonal factors in the last several years--as you may recall, we have seen wild fourth quarter-first quarter swings--were probably beginning to capture that at just the wrong time, when this incentive was eliminated. And that could bounce the numbers around in the future.",146
-fomc-corpus,1988,That's a good point.,5
-fomc-corpus,1988,"[It could affect the] third-quarter/fourth-quarter swing now, because you have the third quarter up about 2.6 percent.",29
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"Well, ever since your briefing yesterday, Mike, I've been trying to figure out why I can't understand your point that when the fourth-quarter GNP numbers came out--which showed weaker consumption spending and greater inventory accumulation than I believe you had forecast--how now that we have those numbers, you can have an upward revision in the forecast for the first half of the year. I must say that the arithmetic still flies right by me. So, maybe you can try once again to convince me of it; I'm sure it's my density today that's doing it.",110
-fomc-corpus,1988,The explanation is the [unintelligible] was unsustainable.,14
-fomc-corpus,1988,It's reversing.,3
-fomc-corpus,1988,"We don't exactly go into this with a clean slate each time. There is a certain follow-through from earlier [forecasts]. But I guess we didn't have the feeling that overall production growth was going to tail off quite as fast as we had built in [earlier], just based on the orders trends and the employment data at the end of the year. We had the sense that consumer spending was not falling apart as the year ended. It was looking very weak in the early fall and didn't show much growth at the end of the year, but it didn't seem to be falling apart. We surmised from that, and everything else we could look at, that probably the stock market psychological effects were not as great as we might have feared they would be. This forecast is not a drastic change by any means from our last forecast; we're talking two-tenths of a percent on overall GNP. And there is a certain amount of arithmetic momentum in this. I don't view the change in the first half as being a very great change. As I noted last time, we perceive the slowing in the first half to come about in two ways: either that final demand will be weak and producers will react really fast to that before inventories build up; or that inventories would begin to build up and we'd see some adjustment of production in this process. And we sort of got the second [from the] emerging data; final sales in the fourth quarter were somewhat disappointing. So we have about the same outcome, but there's a slightly different story.",308
-fomc-corpus,1988,"A second question--maybe this is for Mr. Truman--involves the assumption about the dollar. What is it likely to do this year? And if that agreement that I thought we struck with the other major nations called for drawing a halt to the dollar's decline, am I supposed to take seriously the forecast of a 10 percent decline in the weighted-average value of the dollar this year, followed by [a decline of] 8 percent next year? I just am not sure how to match that with what I thought the basic objectives were.",111
-fomc-corpus,1988,"Well, it's a little less than 10 percent, depending where you start out from.",18
-fomc-corpus,1988,Ten from the fourth quarter?,6
-fomc-corpus,1988,"Yes, but a lot of that you had by the time of the December 22 Greenbook. So the change from the average in January is under 10 percent. That is, in fact, one of the reasons why we presented the last chart here with this middle panel on it. So you'd not think somehow the dollar is really the problem, the way we set it up was to say, this is what the impact would be--you wouldn't see very much difference for 1988. But at a minimum, as I said in my comments, if the dollar is not going to go down, you're not going to get much difference [as may be seen] from that chart. And [if] everybody seems happy with the current account deficit, as we have it, then they're probably going to have less than we thought. Then looking forward to 1989, you might want to have an easier monetary policy--that's what that chart was designed to deal with--where the stronger dollar is brought about not by any difference in the policy assumption but by what the staff sometimes calls a levitation. It's a risky business forecasting exchange rates, and we have to make some sort of assumption. I find it more useful to make an assumption that eventually more price adjustment will have to take place. But there's no reason why it is essential, within the time frame of the forecast, for a lot of adjustment to be in the pipeline. If the world could stand still why [unintelligible] places we are? That's one of the reasons why we have, on the one hand ""more moderate"" as we have sometimes said in the past, [unintelligible]. On the other hand, we presented this alternative scenario for the four quarters.",351
-fomc-corpus,1988,"I like the idea of alternative scenarios, but looking at these got me thinking about whether or not our assumption was flying in the face of that deal. I have a final question on the estimate for real GNP in the other G-10 countries running below our forecasted real GNP growth in each year--1988 and 1989. That makes me wonder about our export boom, and whether or not that, in fact, can materialize to the extent we are talking about.",98
-fomc-corpus,1988,"Well, that forecast is only slightly different from the one for this year. And the ""export boom"" itself is only, essentially, the same as we had in 1987.",37
-fomc-corpus,1988,"Well, at one time, you remember, we were lecturing the other countries to speed their economies so that it would help us peddle more of our goods overseas.",35
-fomc-corpus,1988,"Apart from Japan, it doesn't seem to have helped.",11
-fomc-corpus,1988,"We'd better go to Dale Carnegie. Okay, thank you.",13
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"[I want to address] the capital expenditure issues that Frank Morris and Bob Black raised in a different way. Looking at the utilization rates on chart 7, some of these rates are getting pretty high. And I guess the question is: What does history tell us? When do industries, particularly textiles, chemicals, paper, and steel, which are operating at very high levels--and those are averages for each industry, which suggests that some are operating at higher levels--begin to move? At some point they're going to begin to lose market share. And my experience is that market share is a very sensitive issue; when they hit that point they begin to spend some money. Does history tell us anything about that?",142
-fomc-corpus,1988,"Well, I don't think history identifies clear trigger points. Indeed, econometrically, our efforts to identify capacity utilization effects on investment turn up only modest positive results on that score. We tried to look beyond any econometric evidence, and sift through what stories we could find and conversations with people. I think there is something, as I indicated, to the story of some hesitancy on the part of some companies to expand capacity aggressively. But on the other hand, we can also uncover stories that, yes, at some plants operating at high levels of capacity, capacity is being expanded by removing bottlenecks. We are expecting some fairly sizable gains in paper and chemicals. MR. KEEHN(?). Paper is moving?",146
-fomc-corpus,1988,"Yes. Even a couple of years ago there were probably already signs of movement in the paper industry, involving plans for putting more production [capacity] in service.",32
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"I'd like to go back to this question on inventories and distribution of business around the world. Assuming there's going to be some sort of an inventory cycle of the type you have forecast, or even greater: Do you have any sense as to what extent we could take comfort that that's going to result in a greater slowing in production abroad than domestically--given that we, of course, are importing a lot more than we used to?",86
-fomc-corpus,1988,"This is a very difficult question. We sorted through some of the data and tried to put our finger on how many dollars' worth of imports there are in this inventory overhang. At least arithmetically, that appears to be presently in the retail sector; it doesn't amount to a lot of dollars, as best we can assess. It's probably a small proportion and would not be a significant factor.",81
-fomc-corpus,1988,"To give you an example, I think one number we came up with was something like $2 billion plus. If we spread that out over the four quarters, lets say, of 1988, it's well within the noise factor on the monthly trade numbers. So it may be there; in some sense, it is built into the forecast because we have a lower level of imports in general--that's part of the cost of production. But, in the first half of the year, based on what we know now, it's not going to show up decisively in the import numbers. And, therefore, we are not going to set off a mini-cycle in the rest of the world.",138
-fomc-corpus,1988,"Well, on the other side of it, to what extent is our domestic industry going to benefit from that?",22
-fomc-corpus,1988,"We think the domestic industry, on net, is not going to benefit from this. It's a complicated story, but as best we can tell, it's probably the domestic industry that will experience the greatest negative effect from the inventory accumulation. If you felt that there was the beginning of some shipping [unintelligible] into domestic firms, then the effect is going to be felt more by the domestic firms, even if the inventories on the shelves have a relatively higher import ingredient. So it's very complicated. And I think that, in terms of foreign economic activity, it's probably at most a second-order factor.",121
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"I was going to ask Ted Truman the same question that Governor Seger raised with respect to real growth abroad. I guess Ted has basically answered the question, but if I could take it just a step further: Since this is basically an export-driven forecast, if countries like Germany and France and Italy, particularly Germany, which has not been very responsive to our overtures, were to fall short--I don't mean into recession but short of the growth patterns we expect--is this forecast in serious trouble? I guess I would add that, given the weight of our trade with Japan and Canada, they apparently could carry a lot of it; and I wouldn't expect them to fall very short. But suppose those other countries did, would you expect the forecast to come--",152
-fomc-corpus,1988,"Well, I wouldn't want to suggest that the difference between 2 percent growth and zero wouldn't have an effect on our forecast. It would be something on the order of [unintelligible]. If you had 1 percent lower growth throughout this period in G-10 countries, we would say it could produce something like $13 billion, at an annual rate, lower growth of exports in the fourth quarter of 1989. That would be next year against this year. That would have a considerable impact on the forecast. That's relatively small, but it would be noticeable in terms of our output, especially to the extent that in some sense you have so much external stimulus--one thing that the forecast itself doesn't completely recognize. In a sense we have export-led growth here, and some of the income out of that is being driven by that growth, and so you have multiplier effects.",177
-fomc-corpus,1988,"Can I just address that question? It's an interesting question as to whether this is strictly an export-driven growth forecast. Of course, crucial in the numbers is that full percentage point decline in the saving rate from the first quarter to the fourth--if I've got it right--yes, from 5.3 to 4.3 percent. That implies basically that consumption levels are higher than they would otherwise be. And obviously, it's not a net subtraction from GNP because you have to subtract out the imports that are a part of it. Nonetheless, if you were just to re-estimate this forecast with a flat saving rate, a good deal of that recovery in the second half would just dissolve. The issue I'd like to address, which is very crucial to this question, is how comfortable do you feel with this pattern of your consumption function and the wealth effect on savings and, thus, how comfortable that we are going back to a 4.3 percent saving rate? And is my judgment correct as to what would happen if we don't?",209
-fomc-corpus,1988,"Let me address that from the way we started this forecast, rightly or wrongly. If, for example, foreign activity were to be weaker, and from that we got weaker demand for U.S. production, it would naturally follow that we would tend to have more monetary expansion, and initially at least, a movement to lower interest rates. That would produce some offsetting boost to domestic demand. We haven't needed to do that, in a sense, to get this kind of growth, because we have the assumptions we do about foreign economic activity and the dollar. As we view the saving rate question, I think picking out the first quarter probably overstates what we would perceive to be the movement in consumer behavior. The fourth quarter had a very big increase in farm subsidies, and farm proprietors' income was up very sharply. We think that group tends to have a comparatively low marginal propensity to consume, so that tended to boost the saving rate. We may also have a somewhat similar phenomenon in the first quarter, with a big increase in government transfer funds from the social security COLA increase. Unless that is spent very rapidly, we would tend, in the short run, to have a slightly higher saving rate. I think the potential would be a fairly high marginal propensity--",253
-fomc-corpus,1988,"[Unintelligible] COLA on social security, you have to assume [the marginal propensity to consume] is about .9.",28
-fomc-corpus,1988,"Yes, but I think it's a question of just how quickly that occurs. If one looks at the average saving rate for this year versus the average for last year--let alone what it was in the middle couple of quarters last year versus this year--I think there's a noticeable increase in the saving rate. And it's one that we do view as being generally consistent with the kind of wealth effect that we are building in from the stock market. Crudely, the general model results would suggest that you might get something on the order of a 1 percent higher saving rate for a period of time--well, there would be a gradual adjustment to that. I think we have some reasonable comfort with the range we're showing--tailing off next year, as it came out in our forecast. We can't really provide any particular explanation for it. The saving rate is to some extent a residual in the forecasting process, though it's a check. We don't view it as a really significant movement from what we see in the latter part of this year to the latter part of next year. But if consumers do retrench, and they're a very big segment of the economy, then it would take a substantial offsetting action of some sort to keep the economy on the same track. So, in that sense, it is really crucial.",263
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"Mr. Chairman, I think I may be on the wrong [speaker's] list. I don't have any questions, but whenever you want some comments, I'll be happy to be on that list. So I'll pass on the questions.",47
-fomc-corpus,1988,"Any more questions to staff? Well, in that event, Ed, why don't you begin?",19
-fomc-corpus,1988,"I have several comments on the regional economy as well as the national economy. As far as the regional economy goes, the Mid-Atlantic area is still operating at very high levels of economic activity. But, if one could measure GNP at the regional level I think one would see a slowdown in growth. Interestingly enough, it's more because of supply constraints than it is because of demand constraints. Labor markets are very tight. I hear comments, particularly in manufacturing, about slower delivery times for materials. People tell me that the steel industry is not as friendly as it once was: they don't answer their phone as readily; the shipments from steel companies are slower; and in some cases, they aren't filling orders completely. So it does seem to me that there's some slowing, but not for demand reasons, more for supply reasons. I do not sense any excessive concern about inventory buildup. But having said that about the current situation, I have noticed in the last half a month or so, some definite deterioration in the outlook--again, noticeably in manufacturing. It's hard to say why, when they're essentially complaining that they can't get enough input. I've tried to probe on this--admittedly not with a truly representative sample, but with some people--and it's a kind of a logic that says things are so good now they have to get worse. I guess that's human nature. People tell me that they have seen this kind of situation before where they can't get parts, and demand is strong, and price increases seem to come through, and that that usually is a leading indicator for some downturn. But things seem to be going very well currently. I suppose on the national economy, I agree with the staff forecast. Actually, I think they've done a really rather commendable job, given the kind of environment that we are in. If I had any differences they'd be a tenth of a point here or there, not worth focusing on. I would like, however, to get at several larger issues in the forecast. I think that the staff has made a reasonable case for reacceleration of economic growth in the second half, and I can buy that. There clearly are risks on either side. But there wasn't a lot of talk about inflation. The emphasis, or the main question now, in current discussions is whether we are going to have a recession or whether we aren't going to have a recession. It seems to me that one could make a case, and a reasonable case at that, that we also have a threat of some accelerating inflation. And one could talk about that in the same context as a recession or no recession. For example, we are getting more price hikes. I hear this with more frequency now--again particularly from manufacturers, but also from retail people--that their suppliers are simply passing on higher prices with increasing frequency, at least compared to recent years. We know that we have higher import prices, and that has an impact on domestic competition, particularly in my area. But I think it's also true in the national statistics. Labor markets are very tight; and one just gets the sense that we may not be too far from some kind of acceleration in wages. I buy off on the inflation forecast, but I think as we go forward it will pay to give some attention to the inflation question and not just overly focus on this recession/no recession question. And my final comment is that I think that we are in a period now which is different from most of our experience. In the past we tended to worry about whether the economy would grow faster or more slowly or whether inflation would pick up or not pick up. We have an additional element in this international adjustment process; and we have to give, I think, considerable weight in our policy discussions to that going forward. It just simply has to go forward. I think that this gets me into the discussion for tomorrow, so I'll stop. But it does seem to me that this is a different element than we have had in the past.",798
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Mr. Chairman, it appears to me that the Twelfth District is exhibiting modest but steady growth. Currently available information indicates that retailers experienced a 5 percent growth in nominal sales in the final three months of the year versus the same period in 1986. We conducted surveys of retailers about inventory levels and it was a bit surprising to us that they were generally satisfied with their inventory levels; and as many indicated that they had shortages as indicated that they had excessive levels of inventories. In the auto area, there's no question that at year-end auto dealers had high inventories. But a more recent check at the end of January indicated that that was pretty well rectified. Based upon what we've seen there are few signs, if any, that the Twelfth District had weak consumer spending or excessive inventories. However, there's no question that the numbers for the national level indicated excessive inventories in the fourth quarter. I agree with the staff that we probably are going to see a somewhat unique adjustment to that inventory picture. I think you can make a strong case that there will be a more modest inventory correction. One of the things that I think is interesting is that real P&E expenditures were weak in September and October and actually picked up in November and December. And industrial production actually has been increasing at smaller rates. It would seem to me that this is the beginning of a gradual adjustment and, therefore, the classic type of adjustment in inventories is not likely to occur. Also, it looks to me as though manufacturing inventories are in fairly good shape. With respect to autos, I mentioned the District [situation], but it seems to me that at the national level, auto inventories are not in that bad shape. When we put this all together, our forecast is for growth in the first half to be about 1 percent or a little less: we have more of an inventory correction than in the staff's forecast, but not what I would consider to be a classic inventory correction. And then, since we think that correction is likely to be completed by midyear, our forecast in the second half is for growth of a little over 3 percent, largely on the strength of that improving net export position. In sum, we have annual fourth-quarter to fourth-quarter growth in GNP which is very little different from the staff forecast. But we do have a pattern of a little more first-half weakness and second-half strength.",481
-fomc-corpus,1988,[Mr. Keehn.],6
-fomc-corpus,1988,"Let me just start by saying that our forecast is really very close to the staff forecast; our contour is terribly parallel. There really are no differences that are worth talking about. Importantly, I certainly view both our forecast and theirs, at least in the growth perspective, as being a very positive outlook--certainly not negative. I think we are making a shift from a consumer-driven economy to greater strength on the manufacturing side. And certainly, the improving trade balance is a part of that. Also, from the Midwestern perspective, no one I talk to senses any emergence of a recession, as I keep reading about in the Wall Street Journal and the New York Times. With regard to the District, our growth characteristics are now very much in parallel with the national numbers. Having lagged so long, we are very much on track right now. Just to hit a couple of individual sectors: first, the agricultural part of our District is clearly showing signs of improvement. Land values rose last year, and in the fourth quarter these values stabilized at higher levels; and we've seen a lot of land transactions--enough purchases taking place to give confidence in the numbers. Commodity prices are higher, so the exports are helping that. Farm debt levels are down and, I think, at a much more manageable level. Even the beleaguered equipment manufacturers--and this has really been a very tough industry--are showing signs of light. I'm hearing the first good news out of that group that I've heard for a good many years. We talked about machine tools a little earlier, but one of our directors operates a very large machine tool company and they are operating at an 80 percent rate; they are enjoying the best quarter that they have had since 1982. The import penetration of machine tools, at least from their perspective, is down significantly and they think the Japanese are on a conscious program to try to curtail their exports to the United States. In the steel industry, I think there has been almost a spectacular turnaround, with the industries--certainly in our area--operating at very, very high levels. Delivery schedules are being lengthened out, and we are hearing increasing comments about price increases, and this time they're sticking. The paper industry--I mentioned that a moment ago as well--is operating at rates over 90 percent, and I am hearing more noise that they're getting into capital expenditures. On the housing side, we have several directors involved in that and they all say that the December numbers were distorted, probably by weather, and certainly are not reflective of a fundamental change in conditions. The auto industry, which has had high inventories, is going to have lower production this quarter, but I think to some extent that's a corporate problem. GM and Chrysler are digging out of very high inventories. Ford is not; in fact, their production schedules in the first quarter are going to be up, not down. So then, as far as growth is concerned, everybody I talked to--though there is a high level of apprehension and concern--certainly does not anticipate, from their own business perspective, anything like a recession. Let me just conclude by picking up on some of Ed Boehne's comments, because I think they were very appropriate. With regard to inflation, all of the indexes indicate that we are going to continue to experience moderate inflation. But I think some of the stories don't match the indicators; I keep hearing more news and more noise about price increases that are beginning to stick. In the raw materials area, nonferrous metal prices are moving up pretty rapidly. Aluminum and copper--we have talked about those in the past--are much, much higher. Many chemical products that are in short supply [unintelligible]. Also, people that we talked to who buy copper are paying much more. There are definitely higher prices in their production process.",781
-fomc-corpus,1988,[Unintelligible--Several speaking at once.],11
-fomc-corpus,1988,"I mentioned steel a moment ago--one person I talked to said they had an increase in steel prices of 10 percent in January and another 10 percent in February. And some of these prices are beginning to move through into finished products, as market conditions permit. Wage rates are certainly not affected. I think wage rates are continuing to perform very, very well. While the economic outlook seems solid, I must say in regard to the inflationary outlook that I think the risks are on the upside rather than on the downside.",105
-fomc-corpus,1988,Mr. Forrestal.,5
-fomc-corpus,1988,"As I assess the Sixth District, Mr. Chairman, I would have to conclude that conditions are mixed. From our local contacts we're getting confirmation of things that we are seeing nationally--that is, we have reports of heavy inventory accumulation, particularly at the retail level. There are some indications that wholesalers of consumer goods are starting to use incentives and promotions to generate greater retail orders. On the other hand, some of the manufacturers that we talk to report that they're adding to inventories strictly as a precautionary measure, as delivery times lengthen and capacity pressures intensify in their industries. That's particularly true for paper and textiles, and this of course reflects the improvement in the tradeable goods area. A lot of these manufacturers are also reporting that their uncertainty about the dollar is causing them to hold back on some business fixed investment or capital expenditures. They got burned at the time that the dollar was very high and they're reluctant to go into a lot of expensive business fixed investment at the moment. A lot of the manufacturers are also reporting backlogs of up to six to seven weeks in orders. As for prices, we get spotty information about them, but in general I would say that there's a tendency for price increases to be coming into the marketplace. In agriculture, we're beginning to have more and more good news, particularly because of strong demand for cotton and vegetables. Interestingly, some of the areas of the Sixth District that have been growing rapidly are now beginning to slow. In particular, I find this in the Atlanta metropolitan area where for years I've been reporting to this group that it has been a go-go, boom kind of situation--partly because of construction--but now other sectors are beginning to see a decline. That's also true in south Florida, which had been growing quite well, and part of that slowdown is in the services sector. Looking at the national economy, we have virtually no difference with the staff forecast. I could go through some very, very slight differences in nuance in some components, but basically we have essentially the same forecast as the Greenbook. On the inflation side, again, we have roughly the same outlook for prices, with perhaps a little more pickup in inflation than the staff toward the end of the year. I'm a little concerned that import prices might move up a little more quickly than the forecast would indicate. As I look at the national economy and the forecast, Mr. Chairman, I guess I would have to conclude that the risks are probably on the downside, but maybe not very strongly. It's possible, as we heard from the chart show, that consumption may not turn around as quickly as we anticipate. Growth abroad may not be as heavy as we expect and, as I've indicated, some of the regional contacts in my District are suggesting that capital expenditures may not be quite as strong as we are forecasting. So, we could have some of these shortfalls, and I think perhaps that's where the risk is; but by the same token, I do also agree with the forecast that we are going to see growth picking up in the second half of the year. I think in terms of policy, the broader issue that I'd like to address is my concern about overreacting to the weakness of the first half and not taking into sufficient account what might happen in the second half. In other words, I'd be concerned about extrapolating the sluggish activity we hear about right now. I share the view of others who have just spoken that weight needs to be given to the inflationary implications for the second half of the year.",708
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"As far as the national economy is concerned, I guess my own view is a little less optimistic than the staff's, mainly because I think the first half is going to be a bit weaker. My intuition is that the inventory correction might be more significant than they're predicting. I also think we probably have not yet seen the effects of the stock market decline. I think that's coming. I also think we are in the midst of this transition that Ed Boehne has referred to--and I don't think that this transition from consumer-led growth to export-led growth needs to go smoothly in each and every quarter. So, I think we have to be prepared for a certain amount of bumpiness as we go forward. Let me give you my intuition about it all: in talking to people around the District, I'd say they're probably, in general, somewhat more optimistic and more positive than I am, although [not] ebullient. But that has been the tenor, I think, for a while now. Part of the reason is that agriculture is clearly doing better. I won't go through all the reasons for this, but agriculture is doing better and people are starting to observe that that is filtering into mainstreet business in rural communities. Clearly, that will be a reversal of what had been going on for a number of prior years. I think retail sales, in general out our way, have been better than expected. And finally, I just want to report that the major airline in our District indicates that their cargo business has been quite strong both to Europe and to the Orient--unusually strong, I'd say.",322
-fomc-corpus,1988,Tom Melzer.,4
-fomc-corpus,1988,"In the Eighth District, the fourth-quarter data that we have are all very strong--quite a bit stronger in any number of measures, including employment, construction, income and so forth, than the national data. I guess more importantly, for where we are now in terms of discussing anecdotal information, the sense I get from a major national retailer is that there is some disappointment with their sales performance. There is improvement in relation to last year, but probably not as much as was being targeted. But I don't get the sense of an inventory problem in terms of general merchandise. Where I pick that up is more in talking to people in areas like furniture, consumer durables, appliances. I sense that this is not a problem yet that has spilled back into the production cycle. People have not changed production plans based on this, partly because of order backlogs and the like. But in the major appliances area, one particular manufacturer is about 9 percent behind where they were a year ago. By the same token, that same manufacturer indicated that they're really seeing a lot of raw material price increases coming through, and for the first time since 1984 they're going to try to pass that through with a price increase in their products. So, that reflects some of what we've been hearing elsewhere around the table. Finally in terms of the [national] forecast, I would say our forecast is quite a bit different in the sense that we are looking for much slower real growth and modestly higher inflation than the central tendency. To some extent, I think that's influenced by our assumption of a monetary policy roughly consistent with last year's. This was based on a model using 5 percent money growth. What that shows in 1988 is what I would call a reasonable economic performance on a longer-term basis--in the 2 to 2-1/2 percent area real [GNP]--and maybe 4 to 4-1/2 percent in prices. What our model, and interpretations of it, would tend to indicate is that trying to respond to the short-term weakness that shows up with very strong money growth here would have very little effect in the short run; really a lot of it would pass through into prices looking out into late 1988 and early 1989. I share the view that has been expressed in terms of recognizing the constraint that the external adjustment process puts on policy, and perhaps to some extent, the desirability of accepting slower real growth than might have been accepted, say, a year or two ago.",510
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, it doesn't look as if we have that many differences for the year as a whole with the Board staff's forecast. We are sort of in the same camp--which probably makes you very nervous, Mike. But I think what's coming out in this discussion is that the shape or the profile is probably more important for policy than taking the year as a whole. Several people have indicated that they think the weakness in the first half, as a result of the inventory correction, may be greater than the staff is projecting. Most of my colleagues at Richmond share that feeling. My feeling is that the staff has it about right. But I think that, in either case, there's a distinct risk that we can have more strength in the latter part of the year than people in general have been thinking--in view of the turnaround in the aggregates, the shape of the decline in interest rates, and also the obvious strength in the industrial sector. So I think this is something we ought to bear very closely in mind as we address the policy issue because we may have a short-term problem, from the policy standpoint, that is quite different from what we may have later in the year. And that will influence what I will say later on with regard to the various alternatives.",254
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"Mr. Chairman, I think the Eleventh District, in many ways mirrors the national economy, although the plane that we are on is lower than the plane where the national economy is now. We have had a little improvement, although I think that our uncertainty remains, and if anything, may be increasing a little. Our employment gains continue at slightly less than the national rate. Our construction sector remains the weakest sector and that's really no surprise. Just as an example: for the whole state of Texas in December, we had permits issued for 100 apartment units, which is pretty much next to nothing.",120
-fomc-corpus,1988,Did you need them?,5
-fomc-corpus,1988,"However, our manufacturing continues to show signs of improvement, and that's mostly related to the lower dollar, of course. Construction-related and energy-related manufacturing are exceptions. We think our principal vulnerability is to national recession more so than to the possibility of lower energy prices. Anecdotally, with regard to perceptions and attitudes--which I think do get to be important, certainly at the margin--in terms of how you're going to [unintelligible] concerned with the condition of our financial institutions, which remains somewhat of a drag. I've had two or three business people visit with me from our small business advisory group, and they are concerned because they don't feel that our financial institutions are in a position to meet their credit needs. This is a drag in terms of the credit that they need to move along. I think in many ways our business people are more optimistic, but the timidity of the financial people to make loans is a real concern. And then the question is: What do we do about it? You talk to the bankers and, of course, they will tell you that there aren't any good loans out there. There is just not any loan demand. The Southwest plan that we've been reading about--that the Federal Home Loan Bank has to try to do something with savings and loans that are in trouble, a large portion being in Texas--I think is being greeted with mixed views. I guess we are coming to the point, or at least I am in my own thinking, [that I'd like to see] any plan as long as something would happen as opposed to just talking about it. Now, in talking with savings and loan people and with other investors who have proposals pending to try to become involved in this, they say it's extremely difficult to get anything to happen. The fact is that they think there seems to be a pretty heavy overlay of politics when it gets to the Washington level, with respect to getting some of this restructuring done. But I think sooner is much better than later. There is a mixed view on whether, if we get a restructuring plan working, it will reduce the effects of the premiums that it costs to fund, which is not only hurting the savings and loans, but certainly also the banks. I think hopefully it will help; it certainly will not hurt. Real estate, which I've reported on, we read about. But in visiting with a chairman of savings and loan association, his judgment is that there is at least $100 billion of really troubled real estate in Texas, if you really face up to it. Now that's one person's [view].",519
-fomc-corpus,1988,That's pretty big.,4
-fomc-corpus,1988,Even in Texas. And it's a lot bigger than it used to be.,15
-fomc-corpus,1988,"That's book value, right?",6
-fomc-corpus,1988,How much of that is directly owned by a financial institution or de facto owned with those [unintelligible] paper?,25
-fomc-corpus,1988,"A lot of it. And I don't know whether I said this a while ago or not, if I did forgive me--but this same individual told me that his institution owns 10,000 apartments and they just reassessed their loan portfolio and they're getting ready to own another 10,000. You know, that says--",66
-fomc-corpus,1988,But who put those 100 building permits in?,10
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Thank you, Mr. Chairman. However, it's always difficult to follow the Eleventh District. Over the years, we in the Tenth District have lagged the national economy, both in personal income as well as employment growth, generally throughout the cycle. That's true again this time. However, there is some optimism it seems to me, given [developments in] two or three primary sectors of our economy. For example, in agriculture, which has already been spoken of here, land prices are up; commodity prices are up; and exports appear to be very vigorous and have taken with them the red meat prices, particularly for cattle and hogs. The farmers have recovered from a very low level of activity and they're feeling very good, even in the middle of the winter with cold weather. I think an important observation, which Gary Stern made, is that there are some real paybacks to the agricultural banks--their outstanding agricultural credit--and that is flowing back into main streets of these small communities. Although that sector is not totally reviving, there is some optimism appearing there. On the other hand, in the energy sector, apparently because of the lack of any substantive agreement among OPEC members to control supply, what we saw as an uptick early in 1987 in drilling exploration activity has dropped off again in the Tenth District. People are simply not willing to commit to financing another hole--to put down another hole to discover whether there is any more resource there. One of the bright spots, as mentioned earlier, is in the aircraft orders that have been booked, which impacted our District rather significantly through Boeing, Beech, and other aircraft manufacturers. It has given some real hope for an uptick in that sector. Commercial construction is winding down in our District. It should have wound down in Denver, Oklahoma City, and Tulsa two years ago, and as a result, there are high vacancy rates there. But by and large it's being pretty well managed. On the national level, as far as the forecast is concerned, I have no disagreement with the Greenbook. My staff would be a bit more pessimistic than I personally, but the Board staff's forecast is right on, as far as I'm concerned. And I'd like to echo those comments that have already been made that we don't become overzealous in the first half of the year, or at least the first quarter, in working off the inventories, if indeed that be the case--jockeying monetary policy around to try to accommodate an unforeseen event. I'll talk a little more about that tomorrow.",517
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I guess my main difference with the staff forecast involves the inventory situation. Because I am more pessimistic about whether or not the current levels are considered excessive or right on, that makes me have a different point of view about what's going to happen to them. I think that there's going to be a lot more worked off in the first quarter, and also some in the second quarter, so I have a significantly weaker first half. In fact, my personal view is that we are going to have a down quarter in this present period. Therefore, because I have a lot slower first half, I also have been the proud possessor of the low end of the range [of the members' forecasts] for the whole year, but this isn't my only difference. I also think that housing is going to be somewhat weaker in the first half. Also some kinds of construction such as office buildings and shopping centers, those sorts of things, I think are going to be weaker than maybe is implied by the forecast. I think that we have to be paying careful attention to this. Whether or not we will see what's coming in time to adjust, I think, is certainly an open question. In connection with an earlier comment about why these businesses aren't expanding their capacity, I had two interesting conversations this week. One was with the chairman of the board of a large chemical company and one was with the chairman of the board of a large paper company down In each case, the main point they made about lack of willingness to commit to a major new project is that there is all this uncertainty about what's going to happen about public policy. They think people down here operate like whirling dervishes--you know, they can't keep policy stabilized for very long. It's impossible for them to plan. They have questions about what's going to happen to fiscal policy. You get a cut for a couple of years; then you get tax reform--they're still trying to figure out what it really means. Based on how they read the deficit numbers, they are assuming that we will probably get a tax hike; and because corporate America is not very popular, they think they will get a big part of that bill passed on to them. It's just very, very difficult for them to plan. They also have concerns about where interest rates are going. They're not talking about whether they're too high or too low, but just about the volatility; and it makes it tough for them to do the arithmetic. And finally, in looking at the foreign exchange markets, here again the volatility makes life tough for them. They are not assuming that the dollar is going to stay where it is over the next few years. A number of them were really burned in the late '70s and the early '80s, when they had expanded dramatically based on assumptions of strong future growth. And then just as the plants were coming on stream, the growth evaporated. So they were badly injured and, at least according to my sources, they don't want to get into that predicament again. That doesn't suggest that they're not doing certain kinds of capital spending, because they are; it's much more targeted to specific kinds of products and toward specific production problems, with a big emphasis on getting productivity improvements, rather than--I think the term is [unintelligible] expansion. So, for what it's worth, I thought I would pass that along. Thank you.",681
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Just very briefly, the Fourth District is very similar to what the reports were with respect to Philadelphia and Chicago. We are strong in terms of steel and chemicals and capital goods. And, despite a certain amount of probing around for difficulties there, we're having a lot of trouble finding any. To answer Ed's question about why people are so nervous, even though things are so good: it's probably because we're always calling them up asking them what's wrong. There's a problem every week, and they think I know something.",102
-fomc-corpus,1988,You can talk to [unintelligible].,10
-fomc-corpus,1988,You can create a recession.,6
-fomc-corpus,1988,"Yes, all by myself! The only exception, really, is in the state of Ohio, where we had a full percentage point rise in the unemployment rate in the last couple of months. And, from what we can tell, that's entirely associated with autos and the buildup there. As for the financial forecast, I wouldn't quibble with the staff's projection.",72
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Mr. Chairman, our forecast is higher than the staff forecast in both real GNP and inflation, primarily because we think that capital spending is going to be higher this year than they're projecting. I think we have a data system in the United States that is pretty oriented toward the idea that the United States is an island--here we sit not knowing how much of this increase in inventories is imported goods and how much is domestic. The conclusion [with respect to one's forecast] obviously is very different. But we don't know.",104
-fomc-corpus,1988,I think Mike Prell knows but he won't tell us.,12
-fomc-corpus,1988,"There's also this issue that was stressed earlier--that we don't know how much of the durable goods orders are from domestic origins and how much from foreign. It seems to me that we, as an institution that works on these data--perhaps you [Mr. Chairman] might use your good offices to try to see if we could expand this kind of differentiation in the data, because I think we are going to need it in the future.",87
-fomc-corpus,1988,"You know, we used to have export orders. Ted, didn't we have export orders?",18
-fomc-corpus,1988,"Yes. The problem, as with many of these series, was that the series got to be so bad and unrelated to anything that you thought they were predicting. There was a big powwow--in the early '80s, I think--to figure out what to do with them. The advice of the staff at the time was either improve them or throw them out.",75
-fomc-corpus,1988,They did the latter?,5
-fomc-corpus,1988,[Yes.],3
-fomc-corpus,1988,But I think that was at a time when it wasn't really as important to us to have these data as it is now. The Germans and Europeans in general seem to be able to generate numbers like this.,41
-fomc-corpus,1988,It was one of those series that just did not have enough--,13
-fomc-corpus,1988,"I was kind of [unintelligible] by that as a proposition. The occupancy rate of the New Hampshire hotels is 100 percent this week because all of the national press and many political people have invaded the state. The vacancy rate will start to grow next week and they will again be thinking about whether we are going to get enough snow to bring the skiers up to New Hampshire. But for the moment it's booming and you couldn't get a hotel room in New Hampshire. As I've indicated before, we have had a downtrend in manufacturing employment in New England since December 1984, reflecting a mini-recession in our computer industry. That downtrend has ended. October-November show the first increases in manufacturing employment in New England in our computer industry since the end of '84. Given that our unemployment rate is 3 percent, I think the only question is: Where are they going to find the labor to generate a further increase in employment? I had thought for a while that perhaps a slowdown in defense contracting might spin off some skilled labor that the high-tech industry could use; but I've been disabused of this notion by our defense industry people who point out that what's happening in the Pentagon now is that they're focusing on slowing down the increase in the number of what they call, in Pentagonese, platforms--ships, aircraft, and so on--and focusing on increasing the electronic capabilities of existing platforms. We're not much on platforms except for nuclear submarines, which are made in Connecticut. Our primary defense product is defense electronics and the outlook for that has not been impacted at all by the slowdown in real defense spending in general. In our area we are still having an office building boom. [I saw] a big sign saying 75 percent committed. I inquired as to whether that could possibly be true and I was told it really is.",374
-fomc-corpus,1988,Boykin needs to know about that.,8
-fomc-corpus,1988,[Unintelligible] now 75 percent of the developers are committed.,16
-fomc-corpus,1988,"My concern is: When is Boston going to turn into a Dallas or a Houston? It has to happen sometime, but it appears that it's still some time off.",33
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"As far as the forecast goes, our forecast again is virtually identical with the staff forecast, so there's nothing to talk about there. On the anecdotal side, the commentary that we hear--whether it's from people on our small business advisory council or on our board of directors or people in between--is generally, with some exceptions, along the lines of the kind of thing Ed Boehne was talking about before. But even at this last meeting of the small business group, I guess it was two weeks ago, I was amazed. These guys were talking about their steel shipments being on quotas in upstate New York. And that's--",127
-fomc-corpus,1988,It would have to be. They shut down the whole industry.,13
-fomc-corpus,1988,"Well, that's true. I'll come back to that in a minute. But again, the broad thrust is in the direction of the kind of comments that Ed Boehne referred to earlier. That has influenced my own thinking, at least at the margin, in the direction of not being overly preoccupied about the prospect of a weak first quarter or a weak first half. I should add that, on I guess it was Thursday or Friday, I took a poll of a couple dozen economists in the Bank, and I asked them whether any of them foresaw a recession. And every one of them said no; and that's when I got worried.",129
-fomc-corpus,1988,Did they call the last one?,7
-fomc-corpus,1988,They haven't been around long enough!,7
-fomc-corpus,1988,[Unintelligible].,6
-fomc-corpus,1988,"That was a tongue-in-cheek remark, Martha. I even said that myself: ""That's when I got worried."" But what I'm really worried about is not the first quarter or first half. What I'm worried about, as I've said before, is the intermediate-term problem we have in terms of winding down the external deficits, with all that that implies, without ending up with a serious inflationary problem on our hands. I think all the risks in the intermediate term are on the side of more inflation, not less. And I can't find a way to approximate a transition out of those external deficits that does not leave me with that conviction--that the risks over the intermediate term are on the side of more, rather than less, inflation. To complicate the problem, from where we stand right now, in order to achieve that transition, under the very best of circumstances we have the equivalent of $4 to $5 billion of unfunded external liabilities in the form of the cumulative changes in the current account deficit that are going to occur, almost without a doubt. So, that's where my concerns are. I think the risks of a recession in the near term are there; and we have to guard prudently against that. But I think we have to keep our eye on the longer-term problem and the longer-term adjustment, because I don't know of any surer way to end up with a really nasty recession than to make the mistake on the side of ending up with more inflation and not less. So, I'm powerfully influenced by those longer-term considerations.",312
-fomc-corpus,1988,"Longer-term, you're talking 9 to 18 months?",13
-fomc-corpus,1988,I'm talking even longer than that--perhaps a period of as much as two or three years.,19
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"I largely agree with the staff forecast for the first half of 1988, but I do have a couple of doubts on the bounce-back, and the basis for the bounce-back, in the second half. Just to review a few of those things: the government [sector forecast] for the year as a whole is a -1.3; consumption is slow; residential structures are flat; business investment is 1 to 1-1/2 percent; and export growth--which is the driving engine of the economy at the present time--is slowing significantly. For instance, if you compare: there was 23.8 percent growth in the third quarter of 1987 and only 12.8 percent growth is forecasted for the third quarter of 1988 which, after all, is the opening quarter for that second half bounce-back. So, I really don't think that the forces that are going to generate that bounce-back in the second half will be in place. First of all, as the Chairman mentioned already, much of the forecast is based on a drop in the saving rate--something that we really don't want to see, for the reasons that Jerry Corrigan just mentioned. Second, once that first-quarter or first-half slowdown hits, I think there will be a lot of businessmen who will be revising their own forecasts, and then their investment decisions, for the second half. Third, the leading indicators, although they're not all that reliable, have been solidly down for the last three months. And, finally, nobody has mentioned--Martha Seger was skirting around the issue, I think--political uncertainties. Let me do it anyhow. As we get close to the election, the political uncertainties and the new programs that will be discussed--on the tax side, on the federal government spending side, and in general--will also not be exactly forces that will lead to rejuvenation of investment spending before the election. So, plans will get postponed; that's something that we have experienced in [election] years before. Overall for the second half, I would see a weaker economy than the staff sees, and most of the risks there will be on the downside. I'll leave it at that.",449
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"The staff forecast, it seems to me, is in the ballpark, although I have very little confidence in our ability to see quarter-by-quarter. That is, I would tend to look at what happens for the year, and appraise that. The staff probably does better than I would in regard to calling these quarter-by-quarter changes; anytime I try I can't get it right. I think there are some extreme circumstances that make forecasting much more difficult, and some of them have been mentioned. We have had sectors of the economy in and out of recession; now we have a dramatic switch in the net exports area at the same time that, clearly, consumer spending is altering its path--the data we have in regard to the use of cash rather than plastic tend to indicate a different kind of behavior. It seems to me that the Chairman's point on the saving rate--that a 1 percent difference there is a large number and makes a lot of difference--should be emphasized. I think there are many, many special difficulties. I would point out that I did have a chance to go to an area I thought would have the most dismal [economic conditions] in the United States, so I decided, with Bob Forrestal's permission, to visit the branch at New Orleans. I was really quite surprised, Frank, to hear the number of stories about firms that are headquartered in your region that are locating plants in that region. And I guess that's what we would come to expect, given the labor market conditions there versus labor market conditions in your area. So, I think it's very hard to know how the expansion areas match out; I think we have to be careful to watch it on a week-by-week basis. But I don't think that we should let ourselves get scared by those who use some rules of thumb to tell us about when recessions occur. I think I'll mention commodity prices so that I don't have my reputation damaged in that regard. The precious metals make up a part of what we call reflective indices on commodity prices--that is, they tend to reflect more quickly changing scarcities in money. And there's no question that we had some indication there that would seem to me to call for less extreme slow growth in the monetary aggregates' growth path. So it seems to me that it would be more appropriate for us to target growth above the 3.5 percent or 4 percent range of M2 last year. But I would point out to you that even though industrial metals seem to have gone through their cycle, we do have some evidence of upward price movements in the nonoil portions of our experimental index, which is designed to measure the flow-through effects. That incudes a lot of food and fiber, and my concern is that wage rates seem to be more sensitive to discretionary food and fiber prices than they probably are to many other prices. I'm becoming worried that we have been in a period of exchange rate adjustment, with some import price increases, for long enough that it's going to be very difficult for us to go much longer without having a permanently higher inflation rate--one that's just not acceptable. It seems to me that it is important for us to be on guard in that regard.",644
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Thank you, sir. I share with many others the view that the staff forecast is a very good one. Not only is the forecast good, but I think it's a very attractive path for the economy. I like it a lot. I'd like to just freeze dry it and put it on a shelf and consider it a record. I hope it will happen very close to that way. But, of course, what we are talking about is where the risks lie in [potential] deviations from the forecast, and I'm not as confident as some seem to be that they're on the high side. I'm a little more concerned about the low side. I had a list here I was going to run that was very similar to Governor Heller's and I won't repeat all of that. I do think that we should keep in mind that the factors that are going to give us a stronger second half, if we get it, depend to a very substantial degree on interest rates at least as low as we have and probably lower. And, if we don't get it, I'm not sure whether some of the other indicators that we see that could take us toward weakness won't gather strength. I have concern about the weakness, the extended weakness, of the aggregates. I think I was pretty comfortable, and maybe complacent about it, for a long time in view of the fact that they had run high in 1985 and 1986 and it seemed to me to be a reasonable catch-up period. But now I'm beginning to get more concerned about it, particularly the weakness we had at the tail end of 1987. It came back, as everyone knows, in January. Now, I may be premature on this, but I'm a little concerned that they're beginning to fall back again, and I would worry if that started to happen. Another key thing in keeping the economy going reasonably well and achieving this transition that we need to achieve is to keep this export growth going. I think that's going to be harder to do as we go along. We may have gotten through the easier part of it. Unless I'm mistaken, it seems to me that this path would take us to what looks like a surplus, ex-oil, by the end of the forecasting period in 1989. Ted, you may want to correct me on that. At any rate, we're going to be either in surplus, ex-oil, or close to it; and I'm not sure that the rest of the world is going to let us get there without some disruption along the way. It's a little harder for me to see a lower dollar and that strong a real trade pattern. I'm afraid that something's going to have to give there, and I'm not exactly sure what it's going to be. But my concern is that it would be on the side of weakening the economy somewhat. Given the straws in the wind and the difficulty of achieving that level of continued export growth over many more quarters out in the future, I fear that the risks may indeed be somewhat more on the weak side rather than on the strong side.",617
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I've been sitting here, choosing to be last because I feel sort of jet lagged. I just got back--well, Jerry did too, and he was very articulate, so--",37
-fomc-corpus,1988,That's because I got the earlier flight.,8
-fomc-corpus,1988,"Yes, you did get a little earlier flight. So, I'm not sure I can really get into some of the detail. I don't think I need to, because I think all sides of the issue have been discussed. I think the forecast is a perfectly plausible scenario, and I think it's well done and carefully detailed. But, as with any forecast, its problem is that it's just a forecast and who knows what's going to happen six months to a year out. My general feeling is that the fundamentals are basically good. You don't see the kind of forces at work right now, it seems to me, that would lead to the kind of classic inventory correction that some people get hysterical about. I agree with Bob Parry that you just don't see the kind of price pressures out of whack at this stage that would lead to some serious continuing deterioration. But at the same time, I think you also have to look at the evidence that's before you and get the best reading you can from it. After listening to all this, what I worry about a little I guess, is that we're going to work ourselves into some sort of macho chest beating--that we've got to hang tough through this--and ignore some of the conditions that seem to be developing. I think a lot of what we are seeing has to do with the psychology that develops. I agree with what Bob Heller says, that you may get what looks like a temporary inventory correction underway, but if a very negative psychology builds on top of that it can continue, and who knows what will happen. I just don't want us to be asleep at the switch. Our short-term function is to try and make sure that we keep things on track. I agree with what Jerry said--there has to be an external adjustment to get that [outcome] and we can't let aggregate demand surge on us and waylay the trend that is developing now. But at the same time, we can't afford a plunge in real spending. I think our whole scenario hangs very fragilely on the saving rate/consumption issue and how real income develops. So there is a lot of risk to this scenario. If we are not asleep at the switch, I think chances are we will get on the other side of this inventory situation, and the fundamentals will remain good, and we can keep things going at a modest rate without inflationary pressures. I agree with what Jerry said--that the long-run view has to be oriented towards keeping our eye on the inflation situation. I think in the long run that's always the case, especially when the expansion is this mature. I don't want us to fall asleep here.",531
-fomc-corpus,1988,"You're sitting here with jet lag. That wasn't too bad. If I were actually doing the forecast in great detail, I'd come out very close to where the staff comes out. The trouble I have with it is that the structure of the economy at this stage is really quite different from anything I've ever seen. We are seeing an extraordinary imbalance--where we're getting terrific export numbers, tremendous pressures coming in the industrial area, and a sort of mediocre, but not particularly negative, retail market. With respect to the inventory data, although I'm not especially concerned, I have a suspicion that there are more imports in those numbers than any of us suspect. In any event, it's basically in the retail area where, in effect, you're looking at the physical volumes; it should be marked down to factory values; you start doing that and the aggregate physical relationships don't look all that bad. The real problem with the forecast is--I never recall a forecast where you fine tune from 4 percent down to 1 percent, then back to 3 percent; it happens that way. Although I could say that the staff forecast is, in a sense, the most likely scenario, I think the big surprise is likely to be that the first half will not be as weak as we suspect. And if, in fact, that demand is out there in the second half, it also will move up. It will move up because inventories will accumulate while we'll find the capital goods markets behaving. I just am terribly skeptical of a forecast that has a dip and then turns back up, when we can barely [predict] the direction when we are heading in a straight line. So I must say that I'm uncomfortable with the outlook, yet there's just no question that there is nothing in the order books that appears weak. I have never seen a situation such as this in which the order books are as unequivocally solid as they are at this stage. Yet, the copper price decline strikes me as an indication that there is something weakening there; the aluminum price rises have sort of stalled; steel scrap prices are looking a little shabby in a certain sense. It's a funny outlook and I just can't for the life of me get a firm hold or a comfortable feeling. So, I come out [with a view] that in many respects sort of averages those of the Vice Chairman of the Board and the Vice Chairman of this Committee. I guess that's where I come out, although I'm not sure you're averageable, gentlemen. It's getting a little late and I think we have come to a normal breaking point. Are there any other things of relevance, looking at my agenda, prior to getting to the aggregates side [of the discussion]? If not, let's adjourn until early in the morning.",551
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"Thank you, Mr. Kohn. Any questions of Mr. Kohn?",16
-fomc-corpus,1988,Have you actually tried to project the aggregates off of the Greenbook forecast--just to see what it looks like with respect to those ranges?,28
-fomc-corpus,1988,That's exactly what we did; that's what our 6 percent--,13
-fomc-corpus,1988,"Okay, that's where those ranges come from.",9
-fomc-corpus,1988,"To be very up front about this, what we do is take the Greenbook forecast and the interest rates implied and see what money growth is implied by that. Then there's an iterative process of coming together with the money [growth] and the Greenbook forecast. But, in theory, it's all consistent. There's an effort to make it consistent.",69
-fomc-corpus,1988,"Looking at the forecast, you sort of have a U-shape in interest rates and you'd think you'd get almost a mirror image in the aggregates.",29
-fomc-corpus,1988,"Well, the problem--",5
-fomc-corpus,1988,And so it almost looks like a nonlinear target we have to accommodate that--,15
-fomc-corpus,1988,"No one's talking about targeting aggregates, I think--quarter-by-quarter, in any case.",18
-fomc-corpus,1988,True.,2
-fomc-corpus,1988,"And we do have a situation in which we see money growth relatively strong and velocity falling in the first part of the year because of the decline in rates. It's not so much in the first half; nearly all of the decline is behind us relative to our forecast. But given the lags in this process, what's left over from October 20th on, in terms of interest rates, would affect M2 growth, particularly over the first half of 1988. And then most of the increase in interest rates we have forecast for the second half of 1988 would have some impact on M2 in the second half of 1988, though it's mostly crystallized with the impact into 1989. But the whole movement of opportunity costs isn't very large, given these lags over, say, the second half of 1987 to the second half of 1988 and we have to--",182
-fomc-corpus,1988,So the ranges would accommodate these?,7
-fomc-corpus,1988,Absolutely; yes.,4
-fomc-corpus,1988,"'89 slows down, correct?",7
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,What was the number for M2?,8
-fomc-corpus,1988,We assumed 5 percent M2 growth for '89.,12
-fomc-corpus,1988,Fourth quarter-to-fourth quarter?,7
-fomc-corpus,1988,"Don, what did you say for M1 for '88?",13
-fomc-corpus,1988,That would be about 5 percent.,8
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,Are you ready to have some comments now?,9
-fomc-corpus,1988,"Well, let's first make sure the questions are behind us.",12
-fomc-corpus,1988,I just have one.,5
-fomc-corpus,1988,Go ahead.,3
-fomc-corpus,1988,"In regard to the width of the band, if there is all this uncertainty, the honest way to present that--if I remember from Stat 101--is to have the band of uncertainty identified. And if we really think we cannot target within these 3 percentage point ranges, I think it would be more honest to bump the range out a point than to be below the bottom or exceed the top, because then you could explain it as indicative of the uncertainty rather than some sort of policy message.",100
-fomc-corpus,1988,"I guess the question the Committee would have to answer is whether the uncertainty is greater now than it has been over the last 12 or 13 years that ranges have been given. They've been three points almost uniformly throughout that period. And I was arguing that with regard to the interest sensitivity, one source of uncertainty is that we don't know what's going to happen with the real economy, how interest rates are going to move, and then what money growth is consistent with what you want to happen. From that perspective, I think there probably is a little more uncertainty now than there was, say, in the '70s or the early '80s. Or perhaps we now realize the degree of uncertainty. Our experiments suggest that the interest elasticity of M2 is a little higher now than it was 5, 6, 7 years ago.",169
-fomc-corpus,1988,"Well, starting with 1984, it seems to me that people either have been suffering from an undershoot--or rather, two years of overshoot followed by last year's undershoot. Now, that's not going back to the '70s; but certainly, given recent history, it occurs to me that maybe you would get less trouble with the financial market participants if we put this up front.",80
-fomc-corpus,1988,Anybody else have questions?,5
-fomc-corpus,1988,"Yes, one more. Part of the answer to Governor Johnson's question is the fact that you also have a pattern in income as well; and since they have opposite signs, in effect, it takes out a little of the pattern--",47
-fomc-corpus,1988,You're right.,3
-fomc-corpus,1988,"What I'd like to do, if it's feasible, is see if we can get a judgment before your general commentary on whether anybody feels strongly that we should reinstitute official targets for M1 or M1A or anything at this particular stage. If there are no strong feelings about it, then I would say that you ought to encompass whatever remarks you want to make in a generic commentary. What I hear is that there is no strong change in view and I will assume that to be the case at this stage, unless it gets altered. Vice Chairman.",110
-fomc-corpus,1988,"As I look at the 1988 policy horizon, it seems to me that the most important thing is to do all we can to try to satisfy ourselves that the economy is on the right trajectory that will work in the direction of resolving some of those longer-term problems of an external nature that I spoke of yesterday. When I look at the staff's forecast or the central tendency of the FOMC Committee members' forecasts, it seems to me that both have the virtue of being on the right trajectory, in the broader sense of the word trajectory. And in that sense, I don't have great difficulty at all with an outcome that would resemble either the central tendency or the staff forecast. But as Don Kohn said, we ought to think then about the risks to that kind of an outcome. On the downside, there are two or three things that pop into my mind. One is the saving rate that was talked about yesterday. In that area, again, consistent with this trajectory argument, I think that we should not resist--indeed, we should welcome--a mild and modest updrift in the saving rate. That is one of the things that has to happen as a part of this larger adjustment process. On the other hand, clearly, if the saving rate were to take a leap up, that, in turn, would imply a pattern of consumption spending that could well be associated with a recession. But I ask myself what could produce a leap in the saving rate rather than a drift. And the generic answer I get is something that shakes confidence. And of the things that enter my mind that can shake confidence, the one that still rings loudly is the financial sector--not necessarily the stock market in the first instance but some kind of further disruption on the financial side. Clearly, there is a risk there. Another risk is that the trade deficit may not come down. We could be confronting that situation as early as Friday if we get a bad trade number in these next series of numbers. Obviously, in that case, the likely chain of events is the dollar, interest rates, and then stock prices. You've got the same kind of Catch-22. The irony, of course, is that if the trade deficit is going to come down it's going to have to come down in the context in which we have at least slower-than-typical rates of increase in consumer spending. So, there is a clear risk there. There's another kind of financial risk, and that is some kind of a shock--whether its origins are in Latin America or the unexpected demise of a major financial house or something of that nature. So there clearly are risks. And the common denominator of them, at least as I think about it, is not that I see great potential structural weaknesses in spending, but these risks one way or another end up on the financial side. The initial event might vary from one case to another but somehow you always end up there. But I also see risks, and I may be an outlier on this, on the other side altogether--risks that the economy could be stronger than the central tendency or the staff forecast. It doesn't take much in terms of stronger, and not a lot stronger, consumer spending, and certainly not much in terms of stronger business fixed investment spending, to alter that outlook on the other side. In that context, I believe that there is virtually no margin on the upside, because we are that close, in my judgment, to a situation in which the inflationary implications of all of that could be very distasteful, very quickly. Now in some sense, the policy dilemma that is most acute to me is in the immediate context. When I try to balance those risks, I come to the conclusion, Mr. Chairman, that in the very near term--and by that I mean next week, I suppose--that the balance of the risks is probably on the downside. But out over the year as a whole, I think they're on the upside. And that makes for a very difficult set of policy choices. It certainly means that, while we have to be sensitive to those risks, we can't overreact either way. Indeed, I think from a financial market point of view, if we were to act in a way that led the markets to conclude that we were on vacation, we'd have the various financial disruptions that we are trying to avoid in the first place. Where that brings me, in terms of policy for 1988, is to a comment that Governor Kelley made at the end of the discussion yesterday. I think he said he'd like to freeze dry, or something to that effect, the staff forecast--a forecast that, in round numbers, implies something like 6 percent growth in nominal GNP--and I agree with that. In that context, my preference on the aggregates is alternative III. I have a small preference, very small, for a monitoring range for M1. But the key thing about alternative III is that the midpoint is 6 percent on M2 and M3. That, in turn, implies 0 velocity growth for the year as a whole. It seems to me that from the point of view of your testimony, and the body english that gets put on policy for the year as a whole, that by saying we are assuming 0 velocity, in effect, that casts the right kinds of vibes and it also leaves the Committee with some flexibility over the year. I think that gives us some latitude to respond to any velocity other than 0. But again, I think it also has the added cosmetic value of being good grist for the testimony. So, I'm for alternative III.",1139
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"Well, I do think that monetary growth targets are important, and I would like to have them even if the law didn't require them. There are conditions that exist or occur during a year that are unforeseen that may warrant from time to time accepting growth outside the target ranges. But I think the advantage of targets is that they do, in a sense, hold us accountable for those deviations--that is, whenever we have faster growth than the targets, if it turns out to be a policy mistake, it seems to me we have to bear that responsibility. And there isn't any question that we are somewhat on the line right now because M2 has grown outside the target ranges. Our year-over-year growth rate bottomed out for M2 at 3 percent--that is before the revisions. The numbers showed 3 percent in the week of January 11th; and 3 percent is quite a way below the 5 percent. It seems to me that it is important, as we go through this period of adjustment of exchange rates--which we know brings pressure on import prices--to make it clear to everyone that our long-run objective is to get to price level stability. We know what we experienced with the rebound in oil prices; there is no question that we couldn't keep the rate of inflation at a long-run desired level while going through that adjustment. But it seems to me that we should have these target ranges, and the Chairman's testimony concerning them should make clear our long-run objective of price stability. It seems to me that we ought not to have M2 growth as low this second year as we did the first year. In some ways I think to miss two years in a row, or to plan to miss two years in a row, on the downside becomes somewhat unacceptable. That is, we have had an experience of a year in which certain commodity price pressures and exchange rate pressures and conditions in financial markets caused us to believe on a week-to-week basis that monetary policy needed not to be eased in order to achieve those growth rate targets. But I think now we ought to say to ourselves in the second year: What bottom on the target range can we go with, where we really do mean that we expect to ease if we go below it? And that bottom of 5 percent, frankly, is too high for me to feel comfortable pledging that I would want to ease if we were at 4-1/2--even though financial markets might be somewhat under an adjustment problem, exchange markets might have a problem, and inflationary fears might be there. I guess I don't want to put myself in that position of pledging myself to ease under that condition. So, I would prefer alternative III. Frankly, as many of my colleagues know, I've been flirting somewhat with even 4 to 7 percent as the proper range. But I do believe that there are uncertain conditions on the other side and it might be helpful to have a somewhat higher boundary. So I would join the Vice Chairman in being willing to go with alternative III. Now, I did do some playing around with the year-end adjustment problem. From time-to-time I have been concerned that seasonal adjustments at year-end give us a last-quarter base that seems to be somewhat out of kilter. And I think as a long-run policy I would be happier basing on the last 6 months of the year and beginning our cone on October 1 rather than basing on the fourth quarter and beginning the cone on November 15th. That would have the subtle tendency, of course, to cause the cone to be wider, and by year's end that extra width would be about $11 billion. But it would still give us the narrower 3 percentage point range that we have talked about. I've kind of flirted with [the view that] maybe 4 to 8 percent ought to be right, because that would give us a 6 percent midpoint; but anything that gives us some move in that direction I could go with. So, I guess I'll summarize by saying alternative III.",819
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"I could go along with alternative III as well, but the problem that I really have is with the path, as Governor Angell already started to address. First of all, I think it is very clear that last year, as Governor Angell pointed out, we consistently undershot our short-term targets. We undershot the various targets that we established by 1 percent for the lowest undershoot and 3.9 percent for the maximum undershoot. I think it's very important that we don't do that again this year, because we are getting in the danger zone on the downside. So, I hope that we draw the bottom half of that target cone--the lower band--with a very thick pencil and with the intention not to go through it on the bottom side. As far as the base is concerned, I think we again had very special factors at the end of this year, which were very different from the special factors that we had at the end of last year. I think the reasons detailed in the Bluebook, in exhaustive detail, are very compelling indeed. So I have a lot of sympathy for what Governor Angell is saying about changing the base period around somewhat. In particular, if you look at the chart for M2, for instance, you see that for the proposed parallel bands for 1988 the upper limits are an exact continuation of the bottom part of last year. So we're saying that we are lowering ourselves permanently down for one reason only--and that's the accident that January 1st happens. If we had two-year targets, we would now be in a position where we would say, ""Well, we have an awful lot of catching up to do."" Or if the [target] year had begun in midyear, we would have started out, let's say, in June--that's the time where the point of my argument is better--then again we would be at the bottom end of the cone and we would probably be arguing that we should be moving more towards the middle of the cone. To ratify permanently the very temporary factors that were in effect at the end of last year, I think, would be a mistake. And I would support the new target ranges only with the proviso of rebasing. On how to rebase, I think there are two options open to us. One would be to go to the bottom end of last year's target cone--that's roughly where the solid line and the dashed line intersect on the graph--and start this year's target cone there. So, we would be working with an area of some overlap instead of zero overlap between last year and this year. The other alternative--one that may be a compromise to what Governor Angell is suggesting--is to base towards the second half of 1987, taking a midpoint there. Eyeballing it, you can see that you are getting a bit of an overlap at least, instead of virtually zero overlap. So, with a rebasing proposal along one or the other line, I'd be happy to go along.",610
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Mr. Chairman, let me say at the outset that I think that our course for policy at the moment--of using discretionary policy rather than a slavish adherence to any of the aggregates or to any other intermediate target--is quite appropriate. And I don't particularly worry greatly if we miss those targets in any given year if the circumstance requiring that miss is evident to us. On the other hand, we are required by the law, as we all know, to set these targets. And I think we need to set them as realistically as possible so as to avoid, if we can, any shortfall or overshoot in M2 or M3. I said yesterday that I thought that the risks to the economy were on the downside, and I do believe that. But I think that it's a very, very delicate balance. As has been suggested earlier, I think there are also risks on the upside in the economy. I'm prepared to believe my own staff's forecast, which places nominal GNP at 5-1/2 percent. That suggests to me that the midpoint for the range is somewhat lower than the 5 to 8 percent that we set in July, and even a little lower than that suggested by the Bluebook in alternative III. So, I would like to propose a wider band--recognizing that this is not traditional and perhaps doesn't have any precedent. But I would think that a range of 4 to 8 percent would be appropriate, given the interest rate elasticity of M2. And I think this kind of a range would give us the flexibility to adjust our policy as the year goes along and we can measure where those risks really lie. At the moment, it seems to me that we hardly have any room with the 5 to 8 percent for any shortfall in M2 growth. The reason that I would not drop the whole range is that I think by doing that, people would tend to think that this is a tightening of policy. While we have gotten away from the monetary aggregates to some extent, I think that in the climate this year perhaps more attention is going to be paid to where we set M2 and M3. And I think your testimony is going to take on even more importance than it usually does. I wouldn't like to give an implication of tightening, and by keeping 8 percent at the top, I think we might avoid or at least mitigate some of that suggestion of tightening. Now, 4-1/2 to 7 percent would be acceptable to me, but my preference would be 4 to 8 percent, recognizing some of the risks of that wider range that Don Kohn has already indicated. I don't know if you want to talk about M3, but I would like to keep the range at 5 to 8 percent because I think this, too, would damp any implication that we are tightening. Or, if you adopted 4 to 8 percent for M2 and 5 to 8 percent for M3, the implication of tightening based on the lower M2 range would be damped if you kept M3 at 5 to 8 percent. So, in summary, targeting on nominal GNP and using the 6 as the midpoint of the 4 to 8 percent range for M2, I think, would give us the kind of flexibility we need on the downside, without giving any implication of tightening to the market. So I would prefer a 4 to 8 percent range for M2 and 5 to 8 percent for M3.",716
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Mr. Chairman, I would go for alternative III, but for different reasons than have been expressed. I don't see the near-term downside risks that Mr. Corrigan talked about. I looked at those new orders figures for December, and not only were they exceptionally strong, but the fact that they were that strong two months after the stock market crash suggests to me that our manufacturing sector is really going to be on a roll in the first half of this year. And that is highly likely to generate higher spending on plant and equipment than the staff forecast is indicating. So, I think by the time we reach midyear, our problem of softness in the economy is going to be way behind us and our concern is going to be the price pressures generated by a manufacturing sector that is really booming. And I think having a slightly lower upside limit on the aggregates might be very helpful for us in that kind of a situation.",183
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Well, as I indicated yesterday, Mr. Chairman, I was very close to Frank Morris and very close to Jerry. I suppose at this point I'm a little closer to Frank in that I'm not as sure as my colleagues in Richmond are that we will have the weakness in the first part of the year. But I think there is a distinct risk that by the end of the year the economy will really be rolling and there may be stronger upward pressure on prices and wages than most people are now expecting. That would put us in a very difficult situation, and a dangerous one I think, given the advanced stage of the expansion. So, my feeling is that reducing the risks of that kind of scenario playing itself out ought to be one of the principal goals, if not the principal goal, of long-run policy. So I would opt for alternative III. Ordinarily, I think the Bluebook tends to favor the middle alternative, but I thought this time, Don, you did an excellent job in defending alternative III with your 6 percent midpoint. If the economy should be a little weaker in the first part of the year, then the 7-1/2 percent limit ought to be enough to accommodate that and also some downdrift in interest rates. But I think more importantly, dropping the range a full percentage point rather than just 1/2 of a percentage point, as we tentatively decided in July, would send a strong, and I think a very reassuring, signal to the markets and the public that the System is looking beyond the immediate softness in business activity towards the potentially more serious threat of excessive and rapid inflation later on. And if we voted for that, I think you could make that point very strongly in your testimony. I know you'd get some flack on that from some members of Congress, but I think that would be muted by the recent strength in the aggregates and the significant drop in interest rates. I think, in the end, we'd be a whole lot better off from the standpoint of political pressure, if M2 growth didn't come out in the lower half of the range but somewhere near the midpoint. And I think we have a better chance to do that with alternative III than with alternative II.",447
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Mr. Chairman, I would also favor alternative III. I think it conveys the right message to financial markets. One thing we might consider is to have the range for M3 slightly [unintel-ligible]; the elasticities are such that you probably will get stronger growth of M3 than M2. With regard to the base question, I would be opposed to the suggestions of Governors Angell and Heller and instead I would prefer the Kohn cone.",93
-fomc-corpus,1988,How do you spell that?,6
-fomc-corpus,1988,Two different ways.,4
-fomc-corpus,1988,In which order? President Stern.,7
-fomc-corpus,1988,"However we may decide to tilt policy in the short run, it seems to me that in the longer term we have to keep our eye on the price stability goal. And I think achievement of that is consistent with some of Mike Prell's language that we touched upon yesterday; in other words, I think that's how you do achieve maximum sustainable growth in employment and output. In the current setting, what I'd like to achieve is a certain continuity in policy at this point. And I'd also like to facilitate this transition or adjustment that's occurring in the economy that we have discussed--or at least not take steps to retard that adjustment by trying to bolster domestic demand. All of those considerations lead me to alternative III, which I think works in the direction of price stability and all that goes with it over time. I think it provides ample room for growth in the economy in terms of the outlook that we discussed yesterday at some length; I also think it is consistent with this transition or adjustment that needs to occur. I might also note that--well, this has been covered and I won't dwell on it--the midpoint is consistent, I gather, with the Greenbook forecast. Moreover, while it's a little hard to go through all these numbers with the revisions and so forth, as I look at growth of M2 and M3 over the last two- or three-year period, on average, they've grown about 7-1/2 percent or maybe a touch more. It seems to me, at this point in time, that we would not want to have acceleration beyond that kind of rate of growth. So, I come out in the alternative III camp as well.",333
-fomc-corpus,1988,"Gary, are you assuming a stable demand for money? I mean, you have some assumption.",19
-fomc-corpus,1988,I'm assuming I don't know any less about it today than I knew about it in the past; let me put it that way.,26
-fomc-corpus,1988,But what you're saying is that the uncertainty is symmetric around zero velocity.,14
-fomc-corpus,1988,"Yes, that's right. I think you might argue, although I'm not about to press it, that last year's shortfall is history now and we can't do anything about it. I'm not sure you want to have much of an acceleration from that.",49
-fomc-corpus,1988,So far it is.,5
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I would favor the 4 to 8 percent alternative; I'd go with alternative II but I would widen M2 to 4 to 8 percent. I think the half a point reduction that we already have in the preliminary numbers sends the right long-term signal. I think a further reduction now would, in a sense, almost be confusing. People perceive the thrust of policy to be in the opposite direction and I think that would be a potentially destabilizing signal. I think everybody knows from my comments over a long period of time that I've felt just as strongly as Jerry and others about the long-run inflationary risks, but I think that might be confusing. I think the 4 percent lower band on M2 recognizes Jerry's concern; it actually gives us the latitude to move further in that direction than alternative III would if we had to. And I don't think the widening of the ranges from 3 percentage points to 4 percentage points is really a problem. I don't think anybody perceives us to be targeting monetary aggregates anyway; we certainly don't. We take an economic forecast and then pick [monetary growth] numbers that we think are roughly consistent; and if they don't work out, fine. So, I don't think that violates anything in terms of what I perceive we're doing here and what I think the outside world thinks we're doing. So, that's where I come out.",278
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"Well, I think all of us agree on what the basic policy challenge is and that is to balance the short-run risks of weakness with the long-run risks of inflation and the need to keep the external adjustment process moving forward. Given the looseness in the aggregates and the way we have treated those aggregates the last several years, substantively, I don't think it makes a lot of difference whether we have alternative I, II, or III, as far as trying to play this balancing game. It seems to me that which of these you choose has to do more with the message that you want to send out than the economic or policy substance of what these alternatives mean. I think the message is important; and I would like to send out a balanced message. I would like for the country to know that we are concerned about the current weakness but I also want to underscore these longer-term concerns. And I think alternative II sends out that balanced message. If we tended to loosen a little, as we have done in the short run the last couple of weeks, and then we send out a message that we are tightening as in alternative III, I think that's a confusing message. I think that when you're sending out messages, you want to keep the messages as simple as possible. At the same time, if we reverted to alternative I, I think that sends out the wrong message too. So, I would think that in the testimony you want to strike this balance, and to me, alternative II sends out that message. Now the other issue, having to do with the width of the range, I think also is a substantive versus message kind of issue. If we were to be totally intellectually honest, I think we'd have a very wide range, or we might not even have these [ranges for the] aggregates. But we have them, and we have generally stuck to a 3 percentage point range. We have tried to widen them in the past and that tends to send a message that we don't have any discipline up here or that we are somehow losing that discipline. I don't think that's the kind of message we want to send, and so I would--again, not that 5 to 8 percent is substantively better than 4 to 8 percent--just think in terms of a message and keep it at 3 points. As far as the issue of rebasing, I think we have to be careful that we don't rebase on an ad hoc basis. If you go back to 1985 and 1986, we overshot the targets and we didn't rebase in those years. Now if we rebase this time when we undershot, I think it sends a message that we rebase when it suits us in terms of easing money and we don't rebase when it means tighter money. Interestingly, if you take a longer-term perspective on M2, if we had rebased for the last two years, we would be just about where we are now. In other words, the undershoot of last year just about compensates for the overshoot of the prior year. So, I would not rebase in 1988 for those reasons.",636
-fomc-corpus,1988,I forgot to say that I wouldn't rebase either. Sorry to interrupt.,15
-fomc-corpus,1988,If we had rebased back to 1984 we'd still be in the cone.,17
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,The Kohn cone too.,6
-fomc-corpus,1988,Kohn's cone. President Hoskins.,9
-fomc-corpus,1988,"I think the long-term targeting process is really your chance, and our chance, to make a more clear statement about what we think we can control over time. I think over time we can control nominal variables and not real variables. And I think what we want to signal to the markets and the public is this commitment to bring on price stability. I think you do that by continuing to march the aggregate ranges down. In that context, I think we should have some fairly firm statements about our consensus on inflation, and I'd prefer to see some time horizon attached to that price stability goal. In terms of the specific targets this time, I would want to choose alternative III, if not even slightly lower than that. I think, as the staff correctly points out, the forecast will fit any of these ranges. And I think, as Ed indicated, this will send the right message to our public. In terms of the rebasing issue, it's an old one that has come up many times before in terms of base drift. At least eight years ago we chose, at that time, not to adjust our misses. Ed was indicating that it seemed to be somewhat random; in those days, it seemed to be biased in one direction. I think if we are going to want to adjust for base drift, then we ought to do it in a consistent fashion. That would mean something like picking the midpoint of the target range every year and starting the base over again--starting the cone from that midpoint regardless of where we came out. I'm not recommending that. I guess I'd just as soon go with the randomness in our misses and start from scratch each time. But I would not move the base around. My last point is that I would concur with Jerry that we ought to put M1 into a monitoring range; but--and this may be premature to our later discussion--I'd also toss the monetary base in there as a monitoring range.",386
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Without going back over yesterday's conversation, it does seem to me that it's important to remember that the economic record over the past few years, and that certainly includes the last year, has been pretty good. And I think the outlook for this year is also positive. In terms of the risks, they're about equal on the upside and the downside. And I think we have a very good shot at coming in about on the forecast. The risks, as I see them and as I suggested yesterday, really are more on the inflationary front; I do sense some buildup of the inflationary pressure. In addressing the aggregates question, I think it's important to bear that in mind. Now, despite Don's very articulate and, I think, clear explanation of the opportunities this year with regard to the aggregates, I think we are continuing in a period of reasonable uncertainty and it's terribly difficult to forecast just how this is going to come out. Therefore, I think we ought to try and establish ranges that deal with those very tough uncertainties. If I were to choose one of these specific alternatives, I would choose alternative III, largely for the reasons that have already been said. But I must say, given the uncertainty, I'd have a preference for the 4 to 8 percent range that Bob Forrestal suggested. I think it does provide for the uncertainties and also deals with the consistency of our message of trying to achieve price stability. So, I'd have a preference for 4 to 8 percent but certainly could be persuaded to accept alternative III. I would not establish a monitoring range for Ml; I think the uncertainty there is still too high to do that. And I would not be in favor of rebasing either. I think if we begin to move the base around to suit our requirements, that's a rather awkward message; I'd not be in favor of rebasing.",372
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Thank you, Mr. Chairman. I guess, like a couple of others who have sat around this table too long, I'm maybe getting jaded. Let me first say that setting ranges is legally necessary to have some constraining effect on the Committee and monetary policy. Therefore, I accept that as being something very good. But listening to the discussion around the table brings to mind what I believe was a statement in the Bluebook: that the staff forecast falls in any one of these three [alternatives]. You're talking about a difference of 1/2 of a percentage point in the midpoint from one to the other. And it's minutia. The fact of the matter is that any one of them will fit. So, I think Ed Boehne is right. As the Bard said, ""all the world's a stage"" and I think that's what we're doing here today. That is, [the issue] is what kind of message you give as you testify regarding the intention of the Federal Reserve in the period ahead with respect to economic growth and inflation. My own view is that since we already established alternative II in July, we probably don't know much more about what's ahead now than we did in July with respect to a decision on these aggregate ranges. Going on a holiday as Jerry suggested, or at least the Federal Reserve doing nothing very dramatic, seems to me to be a very good thing to happen in the period ahead. I would reestablish the ranges of alternative II; I think you can do anything you want to with them. I think they serve the purpose; and the message that you give in testimony is the more important one. I would not rebase; we've been through that many, many times in the past with a great deal of consternation by Congress and others about what they thought we were rebasing. And I don't think we ought to get into that kind of controversy. As a result, I could accept the widening of the range to 4 to 8 percent; but to avoid any ripples I'd do 5 to 8 percent--alternative II straight down the line.",424
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"Well, Mr. Chairman my speech was just made basically by Roger and others. I would favor alternative II--not the substance but the appearance of it--and hope we make the best translation from the substance. It does reflect a march down--maybe not at the pace some would argue for--but it's a half a point less than what we had for 1987, and it's consistent with our direction in reducing the ranges, at least. If you go to alternative III, as Tom Melzer said, I wonder if that's not a bit of a conflicting signal versus what we generally are perceived to be doing, which might lead to some confusion. Alternative II permits us, I think, to do whatever it is that we need to do. And it would reflect, to me at least, a continuing commitment to guarding against inflation. So, I would stay just where we put it tentatively. I would not rebase either.",187
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Thank you, Mr. Chairman. I was impressed with what Gary Stern said a while ago: that whatever tilt we may make in the short run--and we'll discuss that a little later--it's important to keep our eye on inflation in the longer run. And I think that that's the message we want to project. That being the case, I can be very comfortable with alternative III. I would like to see us maintain as much discipline as we can to hold our own feet to the fire and stay within whatever ranges we set. Of course, we have to have the capability of going outside the ranges if that's appropriate. Part of my reasoning is that I would like to see us stay within whatever ranges we set and, if we're going to make a serious effort to do that, then I like the idea of being a little on the lower side with a 4-1/2 percent low instead of the 5 percent low. Apparently this argument about rebasing has been around for a while--it's new to me being new to this sort of consideration--but I must say that it makes a lot of sense to me. I don't know what formal work has been done on that issue in years past, but I would urge that at least we review it and seriously consider it. I'd be a little leery of doing it ad hoc right here at the table without some further consideration, but I am impressed with the force of that argument, and I'd like to see it pursued a little. I would agree that we have fought the battle of getting away from trying to be forced into projecting M1; we don't have to do it and I think there is still so much variability there that we should not go back to doing it. So, the sum of this is that I would go with alternative number III.",363
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I don't feel that strongly about any of these particular ranges. I feel a little like Roger Guffey and others who have spoken on this issue. However, I think there are signal issues, credibility points, that have to be made. I do think, if we're going to be credible on our view of the long-term inflation picture, that through the midpoint of whatever range we establish for M2--I say M2 because I prefer not setting a monitoring range for M1, given my view that it has too many problems--we have to demonstrate that we are moving towards price stability, or a nominal GNP that's consistent with price stability. So I am in favor of continually ratcheting down that midpoint. It seems to me that the fact that we even establish a range means that we are trying to embody the uncertainties, in terms of all the things that can affect the aggregate; otherwise, we'd just have a line. And so the ranges have to be somewhat credible to encompass what we think are the uncertainties. And if we fall outside those ranges, it means that we weren't even certain about the uncertainties. And that creates some problems. My own personal view is that to encompass all the uncertainties we have to have a range that's wider than any that are here. And I think that gives us a political credibility problem, to some extent, in their presentation. I'm not really against the narrow range, even though I don't think it embodies all the uncertainties that we could face. We would look kind of silly announcing a range that admitted the uncertainty that I think we are really faced with. So I guess I don't really mind whether we have alternative II or alternative III; I'm sort of indifferent [between the two]. I guess if I were going to be honest with myself, alternative II would be a little better; it allows a wider range and ratchets down the middle from last year. But I'm comfortable with alternative III; I wouldn't resist that. On the basing issue, there are some implications from the base. I think Governor Heller and Governor Angell made some important points. But I think all of this can be handled in the language of the testimony and how we present this. If we don't handle it carefully, we could give the message that the short-term implication of our target range setting is a tightening of policy. That could conflict with what we might be trying to do in the short run and create some confusion. So, it seems to me that if we're going to go with alternative III, we have to be very careful about how we explain it when the Chairman testifies on this, because there could be some confusion about what we're actually doing in the short term and what this target might imply. So I think the basing issue is important. I think what Governors Heller and Angell pointed out is that we could take care of some of those concerns by rebasing. I think you could also take care of those concerns with the right kind of language in the presentation. I don't really have any strong preference for either, as long as we take care of it. I think probably it's better to handle it in the language rather than to try and explain a rebasing--although I have some sentiment for maybe trying to normalize those last two months of the fourth quarter, November and December, which none of us can explain very well, and building the base off of some more normalized trend pattern in the fourth quarter rather than letting those last two months so affect the average. But I don't feel that strongly; we can easily explain that in the presentation. I think one way that you do that is by these tunnels that are built around the cone at the beginning of the year. You've got these dotted lines that look like parallel lines building off of the cone, so that we are even saying we are not taking the Kohn cone too seriously at the beginning of the year--that's why we have these parallel lines because there can be some variation early. I guess that can all be fit into the language. And as long as we do that, I'm comfortable.",817
-fomc-corpus,1988,Because of November to December?,6
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"Last July I dissented when a proposal was made to cut the ranges back by a half [percentage point], not because I didn't want them cut, but because I thought we were firing our ammo too soon. I felt that if we kept them the same, 5-1/2 to 8-1/2 percent, then we'd get a crack at them now, when we could do what was appropriate in the context of this period. I think that was the appropriate way to go and, consequently, I am willing to go with a cut now, down to what's being called alternative II, I believe. But I would like to go with a wider band, in keeping with what I said to Don Kohn about the uncertainties. I just think that we are misleading people when we suggest that we can get it within a 3-point range. If I thought we could, that's one thing; but at least many times we can't. So, I would go along with Messrs. Forrestal and Melzer: alternative II, with maybe a 4 to 8 percent range for M2 but staying with 5 to 8 percent for M3, so as to phase this in. I still believe that the risk is on the downside. Also, I think there are people out in the real world who think there are some downside risks and [this Committee] ought to be really, really concerned about doing anything with these ranges--even though, admittedly, they're longer-term ranges. It would send a message to business people or money market or capital market participants that suggests a tightening. Even though they might be reading it wrong, I would hate to have that happen, because right now I think that the mood is that we are easing. I was just reading some money market commentary this morning and they think the Fed eased yesterday when the fed funds rate went to 6-1/4 percent. If we send out a message when the Chairman testifies next week that we are tightening, I'd like to crawl into a fox hole, because I don't want to be around when the flak flies. Anyway, that's sort of where I'm coming from in general. On the rebasing, I've been in favor of rebasing all along. In keeping with Mr. Kelley's comments, I think we really ought to look at this. And if we go to rebasing, we should do it come hell or high water, good times and bad--stick with it and not send the message that if it suits us we'll rebase, and if it doesn't we won't. I think this is the time, though--and the chart here shows it--that it would make a significant difference whether we go with an average of where we thought we were going to be in the fourth quarter or where we actually were. Also, if you don't rebase and then go to the lower ranges specified in alternative III, I think that could really give us problems. On the monitoring question, I don't have a strong view on that; if you want to monitor M1 that's fine; if you don't that's okay with me too.",627
-fomc-corpus,1988,"One thing about this meeting which I think is pretty important is that we have to find the mechanism by which we are perceived to be in a general consensus. The reason I say that is that it's fairly obvious that the Administration is beginning to wind down. There are elections coming up and we are turning out to be the only people who are minding the store. The one thing I would particularly like, if we could find a way to do it this time, is to find a way in which we can accommodate each other in a manner in which we can speak with a single voice. I don't know whether or not that's going to be feasible, listening to what I've been hearing. And it's certainly a problem when one is dealing concurrently with the issues of both short-term monetary policy and intermediate- or long-term basing questions. In my mind, when I look at this particular outlook, as I sort of indicated in my views yesterday, it's very difficult to find the inventory weakness, or inventory recession, out there. The reason, essentially, is that if we actually had meaningful inventory overhang, we'd already see it in the order books. It just strikes me as not the way the system functions--to have order books under strain and concurrently have a notion that there is an inventory overhang. Every inventory recession that I've ever experienced--and I've seen an awful lot of them--was signaled first in the order books before anything else. This tells me, at least, that whatever the problems are out there, that's not one of them. However, I must say that I pretty much agree with what Jerry Corrigan has been saying--namely, that if there is a problem out there, it's in the financial area. And I must say to you that I'm bothered by this. We had a major shock in October and we seem to have temporarily come out of it. But the stock market, by anybody's measure, is not low; it's hanging up there. While a lot of the yield spread abnormalities have come down, it is still a very unstable situation. What's concerning me is that there is a vulnerability out there which is continuing to heal but is not healed yet. And I'm basically concerned, in a way which in fact Governor Seger raised, that if we were to indicate that we were tightening, the shock to the markets I think would break the stock market and create some real problems. Yet one can easily argue that we can break the market by being too easy or too tight. I think it is a very narrow cone--spelled ""c-o-n-e""--that we are going through at the moment. And the impression I get is that the markets, at this particular stage, are taking the little softness we have imparted with a good deal of equanimity. Bond markets have been behaving well; the exchange rates have been behaving surprisingly well; and there is a sense in which the markets are willing to accept somewhat lower real rates at this stage; and I think they may for a while. The other side of the problem is that if we are not dealing with any particular slowdown here, then the question largely is what then begins to emerge. And I suspect that what we have is a very tough policy problem, because I think there are short-term risks in the sense that I think the markets need more time for healing--meaning they need some general softness in the short end of the money market. But it's fairly apparent also, if the general views around this table are correct about the longer term--and I must say, I subscribe pretty much to what everyone has been saying about fears of inflation--that we have to make certain that, if we choose to be a little accommodative in the short run, we don't send the message that that's our longer-term view. The message question is the real issue; because if anyone can tell me that the monetary aggregates are locked in a very sensible way into the economy--it requires a great deal of finesse and I will [unintelligible] it. There has been more data mining with the monetary aggregates in the last two years than I've seen with any other set of data in my whole life. And whenever you get to that, you know that there's nothing there. We can expand away or we can contract, but I don't think it matters. As a number of you mentioned --I think Ed did--it doesn't really matter. I think the crucial question, during this particular period for the Federal Reserve System, is to communicate to the markets what our philosophy of the outlook is and basically how we should function. So I must say, and we'll get to this I assume a little later, I would be more inclined to be somewhat more accommodative in the short run--in a sense picking up what seems to be the desire, if not the willingness, of the markets to perceive a somewhat lower rate structure here, even if only at the margin. But we need to be very careful that that is not extended in anybody's mind to a point where they will figure that we are not minding the store. As a consequence of all of this, what I would like to do, and I'm not sure we can effectively do it, is to hear everybody's short-term views before we actually vote on the target ranges, because I suspect we can't really separate these two positions. They're part of a single monetary philosophy package and I'm not sure that independent votes on one and then the other essentially capture the type of consensus which I hope we may be able to marshal. So, having said that, I guess we could take a break now and then get to the short-term discussion. And then what I'd like to do is see if we can find a way--if not by voting in a single package, then some way other way--that we could agree that none of us is [totally] comfortable with the end result but all of us, or most of us, hopefully, can at least feel as though it's accommodatable. Having said that, I think the doughnuts are there. Are they there? The problem is they're not; we have to try to filibuster for 10 more minutes.",1240
-fomc-corpus,1988,I could filibuster for you.,8
-fomc-corpus,1988,You can filibuster.,6
-fomc-corpus,1988,"Or you can have the Managers' reports, as Peter and Sam just pointed out.",17
-fomc-corpus,1988,"That's not a filibuster, that's substance.",10
-fomc-corpus,1988,This is only substance--,5
-fomc-corpus,1988,What's wrong with a longer-than-usual coffee break?,11
-fomc-corpus,1988,The major problem is that the coffee hasn't arrived.,10
-fomc-corpus,1988,"Well, there are other things to do out there.",11
-fomc-corpus,1988,You mean you've had a lot of coffee this morning.,11
-fomc-corpus,1988,The reason--,3
-fomc-corpus,1988,"I think you have, and as a result, I think we will adjourn on that note.",20
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Would somebody like to move the ratification of the Manager's transactions?,14
-fomc-corpus,1988,I'll move it.,4
-fomc-corpus,1988,I'll move.,3
-fomc-corpus,1988,Approved without objection. Mr. Sternlight.,9
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"Thank you. I'm sort of working this in reverse, but let me ask for a motion to ratify Peter Sternlight's transactions and then I'll ask for questions of both.",35
-fomc-corpus,1988,I will move that.,5
-fomc-corpus,1988,I will second.,4
-fomc-corpus,1988,[Approved without objection.] Are there any questions for either of our Managers?,15
-fomc-corpus,1988,I'd like to know what the procedure is for formally changing the borrowings target.,16
-fomc-corpus,1988,"Well, on this occasion, there were discussions that I had with the Chairman and the Vice Chairman of the Board. And there's a kind of continuing dialogue I have with Mr. Kohn or whoever is sitting in his chair--he happened to be away during some of the time we were having these discussions. But it came out of discussions and communications between our domestic Desk and the Chairman, essentially.",79
-fomc-corpus,1988,"Peter, did I understand you correctly? In the early part of your report I believe you said that the continued sensitivity in approaching open market operations most recently was largely due to the shift in policy and the uncertainties that surrounded that, not to any other factors.",51
-fomc-corpus,1988,"I said we were getting away from that great sensitivity and moving toward the borrowing objective, as January proceeded.",21
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"I think that there had to be some moving back from that approach when we were putting in place this slightly easier stance, just to put across the fact that that modification of the stance was occurring.",39
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Sam, what kind of trade number is the market looking for on Friday? Have you heard any possibility?",21
-fomc-corpus,1988,"Well, they're talking about $13-1/2 billion. They probably have very little basis for knowing, just like everybody else; but the fact remains that they tend to get these numbers in their minds, and if it comes out better or worse than their expectations, it has an effect. That's the latest commentary, although it has varied from yesterday when we were hearing numbers anywhere from $11 billion to $14 billion or more. Then Mr. Yeutter made some comments yesterday, which seemed to have taken a little of the bloom off the rose, that it's on the low side. And so, today, they seem to be talking about levels of around $13-1/2 billion.",140
-fomc-corpus,1988,The Money Market Services range is $11 to $16 billion in the survey they do.,18
-fomc-corpus,1988,I saw that.,4
-fomc-corpus,1988,"Well, the higher the expectation, the better.",10
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Yes. Accordingly, we haven't been hearing as many high numbers as I would like to hear.",19
-fomc-corpus,1988,$13-1/2 billion seems to be low.,12
-fomc-corpus,1988,"Any other questions for either of the Managers? I'm sorry, Governor Angell.",16
-fomc-corpus,1988,"Peter, I guess it seems to me that there's some appearance at the Desk that when we need to drain [reserves] and we are perceived to need to drain, we are still somewhat more interest rate sensitive about draining earlier in the period. It seems to me that's conveying to the market that we still continue to have a more narrow interest rate tolerance. Would you comment on that?",77
-fomc-corpus,1988,"Well, as I mentioned, in this period when we needed to drain--which was also coming when we were putting in place this slightly more accommodative stance--we proceeded in what I call a gingerly manner, sometimes deferring for a day or so the actual draining operations, waiting to see more evidence of the availability of the reserves that we thought were there before going in to mop them up.",80
-fomc-corpus,1988,"I guess it would seem to me that when we had that change from $300 million to $250 million, that would have given a little more opportunity for us to make another step towards more emphasis upon the borrowing target and a little less concern about interest rates. That didn't seem to show through to me; and I think it didn't show through to a lot of the marketplace.",75
-fomc-corpus,1988,"Part of that was because borrowing was averaging about $150 million, as Peter said. It was hard for it to show through.",26
-fomc-corpus,1988,"Well, I understand that. But we knew earlier in the period that we needed to drain, and it seemed to me we didn't drain because of the fed funds rate. It seems to me that that continues to have the market's attention and that doesn't seem quite in keeping with what I understood we were expecting to do on that as we ended out this intermeeting period. I thought, as we got away from the first of the year, we had thought that adjustment process--",95
-fomc-corpus,1988,"You know, you're talking about a $50 million difference. When you're draining a huge amount, with expectations that the appropriate amount is in a range that is much larger than anything remotely near the total borrowing requirement, it's a very tough operational procedure to conduct.",51
-fomc-corpus,1988,"I know, but I'm concerned that the markets may exaggerate what it is that we have done--that there might appear to be a slight tightening. Interest rates may be running a little lower this week than we would expect, midpointwise, because of that surplus; and it seems to me that we now run the risk of having people think we have snugged back up after this meeting, which I think is unfortunate.",84
-fomc-corpus,1988,"Yes, I would suspect that [such a reaction] probably has become a likely prospect.",18
-fomc-corpus,1988,"Well, I just want to indicate some slight difference [of opinion] with regard to how that was done.",22
-fomc-corpus,1988,"Well, you didn't get much of a bond market response to the 6-1/4 percent fed funds rate yesterday.",25
-fomc-corpus,1988,"It was well acknowledged that there was a wire problem, wasn't it? I saw a couple of reports about a wire problem.",25
-fomc-corpus,1988,The procedures for the commentary on--,7
-fomc-corpus,1988,Because the funds rate actually got down to 4 percent.,12
-fomc-corpus,1988,There was a big range of trading yesterday. And in the morning yesterday we did go in and drain a lot of reserves; we took out $5 billion.,32
-fomc-corpus,1988,I know. It's so late in the period.,10
-fomc-corpus,1988,Right. It was late in the period.,9
-fomc-corpus,1988,What I'm saying is we waited so late in the period.,12
-fomc-corpus,1988,Right. Funds softened afterwards and they got as low as 1 percent late in the day yesterday. I don't yet have the effective rate but I think it was around 6 percent. I didn't see any reference to wire problems.,46
-fomc-corpus,1988,You didn't? I thought there were references but I'm--,11
-fomc-corpus,1988,"Maybe I just didn't see it. Today funds are again around 6 percent or a shade under. We're going to be draining some additional reserves. For one thing, it has been very hard to evaluate the demand for excess reserves, which we think is high in this period, although we're not sure from day-to-day just how high. Also, we are getting daily revisions in the amount of required reserves. It has just been a difficult period to operate in. But I readily acknowledge that we projected a draining job but were hesitant in meeting it because we wanted to let some of that softening show through. But, wanting something to show through, you always run the risk that more shows than you want to have show. I don't see any way to avoid it; there are some risks on both sides of that coin.",164
-fomc-corpus,1988,"But I think the key here is that the markets did not react to that. I think that's the crucial question. If they had, then I think you would have had a problem. I watched that all day long; the exchange rate was absolutely solid and the bond market was hardly moving. It was as though they were off on vacation. So the markets didn't take any view of that, as far as I could see. Any further questions to the Managers?",92
-fomc-corpus,1988,"I just want to pick up on what I thought was a very important comment Peter made in the middle of his remarks about the search for this elusive mechanism in relationship that's going to make everybody happy every day. That's just not going to happen. Just to take a piece of it: On a slow day, the federal funds market turns over $400 or $500 billion. The list of various things that could introduce slippage and errors into those relationships is vast.",92
-fomc-corpus,1988,"You hit on the key point, Jerry, which is errors and slippage--and that's what causes the variations.",23
-fomc-corpus,1988,But you can't have a monetary policy that is so fine-tuned that it attempts to overcome every one of those dozens of things that can take place in the market.,33
-fomc-corpus,1988,"Well, you can overcome those things; it depends on what your objective is.",16
-fomc-corpus,1988,I don't think you can overcome them no matter what your objective is.,14
-fomc-corpus,1988,"Yes, I think you could reduce the range substantially.",11
-fomc-corpus,1988,The range of what?,5
-fomc-corpus,1988,"Well, it depends on what your objective is. If your objective is a borrowing number--",18
-fomc-corpus,1988,I don't care what your objective is.,8
-fomc-corpus,1988,"Well,--",2
-fomc-corpus,1988,If your objective is the federal funds rate--,9
-fomc-corpus,1988,"Oh, there's no doubt that that range could be reduced substantially.",13
-fomc-corpus,1988,"Jerry, if your objective is the federal funds rate--",11
-fomc-corpus,1988,Mine isn't.,3
-fomc-corpus,1988,"I know; mine isn't either. But if it is, I think you can pinpoint it, if that's your objective.",24
-fomc-corpus,1988,I don't.,3
-fomc-corpus,1988,My goodness! We sure did in the '70s.,12
-fomc-corpus,1988,"Again, those were different days. Just take the computer problems and the frequency with which they occur. I guarantee you that that alone is an important source of day-to-day variability in the federal funds rate.",41
-fomc-corpus,1988,"Well, Jerry, I just don't understand. If the Desk has the message that it's below, buy and sell fed funds.",25
-fomc-corpus,1988,It depends what time the computers go down.,9
-fomc-corpus,1988,"No, I'm saying if the Desk has the objective of buying and selling 1/8th of a point off of the fed funds target, that's going to be realized.",35
-fomc-corpus,1988,That means--,3
-fomc-corpus,1988,"Now, I don't agree with wanting to do that; I'm just saying I agree with Manley that it can be done.",25
-fomc-corpus,1988,I don't think you can do it.,8
-fomc-corpus,1988,It just depends on--,5
-fomc-corpus,1988,"Heavens, I haven't heard this conversation since Economics 101!",13
-fomc-corpus,1988,"That's about what it is, too.",8
-fomc-corpus,1988,Peter is very quiet.,5
-fomc-corpus,1988,Mr. Chairman--,4
-fomc-corpus,1988,Let Jerry finish.,4
-fomc-corpus,1988,I really don't think it is desirable or possible to build that kind of precision into the day-to-day conduct of monetary policy.,25
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mr. Chairman, with regard to Lee Hoskins' question about changing the borrowing target--I don't want to focus on whether or not reducing the target $50 million was right or not right for the long-run best interests of the economy--but I am concerned that it was done in such a way that it did not take into consideration the decision made by this Committee and the directive that was issued [when the Committee consulted in early January]. There are four kinds of developments in that directive that permit you [as Chairman] to move the borrowing target and I think that decision is left principally in your hands. I think there was no evidence--at least it certainly wasn't clear in Kansas City that there was incoming evidence from the fourth-quarter numbers, for example--for the borrowing target to be adjusted down $50 million for the next two-week period. It seems to me that decision was outside the confines of the directive itself. I raise this without trying to make any other issue out of it. But it seems to me it is an important issue that we have to keep in mind.",216
-fomc-corpus,1988,"Yes, I'm responsible; and let me tell you my reasons and why I thought it was within the scope of the directive. First of all, there was increasing evidence from the initial claims figures that the economy was slowing down very dramatically. And this was subsequently confirmed by the January unemployment data. Secondly, and of considerable significance, was increasing evidence that the exchange rate was being stabilized. Thirdly, the markets were coming down on their own at that particular time--clearly trying to seek a somewhat lower market rate level. The combination of those three factors, coupled with the nature of the directive, made it important in my judgment that we move in a somewhat marginal direction. The issue was discussed as to whether or not an FOMC telephone meeting should be called under those conditions. The general judgment was that it was not appropriate. The issue was raised. If there is any sensitivity in this group that in the future we should--if that is communicated--I think it would be incumbent upon us to, in fact, go to a telephone conference. It was a close call. And if it's the consensus of this group that in the future we should, then I'd find it, as a result of your request, [appropriate] to do so.",250
-fomc-corpus,1988,"In my view, it's particularly important, given the background of the political pressure that had come from the Treasury people and so forth, that such a decision be a broader-based decision. I understand the flexibility that you must have, Mr. Chairman, and that the Desk must have. This is a structural issue and I only want to raise it.",69
-fomc-corpus,1988,"Yes, I appreciate that. And I must tell you that I resented those calls that were being made by the Treasury and I told them. And I must tell you that the Secretary of the Treasury was very upset when he heard about them and did not like them. I communicated in a manner which I hope will shut that nuisance off, because I thought it was most inappropriate. And I can't believe the insensitivity of the people involved in doing what they were doing. That's the reason I asked you earlier on, by all means, to let me know if we failed to shut the valve down. I'll just have to use a sledge hammer. Any other questions to the Managers? If not, then, Mr. Kohn.",147
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"Thank you, Mr. Kohn. Questions for Mr. Kohn?",15
-fomc-corpus,1988,"Don, I didn't see any mention of your borrowing targets under any of these alternatives [in the Bluebook].",22
-fomc-corpus,1988,"In the first paragraph on page 13, under the short-run alternatives, we associated alternative B with $250 million and with funds trading of 6-1/2 to 6-3/4 percent--around the range we expected them to have been trading in the last week.",58
-fomc-corpus,1988,"I'm sorry, I remember having seen that. I was just looking for it in a different place and couldn't find it.",24
-fomc-corpus,1988,We changed the place this time; maybe that will--,11
-fomc-corpus,1988,That threw me off.,5
-fomc-corpus,1988,Originality doesn't always pay off.,7
-fomc-corpus,1988,"And I've even got it underlined so I have no excuse for not having remembered exactly what you had. I thought that's probably what it was, but I just wanted to make sure.",37
-fomc-corpus,1988,"Should we be paying any attention to the structure of rates? It seems to me that the long rates have dropped dramatically in the last couple of months, as have private short-term rates. The fed funds rate has dropped a bit, but it certainly hasn't kept up with the others. And, of course, the discount rate has remained stuck. Should we be looking at this as a factor or condition?",80
-fomc-corpus,1988,"I'd make a couple of points on that. One is that the drop in private short-term rates, particularly since the last FOMC meeting, very importantly reflected the passing of the year-end pressures. We had a huge decline in those rates in the first week of January and I don't think that had anything to do with the economy or monetary policy or expectations or anything like that.",76
-fomc-corpus,1988,"How about going back, though, to the October--",11
-fomc-corpus,1988,"I think that the decline in bond yields does reflect a weaker outlook for the economy and expectations that interest rates will not be rising as much as people previously thought over the coming year. But, as I remarked in my briefing, the yield curve still is really pretty flat. I think there is an expectation that we will be easing perhaps even further in the very near term, but there is something of an upward slope beyond that. When you get out a little, it does slope upward a bit; and I think that reflects expectations that there is enough strength in the economy that we won't be seeing declining rates. We don't have a classic situation--a sharp downward slope in the yield curve and tight monetary policy, or anything like that. It still has an upward sort of curve. I look at those things as an indication, at least, of what the market is thinking and what they're expecting. Then you can measure that against our expectations. President Keehn's Bank published an article on indicators of monetary policy, which shows that spread, I think, as an important indicator--",214
-fomc-corpus,1988,[Unintelligible] spread has edged up in this period. That's just suggestive of some expectation in the market that the economy will turn flat.,31
-fomc-corpus,1988,I was really concentrating on the short-long kind of scenario.,12
-fomc-corpus,1988,"Yes. I mean they're, giving slightly different signals. Governor Kelley.",14
-fomc-corpus,1988,"May I come back, Don, just one second to Bob Black's question about just what alternative B means? On page 13 it does indeed say it's associated with borrowing of $250 million. On page 14, in paragraph 16, it says that ""Alternative B contemplates a continuation of reserve conditions now expected to prevail after the recent slight easing."" Now, when we get over to [the directive] language, which we're going to look at in just a minute, it says that alternative B ""would maintain the existing degree of pressure on reserve positions."" And I guess I would like to know how that would be defined. Would that be defined as the $250 million or would that be defined as what, in fact, has been happening here in recent days, more like $150 million to $200 million?",165
-fomc-corpus,1988,"Peter can give his views also, but I guess I would still be tempted to think that $250 million was more a center of gravity for this kind of funds rate range. But I would also be ready to adjust that informally, as Mr. Sternlight has done through the intermeeting period, if it looked like it was inconsistent with the Committee's expectations. I think one week, or even two weeks, of low borrowing is not necessarily indicative that the whole thing has slipped; but it's something that would have to be watched very carefully. So, if you started by writing down $250 million, and it persistently came in under that but was consistent with funds trading in the range you expected, we could take it down as a technical adjustment. But I'm not sure that we would have to do it right off.",165
-fomc-corpus,1988,"Then, if we were to say that we were going to maintain the existing degree of pressure, that wouldn't necessarily mean that we were going to, in fact, tighten from what we have been doing?",40
-fomc-corpus,1988,"Well, I think it means tightening in terms of the borrowing objective you write in the reserve path [relative to recent actual borrowing]. But I think that other sentence in there gives Mr. Sternlight the flexibility to fall short of that if market conditions dictate. Open market operations should not produce that effect.",60
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I was surprised that the implication of alternative A is that it could be implemented solely through open market operations. In other words, it has a borrowing assumption of $100 million--I guess I had in my mind that frictional borrowing was somewhat higher than that.",52
-fomc-corpus,1988,"Well, so did I until recent weeks when it has been coming in lower. I think it's a close call, President Melzer. We have seen, as people have pointed out, in the last few days some periods in which the funds rate has been fairly close to the discount rate. Often that gives rise to an expectation that the discount rate is going to be reduced; and often those periods are periods in which a discount rate reduction is a step away. But I guess the idea of the $100 million was to suggest that it probably is possible to get the funds rate down to just a tick above the discount rate using open market operations. Whether that sets into motion expectations about the discount rate I think is another question; and whether a $100 million borrowing is what you would do it with or not, I don't know. But it does get tricky in this area. I agree that it's an important question.",183
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,Is it time for comments? I don't have any questions.,12
-fomc-corpus,1988,"No, still questions. Questions?",7
-fomc-corpus,1988,"Don, as I read the write-up, alternative A would accommodate a discount rate reduction. My question is, technically, would alternative B accommodate a discount rate reduction?",33
-fomc-corpus,1988,"Well, it would depend on a combination. Alternative B implies funds trading in a 6-1/2 to 6-3/4 percent area, in terms of the money forecast. If you were to reduce the discount rate, presumably that would take funds down with it, and that would be more like alternative A.",66
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"My question has been answered, or at least an answer was attempted.",14
-fomc-corpus,1988,You want to identify it? It wasn't on the agenda.,12
-fomc-corpus,1988,"I think it was the alternative A, $100 million--",12
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Don, if I follow my earlier desire to somehow or other ignore the November and December artificially low figures--looking at the table on page 14 [of the Bluebook], there are growth rates from November to March and December to March. If I calculate a growth rate from October to March--I've been doing it here on the back of the envelope--is 5.7 percent about right for alternative A and 5.4 percent for alternative B?",92
-fomc-corpus,1988,I don't know--you're talking about M2?,10
-fomc-corpus,1988,M2.,3
-fomc-corpus,1988,"Yes; it's the right direction. It would be something lower than the 6-1/2 percent and 7 percent for the [November to March period], and it sounds approximately correct but--",40
-fomc-corpus,1988,"Any more questions? If not, let's go to comments. President Parry.",16
-fomc-corpus,1988,"Mr. Chairman, our analysis and that in the Greenbook suggest to me that policy should not be eased beyond the actions taken two weeks ago. The sharp slowdown during this half of the year is related to the inventory buildup and should be corrected by midyear. A further rate decline wouldn't have much effect on this correction, and it actually would primarily impact the second half of the year when the economy is really expected to bounce back. Moreover, if I accepted the much smaller inventory pattern of the staff's forecast and the statement I guess that you made yesterday that the inventory correction could be even less than that expected by the Board's staff, it would seem to me that any further easing at this point could be something of a mistake. Also--",148
-fomc-corpus,1988,Unless you're using it for something else.,8
-fomc-corpus,1988,Excuse me?,4
-fomc-corpus,1988,Unless you're using it for insurance.,7
-fomc-corpus,1988,"Perhaps. Also, a growth rate of 2 percent or slightly higher in 1988 as a whole is acceptable, in my view, given the rapid growth of the economy last year and also given that the economy has entered the range of full employment. Therefore, I'd favor alternative B. Of course, if greater weakness did begin to show up in the statistics, we could always make a change toward an easier policy before the next regular meeting.",89
-fomc-corpus,1988,Maybe not.,3
-fomc-corpus,1988,Do you have a borrowing assumption? What number do you indicate?,13
-fomc-corpus,1988,$250 million.,4
-fomc-corpus,1988,$250 million. Governor Johnson.,7
-fomc-corpus,1988,Let me ask: Are we just concentrating on the short-term issue or are we going to try to combine the whole thing at this point in the comments?,31
-fomc-corpus,1988,"You know, that's a good question. Bob, would you reiterate in that context your longer-run targets as well?",24
-fomc-corpus,1988,"Right. I was in favor of alternative B in the short term; and then for the long term, 4-1/2 to 7-1/2 percent, which is, I think, alternative III.",45
-fomc-corpus,1988,"My view is that we have to be very careful in terms of the short-term direction of policy. It's clear to me, having just come back from the BIS meeting, that the international situation would be too sensitive to [want to] trigger a discount rate reduction. I think there's a much larger international implication from a move like that--not to say that forces which might require such a move might not develop over the next few weeks, if things looked more serious than what we anticipate. I think under more serious economic conditions the international community could probably absorb something like that. But right now we certainly don't have enough information, I think, to imply that. I think also that we have to be sensitive to the international situation when we consider the short-term course of policy. So, my views, in terms of open market operations in the short run, don't imply a move on the discount rate unless some future developments point towards more weakening. But when I say that, I still think that some slight tone of easing is necessary. But I think that can be done without creating the expectation of a discount rate reduction, mainly because I think that the markets perceive that we are sensitive to the international situation and that we have been sensitive to the dollar. And as a matter of fact, I've already seen a number of reports indicating that the Fed would not be likely to trigger a discount rate reduction because of international considerations. And I think that's sort of the right tone in the market. At the same time, it seems to me the market already has absorbed quite well--as the Chairman and others have pointed out--some expectations of a modest easing. What they've actually absorbed is not totally clear yet, because there's still a bit of uncertainty as to where we are. But I guess my preference is somewhere in between ""B"" and ""A"", although closer to ""B"". What I'm thinking is that I would prefer something centered around a policy consistent with a 6-1/2 percent funds rate, maybe even a hint lower than that. Alternative B is associated with $250 million of borrowing; I guess I could accept $200 million of borrowing as something consistent with my view, although I'm not very confident in the borrowing number as projecting what I want. I could accept the $200 million number, given that Don has described open market operations in the Bluebook as somewhat sensitive between the borrowing number and money market conditions, and that seems appropriate to me. So, I guess that's where I come out on the short run--trying to avoid the implication of a discount rate reduction, although it may not be totally possible to do that. Given a move like I'm suggesting, which is only just a slight move away from where we already are, I'm not even sure the markets would know the difference from where we already are and what I'm suggesting, because things haven't totally settled. So I would go with something like a $200 million borrowing number, which is a tad below what is described as ""B"", with the kind of language on operations that Don implied in the Bluebook. In terms of the long run, as I said, I really don't have much of a preference between alternative II and alternative III, mainly because they're both centered on about the same point. But alternative II has a slightly wider range associated with it, which is a little more consistent with my view about the uncertainties in terms of an M2 target. I guess somebody else mentioned 4 to 8 percent instead of 5 to 8 percent, which is in alternative II, and that gets even closer to what I think is the right answer. So I guess my preference would be something like a 4 to 8 percent M2 target range and a $200 million borrowing number. And I think that somehow satisfies my concerns about the short term and the long term.",767
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I would prefer alternative B on the short run, with a $250 million borrowings target. Basically, my feeling is that there clearly has been a significant change in the thrust of policy, no matter how you want to look at it. Interest rates, in terms of fed funds, are down 100 basis points from where they were in late September-early October. And a dramatic shift now shows through, for a month anyway, in the growth of reserves and the monetary base. So I would say, let's let that work. I don't think any more easing is called for at this stage. Secondly, and I guess perhaps more importantly, we already decided to make a move back to more normal applications of the borrowings target and I think, as Governor Angell suggested, we ought to take advantage of these stable conditions and complete that move now. I understand what Peter said about the need to be sensitive in the short run--letting the policy change show through--and I think that is appropriate. But I think now we can move back and we ought to get that done. I really think that the markets had become quite accustomed to dealing with that, and the fluctuations you got in the funds rate tended to be on the last day of a two-week statement period. I just don't think that's a problem in terms of conditions. So I would move back to that now. I would indicate in the directive that we were doing that--I wouldn't have language in there in terms of continued flexibility. If there were agreement about that, we might even have to deal with that lead-in phrase ""taking account of conditions in financial markets"" on line 108. The other thing I would do in the directive is, in the lead-in I think we'd have to say maintain--or whatever we're going to do--maintain/increase/decrease ""the degree of pressure sought in recent days."" I think it should be worded in that fashion probably; to me that usually conveys that there has been an intermeeting movement. Finally, I take heart in the stability in the foreign exchange markets, as you do Mr. Chairman, and I think there is some significance to it. I take heart in that, but I don't want to do anything to test it. I think we ought to take it and be happy we got it, but not press our luck on testing it in any fashion.",479
-fomc-corpus,1988,"Can I ask a question about what you said in talking about going more strictly to the borrowing number? I just want to ask Peter: My understanding is that for the last few weeks borrowing has been averaging about $150 million; and I think the implication of what you're saying is that a continuation of that trend definitely implies a much higher funds rate, even in current conditions. I don't know if you want to clarify that.",84
-fomc-corpus,1988,"Well, I'm not sure I necessarily agree with that.",11
-fomc-corpus,1988,"Well, the borrowing has been about $150 million in the last two weeks and in the previous reserve period it was $175 million, I guess. But with the $150 million some [unintelligible] were weak.",46
-fomc-corpus,1988,"Well, the facts of the case are that the borrowing/funds rate relationship is not back to normal.",21
-fomc-corpus,1988,"I guess I can believe that there never will be such a thing as normal--where it's a totally stable, predictable, relationship. All I'm saying is that in some of these cases where we have missed, one of the reasons it might have run low--and I think this was said before--is that we have been unwilling to force it toward the end of the [reserve maintenance] period. And I'm just saying that a spike of a billion or two billion of borrowing on the last day of the two-week statement period generally is not going to be disruptive. My understanding is that $250 million is roughly consistent, even under present conditions, with a 6-1/2 to 6-3/4 percent funds rate. And I would be quite comfortable with that.",156
-fomc-corpus,1988,"You know, Tom, I'm only raising the point that it has not been kicking back and forth, but it has been persistently under--implying that there's still some disinclination to move to the discount window--a certain historic relationship with the funds rate/discount rate relationship. That's all I'm saying. I'm making a statistical point; you're raising an operational question.",75
-fomc-corpus,1988,"Well, you may be right. All it may mean is a big spike on the settlement date, Wednesday. But it still implies a significant funds rate spike on or around the settlement day; and the maintenance period average would be considerably above what we are used to. Maybe that wouldn't disrupt the market, but it will certainly change the tone of things.",70
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,What was his long-term?,6
-fomc-corpus,1988,Tom? Long-term?,5
-fomc-corpus,1988,"Oh! My long-term is alternative II, but I'd do 4 to 8 percent for M2.",22
-fomc-corpus,1988,Mr. Forrestal.,5
-fomc-corpus,1988,"For the short term, Mr. Chairman, I would prefer alternative B with a borrowing target of $250 million. Now I realize on the basis of this recent discussion that we have some operational problems; but we do have a target now of $250 million, associated with a funds rate of 6-1/2 percent, and that's where I'd leave that target. And I base that judgment on the forecast. I think we are in an environment of a sluggish first half and the forecast indicates acceleration in the second half of the year. I think the mistake we could make at the moment would be to overreact to that sluggishness now. There's not anything we can do about it anyway; and I think it would be a procyclical kind of policy stance if we were to overreact to the sluggishness now, which would show up in the second half. So I don't think that easing is called for. However, there are risks, as we all have indicated, and a lot of uncertainties. So, I would be extra vigilant and extra sensitive to changes in the economic situation. For that reason, I would prefer an asymmetric directive which would be biased towards ease if we see some continued weakening in the economy showing up in the second quarter and into the second half. So, I'd favor alternative B with borrowing of $250 million. For the long term, I continue to favor the 4 to 8 percent range for M2 that I indicated earlier, with a 5 to 8 percent range for M3.",308
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"As I said before, in contrast to many of the members, I don't feel that the second-half strength is a foregone conclusion. It's not in the bag and the risks are still there that it will not come about. As far as the short-term monetary growth is concerned, I see January mainly as a bounce-back after the very weak November and December numbers. If you take the number from October to March, as has been just supplied by Don Kohn, our current targets only imply 5-3/4 percent M2 growth under alternative A and only 5-1/2 percent growth under alternative B. So there would be very slow growth, indeed, compared at least with the numbers that we see in front of us here--the 8 percent number that's the implied growth [under alternative B] from December to March. So I see both ""A"" and ""B"" as pretty restrictive policies. I certainly would favor somewhere in between--I'd say right on the line between ""A"" and ""B""--with a borrowing target just as it exists right now, maintain continuing pressure. And following Peter Sternlight, I'd say continuing pressure is $150 million and the trading range for federal funds probably would then be 6-3/8 to 6-1/2 percent, broadly.",264
-fomc-corpus,1988,So you're saying $150 million borrowing assumption?,9
-fomc-corpus,1988,"Existing borrowing, existing pressure--so it would be $150 million.",14
-fomc-corpus,1988,"Well, let's make sure we are all talking about the same thing. Don interprets existing pressure as $250 million.",24
-fomc-corpus,1988,"Well, I interpret it--",6
-fomc-corpus,1988,With room for downward adjustments.,6
-fomc-corpus,1988,What?,2
-fomc-corpus,1988,With room for some downward adjustments if it looks like this weakness is persisting. But I wouldn't take the first 11 or 12 days of this maintenance period--,33
-fomc-corpus,1988,Don's language sort of says $250 million but with some room to adjust according to money market conditions. So--,23
-fomc-corpus,1988,"Well, I was going more with Peter Sternlight's number of $150 million. That's the actual number, and the actual pressure existing right now, and I want to maintain that actual pressure.",39
-fomc-corpus,1988,"Even if it means a lower funds rate, at some point, than what you're saying, 6-3/8 percent?",26
-fomc-corpus,1988,"Yes. If it goes down to 6-1/4 percent, that's fine.",18
-fomc-corpus,1988,What about long term?,5
-fomc-corpus,1988,"As I said earlier, I'm still in favor of rebasing, with a 4-1/2 to 7-1/2 percent range; or 4 to 8 percent is also fine with me. I really don't have a strong feeling on that as much as the rebasing.",60
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Mr. Chairman, I share the questions that are arising as to just where we are, but for the short term I am in favor of maintaining the existing degree of pressure, and I think that's alternative B. I also would share Tom's view that we ought to be moving back to a borrowings level, on a basis that's consistent with what Peter can produce; and, therefore, I'm leaning toward a borrowing level of $250 million. Of the three alternatives for the longer term, I'd be in favor of using the ranges stated in alternative III; but I would have a preference, as I said earlier, for a broader range of 4 to 8 percent. And I think that that broader range would be appropriate both for M2 and M3.",152
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"I favor alternative B with a $250 million borrowing, which I interpret as being essentially where we are now, after the recent easing. I would have a symmetrical directive. I also agree wholeheartedly with Manley on his views about the discount rate. It seems to me that whatever marginal adjustments we make in monetary policy ought to be done through open market operations and that we ought to avoid a change in the discount rate for the reasons that he stated rather well. However, my alternative B and $250 million borrowing are predicated on the current discount rate. If the circumstances should arise over the coming weeks that there might be a change in the discount rate, then I think one would have to revisit open market operations. I don't think that we ought necessarily to let a discount rate change automatically change open market operations. It seems to me that while they obviously work together, they are separate decisions; and a change in one shouldn't automatically lead to a change in the other.",192
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"I'm generally in favor of alternative B, with one slight modification that I'll get to in a moment. But I think, as several people have mentioned, that we should work a little harder than we have, at least, at achieving the borrowing objective--however we specify it. In light of that, and in light of what I've seen going on in the markets lately and the relationship between the funds rate/discount rate spread and borrowings, I think I would favor a borrowing target probably in the neighborhood of $200 million rather than $250 million. If we worked to achieve that, I wouldn't be surprised if the funds rate might drop below 6-1/2 percent on occasion; but on occasion, it might also rise to, or maybe even above, 6-3/4 percent. I wouldn't try to prejudge or pinpoint that to a great extent. As far as the long run is concerned, I am where I was before; that is, it seems to me that given all the circumstances, alternative III is the preferable one. I don't see a conflict between the short-run stance of policy and the long-run objective package. As I read Don's numbers, those things look like they fit perfectly. They don't seem to be at all that much variance. We are not very good at forecasting monetary aggregate growth month-to-month or quarter-to-quarter anyway. So, I think you could convey a message about both the short-run needs and concerns about the economy as well as the long-run objective of policy with that combination.",308
-fomc-corpus,1988,You're arguing for a wider potential range; would you be willing to accept 4 to 8 then?,21
-fomc-corpus,1988,"I guess I'm not in favor of a wider potential range. I'm not sure I see particularly what it buys us. I'm not violently opposed to it, but--",32
-fomc-corpus,1988,"It does, I guess, send a message that we haven't concluded that the money numbers have been locked back into the economy in the way in which they were historically.",33
-fomc-corpus,1988,"But that has been the case for some time, and for M2 and M3 we kept these 3-point ranges, regardless.",27
-fomc-corpus,1988,With some cost.,4
-fomc-corpus,1988,"Well, I don't see any problem with that. I think one of the values of the ranges is that when you hit the limits, you've got to stop and think and assess the situation: Do you want to permit the aggregates to go outside on the high side or the low side, or don't you? It seems to me that's one of the virtues of the ranges. And we may decide to let them go, but at least we will have given some healthy analysis to the question.",97
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I would favor ""B"", but I'd like to see the average level of the federal funds rate near the lower end of this projected 6-1/2 to 6-3/4 percent range. I think there's a good chance that the relationship between the level of borrowing and the federal funds rate is going to continue to surprise us from time-to-time in the weeks ahead. So, I'd like to maintain this flexibility in the operating procedures that we have, and retain the sentence that's on lines 103 to 107 of the directive in this form. As far as the long run is concerned, I would stick with alternative III. The statement that I'm really trying to make is that I think there is uncertainty in the economy now. We have to be accommodative and make sure that that doesn't become serious. But my suspicion is that it's not going to be all that bad. So we want to be careful in the long run not to waken fears that we have thrown in the towel on the inflation issue, yet at the same time show sensitivity to the weakness that has been evident recently.",224
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"Having sat here for two days reminds me what a difficult job this is at the minimum wage. Even at $4 an hour, the higher minimum wage, we'd still be--. But more seriously, I think one of the most difficult jobs that economic forecasters have is predicting turning points. I sort of remember that from school and I also remember it, having lived a long time and through a number of business cycle turns. I think policymakers also have a difficult time doing that--even identifying that the turn has occurred after the fact. I just want to make sure that we are looking at every single thing here, and we have looked at a lot, certainly. And we're very, very sensitive to the notion that there might be a bomb placed somewhere in this. It's just this feeling of unease I have, I guess, that I would like to concentrate on. I'll also repeat that I think there are risks on the downside both in this half of the year and my friend Governor Heller has convinced me that the bounce-back [in the second half] isn't assured either. So that makes me doubly concerned. I'd like to convey that feeling of risk and uncertainty and of having to watch carefully how we proceed. If I had to choose among the alternatives as stated, it would probably be alternative A. If we can come up with something that's sort of a marriage between ""A"" and ""B"", then I could certainly vote for that. But I am not convinced that the bankers are back to normal if they ever were normal. I know a lot of them, and I had a feeling that those scars were going to remain for a while and I think they are remaining. Therefore, I think it's more realistic to put a number in the borrowing path that, in fact, reflects what's going on--which is Bob Heller's $150 million. I think that's what their behavior is really suggesting. I think if we force the $250 million, we would put quite a bit of upward pressure on fed funds rates. I'm willing to go with maintaining the current degree of pressure, but I don't think the $250 million would produce that. Instead of putting all the latitude on the Desk, I would rather give us a little vote in the process and let us suggest that maybe it go down to around $150 million. On the longer term, I would vote for alternative II with the broader band for M2--4 to 8 percent rather than 5 to 8 percent, and 5 to 8 percent for M3. A main concern I have is how these numbers will be received by the financial markets when they are announced. Right at this moment I would be very sensitive about sending any message that we are tightening or even considering a tightening. And I think one way to prevent that is to keep the upper end of this band where it has been. So that's what I would vote for; I'm not sure that's specified exactly as an alternative.",594
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Mr. Chairman, I'm also in the camp that feels that the risks this year are more on the soft side. I agree with Governor Heller in that I don't think this second half is in the bag and I would be fearful of anything that looked like a tightening. I'm really quite comfortable with the slight easing that has occurred so far. At this meeting I would like to come out with a configuration that would essentially leave us there. I'm not exactly sure what would accomplish that. I think if we have $250 million as a borrowing target and take that seriously, it might result in what would appear to be a tightening, which I would not be comfortable with. So, I think I favor a $150 million to $200 million borrowing target and alternative B with some asymmetric language on the easing side. And for the longer term, I agree that we must maintain our posture against inflation. For that reason, I would stay with alternative III in order to maintain that message in the market.",198
-fomc-corpus,1988,Could you read that as 4 to 8 percent?,12
-fomc-corpus,1988,"I could read that as 4 to 8 percent, yes sir.",15
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"Mr. Chairman, for the short term, I favor alternative B, and the $250 million borrowing assumption, with the understanding that it would be interpreted as Don explained. In the longer term, my preference would be to remain with alternative II as specified--that is, 5 to 8 percent on M2. I could accept 4 to 8 percent if that's where the majority was. It does seem to me that maintaining the 8 percent on the top side still represents a downward move of a half a point [from the range for 1987], which indicates that we continue to be concerned about inflation. If you throw in another half a point on top--which, in effect, would knock a full point off--that might be, in my judgment, a little overkill in showing our determination.",165
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mr. Chairman, I would opt in the short run for alternative B with the existing borrowing target of $250 million. I'm concerned about trying to hit a target below that--and I'm talking about the $100, $150, or $200 million--simply because I think there is a frictional level of borrowing where we lose control, particularly if you get seasonal borrowing as $50, $70, or $100 million of that $100 million borrowing target. I think you take a real risk: if things do not come in as you want in the first quarter and you choose to move against a recession, then you have to do a discount rate decrease. And I think the implications of that for the dollar are very great, as Governor Johnson has pointed out. As a result, I would stay right where we are with the borrowing target of $250 million. On the long run, I favor alternative II with a 5 to 8 percent range for M2; I could accept the 4 to 8 percent range. I agree with the point made by Bob Boykin that we have already gone down a half of a percentage point from the targets set for 1987 and if you do another half point, you give the view that you went on the low side. That's something I don't want to do.",267
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"You spoke earlier, Mr. Chairman, about the need to try to come out of this with a point of view that could command some support. I'm tempted to say, looking at this little score card here, that you were clairvoyant in anticipating that that might not be the easiest thing to do. Let me first say what is my preference and then what I guess I would regard as acceptable. My preference on the short run is a straight plain vanilla alternative B; and on the long run, a straight plain vanilla alternative III. In the short run, I could associate myself with Gary Stern's approach, which would have ""B"" with a little tilt toward ""A""--$200 million borrowing but with the expectation that on the borrowing we'd work toward--I'll come back to that in a minute. On the long term, again, I could accept 4 to 8 percent. I have three kinds of problems here. One is a little uneasiness about the thrust of policy, let's say, that I can accept. Two is, that if the conduct of policy in the days and weeks ahead were strongly to prejudice the discount rate question--in a context in which the economic outlook, or the exchange market, or whatever, is not different in a material way from what it is right now--I would have real trouble at that point. Even so, we have to go carefully here, at least until we get the trade number. If that trade number turns out to be a real bummer, even the kind of finessing we're trying to do here is going to backfire.",321
-fomc-corpus,1988,"Well, there is no finessing under those conditions.",12
-fomc-corpus,1988,"I think it is extremely important, at least for the foreseeable future and barring some material change, to try to conduct operations in a way that is not prejudicial to the discount rate. My third point--calling a spade a spade--is that now we are running policy off the federal funds rate and I think that's a mistake.",69
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I share your view, Mr. Chairman, that the financial markets do have some fragility to them. Given the circumstances we are in, I think it's rather dangerous to be in a position of tightening credit at all. I'm not comfortable with even a small step towards tightening. That's why I believe what we've done has been not so well thought out, because I think we have set ourselves up in the circumstance in which we are apt to find it necessary to tighten--and tighten after the fact--and that poses a dangerous problem. I don't mean to be insensitive to the problems that we have had and I don't want to make too much over little, but when we have hardly any opportunity to go in the other direction, every step we lose on the downside gets to be, I think, rather significant. I think this talk about borrowing targets and then the fed funds rate, frankly, has become a kind of zigzag step which never ends. I vote with the majority and I end up losing. And, Governor Johnson, I just have to congratulate you--I mean you voted in the minority and you've won! And I just want to admit that to you; it was really very, very well done. I hope everyone understands the sensitivity that I have at this point. I would not make any moves other than what I thought was exactly right for the U.S. economy and the world economy. I think we are running some severe risks of other factors blowing up and I don't understand why that is good from any perspective. In the spirit of wanting to go along, I'll try to go along. But I would like some assurance that we are not going to just keep doing this, Mr. Chairman. On the long term, my first choice is alternative III, but I can go with 4 to 8 percent. I can go with ""B"", if that's not easing from our present position. And I would like to have us mention the borrowing targets in the directive. I'd like the borrowing target to go in the directive. I would like either to lose with the fed funds targeting issue and have it be fed funds, or I'd like to win, Mr. Chairman, and have borrowing be in the directive. And if we can work in that spirit of cooperation, I'll try to cooperate.",460
-fomc-corpus,1988,What's your borrowing number?,5
-fomc-corpus,1988,My borrowing preference is $250 million; that's the deal we made. We talked about going from $300 million to $250 million and we did it. And then I see the Desk operating in such a way that it puts us in jeopardy--having to tighten to go to what I agreed to do. I seem impatient and I'm sorry.,69
-fomc-corpus,1988,Sorry we didn't record that.,6
-fomc-corpus,1988,We did!,3
-fomc-corpus,1988,But I want everyone to know I do understand they are just differences in opinion and not--,18
-fomc-corpus,1988,"Look, you're raising an issue which I think is right at the cutting edge of the policy operations. And this issue has to be resolved at some point in a satisfactory manner because, in a sense, it is a disruptive issue with respect to this Committee. And I--",54
-fomc-corpus,1988,Yes--,2
-fomc-corpus,1988,"Quiet. It may well be appropriate to find another vehicle--maybe a luncheon discussion--in which we start from scratch, go through lists, and then at some point get a really formal decision, so we are not, in your judgment, unable to get firm positions on this. My own impression is that it's not a bad idea to put it on the luncheon agenda next time around. We can't have this continuous discussion going on without having the Committee bring forth its judgment of precisely how this issue is going to be resolved--and not let it be at the discretion of either Mr. Sternlight, myself, or anyone else around here. Without objection, I think we'll put it on the luncheon agenda for next time.",143
-fomc-corpus,1988,"Mr. Chairman, may I say one little word on this?",13
-fomc-corpus,1988,One.,2
-fomc-corpus,1988,"I sympathize completely with what Governor Angell is saying, although somehow I don't feel I've won. But I do agree this has to get resolved. We can't go on arguing over what operational policy ought to be. It has to get clarified and then once it's clarified, I'm totally satisfied joining whatever team that turns out to be; I'll work within those rules. But right now we are in a confusing period. It's one of those times when I'm not sure it's clear. But it has to be clear at some point.",104
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Mr. Chairman, I agree with Mr. Corrigan that we tackle our policy as if we are controlling the funds rate. I don't feel upset by this, however. I think there are only two things we can control--the funds rate or the rate of growth in reserves. And what we have found in recent years is that there is no stable relationship between the rate of growth in reserves and the objectives of this Committee. So let's face it: that leaves us only with making judgments with respect to interest rates. Even though we find it's difficult to follow, because of the experience of the 1970s, I think it's much better to face it than to build sand castles based somehow on relationships between borrowing levels and our objectives. I served on this Committee when Bill Martin was Chairman. For 19 years he controlled monetary policy through monitoring the federal funds rate [or other money market rates]. And that 19 years was a period of extremely successful monetary policy. I think the idea that we cannot have a successful policy controlling the funds rate is simply wrong. I think we have a lot of history to suggest that we can. So, I don't share Jerry's concern about calling a spade a spade. Therefore, my recommended policy would be alternative B, by which I mean that we keep the federal funds rate around 6-5/8 percent--I think that's what Don described--until such time as we think it ought to be moved lower or higher. As far as the long-term range, Mr. Chairman, I would prefer alternative III; but as a practical matter I see absolutely no difference between alternative II and alternative III and I'd follow your discretion as to which one you think would be politically superior, because from my experience, a half of one percent over a year is nothing that we ought to quarrel about.",368
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"I guess we could get to work toward our luncheon discussion if we wanted to consider a penalty discount rate; that ought to reduce the concern over borrowings. I think Frank Morris raised a good point. We haven't been willing to address the rate of growth in reserves, because while we may be able to control that, we haven't liked the outcomes. That may be because we have been uncomfortable with the relationship between money and the economy. That's a longwinded way of saying that it's still a pretty confusing scenario in my own mind. I would tend to favor alternative B in the short run, ensuring that the growth in the monetary aggregates continues; I would err on the side of making sure that growth is continued. In terms of the longer term, I would stick with alternative III.",156
-fomc-corpus,1988,"I think that there seems to be a very general consensus about willingness to accept 4 to 8 percent for M2 by a large majority, if not all, of the voting members. But it's not clear to me exactly how everyone comes out on M3. Don, do you have any recommendation on that?",63
-fomc-corpus,1988,"Well, my thought on the matter was that you could retain the 5 to 8 percent M3 range. We are projecting growth around 6-1/2 percent, so--",38
-fomc-corpus,1988,You're talking about M3?,6
-fomc-corpus,1988,"For M3, right. So, 5 to 8 percent would encompass that, but 4-1/2 to 7-1/2 percent is also close. As I think President Parry and some others mentioned, we have on occasion in the past--though not for the last several years--had M3 ranges that were slightly higher than M2 ranges. So, it's not without precedence.",84
-fomc-corpus,1988,"I have one question about that. If you had the 4 to 8 percent range for M2 and 5 to 8 percent for M3--we really don't want to make a distinction between the two in terms of uncertainties. The 4 to 8 percent is fine; I like it because the midpoint is 6 percent. But in talking this out, given the uncertainties, I'm not that confident about implying that you have greater certainty about M3 than M2. That's the only problem I see having two different ranges.",108
-fomc-corpus,1988,Would the rest of you like to speak to that? Does anybody have any objection to keeping them the same?,22
-fomc-corpus,1988,"Deciding now, 4 to 8 percent for both?",13
-fomc-corpus,1988,4 to 8 percent for both.,8
-fomc-corpus,1988,"I think if we change one, we ought to change both.",13
-fomc-corpus,1988,"So, I sense you'd say 4 to 8 percent on both?",15
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,That's fine.,3
-fomc-corpus,1988,"If that is acceptable, why don't you [Mr. Bernard] read the paragraph for the long-term objectives as it would read under those conditions.",29
-fomc-corpus,1988,"""The Federal Open Market Committee seeks monetary and financial conditions that will foster reasonable price stability over time, promote growth in output on a sustainable basis, and contribute to an improved pattern of international transactions. In furtherance of these objectives, the Committee at this meeting established growth ranges of 4 to 8 percent for both M2 and M3, measured from the fourth quarter of 1987 to the fourth quarter of 1988."" Then we need something for debt. ""The monitoring range for growth in total domestic nonfinancial debt was set at _ to _ percent for the year.""",116
-fomc-corpus,1988,"What do you recommend, Don?",7
-fomc-corpus,1988,"We had 7-1/2 to 10-1/2 percent, but if you're widening the ranges for M2 and M3, I don't know--",34
-fomc-corpus,1988,7 to 11 percent then.,7
-fomc-corpus,1988,7 to 11 percent is fine.,8
-fomc-corpus,1988,7 to 11 percent?,6
-fomc-corpus,1988,"So, nonfinancial debt is set at 7 to 11 percent for the year. And then moving on to M1, for which I gather we have no range, the language there would be: ""With respect to M1 the Committee again decided not to establish a specific target for 1988. The behavior of this aggregate in relation to economic activity and prices has become very sensitive to changes in interest rates, among other factors, as evidenced by sharp swings in its velocity in recent years. Consequently, the appropriateness of changes in M1 this year will continue to be evaluated in the light of the behavior of its velocity, developments in the economy and financial markets, and the nature of emerging price pressures.""",143
-fomc-corpus,1988,"Anybody have any objection to the M1 language that's here? If not, can we now go to a vote?",23
-fomc-corpus,1988,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor Seger Yes President Stern Yes,44
-fomc-corpus,1988,"On the remainder of the directive, it's a little more difficult to read, but let me tell you what I tabulate. Everyone is on ""B"" straight, or with a slight movement towards ""A"", with Governor Seger at ""A"" or somewhere between ""A"" and ""B"". The distribution of the borrowings objectives is: $250 million (4); $200 million (4); $150 to $200 million (1); and $150 million (2). I would read the mode, at this point, as represented by $200. And that implies a funds rate of roughly 6-1/2 percent, as I understand it. Does anybody read the voting members of this Committee differently from that? That's the tabulation I got. I would interpret this to be maintaining the pressure in recent days, with some slightly asymmetrical language towards ease if one can find such language in here. My impression, however, is that the instructions to the Desk are reasonably clear in the sense that everyone has indicated--there are differences within a relatively narrow range, I think, but they are not as great as they might be. Anybody have any comments or statements on anything?",239
-fomc-corpus,1988,I think I could compromise at $200 million if we can be symmetric. But to go to $200 million and then also be asymmetric--,28
-fomc-corpus,1988,"No, no, I didn't mean that. I'm sorry, you're quite right. The question is how we interpret ""A"" and ""B"". What we have to do is take $200 million symmetrically.",43
-fomc-corpus,1988,Symmetrically?,4
-fomc-corpus,1988,Yes. Now if one can find the language for that--,12
-fomc-corpus,1988,And this is on the assumption of a 6 percent discount rate?,14
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,What about the language in here with regard to flexibility? Would we be likely to retain that or would we pull that?,24
-fomc-corpus,1988,What's the view of the Committee?,7
-fomc-corpus,1988,"Could I just say a further word on this, but hopefully without getting into a debate or a long discussion? I don't think the question of the operating tactics of monetary policy on a day-to-day basis comes down to what will work or what won't work. I think it's true you can make almost anything work. The question that I think is important is preserving for the Committee, and for you as Chairman, an appropriate degree of flexibility. We are not clairvoyant; we cannot anticipate every situation that arises. We have to have the kind of flexibility to do things that need to be done. So, from my point of view, it's not so much a technical question as to what produces the best statistical result and the highest R square. It's a question of what preserves the maximum flexibility for the Committee as a whole, and for you as Chairman, to be able to guide policy in a manner that's consistent with the thrust of the Committee's wishes but incorporates the kinds of flexibility that are often needed. So, Mr. Chairman, that's how I see the issue.",213
-fomc-corpus,1988,I don't think anyone disagrees with that. I think the problem gets back to a language question.,20
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"If we assume the Bluebook's and Don Kohn's estimates of ""B"" being $250 million, then if you use ""B"" with no [change in the] borrowing target, implicitly, it becomes ""B"" with a slight tilt towards ease. If we use $200 million as the borrowing target then it's symmetrical. The question is what is conveyed in the directive when published. I don't think this is a problem for Peter Sternlight; I think we have made it clear for him. The question is what is the appropriate language to communicate to the public, upon publication, what our particular position is. I would entertain some discussion from the Committee on what's the right way.",138
-fomc-corpus,1988,May I ask a question? What are the numbers you're penciling in for the M growths?,20
-fomc-corpus,1988,"I'm sorry, for the--",6
-fomc-corpus,1988,Monetary Ms?,5
-fomc-corpus,1988,In the short term?,5
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"It's the right question to ask since we have changed the long term; and it's a most interesting issue. Alternative B is basically 6-1/2 percent [M2 growth], but I would read it as somewhat lower in view of what we did with the longer term. I would read it as 6-1/4 percent growth myself.",71
-fomc-corpus,1988,"No, I think you'd go the other way.",10
-fomc-corpus,1988,"No, not if you're lowering--the old borrowing target implicit in ""B"" was $250 million, right? So--",25
-fomc-corpus,1988,But I think there's enough uncertainty--,7
-fomc-corpus,1988,You shouldn't have a little--,6
-fomc-corpus,1988,"Bob, there's enough uncertainty associated with the relationship that one can be comfortable with the 6-1/2 percent.",24
-fomc-corpus,1988,"6-1/2 percent, yes.",9
-fomc-corpus,1988,Let's not argue about that.,6
-fomc-corpus,1988,"I would suggest, what about 6 to 7 percent? Okay?",15
-fomc-corpus,1988,"Put it that way--yes, I feel comfortable with that.",13
-fomc-corpus,1988,"Yes, especially if Don thinks that the numbers are coming in a little higher anyway.",17
-fomc-corpus,1988,They may be up there already.,7
-fomc-corpus,1988,That's fine.,3
-fomc-corpus,1988,"Yes, 6 to 7 percent.",9
-fomc-corpus,1988,6 to 7 percent for both M2 and M3.,13
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,I think what ought to be conveyed to the market is that one easing took place here. They're going to see that. Just today we had a period ending that way; they're going to see that low borrowings number; there are already feelings around that some easing has taken place. I think one thing that the directive ought to convey is that there was one step; I don't think you want to somehow in the language create the impression that a step was taken and then a subsequent step was taken today.,100
-fomc-corpus,1988,I share that [view].,6
-fomc-corpus,1988,I agree with that; it ought to be right up in the front sentence.,16
-fomc-corpus,1988,I think that's right; how do you do it then?,12
-fomc-corpus,1988,"In fact, that would convey far more than this result.",12
-fomc-corpus,1988,"Well, I thought we were taking a position that we are not easing today; we are maintaining existing conditions.",22
-fomc-corpus,1988,"No, you would say ""to maintain the slightly easier""--",12
-fomc-corpus,1988,It's just that I think--apparently most think--that the $200 million borrowings is consistent with the existing conditions.,25
-fomc-corpus,1988,But you would say that you would maintain the slightly easier degree of pressures sought in recent days.,19
-fomc-corpus,1988,Would you say confirm the easing?,7
-fomc-corpus,1988,That captures it.,4
-fomc-corpus,1988,"Oh no, that strikes me as--",8
-fomc-corpus,1988,Maintain the slightly--,4
-fomc-corpus,1988,"Put ""the slightly easier degree of pressure on reserve positions sought in recent days"".",16
-fomc-corpus,1988,We have used that same language before.,8
-fomc-corpus,1988,"That says we are maintaining what we have done in the last couple of weeks, which I think would capture what we have agreed to.",27
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,It's a slightly reduced pressure.,6
-fomc-corpus,1988,"All right, slightly reduced pressure.",7
-fomc-corpus,1988,Of recent days.,4
-fomc-corpus,1988,Of recent days.,4
-fomc-corpus,1988,Sought in recent days.,6
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,I guess I want to second a little what President Corrigan said in regard to the degree of flexibility. I'm perfectly open to having alterations in policy when the data show something different. I'm very open to that.,42
-fomc-corpus,1988,If you took Ed's language and put 6 to 7 percent in for the aggregates that--,20
-fomc-corpus,1988,"That's why I like [it], if it's true.",11
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,It's the right tone. Anybody have any further comments on this?,13
-fomc-corpus,1988,"What we end up doing, though, is never voting for a policy change in this Committee. I was thinking of last April when a snugging was taking place that we never voted on; but at the end of April we sort of confirmed the tightening that had occurred. But we never actually voted at the FOMC meeting on a policy to tighten. I was not opposed to doing it, but it just seems to me that there is a difference between our voting to ease, or whatever, and voting for no change with a tilt one way or the other--in which case the Desk can change the policy.",123
-fomc-corpus,1988,But remember that the Committee can always reverse the Desk.,11
-fomc-corpus,1988,Uh-huh.,4
-fomc-corpus,1988,"In other words, this Committee has the ability any time it meets to reverse whatever the Desk is doing. So, in a sense, the acquiescence to the Desk's change is effectively a vote of this Committee to change policy.",47
-fomc-corpus,1988,"I think what we're seeing here is the calling of a spade a spade. The more you conduct policy focusing on the federal funds rate, the more frequent Committee meetings you need. And in the days when we were literally focusing on the federal funds rate there were Open Market Committee meetings every three weeks or so. The more we moved away from the federal funds rate to reserves--",76
-fomc-corpus,1988,That's--,2
-fomc-corpus,1988,We've spread it [the intermeeting interval] out.,11
-fomc-corpus,1988,I disagree with that. If you vote on the funds rate why would you ever have to have another Committee meeting?,23
-fomc-corpus,1988,I think the reason is that you don't have any flexibility to take account of changes that could come in. You can't just absolutely fix interest rates for six weeks at a time.,35
-fomc-corpus,1988,Well I know--,4
-fomc-corpus,1988,You could set a range.,6
-fomc-corpus,1988,"You could set a range, and then if you set a range, somebody has to have the authority to go back and forth. I think we generally have given the Chairman a great deal of flexibility within the range that was set. One can quarrel with that procedure, but it seems to me that the Chairman acted completely within the framework of the directive that we passed last time--a directive that gave him the flexibility to move up and down given certain sets of conditions. You may or may not like his decision, or you may or may not have done it the way he did it; you may want to rein him in, or you may want to give him more flexibility. But I think that we have to blame ourselves--not the Chairman for using the flexibility that we gave him.",158
-fomc-corpus,1988,"I suggest that the issue of the frequency of meetings of the FOMC also be on the agenda as part of this review. I think I'm hearing, as I've come into this place in the last six months, that something is happening to the operational procedures in the System and that it would probably be useful to have a thoroughgoing review and decision on the part of the Committee as to what form of surveillance the Committee chooses to adopt. And the frequency of meetings is not an insignificant question. Do you have enough to read something [Mr. Bernard]?",110
-fomc-corpus,1988,"Yes, I think so. ""In the implementation of policy for the immediate future, the Committee seeks to maintain the slightly reduced degree of pressure on reserve positions sought in recent days."" And then I'm not sure about the next sentence--whether or not that stays in.",53
-fomc-corpus,1988,Which one?,3
-fomc-corpus,1988,"""The Committee agrees that the current more normal approach to open market operations remains appropriate.""",16
-fomc-corpus,1988,"How about ""the current approach remains appropriate.""",9
-fomc-corpus,1988,Current--,2
-fomc-corpus,1988,You mean before that you were less normal.,9
-fomc-corpus,1988,But I thought we were hearing it isn't back to normal.,12
-fomc-corpus,1988,"Well, it's a public statement.",7
-fomc-corpus,1988,"But if you read the rest of the sentence, the more normal implies more normal since right after the stock market [crash]. And I agree that it's probably a little more normal than it was then--",41
-fomc-corpus,1988,"Yes, but that says the current approach remains appropriate.",11
-fomc-corpus,1988,You can do it either way.,7
-fomc-corpus,1988,Or less normal.,4
-fomc-corpus,1988,I think the bracketed sentence captures what is going on in the markets.,15
-fomc-corpus,1988,I think so too.,5
-fomc-corpus,1988,"If it doesn't, we have a problem with the last policy record.",14
-fomc-corpus,1988,Why don't you read--,5
-fomc-corpus,1988,"""The Committee agrees that the current more normal approach to open market operations remains appropriate; still sensitive conditions in financial markets and uncertainties in the economic outlook may continue to call for some flexibility in operations.""",38
-fomc-corpus,1988,Anybody object to that sentence then? SEVERAL(?). No.,14
-fomc-corpus,1988,"""Taking account of conditions in financial markets, somewhat lesser reserve restraint or somewhat greater reserve restraint would be acceptable depending on the strength of the business expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates. The contemplated reserve conditions are expected to be consistent with growth in both M2 and M3 over the period from November through March at annual rates of 6 to 7 percent. Over the same period, growth in M1 is expected to remain relatively limited. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of""--we had 4 to 8 percent.",156
-fomc-corpus,1988,6-1/4 to 6-1/2 percent.,14
-fomc-corpus,1988,You're calling a spade a spade.,9
-fomc-corpus,1988,Consistent.,3
-fomc-corpus,1988,That's trying to be on this side.,8
-fomc-corpus,1988,You at least would pass a lie detector.,9
-fomc-corpus,1988,A range of 4 to 8 percent.,10
-fomc-corpus,1988,Mr. Chairman--,4
-fomc-corpus,1988,Let me also state that implicit--,7
-fomc-corpus,1988,"I'm sorry--something jumped off the page at me as Norm was reading. ""Growth in M1 is expected to remain relatively limited""--we have 6 percent.",33
-fomc-corpus,1988,"Yes, I had the same problem.",8
-fomc-corpus,1988,"That may or may not be relatively limited, that's--",11
-fomc-corpus,1988,Relatively moderate.,4
-fomc-corpus,1988,Do we want that sentence at all?,8
-fomc-corpus,1988,Just scratch it.,4
-fomc-corpus,1988,"Also implicit, but not stated, is the understanding that should conditions arise in which the Board moves the discount rate in either direction, I think an FOMC meeting at that point is immediately appropriate--a discussion of policy is immediately on the table. I think that's all I have to say on that issue. Can we go to a vote?",69
-fomc-corpus,1988,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Boehne Yes President Boykin Yes Governor Heller Yes Governor Johnson Yes President Keehn Yes Governor Kelley Yes Governor Seger Yes President Stern Yes,44
-fomc-corpus,1988,"My congratulations to you, Mr. Chairman. You have performed a miracle.",15
-fomc-corpus,1988,I don't know where it came from.,8
-fomc-corpus,1988,"I think that Governor Johnson is the titular, de facto, temporary chairman.",15
-fomc-corpus,1988,"I'd like to nominate Chairman Greenspan, of course, as Chairman of the FOMC to kick this meeting off. So, I move Chairman Greenspan as Chairman of the FOMC.",39
-fomc-corpus,1988,I second that.,4
-fomc-corpus,1988,"It looks like it's all done, Mr. Chairman.",11
-fomc-corpus,1988,Doesn't strike me as a democratic election! Would somebody like to move the Vice Chairman?,18
-fomc-corpus,1988,"Yes, I also move President Corrigan as Vice Chairman of the FOMC.",17
-fomc-corpus,1988,No objection. I don't know when that game is in June.,13
-fomc-corpus,1988,That's right. The Chairman is talking about a major international event we have coming up in June. We have a challenge of a softball game between the Bank of Japan and the Federal Reserve Bank of New York.,41
-fomc-corpus,1988,We better beat them.,5
-fomc-corpus,1988,Much is at stake.,5
-fomc-corpus,1988,You're going to have a hard time.,8
-fomc-corpus,1988,You are not authorized to play for the System; it's just restricted to New York?,17
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,Are there implications for the exchange markets?,8
-fomc-corpus,1988,You can wait for the outcome to see.,9
-fomc-corpus,1988,Will Mr. Bernard read the staff officer nominees?,10
-fomc-corpus,1988,"Secretary and Economist, Donald L. Kohn Assistant Secretary, Normand Bernard Deputy Assistant Secretary, Rosemary Loney General Counsel, Michael Bradfield Deputy General Counsel, Ernest Patrikis Economist, Michael J. Prell Economist, Edwin M. Truman Associate Economists from the Board: David Lindsey; Charles Seigman; Thomas Simpson; and Lawrence Slifman. Associate Economists from the Federal Reserve Banks: J. Alfred Broaddus, proposed by President Black; Jack Beebe, proposed by President Parry; John Davis, proposed by President Hoskins; Richard Davis, proposed by President Corrigan; and Sheila Tschinkel, proposed by President Forrestal.",133
-fomc-corpus,1988,Can we have somebody move and second those officers?,10
-fomc-corpus,1988,Move it.,3
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,Without objection. The next item is choice of the Federal Reserve Bank to execute transactions for the System Open Market Account. Would somebody like to make a nomination?,31
-fomc-corpus,1988,"I will move, sir.",6
-fomc-corpus,1988,You need to state a preference. Why don't we try New York?,14
-fomc-corpus,1988,I'm going to: New York.,7
-fomc-corpus,1988,Do they have a staff that can handle that primary--,11
-fomc-corpus,1988,That's their problem.,4
-fomc-corpus,1988,"Can I raise a point of order, Mr. Chairman?",12
-fomc-corpus,1988,By all means.,4
-fomc-corpus,1988,"Going back to the organizational meeting schedule, I wonder if it might not be well for the Committee to consider changing the organizational meeting from March to February. The rationale I have in mind is that it always strikes me as anomalous that the presidents who vote for the annual targets at the February meetings cease being the presidents who vote for the balance of the year. I just wonder if in the interest of consistency--",81
-fomc-corpus,1988,May I point out that a discussion of procedures is a later item on the agenda.,17
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,I think that that would be an appropriate item to bring up at that time. Why don't we do that? I have a motion. Do I have a second?,33
-fomc-corpus,1988,I second it.,4
-fomc-corpus,1988,"No objections? Now we can vote on the selection of the Manager for Domestic Operations and the Manager for Foreign Operations, System Open Market Account. The incumbents are currently, of course, Mr. Sternlight and Mr. Cross. Would somebody like to make any other nominations, and if not would somebody like to move, second or oppose?",68
-fomc-corpus,1988,Move.,2
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection. It is required that these nominees be acceptable to the Board of Directors of the Federal Reserve Bank of New York, which I assume will occur with the usual formality. The next item is the Authorization for Domestic Open Market Operations. Is there any objection to renewing the authorization as it stands? If not, we can consider that to be done. We also need to renew the Foreign Currency Authorization, the Foreign Currency Directive, and the Procedural Instructions With Respect to Foreign Currency Operations. Any objection to renewing all three?",105
-fomc-corpus,1988,None.,2
-fomc-corpus,1988,"If not, consider it done. We have the same issue with respect to the Program for Security of FOMC information. Why don't you read the changes, Mr. Bernard?",36
-fomc-corpus,1988,"It involves just a very minor updating since there is no longer a staff director. As noted in the memorandum dated March 23, the new language for page 2, Section A.3 would read: Upon adoption, distribution of and access to the directives would be limited to Committee members, nonvoting Presidents, staff officials involved with the daily morning ""call"" from the Open Market Desk, the Secretariat, and the two Managers (or their substitutes).",91
-fomc-corpus,1988,"Without objection, the authorization is renewed. Governor Johnson, I understand, is prepared to make a nomination with respect to a variety of appeals authority.",29
-fomc-corpus,1988,"Yes, I'd like to move that Governor Angell be the FOMC member in charge of [Freedom of Information Act] appeals and that Governor Seger be the alternate.",35
-fomc-corpus,1988,Is there a second?,5
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,Without objection. Any questions on the examination report of the System Open Market Account? Would somebody move acceptance?,21
-fomc-corpus,1988,I'll move it.,4
-fomc-corpus,1988,Second?,2
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,No objection. Now we are finally up to the minutes. Without objection. Mr. Cross.,19
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Any questions for Mr. Cross?,7
-fomc-corpus,1988,"Sam, what did you say again about the currency after the end of the [Japanese] fiscal year?",21
-fomc-corpus,1988,"There has been a great deal of concern that, particularly during March, the yen has been held down artificially and the dollar has been held up artificially because of concerns about the Japanese institutions who must complete their bookkeeping at the end of March. Much of this has to do with the Japanese insurance companies who, according to the rules that they follow, have to adjust the value of their total holdings of foreign and dollar securities if the dollar falls by 15 percent, on average, during March from the level of a year ago. This would mean a very substantial recalculation of the books of these insurance companies. And there is a widespread view that that possibility, plus traditional Japanese window-dressing operations, which are very important, have caused the Japanese to take steps to avoid the pressure to cause the yen to rise--to hold the dollar up against the yen, in effect, until after this March 31st date. So the question now is whether, after the end of March, there will be some tendency and intention, on behalf of the Japanese particularly, to shift out of dollars or to cease the operations which the market thinks are holding the dollar up, or to take other steps.",236
-fomc-corpus,1988,"What kind of appreciation would it take for the rest of the month, or late in the month, to produce an average of the month below 126 [yen per dollar]?",35
-fomc-corpus,1988,It would have to go down pretty low at this point. We recalculate this every day; we just don't have the latest update. Yesterday it was something like 121 or 122. But one argument made in the market about some of the pressure recently is that this is less of a concern now that we've gotten close enough to the end of the fiscal year. There is less of a reason for the yen to be held down.,87
-fomc-corpus,1988,"The Japanese really haven't been intervening on the scale that they had before, right?",17
-fomc-corpus,1988,"They have not been intervening in very heavy amounts, but they have been taking related steps. There was a statement by the head of the Japanese insurance groups last night, saying that he didn't expect a lot of sell-off of dollar securities after the end of the fiscal year. I assume that the Bank of Japan put him up to that. There have been other steps that they have taken to contain some of these pressures.",84
-fomc-corpus,1988,"The question is whether institutions themselves would be supporting the dollar in this period, since it also affects the institutions--not just the ones that are accepting the 15% rule but the ones that are on a mark-to-market basis [unintelligible] particular interest.",54
-fomc-corpus,1988,"Yes, I think that--",6
-fomc-corpus,1988,It may affect the general institutions a lot more across the board.,13
-fomc-corpus,1988,"It's going to be mark-to-market for all of them after the fiscal year has ended, right?",20
-fomc-corpus,1988,"That's right, but--",5
-fomc-corpus,1988,And there will still be a strong incentive for them not to want the exchange rate [unintelligible] right?,24
-fomc-corpus,1988,"No, but the year-end is particularly important. And this happens even when we don't face the kind of exchange market situations that we face now. The Japanese are very conscious of these year-end figures, and toward the end of the fiscal year there are a lot of pressures back and forth, reflecting that concern. So this is not a new phenomenon.",70
-fomc-corpus,1988,"I have one more question. Maybe I've been reading too much into this, but it did run on the wires here that the Bank of Japan has decided to tighten up some. They made an announcement that they were going to tighten up on money and bank reserves. At least the way that I read it over the wires several times was that there had been some sort of announcement of slight tightening for short-term conditions in Japan. It seems kind of strange that they would do something like that.",97
-fomc-corpus,1988,"Well, they've been telling us that they need some slight pressures--again, because of those fiscal year-end kinds of problems. But we have not gotten from them evidence that they are tightening beyond that.",40
-fomc-corpus,1988,This is an impressive movement with a [unintelligible] for the large banks.,18
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"In fact, they have been progressively tightening over the last several months and this [unintelligible] they've obviously done their [unintelligible] this is one more out of about 3 or 4 now this seems to have been [unintelligible].",55
-fomc-corpus,1988,I understand what they are doing. I'm just saying that the market seems--,15
-fomc-corpus,1988,"It seems to me that the larger issue, aside from things like the Japanese fiscal year, relates to times when we see these exchange relationships coming unglued. Are we dealing with something that we can put a little more glue in there through intervention and move forward, or is it something more basic--like changes in economic growth or inflation or domestic economic policies or that the adjustment process isn't moving as fast as it should. I would think that, while it is an impossible question to answer, you have to ask it nonetheless when you are talking about what the appropriate response is going to be. If we think that it just needs some more glue, then we can achieve some good through intervention; if we think that it is more basic than that, then by intervening we sort of throw good money after bad. It may mean that we have to seek a new exchange rate alignment, or it may take a more fundamental change in U.S. domestic policy. As I say, it is a question that there is no obvious or easy answer to; but it seems to me that we have to ask it rather than continue intervening willy-nilly and hoping that will solve the problem. I'm not against the intervention--it just seems to me that we have to think the thing through a little more carefully than to just say ""Well, let's intervene and see what happens.""",274
-fomc-corpus,1988,"I think that you're raising an important question that has no good answer. But an interesting issue is whether there is an answer to a secondary question: Can intervention even remotely succeed on an incremental basis? In other words, do we make much progress by small interventions, which can't have any effect or are perceived to be ineffectual and may even be counterproductive? Or, if we have the choice, if the rate has to be sustained, do we choose to intervene in amounts that do affect the market? I don't know how [unintelligible] reads the experience in the last six months, but it strikes me that the only times that I was concerned about the intervention were when [unintelligible] and it didn't seem to have any effect as we watched the monies being spent. But I know when [unintelligible] hit the markets heavy and hit them also on the way up, I thought we received [unintelligible] response. We may not be able to answer the first question, and I don't think that we will ever be able to answer that one; but my own question is whether or not we should at least be focusing on the more discontinuous intervention--whether you're in or out--not this dribble effect.",253
-fomc-corpus,1988,"I think that's a good point. I guess mine goes even beyond that. It may mean that there isn't much that we can do if there is a fundamental misalignment here. Or if we're going to do something, it may take this more forceful intervention coupled with a noticeable change in monetary policy. I'm getting ahead of the discussion but I think that--",71
-fomc-corpus,1988,That's a crucial issue. I don't think anybody denies that monetary policy is effective--,16
-fomc-corpus,1988,"I think that that is right in terms of the real question, but I'm not so sure that the question is unanswerable, in the ultimate sense of the word. I find it compelling to ask myself a question: What are the implications of a significant further decline in the dollar from where we are now? I think you have to think it through on the trade side and on the financial side. In my view, the problem on the trade side is that the current forecast may embody a speed of adjustment that is about as fast as we can hope to achieve; indeed, it seems to me that it may border on the edge of being dangerously fast, in the context of being inflationary. So, I don't see that there is a whole lot to be gained in the foreseeable future on the trade side from a further decline in the dollar. Then, I ask myself the question: What does it imply on the financial side? And by financial side, of course, I mean our capacity to finance a $140 billion current account deficit this year. And that question, it seems to me, is more difficult. I can't quantify how much more difficult, but I think the algebraic sign is clear enough. So, where I come out, without being able to be precise, is that I see a clear risk on the side of a further depreciation of the dollar and I see very little to be gained by a further depreciation of the dollar. I don't know what it gets us.",297
-fomc-corpus,1988,"But it's a very interesting analytical question as to whether one can make the judgment you're making--in other words;, it really gets to the crucial question of what's the elasticity of supply of our system in the manufacturing sector and how close we are [to full capacity]. I think that it will be helpful later if both Messrs. Prell and Truman could address this issue as to basically (1) how much in the rate of change in the physical volume on both imports and exports is related to the current exchange rate levels; and (2) to what extent are we at the margin of capacity with respect both to the existing forecast and to any acceleration in economic growth which would result from a further decline of the exchange rate. I think that that's the crucial question that really [unintelligible] about policy generally. Anyway, I didn't mean to get into this at this stage. Any further questions for Sam?",182
-fomc-corpus,1988,"It's not really for Sam. It's just an observation. It may be for Ted Truman or Don Kohn. On the question Ed Boehne raised--and you and Jerry also commented on--in respect to using currency market intervention with large open economies, I think that the empirical evidence is that if you sterilize you don't get any effects through intervention over time. I'd be interested in hearing comments on the empirical research because I think the question--",89
-fomc-corpus,1988,"Now, that is a technical kind of question in the sense that if you really do want to alter your monetary policy and use currency markets as a way to do it--that is, to allow money supply to grow or to shrink to match what you are doing--I think that is a different question.",61
-fomc-corpus,1988,That's a question of monetary policy.,7
-fomc-corpus,1988,"Yes, the research has been done--much of it here--and some of it was in the report on intervention that was done multilaterally. The actual report on intervention was done by [the G-7 central banks and finance ministers] and suggested that sterilized intervention may be effective in the short run but was not likely to have lasting effects. We do end up somewhat tied into a semantic problem, in that it's a little hard to say there was $100 billion or $150 billion of intervention last year and it had no effect whatsoever. I think that the thrust of the research might say that it had some effect, but it's on the whole--small [unintelligible].",139
-fomc-corpus,1988,"[Unintelligible] I think the only argument you can make is that sterilizing intervention can have only a short effect and would be meaningful only to the extent that you can alter the psychology of the portfolio adjustment process. And with the huge stock of assets out there, psychology is not an irrelevant consideration because you can get very substantial moves for [unintelligible] period of time with no change in fundamentals, as I would read the same evidence. Long term, there can't be anything there and there isn't. But short term I think it's an ambiguous [unintelligible]--that you can get some temporary effect and if you can do it after an appropriate time it probably can have some [unintelligible]. But I don't know of anyone who can solve the debate on this issue. It has been going on for a long time.",172
-fomc-corpus,1988,"I think a lot of it depends on which way the fundamentals are taking the exchange rate, too. It's a lot easier to have intervention speed up the adjustment if it's supporting the direction of the fundamentals. If you're trying to fight the fundamentals, I think it's much more difficult--the seventies were a good example of that and, most recently, the last couple of years. It does work even then on the psychology, but it's much more fleeting, I think.",93
-fomc-corpus,1988,"If there are no further questions for Mr. Cross, can I have a motion to approve the transactions since the last meeting?",25
-fomc-corpus,1988,I'll move.,3
-fomc-corpus,1988,Second?,2
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Any objections? Domestic Desk operations, Mr. Sternlight.",12
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Any questions for Mr. Sternlight?,8
-fomc-corpus,1988,"My recollection of the Continental Illinois episode three years ago is that there was a more marked quality spread in the market then than what we see in the First Republic Bank situation. First of all, is that true? And if it is, why? Do you think the market is getting used to this kind of bad news and hardened to it, or what?",72
-fomc-corpus,1988,"It could be something like that. On the attitude toward borrowing, I think that one reason why a big difference didn't show up is that those attitudes were already kind of cautious. Also, there had been a lot of borrowing; there was about one billion dollars of adjustment credit ongoing so that there was a lot of room for those cautious attitudes to show up. But you're right--there was a much more noticeable widening of spreads of bank [unintelligible] and Treasury securities. We've seen rather little of that [this time], and I think that probably does reflect just learning to live with that kind of situation. MR. JOHNSON(?). Maybe I'm wrong, but it could be, too, that this is viewed as a little more of a regional issue than Continental. If I remember right, there was a lot of concern about Manufacturers Hanover at the same time and there was a great deal of concern that this might spread into the money center banks in general, whereas I think now the basic view is that this is a Texas or Southwest regional problem.",211
-fomc-corpus,1988,But didn't Europeans hold their paper more than the--,10
-fomc-corpus,1988,"I think that's a big part of the problem. You don't have that wholesale deposit problem in this case. We have it to some extent, but it's very small compared to what you had in Continental. I think that in terms of the market's sharp reaction, that put a very different coloration on Continental as opposed to this.",65
-fomc-corpus,1988,I do think that it might be a bit of a mistake to assume that it's only a regional problem.,21
-fomc-corpus,1988,I didn't say that it was. I said that was a perception.,14
-fomc-corpus,1988,"In my own point of view, I think that perception might not be exactly right.",17
-fomc-corpus,1988,I can conceive of circumstances in which it wouldn't be.,11
-fomc-corpus,1988,"Maybe there's greater faith that you people can work it out down there, too.",16
-fomc-corpus,1988,"Peter, we talked about seasonal borrowing before, but refresh my memory. At a time that seasonal borrowing is relatively low, as it is now, it will take a higher level of borrowing to accomplish the [unintelligible]. Is there a [unintelligible], say, in December or January?",62
-fomc-corpus,1988,"I would have a little sense of that, yes. And I know that it doesn't show up in all the [unintelligible] that are done. But it does seem to me that, particularly given these low levels of adjustment plus seasonal borrowings, that is a bit of a factor.",60
-fomc-corpus,1988,"If there are no further questions for Mr. Sternlight, first, we need to ratify his transactions since the February meeting and, secondly, authorize his leeway request. May I have a motion to move?",43
-fomc-corpus,1988,I so move.,4
-fomc-corpus,1988,No objection? And on the leeway request?,10
-fomc-corpus,1988,"I move that, too.",6
-fomc-corpus,1988,No objection? At our last meeting we had a number of discussions on operating procedures and related issues and a memorandum has been put together by Messrs. Kohn and Sternlight on that. Mr. Kohn would you give a report summary?,49
-fomc-corpus,1988,"Thank you, Mr. Chairman. I have only a little to add to the memo. [Statement--see Appendix. The full memorandum, entitled ""Issues in the Implementation of Open Market Operations"" also is attached.]",43
-fomc-corpus,1988,"Questions or comments on the issues raised? Peter, did you want to add anything at all?",19
-fomc-corpus,1988,"The only thing that I would do is underscore the point Don made with respect to fed funds compared to borrowing. I think that they are not so much contrasting positions, but points on a continuum. I think of ourselves now as pretty much back to so-called ""normal"", but remembering that ""normal"" does involve close awareness of what's happening with the funds rate. It did before mid-October of last year, and it does now.",87
-fomc-corpus,1988,"First, I was going to say that I compliment everyone involved in this study for a very careful presentation of the issues. I think it's very well done and balanced. I also compliment the people preparing this for their remark on page four that says: ""And it is money market rates, rather than the division of reserves between borrowed and non-borrowed components, that have the most direct impact on other financial variables in markets--such as long-term interest rates, exchange rates, and money growth--through which monetary policy is transmitted to the economy."" That's the point that I've been trying to make for a while, because it is the transmission through the funds rate adjustment that is the fundamental feature of monetary policy that we're dealing with here--whether it's the effect on money growth, or other relative interest rates, or whatever. That's the transmission mechanism; it's not borrowed reserves. Borrowed reserves are simply a mechanism by which we adjust the funds rate, and it's as simple as that. Now, I think there is a legitimate argument for doing it the way we are doing it. I think the point is made in the memo that a borrowed reserve target does allow for some variability in the funds rate and for some market forces to show through. However, my own personal view, and others may differ with it, is that the major reason for variation of the funds rate in pursuing a borrowed reserve target is not market forces--it's basically reserve estimate errors and problems associated with the reserve equation. It is rare for market forces to actually be a major factor in variation of the funds rate, even though you might have some of that show up. In trying to be more sensitive directly to the funds rate as a means of setting monetary policy, you can still allow for those market forces to affect the funds rate. You don't have to go into the market three times a day to adjust the funds rate to keep it within some narrow range. I think that all you have to do is what we are doing now--to some extent, what we were doing for a while earlier--which indicates that you are more sensitive toward the funds rate than the borrowing objective. And you enter the market once a day at the normal time, but your operations are geared toward sensitivity of the funds rate and not toward some borrowing objective which really has no meaning other than to influence the funds rate. Chart 2 in the paper is a beautiful chart that shows some of the problems with the procedure that we've been following. We had a paper prepared back in July, I believe it was, that was an excellent paper too--it pointed out there was a consistent bias of actual borrowings above expected levels. We didn't know exactly why; we had a number of potential explanations for that. But it's also illustrated in Chart 2. But more important than the upward bias in actual versus expected in that chart, is the fact that I don't agree with the argument in the paper that there are just very short periods of deviation of borrowings from expectations and expected funds rates, because it's clearly not the case. One piece of information that is missing on this chart is how often there were intermeeting conference calls or arrangements with the FOMC that explain the variations from expectations; I assume the expected line takes that into account. For instance, there's a prolonged period in the spring of 1987--I think everyone here remembers this very distinctly--where you can clearly see in the early months of 1987 this huge spike in adjustment and seasonal borrowing over the expected range. That took place for a two-month period. That wasn't just a short fluctuation in borrowings relative to expectations. That was a huge spike. If I remember, borrowings averaged almost $800 million during the entire intermeeting period in which the expected borrowing was between $300 and $400 million. That's not just a little fluctuation; that is a prolonged period of actual borrowing well above the expected level. You can see the expected level tick up a couple of times there. The only intermeeting conference call took place on April 30th, during which we adjusted the borrowing assumption from $300 million to $400 million. But you can see that that doesn't nearly compensate for the actual borrowing. You can go back for a longer period earlier--you can see in the middle of 1986--when borrowings clearly averaged well above expectations for a 4-month period; all of 1985 is another good example. But you can see that on that chart. So, I think that there is a serious issue of whether we can actually keep borrowings on an expected path. And my problem with that is: What's the point anyway? The only point is to achieve some reasonable range for the funds rate, which represents the transmission mechanism of monetary policy into the economy. So, I think that these charts and the data available here clearly show that there are some problems with this approach. Now, I'm not sure that we have to do something drastically different. I've been very satisfied with the way the operations have been run in the last several months. But I don't see why we can't pursue a procedure more consistent with being sensitive to the funds rate rather than some borrowing objective. It doesn't make any sense to me that we would do otherwise. The last point I would make on that is that I just can't buy the view that being more sensitive to the funds rate is what got us into trouble in the 1970s. I wasn't here then--maybe some of you were--but from talking to people who were here and trying to study that period, from what I can tell, the mere fact that we were trying to be sensitive to the funds rate wasn't actually the problem. I gather that money growth wasn't all that bad relative to targets during that period. If anything, it had to do with a misunderstanding of money supply measures just like some of the problems that we have now. Also, I think that it had to do with probably a slightly different philosophy. But we're big boys and it's hard to believe that we can't sit here at this table and agree to set monetary policy where it should be, whether it's being sensitive to the funds rate or what. And if we don't buy that, it means that we have to agree to a procedure that tricks us into the right monetary policy. And I just can't buy it.",1269
-fomc-corpus,1988,Mr. Black.,4
-fomc-corpus,1988,"Mr. Chairman, I'm glad that you raised this issue because I share a lot of these frustrations that Manley has voiced. I have thought for some time that we were having a problem with choosing a borrowed reserve level and getting what we wanted in the way of federal funds behavior. A lot of unexpected behavior is short-lived and doesn't really have much impact. But frequently, the deviations are rather long and rather large; and in effect, I think they end up changing the stance of monetary policy that the Committee wants and misleading the market, too. As Manley stated very well, I think the federal funds rate is the most important thing in determining the demand for money and the behavior of the aggregates over time. And I think that the Committee has been confused by this, because at times we've gotten federal funds rates that were not what we'd expected at all and that has led to some misunderstanding. For example, at the last meeting we had some discussion about what had transpired in the previous meeting. Now, there are a couple of arguments that have been advanced in favor of borrowed-reserve targeting. The first of these is that you can get movements in anticipation of where we should go that are generated on the part of the market. We've looked at that fairly closely and sometimes this happens; but it just doesn't look to us as if the empirical evidence is really overwhelming on that. You certainly can find a number of instances--Manley cited some, and there are others--where the market has moved the federal funds rate in a way that we didn't want it to move. The Continental situation and right before the October 19th crash, I think, are two notable examples. So, I don't think that argument holds a lot of water. But I think the important argument, and really the reason why we went to this procedure, was basically a political one. We were afraid that we could not move the federal funds rate as much as we really felt we ought to, unless we obfuscated in some way: We're not really moving the federal funds rate, we're targeting reserves and the markets have driven the funds rate up. That may have had some validity at the time, and I had some sympathy for it. But as time goes on, I've become more and more concerned about a procedure that really involves trying to fool the public and the Congress and the markets, and at times fooling ourselves in the process. What I'd like to suggest, if we have time for it, is an alternative procedure that might conceivably be satisfactory for both sides. The procedure would be to establish a band for the federal funds rate, let's say a weekly average of 50 basis points, that would be understood to be the range in which we would operate during the intermeeting period. The beginning point would be the midpoint of that, but the Desk, in consultation with you, Mr. Chairman, would have the freedom to move anywhere within that 50-point range. This would give us some leeway for market forces to work. And it could be understood that if the federal funds rate moved out of this range, then there would be consultation with the Committee. I think that this would be very clear to all of us and that it would work much better, because now we sometimes get federal funds rates that we didn't vote for and didn't want. So, I think a move in that direction would be very helpful and clearly would be more honest. I would hate to have to defend what we have been doing on the grounds that, in a sense, we really don't want people to know what we are up to. I'd rather stand up, as Manley says, like a man, and do what we have to do. But I do understand the other argument, because in '79, I'm sure we would not have gotten some people to vote for the new procedure if they had not thought that it provided a cover for doing something they didn't think that they could get away with. I've heard members of the Committee state that. So it's not something to disregard lightly; but I think that our long-term credibility can be damaged if we use that as a cover-up for what we're really doing.",836
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Thank you. I also have very much enjoyed reading the papers. But I think there's a semantic unresolved conflict that becomes apparent--in the paper itself, too--that's at the bottom of what both Manley Johnson and President Black have been talking about. For instance, if you look at page four, it is very clearly stated that fluctuations in the funds rate can at times ""lead to a misperception of the Federal Reserve's intentions."" That's at the top of the page. And on the next page it is argued that ""Movements in the federal funds rate can convey information to policy makers about expectations and other aspects of financial market conditions."" And then it says a little lower down that ""A narrow focus on the funds rate tends to smother such market-generated reactions"". Either we see the fed funds rate as a signal to the markets or we see the rate as a signal to us. If we are trying to get both types of signals out of the same number, or we perhaps get the two of them confused, I think that we do have a bit of a problem. The second point is that I find it very difficult to believe that a $200 million or $250 million borrowing target is something that is so precise that we can steer the entire economy with it. It is something that is so minuscule in comparison to the markets that I continue to marvel at the good job that we are doing on it. The seasonal factors and the other things that influence our required reserves are just overwhelmingly large compared to that small number. And then we are arguing here in the Committee about going from $200 or $225 million--you know, it's just something so small in the entire economy that I find it difficult to believe that that is really the entire fulcrum on which we can influence what happens in the country at large. There's also the problem that the reluctance to borrow sometimes--I guess you can have the converse as well--would very strongly influence the $200 million dollar number, as we have seen in the last couple of weeks and months in connection with the Texas situation. Overall, I must say that I'm very satisfied with what has actually happened. And so I'm torn here. We have a procedure, but I don't really fully understand why it is producing the good results--results that I like. There hasn't been a convincing argument, I think, as to what brings that about. On the other hand, I'm reluctant to say let's get rid of this procedure if it will continue to produce these good results. But I'm not convinced that it will actually do that. Suddenly, we may be off the track and we may be flying that airplane right into the ground. And we'd still be wondering what happened, because we had such a nice borrowing target, but somehow or another the whole growth path of the aggregates isn't doing what we'd like it to do. Now, there are really two papers in front of us--one by Ms. Meulendyke, in which there is a nice quick discussion of the procedures that existed in the 1970s. It says the FOMC ""instructed the Desk to raise the federal funds rate within a limited band if the monetary aggregates were well above the tracking path or lower the funds rate within that band if the aggregates were below the tracking path."" It sounds an awful lot like what Mr. Melzer has proposed, except that he was talking about the monetary base instead of the aggregates. But there isn't a lot of discussion about why that procedure was abandoned. It just says factually that in 1972 modifications were made and, like many of us, I wasn't there. I'd really like to have heard a bit more about why that particular procedure would be an unsatisfactory one. I guess that's perhaps something Mr. Sternlight can enlighten us on.",767
-fomc-corpus,1988,I don't think there was anything abrupt that happened in 1972. We were getting into closer and closer federal funds targeting that ended rather abruptly in 1979.,33
-fomc-corpus,1988,"Because there was a reluctance to adjust in order to--in essence, we were not following this early 1970s procedure the way it was laid out?",33
-fomc-corpus,1988,"Well, I think there was a reluctance to make the moves in the federal funds rate that, in retrospect anyway, would have been a little more appropriate.",32
-fomc-corpus,1988,"So, it wasn't a bad procedure, you would argue. It was sort of a lack of moral fiber that--",23
-fomc-corpus,1988,"I'd regard that as an aspect of the procedure that lent itself to that constraint. MR. PARRY(?). There was the additional problem, too, of knowing what rate to aim at. That isn't obvious. There was a reluctance, I think, in that period, to move the rate sufficiently. And secondly, there was some considerable uncertainty about what would be the appropriate rate if one had the will.",82
-fomc-corpus,1988,"But if you had had borrowed reserves, there would have been the same question about what the appropriate level of borrowed reserves was.",25
-fomc-corpus,1988,"I think that it was the very hot political environment that made us reluctant to do that. You know, interest rates were getting pretty high about that time. There was a lot of pressure on us and we knew that we had to do something. And we had to make it palatable so we didn't get shot out of the water as soon as we began to move. I think--I don't know if others would agree--that's why we did it at that time. I thought that we would end up targeting the money supply; but I think most of the people in the room really thought it was a way that they could get the federal funds rate up more than they otherwise could get away with, in that kind of highly charged political environment. That's the way that I read it. I don't know; Jerry or some of the others who were here might see it somewhat differently.",176
-fomc-corpus,1988,"I think it was the case--wasn't it, Peter--that the Committee would come into a meeting and would set a fairly narrow band for the funds rate. And then there was a great deal of dependence on the staff projections for the aggregates--the funds rate could creep in that band if the projections for the aggregates for the next two or three months drifted away from what was desired. But it was a very lagged process and the projections weren't always right. I think that's President Parry's point. It took a long time, given the process, to have adjustments made--with the combination of the narrow band for the funds rate and the projections--",133
-fomc-corpus,1988,That's consistent with what I said--I anticipate the problem would be money supply problems.,17
-fomc-corpus,1988,"There's one other aspect of that: the market understood that we were looking at the funds rate. And a 16th of a percentage point move in the funds rate moved the market at that time. We almost got trapped in our own procedure, in the sense that we had to have a virtual consensus of this Committee and of the then-Chairman to move more than a 16th of a percentage point on the funds rate, simply because the market reacted so violently to it. People such as the Chairman used to interpret that data, I'm sure.",111
-fomc-corpus,1988,One other aspect is that I don't think we--I was around this place in the 1970s--sufficiently understood that the inflation psychology had become so strong in this country that small moves in interest rates were shrugged off. Moves in interest rates that previously would have had a big impact on the market had no discernable impact at all. And we were very slow to recognize that.,79
-fomc-corpus,1988,"There were interest ceilings in the banking system; you couldn't even effectively get the rate [up]. Well, I'm not talking about--",26
-fomc-corpus,1988,What part of the [discussion]--?,9
-fomc-corpus,1988,"Let's be certain of that. What we're now on is the side issue of the 1979 procedure, which I think is very interesting. Let's continue it, but let's limit it to a certain extent and stay only on the 1979 procedure. I'd appreciate going further. But if anyone else who was here then wants to [comment], that was a terribly important period for exactly this issue, and I don't wish to say that we shouldn't discuss it at all.",93
-fomc-corpus,1988,"Let me make a couple of general comments. I think that Ann-Marie Meulendyke's memorandum that is attached to Peter's and Don's memorandum is very revealing, because what it says to me is that there's nothing new under the sun--that the same frustrations and the same debate has been going on since time immemorial.",67
-fomc-corpus,1988,Are you still on the 1979 issue? Then hold it.,14
-fomc-corpus,1988,Okay. I'm sorry.,5
-fomc-corpus,1988,"Actually, we'll start with 1979. And then I think Governor Angell is next.",19
-fomc-corpus,1988,"I didn't attend the meetings, but I spent a good portion of my time as director of research [at the Philadelphia Reserve Bank] on the 1979 issue, trying to widen the funds rate bands. We went through a lot of the things that some of us alluded to here when the base argument came up two months or three months ago; we went through things like zone of indifference and zone of tolerance. And during that period--Peter is right--it is part of the process. If you use interest rates, you're going to be procyclical. You may think that you are going to be able to jump out in front, but the experience was that you just won't move interest rates sufficiently to get on top of an expanding economy.",152
-fomc-corpus,1988,"I agree. But how is that different from a borrowing target? I'm just saying that the borrowing approach has the same problem with it. If you agree that that was a problem in 1979, a borrowing target would present the exact same problem. So I don't know--",55
-fomc-corpus,1988,"I think you can argue that, for some people, it's a little easier to move the borrowing target. I argued as you did. I don't think we ought to do that. But I do think that some people would be more likely to move at the point in the cycle in which we usually make our worst mistakes [unintelligible] cycle.",71
-fomc-corpus,1988,"I'd do it a bit differently. I think that the borrowing target is more closely related to what I think drives the economy. And it may be that money matters--whether it's the base, M1, M2, or M3--",48
-fomc-corpus,1988,[Unintelligible] this is tough to maintain. Maybe we ought to go back to the regular sequence. Governor Angell.,27
-fomc-corpus,1988,"Yes, I'm interested in the discussion. I'm really interested in Governor Heller's point; he made the point that I'd like to make, but on the other side. I'm arguing his side--I think that he's saying that the system really isn't broke and let's not fix it. It's working better than you expected that it would work, or theoretically would work, and that's enough. It seems to me that we have really three kinds of alternatives: you can target the fed funds rate, and if you choose to do that, we've had experience with that and that can be accomplished; or you can target the money aggregates; or you can target reserves to target money aggregates. I prefer the present position because we, in a sense, are in between. This would permit us, when we believe we can, to emphasize once again the monetary aggregates more forcefully. It seems to me to go in the other direction, and to go back to fed funds targeting, would be seen in the markets as an abandonment of the kind of sound money policies that came out of the policies that resulted in this nation's double-digit inflation rates being brought under control. So it's a very symbolic issue. And the markets, I think, would respond very adversely if we were to move in that direction. In regard to the political consequences, it seems to me that our experience in 1987--after the October 19th crash and all of these people predicting recession--was that we actually did become very fed funds oriented, and that that was the political incentive. If the fed funds rate didn't respond properly to what we thought was the lowering of the target, then we got all excited. So it seems clear to me that having a fed funds relationship does put you closer to the political situation. I believe that it is so important that money be restricted over a period of time to maintain some scarcity. And this [reserve] pressure approach that we are under is one that enables us to proceed toward a somewhat restrictive monetary aggregate targeting in the future. All of us know that that's important for price level stability. So I would consider a move to fed funds targeting to be a wrong move and to result in inappropriate policy choices. Now if --",442
-fomc-corpus,1988,But how does borrowing do that?,7
-fomc-corpus,1988,"Now, if Governor Heller suggests that $200 million or $300 million doesn't make much difference, I ask you: How much difference does it make to change the fed funds rate from 6.75 percent to 6.50 percent? I would suggest that in doing that, we're more tempted to make that move. I would suggest that we would not have made the move we made in February--which I thought at the time was an incorrect move and I still think it was an incorrect move--if we had not been concentrating on the fed funds rate. It was only because we thought that someone might see that very slight change in the fed funds rate that we were encouraged, it seems to me, to accomplish it. So I would go back, Manley, to the period in 1986 and 1987. I agree with you that we did not strictly follow in an unbiased manner the borrowing targets during that period. It seems to me that we not only had some misses, but there were times that we accepted the actual outcomes that were different. I'm not suggesting a return to that period; I'm suggesting that the Desk follow more closely the adjustment plus seasonal borrowing targets early in the two-week period. We start off following those very closely and we let the fed funds rate move. It seems to me that there's no need on the last day, with contemporaneous reserve accounting, to try to make everything fit and hit the borrowing target on that last day. If we have our average in there early during the two-week period, then I don't mind letting the fed funds constraints be more important on the last day to prevent those spikes. So, I share your frustration concerning the earlier procedures and I don't want to return to them. I really want to follow more precisely adjustment plus seasonal borrowings as an interim policy that will enable us later to return to closer monetary aggregates targeting.",378
-fomc-corpus,1988,"Then you're arguing for maybe as much fine tuning as several days' changes in the funds rate, in order to stay on some borrowing path continuously through the two-week period. You know, I'm just asking; if everybody wants that, that's fine. I'm just saying, you can look at the evidence and see for yourselves that there are long periods when the FOMC's policy directives have no meaning. And if that's okay with everybody, it's fine with me.",92
-fomc-corpus,1988,But I think all of us know why that took place; I don't think there's any need for us to go into that. I think we can pursue borrowing targets and have deviations of borrowing around those targets be unbiased.,43
-fomc-corpus,1988,"Statistically, you can't, because you're dealing with a number which is positive and cannot go below zero. So the bias--especially as you're getting to the lower area--has to be on the plus side.",42
-fomc-corpus,1988,You mean when you have strong deviations? You have--,11
-fomc-corpus,1988,"No, I mean the bias. If you're trying to hit a target which can have errors on both sides, it can never have an error which is below zero, so that the expected estimate is always higher than the one you're shooting at.",48
-fomc-corpus,1988,"But that bias is brought in because of the choice of a borrowing target closer to zero. If we would always choose a borrowing target somewhere between $500 million and $1 billion, then we would have more leeway to have fluctuations on both sides.",50
-fomc-corpus,1988,But what if you don't like the monetary policy that goes with that? What if you don't want--,20
-fomc-corpus,1988,"Well, then you can change the discount rate. If you don't like the monetary policy that goes with $500 million adjustment plus seasonal borrowing, you lower the discount rate.",34
-fomc-corpus,1988,"Well, that's the other implicit issue associated with this procedure. It's led almost by discount rate changes--using the discount rate as one of the primary mechanisms of monetary policy.",34
-fomc-corpus,1988,"But you said that we're all strong men and women who can stand up and be counted, and I would suggest to you that there's no better way to stand up and be counted than to change the discount rate.",42
-fomc-corpus,1988,"If the FOMC doesn't mind being dragged along by the discount rate, that's fine.",18
-fomc-corpus,1988,"I guess it's a surprising development here for the members of the Board of Governors, for the most part, to be arguing that they want the FOMC to have more say, and for the Presidents to be arguing that they want the Board to have more say, which is what's involved.",58
-fomc-corpus,1988,I agree that that is what's going on.,9
-fomc-corpus,1988,"""After you, fellow"", right?",8
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"As I started to say, I think Ann-Marie's memorandum is interesting because what it says is that there's nothing new under the sun--that this debate, in various forms, has been going on since time immemorial. One of the more revealing things in her memorandum, it seems to me, is that in 1968, as I recall, we established a system of lagged reserve accounting to help us hit a free reserve target; and as soon as we went through all the pain and expense of doing that, we abandoned free reserve targets. What she didn't say, of course, is that in the early 1980s we went to incredible pain and expense to institute a system of contemporaneous reserve accounting to help us set the money supply; and no sooner had we gone through the pain and expense of that we abandoned the money supply targets. Now, if that isn't coming full circle, I don't know what is. But I think what is at issue here are two things that are inescapable. One is that it's a lot easier to ease monetary policy than it is to tighten. I don't care what indicators you're using; I don't care what your philosophy is; it's a lot easier to go one way than it is the other. And I think that the history of monetary policy around the world is ultimately tied up in that question. I think it's also true, as Manley said, that the borrowings number is obviously a proxy for a bunch of things. But so is the federal funds rate. Indeed, there's nothing particularly appealing about the federal funds rate in itself. You can pick federal funds rates, which at different points in time have been associated with wildly different patterns of economic activity, inflation, and all the rest of it. There is absolutely no magic in the federal funds rate and its relationship to the things that we really care about. The funds rate in its own sense is merely symbolic of a bunch of things. So, whether you're talking borrowings or the funds rate, I think, in some sense, you're talking about a proxy for a collection of things. And that's partly the answer to Governor Heller's question as to why, if the procedure is so lousy, the results are so good. I think the answer to that is, in part, because we all look through the procedures. In other words, we do not focus simply on the transmission variables or the proxy variables; we look through those things and we make judgments about them based on what we see in the economy, in inflation, and all the rest. Indeed, it seems to me that that's why there are conditional elements in the directive language. That reinforces the view, in my judgment, that the things we are focusing on are imperfect proxies for the things we really care about. I don't fully agree with the argument that the move away from the federal funds rate was simply a politically driven decision, especially one that was motivated by obfuscation. I think it was more fundamental than that. I think it did reflect the earlier experience. And the experience was, as Frank said, that we were staring a roaring inflation in the face. And we chose [not] to, or were unwilling to, recognize it and respond to it. So, I think there's more to that than politics and obfuscation. I also think that there's more to it in another sense. It seems to me that, regardless of what we use as the proxy for policy, a very crucial question is: What constitutes a change in policy? We are always the ones who will have to answer that question. So, of the decisions that we make, which do we regard as a change in policy? I think we have a responsibility to inform the world when we make a change in policy, as opposed to a little give here and there based on markets and developments and all the rest of that. That's the question that I think is on the table. At the extreme, if you have money supply targets and they're annual and you literally view them as targets, you very seldom change policy. But if you're talking a federal funds rate that is a discrete number--that has a point estimate attached to it--and you really want to say that that's your policy instrument, it seems to me that you are looking at a situation in which you're going to have to be saying with great frequency, Mr. St Germain, we changed policy yesterday.",886
-fomc-corpus,1988,"But, Jerry, we don't talk about borrowing targets now for the times--",15
-fomc-corpus,1988,"But again, I think there's a reason for that. And the reason is that they are construed in a way in which lowering your borrowing target is not viewed as a change in policy. It is viewed as consistent with an ongoing policy.",47
-fomc-corpus,1988,"Well, I'm not suggesting we announce to the world that we're targeting the funds rate.",17
-fomc-corpus,1988,But what are you going to announce?,8
-fomc-corpus,1988,We're going to do what we always do. We aren't going to announce to the world today that we target borrowed reserves.,24
-fomc-corpus,1988,"Again, I just caution you, you get to the point where you still have to answer the question: What is a change in policy? That I think--",32
-fomc-corpus,1988,But that's no different than today. What is a change in policy today?,15
-fomc-corpus,1988,"A change of policy, in the context of existing directives, is an increase or a decrease in the amount of pressure on reserves. And it seems to me--",32
-fomc-corpus,1988,But that's all I'm talking about. It's exactly what you do when you alter the funds rate because--,20
-fomc-corpus,1988,It's not the same.,5
-fomc-corpus,1988,But it is.,4
-fomc-corpus,1988,It absolutely is not the same in terms of--,10
-fomc-corpus,1988,How is it different?,5
-fomc-corpus,1988,"It differs in the very sense that we're stuck on this problem right now. Now, when you go back to October, you're trying to hit a federal funds rate target to the second decimal point. And if you're going to do that, it seems to me that that carries with it the implication that policy defined in those terms is going to take on a short-run orientation that is going to be disruptive to markets, more difficult to communicate. If we were to change policy right now, what would you say in your testimony? I saw it on C-Span; you were asked two or three times: Has there been a change in the approach to policy? You said no in your recent testimony. If we literally take the step of saying that we're going to target the federal funds rate, I don't think you can answer that question by saying no.",169
-fomc-corpus,1988,The directive would read the same way it does now.,11
-fomc-corpus,1988,"Well, you're talking about slightly different things. I think Jerry is talking about getting rid of the monetary growth targets totally, right?",26
-fomc-corpus,1988,I'm talk--,3
-fomc-corpus,1988,"And you're thinking that, too?",7
-fomc-corpus,1988,I wouldn't do that.,5
-fomc-corpus,1988,"You're keeping it, right?",6
-fomc-corpus,1988,"What would you do, I guess is the question?",11
-fomc-corpus,1988,I'd do exactly what we do now; the directive would read exactly the same. We'd sit here and vote on a range of federal funds rates instead of a borrowing number or something like that. And we'd do open market operations the same way we do them now.,52
-fomc-corpus,1988,But that's a change in the approach to policy.,10
-fomc-corpus,1988,"The directive would say slightly more, or slightly less, pressure on reserve positions.",16
-fomc-corpus,1988,"You know, I think the question basically is there is no ambiguity on the issue of targeting some monetary aggregate. They may be right or they may be wrong, but that's clear. And we think we used to know what the relationship was with the economy.",51
-fomc-corpus,1988,But we would still be targeting a monetary aggregate.,10
-fomc-corpus,1988,"I'm trying to get at an interesting issue here, because the question really gets down to how you would determine what the appropriate funds rate is.",28
-fomc-corpus,1988,The same way we try to figure out what the appropriate borrowing number is. How do we know what the relationship is between borrowed reserves and monetary aggregates?,30
-fomc-corpus,1988,That's what helps us.,5
-fomc-corpus,1988,"Let's remember why we went to a borrowing target--basically because the monetary aggregates per se sort of broke away from their ties [to broad measures of economic performance] and, as a consequence, required reserves tended not to be working any longer. So, instead of nonborrowed reserves, we just took the top part of it, and knocked out the income velocity part which was giving us trouble, and we now have the borrowing target.",88
-fomc-corpus,1988,But what--,3
-fomc-corpus,1988,"So you have that little thing that goes up and down. It's like a little boat, and you have enormous waves bobbing it up and down. We don't know; we say as long as we stay two feet above water, we're fine.",49
-fomc-corpus,1988,"This sounds to me, as Jerry said before, exactly like all of the discussions which led to the targeting of monetary aggregates. Because, in fact, then you had a tie-in.",37
-fomc-corpus,1988,But what is this borrowing target? What does it have to do with monetary aggregates? It has nothing to do with them.,25
-fomc-corpus,1988,But neither does the federal funds rate.,8
-fomc-corpus,1988,"It does in this sense, Manley--I think this continuum idea is useful.",17
-fomc-corpus,1988,It doesn't have anything to do with monetary aggregates.,10
-fomc-corpus,1988,"If you think of reserves and the money supply as being a ""10"" [on a continuum], and you think of the federal funds rate as being a ""1"", say, the more problems you have with the monetary aggregates through reserve targeting, the more you want to move toward the federal funds rate. And the borrowing is a point along that continuum between total reserves and the federal funds rate. It's not that borrowing per se is important; it's the degree of compromise you make between the federal funds rate and the reserves procedure. And the borrowings thing is skewed in the direction of the federal funds rate.",122
-fomc-corpus,1988,"I'm simply saying, if you hit your borrowing target precisely--say you hit it on the nose the entire time--what monetary aggregate growth would you get out of that?",34
-fomc-corpus,1988,"Manley, analytically there's no--",8
-fomc-corpus,1988,It's totally unpredictable--,4
-fomc-corpus,1988,"There's no disagreement, analytically; you're correct, analytically. It's a question of emphasis; it's a question of stance. Of course, you're going to get the one; you're going to get the other.",42
-fomc-corpus,1988,I'd love to be able to narrow this argument from conceptual theoretical issues down to whether we want to use this procedure for various other reasons. That's fine with me. I just want to make sure we understand what--,42
-fomc-corpus,1988,I think we all do.,6
-fomc-corpus,1988,"On the theoretical issues of the procedure, I'm not convinced that's the case. It sounds like a lot of confusion to me.",25
-fomc-corpus,1988,"There is, and I think Frank Morris will add to it!",13
-fomc-corpus,1988,"As I said at the last meeting, I think that what we're really doing under the current procedure is targeting the federal funds rate. The reason is that if you target borrowing, that means that you are automatically supplying nonborrowed reserves to the extent the market demands it. And that means that if the demand for reserves is strong, we'll supply an increased rate of reserve growth in order to have the effect of keeping the federal funds rate from rising. If the demand for reserves is low, we will reduce the amount of nonborrowed reserves and that will keep the federal funds rate from falling. I didn't mean that we're pegging the funds rate the way we were back in the 1960s and the 1970s. What I think we are doing is keeping the fed funds rate within a certain range. I think that is a desirable thing to do. I don't agree with Bob Black that we should publish a range for the federal funds rate--if he meant that. I think politically we're a lot better off with the present form of the directive, because if we get back to a period where we need to raise interest rates in sizable chunks, we're going to be a lot better off having that form of directive than having to announce a federal funds range of 50 basis points or something like that. On the other hand, I don't think we should kid ourselves about what we're doing. I think there's a good reason for staying with the present procedure, but we should recognize that we're not controlling the rate of growth of reserves--we're controlling the federal funds rate within a band. So, I think that when we have problems with borrowings--if banks are reluctant to borrow for some reason, or there's some other technical reason why the borrowing is getting out of line with the range of interest rates the Committee is talking about--the range of interest rates ought to be dominant and not the borrowing target. And I think that is precisely what Peter's been doing, and that's why you get these zigs and zags. I think those zigs and zags are very productive and we shouldn't worry about it. It would be a lot less productive if we were getting that kind of movement in the funds rate; if there's some technical reason for it, I'd much rather see it reflected in--",460
-fomc-corpus,1988,You're saying zigs and zags in borrowing are productive?,12
-fomc-corpus,1988,They're more productive than--,5
-fomc-corpus,1988,I agree with that.,5
-fomc-corpus,1988,If we tried to just keep it at a level--,11
-fomc-corpus,1988,I agree.,3
-fomc-corpus,1988,The funds rate would be dropping all over the place.,11
-fomc-corpus,1988,I agree with what you're saying.,7
-fomc-corpus,1988,"And I think that would be undesirable. So, I think de facto, controlling the borrowing is a functional equivalent of controlling the fed funds rate. But at the same time I think it would be unwise for political reasons to change the format at this time.",52
-fomc-corpus,1988,"I'm saying exactly what you're saying, Frank. I'm saying do exactly what you're doing now, except that you avoid the big zigs and zags on borrowings instead of on the funds rate. That's all I'm saying.",44
-fomc-corpus,1988,I think what we learned in the 1970s--and we should keep it in the back of our minds--is that publishing a funds range at a time when we need to push the funds rate up would pose a hazardous duty. And we should never get back to doing that.,58
-fomc-corpus,1988,"I'm sorry, publishing funds?",6
-fomc-corpus,1988,Publishing in the directive that the Manager should keep the funds rate within a small range. I think it would be unwise for us to go back to that.,32
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Mr. Chairman, when I heard Bob Heller's remarks, I too was going to say if it ain't broke don't fix it, but somebody already said that. Let me start with a procedural matter. First of all, I thought the memos, particularly the Meulendyke paper, were extremely useful. I wasn't around here in the 1970s and I found that historical perspective very interesting. I would like to suggest that somebody think about publishing that somewhere for the market to look at. Having said that, let me say something nasty now, and that is, that while I enjoyed reading the memo, I didn't have much time to read it because it only reached me yesterday morning. I raise that issue in the context of this discussion only because if we're going to have more frequent consultations, which hasn't been discussed, those consultations frequently will have accompanying memoranda; and if we don't get them in time to really reflect on them, they don't do us much good. But turning to the substance of the issue, it seems to me as I went through all of this, that I agree with Governor Johnson that there really is very little policy difference between targeting borrowing and targeting a funds rate. I think we really are targeting the federal funds rate, but in a more general way. And I'm persuaded that we should not make a change for three basic reasons, which I think have been touched on by other speakers. First of all, it does seem to me that we get very useful information from the market, because of the deviation in the funds rate in relation to borrowing. Many times those are market induced, and I think policymakers can learn something from what the market is telling us. Secondly, and perhaps more importantly, it seems to me that by using a borrowing target as a proxy for the funds rate--or, if you like, for policy--we're able to probe a little better than we can with a funds rate target. That is to say, the uncertainty generated sometimes by the borrowing and the differential on the funds rate would enable us to reverse policy if we found that that was desirable. With the funds rate targeting, we don't have that kind of flexibility. So, I think we get some flexibility by using a borrowing target. The political argument has been talked about and I think we ought not to underestimate that, because if we get into a period when we have to tighten policy, it's a very difficult thing to do politically. Some times it's more difficult than others. I don't think that our posture in the past has been to be publicly identified with targeting interest rates--certainly not in recent years. I don't think it's a good idea for us as an institution to have that on our backs. As people look through the realities, obviously they'll see we really are targeting the funds rate; but I think we get some advantage by staying away from the targeting of the funds rate itself. I think you have to be in the market on a regular basis too, Manley; I don't think you can do it on a haphazard basis. I think you have to be in the market a couple of times a day to really fine tune it.",634
-fomc-corpus,1988,You mean borrowing or what?,6
-fomc-corpus,1988,If you were targeting the funds rate.,8
-fomc-corpus,1988,"The funds rate. Oh, I don't think you need to do anything different than what you're doing now. You'd go in once a day, around 11:40 a.m., but the action the Desk took would be more sensitive towards a rate protest than it would be toward a borrowing protest.",60
-fomc-corpus,1988,But in the--,4
-fomc-corpus,1988,"That's the only difference that we would pursue. As a matter of fact, we would do exactly what Peter has been doing for the last several weeks. I'm saying I think it has been outstanding.",39
-fomc-corpus,1988,"Well, that's the other point I wanted to make. If you find that you are getting major deviations, then I think you can correct that. But I don't think we ought to be doing funds targeting on a regular basis. Now, there are two other things that were said that I think need to be addressed. It doesn't seem to me that we are in any sense misleading the markets by this policy; I don't think it's a deliberate obfuscation. I think the markets understand, and we understand certainly, that monetary policy is not an exact science. And I don't think that using a borrowing target is designed to mislead anybody. Also, I don't think that these deviations--to use the analogy that somebody else did--are causing us to have the airplane on a crash course into the ground. I don't think we're anywhere near that. Nobody has mentioned the intermeeting consultation and discretion, so let me just raise that if it is an issue, Mr. Chairman.",194
-fomc-corpus,1988,I mentioned it.,4
-fomc-corpus,1988,"You mentioned it; excuse me, I must have been asleep at that time. I think it's very important for the Manager, in consultation with the Chairman, to have discretion. And I, for one, would not like to limit that discretion with any kind of numerical bounds. One thing I think we could do at regular meetings of the FOMC is to give some sense to the Chairman as to how we feel about deviations from policy or a reversal of policy. But I think that can be done in a general way, without saying if you want to change it $100 million come to the Committee; I would leave that to the Chairman. But we could have some general discussion as to when we think, in general terms, a consultation is necessary. And finally, I don't think we need any more meetings of the FOMC.",168
-fomc-corpus,1988,Ever?,2
-fomc-corpus,1988,"I don't think the information to be gained, on say, a monthly basis, is sufficient to have us come together to review the situation. So I would like to keep our present meeting schedule, gentlemen.",41
-fomc-corpus,1988,"I would too, if we're going to do exactly what we've been doing. But I think that's consistent with what I'm arguing.",25
-fomc-corpus,1988,"What I'm saying, basically, is just keep what we're doing because, as Bob Heller suggests, maybe we've been lucky. And maybe it won't turn out to be quite as good as it has in the recent past, but I think that's something we just have to accept. I'd be willing to accept those deviations.",63
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"Well, I think just about everything has been said in this conversation. It's a question of emphasizing points. The first point is that we can debate this theoretically, conceptually, now and forever, and it's very frustrating because it involves compromise. We are trying to take two different approaches and compromise them and that's not very satisfying. It seems to me the choice, then, comes down to what works. My own preference would be to get back to where we were before October 19th, which is what I think we have been doing. I don't think we're quite back there, but we're almost there. I have a couple of reasons for that preference. One is that it does seem to have worked reasonably well. But the point was made earlier that no matter what procedure we have, it's always easy to ease; that's not a problem. We've never had any trouble there. The real day comes when we need to tighten. I'm sure everybody around this table now is much stronger and much more forthright, has more courage and guts than anybody else in the history of the Fed, but I think there are some lessons from history. And the experience has shown that the more you focus on the federal funds rate, the more difficult it is at the time when you need to tighten, to do it. So, I think we need to keep a bit of fuzziness there. I would, on very practical grounds, stay about where we are. On the other issues: I agree with the point that the Chairman needs some discretion. I have not in any way been upset by the way that discretion has been used. Maybe I would have used it a little differently, but I think on the whole it has been done rather well. And I don't think we ought to hem the Chairman in with numerical kinds of constraints. There is a way, however, that perhaps communication can be sometimes improved. I don't mean to suggest that this needs to be done every time the Chairman uses discretion, but we can have telephone conferences. These conferences do not have to be official meetings; they do not have to be decision-making meetings. They can simply be held to exchange views--a kind of meeting that really never gets on the record if there aren't any decisions made. So, it might be possible, in the right kinds of situations, simply to have these telephone hookups.",472
-fomc-corpus,1988,Is that factually correct? Can we have a meeting without being on the record?,17
-fomc-corpus,1988,"Oh, sure.",4
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,If no decisions are made.,6
-fomc-corpus,1988,"We have done it both ways, Mr. Chairman. Telephone consultations without votes sometimes are reported and sometimes are not reported. I think more often reported than not.",32
-fomc-corpus,1988,"In the last year or two, yes; but before that, it was the other way.",19
-fomc-corpus,1988,"Yes, I think over the longer run Norm Bernard is right; we had more that weren't recorded than were. If decisions are made, votes are taken, obviously it has to be recorded. If not, there's some discretion. I agree as well that we don't need any more FOMC meetings, as delightful as these gatherings are.",67
-fomc-corpus,1988,You have the shortest commute.,6
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"I see no need at this point to change the current procedures. Harking back to Ed Boehne's analogy of 1 to 10, I thought there were some of us here who would prefer to go back to something like a total reserves target or a nonborrowed reserve target procedure at some point in time. Keeping the framework that's currently in place allows us to keep that hope alive to some extent, whereas if we go straight to explicit funds rate targeting I think we would be doing ourselves a disservice. It's very hard to reverse that process; my experience in the 1970s leads me to believe that. I would stay where we are, in terms of how we're doing this. In terms of the Chairman's discretion, I really don't have too much to say about that; I think he's got to have the ability to make some decisions. And I don't see an easy way to limit that in order to fulfill our responsibilities. I think it's a matter of trust, and I'm comfortable with that.",204
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"Well, if I wasn't confused before this discussion, I guess I would be now. I don't know that I have very much to add. In thinking about the structure of the Bluebook, I guess I'm persuaded that focusing on a borrowing target and focusing on the funds rate basically come out to the same thing. When you read about the policy options [in the Bluebook] they give both the borrowing levels and the interest rate they're consistent with. You can honestly do it either way. Presumably, they pop out of the same kinds of equations. Having said that, I think one of the major reasons this discussion has come up once again is the more fundamental problem that we're all aware of--and we've agonized over for several years now--which is the breakdown of the money/GNP relationship. Without that, we probably wouldn't be going through all this, because we'd be in a more comfortable situation of being able to focus on M1, M2, or something else, and just proceed along those lines. Having said all that, I guess I do have a preference for continuing to operate the way we were prior to October 19th--which I don't think is very far from the way we've been operating the last few weeks either--simply because I think that, on the margin, there is some value to going through the reserve side of the thought process. There's an awful lot of volatility out there, and a lot of shocks that hit the financial world and the real economy, and so on and so forth. And it seems to me that we're best advised to try to incorporate as many of those things as possible.",327
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I think maybe I ought to clarify some of my statements. I would like to say, first of all, that I'm very sympathetic to what Governor Angell had to say: that what we really ought to do is control the supply of reserves in such a manner that we control whatever monetary aggregate is going to determine the level of prices over the long run. I don't think we can really, in the long run, control real variables; all we can control are nominal ones. I think the objective ought to be stable prices. And that's the way I would want to do it. If we ever get to that millennium, I think that required reserves are probably going to be the best target for us against whatever aggregate we settle on. And I wouldn't want any bands on the federal funds range at all; I would want that to be free to move enough to allow us to hit that target. What I was talking about earlier was this interim period where the demand for money has been unstable and our present procedures call for us to try to gauge the dimensions of the demand for money and set the operating variable that will best give us the kind of results we want. And I think that's the federal funds rate. So far as this issue of discretion is concerned, I did not mean to take away your flexibility. I was trying to suggest a band that was reasonable--that would be agreeable to the whole Committee as an operating range within which you could adjust the rate. I'd like to use the whole band--that 50-basis-point-average range that I talked about--and just have some understanding that if we went beyond that, you would consult with the Committee. There was some discussion, as you remember, at the last meeting that maybe we shouldn't have changed the borrowed reserve target without consultation. I didn't hold that view, but some did. And I thought it was important that we reach some agreement on when there would be a consultation and that's the reason I suggested it. But, basically, I don't want to do this over the long run with the federal funds rate at all. I want to do it with reserves, somehow measured, if we can get back to a more rational financial [unintelligible]. So, that's where I come out. My recommendation applies only to the interim period that we're in, and if I thought that this would prevent our going back to [reserve targeting]--Lee, as you said--let me change my position.",495
-fomc-corpus,1988,"Let me say, it has always been different.",10
-fomc-corpus,1988,"Let me change my position because I want to get, I think, where you want to get. And if this would jeopardize that, then I've made a bad mistake.",35
-fomc-corpus,1988,"Bob, the interim can turn out to be a long time.",13
-fomc-corpus,1988,"I know; traditionally, it has been very long.",11
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I favor the normal operating procedures, pre-October, without the additional flexibility. The reason I say that is that, in my mind, we've gone as far on this spectrum as we can go toward funds rate targeting. And for a lot of reasons, all of which have been said--political, the relationship of the funds rate to our economic goals, and so forth--I would rather look at our business as being defined in terms of reserves, not interest rates. And frankly, even though it might be perceived by us as a subtle shift, if we begin giving Peter directions in terms of the funds rate, eventually that's going to become known. And I think there's a point of intellectual honesty in terms of communicating that to the public. I don't think we can do that and expect that it will not become known. Then there will be an issue of why this change in procedures wasn't communicated. The final point I would make--it can be made even with what we're doing now, but even more so if we went to a funds rate target--is that to be consistent with what has been done in the past, we certainly would have to go to a proviso on some aggregate. In other words, you would have to have that balance in there. Just as we now talk about a degree of reserve restraint, subject to fluctuation in the funds rate, if you went to a funds rate, it would have to be subject to some constraint on a narrow aggregate, in my judgment. That's all I have.",305
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I'd like to make a couple of comments as a person who was involved in banking most of the 1970s. The image was that the policymakers just had no courage to fight inflation, because the Phillips curve suggested that when you fight inflation you're going to run unemployment up and policymakers couldn't take that heat. I don't think people were focusing on whether or not fighting inflation by tightening monetary policy meant concentrating on one variable or another. It was a bigger issue: they just thought people who made policy were a bunch of weenies and couldn't handle the big job. That was the view anyway. I share Manley's frustration with the operation of the Desk at certain points, and I think my frustration reached its peak this time last year. I would just hope that the record of our discussions will really sensitize people to the concerns of some of us that when we think we've voted for a certain policy at an FOMC meeting and then we watch the numbers every day and see that we are getting away from what we thought the Committee voted on--I think maybe this has been a worthwhile exercise. As I said a year ago, we went through a whole month where the daily explanation was that we couldn't predict Treasury balances or one thing or another, and that's why we were getting away from both the borrowing target and where we thought fed funds might be. And then the light dawned: well, in fact, we really snugged a bit. And if that was going to take place--and maybe we needed to snug, by the way--then I think it should have been brought to the attention of the FOMC. I think there should have been a telephone call or something. I agree, certainly, that the Chairman needs discretion; I would argue that with my last breath. But I thought that was a policy change. Also, I'm very concerned about the messages that we send to market participants when we miss, for whatever reason, and when suddenly the fed funds rate runs up--or runs way down, for that matter. I think we could take care of this situation if we would release the minutes of the FOMC more promptly. That way we would remove all this mystery about what we're doing and they would know. They wouldn't have to dig through all these entrails to try to put together a message. And I think that maybe this minutes policy is something else we could discuss sometime. I will shut up here by giving an analogy of whether you watch borrowings or fed funds. If you think of yourself as driving an automobile, most of us, I hope, look out the windshield at the road ahead as we're driving along. But we also have rear view mirrors. And I don't want to ride with any of you who just look at either one or the other, because sometimes you have to move the steering wheel to avoid side-swiping when you see the guy coming at you in the rear view mirror. I think the windshield, in this case, would be the borrowing target; but we have to take into account the information we pick up through the rear view mirror which is the behavior of the fed funds rate. And because we don't know these relationships really well, or they change over time, I think we need to be very sensitive to these moves in the fed funds rate. Not that we're targeting a number, because I don't believe in that; but at least we should give attention to it as an indicator of maybe something going wrong in these relationships--whether there's some little change in banker attitudes, or whatever. Maybe this is a cop out by saying we should use some of each, but that's the way I feel. On the frequency of the meetings, I think that eight a year is just terrific, with the idea being that we can converse in between meetings. We have these nice ""lightning rods"" they set up on this table and that makes telephone conferencing very easy when there is some policy change that might need to be considered or even a very major change in operations because of an event like last October 19th which, as you will recall, was handled by a whole bunch of daily telephone consultations. So that's my three cents worth.",836
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Thank you, Mr. Chairman. I agree with a lot that has been said around the table. As a matter of fact, some five or six speakers ago Ed Boehne said almost everything that has been said and I agreed with him there.",50
-fomc-corpus,1988,"Is that your entire statement, Roger?",8
-fomc-corpus,1988,"Just in summary, my view is very much as stated by Frank Morris and Bob Forrestal: that the current procedure of using the borrowing target as a proxy, if you will, for the federal funds rate or for whatever, gives us some latitude in our operations. That seems to me to be desirable at this particular time. And I would strongly oppose moving to simply targeting a federal funds rate, or even a federal funds range, because it seems to me that as soon as the market understands that, then it becomes difficult, or almost impossible, to tighten. You have to keep it a bit fuzzed up to permit the Committee to operate [unintelligible]. Perhaps the issue that is more important is the question of flexibility. And I think the last time I may have made some comments with respect to that and what happened early in February. My view has not changed and I hope I stated it clearly then: I think the Chairman and the Desk need flexibility. It's clearly an issue in my mind as to what is a policy change and how that should be communicated, either before or after action is taken; and that has to rest largely on the Chairman's judgment. And I'm quite willing to place the responsibility there. When you talk about what is a policy change, I don't think that you can quantify that. I see in the memorandum that was prepared that there's a suggested procedure on page 7: that if the borrowing target is to be moved, the Chairman would have some latitude to change the borrowing target by $50 million to $100 million. I don't know, in some circumstances, whether that's really a policy change. But if it were so determined by the Chairman, I would hope that consultation would take place, and take place before the change actually was effected by the Desk. Lastly, I guess I would ask that there be some change in a procedure that I have observed over a number of years, not just the last 6 months or a year: at times a policy change, perhaps within the scope of the directive, was made within the week before the FOMC met. It was already done before this group gathered around the table. I objected strongly to it then, and I would object strongly in the future. I would hope that if there is a change, that it would be done either around this table or by consultation on the telephone. And I would not be in favor of more meetings in Washington, but it is pretty easy to put together a telephone conference call.",502
-fomc-corpus,1988,"Let me just suggest, Roger, if you look at chart 2, you're in for a lot of phone calls.",24
-fomc-corpus,1988,Well--,2
-fomc-corpus,1988,That's all right.,4
-fomc-corpus,1988,I'd rather do it that way.,7
-fomc-corpus,1988,"Yes, well, that's what I was talking about.",11
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"But that's a lot of phone calls, if you look at that chart.",15
-fomc-corpus,1988,"If I look at the chart here correctly, in 1985 there were 10 changes in the borrowing assumption. Were they all phone calls? They weren't all FOMC meetings; were they phone calls?",42
-fomc-corpus,1988,In 1985?,5
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,Some of them were phone calls; and some of them were recorded because there were actually votes taken. Some changes were actually made without telephone calls the week before an FOMC meeting.,37
-fomc-corpus,1988,And they're plotted here as official changes?,8
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Yes, everything on that solid line is an official change.",12
-fomc-corpus,1988,Everything was--,3
-fomc-corpus,1988,But how can you have an official change without a vote being taken?,14
-fomc-corpus,1988,"Well, that's what Don said. I asked him; every consultation that was a policy change is on that solid line.",24
-fomc-corpus,1988,"Oh, I see.",5
-fomc-corpus,1988,Every change in the borrowings level is on that solid line.,13
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,Yes; that's what a policy change is.,9
-fomc-corpus,1988,"But not the other--no, that's where I think there's a difference of opinion.",17
-fomc-corpus,1988,You're talking about the chart--the top of the chart.,12
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,Top chart.,3
-fomc-corpus,1988,"Yes, the box.",5
-fomc-corpus,1988,What is a policy change if it's not a change in borrowing?,13
-fomc-corpus,1988,"Well, that's the question.",6
-fomc-corpus,1988,And what is plotted here?,6
-fomc-corpus,1988,"Now, when you look at the rate of [unintelligible]--I think that is the crucial question.",24
-fomc-corpus,1988,Every change in the borrowing assumption.,7
-fomc-corpus,1988,Borrowing assumption by the Committee or by the Desk?,11
-fomc-corpus,1988,"Well, the assumption used in constructing the reserve paths. Sometimes these changes were made at Committee meetings; sometimes they were made between Committee meetings.",28
-fomc-corpus,1988,Without a Committee vote?,5
-fomc-corpus,1988,They have been made without a formal Committee vote. That's not for all of them but--,18
-fomc-corpus,1988,"No, no, I just--",7
-fomc-corpus,1988,It has happened on occasion; and that's the flexibility that we're discussing.,14
-fomc-corpus,1988,"That, I think, is the crucial question I was trying to get at before: What is a policy change? I have never felt that every change in the borrowings number in that path has to be considered a policy change. If a change in borrowing is made that is consistent with the way the directive was structured by the Committee, it doesn't follow to me that that is a change in policy. Indeed, that's why I think that it's quite appropriate that that be done by the Chairman.",98
-fomc-corpus,1988,"Well, that's fine; but Don is suggesting in his paper that $50 million to $100 million variation--",22
-fomc-corpus,1988,"Well, I think Peter and I had remembered that these are the kinds of changes that had been made between Committee meetings. Let me just add a clarification in response to Governor Heller. There are sentences in the directive which allow these changes to be made; and that was the direction of the Committee.",60
-fomc-corpus,1988,I was just asking for the facts; I wasn't trying to criticize anything. I was just trying to find out the factual information as to whether the line here reflected Committee votes or whatever you actually put into the path.,43
-fomc-corpus,1988,It reflects what was put in the path.,9
-fomc-corpus,1988,What was actually in the path.,7
-fomc-corpus,1988,That's correct.,3
-fomc-corpus,1988,"But, again, it seems to me that's the--",11
-fomc-corpus,1988,"Well, I was looking at the chart because I thought these were Committee votes.",16
-fomc-corpus,1988,"And I think it's crucial for you, Mr. Chairman, because as I tried to say before, ultimately the question that is on the table here--aside from the substantive question--is under what conditions do the procedures create a situation in which you are, in effect, required to make a public statement--through a testimony, a speech, or one way or another--that Fed policy has changed. And I don't want to get into a situation in which you have to do that every two months or every two weeks.",104
-fomc-corpus,1988,"Let me tell you how I would define it. I would define a policy change as one resulting from a change in the economic fundamentals which the FOMC did not perceive, or had not anticipated, and it required some form of adjustment. Incremental changes to fine tune are not policy changes.",59
-fomc-corpus,1988,"Okay; then, many of these things here would not be policy changes.",15
-fomc-corpus,1988,"Yes. Don, that's the way I look at it. But, I think it's important for the Committee, not the Chairman, to define what constitutes a policy change. It's in the discretion of the Committee to set policy. It's in the discretion, as I hear it here, of the Desk in consultation with the Chairman to merely fine tune in that context. But you cannot simultaneously have the Desk or the Chairman define what a change in policy is, because that will of necessity always override the Committee. So, I think what is required is that we get an agreement about what constitutes a change in policy. As I read it, we have a meeting and there's a consensus which emerges with respect to what the outlook is, and that is implicit in the directive. Often the directive is very vague; if somebody were to tell me that that is an extremely sharp [unintelligible] set of instructions, I would tell them I don't understand the language. But what is clear is the preceding discussion about what the general impression is, what various numbers were--[the context] in which we constructed that directive. And they are rather sophisticated insights which are very difficult to put down, but which I think are not unambiguous. I know that if somebody asked me what the FOMC's views were at the last meeting, I'd have no trouble describing them--not in directive terms, but in terms of how the Committee evaluated the economy and the financial system and what it, therefore, thought was an appropriate policy. As best I can see it, when things change such that the Committee's view of the outlook is changing and that therefore alters the structure of the directive--that I would consider a change in policy.",344
-fomc-corpus,1988,"Mr. Chairman, from your perspective did we have a policy change the first of February?",18
-fomc-corpus,1988,"No, we did not.",6
-fomc-corpus,1988,"Okay; that's what I was assuming--that we didn't. But then, when you went before the Congress, I thought there was an indication that there was a policy change.",35
-fomc-corpus,1988,"No, I think that was merely an affirmation of what the markets were questioning: whether, in fact, we had nudged down slightly in the funds rate--which we had, by about 1/8th. And the only reason to put that in at the time was not as a statement of policy change, but as an affirmation of what the markets had been discussing.",76
-fomc-corpus,1988,"I think that focuses on the point that if you're looking at adjustment plus seasonal borrowing, then that small change might have been consistent with, what, a $50 million change?",35
-fomc-corpus,1988,A $50 million change.,6
-fomc-corpus,1988,"A $50 million change. Clearly, it seems to me, if you make a $50 million change in borrowing, it's so slight that you wouldn't consider it a policy change and you wouldn't announce it.",41
-fomc-corpus,1988,"Well, I think the issue is not so much whether it should be announced but whether it should be confirmed or not. The reason I chose to, at the time, was that a lot of people were asking that question, and the simplest way of resolving it--instead of being sphinxlike--was just to admit to it. If it gets to the point that every statement the Chairman makes is a statement of a change in policy, then we really better think out what the Chairman is supposed to say.",102
-fomc-corpus,1988,But I think that's Jerry's point: that targeting the fed funds rate may put you in a position of having to make a statement more often than would be the case otherwise. Do we really want that?,41
-fomc-corpus,1988,I don't see how that would be the case.,10
-fomc-corpus,1988,"It's because the market was able to discern [a change in the desired funds rate]. Under the adjustment plus seasonal borrowing procedure, the market wouldn't have known, on an 1/8th of a point move.",43
-fomc-corpus,1988,But you say that's not a policy change. Why wouldn't it be a policy change?,17
-fomc-corpus,1988,"It really gets to a question of what the definition of change is, because it is extremely rare that there are big discontinuities involved here. But there's an awful lot of ambiguity about when you go from here to there; it's not a clear cut thing. I must say that before I attended FOMC meetings, I had a different view of what constitutes the nature of policy, because I used to read the directives and I couldn't for the life of me figure out what in the world they were talking about. But now, given the few FOMC meetings I've attended, I'm realizing what it is.",121
-fomc-corpus,1988,"But there's a difference between long-run and short-run policy, too. I think Jerry was addressing that earlier. If you're setting your long-run monetary growth targets, and in order not to change your long-run policy you're making a short-term adjustment--let's say in borrowing targets--to get closer to that, you can argue that your long-run policy is unchanged, and therefore, you've got to change your short-term tactics. I think that's where the ambiguity comes in.",94
-fomc-corpus,1988,"That's part of it. Regardless of what you use as your indicators or your proxies, I think that one way or another we have to try to project an underlying forward looking consistency in policy that ultimately overrides all this noise. Again, as I said before, I think part of the problem is that each of us, in our own way, looks through the noise anyway. Obviously, our judgments about the noise are conditioned by what we see and feel about the economy, inflation and the stuff that really matters. And it's not easy to capture that in the directive either.",113
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"At this point I'm not sure I can handle it! I was intrigued with a line at the end of Ann-Marie Meulendyke's memorandum which says that what apparently started out as a temporary procedure has persisted, with modifications, for over five years. It seems to me that there hasn't been such a significant change of circumstances at this particular time that we ought to make a change [in our procedure.] I'm not persuaded by either the memo or the discussion that we really have a hard basis for making a change. And if we do, I think it ought to be very well grounded. Having said that, I would have a reluctance to shift to any kind of fed funds rate targeting. We are discussing this at a fairly benign period; the economy is moving along pretty well, inflation is higher than we like but still not out of control, and the interest rate structure is pretty good. But that won't always be the case. As we've said a couple of times, there are going to be some circumstances in which we'll need to tighten. And I think the political pressure would come to bear if we were using the fed funds rate as our focal point--then change would be very tough. I'm reminded of that line: ""Don't shoot the piano player, he's all we've got."" It seems to me the present procedure has been serving us pretty well; I don't see a reason for making a change.",281
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"Mr. Chairman, I'm not a proponent for changing anything we're doing. I'm satisfied with where we are and, therefore, I really have nothing to contribute to this discussion. I assume that nothing's going to change; and if that's so, I'll be satisfied.",53
-fomc-corpus,1988,Except the discount rate.,5
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Mr. Chairman, as the one at the table who has the least background in this, I've been enormously instructed by this whole exercise.",27
-fomc-corpus,1988,Say that again.,4
-fomc-corpus,1988,"I don't want to get too explicit about what the instruction was, but I have appreciated it. I came to this discussion without any firm convictions one way or the other, so it has been very interesting for me to listen to the arguments on both sides. Where I'm coming down is to stay where we are, largely on the arguments that surround the flexibility that this procedure gives us. Also, I like the way that market forces have at least an opportunity to show through on this procedure more clearly than they would if we went to the other route. So, I'm comfortable with staying where we are.",119
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"I wouldn't change the current operating procedures either. I think the experience with fed funds targeting was not very good and it seems to me that, for the time being, we ought to stick with these procedures. Hopefully, some time in the future we'll be able to move more in a direction of using aggregates. I don't want more meetings.",67
-fomc-corpus,1988,"It turned out much longer than we had scheduled, but actually it has been an extraordinarily useful meeting. As I read the tone of the proceedings, what comes out is that we probably would like something firmer to target. To somehow get a restoration of the monetary targets and income velocities that look like we could use them, would get us back to the fundamental approach of what monetary policy is all about--namely, interfacing not with interest rates, but with the financial variables in the system which affect inflation and real growth in the real world, rather than the intermediate proxies that are involved. I sense that there is a general view of satisfaction--that may be too strong of a word--a sense of resignation to current procedures, largely with the assumption that this five-year transition won't last for another five years. And, hopefully, we'll get to something a little firmer to target. What I would like to suggest, however, is that rather than just allow this issue to fade away, we come back to it again at some point--maybe six months, maybe a year from now. So long as we're in a transition period, I think we should not behave as though it is a permanent, fully satisfactory and solid procedure. I don't think anyone around this table has said that. What I hear is a fairly broad consensus that we stay where we are, but that we continually review it. If there are no objections, I would like to reschedule a review of this in nine months or a year or so, depending on what the circumstances are.",311
-fomc-corpus,1988,Do it in December.,5
-fomc-corpus,1988,So this takes us back to pre-October 19th?,13
-fomc-corpus,1988,"Yes, we're pretty much back. Since time is running short, I would ask the Vice Chairman whether we could leave the issue of the timing of the organization meeting to the next meeting?",37
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,"Because we're not going to be reorganizing again, hopefully, for a while.",16
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,This is probably an appropriate time to break for coffee and we will come back.,16
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"Mr. Chairman, I might just apprise the Committee of the data made available this morning. One is the leading indicators series, which shows an increase of .9 percent in February, compared with a 1.1 percent decline the previous month. We also have new home sales which were up 20 percent in February, but to a level that's just around the fourth-quarter average. That's consistent with the other housing data we see.",87
-fomc-corpus,1988,That represented a significant downward revision from January.,9
-fomc-corpus,1988,"It wasn't significant, but it was .3.",10
-fomc-corpus,1988,"Mike, I heard what you said about inventories, but I guess I am a little confused about the numbers that are in the Greenbook as compared to the text. The numbers in the Greenbook looked fairly high to me, whereas the text seemed to indicate a slowdown, which I agree with, in inventory buildup. Unless I am misinterpreting the numbers, I would have thought there would have been a greater effect on the economy from that level of inventory buildup.",93
-fomc-corpus,1988,"The current number for the fourth quarter on nonfarm inventories is $57-1/2 billion, at an annual rate. We had $53-1/2 billion in the Greenbook, which went out before the GNP release. It's not very much different; there's a slightly different level of auto inventories primarily. In our forecast, the rate of inventory accumulation declines by $20 billion in the first quarter to around $34-1/2 billion. That is, in a sense, a significant drag on output growth in the first quarter, and it occurred basically in the auto industry. We had, essentially, a $20 billion dollar swing in the rate of inventory investment in the auto industry and that accounted for something on the order of a percentage point on GNP. But the surprise for us--as the data look at this point, and that's what we're building into our forecast--is that outside of automobiles the rate of inventory accumulation does not seem to have slowed in the first quarter. In the last forecast, I think we put in something on the order of a $10 billion decline in the rate of non-auto inventory accumulation. So, in that sense, to the extent that businesses weren't as anxious to reduce stocks, you could view that as something of a plus for the economy in the first quarter relative to our expectation.",268
-fomc-corpus,1988,"I think that one of the critical issues for this year is the ability of our manufacturing capacity to deal with the demand that is going to be placed upon it. Looking at your numbers that show only a very modest increase in capacity utilization, is this a consoling factor to you, as far as being able to exert some restraint on the ability of manufacturers to raise prices? Or should I read something else into it?",83
-fomc-corpus,1988,"I think we feel we are in a zone where there is considerable uncertainty. The capacity utilization rates are not even across industries. We already have seen price pressures in some industries that we think are a function not just of the dollar decline but of actual pressures on capacity, with a backlog in orders that has built up. There are many manufacturers who have their customers on allocation. They seem to have been rather restrained, to date, in their pricing. In fact, in some cases, they could probably be more aggressive but don't seem to be moving that way because of longer-run considerations, such as their customer relationships and so on. But the kind of increase we've had in capacity utilization doesn't signal to us a major change in that picture. At this point, we think there are risks. If we were to write down a still higher number, our degree of discomfort, or our worry about pressures, could materially change.",182
-fomc-corpus,1988,"Steve McNees reminded me yesterday that the average miss in GNP forecasts made in the first quarter is plus or minus 1-1/2 percent. It seems to me that if we miss on the upside this time, we could have some really serious problems with price pressures in manufacturing.",59
-fomc-corpus,1988,"He was referring to the run-of-the-mill forecast, not the staff's. [Laughter.]",21
-fomc-corpus,1988,That's a hypothesis I don't want to test!,9
-fomc-corpus,1988,But it is a sobering number. We don't really have much room. It seems that the forecast you are giving us is 2.7 percent real growth; that's probably as much as we can stand without generating some serious price problems.,48
-fomc-corpus,1988,"I think that's what is suggested by our forecast, but there is uncertainty about many elements of this. One is on the labor markets side. As I suggested, our work to date has failed to find convincing evidence that the natural rate of unemployment (NAIRU) is lower than we currently are. The range of our estimates is from around where we are to a higher level. Others have looked at these things differently and have come up with conclusions that may give us a bit more room on the downside. So, for the labor market side, maybe it isn't quite the razor's edge that this kind of forecast suggests. On the capacity side, [unintelligible] just how things turn out in the mix of demands and how rapidly expansion of capacity occurs in the particular industries where demand is strongest. So, I would characterize the picture as being a little mushier than these precise numbers suggest; but we do think that we're pretty close in our bottom line assessment.",194
-fomc-corpus,1988,"I lost the tail end of your remarks, Ted. You cited a rule of thumb--and I think you said 10 percent--",27
-fomc-corpus,1988,"In the forecast, where we have a decline in the dollar at an annual rate of a little less than 10 percent occurring smoothly over the forecast period, that's not a big factor, vis-a-vis an absolutely stable dollar, because half of it comes after the first part of 1989. Remember now, inflation is a little higher than it was earlier. With a situation in which you have something like a 10 percent decline in the first quarter of 1988, the rule of thumb--taking into account feedback effects, such as a damping in demand abroad and increased demand here--would say that that would add 2 to 3 percent to the level of goods output in the fourth quarter of next year. Goods output is now running $1.6 trillion in 1982 dollars. It's a nontrivial amount, but most of it is in 1989. But that's the aggregate amount; it's certainly true that you could well get severe pressures in particular industries.",197
-fomc-corpus,1988,Goods output in the context you are using it here--that's something I could roughly associate with industrial production as well?,23
-fomc-corpus,1988,"Roughly, yes.",6
-fomc-corpus,1988,"The problem of using that, of the potential inventory change, is it because of consumption goods?",19
-fomc-corpus,1988,No.,2
-fomc-corpus,1988,It would be investment.,5
-fomc-corpus,1988,The GNP [unintelligible].,9
-fomc-corpus,1988,Yes. Right.,4
-fomc-corpus,1988,"I just wanted to ask a question about the models and the natural rate. What do they say about the kind of pressures that develop for wages as you approach the natural rate? I assume you get a lot of wage pressure after you pass the natural rate, but wouldn't you expect a good bit of pressure as you approach it?",65
-fomc-corpus,1988,"In the models, it generally would be constructed with some discontinuity on this, so when you get there, then things emerge. But we also know we can't pinpoint it. Looking at different variations on structural models and different estimating periods and so on, we can get a very broad range of estimates.",60
-fomc-corpus,1988,"I'm just suggesting that if we were, in fact, at the natural rate, you would expect to have seen a lot of compensation pressures as you approached it. The interesting point is that we have not really seen a lot of upward pressure as we reached the 5.7 percent rate. So it could be the capacity level. I think we were starting to see some of those pressures maybe earlier last year before--",83
-fomc-corpus,1988,"For last year, it's a matter of interpretation to some degree. To put it in mathematical terms, there are other terms in those equations. One of them would be expectations about prices, and that could have given us the surprise we had last year, as opposed to the natural rate being different than we anticipated in our models. That is something we have taken into account in our forecast, in that individuals may not be setting their expectations as high as the recent inflation experience would suggest is necessary to maintain real wages, because they are fearful about losing their jobs in the very competitive international marketplace particularly.",118
-fomc-corpus,1988,But that would suggest a lower natural rate.,9
-fomc-corpus,1988,It could look that way.,6
-fomc-corpus,1988,"If they are fearful of their jobs in this environment, that means the natural rate is lower.",19
-fomc-corpus,1988,"It depends on which terms you want to adjust here, and it's not entirely clear. That's one way. In fact, if you back out the natural rate from our recent experience it suggests that what we built into our forecast--if you take the price expectations being developed in the usual way--could be a natural rate that is around 4 - 4.5 percent. That is the calculation; but we don't really think that the natural rate is that low. So, we think there is something else going on in terms of the expectations of labor and management at this stage [unintelligible] consistent with our forecast.",126
-fomc-corpus,1988,"One thing we tend to forget is that when a lot of this discussion emerged on resource stringency and the like, we were in the 1950s and 1960s. At that time, we used to think that a big inflationary push was when the inflation rate went from 2-3/4 to 3-1/2 percent. We had some really tight markets in those periods and what we learned, especially in retrospect, was that something happened in the 1970s. It's not strictly the pressure question because we had much more pressure back in the '60s than now and inflation rates were considerably below where they are now. There was very little inflation premium embodied in long-term interest rates. And yet there was this standard--they didn't call it NAIRU then, but they had this capacity constraint question. There is a tendency in today's environment to take the single points of the 1970s and say inflation pressures mean 3 percentage points, or 4 or 5 points. And I suspect what we are looking at is not this resource allocation pressure but the issue of financial change that has occurred and the money supply and expectations effect that you are referring to. But it may turn out that one fallout from this disinflationary period is that we may have--without our knowing it, and we won't know it until later--successfully lowered the response rate of the NAIRU or the capacity restraint question. When we look at capacity--and the Fed is the official source of these data--capacity is a very dubious concept. You really don't know whether or not you have run into capacity until you have some objective measures of the inability to meet customer orders. That is really what it's all about. And the lead times on the deliveries on materials--with the exception of steel, [unintelligible] metals products, paper and the like--haven't really expanded all that much. In other words, the system is producing to demand, and even though the backlogs go up, there is no evident pressure. So, while I think we are getting close, and I think the issues we are raising are the correct ones, let's stay with the numbers. And the numbers at this stage are still telling us that there is some flexibility there yet. There may not be much, but I don't see it, and I guess you don't either. It's conceivable that the NAIRU may be lower or that excess capacity in terms of current costs may be still larger in general. I would hate for us to make an assumption and start crying wolf, and then stop crying wolf at the point where the whole thing blows up on us. I think we may have some flexibility here, but not an awful lot. As I see it, the facts don't show anything else. Do you disagree with that view?",572
-fomc-corpus,1988,I guess it's a question of whether the glass is half empty or half full--how much of these price increases you see coming in materials and so on that you view as part of a broader phenomenon or as one-time relative price adjustments. But the list of items that purchasing managers report in short supply has lengthened considerably; and there seem to be lots of reports of supplies being tight and various materials and components [unintelligible].,87
-fomc-corpus,1988,It seems that people still report on deliveries in qualitative terms--only relative to something else. When they give you the real numbers [unintelligible].,31
-fomc-corpus,1988,"They don't seem to be terribly anxious about getting goods. They're not ordering very much farther in advance than a quarter. So, your bottom line of there being some areas where we should look at this carefully is, I think, [right]. We think things have tightened up, but it's not clear to us that there is imminent danger of broad acceleration.",70
-fomc-corpus,1988,"We are not getting an inventory rush, which is when things are getting tight, purchasing managers are getting scared, and they really start to load up. They just haven't.",34
-fomc-corpus,1988,"What we do see is a mixture of things. We have capacity utilization at the point where product markets have gotten tighter; there is more pricing discretion on the part of many manufacturers. If we do continue to get the effects on import prices from the decline of the dollar, if wages do begin to pick up as a lagged adjustment to the price increases that we have already seen and the lower rate of unemployment, that is an environment where I think pricing could firm considerably.",94
-fomc-corpus,1988,"I think that is exactly the way to put it. You're in a high risk area, where if anything goes wrong, prices could accelerate. Any other questions before we go to the general go around? We are now open to general discussions. President Parry.",52
-fomc-corpus,1988,"Mr. Chairman, the Twelfth District economy continues to exhibit strength and we see few signs of weakness. A particularly encouraging sign is the apparent broadening of the expansion throughout the region. States that have had weak or negative growth because of problems in agriculture, mining, and energy are now growing. Manufacturing is enjoying strong growth, especially in export- and resource-related areas. In our view, this expansion does not appear to be threatened by excessive inventories. Our sources generally indicate inventories are at or below desired levels. It appears as though retailers followed a more cautious inventory-stocking policy following the stock market decline in October. Looking at the national economy, our forecast is for less growth in 1988 than in the Greenbook and about the same growth in 1989. Differences in our forecast center around the size of inventory adjustments and the amount of improvement in net exports. But, it seems to me that the important point is that both forecasts indicate reasonably strong growth this year and next. I feel that both our inflation forecast and that of the Greenbook are very distressing, especially for 1989. It seems to me that the prospect of compensation per hour rising and approaching 5 percent in 1989 is intolerable, if indeed, our objective is to move gradually to price stability.",259
-fomc-corpus,1988,"I certainly agree with the direction of the staff forecast, and I think that from a national perspective the economy really is improving with the passage of time. That is consistent with the conditions in the District which are also improving and I think the improvement is quite broad-based. I commented before on the steel business: it is continuing to operate at a very high level; indeed, those in the Midwest are operating pretty much at capacity. And I am beginning to hear a phrase that I haven't heard in a great many years, namely, ""double ordering."" People are very much in the business of double ordering for steel; and if they get both, they are pleased to take both because they basically need the steel. But there are other parts of the manufacturing sector that are showing good improvement. We have been hearing for some months now about the improvement in the machine tools business from various people in the District. Earlier this week we saw some articles on the improvement that is taking place in that industry. Orders for mining equipment and railroad cars are better than they were--showing improvement, albeit from low levels. There are no capacity problems there, but nonetheless the trend is up, not down. And, almost unbelievably, the heavy construction equipment industry has turned around again, quite significantly, and they are operating at a high level. In farm equipment, last year's big inventories of agricultural implements have largely been worked down, as retail inventories are at a much lower level; and production in that industry is picking up. Mike Prell mentioned that the auto production schedules for the second quarter are higher--some 4 percent higher for the second quarter this year as compared to last year--given higher sales in the first quarter. So I think, as I look across the District, that the fundamental conditions are showing signs of improvement. The mystery in all of this, at least from my point of view, is the inflation situation. I keep hearing about these big increases in prices--in steel, aluminum, other metals such as nickel, and in paper products and raw materials going into that industry. who is in the paper industry commented on the very significant price increases that they have experienced on their raw materials. So far it has been at the intermediate level; it hasn't gone through into finished products. But I think there are some margin squeezes out there, and I'm hearing about some anticipated price increases. for example, commented that they have price increases announced for April 1; they're not sure whether the increases are going to stick because their circumstances are pretty competitive. Nonetheless, some price increases in finished products are beginning to move forward. Certainly, that has not shown through in the price indices; and there would be no reason to make a change in policy now based on the indices. While the economic outlook continues to be favorable, and I think we can clearly be pleased with the outlook, there are these upward pressures. And I think the worry has to be on the inflationary side. That is the part of this that we have to be particularly alert to.",607
-fomc-corpus,1988,"My District continues to be characterized by high levels of activity. The most common comment that one hears is that labor markets are very tight: it's hard to attract unskilled workers; turnover rates tend to be rising; local help-wanted indices are high compared to the nation. When you talk to manufacturers, and some retailers, and even bankers, there is a dichotomy between what they say and what seems to be going on underneath. If you sit around a luncheon table and have an informal discussion, you would think that we were heading into a depression and things were terrible, in terms of the general conversation. But then when you ask them what they are doing, what their orders are, what their plans are, whether they are hiring people, whether they are expanding, you get a wholly different picture. I find this dichotomy in their minds about what's going on to be fascinating. On the national economy, it seems to me we are in a period of evolving risks: in November-December, the risks were on the side of not enough growth; the last time we met, I think the risks were about evenly balanced; and at this meeting, I think the risks have shifted more toward the inflation side. That's all I have, Mr. Chairman.",252
-fomc-corpus,1988,"The better-than-average growth that we have seen around the country is also reflected in the Sixth District. We have seen a remarkable resurgence in manufacturing over the past several months, but with some slowdown in retail trade, services, and housing, which I guess is pretty much the same around the country. I was interested, Mr. Chairman, in your comments about capacity utilization because, while the evidence that I have heard from people around my District confirms a lot of what you said, there are some industries, as you indicated, that are reporting difficulties in filling orders. In the paper, paperboard, and steel industries, the time frame I hear is 5-6 weeks; but interestingly, in the paper and apparel industries, I'm hearing reports that some of this ordering may be precautionary because of concerns about capacity utilization. Maybe that is equivalent to the double ordering that Si Keehn talked about. I think a lot of people still have some skepticism about the value of the dollar remaining where it is and the sustainability of the tradable goods sector. But even with that skepticism, I think the very high capacity utilization in some industries is now causing people to take another look at the business investment situation. In fact, some are doing more business fixed investment than I had been aware of before. Associated with that, I guess, business loans around the District are up, on average. The thing that I hear talked about more than anything else these days is price pressures. There is some concern about inflation in the labor market in the District and just a general fear of inflation, which isn't really reflected in the numbers that people give you. But there is this general sense that they are concerned about it. Overall, in the District, our growth has been somewhat stronger than the nation and we think that it's going to retain that edge in 1988. Now with respect to the national economy, our outlook for real GNP is about the same as the Greenbook; ours is just a little lower--2.5 percent as opposed to your 2.7 percent. But the composition is really quite different. We show substantially less inventory accumulation, with the offset in higher personal consumption expenditures, particularly after the 1st quarter, and also more business fixed investment. Our outlook for inflation is generally the same as the Board staff's. I remain concerned not only about import prices, but also about pressures building in the labor market, which I've heard about in the District. We haven't seen any dramatic breakout in labor costs but I think the potential is there. The last time we met I guess I felt that the risks to the economy were fairly evenly balanced, but I was more concerned about the downside than the upside. I've changed my mind now and I think that we face the possibility of too much growth rather than too little at this time, especially given the small amount of slack in major industries.",578
-fomc-corpus,1988,"Mr. Chairman, on the national economy, we would line up pretty well with the Greenbook forecast. We've felt for the last several months that on the national level we [unintelligible] fairly good performance. Looking at the District level, and I guess more particularly at Texas, about the only bright spot that we can find is in manufacturing, where we are seeing improvement. We're having employment in the manufacturing area as great as, if not greater than, other parts of the country; and of course, the services industries related to that are doing well. Having said that, I've said about all of the good that I can. The overall unemployment rate in Texas, for example, is well over 8 percent, which is considerably above the national rate. Agriculture did have a good year; it is hoped that it will have another one. I think drought conditions might be developing and are causing us to wonder slightly about that. Obviously, one of the major things going on down our way is the bank and financial conditions, which I understand we will get into later in some detail. But it's a very, very heavy overhang in terms of attitudes and willingness to take on new ventures. There's certainly concern over the ability to obtain financing from financial institutions in the local area. The real estate situation obviously has contributed very significantly to these problems and there is no short-term solution to that. It's going to be more long-term, as opposed to immediate, as far as what's going to be happening in Texas. I think it's going to be a very close race between the ability of our local financial institutions and businesses to improve their balance sheets and get a little sounder footing and the onset of a downturn in the national economy at some point. If we do encounter such a downturn before we are able to position ourselves a little better, we are going to have even bigger problems than we already have.",379
-fomc-corpus,1988,"I want to comment on a particular area of activity: commercial construction. We had a group in recently and a couple of things came out of the discussion that really surprised me, in terms of psychology. St. Louis and the District in general have lagged the national economy in this area. We have not had the overbuilding that occurred elsewhere, so I don't know if these observations are broadly applicable. We kicked off the discussion by talking about the external adjustment process and what the implications of that were for savings and investments--to see whether these real estate people were seeing any pressures on the financing side. And what we heard is that they are literally awash with money--foreign money, insurance company money, [unintelligible] October 19. Nobody mentioned that there was a flow of monies into real estate because of inflationary expectations. The other thing that we did not pick up in this discussion, which surprised me, was any sense of caution about the ability to build space, lease it up, and so forth. Well, I shouldn't say that--there was one person who was somewhat cautious. But the general mood was ostensible optimism. Finally, I was surprised at what I heard on the inflationary front: people on the building side said that they could still build things for what it cost them four years ago. I asked specifically about steel. Two people said that the one area where they picked up some sense of price pressure was on the operating side--that it was difficult to make the kind of margins they would like to make. So, I relate that discussion. I also have some observations about what is going on with the takeover and LBO activity and so on. Last night we met with an investment manager who was saying that junk bond spreads to Treasuries are as narrow as they have ever been historically, and the GIC market is very tight just because there isn't enough high yield product out there to satisfy the demand. And I think to myself, here we are three, four months or so after October 19 and there is all this leveraging and speculative activity going on at a time when, frankly, I would like to see a little more caution. I think we are all comforted that consumer confidence has held up. But at the moment there is a lot of liquidity out there. I'm not saying that we provided it; I don't mean to suggest that we have been pumping in a lot of reserves. But, if you look at the construction industry on the inflation front, it's kind of a tinder box waiting to go off. If the inflationary psychology tips there, and that gets factored into interest rates, people will try to move very quickly to lock in financing and begin building before the inflation hits. I think it could create a surge in spending. I am somewhat concerned about that aspect, and as I say, just in general about the speculative activity--the highly leveraged type of activity--that resumed so quickly after October 19.",597
-fomc-corpus,1988,"I think these upward revisions that the staff has made are perfectly appropriate, Mr. Chairman, in light of the data we have gotten since the last meeting. I keep thinking about a remark someone made then about how nice it would be if we could hold onto these things--the low unemployment and the rate of growth for the sixth and now the seventh year of expansion--still without much pickup in prices. I'd buy that scenario any time and I guess a lot of other people would too. I suppose some people might think that this is a rather rosy scenario, but I really think the danger lies on the other side: that we may get too much strength in the economy, more than we now anticipate, and this might stimulate a sharp increase in inflationary expectations with the predictable fallouts on the dollar and U.S. interest rates. And I believe that that is a risk we can do something about with monetary policy. I think we ought to be concerned about it, and in that connection, I would be getting a little concerned about the strength in the aggregates. I would really be concerned if that continues for another month or so in the face of apparent strength in the economy. I am not yet suggesting that the aggregates have gotten to the point where we ought to place as much emphasis on them as we did a few years ago, but I think they now may be giving us better information about the economy than they were a while back. I think it would be wise to pay a little more attention to them than to try to appraise the strength of the business outlook as we have been doing the last several months.",323
-fomc-corpus,1988,"As far as the economy of the District is concerned, the expansion is continuing at a modest pace, and is reasonably broad-based by now. I, too, have heard a few scattered reports about double ordering, and I don't think there is any question that, at least at current exchange rates, a lot of businesses in our District certainly can compete with foreign producers and foreign products. As far as the national outlook is concerned, I have changed my forecast pretty much as the staff has changed theirs in the Greenbook. I have been surprised by the tenor of the incoming data on the national economy, which is generally better than I had expected. I think that does call for revising up the near-term forecast. What it says about the longer-term prospect for real growth, I am not altogether sure, but it makes me marginally more confident about the outlook. As several people already have commented, the really striking feature about the outlook--both the one presented in the Greenbook and the one that we have developed [at our Bank]--is the acceleration of inflation that seems to be in prospect. Obviously, there is a lot of uncertainty surrounding that, as there always is. And the acceleration is not dramatic, but I certainly find it troubling. I think that perhaps that is the key aspect at this point.",263
-fomc-corpus,1988,"The Fourth District is pretty much as I reported last time. Manufacturing activity is very strong. We have several firms, primarily in primary metals, that have reported that they are at capacity levels; they simply can't produce anything else. One of those firms is considering some kind of expansion at this point, because they believe the demand is going to last a lot longer than they had anticipated before. That is primarily because of the client involved. We see a reaching of capacity limits now across a broad spectrum of manufacturing activities, from glass through chemicals, at least with the firms within our District. Not everybody, though, is planning to move ahead to build plants or expand capacity; there are still a lot of people who are not quite ready to take that step. In terms of price increases, you heard me say last time that, at least at a couple of firms, primary metals--steel principally--have risen 15 percent or so. I have not heard of any new price increases since then, but that is coming out of the gate at the start of the year with a pretty hefty price increase. We are getting the same thing in chemical products now: 10 to 15 percent price increases. But they have not shown up in the national indices. In terms of the overall outlook for the country, we are very similar to the staff in terms of real growth. The composition is somewhat different: we actually have stronger PCE--as we've had for the last six months, probably--and weaker net exports. I have some concerns if you're right on exports and we're wrong. But if we're right on PCE and you are wrong, we have a problem. Given the potential for that problem, I see a resource-constraint type of problem; trying to make room to ship goods abroad with our resources requires a slowdown in the expansion of consumption. If we don't get that, then I think we are going to get the inflation forecast that my own staff is turning out, which is very similar to yours. And frankly, I find the CPI [projection] of 5 percent in the second half of the year a very distressing number to have to face, when I think that our objective, as I stated before, ought to be price stability--and by that I mean zero.",457
-fomc-corpus,1988,"Mr. Chairman, we also have revised up our forecast, particularly for the first quarter, but we still don't come to as strong a forecast for the year as a whole as the Board staff does; we're roughly one percent less than that. We have not quite as much growth in the first quarter and substantially less in the second quarter; the third and fourth quarters look about the same. The difference largely, as has been mentioned already, is in the projection for inventories. We would see the growth of inventories to be somewhat less than in the Board staff's forecast. I assume the underlying assumption of the Board staff is that the buildup in the fourth quarter largely was voluntary and will continue at fairly high levels in the period ahead. We would think that is not the case, and as a result, that is the difference in the forecast. With respect to the Tenth District, there has not been a great deal of change from what was reported last month. I will just go through the various activities. Agriculture has had a very good year, largely because of government transfer payments, but also because red meat prices, principally cattle, have been very good. Export-related activities have picked up; there is some hope that perhaps in 1988 the government subsidy that goes with that will, in a sense, continue to permit agricultural products to be shipped abroad. With regard to energy, what had looked at the end of 1987 to be a bit of a recovery, particularly in terms of exploration, has turned back around because of the instability of energy prices. For example, in December there were 363 rigs working in the Tenth District; in January that fell to 307, and in February it fell to 271. It's simply a matter of the instability in those prices. People are not willing to put their money out to put a hole in the ground and hope that there's something at the bottom of it. If some stability comes through OPEC pricing, then I think that very quickly they will be back to exploration in our area. With regard to commercial real estate, it's flat in most areas with the exception of Omaha and Kansas City. But it's overbuilt in Denver, Oklahoma City, and Tulsa; and as a result, as Bob Boykin has mentioned, that is a long-term workout problem that probably isn't going to get any better in 1988. With regard to the overall tenor, it seems to me that from discussions I've had with people in agriculture and manufacturing and retail business, their feeling is that things are indeed better. They would expect 1988 to be better. There seems to be no constraint on input goods; there doesn't seem to be any upward pressure on prices. I would add an observation on the earlier discussion about the natural rate of unemployment. It seems to me that because of what we have been through since 1979 and into the early 1980s, there may be a lag after you reach that natural rate before prices really begin to rise. Then people realize it and are willing to take the chance of raising prices, and you get the explosion in prices that I think the Chairman mentioned. I think we are on very dangerous ground at the moment with regard to the level of unemployment--whether it's at the natural rate or not I don't know. I think you can go for a quarter or so beyond the natural rate before you get that explosion in prices, but I think the danger is on that side.",691
-fomc-corpus,1988,"It seems to me that our economy has some very bright spots in it. I am not quite as concerned as others that we are going to move from somewhat slow growth to very, very robust growth. Even though I had a forecast of 3 percent real growth fourth quarter to fourth quarter at the February FOMC meeting, there are still some areas in our economy that have weakness. It is my belief that price pressures may not come because of output pressures but because of some of the developing notions about our policy response in a period in which the foreign exchange value of the dollar could come under serious attack. It seems to me that commodity prices, which at best are mixed, have never really had the fallback that generally is accompanied by their leveling off. Some commodity prices have moved up and some have moved down, and I suppose, on aggregation they seem not to be posing a tremendous problem. But it seems to me that they are high enough to motivate a lot of productive activity and a lot of capital goods orders, so that the producer durable goods orders could very well be higher in the second half than we have projected. I also share the view of Bob Parry and about five or six others of you about the inflation forecast for 1989. Frankly, I am not as complacent as I would like to be in that regard. In the past I felt that we have been overpredicting the rate of inflation a little; yet it seems to me that we are now at a crucial point where price rises could become rampant and could explode. That's why I am worried about the broader aggregates growing at almost double-digit rates in January, February, and March. Knowing, as we found out last fall, that it takes quite a bit of time before changed opportunity costs of holding money seem to affect the growth of those aggregates, it seems to me that we are in a precarious position here where we could have a breakout on the price side that would be most unfortunate. So I, for one, believe I would like to join the 4-3-2-1 club. That is to say: How in the world can any of us be policymakers and not want to get the rate of inflation, as Lee Hoskins says, down to a zero rate? If we are going to get it down, we really have to begin. And it seems to me that 5 percent doesn't do it; it needs to go the other way. My preference would be to start with four percent on the CPI in 1987, be down in the 3 percent range in 1988, and proceed lower [thereafter]. But I would invite anyone to join the club who would have a different timetable; I wouldn't care if you wanted to start in 1988 rather than in 1987. But for those who really care about price level stability, I would think that we have to make some changes at this point.",589
-fomc-corpus,1988,"I think I would agree with the pretty satisfactory description of the overall economic growth picture, of unemployment, and the good investment outlook as well. Some people have pointed to some weakness. And, while we are making enormous strides in the external sector, let's remind ourselves that we still have a long way to go there. Therefore, we can't let the domestic boomlet get totally out of hand, because we have to shift resources to the export sector in the years to come to get that external imbalance removed. On inflation, there is one number that nobody has really talked about much--I'm glad I was able to look over Mike Kelley's shoulder and take it away from him--",135
-fomc-corpus,1988,"You are, but go ahead. [Laughter.]",11
-fomc-corpus,1988,"The Producer Price Index hasn't moved at all for the last half year, and I think it's important to keep it that way. The price pressures that others here have been talking about are certainly there--for example, in the metals sector. Monetary growth is higher than we have targeted and the dollar is under pressure. So, while I am very satisfied with the overall operation of the real economy, I think it is important to keep it that way.",89
-fomc-corpus,1988,"I have just a couple of comments, primarily based on some conversations I had with people in the auto industry Friday and yesterday. As I looked at the general statistics, I thought the consumer looked as if he or she was pretty tight-fisted. Certainly, the retail sales look that way; the consumption numbers for the last five or six months have looked that way, I believe. People point to auto sales as some sort of exception, but at least the people I spoke with in the auto industry are not putting that kind of interpretation on this. What they are saying is that they had to put incentives on 75 to 80 percent of their lines because they were sitting on this tremendous inventory, the dealers were squawking, and they had to help move the inventory out. In connection with all this effort, they actually reduced inventories by 58,000 units between the end of January and the end of February. We seasonally adjust and we multiply everything by twelve. The dealers who are holding the inventories are paying interest on actual numbers; they don't get seasonally adjusted. Anyway, there is this feeling that they have to move these things and that there is a big advantage these days to keeping your production lines running because your workers are happier and your suppliers are happier. The auto industry has excess capacity these days, and therefore, the pressure is really on them to do everything possible to move these units. I sense that there is real fear about what might happen if and when they remove some of these incentives; they don't seem too eager to test the market real soon. In connection with this, the production schedules are looked at each week. They did announce some higher schedule amounts for the second quarter. They look at these on an ongoing basis, though, so they are not stuck with the higher numbers if they don't believe the numbers are consistent with the sales results. Also, in the context of the room in this economy for producing for export, when you nail down some of the numbers, it makes me think that we have more room than some people realize. For example, one automaker is talking about a big increase in export opportunities for a certain make that we export to Europe: 400 units this year and 1200 next year. That's a mammoth percentage increase; I can't do it in my head. But, in fact, getting 400 units this year and 1200 next year on the kind of base that they're talking about here is not going to cramp anybody's style or their production facilities. Finally, I checked with two of the big three automakers on the price pressure issue and said ""I'm reading all this stuff in the paper; what's really going on?"" One of them, who had just talked to their purchasing agents last week, said that in terms of what they are actually paying, they're not seeing this. I think the difference is that we are confusing what is happening to some of the list prices and what sharp purchasers are paying. My final point is this: let's say the price of copper rises by a nickel. That is a tiny percentage of the total cost of a lot of products. There are all sorts of things that we [consumers] pay for, like utility bills and labor and so forth; so I think you have to keep this in some sort of perspective before you assume that the increase in copper prices will be approximately the increase in the CPI. I am still not convinced that we are about to go lickety split at 90 miles an hour. I hope you can convince me that there is more strength there than I am able to find so far.",725
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"I don't have much to add. Our forecast is virtually identical to the staff's forecast. I think that the amount of room on the upside is just about zero. In other words, any acceleration of growth from these forecasts carries with it rapidly escalating risks that the inflation problem will begin to show through again. The problem with inflation is that if it starts to show through, it could build quite rapidly. On the other hand, if GNP growth were even a percentage point or so slower than forecasted for a quarter or two, especially if that slower growth were in domestic demand, I have to say that it isn't going to hurt my feelings terribly. As I said earlier, I do view the exchange rate situation with some renewed anxiety. It's not that I care about one exchange rate versus another, but right now I see clear risks on the downside with very little to be gained. To me, it's a question of risks versus rewards and I don't see much there on the reward side at all. I also have a lot of sympathy with the point that Tom Melzer made about the return of the wild, wild West to the financial scene. I, too, find it frankly astonishing that some of the things have reappeared as fast as they have, coming off the events of October. I don't know what we do about that. I guess the answer probably is, nothing. But it clearly does bring with it some long-term problems of a potentially serious nature. Hopefully, we won't have a recession in the foreseeable future, but we will at some point. I don't know if it will be 1999 or 1989, but there will be a recession. And when that recession comes, the potential consequences of it--in a context in which the system is progressively more and more leveraged and basic tenets of financial discipline don't seem able to stick--are very, very distressing. I don't think there is anything we can do about that at the moment, but it is a big concern.",401
-fomc-corpus,1988,"Mr. Chairman, there seems to be heavy sentiment around the table that the risks are increasing on the upside and I share that. But I feel constrained to make a couple of points in the other direction. I think we should keep in mind, going back to what Frank said earlier this morning, that GNP forecasts are subject to a plus or minus 1-1/2 percentage point error. He was concerned about the plus 1-1/2, but let's not completely forget the fact that the minus 1-1/2 is a potential also. And there are a number of things out there that could point toward weakness: some of the rates of increase are slowing down; industrial production and retail sales are not exciting; you have potentially serious financial conditions in the Southwest. I'm not 100 percent convinced that we are out of the woods with regard to the lagged effects of the slow growth of the monetary aggregates in 1987. Capital expenditures look like they are going to be up, but new orders are down right now. So, there is some cause to keep our eyes open, looking in the rear view mirror if you will, looking at the downside. In the area of inflation, if I may quote you from this morning, Mr. Chairman, let's stay with the numbers. Bob Heller was looking at how inflation has been flowing in the last few months. If you look at the PPI particularly, but also the CPI, on a month-to-month basis against the same month a year ago, both of the indexes have fallen every month for the last six months--and that includes February, the latest figures. So, while inflation certainly has the potential to rise--I see that the same as everybody else here--it absolutely is not here yet. And I don't think it is unreasonable to expect, particularly with a 4.8 percent fourth-quarter GNP, that if inflation were going to show up, it would have begun to do so by now. So that makes me wonder if we aren't looking at some things that could be fundamentally different in that area than we're used to. I don't know that I believe that, or that it is true, but one begins to wonder. In short, Mr. Chairman, I think there is concern about the possible downside risks and perhaps some time to take continuing readings on the inflation side; so, I would be somewhat slow to jump on the assumption that things are going to get away from us on the upside.",500
-fomc-corpus,1988,"Mr. Chairman, as I indicated earlier, I'm still concerned about the potential for the economy overheating this year, particularly in the manufacturing sector. I think later on this year we are going to be running pretty thin margins in a lot of manufacturing industries, in terms of capacity utilization. And one thing we have learned from the 1970s experience is that if we are going to stabilize the economy and prevent inflation from blowing up again, we have to be willing to act before it is clear that inflationary pressures are here. If we wait until we see wages escalating or prices escalating on a broad scale, we will have a momentum that is going to be very difficult to turn around. And I think we ought to keep that in mind when we rule on a policy today.",155
-fomc-corpus,1988,"I think that just about everything has been said. I second what Frank Morris just said: that if we are going to keep inflation under control, we're in a situation that requires taking some risk with policy ahead of the ball game, rather than waiting until the pressures start to show up. I think everybody has already said what is obvious to me, too: that the economy is doing better than most people would have thought after the stock market crash and that there probably are some significant risks that things could pick up and we would be close to some sort of inflation threshold. I think those risks are there. However, we have seen since the stock market crash some pretty good improvements in the inflationary-expectation environment, although most recently we've seen some trends back the other way. I don't know whether what we have seen over the last couple of weeks is simply a washing out of the recession forecast out of the market. I tend to think that is what we are seeing. Analysts and traders are looking at the situation now and are just scratching the recession forecast from their outlook, and the financial markets are reflecting that some. But we have had, after all the major improvements in financial conditions since the stock market decline, some trend back toward firming up. Long-term Treasury yields have gone up about 50 basis points relative to the funds rate, and some additional downward pressure on the dollar is starting to develop. Commodities are sort of a mixed picture: some are strengthening and some are not; oil prices are jumping around; the broader indexes are sort of flat, but some narrower measures of commodity prices are showing strength. I don't really know what to make of this--whether everybody's breathing a sigh of relief that we're not heading for a recession or whether this is the beginning of some pressures that we need to worry about. One thing that is clear to me, though, is that the stock market does not appear to be settled. I think last week was a pretty harrowing experience again with the stock market losing 100 points. So, I still don't get the impression that things are back to normal in the financial markets. I think that tells me that we're sort of on a knife edge, policy-wise. We can make the mistake on the downside or the upside here. But we have to take some risk. My personal view is that there may be more upside risk, in terms of the beginnings of some pressures indicated by conditions in the financial markets and in the other real economic data. But I think we ought to be very cautious at this point, because there are downside risks, as has been pointed out. I think the stock market is very uneasy about the situation.",535
-fomc-corpus,1988,"It's getting to be 1:15. I suspect that it would be appropriate, rather than to try to finish up, to continue the meeting over lunch and truncate, to a certain extent at least, our regular luncheon agenda. So, why don't we take a break now to get lunch and then we will continue the FOMC meeting.",69
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Do you have any analysis of how the staff interest rate forecast affects the thrifts and the Texas situation?,21
-fomc-corpus,1988,Not to my knowledge.,5
-fomc-corpus,1988,"Well, I guess we have the usual forecast. We think that thrift earnings might be cyclical [unintelligible]--I'm sorry, I just don't have that.",35
-fomc-corpus,1988,I believe that forecast would [unintelligible] one large thrift almost $1 billion.,19
-fomc-corpus,1988,"I've seen some sensitivity tests for and if you have interest rates go up a full percentage point, it would accelerate their losses substantially.",26
-fomc-corpus,1988,"Bob, you and I are talking about the same institution.",12
-fomc-corpus,1988,All right.,3
-fomc-corpus,1988,"Questions for Mr. Kohn? If not, shall we do our usual circle?",17
-fomc-corpus,1988,"Let me just ask a quick question, which has to do with the same problem I was talking about before. We have fed funds rates still at fairly high limits. I'm not talking about current policy now, but what if you wanted to have a fed funds rate around 3 or 4 percent? If we're close to that [unintelligible] barrier, as far as the borrowing is concerned, what's going to do it?",87
-fomc-corpus,1988,Discount rate.,3
-fomc-corpus,1988,"Yes. I think the obvious answer was just given, which was to reduce the discount rate.",19
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Although there's a footnote in the Bluebook that we did run for fairly long periods of three or four or five months in late 1982 and early 1983 with funds right around the discount rate. We have run also for a shorter period of time with the funds rate below the discount rate--in the credit control period in the spring of 1980, for example. But you'd probably have to pay a lot more attention to what the funds rate was doing; you couldn't do it off of the borrowing function once we got down to that--",111
-fomc-corpus,1988,You could just target the funds rate below the discount rate.,12
-fomc-corpus,1988,"Well, yes. But I always--",8
-fomc-corpus,1988,And that's fairly easy to do. All you do is just let people borrow from the discount window without asking a lot of questions on whether they have collateral.,31
-fomc-corpus,1988,Do what?,3
-fomc-corpus,1988,It has to be working off the excess reserve part of the demands for reserves. I think it would be very sensitive to small misses in factor projections and things like that.,34
-fomc-corpus,1988,"Don, back on seasonal borrowings--a question related to what I asked Peter at the outset this morning. Doesn't a $200 million borrowing level, now that seasonal borrowing is going up, really represent, in a slight sense at least, an easing of policy?",53
-fomc-corpus,1988,"I guess ordinarily, President Keehn, my answer would be no. Almost all of our statistical econometric work suggests that those seasonal movements in borrowing don't get reflected in the funds rate. But I would say that at these levels of borrowing, where we're down close to frictional levels and seasonal is such a high proportion on the adjustment side, I would have more questions. I think it could well be that if seasonal borrowings were to rise, even at $200 million, this would have some effect on the funds rate. And that's one reason why I suggested that if that seemed to be happening that would be one reason for Peter to make non-policy adjustments in the borrowing assumption over the intermeeting period if the Committee wanted to allow it.",148
-fomc-corpus,1988,President Parry has the floor.,7
-fomc-corpus,1988,"Mr. Chairman, it seems to me that two significant developments have occurred since our last meeting that have a bearing on this policy discussion. First, economic activity is stronger, and prospects are that growth will be more robust between now and the end of 1989 than was anticipated in mid-February. Second, since the growth is occurring with the economy operating in an area close to full employment, the prospects for inflation have worsened. Most disturbing to me is the possibility that increases in labor costs will be rising at more rapid rates.  Such a development would be a major setback to our inflation-- [Secretary's note:  The transcript ends at this point owing to a malfunction of the recording equipment.]",141
-fomc-corpus,1988,"We have a little problem with the Brazilian negotiations, which has diverted Jerry Corrigan for a short while. He'll be back, but he asks for us to get started in any event. I was listening rather closely to the discussion we have had, and it strikes me that there is fairly general uniformity of views as to what is happening to the economy. And I think that Governor Heller's view that what we are looking at is the elimination of the negatives as distinct from accumulation of the positives is exactly right. The one thing we have to be a little careful about is that we recognize that at some point, whenever you get a situation which is as uniformly positive as this, it turns. It's only a question of when it turns. The thing that's bothering me slightly about the outlook as I look at it--not in the negative sense but in the confirmation sense--is that, at this particular stage in the cycle, if we are running into the type of acceleration and inflationary process which is at the forefront of our concerns, I think we should now begin to get some significant inventory accumulation. We have all the forces in place for it: namely, intermediate prices beginning to move and general awareness of aggregate demand. Yet we are not seeing either; nor is there an acceleration of the types of commodity prices which tend to be reflective of imbalance in supply and demand. I'm not arguing for the commodity price explanation on the inflation side--where Governor Angell is coming from--but we have not had yet the secondary follow-through on metals prices and other prices, which have since stabilized, not as an indicator of inflation but, I think, as an indicator of the fact that this thing is not yet accumulating. My guess is it probably will, but I don't think the evidence is here as yet that it has. And the data we have on lead times, while higher, don't yet suggest the type of tightness that we see in a lot of individual industries. This is a process that I fear is going to create a fairly substantial acceleration at some time, but it isn't at the moment--or at least it hasn't. I'd be very curious--for those of you who have very specific insights on this, I would appreciate your addressing this issue very specifically, if you would, during the monetary discussion. I don't think there is any question that the next move that we have to make is on the upside. And the only question, basically, is whether we do it now or we do it before the next FOMC meeting on the basis of certain contingencies. The thing I feel a little uncomfortable with is the answer to this question: If we weren't meeting today, on this particular date, would we be moving or would we be waiting a couple of weeks or so? The reason I raise the question is that there is a market expectation which extrapolates itself from what we do. In other words, if we start to move sharply, then the expectation jumps very quickly. I'm a little concerned that if we move too fast, we can get significantly ahead of the curve, as has been said. And there is a stock market out there that I think could get pretty shabby. We could get confidence reversed. So, where I come out at the moment is basically for either: alternative B with asymmetrical language toward tightening, with a fairly explicit expectation that at the appropriate point we would move up; or going up $100 million now on borrowing, also with that asymmetrical language, because I think the question really gets to an issue of whether we go up $100 million or $200 million before the next FOMC meeting. My own preference would be for ""B"" with asymmetrical language implying almost certainly moving sometime during the intermeeting period. But I don't think there are any particular dangers if we were to raise borrowing $100 million now. Frankly, I think going $200 million now, on top of what we have done already, is getting to the edge of being a little risky on the rapidity of the movement implicit in that and the extent to which there can be market extrapolations which occur as a consequence. Governor Johnson.",835
-fomc-corpus,1988,"I'm sort of following up where I left off on the tail end of the last discussion. I'd like to throw my hat in the ring and concur with what the Chairman just said. When I came into this meeting, I guess my feeling was even a little more moderate than that; although I generally tend to be--. When I walked into the last meeting I was for no change and the discussion convinced me that we needed to move. This time, I came into the meeting basically feeling that we just had voted for a $100 million increase in the borrowing average at the last FOMC meeting and we have made another $100 million increase in the borrowing average, which has just occurred. And the markets have really just absorbed this move, I think. It would be unusual, and probably a little risky, to immediately hit the market again here at this meeting with another $100 million or more, or something like alternative C, just as the market has absorbed--and I think favorably absorbed--our last move. So, I guess where I was prepared to come out was something like no change, with asymmetric language that provides the flexibility to move toward a tighter policy of maybe another $100 million increase in the borrowing average during this next intermeeting period, which I think would probably be likely. The important issue would be the timing. I still tend to favor that approach, although I guess I could actually support a $100 million move now. But I still think that it would be important to have the discretion about the timing on filtering that into the market rather than moving immediately at this meeting since we've just now absorbed a $100 million move on borrowing. I would be strongly against going for alternative C for a couple of reasons. One, I think this would be a shock to the markets; they are not prepared to absorb that, and I think they would even wonder what they're missing that we know. I think we have better information, but I don't see the kind of evidence that supports that kind of move. Secondly, I think it would raise immediately in the markets an anticipation of an imminent discount rate move. Going up $200 million on the borrowing from this point--taking borrowings up to a $600 million average, which would take the funds rate up probably into the range of 7-1/2 percent plus, maybe 7-3/4 percent--would immediately raise expectations of a move on the discount rate. That's something I would like to avoid. I'm not against ultimately moving on the discount rate if we have to, but I think the discount rate ought to be used mainly as an extra piece of ammunition, as an important symbol for an even more serious situation, if it arises. I would prefer that it not be simply a technical adjustment to what has already taken place in the markets. Then we lose the effectiveness of what we might want to do with a discount rate move later. So, I would prefer not to create those expectations of an imminent move in the market. We have leeway to do that still, but I think that we have to be very cautious. So my preference, once again, would be no change, with asymmetric language and the understanding that there probably would be an imminent move timed sometime within this next intermeeting period. But I'd leave it up to the Chairman and the Desk to determine that. A $100 million move now would be reasonable, but I would still prefer that the Desk remain very sensitive to how that was filtered into the markets, given the fact that they've just now absorbed a $100 million increase in borrowings in the last few days. I don't know exactly where that puts me in terms of ""A"", ""B"", and ""C""; maybe I should say that it's probably somewhere around ""B"". Although I guess my preference is ""B"" with asymmetric language, I could live with a ""B"" that would involve a $100 million borrowing move, with some sensitivity on the Desk's part.",797
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Well, Mr. Chairman, I think in about 95 percent of the meetings I've attended in the last 20 years it would have been perfectly appropriate to make a proposal for no change in the existing policy, in the light of uncertainties that existed at the time. And I think that's one reason why we've always tended to lag. I'm particularly concerned, given our present structure of meetings. We went to this eight-meeting system back at the time when we were supposedly controlling M1 and, therefore, there was less need for frequent consultation. I think that ought to be reconsidered if we are really on an interest rate control system, even though there was a lot of sentiment against it expressed at the last meeting. To have our next meeting at the end of June involves a long intermeeting interval in this kind of situation. That doesn't mean that I disagree with your recommendation that we sort of hedge our position here--go half way, with the idea that we'll look at the incoming data in the next couple of weeks, and perhaps decide to go whole hog. I would suggest that the proper time would be to have a meeting after the new orders figures are out. If my thesis is right--that we have a head of steam building in the manufacturing sector--then that ought to be reflected in pretty strong orders figures. And if they're not strong, that would be a signal for--",277
-fomc-corpus,1988,We should pick that up in the purchasing managers' survey; it's probably more sensitive than most published figures.,21
-fomc-corpus,1988,That's right; if you wanted to wait two weeks you'd pick that up.,15
-fomc-corpus,1988,"You get the lead times, and you get a qualitative sense of the issue you are raising.",19
-fomc-corpus,1988,"In terms of approaching it this way and hedging our position--moving half way and reconsidering in a couple of weeks--that makes good sense to me. But, if we weren't going to reconsider, I would prefer to go whole hog right now.",51
-fomc-corpus,1988,"Does whole hog mean ""C"" or--",9
-fomc-corpus,1988,"Whole hog means ""C"", yes.",8
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Mr. Chairman, you asked us to comment specifically about inventories. I think that there probably is some indication of accumulated inventories that are imported goods, and that's in response to higher prices. With regard to other goods, my recollection of that period in the late '70s when that occurred is that that is a bit of a lagging factor. What usually happens is that we get some pickup in the price indexes and that begins to fuel expectations; and we don't get the really rapid accumulation of inventories until somewhat later. And if that, in fact, is correct, I think maybe waiting for that as an indicator might be a little dangerous.",129
-fomc-corpus,1988,"But this is the later; we are there now. We have already had this. Of course, we're in May and about to get into June. We just haven't seen what has been happening in the data. Historically, it would be happening just about now.",52
-fomc-corpus,1988,Is that right?,4
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Well, I thought there was more of a delay.",11
-fomc-corpus,1988,I don't think so.,5
-fomc-corpus,1988,"In any case, as I see the developments, particularly the ones we've mentioned--unemployment, capacity utilization, M2, the positioning in the aggregates--it seems to me that there is a very strong case to support Bluebook alternative C. In fact, I can't imagine a more convincing case being put before us than the one that was put before us by the staff. There was general agreement with the staff's forecast; some questioning about it. But it seems to me that it is explicit in the staff's forecast that if we delay in taking action, we're going to pay a price later--conceivably, based upon what we know, in terms of having to move even more aggressively. I know it has been mentioned that we've moved twice recently. Those two moves of 1/4 of a percentage point just don't do much. And I remember earlier times when, to get any significant impacts on the economy, one would have had to move a lot more than a 1/4 of a point. So, my clear recommendation would be Bluebook alternative C. I could see as something of a compromise that we move borrowings up maybe a $100 million now. But I would hope that we would have specific plans to talk or reconvene in a couple of weeks to see what the intervening two weeks or so bring in terms of data, because I think that, unless they show weakness, we should then move again.",289
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"With regard to policy, I think the timing question is a very difficult one, as you suggested. The markets--certainly the stock market and maybe the bond market as well--probably are vulnerable if we move too far too fast. On the other hand, they're vulnerable if we delay too long. I don't know what the precise, perfect timing for this kind of action is. What I think about is our longer-term goal and the point I tried to make earlier: that whatever is likely to happen on the wage and price side, it doesn't seem to me that there's going to be any deceleration next year unless we act. I think it is time for some further action, and I would be in favor of your second alternative, which is to go $100 million now, with an asymmetric directive, and expect that that probably will not be a big shock to the markets. In fact, depending on circumstances, it could be welcomed. And then what happens after that depends on the data that come in.",202
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Well, Mr. Chairman, everything we've talked about this morning--the forecast, the employment and unemployment numbers, and the potential wage and price pressures--clearly and pretty uniformly indicates, I think, that the risk is on the upside and that we are worried about inflation. But, I don't interpret the last two actions we took recently as being unsubstantial. So, my preference would be to wait before we take any further action and let those two actions work their way through the economy. After all, the latest action was just a little while ago. Now, if we hadn't taken those actions, I'd be of a different mind. But, at the moment, my strong preference is to wait--perhaps not very long--maybe three or four weeks, or something like that. So, I would like to stay where we are with $400 million in borrowing, but with an asymmetrical directive. I would be prepared to support an alternative which would move it up $100 million, to $500 million, with a symmetrical directive. But I would have a real problem with moving all the way to alternative C at this point.",226
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"I'd like to start by sort of recapping what I see in worldwide inflation rates. I think we are looking at a situation where, for one reason or another, the inflation rates of two of the major economies out there are moving up toward ours, instead of ours moving down toward theirs. And that seems to me to be a real loss in ground. There are reasons for that; they have exceeded their monetary growth rate targets, partly in defense of the dollar. Those monetary growth rates seem to be giving the kind of impetus to spending in those economies that we would expect. And I don't see that going away any time very soon. So, worldwide, we have a potential trend that is discouraging. In terms of our own inflation rate--just to reiterate what I said earlier--we have been stalled at a rate that I think is too high for most of us, at least as stated in terms of our objective, which is price stability. Even if the staff forecast is in error, in the sense that it's too strong on the economy, it seems to me we're still faced with the prospect of inflation staying at current levels or rising. And if our objective is price stability, then we ought to begin to pursue that objective aggressively. With respect to movements, and the size of movements in policy actions, I think there are several issues that surround this discussion. One is the credibility of policy. Policy credibility means that markets believe you're going to do what you say you'll do. I find it difficult to believe that markets believe our rhetoric about price stability when the long bond rate is over 9 percent. I don't know what happened to it this morning, but I suspect that if I were advising people in the market, as I did a year or so ago, I'd say that the economy looks stronger than I thought, and that we would see a rise in inflation and, therefore, a rise in interest rates. And I would expect the bond market to be selling off. Back on the credibility issue: if we move now, and convincingly, it seems to me that we will have a peak in interest rates that is lower than if we wait and go forward in incremental steps. A second point about credibility is the issue of confusion in the public and, perhaps, in our own minds. If we react with small moves to noisy data that come out monthly, then I think the public doesn't understand fully what we're trying to do. More importantly, I think it convinces us that we have more ability to control economic activity than we really do. I think monetary policy is a long-run policy, not a short-run policy. So, I think the markets are not as unsure about us. We have gained some credibility; and I think we ought to retain that credibility. And last, I guess I ought to say, given the strength of my statement, that I prefer alternative D. I think I'll end there.",585
-fomc-corpus,1988,"I'll record you as ""C"" because I don't have [unintelligible] on the other end! President Boehne.",27
-fomc-corpus,1988,"I think we have to balance the notion of where we have to go, which I think is some tightening, without being disruptive to the markets. The best balancing, from my point of view, would be to raise borrowing $100 million now. When I say now, I don't mean tomorrow; I would think that we would have to give the Desk some discretion to work it in over the next week or 10 days. I would have an asymmetrical directive that would stack the deck some in the direction of tightening, but still wait to see incoming information. I guess that puts me at kind of ""B"", ""C+"", with an asymmetric directive.",131
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"I'd like to get back to the middle of the target range for the monetary aggregates--not do it instantly, but gradually. I fully agree with the Chairman's views: alternative B with asymmetric language and $100 million on borrowing.",46
-fomc-corpus,1988,Do you mean $100 million at some point between--,11
-fomc-corpus,1988,At some point--you feed it in slowly.,10
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mr. Chairman, I too would join those who have a concern about upward interest rate movement. However, it seems to me that the risk is on the upside, and there's enough room to take another cut at some restraint without disrupting the markets. As a result, I would like to associate with those who would opt for a B-C alternative, which is the $500 million on borrowing; but I'd also include in that asymmetrical language toward further restraint. When I focus on moving from the $400 million to $500 million, I would just note that seasonal credit has taken its normal track and has increased rather dramatically since our last meeting from something less than $100 million to--I don't know what it was at the close of this period, but at times it was over $200 million. If you have a $400 million objective for borrowing, and over $200 million of that is seasonal, you really are depending upon how you view the seasonal--whether it's sensitive to interest rate levels or not. I really believe that moving to $500 million rather promptly is not a major move, given the makeup of the borrowing level of $500 million. As a result, going to $500 million then, with asymmetrical language, would permit us to move on toward the C alternative depending upon what incoming information we may have in two weeks. That would be my prescription.",274
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I think the question that was asked for those who want to wait is: What are you waiting to see? I think it is a good question. I'm very sympathetic with the notion that we can give misleading signals in regard to what it is that it appears we are focusing on when we make the move. It does seem to me that if the staff forecast is accurate, at some point in time the discount rate change would be a part of such a move. And I point out that if that were to take place, of course, it could take place at any point in time between Open Market Committee meetings. If there are factors that would make us think that we would need that much of a change, it seems to me we ought not rule that out. So, I don't see that today is necessarily the time to move. But I would have a strong preference as to what kind of signals we use. I happen to like something in alternative C very, very well. And what I like in alternative C are the M2 growth paths. Frankly, I would like for us to look at those very carefully, and, if I thought we could wait, do nothing now in regard to a borrowing target move. That would be acceptable to me because I don't think we know at this stage what has happened on the money growth that would be anticipated from the moves we have made. Certainly, April was a month we knew wasn't going to give us very clear readings on the monetary aggregates; May looks like it might be consistent with ""C""; and if June doesn't follow that path, frankly, I'd like to have that be the factor that would cause us to make a move. I say that in keeping with my view that we will be able to achieve our movement to price level stability if we do not allow the exchange value of the dollar to fall further. I believe that an alternative C growth path of the monetary aggregates would be consistent with a stable dollar in the short-term horizon, and I'd like to have that kind of restraint. But I certainly feel comfortable in having the Chairman--he has shown already that he is responsive to these forces and that we could make this move as we see some more alternatives. So, it's okay with me to have a strong tilt in the directive and to have no change today in the borrowing target, provided there is some assurance that we will be ready to act if those monetary growth rates do not return to what I thought was the very good path that we had in 1987. Hindsight says that wasn't too bad.",512
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Mr. Chairman, I feel a little ambivalent, certainly not regarding the direction, but regarding the question of timing. We have talked about that a lot. Ed Boehne phrased it much the way I would. I would not move on the borrowing today, because I think it would be pretty quick after the last move and might perhaps signal a little more to the markets than we would intend. And we want to do this in an orderly way. So, I would bring the level up by $100 million as soon as we think the markets can accommodate that; I don't know whether that's a week or two weeks, something like that. Certainly, I'd be in favor of asymmetric language with an upward bias in the policy directive. And I think it's not only possible, but very likely, that we will move on the second $100 million before the next meeting of the Committee. Whether we do that at a conference call or leave that entirely to you, I'm indifferent.",196
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I'm in favor of ""B"", including the idea of adding $100 million to the borrowing target eventually, for many of the reasons that the Chairman mentioned. The main reason is, again, that we have had these two tightening moves in very recent weeks and I'm not sure that the markets have fully digested those moves. I'd be very surprised if the real economy has taken them into account or if the monetary aggregates have begun to reflect them. Also, as I mentioned before, I think we ought to pay some attention to the stock market. I think there is a lot of nervousness still there, at least among a lot of institutions. In many cases, institutions and small investors have taken a walk. I haven't heard anyone mention the thrift industry, but I think that that's a disaster area, and something we have to pay attention to. Bob Boykin, I'm sure, can speak to that, as can a number of us; and too much tightening too soon, I think, would make it a greater disaster. I can't imagine that the LDC debt situation would improve dramatically if we tighten too much. Also, as I read that table on the growth of the monetary aggregates, it seems to me that those aggregates are expected to slow whether we go with ""B"" or ""C"". And I still think that some inventory correction is in the cards. I don't know when it will be--I'm not that smart; but I think there is some excess there that is going to be worked off. In fact, when interest rates get higher, it just gives business people stronger incentive to run with less inventory. I could live with the asymmetric language as well. I think that summarizes it.",339
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I think the staff has made an excellent case in its forecast for an early move. It's true we have made a couple of moves recently, and I think they have been timely and very appropriate. But I remember so many times sitting around this table when this was the apparent stage of a business cycle where traditionally we have made our largest mistakes. So I think we ought to move now. I think you've given us wise counsel in suggesting we hold that $100 million increase in the borrowed reserve figure; and I would buy that, with an asymmetric directive. I'd like to get rid of that language about the unusual flexibility. I think that's unduly fuzzy and just confuses people. And I'd like to keep open that option that we would go the other $100 million if, after two or three weeks, it looks as if we need to. In short, ""B"".",178
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Mr. Chairman, when Bob Forrestal spoke a few minutes ago I wish that I had been the next one on the list and I could have simply said ""me too."" I think that it's a time to wait, given the evidence to date and the two recent moves, which I agree were not insignificant. I would be in favor of ""B"" and keeping the same borrowing for now, with asymmetrical language. But, as Bob suggested, I'd be comfortable with going an additional $100 million now with symmetrical language.",105
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"I agree with the position that has been stated by you, Mr. Chairman, and others. I'm a ""B-"", ""C+"", however you characterize it, with the $100 million increase in borrowing. I guess I would be inclined to move sooner rather than later on the $100 million. If I had the real courage of my convictions, as Lee Hoskins does, I would really like to line up with him. I guess I just don't have that much courage, given the situation I have down there in the Southwest. But, I think he makes a very, very good point that policy, and what it is that we can do, has to be viewed in the longer run. And I think when we temporize and rationalize some of the short-run problems we think would result from taking actions, that's not really communicated and tends to compound the problems over the longer range.",178
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"Well, my instincts probably are the same, but I think that for financial market reasons, if nothing else, I'd be willing to sneak up on it. To me, that would mean do the $100 million now with asymmetric language, although I could live with an arrangement in which you and Peter have some flexibility in terms of edging that $100 million in. But, certainly, I feel very strongly that we should get that first $100 million in promptly. I think that the two changes in policy that have been made in the last several weeks or so clearly have been viewed favorably by the markets as an indication that we are indeed prepared to respond to these conditions. But I agree with Bob Parry that, insofar as the economy is concerned, I doubt that they've done much of anything. I think that Don Kohn made that point in a way, earlier on, when he pointed out that nominal and real interest rates--even after those moves--are precious little different from what they were a year ago. And in the intervening year, the economy has grown at a rate that simply won't work prospectively. I also have a nagging fear here--I don't know what the staff's views on this are--that because of these highly mobile money and capital markets on a worldwide basis, that it may take a higher level of interest rates to achieve a given degree of restraint in the real world. And if that were the case, our problems that lie ahead, especially in the context of Governor Seger's comments about thrifts and a lot of other things, would be all the more difficult and all the more damaging. It is precisely for that reason that I feel so strongly that moving now is the right thing to do. I agree with comments made by Governor Johnson, I think before the coffee break, and by Lee Hoskins a few minutes ago: that we've got to avoid fine tuning here; the broad thrust of developments over the next six or seven quarters is what we have to keep in mind. And that, too, says to me that we ought to move now. I also agree with Governor Johnson on the discount rate question. In the situation that we have right now--where we're on the upside of the cycle and where we don't have to worry about frictional levels of borrowings--I don't see that there is the same kind of prejudice for a discount rate [increase] that there was on the downside, where we run into that frictional borrowings problem. So, I don't see that there is any presumption whatsoever, at least in my judgment, that if we moved--perhaps even as far as a full-blown ""C""--that that would create a strong bias toward having to move the discount rate. Indeed, at the phase of things that we're in, like Governor Johnson, I personally--not that I have a final say on the discount rate--would try to keep our powder dry on the discount rate and work through the market as much as possible. I think that does two things: One, it minimizes the dangers of market disruptions; and secondly, it leaves us in a stronger position if something really adverse develops in the next month or two, or whatever. To summarize, Mr. Chairman, I would do the $100 million now, with an asymmetric directive. That's it.",667
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I've followed the moves that have been taken, but my sense is that, in effect, they are rather small following moves. I think at some point we're going to have to step out in front of this situation if everything we've heard today is correct. And that's going to take something more on the order of alternative C. The timing issue has been talked about. I would guess--and again, Mr. Chairman, I think you did the right thing by moving within your latitude--that if you had the benefit of all this discussion you might have moved it a full 50 basis points, and we wouldn't get into two increments of 25 basis points. Because of this view that I think we have to get in front and make a strong statement, I would favor ""C""; but I could certainly accept a ""B"" with asymmetrical language--$100 million now and $100 million later.",180
-fomc-corpus,1988,"As I tabulate the results, everyone here believes, as best I can judge, that the next moves are higher. The only thing that basically differs here is whether we move now or move in a short period. What I would like to suggest is that, if I've written down correctly what I heard from everybody, there seems to be a consensus for alternative B and asymmetrical language, with a fairly strong willingness--desire, if I can put it that way--to give instructions to the Chairman and the Desk to move before the next period. I would interpret that to mean that, unless we see events which clearly are contrary to the general consensus of the outlook as one hears it today, it's almost an automatic increase. There is a strong, and I think convincing, case that is being made that we should not, under any conditions, allow ourselves to get behind the power curve on this question. And I would say further--in line with the issue Frank raised about the frequency of meetings--that should anything of moment arise that suggests the need to have a telephone meeting, I think we should. That would substitute for having to come to grips with this rescheduling question. I don't think there's any doubt that we are in a very sensitive policy period; and I think that close discussion and judgments are probably going to be needed at intervals shorter than our scheduled FOMC meetings. So, what I'd like to suggest, and I hope that Norm would find the appropriate language--I'm sorry, there's one thing I did forget. Unfortunately, I only got from President Black his judgment about that sentence; we did not get any other appraisals on leaving that sentence in or dropping it out. I think we'll go around on that question before we take our vote. Normand, why don't you just--",361
-fomc-corpus,1988,Vice Chairman Corrigan Out,5
-fomc-corpus,1988,"Before we do, [please read the sentence].",10
-fomc-corpus,1988,The Committee agrees that the current more normal approach to open market operations remains appropriate; still sensitive conditions in financial markets and uncertainties in the economic outlook may continue to call for some flexibility in operations.,38
-fomc-corpus,1988,What about the 5 to 9 percent or 4 to 8 percent? Do you want to do that at the same time or not?,30
-fomc-corpus,1988,"Well, no. In a certain sense--",9
-fomc-corpus,1988,It seems to me that 5 to 9 percent would be more appropriate.,16
-fomc-corpus,1988,5 to 9 percent is clearly--,8
-fomc-corpus,1988,I just wanted to bring it up and make sure we didn't--,13
-fomc-corpus,1988,"Yes, but 5 to 9 percent is in both ""B"" and ""C""; so it's automatic.",23
-fomc-corpus,1988,Governor Angell Out President Forrestal Out Governor Heller Out President Hoskins Out Governor Johnson In Governor Kelley Out President Parry Out Governor Seger In,30
-fomc-corpus,1988,"It's clearly [the preference of] the majority for it to be out. Anyhow, what I'd like to do is have a vote. Why don't you--",32
-fomc-corpus,1988,Do you want me to try to read this?,10
-fomc-corpus,1988,I can't; I've never been able to read his writing so--,13
-fomc-corpus,1988,I'll give it a try. Unless maybe it would be better--,13
-fomc-corpus,1988,"Or do you want me to? Sometimes I can't read my writing either. By the way, Mr. Chairman, I think it could be handled, if you wanted to, by just having the maintain and then the tilt in the sentence. But it would be understood, and made clear in the policy record, that the Committee expected to move. But if you wanted to state something more clearly in the operational paragraph, my suggestion is as follows: Taking account of conditions in financial markets, the strength of the business expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates, the Committee expected that a slight increase in the degree of pressure on reserve positions would be appropriate in the weeks ahead. Depending on further developments in these factors, somewhat greater reserve restraint would or slightly lesser reserve restraint might--and then you'd have to be clear with the end of that tilt--be acceptable later in the intermeeting period.",192
-fomc-corpus,1988,"I'm sorry, I think you're putting the--",9
-fomc-corpus,1988,"So, the first sentence has maintain in it; and then, taking out the sentence in brackets, the second sentence says taking account of all those things the Committee expects that a slight increase in the degree of pressure on reserve positions will be appropriate in the weeks ahead. So, I presume that that means if those things don't come in the way we expect, it wouldn't be [appropriate].",77
-fomc-corpus,1988,"Yes. In other words, it's a fairly strong asymmetrical statement?",14
-fomc-corpus,1988,"Well, no; it's a statement actually stronger than that. It says we expect that a firmer--",21
-fomc-corpus,1988,It's drifting up.,4
-fomc-corpus,1988,The timing.,3
-fomc-corpus,1988,And the maintain would only be initially.,8
-fomc-corpus,1988,"Right; it says ""in the implementation of policy for the immediate future the Committee seeks to maintain the degree of pressure on reserve positions.""",27
-fomc-corpus,1988,Initially; maintain initially.,5
-fomc-corpus,1988,"Initially, okay. And then, taking account of all these things, the Committee expects that a slight increase in the degree of pressure on reserve positions will be appropriate in the weeks ahead.",37
-fomc-corpus,1988,"Not will be, would be.",7
-fomc-corpus,1988,"Would be, okay. I had would originally.",10
-fomc-corpus,1988,"Because there is, in effect, a contingency here.",11
-fomc-corpus,1988,We could be surprised. The subjunctive is right; that's correct.,15
-fomc-corpus,1988,"And then I have depending on further developments in these factors--[that's not] the right word, I'll think of another word--somewhat greater reserve restraint would or slightly lesser reserve restraint might also be acceptable later in the intermeeting period.",48
-fomc-corpus,1988,So you have a preponderance of a move and a tilt also?,15
-fomc-corpus,1988,"A strong supposition of a move unless things were surprising, and then the possibility of [a further move], but there's a tilt in the possibility.",30
-fomc-corpus,1988,Anybody object strongly to that language?,7
-fomc-corpus,1988,I have trouble with it.,6
-fomc-corpus,1988,How would you rephrase it?,7
-fomc-corpus,1988,I would have the first sentence say the Committee seeks to increase slightly the degree of pressure on reserves.,20
-fomc-corpus,1988,But that's not what the majority is.,8
-fomc-corpus,1988,Majority.,3
-fomc-corpus,1988,"I understand that, but you asked me what I would prefer. That's what I prefer.",18
-fomc-corpus,1988,"Oh, okay. I'm asking the question of whether I've captured the sense of the majority.",18
-fomc-corpus,1988,"Yes, that's good.",5
-fomc-corpus,1988,It did mine.,4
-fomc-corpus,1988,"It seems to me that that's a very appropriate response. And as I understand it then, that almost means that we would expect maybe a telephone conference call if we don't do it.",36
-fomc-corpus,1988,"No, I would not say expect; I would say if we don't, that would require one.",20
-fomc-corpus,1988,There would be a telephone conference.,7
-fomc-corpus,1988,It requires a telephone conference.,6
-fomc-corpus,1988,"Mr. Chairman, could I ask for some estimate of the length of time before we move?",19
-fomc-corpus,1988,Two weeks.,3
-fomc-corpus,1988,At the most?,4
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Mr. Chairman, I guess it all depends on how one listens to things, but I had the sense that there was a majority of people who wanted some tightening, say, in the next couple of weeks. And it would seem to me one way to do that would be to say in the implementation of policy etc., the Committee seeks to increase slightly the degree of pressure on reserve positions in the immediate weeks ahead.",83
-fomc-corpus,1988,"But, Ed, the count was four people who favored an immediate tightening.",15
-fomc-corpus,1988,But it's not immediate; it's spread over the next couple of weeks.,14
-fomc-corpus,1988,"No, no. I'm just talking about a count of the voting members.",15
-fomc-corpus,1988,Oh.,2
-fomc-corpus,1988,There were four members.,5
-fomc-corpus,1988,"But I think if you counted the people who wanted a tightening immediately, plus those who are willing to have some flexibility over the next week or two, you would have a majority. And, therefore, if you are a little vague about whether you do it right away or within the next--",58
-fomc-corpus,1988,Are you talking about the Committee or the whole group?,11
-fomc-corpus,1988,He's talking about all the participants.,7
-fomc-corpus,1988,"Well, I didn't keep that accurate a score.",10
-fomc-corpus,1988,I think you're correct on the total Committee [participants].,11
-fomc-corpus,1988,I see.,3
-fomc-corpus,1988,I don't think it comes out that way [for the voting members].,14
-fomc-corpus,1988,All right.,3
-fomc-corpus,1988,Six; and six are voters.,7
-fomc-corpus,1988,Unless I'm mistaken.,4
-fomc-corpus,1988,Can we poll for a $100 million over the next two weeks and then--,16
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,Of the voting members?,5
-fomc-corpus,1988,We can certainly clarify that.,6
-fomc-corpus,1988,"Yes. We might as well because we are very explicit on exactly what the difference is. We can do that. So, let me tell you what the language is and what the actual difference is. The question basically is the issue of $100 million now or $100 million in, say, two weeks, unless some event occurs. That's what the difference basically is in this particular group. Would that be the view?",84
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,"In either event, there is asymmetric language in the directive over and above this. Okay, why don't you poll on that very specific question.",28
-fomc-corpus,1988,"Okay. $100 million now versus $100 million in two weeks. Chairman Greenspan Two weeks. Vice Chairman Corrigan Now, but I could live with two weeks. Governor Angell Two weeks. President Black Now, but I can also live with two weeks. President Forrestal Two weeks. Governor Heller Two weeks. President Hoskins Now, but $100 million is not enough.",78
-fomc-corpus,1988,$100 million is not enough?,7
-fomc-corpus,1988,Two weeks ago.,4
-fomc-corpus,1988,"You haven't ruled out the $200 million, have you?",12
-fomc-corpus,1988,"No, no.",4
-fomc-corpus,1988,"No, we haven't, because we don't have enough votes for that to have--",16
-fomc-corpus,1988,"No, but I mean over time, after you've moved the $100 million, if these contingencies--",21
-fomc-corpus,1988,"Well, we still have asymmetric language.",8
-fomc-corpus,1988,"That's right, so it could be $100 million now and $100 million [more] before the next meeting.",23
-fomc-corpus,1988,It's possible to have $200 million within the intermeeting period.,13
-fomc-corpus,1988,That's the point I was making.,7
-fomc-corpus,1988,Yes; that's correct.,5
-fomc-corpus,1988,Governor Johnson Two weeks. Governor Kelley Two weeks. President Parry Now. Governor Seger Two weeks.,21
-fomc-corpus,1988,"That's the same vote that I got before. So, unless I'm mistaken, that is captured by Don Kohn's language.",25
-fomc-corpus,1988,"Oh, it is captured; it just makes it a little stronger. It puts it right up front that you intend to tighten within two weeks.",29
-fomc-corpus,1988,"But that's with [unintelligible] any contingency. And we want to keep in some contingency; it's not very likely, but there is a contingency.",32
-fomc-corpus,1988,"You know, there's a difference. I think we're pretty clear on what the consensus is. That language is not in the public domain, in any event, for six weeks; and I don't think that there are ambiguities on what the instructions to the Desk and Chairman are in this respect. Why don't you read the directive as we now have it.",70
-fomc-corpus,1988,"Mr. Kohn just suggested one additional word at the start: In the initial implementation of policy, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of conditions in financial markets, the strength of the business expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates, the Committee expects that a slight increase in the degree of pressure on reserve positions would be appropriate in the weeks ahead. Depending on further developments in these factors somewhat greater reserve restraint would be acceptable or slightly lesser reserve restraint might be acceptable in the--",119
-fomc-corpus,1988,Thereafter. Mike Prell just suggested--,9
-fomc-corpus,1988,Later weeks of the period?,6
-fomc-corpus,1988,"Yes, I said later in the intermeeting period.",11
-fomc-corpus,1988,Later in the intermeeting period. And then I guess we need some numbers on the monetary aggregates. The contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from March through June at annual rates of--,49
-fomc-corpus,1988,"Let's take the ""C"" numbers.",8
-fomc-corpus,1988,There's not enough difference between any of them to matter much.,12
-fomc-corpus,1988,"I know, but that's--",6
-fomc-corpus,1988,6 to 7 is right; that stays in.,11
-fomc-corpus,1988,March to June?,4
-fomc-corpus,1988,March through June at annual rates of about 6 to 7 percent.,15
-fomc-corpus,1988,Why do we use March to June rather than May to June?,13
-fomc-corpus,1988,You don't know what May is yet.,8
-fomc-corpus,1988,That's the usual way it has been done.,9
-fomc-corpus,1988,"Well, I know; but it seems to me that what you already have behind you, you can't alter. I thought maybe--",26
-fomc-corpus,1988,That period.,3
-fomc-corpus,1988,How about May to July?,6
-fomc-corpus,1988,"You know, really it shouldn't--",7
-fomc-corpus,1988,Really. Because otherwise you convey a mistaken impression.,10
-fomc-corpus,1988,"Don, is there any reason why?",8
-fomc-corpus,1988,Why not May to July?,6
-fomc-corpus,1988,May to July?,4
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Well, generally we focus on a quarter at a time. We'll be meeting again at the end of June, so I'm not clear why you'd want to specify--",32
-fomc-corpus,1988,I know. But what we do in June--,10
-fomc-corpus,1988,The July growth rate won't--,6
-fomc-corpus,1988,But what we do in June can't affect June's growth rate or even July's growth rate.,19
-fomc-corpus,1988,Just say the intermeeting period.,7
-fomc-corpus,1988,But there's very little information that will come in between now and then that will tell us very much about July's movement.,24
-fomc-corpus,1988,So I'd prefer to say 4 to 6 percent from May to July. That would give some indication here of what we're--,26
-fomc-corpus,1988,Do you mean April to July?,7
-fomc-corpus,1988,Do you mean April to July? Because we don't know--,12
-fomc-corpus,1988,"Yes, April. Right; that would be a quarter.",12
-fomc-corpus,1988,"Can I suggest that we make that change at the next FOMC meeting, because you're actually raising more difficult questions. Let's stay with what we have; let's do 6 to 7 percent March to June, but resurrect this issue because I think Governor Angell is raising a quite legitimate question.",60
-fomc-corpus,1988,And the funds range?,5
-fomc-corpus,1988,Mr. Chairman? I have one question: Did we mean to have maintain initially? We talked about that and I thought we sort of--,28
-fomc-corpus,1988,"Yes, I thought it was. The way that statement reads there's a lack of contingency in there, but I may have missed something.",27
-fomc-corpus,1988,"The contingency came after ""the Committee""; there was an ""initially"" in the first sentence, Bob, and then--",25
-fomc-corpus,1988,It was; but it wasn't when Norm read it.,11
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Yes, he read ""initially"" the last time.",12
-fomc-corpus,1988,He did?,3
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Well, I missed that one, too. I'm sorry, Norm.",14
-fomc-corpus,1988,"Yes, it would start ""in the initial implementation of policy"".",13
-fomc-corpus,1988,"Oh! You had it in a different place; that's why I couldn't find it. I'm sorry--I was looking for it down near the ""maintain"".",32
-fomc-corpus,1988,"Governor Johnson, there is a contingency toward the end; it relates to the remainder of the intermeeting period.",22
-fomc-corpus,1988,"Well, okay.",4
-fomc-corpus,1988,We can vote.,4
-fomc-corpus,1988,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins No Governor Johnson Yes Governor Kelley Yes President Parry No Governor Seger Yes,43
-fomc-corpus,1988,Anybody have any objections to discussing the monetary base over sandwiches? [Short recess],16
-fomc-corpus,1988,"[Unintelligible] because I think it tends to support [the view] that there is a desirability of having such a constraint. Now, one argument you can make is one that was in the follow-up memo I sent around, and I think we've just witnessed it in our discussion. And that is the difficulty of coming to grips with, in effect, targeting interest rates; it is difficult to deal with that process without some tool that enables you to take a longer-term view, which I think the constraint does. Don, having complimented you on your memo, let me just say--I'm not going to criticize--but I can't really say any better than it was said in that memo why I think this type of constraint would be desirable. This is on page 10: ""Generally, periods of rapid growth in the base in recent years have been followed, with a lag, by a tightening of monetary policy. In some cases (1983, 1986) these have been periods in which the Federal Reserve had been easing. Greater attention to the base might have tempered the degree to which policy was previously eased, reducing the need for subsequent tightening, and damping the cyclical variations in interest rates, albeit at the expense of somewhat greater short-term interest rate volatility."" I think that in a nut shell makes the case right there. Again, I'd say that just the short experience I've had here on the Committee would tend to support that. With respect to the question of targets versus a constraint, I personally would be much less inclined to adopt a base target. Now, I think you could say that the base might have an advantage in that it is more directly controllable than any of the other aggregates that we presently target. Its relationship to our ultimate goals of policy is not better. And I guess I fear, and it's implied in Don's memo, that if we just decide here today, let's say, to set target ranges for the base instead of M1, we're actually going to hurt ourselves in the process. If it is treated as the other aggregates have been--in effect, that we set the target but then we're willing to violate it--I think that could do more harm than good, frankly, to the credibility of this process. So, I'm not saying there aren't any circumstances under which I would ever favor a base target, but I don't think this is the right time. I don't think the econometric analysis could support that being the desirable thing to do. With respect to the constraint itself, there's a suggestion of a four-quarter moving average, which troubles me in this sense: I think it basically defeats the purpose of what the constraint does, which is to put some real limits on how fast or slowly the base can grow in any one quarter. Technically, with the 5 to 9 percent that has been used for demonstration purposes, if you will, with a four-quarter moving average you could have base growth rates of 20 percent, 20 percent, -2 percent, -2 percent, and back to 20 percent. In effect, you could have the same kind of volatility and still meet the constraint and, I think, suffer the adverse economic consequences that that kind of volatility in base growth occasions. Also, I think this four-quarter moving average would have some of the same potential problems as an annual target--namely, that if the base grew very slowly for two or three quarters, or very rapidly for two or three quarters, and you were approaching the end of the four-quarter moving average period, you'd be faced with a decision of whether to adjust the growth abruptly in the base to stay within this constraint, or to ignore it. I think our experience has shown us that, typically, that's a hard decision to make. And I think that, too, could undermine the credibility of this [procedure]. I guess there are two points I'd like to make in connection with this. When I suggest this 5 to 9 percent range, or whatever, I'm not saying that it should never be ignored. I think, in practice, it probably would be observed most of the time. But there could be situations where we choose to ignore it and, as has been pointed out, those situations very likely would be associated with the behavior of currency. But that's something we can observe. Our analysis on currency has indicated that where there have been aberrations in the growth rate, they have tended to be reversed within a quarter or two. But if we had a situation like that, I think it would be related to broad economic circumstances that we would generally understand and could explain; and we could very easily justify violating the constraint. But, in general, I don't think it would be violated. The final point I would like to make is that I agree with the work that Don and the others did in terms of the nonborrowed base--that from the controllability point of view it would have an advantage. I guess what I'm not so sure about is whether we lose something in a conceptual sense, because the base is something people are familiar with. Do we lose something in the conceptual sense to go to a more esoteric concept like a nonborrowed base? I could live with either one, but I prefer the base and not the nonborrowed base; I'd live with the short-term controllability problem as, over time, I think it can be controlled. I think that's all I would care to say right now, Mr. Chairman.",1103
-fomc-corpus,1988,Mr. Kohn.,5
-fomc-corpus,1988,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1988,"Well, I think the proposal deserves serious consideration. I'm not wedded to the base itself. Given the objections that some of the Board's staff have raised, I think the nonborrowed base would do the same thing that we're trying to accomplish. I think what we're trying to accomplish with this kind of a proposal is to tie our hands, to some extent; and in doing so, I think we would give some assurance to the markets that, in fact, we will react in a certain way over time. Another thing we need to address is that we would also have to make it public--if it's to work appropriately--to get the markets to do our work for us, as the market did when we had a nonborrowed reserve targeting procedure. If we used the quarterly average approach, and it looked like the month or two coming in were going to push the quarter above that constraint, the market would perceive that and begin to push interest rates up itself. So, [this approach] would allow us to curb the base growth. I think we'd have an override of the FOMC, if conditions warranted. We'd have to take an explicit vote and that has an advantage too. If you wanted to make that tougher, you could require a two-thirds majority, or something of that nature, so that it would be a real constraint on us, a more difficult constraint.",277
-fomc-corpus,1988,If you can get a majority for the whole procedure.,11
-fomc-corpus,1988,"I would suggest, if we have some agreement on it, that we at least look at doing a monitoring of it, if not a range. I know Tom didn't want to put a cone out there, but the market will very quickly draw parallel lines and also draw a cone. You have parallel lines, which is basically what you're projecting as a range, and people will start in the middle of those parallel lines and begin to figure when the base is going to bump against either the ceiling or the bottom end. So, I don't think it is going to be a real issue, whether we put a range in there or not. I think the markets are going to interpret it correctly as a governor, if we announce it as such and if we react that way. So, I think there is some reason for us to consider this, and maybe even set up the monitoring approach as early as the next Humphrey-Hawkins [meeting].",188
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Well, I have a contrary opinion. I think what we have learned in our adventures with M1 is that, if a monetary aggregate is not predictably related to nominal GNP, it is not a useful indicator for monetary policy. We went through a number of years with M1 in which the Committee had to set aside M1 as a target, then later reinstate it, hoping that it would again become a predictable indicator of nominal GNP. And then we finally removed it entirely. I think if you look at Tom's chart at the back of his memo, it's pretty clear to me that, if we had had a monetary base target in 1980, we would have had to get rid of the monetary base for the precise reasons we had to get rid of M1 as a target. If you look at the growth rate of the monetary base in the fourth quarter of 1982 and the first quarter of 1983, you'll see that it was running around 12 percent--3 percentage points above the top of the limit. Given the fact that the ratio of currency to reserves is about 2-1/2 to 1, it would have taken an extremely tight monetary policy to push that rate of growth back within the 9 percent ceiling. And I would point out that the fourth quarter of 1982 was the bottom of the worst recession we've had in this country since the 1930s. It's inconceivable to me that this FOMC, or any other FOMC, would have thought it sensible to have followed a much more restrictive policy in the fourth quarter of 1982 and the first quarter of 1983. We already had classically high interest rates. I don't know what federal funds rate would have been required to push the monetary base growth back to 9 percent, but it obviously would have been a lot higher than 20 percent, because 20 percent was not doing it.",392
-fomc-corpus,1988,"Frank, to some extent, though, there would have been reaction to the very slow growth of the base that took place all the way through 1981 and a good deal of 1982.",40
-fomc-corpus,1988,All right; but your system would require us to react at this particular time.,16
-fomc-corpus,1988,"Well, I know; but you can't just pick up on some--",14
-fomc-corpus,1988,"If [there had been] some reaction in 1981, you might not have had the reaction--",21
-fomc-corpus,1988,That's all I'm saying.,5
-fomc-corpus,1988,"Yes, but we can't play with what's--",9
-fomc-corpus,1988,"Well, let's take a look at 1986 then. In the years immediately preceding it, we were within the band; we weren't way below except for one point in 1984. So, you can't argue in the case of 1986 that we would have been making up for a big shortfall, because there wasn't a shortfall. Yet, here again, this constraint would have required us in 1986 to have followed a substantially more restrictive monetary policy. Now, 1986 was the year in which the average unemployment rate was 7 percent; the rate of growth of nominal GNP was 2.2 percent; the rate of growth of the GNP deflator was 2.2 percent. I submit that anything that indicates that we should have followed a severely more restrictive monetary policy in 1986 does not meet my requirements for a common sense monetary policy. And I think the Committee would have abandoned it again in 1986.",194
-fomc-corpus,1988,"Frank, do you know what reserves would have grown at in 1986 to meet the constraint on a quarterly basis? The answer is: 9 percent, 14 percent, 13-1/2 percent, and 12 percent. And that would have brought us inside the constraint. To me, that is very healthy reserve growth, taking into account what currency did. And it may well have necessitated much less of a reaction in the other direction in 1987.",97
-fomc-corpus,1988,What was the actual reserve growth?,7
-fomc-corpus,1988,It was 16 percent for 1986: 9.1 percent in the first quarter; 16.6 percent; 19.3 percent; and 19.4 percent.,39
-fomc-corpus,1988,"And that is because M1 was growing very rapidly. These two are closely related indicators and they have the same components. You have currency plus the reserves against transactions deposits as against currency plus transactions deposits. And they're going to tend to move in a fairly similar fashion. The weight of currency is different. But, as you argue, where the base departs is typically where you have unusual growth in deposits. So, you can't expect M1 to be something we had to get rid of as a target, and the monetary base, which is so closely related, to be something that would have given us a good guide to monetary policy during this period. It's hard for me to conceive that we would have gone through this period and not have been faced with a situation of either discounting the base as an indicator, or following a policy which, given the economic conditions, would have been a policy that was much too restrictive for the situation.",187
-fomc-corpus,1988,"Again, Frank, one thing I would point out is this difference between a constraint and a target. If you were targeting the base, I don't know that you'd be setting a 4 or, as Don even mentioned, a 5 percentage point range. And in my mind, there is a big difference. If you widen that range out and you're only trying to pick up the excesses at the peak, that's a lot different than relying on a target. The second thing I would--",98
-fomc-corpus,1988,But doesn't your system require that you try to get below 9 percent once you get above it?,20
-fomc-corpus,1988,That's correct. Well--or you wouldn't allow it to get above it.,15
-fomc-corpus,1988,"Well, I just think your own evidence suggests that it's not a workable guide to monetary policy.",19
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"I found both papers very interesting and really helpful. I think it would be very confusing to the public at large, and especially to Congress, if we had two different types of monetary control procedures--one a target and the other one a constraint. If we ask ourselves why monetary targets were introduced in the first place, they were certainly not introduced or requested by Congress because they thought those were just some guidelines that we could flop over and under. There was clearly the intent that they be some kind of constraint, however binding. And if we suddenly introduce a second set of numbers--one set a constraint and one set a target--I think the public legitimately will ask what we are doing. Which one do you really take seriously? So the confusion that would result, I think, would be great. I think it would be useful, however, to include the monetary base among the other monetary targets, but I'd treat it on the same level as the existing targets. And one thing that's important, too, is what Don Kohn was saying--namely, that the behavior is likely to change once you introduce it as a target. For certain, once you introduce it as a constraint, the old statistical relationships probably won't hold anymore. In any case, that's where I would come out: I'd treat the two the same. I'd be in favor of having something on the short end, and because M1 probably misbehaves a little more than the base, the base is the better candidate at the short end of the spectrum.",305
-fomc-corpus,1988,"Well, the only problem I have with that is that it just puts it in a category of things that don't really impact our policy decisions at all. I don't think the targets have a heck of a lot of credibility either within this room or outside this room. And I think what is proposed has the ability really to influence policy actions, at the extremes, in a very constructive way. And I don't know that you get that with what you're suggesting. It would be easier to explain; there's no doubt about it.",103
-fomc-corpus,1988,"Well then, let's rename all the targets; let's call them all constraints or something like that. You know, I take the range seriously as [the growth rates] get closer to the borders, it influences the way I vote on the current monetary targets. But I don't take them as an absolute, if all other things would indicate going the opposite way. As President Morris was saying earlier: Would you go voluntarily into a recession that would otherwise not be necessary only to stick to that constraint? And the answer would be no. Immediately, you already set up these escape clauses too. So, I think they are very much the same as the monetary targets; and if they're not the same, then we should take the monetary targets as seriously as we take the constraint. I'm in favor of looking at it; among the various options that you have there, I would be strongly inclined not to call them two different things.",183
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"I found both papers very interesting, but I have some analytic questions that I think are relevant, as far as whether or not the base should be considered as either a target or a constraint. The work done by the Board staff suggests that the statistical properties of the monetary base are superior to those of other aggregates. The work we have done suggests just the opposite. As a matter of fact, the statistical properties of the base are inferior to those of M2. We have a much larger interest rate elasticity on the monetary base and our income elasticity of M2 is significantly less than that [for the base]. The difference appears to be a function of the period of estimation. The period of estimation in the Board's forecast goes back to the very early 1960s and goes through the entire period. We think that the interest rate elasticity has probably increased in recent years and on the basis of our estimates, which run from 1978 through 1987, we find that the base actually has inferior statistical properties to M2. In any case, it appears as though there are significant amounts of shifts in the statistical properties that occur and I'm not sure we've paid enough attention to those kinds of shifts. They certainly could affect how reliable the monetary base could be as either a current constraint or a target in the period ahead. I guess I'd say that even though there has been a lot of analytical work done, maybe we ought to do a little more.",290
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I have a lot of sympathy with what Tom is trying to do because I think his ultimate objective is to achieve price stability. I don't know how this Committee would vote on that, but I remember several years ago Chairman Volcker asked us what we thought the objective was and half of us voted for price stability alone; half voted the other way; and he didn't vote and didn't break the tie. But I think that is the ultimate objective, and I hear more and more people around here saying that. And I think Tom is trying to create a constraint that will make us really work toward that objective and not lose sight of it. But my problem with it is that even though he thinks this is a constraint, I believe, in practice, that it really might end up being used like a target. And our analysis, like Bob Parry's, suggests that M2 is really better for this in the sense of predicting the level of long-run inflation. And that, I think, is the thing we really ought to look at, rather than how well it predicts nominal GNP, since I don't think we can peg real variables over the long run. All we can do is affect the price level. So, what I would like to do is to carry the thing a step further than Tom has, and suggest we think about using total reserves and nonborrowed reserves, or something of that sort, as an operating instrument. What we have now is very akin to using free reserves, which has been fraught with problems the whole time. I know that there are some institutional changes that will improve this--you could get rid of the reserve requirements against interbank deposits, [unintelligible] deposits, nonpersonal deposits, all those things. You could have a penalty discount rate. All those things could be done, assuming you can get the legislation for some of them. In any event, if we could work in that direction, then I think we'd have something that would really be very useful to us. Of course, one of the things we would want to analyze is what this might do to short-term market rates, and I don't think we have a good handle on that. Most people think they would fluctuate a lot more; my instincts tell me that the private market would take care of that. And, even if they fluctuated more, I don't believe that would be transmitted to long-term rates to the extent that most people seem to be assuming. In any case, if we could use this as an operating variable instead of borrowed reserves, or the federal funds rate, or whatever people think it is we're using, I think it would be a very efficient way to try to achieve the very thing that Tom is advocating. Now, if it came down to a vote as to whether to do what he suggested or not do it, I would say do what he has suggested. I'd like to take it further than that, but I think it's better than what we now have, because it is a constraint. And we really don't have many constraints now, given our willingness to violate our target ranges on an ad hoc, judgmental, basis. And I'd like a little more of a rule in there, a little more of a road map than we have, to the extent we can do it.",667
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"I'm very appreciative of the fact that there are so many members of this Committee who place price level stability in such high regard that they want to find some way to accomplish that [objective]. This proposal, it seems to me, is somewhat deficient in that regard in that it does not have within it a proposal that, in a sense, gets you to price level stability. I guess I see it as a way to live with 5 percent or 4 percent inflation, because 4 percent inflation can occur while maintaining this kind of constraint, so--",110
-fomc-corpus,1988,"Wayne, those numbers are simply for the sake of example. What I've laid out is a framework. I think it would be up to the Committee to set the bands, so that's quite--",39
-fomc-corpus,1988,"Yes. Second, even though I call myself a monetarist, I've always been a discretionary monetarist. And I believe that there are some circumstances--anyone who has read Irving Fisher, I think, would be aware of the fact that once you begin targeting money, and you cause money to be more scarce than it otherwise would be, you can alter the expected rate of inflation. And when you do, you get a shift in the demand for money. Now, it seems to me, that's exactly what occurred in 1986, with the worldwide deflation in commodity prices led by the plunging price of oil. Certainly, many of us were mindful of the fact that during that period of time we were getting some extreme numbers. And I remember in July, August, and September of that year looking very carefully at the commodity prices, which had turned around, and saying that we ought to put more restraint in place. And yet there were some who felt--and I think quite rightly so--that those countries with balance of trade surpluses were not engaging in action that was sufficient in regard to the survivability of the third world. And we thought it was essential, in some ways, to push the Bank of Japan and the Bundesbank to more expansionary programs. And we did this, with some risk, which made it necessary for us to follow a very different course of monetary policy in 1987. And there were those who were the strict rulemakers who told us at that point in time how disastrous it was going to be. Now, as it turns out, it wasn't disastrous for us to follow a very low growth path for the monetary base during 1987. It turns out that that seems to have been exactly the right thing to have done. So, I really can't find myself in a rulemaking camp versus a discretion camp. If you want to be discretionary, then you have to ask yourself what you want to use for discretion. And I've made it very clear that commodity prices are very good signals in regard to money growth rates.",417
-fomc-corpus,1988,You have indeed. Mr. Vice Chairman.,9
-fomc-corpus,1988,"Well, I probably have more sympathy for this, at this point, than I did the last time we talked but--",24
-fomc-corpus,1988,That's not saying a lot!,6
-fomc-corpus,1988,"[Unintelligible] a storm going on here because my thinking is probably conditioned by my worries that we could be making a horrible mistake in monetary policy here. I do have trouble, as I said before, with the base on a kind of intellectual level. A number of comments have been made on technical issues. But leaving those somewhat technical issues aside, I think what Tom is suggesting here is that there ought to be something--whether or not it has to be precisely this--something that makes us say ""Hey, wait a minute"" in a very, very deliberate, aggressive, forceful way. And that's what I have more and more sympathy with, even though I must confess I can't really warm up to this particular proposal, for somewhat technical reasons. There are two systematic periods, using the numbers that Tom has picked, in which this thing went astray. One was in the early 1980s, and the other one, which Governor Angell was just talking about, was in 1986. Now, as Frank Morris pointed out, the Committee was aware that everything, including the base, was in the one case growing very slowly, and in the other case, growing very rapidly. But the Committee made a conscious decision--not focusing on the base itself, but on other things that in some sense are symptomatic of the base--to ignore those. Why did they make that decision? I think the answer is, in a sense, quite simple. In the early 1980s, despite the fact that we were in what turns out to have been a hell of a recession, we also still had very high inflation rates. In other words, the adjustment in the inflation process, while underway, was by no means finished and by no means locked in. There was still some concern that the inflationary momentum of the late 1970s, 1980 and 1981, was still a demon that didn't have to just be wounded, but had to be stomped out. And so there was, I think, a conscious decision to be tolerant of those shortfalls. The same was more or less true in 1986, in that the very rapid growth in the base and the other aggregates was in some sense tolerated because, among other things, the inflation rate, while certainly not zero, was low, partly for oil price reasons, and certainly not rising. And that leads me to the view that if a procedure like this were to have some functional utility, that utility might arise in a context in which there was some kind of a relationship between it and what, in fact, was going on with regard to inflation. Now, I don't want to get into the rules game, either way. But it's clearly one thing if the monetary base, or some other monetary measure, is outside of some range and the inflation rate is high and/or rising, as opposed to a situation where it's outside and the inflation rate is low and/or falling. At least in my mind's eye, if something like this were to have some utility in a policy framework, either implicitly or otherwise, somehow or other you would need to take it one step further.",638
-fomc-corpus,1988,"Jerry, on those situations you commented on, I would just observe that those clearly would be situations, under the way this has been articulated, where the Committee could decide to violate it, and simply be obligated to explain it. And I think in both cases--",52
-fomc-corpus,1988,But what would be the money market response if the money market knows that we have these guidelines and then we decide to violate them? Don't you think there would be an expectational impact upon the money market?,41
-fomc-corpus,1988,"I think there could be, Wayne. But I think we're talking about a fairly extraordinary period--only two situations in eight years that might require that.",30
-fomc-corpus,1988,"Yes, but you see, by March or April of 1986, or by May at least, I presume we already were running up against that constraint. And if the marketplace had seen that out there, then the path of interest rates in April and May would have been affected by market expectations of the fact that that was there.",67
-fomc-corpus,1988,"Well, in a sense, I think that's good. It would cause the Committee to think very carefully about whether or not we ought to be violating it. If we do, consciously, then we explain it. Right now when we violate a monetary growth range, we get into explanations of velocity. I just don't think that that is something that is bought by the public on a broad basis. It just sounds like you are talking your way around the issue with technical phrases and so forth.",97
-fomc-corpus,1988,"Well, not to the target range; I think that's right.",13
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"Well, as others have said, I sympathize with the goal that Tom's seeking. If we had a vote today on the price stability goal, we'd probably get a much larger consensus. I'm not sure if anybody wants to take that, but I think it's critical that--",55
-fomc-corpus,1988,We would have voted differently today.,7
-fomc-corpus,1988,"Well, what I was going to follow up with is that there's a much more difficult technical issue. Even if you agree on the goal--if we had 100 percent consensus that price stability is what we all wanted, and I think probably almost everybody would say that today--you'd still have a whole lot of disagreement about what that means. Agreeing on the goal is an important first step, but then you'd run into all kinds of problems, like: Does that mean that we should jump with both feet on every big relative price swing? If there's an oil price shock, which is one big relative price in the economy obviously as it flows through, it's going to have some temporary effects. But what do we mean by temporary? It might have a two-year effect on the price level as it works its way through. What are we going to do about that? Does that mean every time one big relative price shocks the general price level on a temporary basis that we run out there and stomp it to death? We would get into all kinds of discussions about timing, about what price stability means, and what we would accept in the form of relative price effects that could affect the general price level for a while. But if you run out and try to deal with every relative price effect--like import prices, which we've obviously agreed to absorb to some extent--what are you going to do? If you deal with every one of those, you're going to be chasing your tail, I think. If you tighten up against a relative price shock, then you're going to potentially overshoot; as that filters through the economy, then it's going to create an overreaction on the downside at some point, and then you're going to be trying to work it back up. So, to me, price stability means a long-run concept. And that may mean that you're never actually experiencing a perfect level of price stability where prices are hovering around zero. It has to mean that the mean is somewhat around zero; but even then you'd have to admit that you want to accept periods of deflation. And I guess we could debate whether people think we ought to go through periods of deflation in order to keep the mean around zero. You can get into all kinds of difficult debates about what the proper measure of price stability is. Is it a broad index such as the CPI, PPI, the deflator? What is it? It's a difficult problem. But I still think that a goal of price stability, rather than, say, trying to improve the unemployment rate or maximize real output growth, is a step in the right direction. I think there was a time, probably, when that wasn't clear; some people would have said there was a Phillip's curve trade off and some acceptance of permanent inflation was worthwhile. I don't think that's true anymore, but I still think there is a difficult problem. Before I get too hung up on the goals, I do want to say on this specific proposal, though, that I think it would succeed in damping the volatility of the base. Having upper and lower bounds or constraints, I think, would cause monetary policy to adjust early as you're approaching the bounds rather than deal with big roller coaster effects, and would probably damp the volatility of the base growth. You'd have a much more stable growth in the base; I think it would succeed in that. But the question would be whether that gets you anything. I think the ultimate issue as to whether this specific proposal would be worthwhile rests on whether the base is a better instrument of intermediate policy than any other aggregate or anything else we have. Don had indicated that the statistical properties of the base make it somewhat equivalent to M2, although Bob Parry's people debate that. My view is that even if you look at M2, you have serious money demand problems associated with M2. My big problem is that I am not convinced that money demand is stable, even in the long run. Look at what we have experienced over the 1980s. And there have been statistical studies in the past that have found long-run breaks in the trend in the money demand in the postwar period. All you have to do is look back earlier than the postwar period; there were decades when monetary velocity was actually on a declining trend. It only turned up in the postwar period. And there have been several detected structural breaks in it even since the postwar era. Nobody can predict when those breaks will occur, and that's the difficult problem. You can feel very satisfied about the statistical properties of the base and all of a sudden there could be some structural adjustment--a long-term adjustment in the trend rate. Even though it may stabilize around this new trend rate, you might go two years trying to detect it. So, I think there is this fundamental problem with monetary aggregates. But, in saying that, I think the goal of people who want to target the monetary aggregates is a highly desirable one. That's why my preference has been to try and look at indicators like the interest spread, in conjunction with commodity prices and exchange rates. These are financial market indicators but they provide a similar type of goal to what people wanting to target the aggregates would want. I'm interested in the interest rate spread because I think that, especially under our operating procedure, that's how money is created and that's how liquidity is provided to the system. It's basically the spread between the funds rate and other rates that creates the lending incentives that take place, and of course, that determines, to some extent, the expansionary effects of money. It creates additional credit in the markets and that feeds back on the base. The way we do it now, we change the funds rate through the borrowing target, which changes the interest rate spread, which creates new loans and feeds back on the base through reserves. And, you know, I think that that gives you some idea about the thrust of policy. I think that approach--",1194
-fomc-corpus,1988,But don't you think that if you had a constraint you'd get a different shape in the yield curve? Do you think the yield curve would look the same as it does now if the markets were operating with this constraint in mind? I think that's the point.,51
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,And that's clear information. The market is going to behave differently if it knows that constraint is there in terms of long--,24
-fomc-corpus,1988,"Sure. I guess all I would say is that, yes, the yield curve might change. Obviously, as you got close to the constraint, long-term rate movements would probably be damped.",39
-fomc-corpus,1988,"I think Lee is raising the point that if the market believed what we were doing, the long-term rates would be lower; hence, the yield spread would tend to be tilted differently from what it would otherwise be, to say the least.",48
-fomc-corpus,1988,If they believed that the base was a real constraint.,11
-fomc-corpus,1988,"It could, but I think still the question is going to be whether that aggregate--. You know, you can get all kinds of yield curve relationships associated with that. You might get much better behavior on the long end of the market. But it's not hard to get long bonds to behave well. We could run the fed funds rate up to 20 percent today and I can assure you we'd get very good performance on the long end of the market. I think it's pretty predictable; if you create expectations of a recession, you can invert the yield curve quite nicely. But I don't think that's the ultimate goal, unless what you want is a level of expansion consistent with price stability--whatever that is, exactly. I don't know exactly what yield curve determines that, but it's not a negative slope. It might be close to flat but who knows exactly. I don't know where that leaves me, except that it requires a lot of discretion at the moment. It really requires filtering a lot of information. I think getting the goal right, and maybe even having further debate on fleshing out these goals, would allow this process to work even better. You're always going to have differing opinions when you have 19 people sitting around a table. But I've been amazed at how well this process sort of filters all that information into a pretty good consensus. So where do we need to go? If we could get the goals down a little better, we would probably do all right.",294
-fomc-corpus,1988,"One thing I'd say, Manley, is that there's no way around it: our business is money--whether we like it or not and no matter how difficult it is. And I think people would generally agree that inflation is a monetary phenomenon.",49
-fomc-corpus,1988,I don't disagree with that either.,7
-fomc-corpus,1988,"And, finally, I think in our discussion at the last meeting, people who have had a lot of experience around this table kind of spelled out the difficulties we have if we view our business as being one of interest rates and don't have some kind of a counterbalance based in money and reserves. To do that just because of the inherent opportunities--",69
-fomc-corpus,1988,"What I'm saying is that it's a proxy; that's always been the intermediate target to get to price stability, or whatever the goal was. Money growth isn't an end in itself; it's only an intermediate step toward what your ultimate goal is. I'm just saying that there are a lot of potential intermediate approaches to use to achieve the same end result. If we all have the same end result, we could have a slightly different view about what the intermediate steps ought to be but still reach a consensus on policy that would probably make us all happy. The base would probably perform better; my own indicators would perform better; Wayne's commodity prices would perform better. I think we would all generally be happier.",138
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"I think most of the useful things that can be said about this really quite excellent paper have been said. My bottom line is that I'd like to find a rule that would keep us on track in terms of good policy. I don't know what that rule is. I don't think the base is it, largely for the same reasons that I think M1 is not it. That doesn't mean we shouldn't keep working at it. But I don't have enough confidence in this to give up much discretion at all in terms of policy. So, whatever we would like, I think it simply isn't a reality; so I think we have to continue much as we have been.",132
-fomc-corpus,1988,"Even if you could find a perfect rule, I doubt the Committee would vote for it, because it's so much more fun making ad hoc decisions every time.",31
-fomc-corpus,1988,And that hurts again.,5
-fomc-corpus,1988,It means you recognize what you saw.,8
-fomc-corpus,1988,I mean I'm assuming away that problem; I still think we would vote for discretion.,17
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Tom, let me ask you to comment on something a bit more mundane and workaday. I think how we employ a device such as this has a lot to do with whether or not it's useful in the first place. And I wonder how we could reliably use it without so diluting it that it becomes punchless. As I look back four quarters, and also include the current quarter, I notice that the first month in four out of the five quarters grossly exceeds the parameters on the upside. Then are those--",104
-fomc-corpus,1988,Where are you looking?,5
-fomc-corpus,1988,"Well, I have a chart here that the Board's staff puts out on annualized growth rates on a month-by-month basis; it doesn't go back very far but it does go back a year; and it includes April, so I'm taking the liberty of including this quarter. For some reason--and maybe there is a reason--[monetary growth in] the first month of each quarter, four out of the five times, is way over the parameter. On both sides of the first months, there are much lower figures. And I ask myself what we would do if we [were operating under] your proposal. It says that no quarter would be permitted either to exceed the upper limit or fall below the lower limit. Well, in four of the last five quarters--taking the liberty of including this one--you have a huge number in the first month, which kind of comes out of the blue, because it follows two much lower months, and then in turn, is followed by two much lower months. And I ask myself what would we be liable to do if we sat down at this table when we just got a brand new figure that was way over [the upper limit] in the light of the pattern we have seen here in the last year or so. How could we protect ourselves against that phenomenon?",265
-fomc-corpus,1988,"What the proposal envisions is the average growth rate for the next quarter from the prior quarter's average. Are you looking at growth rates, Mike?",30
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Okay. So, first of all, what would the first month in one of those quarters you were talking about imply in terms of level for the average of the quarter?",34
-fomc-corpus,1988,"Yes, Mike is saying you look at the first month, but then you're really--",17
-fomc-corpus,1988,"Well, let me put it in the context of where we are right now.",16
-fomc-corpus,1988,"If you look at the first month, it's like the kind of thing that Peter deals with every day, with regard to the maintenance period. For instance, let's take October: the October number was 11 percent on an annualized basis. It was followed by November at 6.9 percent and December at 3.1 percent; it averages out fine. But if we had sat down here and looked at that 11 percent in October we might have been moved to do something precipitous.",100
-fomc-corpus,1988,"Well, first of all, I think the staff would have some ability to project what they expected to happen in terms of the growth [vis-a-vis] what we were trying to hit as an average for the quarter. There could be a circumstance where it would require some response reasonably early in the quarter. If you look at where we are right now in this quarter, we are probably right at, or preciously close to, the level that would be permitted by a 9 percent upward bound.",100
-fomc-corpus,1988,April was 12.3 percent.,8
-fomc-corpus,1988,"Okay. But you just can't look at the monthly growth rates; I think you have to look at the level. And, if I looked at these correctly--I'm looking at the St. Louis base--we are roughly at where I think a 9 percent constraint would be, or a little below it. So, you would have to be asking yourself at a meeting like this: Should I be taking a step now to slow that thing down?",90
-fomc-corpus,1988,"Then what happens on July 1st? In other words, suppose you take a specific action that drives it down.",24
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,All constraints legally come off as of the beginning of the next quarter?,14
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"Wouldn't you really want more of a rolling three-month average rather than an actual quarterly system? A quarterly system works very much like the maintenance period, where you could end up at the end of the period with some crazy stuff going on.",48
-fomc-corpus,1988,"I guess to the extent I thought about that part of it, I've just been looking at the average for one quarter in relation to the average for the next. I would think you could do it well.",41
-fomc-corpus,1988,"That wasn't meant as a criticism, just as a problem you have to work through if it's going to be useful.",23
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"I have some considerable sympathy for this proposal, but I don't think we ought to ask too much of it, in the sense that I don't think it's going to accomplish something that is always going to have us do the right thing. But the merit I see in it, relative to current procedures, is that it does put the monetary aggregates back into the policy process--in my judgment, in a more meaningful way. I think it adds some automaticity to our response relative to the current process, at least at the extremes, and I think that's important. Maybe that's the same thing. The third point I would make is that, under some circumstances, I think it will make us less reactive and more anticipatory. And for those reasons, I think that this, at the least, merits a more serious consideration.",163
-fomc-corpus,1988,Anyone else who wishes to make a comment who hasn't yet?,12
-fomc-corpus,1988,I just have one question.,6
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,"I read these papers with great interest. Would it be possible to run something like this off the shelf? In other words, not publicly announce that we're going to change, but act internally here as if we were trying it for six months, and just sort of simulate what the decision-making process would be?",61
-fomc-corpus,1988,"Sure. I would think that would be quite possible, wouldn't you Don? Not to make decisions--",20
-fomc-corpus,1988,"[We could try it] between now and, say, the end of the year or something like that; and if it did turn out to have real working potential, then put it in the Humphrey-Hawkins [report] next February.",50
-fomc-corpus,1988,The problem is you would never get the market's response to the changes.,15
-fomc-corpus,1988,That's what makes it tough to do.,8
-fomc-corpus,1988,The behavioral adjustments that would take place are not there that way.,13
-fomc-corpus,1988,I think Martha raises a good point. It would give us a chance to take a peek at it when--,22
-fomc-corpus,1988,"It's better than looking backwards, which is what you're doing statistically",12
-fomc-corpus,1988,You're right.,3
-fomc-corpus,1988,You could at least see when you would be faced with a decision.,14
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"You would be losing half the power. The power is the market's response to this rule, or this constraint, or governor, or band, or whatever you want to call it. That's the power of it.",43
-fomc-corpus,1988,"Well, wouldn't we be better off to test it just for a while, before locking ourselves into a statutory requirement or market expectation? I think that makes a lot of sense.",35
-fomc-corpus,1988,"Well, it's just an idea.",7
-fomc-corpus,1988,"But, at a minimum, you have to tell the [Congressional] Committee next time in the Humphrey-Hawkins [testimony] that we have either rejected it, or we are looking at it and have not yet decided whether to accept it.",52
-fomc-corpus,1988,"I was sitting here keeping score. Tom did marginally better than the Orioles, but not much.",20
-fomc-corpus,1988,But he did a lot better than when he first brought it up!,14
-fomc-corpus,1988,"However, I also kept score on the general sympathy for what it is you're trying to do. And I get the impression that what we're looking for here is more something to keep us off the path of an inadvertent acceleration of inflation. If that's the case, then what we haven't done yet is to evaluate some particular vehicles that would give us that sort of indication; that's the issue Jerry really was raising. Can I suggest that at this particular stage we rephrase the problem, not as a Tom Melzer issue, but as an FOMC issue. Let's see whether or not we can look not at the usual targeting characteristics, but strictly at the inflation question. To give you an example: if the long-term income velocity of M2 doesn't show any significant secular trends, it means, effectively, that the GNP price level, the implicit deflator, is a close function of unit money supply defined in M2. If you go further and substitute capacity for real GNP, and cyclically adjust the price--if you can actually get that--what you're basically trying to do is to get a relationship between, say, M2 divided by capacity on the one hand--or a bit more exactly, that as a long-term indicator of price, and the inflation rate being the first difference. But, if we could get some general notion--it doesn't have to be on a monthly basis, but just as a basic thrust--I think it would capture some of the issues that we're grasping for. Heaven knows, I think we are all acutely aware that chasing interest rates, ultimately, is going to throw us off the cliff at the end. And, while there is no real strong support for Tom on this issue, I think starting from where he started and expanding from there may get us something that we might find particularly useful. Now, I just suggest that. Does anybody have any notions as to where we go from here, granting that we don't like this specific proposal?",398
-fomc-corpus,1988,"I think you're right, Mr. Chairman; that's the way I viewed it. I tried to take it a little farther in the direction that I thought it ought to go, which nobody else will agree with except maybe Tom Melzer and Lee Hoskins. I think that can be very productive.",59
-fomc-corpus,1988,I think there's an advantage to having something in that type of equation that relates to what we do day-to-day in carrying out monetary policy.,28
-fomc-corpus,1988,"Well, yes; but remember if we have M2 in that equation, which is what would be in the one I was using, for example, that's really suggesting the nature of the noninflationary M2 target. It's a target which basically diverts itself from nominal GNP and gets away from the business cycle. It's basically looking at the long-term targets of policy which we view as noninflationary. I think we all know from our analytical work that the relationship between price and money has been a very tough one to grab. In fact, we have created such huge lags between money and prices that it gets you to wondering whether you're leading the next cycle or lagging the previous one. And I think that creates difficulties. If we have some longer-term thrust, at least we know where we're going out of line for two years. I don't think we can target any less than that.",182
-fomc-corpus,1988,"I would like to see us use multiple-year targets, if we can ever get to the point that we could agree on that. I think it's an exciting step.",33
-fomc-corpus,1988,"Well, does anyone have any objection to asking Don to see whether or not he can put his people to work? If anyone has any other thoughts to throw in the hopper, it might be useful.",40
-fomc-corpus,1988,"Well, Tom, would you object to paying more precise attention to M2 right now? Is there anyone here who believes that 8 percent growth of M2 is consistent with our price level stability goals?",41
-fomc-corpus,1988,"Yes, I do; I think it might be.",11
-fomc-corpus,1988,I don't--not in the long run. I think it's the best predictor of inflation of any of the aggregates we have now.,26
-fomc-corpus,1988,"I don't know. I mean, you have to tell me what's happening on the demand side.",19
-fomc-corpus,1988,I cannot tell you.,5
-fomc-corpus,1988,"The question is if M2 velocity secularly is flat, then you're--",15
-fomc-corpus,1988,"If you make that assumption, I agree with you completely. But I'm saying that's one hell of a big ""if"", because that's not what it has been doing the last few years.",37
-fomc-corpus,1988,It hasn't been too far from that.,8
-fomc-corpus,1988,"Well, it has been a long way from zero.",11
-fomc-corpus,1988,You have to go over a long period of time and you still get zero but--,17
-fomc-corpus,1988,"Yes, if you go back--",7
-fomc-corpus,1988,Over a period of eight years it has been substantial--,11
-fomc-corpus,1988,But the problem is that the character of M2 has changed quite dramatically in recent years.,18
-fomc-corpus,1988,No doubt about it.,5
-fomc-corpus,1988,It used to be that M2 paid a below-market rate. Now it pays a market rate. And there is no way that you can take the old data on M2 and come up with any conclusions that will permit you to forecast the M2/GNP relationship in the future.,57
-fomc-corpus,1988,"Regrettably, that is a legitimate criticism.",10
-fomc-corpus,1988,Except that our equations on M2 aren't doing that badly once we take into account the opportunity cost changes.,21
-fomc-corpus,1988,"Well, why don't we take a shot at it; and we will report back to you and see where we go from there.",26
-fomc-corpus,1988,Any and all inputs from Reserve Banks--,8
-fomc-corpus,1988,You want to implicate us!,7
-fomc-corpus,1988,"Don, since when has it been doing better? It's been what--a few quarters, right?",20
-fomc-corpus,1988,"No, no.",4
-fomc-corpus,1988,But the demand for money has gone through--,9
-fomc-corpus,1988,"The demand equation, once it takes account of the interest rate changes, hasn't been that far off over the last several years. But the velocity changes--",30
-fomc-corpus,1988,"Can you predict the interest rate movements? Because if you can't, you're in big trouble.",18
-fomc-corpus,1988,"That's the problem, which is what we said--",10
-fomc-corpus,1988,It just gets you into interest rate forecasting.,9
-fomc-corpus,1988,"If you can predict the prices, do you need to predict the interest rates?",16
-fomc-corpus,1988,No. That's my whole point. That's why I'm saying I've been looking at these other indicators that seem to do a better job than prices.,28
-fomc-corpus,1988,"I don't always understand these things, but weakly I'd suggest that it is a pretty darn good predictor of the price level.",25
-fomc-corpus,1988,"Well, can I terminate this conversation now, and just suggest that we will report back? If we don't, we're going to break all records on the length of an FOMC meeting.",38
-fomc-corpus,1988,"I'd say we won't break 1979, Mr. Chairman.",13
-fomc-corpus,1988,October 6th.,5
-fomc-corpus,1988,How long did that one last?,7
-fomc-corpus,1988,Probably three days.,4
-fomc-corpus,1988,Do we have some lunch?   We can now go into our luncheon session.,16
-fomc-corpus,1988,"Good afternoon, everyone. Before we get started, I think you're all aware that all of this paraphernalia around here is for our once-a-decade picture. So I presume everyone's hair is appropriately combed or constructively disarrayed. Secondly, we have dinner this evening at the British Embassy and I assume that everyone has [arranged] transportation appropriate to their needs; if not, shout, and we'll get that all done. Well, let's get the minutes of the May 17th meeting out of the way. Would somebody like to move them?",113
-fomc-corpus,1988,I will move it.,5
-fomc-corpus,1988,Do I hear a second? SEVERAL. Second.,12
-fomc-corpus,1988,"Without objection, I assume they are approved. Sam Cross usually has very little to say, but today I suspect he's got a lot on his agenda. Sam?",32
-fomc-corpus,1988,"Well, it's been an interesting period, Mr. Chairman. [Statement--see Appendix.]",18
-fomc-corpus,1988,Are there any questions for Mr. Cross?,9
-fomc-corpus,1988,"I have a couple of questions. What kinds of consultations and cooperation, or lack of cooperation, currently exist among major central banks of the world on these recent interventions? And a related question is what are we trying to accomplish with what we're doing or what we're not doing?",54
-fomc-corpus,1988,"We have had consultations with the other central banks and we've talked with them quite frequently every day. But we don't always have the same view of what's happening in the market or what should be done in response. I mentioned in my report that the Germans specifically had been quite concerned about the decline in the exchange rate for the mark, which they feel has inflationary implications for them, particularly with what they see as excessive liquidity in their economy. They think it is neither good for them, nor for the monetary system more broadly, for the mark to be declining as it has been declining under the circumstances. The dollar/mark rate has changed from its low point in January by about 26 pfennigs, which is more than 15 percent. And as a surplus country, they feel as though they should not be in a situation with the mark declining; they're a bit concerned about that. Our own activity has been aimed not at trying to drive the dollar down; no one wants to do that. But equally, it seems to me, we do not have an interest in seeing the dollar move up to unsustainable levels and then see it fall again. Our view is that a substantial amount of what is going on now is indeed a covering of shorts. We hear a lot of talk about what's happening in the options market. We hear a lot of talk about hedging operations by investors here and elsewhere. And we think that a lot of this is a covering of short positions which were built up over the past several months at the time when the market view was that the authorities would not let the dollar rise. And therefore, [market participants] could pretty well have a one-way bet on which way to hedge. Once this gets cleared out, we still have a huge deficit, and we still have all these other factors that have to be dealt with. I don't think anybody thinks we're out of the woods at this point. So our efforts in the intervention activities and the other activities we've undertaken have been partly to give ourselves some more currencies. Those currencies could become very useful in future months when we could very well be needing them in order to help support the dollar. [The intervention sales also were undertaken] to show some resistance to the rise in the dollar, so as not to let it get to levels which are simply going to be unsustainable--because service problems could well disrupt the market again. That's how I would [unintelligible]. We have operated, as I say, only in deutschemarks, not in yen where the movements have been much less.",513
-fomc-corpus,1988,Any further questions?,4
-fomc-corpus,1988,"Just a further comment. From my own perspective, in this period of the last week or 10 days or so--leaving aside any particular exchange rate question--I regret that we have not taken greater opportunity in these circumstances to accumulate balances in yen or marks or both. If you take a long view, it's awfully hard to see that the fundamentals have changed in any material way. The trade deficit is still there; the current account deficit is still there. We still are going to have to finance, over the next 4 years or 5 years, cumulative current account deficits of $400 or $500 billion. And to the extent there are risks over time, I think they still lie elsewhere. I personally regret that we have not taken the opportunity--even if we choose not to use them--to accumulate some balances in this period.",170
-fomc-corpus,1988,"Well, that's actually what we're trying to do. We would be in yen now if the Ministry of Finance were favorably disposed to our doing that. But I think, as Sam Cross points out, in this type of market, which is essentially a short-covering market, one would have to react downward; the [unintelligible] of the rise probably delimits the extent of the subsequent decline. And any accumulation of currencies puts us in a position where we don't have to swap or obtain foreign currencies by other means. I personally would like to see us pick up a couple of billion dollars a year. I'm not sure that we can; and I'm not sure that we can without having other market effects. But to the extent that there's a lot of short covering and rapid runups, rather than all of the central bank sales of dollars occurring other than from the United States, I think it's useful for us to get at least a part of that. And I think we're trying to.",199
-fomc-corpus,1988,"I think this question is related. I'm never quite sure about the decision-making process. Is the quarterback on these decisions the Secretary of the Treasury? Are Treasury officials the ones who decide the point at which to go in, or were we doing it based on the suggestion of the Bundesbank? I just missed that.",63
-fomc-corpus,1988,"Technically, it's a joint venture. In principle, the interpretation of the Constitution puts the Secretary of the Treasury as essentially speaking for the President--as the quarterback, as you put it. However, in the huddle, so to speak, we get a lot to say. And in many instances we recommend the plays. And I would think that we've been pretty much on line. In other words, if Sam Cross has a particular point of view--if he likes a specific strategy--more often than not we can convince Treasury that that's appropriate to do and get the authorization.",116
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,Lee.,2
-fomc-corpus,1988,"Is the perception by central banks that this is a technical problem, rather than a change in trade balances that is a surprise or a change in monetary policy?",31
-fomc-corpus,1988,"Well, there have been changes in monetary policy which were intended to support some moves that have taken place. But certainly we hear a great deal to suggest that a large part of this is indeed short covering in one form or another--be it dehedging by investors. All of last year Japanese investors bought a lot of U.S. dollar-denominated assets, but they hedged a lot of dollar-denominated assets. And some of those hedges have been eliminated. Also, we've been hearing for a long time that corporations have been holding off entering the market. As the rate has moved up, there has been the need to buy some dollars in order to meet their needs and their requirements. But certainly it's our view that a very large amount of this is of the nature, in one form or another, of covering options and other hedging. The holders of those short dollar positions became worried at times when they saw that the dollar was moving up. And when they detected that, they did decide to short [unintelligible] immediately to keep the dollar from rising.",216
-fomc-corpus,1988,You say they didn't decide to short?,8
-fomc-corpus,1988,"Well, because it has become costly.",8
-fomc-corpus,1988,"Because the dollar was under upward pressure, right?",10
-fomc-corpus,1988,"The dollar was under upward pressure, and also there was a view that the dollar could go up farther and that the authorities would not hold it. I think it was, in part, a change in their perception about what the authorities' attitudes were going to be.",53
-fomc-corpus,1988,I'm just saying that some fundamental--,7
-fomc-corpus,1988,"If the dollar hadn't risen, then there wouldn't have been any need to short [unintelligible].",21
-fomc-corpus,1988,"Well, that's the point I meant.",8
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,Something caused that to happen.,6
-fomc-corpus,1988,"No, as I said at the beginning, there has been a firm undertone to the dollar because of some improvement in the trade figures embedded in the changes and a changing view of Federal Reserve policy. There already was a firm undertone, but this view about what the authorities would do popped up last week.",62
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Up until the recent change in [official] rates by the Germans and also the English, hadn't the change in relative [market] rates in support to our dollar grown stronger?",35
-fomc-corpus,1988,"If you look at the change in short-term interest rate differentials, the differentials have gotten much narrower vis-a-vis the mark since the last meeting.",31
-fomc-corpus,1988,"I think you're right. The first part of the period and before the last meeting they were moving the other way,",23
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,And they moved back over the short and long ends in the last couple of weeks.,17
-fomc-corpus,1988,Particularly since they moved--,6
-fomc-corpus,1988,To some [extent] that's a reaction of the market--the other side of what's going on in the exchange market. It's difficult to disentangle the movement that's essentially the [unintelligible] from the exchange rate expectations.,46
-fomc-corpus,1988,I guess the point is that there is some fundamental basis for what happened to the dollar. I mean it's not--,23
-fomc-corpus,1988,I wasn't trying to suggest that nothing has happened in the dollar.,13
-fomc-corpus,1988,"We're just distinguishing between the period up to the Summit, if you want to put it that way--during which there was a gradual movement--and what came after that, whether kicked off by the Summit communique or other factors or sort of a general sense of reassessing these factors and what they implied for longer-term trends. But we've had the phenomenon of short covering, and that in itself could--",80
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Maybe a structural question, Mr. Chairman. Do we have any limiting factors as to how much foreign currency we can accumulate ourselves as opposed to for the Treasury?",32
-fomc-corpus,1988,We have a limit. I think we're way below that.,12
-fomc-corpus,1988,"Well, isn't it--",5
-fomc-corpus,1988,We have these informal limits of 12--,9
-fomc-corpus,1988,$12 billion.,4
-fomc-corpus,1988,"$12 billion, but because the evidence--",9
-fomc-corpus,1988,Set by this Committee?,5
-fomc-corpus,1988,"Set by this Committee, right. It's an informal understanding set by this Committee, so it is formal [in that sense]. But we are well below those numbers and we're not likely to--",38
-fomc-corpus,1988,Is there a limiting factor as to how much the Treasury can accumulate?,14
-fomc-corpus,1988,Only just that they--the classes of [unintelligible]. But they've got to have--,20
-fomc-corpus,1988,Money?,2
-fomc-corpus,1988,"That's right, to offset the foreign currency counterpart. But there are ways of doing it.",18
-fomc-corpus,1988,They could work--,4
-fomc-corpus,1988,There are innumerable ways to work out arrangements whereby both the Treasury's and the Federal Reserve's foreign currency balances could be increased.,26
-fomc-corpus,1988,"There are also [unintelligible], of course, the Committee's Procedural Instructions, which limit the amount of operations within daily and--",29
-fomc-corpus,1988,"We have daily currency limits, intermeeting period limits, and all of those.",16
-fomc-corpus,1988,It works on both sides.,6
-fomc-corpus,1988,We haven't reached any of those during this period.,10
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"Sam, you didn't mean--and I presume President Corrigan didn't mean--when talking about the fundamentals, that there isn't a change in fundamentals when for 18 months the monetary aggregate growth rates in the United States have been approximately 1/2 of the growth rates of other major G-10 countries. You would call that a fundamental that might be showing through, would you not?",77
-fomc-corpus,1988,"What I was saying was that, obviously, there have been a lot of changes that have occurred in the period, including what has happened to our trade [balance] and all the rest.",38
-fomc-corpus,1988,"So you would include the fact that the trade balance does seem to be moving in the right direction as a change in the fundamentals, wouldn't you?",29
-fomc-corpus,1988,"I would indeed. But all I was saying was that even with that improvement, we still have very, very large trade and current account deficits that have got to be financed. It has changed; there's no question about that. It has shown some improvement.",51
-fomc-corpus,1988,"But you would also conclude, I presume, that the interest rate differentials that are necessary in a period of sustained dollar depreciation would be quite different from the interest rate differentials necessary if market expectations [changed] in regard to either the rate, a change of depreciation, or perceptions of stability, would you not?",63
-fomc-corpus,1988,"I don't know--I'm not sure how to answer your question. Obviously, interest rates are a factor in determining the strength of the dollar. And changes in differentials--certainly I wouldn't say they are not significant as well. I think they are--",51
-fomc-corpus,1988,"Actually, Governor Angell, I think implicitly in his report Sam said that, because there was a growing sense of exchange rate stability during the first part of the period. [Funds] were, therefore, then moved into the higher interest rate currencies. This is consistent with your proposition--if there was exchange rate stability it [unintelligible] shift from pressure on one or more rates. You would expect to see some adjustment in interest rates and that's simply what Sam is saying in response to President Parry's question and yours. The question is how firmly held those expectations are and how long they're going to be sustained.",125
-fomc-corpus,1988,"I did not mean my questions and accompanying comments to indicate that I did not believe that there cannot be an overshooting in regard to a rebound from a previous situation. It would seem to me that one would expect that such sustained rates of depreciation of the dollar against other currencies over such a long period of time would not be followed by a period of everything stabilizing, but by some period of volatility. So I don't mean to suggest that I am out of step with the notion that maybe it would be appropriate to accumulate some balances if one can do that without creating the impression that the dollar's upside potential is very, very low--which could recreate this one-way bet that we've seen for such a long time. I think it's a very delicate matter.",150
-fomc-corpus,1988,"We've been trying to operate so as not to give an impression that we are capping the dollar, and we have been urging the Europeans to operate in a way which would not give an impression that we were putting caps on the dollar at a particular level. We have been offering some resistance, but we've been trying to do it in a moderate way. There's an old Scottish golfer's prayer, you know, ""May God give me the strength to hit easy."" It's an effort to try to resist, not to absolutely assure that we're trying to cap the exchange rate. That's certainly not what we're trying to do.",122
-fomc-corpus,1988,"Indeed, you've done that. And my comments are not at all a criticism of the Desk's actions. I just couldn't quite sit still with some of the comments I heard.",35
-fomc-corpus,1988,"Yes. But it's certainly true that during the period when the dollar has been stable, as Ted said, the investors have become very conscious of interest rate differentials and the attractiveness not only of the U.S. dollar, but the Canadian dollar, the Australian currency, and various other currencies where the nominal interest rates are quite attractive.",66
-fomc-corpus,1988,"I think he's trying to say, ""Don't shank"".",12
-fomc-corpus,1988,"Sam, there was an article in The New York Times either today or yesterday which suggested, as I read it, that there was really a pretty deep cleavage between the European central banks on the one hand, and the United States and Japan on the other, with respect to intervention. Reading between the lines, I wondered whether the European central banks are really urging us to cap the dollar. Do you get any sense that--",84
-fomc-corpus,1988,"Well, I think the Germans in particular are much more troubled about what they see as the problem of a depreciating mark. They're very conscious of that. And they think the inflationary implications of excessive liquidity at home, which they think [unintelligible] plus a depreciating currency are very bad. They think it is bad from the point of view of international adjustment to have a big surplus country like Germany having a depreciation in its currency. They're very conscious of that and they view the problem from that perspective. We view it from a different perspective. Inevitably, we're going to have those differences of view.",125
-fomc-corpus,1988,Any further questions for Mr. Cross?,8
-fomc-corpus,1988,"Just a comment. I guess I'd feel remiss, since I complained on the downside of the dollar that I didn't see the gains from intervention, if I didn't make the same complaint with respect to the upside on the dollar. That's no criticism of the operation of your Desk, it's more a question about what we're trying to do with policy in terms of currency intervention. My concern is as to uncertainty in the market rather than smooth outlooks and also that we might convince ourselves, perhaps, that we can do more than we really can do.",108
-fomc-corpus,1988,"Well, I don't think we're under any great illusions about the extent to which intervention can or cannot make fundamental changes. Certainly, our effort has been to try to deal with instability rather than to add to it.",42
-fomc-corpus,1988,"If there are no further questions, I'll entertain a motion to ratify the transactions since the May meeting.",21
-fomc-corpus,1988,I'll move it.,4
-fomc-corpus,1988,Second?,2
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,Without objection. Mr. Sternlight.,8
-fomc-corpus,1988,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1988,Questions for Mr. Sternlight?,7
-fomc-corpus,1988,"We went through some trouble several years ago to wean the markets from the notion that an eighth of a [percentage] point variation in the funds rate made a significant difference. Along came October and we essentially went to a funds rate target and an eighth of a point did make a difference. Through changes in language in the directive we've tried to move away from that, yet it seems to me that the last couple of weeks have indicated that an eighth of a point does make a lot of difference in our own thinking and the thinking of the market. My comment is not directed at the substance of policy; I think the snugging that was done was appropriate for policy reasons. But it does seem to me that we ought to be working against the notion that an eighth of a point makes a lot of difference, because I think that if we have to make adjustments in policy--when the Treasury balances don't work out right or for a whole number of other reasons--that could cause us to box ourselves in. It seems to me that over the longer term, we ought to get to the point where the markets can see some movement up and down in the funds rate and not overly emphasize the substance of that in terms of policy. I don't think our actions in the last couple of weeks helped us in moving in that direction. I guess my question, if there is a question, is did it make any difference that we took out the sentence in the directive last time, and watered it down the time before, that we were going to allow a little more movement in the funds rate in the implementation of policy?",320
-fomc-corpus,1988,"I think it did make a difference, President Boehne. I think that's how it was able to unfold that in undertaking a change in the borrowing which we thought would be associated with a 7-1/4 percent funds rate, it got us to something more like 7-3/8 percent, or even 7-1/2 percent with the addition of some seasonal pressures here. I've heard a number of times the commentary back from the market that they perceive us as operating now very much more on reserve numbers and not as much on the funds rate. So, I wouldn't share your evaluation of recent weeks.",126
-fomc-corpus,1988,It's 8 percent today.,6
-fomc-corpus,1988,"It's a Wednesday, too.",6
-fomc-corpus,1988,"Your borrowed reserve figure is below target, too.",10
-fomc-corpus,1988,"There is another issue here. There is a general concept in the market--which I think we want to reinforce and have been trying to reinforce--that we are gradually moving. I think the one thing we don't want to communicate is ambiguity on that question. I think that's what has been crucial, in a sense, as distinct from an eighth or a quarter [percentage point on the funds rate].",79
-fomc-corpus,1988,"Mr. Chairman, this is a minor matter, but I find it rather curious that Lloyds, at about the time they're recognized as a primary dealer in the U.S. market, dropped out of the gilt market. I wondered what the--",49
-fomc-corpus,1988,"Well, that gave us a little pause, too. We quizzed them quite a bit about that because we look for lasting commitment. But I think they're quite different markets. It was pretty obvious from the word go that the primary dealer group in the London gilt market was overpopulated and that firm along with several others did choose to opt out of that market. We thought they made a plausible case to us about the difference in conditions in the two markets. And they have performed satisfactorily, in our judgment, in the U.S. securities market.",112
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,You mentioned that bond yields could have been affected by some expectation that there wouldn't be long-bond authority?,21
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"Recently, though, I've also seen speculation that the House is going to issue long-bond authority. And to some extent, I think the bond market today can be reflecting the reverse of that.",39
-fomc-corpus,1988,"We were hearing that Governor Johnson. The [long] bond has declined in price today on reports that maybe that proposal would be put into this technical bill on adjusting the tax measure. From my conversations with people at Treasury, my impression is that they would not be at all surprised to see the additional bond authority put into that bill, but they have rather little expectation that it will work its way through the legislative process in time for the August refunding.",90
-fomc-corpus,1988,"Peter, have you heard much discussion on the street about a discount rate change?",16
-fomc-corpus,1988,Maybe a week or so back there seemed to be sporadic comment of that nature. I would say there is not all that much of it right now; I would say it is not a widespread expectation at this point.,44
-fomc-corpus,1988,What would you think the impact on the funds rate would be if the discount rate were to be changed?,21
-fomc-corpus,1988,"Well, I think if we're keeping the borrowing level about the same, there would be a tendency to have virtually the whole of it pass through--",29
-fomc-corpus,1988,"Oh, the whole change would--",7
-fomc-corpus,1988,To the funds rate.,5
-fomc-corpus,1988,"I just thought about one other thing I wanted to ask, which was mentioned by Bob Black. The funds rate was generally trading slightly above even the narrow range that was suggested would be associated with a flat $50 million [increase in the] borrowing number. And we haven't really been around that borrowing number very much. I still sense that there is a bit of a problem with the borrowing function relative to what we might expect. If we were to run at $550 million of borrowing consistently, would we see slightly higher funds rates than what we would ascribe to $550 million?",116
-fomc-corpus,1988,"I think it's a little hard to say, because we had these technical factors, as Peter mentioned--the corporate tax date and now the quarter-end pressures. It's true that in the second maintenance period we had a relationship which suggested that borrowing was a little low. But in the first maintenance period it was high--that was reversed. So the more recent evidence might indicate to some extent that the borrowing was low relative to the funds rate, but there are so many other things going on. I don't think you could conclude that a further shift--now this would include in our calculations the additional shift that we saw last fall--that another $100 million downward shift in the borrowing function [has occurred]. We've just carried that through; that certainly has [not] gone away.",154
-fomc-corpus,1988,Okay. Actually I guess that's still with us in your--,12
-fomc-corpus,1988,Absolutely; yes.,4
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,I noticed in one of the recent daily wires that staff were somewhat surprised about the increase in demand deposits and the reserve data. I guess it's in this current period. Any feeling as to what that's associated with and what's driving the--,46
-fomc-corpus,1988,We did get that big upward revision in the path a day or two ago.,16
-fomc-corpus,1988,"In the demand deposits, it could be a problem with this tax date because the surge in demand deposits is in this week of June 20th, which includes the tax date for both the individual non-withheld and the corporate taxes. Whether our seasonals capture that right [is a question]. The preliminary data that came in yesterday and today suggest a runoff, though not a runoff of the entire amount. But the $3.7 billion increase in the June 20 week offsets a decline of $3.5 billion in the previous week. So demand deposits generally have been running a little stronger than we expected but are highly volatile. A lot of the volatility, by the way, is at the very largest banks, so it may be associated with things like the tax dates.",156
-fomc-corpus,1988,"Picking up on one of Manley's questions--if we hadn't done this recent +$50 million on the borrowing target, where would you think the fed funds rate might be today? Would it still be hitting 8 percent?",45
-fomc-corpus,1988,"I think to the extent that where it is now is largely a function of these quarter-end pressures, I would think it would be very close to that anyway--shade an eighth off maybe--",38
-fomc-corpus,1988,But I thought we took that move because we were worried that in the next few days the fed funds rate would decline below 7-1/2 percent if we didn't do it. I guess that's what confuses me.,45
-fomc-corpus,1988,I think there was that concern that as a longer--,11
-fomc-corpus,1988,Did we not expect these special factors or--,9
-fomc-corpus,1988,I think as a longer-term matter our judgment then was that staying with the $500 million could tend to push the funds rate back down. Then the question was whether that was really appropriate in light of the kind of directive that had come out of the May meeting. But I think it kind of got overwhelmed by these seasonal pressures as the month went on.,71
-fomc-corpus,1988,Those seasonal influences were greater than we had originally expected them to be?,14
-fomc-corpus,1988,"They seemed so to me, yes.",8
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,"I do think the funds rate could have come under some downward pressure at the end of last week. I remember the phone calls we had Wednesday, Thursday, Friday, and then Monday when funds were trading between 7-3/8 and 7-1/2 percent. I think if we hadn't made that change things could have tended more toward [unintelligible] and then they would have firmed up this week. So, with the quarter end, I do think there was a possibility--toward the end of last week, maybe early this week--of having a different situation in the interim.",124
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,"Any other questions for Mr. Sternlight? If not, can I have a motion to approve the transactions since May?",24
-fomc-corpus,1988,So moved.,3
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection. We now move to the report on the economic situation with Messrs. Prell, Slifman, and Truman.",27
-fomc-corpus,1988,"Thank you, Mr. Chairman. We shall be referring to the materials labeled ""Staff Presentation to the Federal Open Market Committee."" [Statements--see Appendix.] [Secretary's note: No transcript exists for the remainder of the afternoon session, which presumably included questions to staff following this presentation.]",57
-fomc-corpus,1988,"Good morning, everybody. As you may recall we left off at the point when we were about to go around the table on comments on the economy. Anyone like to start off?",36
-fomc-corpus,1988,"Well, perhaps I could start, Mr. Chairman. Before I turn to general business conditions I thought I might give you a brief report on the drought situation in the Southeast. We heard some such reports about other parts of the country last evening. The first thing to say is that not all areas of the Sixth District are being affected. The southern portion of the District, particularly Florida, has enjoyed almost normal rainfall. And so far there has been very little direct impact from the drought, but the situation is getting increasingly serious. Winter wheat yields are 40 percent higher than a year ago because of the dry spring. The soybean crop, I think, can still be salvaged if we get some rainfall during July. As in other places, we are seeing cattle producers marketing their herds ahead of time and we also are seeing the use of hay that would ordinarily be used next winter for feed supply. The poultry producers seem to have a little more latitude, but I think they, too, will be under increasing pressure. One other issue that's being raised by grain dealers in our area is a fear that the Administration might try to limit--or even have an outright ban on--exports if the drought severely reduces domestic food supplies. I don't know whether there's really any basis for that fear on their part, but they are expressing it to us. And since they've only just begun to get a foothold in foreign markets they are, of course, concerned about their ability to meet export demand and to maintain their credibility as a predictable supplier. The drought is having a very bad impact in Atlanta and places north where the rainfall is anywhere between 50 and 75 percent below normal levels--not because there's so much agriculture up there, but because the streams and lakes feed some of the water supplies in downstate areas. I think the other important thing to mention--and it doesn't get a lot of play in the press--but in addition to the farmers and agriculture generally, a lot of businesses are being affected because of a short supply of water. This is a very serious situation not just because we are having a drought in 1988, but because in the Southeast this is probably the 5th or the 6th year out of the last 7 or 8 that we have had below average rainfall. So, it is a serious situation and we'll undoubtedly have adverse effects if it doesn't clear up. Looking at the region generally, we are seeing a slowdown in economic activity across the region, and generally that has been going on since the beginning of the year. Most of the activity that is positive is in the manufacturing area. The service area seems to be slowing down a good deal. We have lower retail sales; housing is not as buoyant as it has been. We're also seeing the adverse effect of a 40 percent reduction at the Lockheed plant in Atlanta which is, of 1. Secretary's note: Mr. Forrestal and other Federal Reserve Bank presidents commented on economic developments in their regions at a dinner at the British Embassy. course, having a rippling effect through the economy. And just yesterday it was announced, as you may have heard on the news, that TVA is laying off a number of people--25 percent, I think, was the number. Looking at the national economy, our forecast is somewhat stronger for both 1988 and 1989 than the Board staff's. We also see some slower growth in the second part of this year, but our deceleration is not as marked as the one shown in the Greenbook. Our outlook shows more strength in personal consumption expenditures than the staff's, especially in 1989. I think the difference is that the stronger expansion we see in 1989 is due to a smaller rise in interest rates than was assumed by the Board's staff. Because of that forecast we don't see much of an increase in the unemployment rate, although looking at the CPI--I will stay away from the deflator, Mr. Chairman--we would see stronger inflation than the Board's staff. While I'm happy that we're going to continue to have growth, on the other hand, since we are basically at full employment, I suppose I am concerned that we're growing at a rate that's beyond the economy's potential. That suggests to me that if inflation does worsen over the forecast horizon, rising prices, and perhaps wage pressures, will become embedded in expectations. So, my general feeling is that we should not risk a possible overshoot in growth.",901
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"Mr. Chairman, in terms of the kind of anecdotal and impressionistic points of view that reach us, I would say they are essentially unchanged in that the main thrust of what we hear is still decidedly upbeat and [unintelligible] in terms of orders, especially in the manufacturing sector. We took an informal survey just in the past 2 weeks of about 8 or 10 very major companies on a particular point of capital goods imports and substitution of domestic sources for capital goods imports. And while the results of that survey were not decisive, they certainly were suggestive of the fact that there is now some evidence that even in the capital goods sector there is some substitution going on in terms of domestic versus foreign sources, although that's mainly in components. There clearly are important instahces of, say, heavy machinery, in which foreign sources are for all practical purposes the only source. Nevertheless, at the margin, there are some signs of a better [unintelligible], especially in components, in the capital goods sector. The two other things that are a bit different impressionistically--and this is a bit surprising--are that some of the commentary coming out of upstate New York, even the Buffalo area, is more upbeat than it has been, and that there's a bit more commentary here and there about labor market tightness and scattered signs of pressures on wages. But insofar as the forecasts themselves are concerned, I think that one thing is pretty clear--they have to be approached with some humility. If you go back 6 months ago, for example, and look at what has happened, compared with what was being talked about, then that humility is well earned in the sense that the performance over the first half of the year--regardless of exactly where the second quarter comes out--clearly is going to have been a great deal stronger than was widely expected at the turn of the year. I still remember your own comment at the time, Mr. Chairman, when you said [of the forecast] that it might be an interesting thought but something was going to be wrong with it. What was wrong with it, of course, was that the economy was stronger rather than weaker. So, I think we have to take any forecast as kind of a broad-brush profile of what might emerge rather than with a great deal of precision. Again, the question is: Where are the risks and what are the consequences of the risks in those forecasts? As I look at it in that light, I think the risks are decidedly asymmetric on the side of an upward drift, or worse, in the inflation rate over the next 6 quarters, given current policy. Without making a big deal out of this, if you look, for example, at the New York staff's forecast, unlike the Board staff's forecast, it essentially assumes current interest rates over the period as a whole. Our staff forecast shows a real growth rate over the next 6 quarters in a range of 2-1/2 to 2-3/4 percent. But--and this is a very big ""but""--that result emerges in a context in which the New York staff's forecast has a smaller gain in net exports and has inventories declining in every quarter of the forecast period.",659
-fomc-corpus,1988,In inventory investment?,4
-fomc-corpus,1988,"Yes. Hence, the implied growth in final domestic demand in our forecast is, in fact, a good deal stronger than the Board staff's forecast. Not surprisingly in that setting, the inflation numbers that fall out of our forecast are significantly different in that we end up with a fixed-weight deflator in the 5 percent plus range and a CPI in the 5-1/2 to 5-3/4 percent range. Again, I take those numbers with a grain of salt, but what I do not take with a grain of salt is that if the inflation rate, however measured, were to get in the area of 5 percent or more, just getting it back to 4 percent--much less price stability, whatever that means--is going to involve enormous costs to the economy. So, I think that is where the greatest risk lies. I ask myself the question: Well, how do those risks translate in terms of where we are now? And, particularly, what weight should be given to the changes that have already been made in policy insofar as that broad sweep of an outlook is concerned? I certainly agree with the thrust of the staff's Greenbook and Bluebook commentary to the effect that domestic demand growth is going to have to be further curbed over this period. I myself am not sure how much weight to give to the rise in interest rates that we've seen over the last couple of months, because in fact, that rise is rather modest, I think. Indeed, if you look at real interest rates in Ted's chart 8 in the book yesterday--or in any other formulation of real short-term or long-term interest rates--I think you can make a case that not a whole lot has changed. Certainly, the level of real interest rates now is not wildly different than it has been for the last 3 years. So there is a question in my mind as to how much difference the current policy posture makes versus where we were, say, 8 or 10 weeks ago. The bottom line as I see it, is that if--for policy reasons, or faith, or whatever--it turns out that growth is somewhat weaker for a quarter or two or three, I certainly don't view that as the end of the world. In fact, I think it's not altogether bad. It works in the direction of prolonging the expansion in general and it actually helps the external adjustment process. On the other hand, if inflation crosses whatever threshold one chooses to worry about--I pick the 5 percent threshold--I think the costs of that are going to be very, very great indeed. And that's how I essentially come to the conclusion that the risks, at least in my judgment, are decidedly asymmetric.",551
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Thank you, Mr. Chairman. The Twelfth District economy continues to grow, but the pace of growth appears to be slowing. The region does continue to benefit from increased foreign trade; and high-tech industries are facing strong demand, particularly in the aircraft area. Also, wage pressure is building in such industries as forest products, aircraft, and food processing. We believe that capacity constraints are becoming a concern in the fastest growing areas of the District, particularly the Pacific Northwest. Business investment is high in plant and equipment, but firms are not expanding what we would consider to be aggressively, and we are noticing that delivery times are lengthening. With regard to the drought, it is not having much of an impact on the District's agricultural industry, although Idaho and Utah and also eastern Washington are threatened by drought conditions. Subpar yields are expected in much of the District because of unseasonable weather, which ironically is associated with unseasonable rains. But current high prices will make the farm income of the District actually rise. Turning to the national economy, if short-term interest rates move up about 100 basis points over the next year or so, we expect growth to average about 2 to 2-1/2 percent--perhaps toward the lower end of that range--over the forecast period. And we also would expect that the slowing in growth would produce only a slight increase in the unemployment rate. Without factoring in any implications of the drought for inflation, I believe that the labor market conditions, and also a falling dollar, will cause an acceleration of inflation to about 4-1/2 percent next year, as measured by the fixed-weight deflator. And I would also associate myself with the comments of Vice Chairman Corrigan as far as the risks are concerned.",355
-fomc-corpus,1988,"Bob, did I hear you correctly? You said that the Twelfth District is slowing?",18
-fomc-corpus,1988,The rate of growth is slowing somewhat.,8
-fomc-corpus,1988,Where is it slowing?,5
-fomc-corpus,1988,"Well, I'd say it's fairly general. We've seen some slowing in retail spending. We've checked with retailers and there seems to be less spending across the board in the retail area, although concentrated I'd say in apparel and, to some extent, automobiles. Even lumber, I think, is not growing as rapidly because they've hit a constraint. If you look at some of these [developments], it's basically consistent with the slowing of the economy from what we can see.",92
-fomc-corpus,1988,"It's characterized by both supply and demand constraints, am I right?",13
-fomc-corpus,1988,"Yes, but taking the retailer, it's clearly demand.",11
-fomc-corpus,1988,Yes. President Keehn.,6
-fomc-corpus,1988,"Mr. Chairman, with regard to the District economy--except for agriculture, and I'll comment a little later on that--I think, broadly, conditions in our area are pretty much unchanged from previous meetings. I've commented before on the steel industry and industrial equipment. Those types of activities are continuing to be very, very strong. And I think the improved export market has really had a very positive effect on the manufacturing part of our District. There are some industries that have been selling almost exclusively on the domestic side that are now beginning to export products, and this is a very positive thing. And I think the value of the dollar will continue to provide good export opportunities and also improve production on the domestic side. In machine tools, for example, where imports as recently as a couple of years ago had about a 60 percent participation in the machine tool business domestically, that number is now down to about 37 percent. So, there's been a very significant positive shift in the machine tool industry. And from all of my contacts on the manufacturing side, the tone out there is very positive; everybody has a good expectation that the expansion will continue. On the drought picture, I can add little to what was said last night or to what Bob Forrestal said. I think we are continuing in a period here where we have a bit of a window. I keep hearing about the 10-day window; it keeps moving out. But I think we are at a point where if we do get some rain the [unintelligible] can be pulled out of the bag here. If we get rain--and there was some rain earlier this week--I think the corn crop probably will be down by some 10 to 25 percent. For soybeans, there's still enough time that if we get some rain that could be a normal crop. But having said that, if we don't get as much rain as we'd like, even under the worst of circumstances, the component of commodity prices in the final retail value of food is such that we would not expect that this drought will have that dramatic an effect on food prices. I think the number that Mike suggested yesterday is very much within the range that we would forecast. I've been worried about the effects of this on the banks as much as anything. We did a quick survey of some of the ag banks earlier this week and I, frankly, was very reassured. I would have expected that some of these problem loans would begin to reemerge. The banks that we talked to said ""no,"" that's not the case--that the weak borrowers were really shaken out over the past few years. The strong borrowers are now those who remain and they have the strength to sustain a bad year such as this. That's not the case, as I understand it, with the nonbank lenders--the FMA, FHA, and the FMHA. There are apparently [unintelligible] some problems in loans to developers. The banks at this point feel adequately collateralized; they're not taking that much collateral. They seem to have plenty of reserves built up for this and they think they can handle the problem without an onslaught of additional problems. I also checked with the exchanges. I was concerned that we've gone through a period here where the margin calls were pretty heavy. And the exchanges say that there have been no particular strains. The volume of margin calls has been high, but so far they have been met. The banks that deal with us are not experiencing any shutoff in terms of the credit that they're granting. So the exchanges, I gather, are coming through. Finally, with regard to inflation, our forecast of the deflator is a little lower than the staff forecast for both '88 and '89, but I think we may revise that somewhat. Nonetheless, it's clearly the case that we are on an accelerating trend line here and I think all the signs do point toward an increase on the inflation side. Capacity utilization for many of the industries in our District continues to be at very high levels and I am sensing some upward movement with regard to [unintelligible] prices. Markets have been pretty sticky in the past, but I think there's a little more give in this. A little more positively, I do think there is something of a changed attitude with regard to some prices over the last two or three weeks, in nonferrous metals and chemicals particularly. They have had a very significant roll up. I have talked to a number of people who have the expectation that such prices will stay about level for a while--not go down, but not continue the kind of increases that we've experienced over the last six months or a year. On the wage side, I think there is a hardening attitude developing in the wage contracts. Admittedly, the results are coming in very favorably--the numbers look positive--but I just sense that in the bargaining process labor has a harder attitude than they have had in the past. So far the unit labor costs have remained in check because the [unintelligible] changes have been good; productivity increases have been pretty good. But I think, intuitively, the risks on the inflation side just have to be on the upside. And certainly, the agricultural picture only adds a little pressure--yet to be determined how much--but a little pressure on the upside. So, I'd agree with Vice Chairman Corrigan that the risks here on inflation are very much on the upside, not on the downside.",1103
-fomc-corpus,1988,"I'd just like to interrupt for a minute, because a very crucial issue seems to be emerging here, and I was wondering whether we could just retrace for a second. Everyone is commenting explicitly that while the wage data don't show this, there's a subliminal sense of changing wage demand pressures. Could we go back--does anyone want to address this specific issue? Because I think it's a very important question as to whether, in fact, that Wall Street Journal article, which I thought was a little overdone, is anywhere near correct. What can you give me more than just your feeling? What's the evidence that you're--",124
-fomc-corpus,1988,That's the problem; there is no evidence.,9
-fomc-corpus,1988,But you're obviously speaking to people who are on the firing line. It's not just a guess; something is happening because you do hear--,27
-fomc-corpus,1988,"I am talking to people--chief executive officers of companies--who are continually going through the wage bargaining process. Job security has been the number one issue and continues to be very high priority. And labor has been very reluctant to go on strike. I don't think there's necessarily going to be a change in that. But they are just getting a harder attitude, because they are concerned that the increases they're getting are not keeping pace; and they feel they have a stronger position than they have had. It hasn't shown up in the numbers and I think that's the mystery in all this. That we've gone through the process--",122
-fomc-corpus,1988,Let's recycle those who have already talked on this issue and then I hope that those of you subsequently who have some insight on this will address this question. Bob?,32
-fomc-corpus,1988,"Two specific comments on that issue. First of all, in the state of California, the minimum wage goes up tomorrow by a little more than a dollar an hour to $4.65. I think there's no question that that's going to have an impact. I think most people are expecting that to have some impact. I'm not saying a lot of people are working at that low minimum wage, but it just has a ripple effect through everything. Another example I'd give is that there is a big strike in the lumber industry at the present time. It actually has been expanding in terms of the number of workers involved and it does involve wages. What seems to be on the table is a proposal which I think is around 4 to 5 percent over a four-year period, which would bring them up to where they were a couple of years ago--but that's sort of irrelevant from the viewpoint of what it does to inflation at the present time.",188
-fomc-corpus,1988,Jerry?,2
-fomc-corpus,1988,"Well, I guess I'd make two points. First, I think that if you take all wage and related data as a whole, you can make a case that there may be a bit of an upward tilt already evident there.",45
-fomc-corpus,1988,I think there is. It's a lot less than one would get from any of the analytical equations or from history. The question is--as I hear this conversation emerging--is it more than that?,40
-fomc-corpus,1988,"As I said, I was going to make two comments. One is that I do think you could make a case that there is a bit of an upward tilt already there in the wage data taken as a whole. In terms of the anecdotal stuff, again it's quite common for businessmen, small and large, these days to talk about the difficulties they're having in terms of attracting and retaining good quality workers at all levels. You hear comments, for example, that they have had to selectively bid up starting salaries. And at least in New York State, both upstate and downstate, for example, we have had in the recent past a couple of very, very large wage settlements in the public sector. This is the type of thing, school teachers and the like, which in a macroeconomic sense is literally a pimple. But they are very, very high profile and high visibility types of things. So again, I think Si is right when he says that it's something that is in the air; but I think it's here, at least a little, in the numbers, too.",218
-fomc-corpus,1988,"Bob, do you have something?",7
-fomc-corpus,1988,"Well, Mr. Chairman, in the Sixth District I can't really point to any hard evidence. I think you're quite right in being concerned about that because it just isn't showing up in the data. When I talk to my directors at the head office and at the branches--and that covers a lot of territory--they say they're not experiencing any wage pressures in their own industry, but they have this subliminal fear, as you put it, that there is going to creep into expectations--",97
-fomc-corpus,1988,Something is causing that and I think it's important to figure out what it is.,16
-fomc-corpus,1988,"Yes. And it's very hard to put your finger on it. I was with a group of business people in Nashville the other day and I specifically asked this question about wage pressures either in their own business or in others that they might know about. And the answer I got was ""no, but with prices increasing, and with the sense that inflation is on an upward path, that ultimately is going to be translated into higher wages."" So I think it's a fear that perhaps is ahead of the data.",100
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"Mr. Chairman, in the Eleventh District, not a great deal has changed. I think I reported that we had some improvement in the Eleventh District economic picture over the last half of last year. It seems to have flattened out over the last several months--at least that's what our statistics are saying. It's a little confusing, though, because in talking with business people around the District I'm probably hearing more optimism, other than in banking and real estate, than I've heard in the last couple of years. I think expectations are pretty [unintelligible] in the Houston area, and there the expectations, as well as the statistics, are becoming more consistent than throughout the rest of the District. Looking at the District and trying to project ahead, we think possibly we are poised to resume some upward movement. Our portions of New Mexico and Louisiana are both showing some growth, but I think for the states as a whole, most of that growth really is in Roger Guffey's and Bob Forrestal's parts of those states. Manufacturing has leveled off and that's where we were getting most of our improvement last year and fairly early this year. That seems to have peaked a bit. Energy has been stable. We've seen considerable job loss in retail trade and financial services; and, of course, construction remains our weakest sector. We're having a little negative impact from the drought, but it's not anything compared to what's happening in other parts of the country. We have some dry spots, although judging from reports earlier this week the dry spots in our District have all had pretty good rains; and those that have had pretty good rains were missing them, so it's kind of evening out. The drought, though, is pretty much of a regular feature down our way and our people know how to handle it and prepare for it and expect it--so maybe we're not quite as exposed. I did meet with a group of investment bankers and nonbank lenders last week and they confirmed what we've been hearing otherwise, and what the statistics have been showing--that there's really little or no new lending to the small and medium sized businesses. And we think that this capital shortage is likely to be an impediment to the continuation of even the weak recovery. So, that is a matter of concern. On the wages, I really have no insight into that, Mr. Chairman. In fact, it's not something that I'm hearing discussed too much down our way. Job security and hopefully trying to get a little more job growth are what we're hearing about, as opposed to conversation about pressures or moving wages. On the national picture, we're pretty close to where the Board staff is on that.",533
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I don't think the local District numbers provide a lot of insight; they're very much in line with what's going on nationally--somewhat stronger manufacturing growth, somewhat weaker residential and nonresidential construction. But, particularly in the nonresidential sector, we were late to adjust; it was quite strong while national figures were turning down. On the wage side, the only thing I have to add pretty much mirrors what Bob Forrestal said. I got this from a major consumer durables manufacturing firm, and it really is that people see CPI numbers that begin to approach 5 percent. His anticipation is that the pressure won't be very strong from labor; he's not seeing it yet. And in my judgment, that would be the reason for this, here on the wage side. Nationally, our forecast is based on our St. Louis model. And what we've done is pick monetary growth--I don't know whether you call it appropriate monetary policy or likely monetary policy--that's consistent with what we've seen in '87 and in the first half of '88, which is M1 growth somewhere in the 4 to 6 percent area. What that throws off in terms of numbers is something that's very close to the Board staff's forecast for the second half of this year. But for next year we're considerably higher--about a percentage point--in terms of nominal growth and somewhat higher in real growth; we're a good 7/10ths of a point higher in terms of inflation, which is troubling, I think, particularly because of the kinds of things we're seeing now in terms of the behavior of the dollar and financial markets and so forth. There's a risk that in the short run we could get lulled to sleep. I think we need to be very mindful of that problem. But having said that, I guess I also have to say that in comparing this period, say, to the late '70s and early '80s, we're dealing with monetary growth rates that are roughly half of what we were dealing with at that time. So, I'm not sure in a longer-term context that we have to do as much to accomplish the longer-run inflationary goals. I guess I'm saying, in part, that I think what's showing through in our forecast are the effects of some earlier monetary policy actions going back perhaps to '86--some temporary effects and so forth. And I think that the process of dealing with those building inflationary pressures in the longer-term sense has to be a gradual one. In other words, it doesn't require the same kind of response necessarily that it would have in the late '70s and early '80s. And I suppose we've seen that in terms of our actions now, because very timely, relatively modest, actions have had a considerable impact. I'm not saying that it isn't going to take more of that to deal with this problem we perceive of this temporary inflation getting built into wages. But that's what our forecast shows.",590
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"Well, let me talk a little about the District first. I commented on the drought last night and I really don't have much to add to that situation. Exclusive of the drought, although it's hard to do this in any rigorous sense, I think that District economic growth is actually accelerating. We have continued improvement in the mining economy, continued strength in pulp paper, wood products, and so forth. And it is turning out to be a good to a very good year for tourism, even though it has been too hot to catch any fish. In Minnesota, which in terms of economic activity is the heart of the District, if it weren't for the drought, I think you'd almost have to describe the situation as a boom. Unemployment in Minnesota now is down to just a touch over 3 percent. All the metropolitan areas, where the economy is reasonably diversified, are looking at very strong economies. So, that's a description of the situation. As far as wage pressures go, what we've picked up anecdotally from some of our directors and advisory council people is this: one of our manufacturers, whose entry level wage is $6 to $7 an hour, reported that he just can't keep people at that wage at all. It's like running an employment agency. They'll hire somebody in the morning; [the new employees] work a couple of hours and if they don't like it, they just walk out the door at the first break and apparently go across the street or go do something else. It's a very tight labor market in that sense. We do have reports, certainly, that minimum wage jobs are going vacant in the District. Our own experience has been that it's certainly taking longer, considerably longer, to fill entry level clerical jobs than it did as recently as a year ago. Another one of our manufacturers indicated that now he's just starting to have problems with the union. Now, I don't think it has translated into higher wages or anything like that yet, but my impression is that the union is just starting to get more aggressive. At least that's what he has reported. As far as the national economic situation is concerned, I find myself largely in agreement with the Greenbook outlook. And the Greenbook, at least in my view, does point to the right issues that we have to confront here. I think it might well be difficult without some further policy actions to keep the rate of increase in the deflator at or below 4 percent over some sustained period of time. Whether we'd do that in any quarter-to-quarter PERIOD, I wouldn't try to forecast. But I have a hunch that that's where the risks lie. And I think international considerations are going to turn out to be important, perhaps increasingly important, in this situation because I am struck by the fact that it's not just our economy that has grown more rapidly over the last several quarters, but a number of important foreign economies. Other things equal, I think that does add to demand pressures.",593
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"On the District and the question you raised about wages, the concern about higher wage costs is certainly there in an anecdotal sense. I've tried to pin it down as best I can. I think to a large extent it's a state of mind, but when I ask for specifics, these are the kinds of things that I'm told: It appears that the greatest pressure is at the starting salaries at lower levels. For example, someone who runs a very large supermarket chain in our District told me that he had to raise his starting salaries about 25 percent--now that turns out to be about $1 or $1.25 an hour. But then, when you work that up to the people who have 6 months to a year and a year and a half of experience, you get a kind of stair-step increase. Another place where you hear of this is at services institutions. For example, at financial institutions, whereas a year or so ago they were talking about wage budgets with increases in the 5 to 6 percent range, we hear more right at 6 percent, and now I'm hearing talk of 6-1/2 percent. Another thing we hear is that this 5 percent number on the CPI seems to be one of special concern. While there aren't as many COLA clauses in union contracts now as there were several years ago, where they are in contracts, 5 percent on the CPI seems to be a trigger point. Since we've been getting pretty close to that in recent months, I think there's concern that the COLA may be triggered. Now, that will have an impact. Generally, most of the concern about [wages is coming from the] non-union side. I think this is not surprising in our District because, if there's one unifying theme among almost everybody you talk to throughout the District, it's very, very tight labor markets. Otherwise in the District, we have reports of very strong manufacturing and some moderation in retail sales--the same kind of things that you find in some other Districts. At the national level, Jerry Corrigan said a lot of what I wanted to say in terms of [unintelligible]. [On the inflation side we] see this accelerating trend. For example, the consumer price index the last 3 months was 4.9 percent versus 3.9 percent the previous year. The producer price index in the last 3 months was 6.2 percent, and in the previous year, 2.2 percent. If you look at the intermediate [level], crude goods in the producer price index rose at a rate of 8-1/2 percent in the last 3 months and 5 percent over the previous 12 months. And industrial raw materials are really at about their highest level during the expansion since the '79-'80 peak. So, I think that it's not just that we're fearful of an economy running up against supply constraints and inflation in the future. I think that we are seeing some very tangible signs that we're on this accelerating trend. And it's much less costly to try to keep inflation from accelerating than it is to unwind it later on. In the chart show yesterday, as I heard it, essentially the basic message was that what we have to do is slow real growth from something like 3 percent plus down to 2 percent or a little more. And I agree with that in general. The idea that that can be done with a 1 percent rise in interest rates over the next year--I hope that's right. But I suspect there would [not] be a very large kick from that small of an increase in interest rates.",735
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Well, Mr. Chairman, I think the data for the last two months are pretty close to ideal. We've had a slowdown in consumer spending and an increase in exports, and we've had moderation in the growth of orders since December. I was quite alarmed at the rate of growth of new orders for durable goods and capital goods last year. That was clearly something that was not sustainable. And so the inflection toward slower growth that we've seen since December is welcomed. We're seeing the first signs of the impact of a slowdown in military spending. General Electric laid off 800 people from a defense electric factory. It's the first layoff in the defense industry that I've seen. So I think that the military budget stimulus to the economy has peaked and will probably be a somewhat negative influence in the next few years. And that will perhaps give us a little more breathing room in the industrial sector--breathing room we need very much. I think we're at a point now where the economy really can't sustain a growth rate of more than 2 percent without generating inflationary pressures. And I think we've got to lean against any period of growth in excess of that. I sense that there has been a deceleration in recent months and I hope that continues. I've been going around New England on a private campaign to avoid a future commercial building glut in our District. We have the kind of euphoria in commercial building now that they had in Texas in earlier years. And I think there's not a proper recognition that the New England economy from this point really is going to be a very slowly growing economy. That's the speech that Mr. [unintelligible] referred to yesterday. We're at a 2.9 percent unemployment rate. In addition to that, we've got a slower natural growth rate of the labor force than the rest of the country because our birth rate has been relatively low. That's compounded by the fact that our labor force participation rate is substantially higher than the national rate. We're running about 2 percentage points higher in the participation rate for men and about 3-1/2 percentage points higher for women. So, the only way we can grow as fast as the national economy is by having a very large in-migration of population. So the arithmetic of the New England economy is very clear. We're going to be a slow-growing--prosperous, but slow-growing--economy for the next decade. But I see the commercial developers making plans on the assumption that we're going to grow as fast as we have in the past 15 years. That's why I'm out trying to generate a little caution among the lenders, because I think the history of Dallas and every other place is that as long as the lenders will provide the developers money, they're going to build. I can remember very well the time a couple of years ago when Bob Boykin expressed his dismay at the fact that a new office building was just getting started in Dallas despite the drop in the price of oil and despite the fact that the vacancy rate was over 20 percent. So we're trying to do what we can to have a building boom that doesn't end in a glut. I'm not sure we'll be successful, but we're trying. In the regional area, we have an expectation of a rising rate of wage increases for which we can't provide any documentation either. Steve McNees generated a wage forecasting model a number of years ago and it performed very well until the last few years where the model says that wages should have been going up much faster than they have been.",707
-fomc-corpus,1988,That's true with every model.,6
-fomc-corpus,1988,"Yes. And I think that is really the basis for our concern, because you really can't look at the data and say we're at an inflection point. I think that may be the basis for concern generally. Wages should have been growing more rapidly for a 6th year of expansion than they have, and ergo, they will be growing a lot faster. I think quite clearly our job is to keep a sharp eye out for the growth rate in the economy and to lean against it if it gets [too high]. I don't know whether the 2 percent guideline is the proper one; I'm inclined to think that, given the arithmetic on productivity and labor force growth, we can't come out with a number a lot higher than that. I really question, unless we get a much better productivity performance than we've had, whether the 2-1/2 percent the staff is using is not too high--whether two percent may be more realistic. But I think we're at a point now where we've got to lean against any rate of growth in excess of 2 percent.",215
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"Well, let me just say that I see things that are similar to many of the presidents. First, on this growth issue, clearly the pace of growth we've had has shown itself to be too strong to be sustainable without an acceleration in inflation. But what kind of growth is necessary to keep inflation from accelerating--or even to allow it to decelerate from current levels--I have no idea. I would hate to get into trying to fix on any number to shoot for to set monetary policy. I think what we ought to do is take action until we see the response we're looking for in terms of financial market expectations and the environment for decelerating inflation, regardless of what the growth rate consequences happen to be. But, like everyone else, I think the economy has certainly looked strong, with manufacturing at a high level and exports near a boom. But I acknowledge exactly what Frank was saying: that this year so far we've seen a leveling off and a beginning of a slowing in manufacturing; and orders have started to trend down. Payroll employment growth rates have slowed. We still have significant growth in employment, but it has slowed. The housing market is certainly at lower levels. Domestic demand is continuing to grow at the slow pace of '87. So, I think we're getting the kind of domestic demand growth performance that we've been seeking with our policy, and that's very encouraging. The markets themselves are starting to acknowledge the effectiveness of our policy, in my opinion. We have finally, I think, seen the financial markets start to react to the firmness of our policies. And in my opinion, we've seen a fundamental shift in the exchange rate, and it has been acknowledged in the bond markets to some degree. That could all turn around if we get a whole set or series of bad trade numbers and if things don't look like they're continuing to progress some on the external side. Nevertheless, I think that we've gotten the kind of response in the financial markets that we've been seeking with our policy. One of the things that concerns me a little and makes me want to be cautious at this stage is the fact that because we're getting that response, and the dollar has strengthened, and the yield curve has flattened out--all of which I think are desirable characteristics and exactly what we want to see from our policy--this response is nevertheless going to put pressure on foreign central banks to tighten up their own monetary policies. The Bundesbank raised the discount rate this morning. I think that's probably desirable given the fact, as Gary pointed out, that some of those economies have been growing at a faster pace. Nevertheless, it's going to have the effect of damping domestic demand abroad. So, I think the stronger dollar in the United States and the response by foreign central banks to tighten, to shield themselves from the potential transmission of inflationary pressures there, are going to damp foreign domestic demand. The combination of our slow domestic demand and a more damped foreign domestic demand, I think, is what we want; but it's in the works. There's going to be a lag there, and I think that we have to be very careful not to go the point where we're going to combine our fairly slow domestic demand growth with a decelerating foreign domestic demand and leave ourselves without a trade adjustment. And I think there is some risk of that, although we can always get the trade adjustment by dramatically weaker U.S. domestic demand for imports. But I think that's not what we're looking for. So, I think the lagged effect of our policy action is in the works and what we're seeing on the inflation side now is to some extent--as has already been mentioned--the lagged effect of past policy actions. And what we've done in the recent past now is going to show through with a lag. The financial markets, I think, are showing confidence in the fact that we have been effective in our policies; otherwise, I can't imagine why the long bond markets and the dollar would be behaving as well as they have. It's true that commodity prices have been accelerating sharply. I attribute a lot of that to the drought conditions and they are less forward looking than the others; commodity futures, I think, only go out a couple of years. And they can turn on a dime. We've had two sharp declines--to the limit--on the CRB index the last couple of days just because of a little rain in the Midwest. So I think we have to be fairly careful at this point because there are lags and we have to take them into account. On the wage side, once again, I don't see any acceleration in wages from the [published] numbers. There are some slight curves in the numbers, but those don't look any wavier than they have since 1983. But I do sense some more nervousness. We're 6 years down the road in the expansion and there's no doubt that industry is more nervous about the progress on the wage front from this point on. But the Conference of Chairmen met here recently, and without exception, they all said that they saw no pressure on wages, just like you have all said. Yet there was a sense that, if workers felt they were going to fall behind relative to price pressures and their real wages were to deteriorate for another year, you might see a much more militant labor situation.",1067
-fomc-corpus,1988,"I think pointed out in that conference meeting that he had been expecting wage pressures in '87. They thought that they were going to arise because of the upward pressure on oil prices, which caused the CPI to grow faster than nominal wages that year.",49
-fomc-corpus,1988,He's the head of the,5
-fomc-corpus,1988,"He said he was surprised that the pressure didn't materialize. And I think that's what is going wrong with the models, for some reason. I don't know how long you can get by with that, but the fact is, the wage pressures are not yet there. But I think another year of accelerating prices relative to nominal wages might be a problem.",70
-fomc-corpus,1988,"I think the wage models don't have in them the ratio of imports to domestic demand, if you're going to do it that way. Because that's clearly what's doing that.",33
-fomc-corpus,1988,"Manley, excuse me for interrupting you, but went further than that. He said there will be no inflation pressures generated by wage pressures. He made that flat statement.",35
-fomc-corpus,1988,"Yes, I think that's right.",7
-fomc-corpus,1988,"Well, one thing to bear in mind is that he have been taking a big share of the business down there. Yesterday, I talked to him and he closed the conversation by saying ""I'm getting extremely worried about inflation.""",44
-fomc-corpus,1988,He is.,3
-fomc-corpus,1988,That's a fast turnaround in two weeks.,8
-fomc-corpus,1988,"He doesn't expect his own or his associates' [wages to go up], but he's worried about the inflationary pressures emanating elsewhere with no increases in salaries or wages for his own people. That's one of the problems.",45
-fomc-corpus,1988,"Right, he is.",5
-fomc-corpus,1988,"No, he is very responsible; I respect his judgment. So, on the wage front, once again I say there's nothing yet, but you do get the feeling that something is out there. At the same time, I think all of the strong good feelings going on now are a cumulative effect of the positive growth we've seen in the past. And where we go from here, I think, is going to be the lagged response to what we've been doing over the last 6 months or so. And so we've got to be careful. I do think that probably the risks are still more on the upside than the downside as well. But I think that we need to be very careful from this point on that we pay attention to the lags that are taking place in the forward-looking markets where we have been effective in my opinion.",168
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Turning to the District, Mr. Chairman, I think it's safe to say, in summary, that our grassroots contacts don't really see any slowing in the expansion, in contrast to what the national figures seem to be showing. There are widespread reports of extremely high levels of capacity operation in textiles, furniture, chemicals, paper--that sort of thing; difficulty in hiring workers; upward pressure on wages--and our most concrete example is in the case of the fast food industries where they have had to push their wages up well above the minimum in a number of places; and also reports of shortages of chemicals in certain areas. For example, and his suppliers of certain [raw materials] that he uses put him on quotas so he can't produce enough to satisfy his demand. In the case of housing, all of you in Washington are familiar with what has happened around here. They can't keep up with demand. And pretty much the same sort of thing has happened in the Richmond, Charlotte, Greensboro, Raleigh, Chapel Hill, and Durham areas, where the economy is really booming. Home prices in Washington in the last couple of years have gone up about 1/3 and pretty much the same sort of thing is true in Richmond. That's what they seem to feel, but I think Frank is right in saying the statistics do show some slowing there. Insofar as our particular projections are concerned, there's not a lot of difference in what we've projected and what the Board staff has done, except that we do expect more inflation next year than they have put in [their forecast]. Interestingly enough, Tom Melzer and I ended up with exactly the same amount of additional inflation for next year. The most important thing, I think, in the staff's analysis is their assumption that we need to have some tightening actions in order to bring about the results that they're projecting. An analysis we have conducted at our own Bank reaches the same sort of conclusion. My guess is that if there's going to be an error, I would come out about where Jerry Corrigan and some of the rest of you did: that the Board staff's forecast--and ours as well--might be actually forecasting less inflation than we're apt really to have. At the rate we're going, the Greenbook shows a very smooth transition from this expansion driven by domestic demand toward one driven by foreign demand. Except for a brief upswing in the third quarter, the rate of growth in gross private domestic purchases is expected to slow down significantly as the result of a weakening in consumer demand and business fixed investment. And, of course, that's a perfectly plausible scenario, and it would be a very excellent one if it works out. But, as I'm sure everyone would have to agree, it's far from a safe bet. I guess we would conclude that business fixed investment in particular, given the high levels of capacity utilization, is apt to be somewhat stronger than we're thinking. So, in short, while we think the Greenbook forecast is very reasonable and very defensible, that's probably the best that we could hope for; and our fears are that we're not going to do that well on the inflation side.",628
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Let me start with the labor issue. We don't have any specific information, at least that I've generated, on it. But in the Fourth District, particularly in Cleveland and Pittsburgh, we have very large manufacturing firms where over a period of years I've heard a number of them say directly that ""We've learned our lesson with respect to wages and inflation and we won't repeat that mistake."" I think that might explain partially why you see lags the way you see them. People--labor and management--are still working in Cleveland to insure that they gain market share and retain jobs. However, I don't think that can go on forever and we're liable to see a snapback rather quickly when we get to that limit. But I don't have any information from these people that we're at that limit today. I haven't asked specifically, but the fact that they haven't brought this up in conversations, I think, is indicative that they're not overly concerned at this particular point in time. Overall, the District continues to be very strong in capital goods and also very strong in exports. The stainless steel strip indicator, which is something that I casually follow, was up around 35 percent in terms of new orders against a 5-year average in the last 3 months. Lead times haven't lengthened, however. The price increase in the last 18 months in that particular product has been 80 percent. And exports in stainless, at least from this company, are up 65 percent. So a lot of things are working now correctly in the District. Some aren't working out so well. As in other Districts, retail sales seem a little softer and construction is softer. I guess I'm a little uncomfortable in analyzing, or going through what seems to be kind of a Phillip's curve framework here, when we talk about resource constraints versus inflation. I think Governor Johnson put it back on the track. Our concerns, or at least mine, focus around the fact that we have had a couple of years of 4 percent inflation. We don't seem to be making much progress toward [reducing] it. And I think that's the real focus, at least in my view, for monetary policy. As we look ahead, even the Board staff's forecast, with a substantial tightening in it, produces another 4 percent next year at the very minimum. The Board staff's forecast on CPI ex energy and ex food is 5 percent. So that leaves me with the position that says I think we have to be very concerned about inflation. I don't know how much we may have to move again; I'm not sure how much we really have moved in the past 6 months. I know where interest rates are, but I don't know how much the market did to put them there versus policy moves. So, I think what it boils down to is that expectations are important for us right now. And what we signal to the markets, I think, is important. I'm not sure of the magnitudes that we ought to be signaling, but I certainly would err on the side of moving earlier rather than later. So, I see strengths across the board but not a boom; and I do continue to worry about the errors on the international side being somewhat higher in terms of real growth than we think at this point in time.",658
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"It seems to me that in the last 6 months we've had a rather noticeable shift, at least on the part of the staff. I felt that 6 months ago the staff were not sure about the Board's and the FOMC's resolve on inflation. And I'm very appreciative of the fact that the staff have read this resolve of the FOMC in regard to inflation and that they have given us a monetary policy projection that's somewhat consistent with that. As I look at the Greenbook numbers, I don't focus on the number you focus on, which is real GNP targeting. I'm somewhat like Lee Hoskins and Manley Johnson in that regard. But there is one number here in the Greenbook that I do believe is a very desirable forecast, and that's nominal GNP. And I point out to you that our nominal GNP numbers in the forecast show the kind of decline that seems to me is consistent with our ultimate goals. It just seems to me it's somewhat dangerous for us in a policy context to be focusing on real GNP when we can focus on nominal GNP. When you look at the numbers there, you see that after 1984 we've only had one year in which the nominal GNP has been in the 7 percent range, and that was 1987. All right, we have in the staff forecast a 6.7 for 1988 and a 6.0 for 1989. It seems to me that if we can have a forecast bringing nominal GNP back down to the 4.5 percent that we had in 1986, that the right medicine is the monetary policy that brings that nominal GNP on down. I don't see how we get into trouble if we bring the nominal consistently down. So I'm somewhat satisfied with that kind of a policy background. I'm going to hand out some charts here in regard to commodity prices. I do that somewhat reluctantly because I do not believe commodity prices are as good a signal as exchange rates are. I just believe that it's more politic to talk about commodity prices than it is to talk about exchange rates. And I think in some ways we're talking about the same thing. But, since the staff did get the experimental index into their chart show, I thought at least we ought to have a little background in regard to that experimental index. Now, first of all, the experimental index was designed to show the flow-through capabilities of commodity prices to the producer price index and to the consumer price index. And this index is a consumption-weighted index. Now, the chart that you have is a chart of the index without oil. A consumption-weighted index has oil very, very high; whether we're doing it or the IMF is doing it or anyone else is doing it, we end up getting very high weights for oil. What our staff work has shown--and there has been some excellent work on the part of the Board's staff in this regard--is that year-over-year rates of change in commodity prices have been successful in leading changes in the rate of change in the CPI on the same year-over-year basis, and that most commodity indices tend to do that with a 7- to 9-month lead time, which seems to be superior to what the leading index does for the real economy. So, the first page that I've shown you there is this commodity index without oil in it. As you can see, this index has shown a downward movement and now is showing an upward jag. That upward jag is the drought effect. Now, I don't know what this index would have looked like without the drought. I can only suspect what it might have looked like. The second page shows the full index--I mean the index as it was designed. And the year-over-year rate of change clearly shows a turning point in this index which would be consistent with the CPI year-over-year rate of change peaking about September of 1987. If this proves not to be the case, then this constitutes a clear false signal. I don't know; it may very well have constituted a false signal because we have the full index saying one thing and the index without oil saying something else. So, I think it's a very uncertain case. Ed Boehne gave us some data on the CPI and the PPI; and there again, I tend to look at the year-over-year rates of change. The CPI year-over-year peaked out at 4.6 or 4.7 last fall; it was down to 4.4 in December; it crept on down to 3.9 and stalled. I'm somewhat suspicious that the index may move back up above 4 again. With the drought effects on food prices, I think that's quite likely. Now, the last page shows the commodity index, the full index with 1982 consumption weights. This one just happens to have a strange base of January 1986 in it. But for those of you who would understand what that might mean for some of us, that index gives some indication that monetary policy was successful in holding the deflationary environment that was occurring in 1986. It seems to me it does give some evidence of that, although the recent trend in 1988 is very suspicious; if you're a chartist and you draw the lines from 1988, you can say we have a problem. And, of course, I think we ought to lean against that wind by [adopting] the monetary policy prescription that the staff has outlined. Now exchange rates, it seems to me, are showing something else in regards to the scarcity of money. I will not dwell on that item, but I would point out that even the staff, who apparently believe that the exchange rate in December '88--if I read the report correctly--will be about the same as it was in December '87--. Is that correct, Ted?",1190
-fomc-corpus,1988,"No, I think it's down a little, to 4 percent.",14
-fomc-corpus,1988,"Well, I thought we had had a 7 percent rise from December and you're projecting a 7-1/2 percent fall from June to the end of the year. So it's approximately--",39
-fomc-corpus,1988,"I think you're probably right as far as December is concerned. You may remember that October, November, December had a considerable decline in it. So from the December level you're probably right, but from the aggregate in the fourth quarter--",46
-fomc-corpus,1988,"Okay, I'm just saying--",6
-fomc-corpus,1988,They were talking about a 7-1/2 percent annual rate of decline.,17
-fomc-corpus,1988,Annual rate.,3
-fomc-corpus,1988,"So it's half from June to the end of the year, I guess.",15
-fomc-corpus,1988,"Well, okay. Whatever your projection is, I'm comfortable with the decided change that that shows. It does seem to me that exchange rates do respond to real monetary scarcities. And I think the automatic gold standard always worked if everyone wanted to make it work because it did alter the monetary growth paths for countries with balance-of-trade deficits. I don't know about the drought. Some people seem to think that the drought is going to add to inflationary forces. I think there's a danger there that has to be guarded against. But I think the drought can possibly have deflationary impacts in the long run if we get past these first 6 months of it. What Gary Stern said last night struck me: that for those people in the Midwest where that drought is concentrated, there is a feeling that does have something to do with expectations. One other thing I would mention is in regard to defense spending. I picked up anecdotal evidence which says that there are many small defense contractors around the nation who are not permitted to make any bids for any government contracts or to engage in any new projects of any kind due to the fact that they're dealing with a representative or lobbyist in Washington who is tainted. And I understand this to be a rather widespread phenomenon. The final comment I'd make is in regard to the money markets. It just seems to me that in the last five months the money markets and bond markets have responded so well to the policy moves we've made. Some of you may not think they were policy moves, but it does seem to me that we've been attempting to lower the growth path of the monetary aggregates, and I would consider that to be a policy move. I think the bond markets have behaved so well because they have seen us responding in a pattern that they didn't expect and I think they believe that our timing has been appropriate. And I think it's important that we keep in mind the kind of timing that we've had. It seems to me that the Chairman has indicated a very [unintelligible] in carrying out the FOMC's views in regard to the tilts we've placed in [the directive]. And I guess I'd expect that to continue. Thank you.",439
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Thank you, Mr. Chairman. With respect to economic activity, particularly in its relation to the Tenth District, as you know, we're dominated by agriculture, energy, mining, and manufacturing. Three of those activities--agriculture, energy, and mining--have been at very low levels. Agriculture has revived in the sense that it's on the recovery path, with evidence such as agricultural land prices continuing to increase 4 to 5 percent in a quarter, for example. Having in mind the impact of the drought, however, it isn't clear that that's going to continue. And if the drought does worsen--and that's a very iffy situation in the sense that a week or two of rain could wipe out virtually any impact of the drought in our District and would turn the pessimism back to optimism; and I think agriculture would continue on the recovery track. Energy, on the other hand, is flat because of OPEC's indecision and the softening of oil prices. Drilling rigs have decreased in total numbers over the last month or two, although they're still about 8 percent or so above year-ago levels. Mining is in a recovery stage, but certainly not very brisk. Manufacturing is dominated largely by the auto and aircraft industry in the Tenth District. Because of production cutbacks, most auto plants--the ones that haven't been closed--are operating on two shifts. But that's far from being flat-out production. Aircraft, on the other hand, is booming--from the standpoint that both commercial as well as military orders are very great. And as a result, that industry is looking up. With respect to your question about wage inflation or price inflation generally, we simply do not have any good evidence that has emerged that would suggest that that's present now, although I would agree with those who suggest that the feeling is right under the surface. People we talk to keep talking about inflation, although they can present no real evidence that it's accelerating. It seems to me that it may be one of those situations in which things have gotten better, both nationwide and in my District. And as things look pretty good then--and we can't stand prosperity--you begin to look for those things that can destroy what you think is good today. And that may be what we're experiencing right now. The real risk, obviously, is that it becomes a self-fulfilling prophecy. We do see some wage increases in the public employment sector and particularly in the health [care] sector. Nurses, for example, are in very short supply nationally. Their wage demands are astronomical and they quite likely are going to get them simply because of the shortage in the supply of nurses. With regard to the Greenbook forecast and the outlook for the next six quarters, we don't have any great divergence from the view that has been presented by the staff. I think our view would be that inflation would be a bit less in the remainder of 1988 but would indeed be greater than the staff forecast for the year 1989 as a whole--roughly 1/2 of a percentage point fourth-quarter over fourth-quarter. Some of that comes from the projected impact of the drought on prices. Our view is that there will be an uptick; it won't be a heavy impact unless the drought worsens very much in 1988. I think the staff would say that that would all kind of roll out early in 1989, but we think there will be an uptick in 1988; we see that continuing in 1989. And as a result, inflation from that component alone would be a bit higher than the staff forecast. But by and large we'd accept that forecast as being reasonable. I would agree with the earlier statement of Jerry Corrigan that the risk is on the upside and monetary policy will become a bit tight. Inflation will rear its ugly head. Vigilance! I quit.",781
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Thank you. Well, let me start with a report from my district, which goes all the way from Dulles airport to Constitution Avenue.",29
-fomc-corpus,1988,Also a part of ours!,6
-fomc-corpus,1988,"Also part, or a subsector. The unemployment rate in the area is 1-1/2 percent, which is almost on [unintelligible] with the Japanese conditions, depending on your view. I haven't noticed any strike activity--that doesn't mean it isn't going on--but people seem to have some trouble hiring. As far as wage pressures are concerned, my own wage hasn't changed for 1-1/2 years but the Board seems to--",94
-fomc-corpus,1988,It won't change next year either.,7
-fomc-corpus,1988,"It won't change next year either, thank you. But the President seems to have some trouble filling empty seats on the Board. But, after a year and a half search, he seems to have succeeded now, although there are still some obstacles in the way. Now, let me point to the national picture. I think the only forecast I can really follow is the Greenbook forecast. And while I'm a bit more optimistic than the Greenbook forecast, I think there are some features in it that are already feeling pessimistic. The Greenbook has the growth rate dipping a year from now--that's the second quarter of 1989--to 1.7 percent. Domestic purchases at that time will be growing at a rate of 0.3 percent; the unemployment rate is up to 5.8 - 5.9 percent; investment is growing only at 1 or 2 percent; both the personal as well as the industrial structures are solidly in the minus column; the Federal Government is solidly in the minus column; capacity utilization is dropping. With all that happening, plus the low monetary growth that we've seen in the last year--and as I pointed out yesterday, we're still below the bottom end of last year's target cone--I don't see the big surge in inflation that some people expect. Governor Johnson has already pointed out very clearly what I think is happening: that past monetary policy really has helped to break that inflationary impetus that we have seen building up. Governor Angell, I think, said the same thing. The yield curve is flattening, long rates are coming down, the dollar is going up, and you see two sort of opposing trends in commodity markets. On the one hand, you have the effect of the drought; on the other hand [unintelligible] prices have been dropping very sharply in the last couple of weeks and that's often a fairly good inflation indicator, too. So, to sum up, I think we are already on slowing trends. We see the results of the tightness of policies that we instituted last year and in the early part of this year. And I would expect that inflationary expectations are on a downward trend. Thank you.",443
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Mr. Chairman, let me, if I may for just a moment, bring a slightly different point of view to this thing. My main concern is that we need to have a good economy in 1989 and forward from there. I'm asking myself what is liable to be the economic forecast forward from the second quarter of next year. And the reason for this is I think it's very important that the next President, whoever he is [unintelligible]--[Secretary's note: The transcript of Mr. Kelley's remarks ends in mid-sentence; in addition, there is no record of Ms. Seger's comments on the economy. However, a general statement of their views is contained in their dissents from the policy decision at this meeting. Those dissents were included in the policy record of the meeting that was published several days after the following meeting. The transcript resumes with Mr. Kohn's report on the long-run policy alternatives.]",191
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,Questions for Don?,4
-fomc-corpus,1988,"Yes. Don, in some ways my question arose and you partially answered it [in your report]. The lower [projected] inflation, with a 1.4 percent M2 growth rate in 1989, followed by 2.4 percent in 1990 and then a Treasury bill rate in 1990 of 9.2 percent, is so inconceivable to me. I just wondered: is it conceivable to you?",90
-fomc-corpus,1988,"Well, the relationship is conceivable. In fact, these things are derived from cranking them through the money demand model. The M2, Treasury bill, and nominal GNP relationships implied are derived from cranking them through the Board staff's models of M2 demand. Now, whether the underlying strategy for monetary policy is credible, I think I'll leave that to the Committee. But the relationships in here are credible, entirely credible. I don't have any problem with seeing the change in interest rates going with the change in GNP and the change in money.",111
-fomc-corpus,1988,"My comment would be that your model doesn't fit the financial world that I've learned to experience, and I would think that a Treasury bill rate of 5.2 percent would be more consistent in 1990 with that kind of M2 growth.",49
-fomc-corpus,1988,"Well,--",2
-fomc-corpus,1988,But Don was still applying monetary restraint at that moment. Right?,13
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,You're still stepping on the brakes and that produces the high interest rates.,14
-fomc-corpus,1988,"Yes, but the yield curve in that situation would be so inverted.",14
-fomc-corpus,1988,Inverted?,3
-fomc-corpus,1988,It has to be an inverted yield curve unless the-,11
-fomc-corpus,1988,I think there's no explanation.,6
-fomc-corpus,1988,Unless inflation is accelerating.,5
-fomc-corpus,1988,I think it's not--I don't have the outlook for the long-bond rate--,17
-fomc-corpus,1988,That's where the challenge is.,6
-fomc-corpus,1988,"We would not have [the long-bond rate] increasing to the same extent as the Treasury bill rate; increases would be smaller. Whether the yield curve would actually be inverted at that time under these circumstances in the models, I'm not sure. But we have had situations like 1987 when we had very low money growth and rising interest rates. Your point, I gather, is one of inflation expectations and where real interest rates are and where nominal interest rates are. And I think if there were a real break--if the markets saw this, believed it, and inflation expectations took a substantial decline--then you might have a point. I'm not sure that the interest rate thing--",137
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"I'm not sure that money demand would be that much different but, surely, the long bond would be considerably different. And then it would be a question of whether money holders trade off their savings deposits and time deposits.",43
-fomc-corpus,1988,"You probably haven't yet incorporated a commodity index inflation movement within your model, have you--with a feedback?",21
-fomc-corpus,1988,No.,2
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,Are there any further questions before we do another run around the table?,14
-fomc-corpus,1988,"Don, you used an interesting term that I don't remember right now, but I think you really said you assumed expectations weren't rational in this low growth--",30
-fomc-corpus,1988,"In our models, the expectations, as Mike Prell said yesterday, are backward looking. And then you have labor contracts and what not. Some things change slowly in those models; wage rates change slowly, as do prices to a certain extent in response to changes in output gaps, unemployment rates, and that sort of thing. So that's the reason why the lags are so long and the unemployment rate has to get so high to get this immediate, relatively short-run, effect for a 1990 inflation rate. If the expectations change more rapidly, then you wouldn't have to have quite as much restraint.",121
-fomc-corpus,1988,What was that term you used? I want to remember that.,13
-fomc-corpus,1988,I can't remember it.,5
-fomc-corpus,1988,It was an interesting one; I should have jotted it down.,14
-fomc-corpus,1988,"Well, maybe we can talk later; I'm not sure what you're--",14
-fomc-corpus,1988,Lee.,2
-fomc-corpus,1988,"When I match up the Greenbook with alternative III, the implication under alternative III is that we're shooting for 5 percent M2 growth. So the question is: What is the Greenbook projection under that alternative?",43
-fomc-corpus,1988,The projection is 4 percent.,7
-fomc-corpus,1988,"Yes, the projection under the Greenbook assumption is 4 percent. I think you're right--the markets probably will take the midpoint.",27
-fomc-corpus,1988,"Yes, I'm trying to match the two up.",10
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,You have a midpoint of 5 percent and I'm asking what the Greenbook forecast would look like under a 5 percent M2.,27
-fomc-corpus,1988,"Oh, I see. It would be--",9
-fomc-corpus,1988,Because that's how the markets would translate,7
-fomc-corpus,1988,"The Greenbook forecast under a 5 percent M2 would be something between the baseline and the stable interest rate forecast that Mike gave yesterday. That is, we'd have more M2, somewhat lower interest rates, and everything that went with that. But the 5 percent M2 would be consistent with some further rise in interest rates from where we are now, but not quite as much as we have in the Greenbook forecast.",86
-fomc-corpus,1988,"Any other questions for Don? Let me add something to what Don has been saying. In one sense, we're looking at monetary policy in the short run as sort of the crucial thing to be discussed at this meeting. But, in a sense, this is the more relevant issue. If you go back to the 1960s, and especially the 1970s, my recollection is that toward the latter part of the 1970s we still had this acceleration of inflation expectations. You remember Milton Friedman used to draw the lines where the top of the highs of inflation were always successively higher and the bottoms of the lows were always successively higher. Despite that, until very late in the 1970s--I suspect really the middle of 1979--inflation expectations really never took hold. Long-term nominal bond yields were exceptionally low. All of a sudden the markets got the message and long-term rates went up, I think, 450 basis points between mid-1979 and early 1980.",207
-fomc-corpus,1988,They never got up above the short rates.,9
-fomc-corpus,1988,"No, they never did; but what I think we were looking at was that inflation expectations really found their way directly into the long end of the market.",31
-fomc-corpus,1988,I guess what I'm saying is they never rose above the funds rate or short--,16
-fomc-corpus,1988,"Well, I'm not sure that that's relevant to this issue, because [the definition of] inflation expectations in this context really has to be: what is the inflation premium embodied in the long-term interest rate? It's certainly the case that the structure of the yield curve is relevant, but not to this type of issue. The reason I raise the issue is that everyone's expectation was that we couldn't break the inflation psychology. And, indeed, this Board--or the FOMC--went through the torture of the damned in the years immediately subsequent to that to get inflation expectations out of long-term bonds; and it hasn't fully succeeded. The long-term nominal yields are still reflecting a degree of inflation that is a good deal higher than in the 1970s and the 1960s. This suggests that the market, having come down dramatically with respect to inflation, is going to do it in two loops--meaning, in effect, that inflation is coming back a little. And if it starts going back down in the early 1990s--leaving out the issue of not getting to 5 percent--that probably will bring the long-term yields down in a nominal sense. And this suggests to me that the more important decision that the Committee has to make is on this specific issue. I think we ought to decide whether we believe that money supply is working or whether we believe it's no longer a relevant consideration. But unless we are willing to abandon all hopes of the monetary aggregates coming back as key elements within the financial system, the more I look at the numbers I can't quite buy your lower inflation thing because I'm not sure it would work. I think that what would happen is that if we squeezed to that point, the economy would go into recession and political pressures would overwhelm us. But certainly, I must say that alternative III looks like something which is, as far as I'm concerned, probably a minimum type of adjustment from current M2 ranges. Well, having already spoken, let me just say that I would opt for no change in 1988 but alternative III for the 1989 figures. Do you think we have time to go around before the coffee gets cold? Let's try. Governor Angell.",443
-fomc-corpus,1988,"As for alternative II, I don't like quibbling with half a percentage point in these numbers. So the question is alternative III versus alternative I. I come out this way: I prefer that we do alternative III, but I prefer to make that decision next February. Just like a year ago, I preferred that we make the decision closer to the time because I believe it's important to have credibility. And I would certainly want the language of the Humphrey-Hawkins report to indicate that we anticipate doing that. But I really prefer that we not announce one now because I believe there is something in the neighborhood of a 20 percent chance that we will be back into a commodity price deflation prior to the beginning of 1989. And if that's the case I wouldn't want to make the move. So--",163
-fomc-corpus,1988,Are we required to announce--,6
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,Preliminary ranges.,4
-fomc-corpus,1988,We actually have to do it.,7
-fomc-corpus,1988,"We have to announce the preliminaries. Well, I'm going to vote for alternative I, but there's an 80 percent chance that I'll want to be at III next February.",35
-fomc-corpus,1988,Vice Chairman Corrigan.,5
-fomc-corpus,1988,Reaffirm the '88 ranges; alternative III for '89.,13
-fomc-corpus,1988,[Mr. Angell] are you reaffirming '88?,13
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"I would strongly favor alternative III for 1989 and I don't have any problem with our current targets for 1988. One thing we might want to consider for 1988 is to go 4-1/2 to 7-1/2, which would narrow the M2 range to 3 points. You clearly have the visibility that I think we'd be comfortable with. And for M3, 5 to 8 because that looks reasonable as well. And I might point out that the staff has indicated that, due to different income and interest elasticities, it makes sense to have a little higher range for M3. So, I think we could stick basically with the substance of what we have for 1988, but just narrow the range a little.",157
-fomc-corpus,1988,"You know, the ability for us to hold to a whole range for a year for no other reason than credibility is of value in and of itself.",30
-fomc-corpus,1988,I think that's right.,5
-fomc-corpus,1988,"It's not that I would disagree with you on that necessarily, but I think there is the question of whether or not we really would want to do that.",31
-fomc-corpus,1988,"Well, we would be holding to the range. We'd actually be narrowing it.",16
-fomc-corpus,1988,"We'd be narrowing it, yes.",8
-fomc-corpus,1988,I wouldn't want to change the midpoint of M2.,11
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"I agree with your prescription, Mr. Chairman, which is where most people have come out. There's one observation I'd like to make, though. I think there's one big weakness with this practice of setting one-year ranges for the aggregates, and that is that it doesn't really commit us to doing anything beyond that year in this. Governor Angell suggested a while ago that it is important that we target some nominal variable. He mentioned nominal GNP. I think it's a point, although certainly one can't be sure that it's a better variable to target than would be M2. [I'd suggest that you] announce, when you give your testimony, that our intention is to move further in the years beyond. If you look at the chart showing velocity of M2 in the Bluebook, that looks pretty darn constant over a period of 30 years. It's true that it jumped around more in the '80s, but it looks remarkably stable for an economic variable. And I would like to see you say that our intention is, given past evidence, and with a zero rate of change in velocity, to bring that down in the early '90s to about 3 percent--which I would interpret to be the long-run potential of the economy--or whatever you can get the Committee to agree to and feel comfortable about in saying something beyond '89. I think that would be very helpful to the markets. And I would certainly favor something of that sort.",291
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Mr. Chairman, I, too, agree with your analysis, and I would reaffirm the 1988 targets and opt for alternative III for 1989. I think it's very important that we send a signal to the financial markets and to the public that we're on our path of trying to reduce core inflation. I don't think that alternative III really represents a very restrictive monetary policy and would throw us into a tailspin in the economy. I don't like alternative II because I think that those half percentages indicate a degree of precision that we really don't have. So, I strongly favor alternative III.",118
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,Ditto!,3
-fomc-corpus,1988,You want to expand that?,6
-fomc-corpus,1988,He wants coffee!,4
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I think I can live with alternative III. Don Kohn pointed out, though, that there is some risk that expectational adjustments will take place a certain way. We can find ourselves going backward at some point. And I think there's some risk that we might get ourselves in a situation where expectations do take effect and we end up with lower interest rates instead of rising interest rates; at some point we're going to get a velocity movement that's going to be in the opposite direction of what we anticipate. To hit a 5 percent nominal GNP you're going to have to compensate for a potential decline in velocity growth--I don't think that's totally out of the picture as a possibility--for me to feel completely comfortable with alternative III; that's why I like a 5-1/2 percent midpoint. It doesn't bother me that we ratchet the targets down a half percentage point a year; we've been doing that for some time. As a matter of fact, we didn't even move them for a while, and a half percentage point was always viewed in the markets as a reasonable amount of progress. I must admit that, barring that scenario that I pointed out, the upper end of the alternative III range seems to give you plenty of room. And maybe we do want to give that kind of message to the markets. But simply because I am unsure about where we might be next February--. I would hate to end up having to back off next February.",291
-fomc-corpus,1988,"Am I correct that you would expect to have to back off only if interest rates were lower, which would mean probably that inflation expectations are lower? And the market effect of backing--, there is no reason why we can't back up.",47
-fomc-corpus,1988,No. We can back up.,7
-fomc-corpus,1988,That's the whole purpose of the exercise.,8
-fomc-corpus,1988,"I think that is right. I am just a little concerned at this point that a signal of stronger medicine of that degree to come might put us in that situation; but I could go with it. I am a little more comfortable with waiting as well, but I'd rather demonstrate a ratcheting down of the target than just hanging with the current one, I think--a little unlike Governor Angell. But I can live with III; I just think there's a risk of us backing up some.",100
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Well, alternative III doesn't achieve the objective that I'm looking for over time, which is to ratchet down the rate of inflation. It leaves us with a midpoint that would be more inflationary than the Greenbook forecast, which is still at 4 percent. So, if I were to pick a number, I would certainly look at something like 2 to 6 percent, to focus it around what is consistent with the Greenbook; and 1 to 5 percent might even be preferable. If we are going to use something like III, then I think we ought to make it explicit in your public statement that we are going to shoot for the lower end of that target range. Otherwise, the implication is that it's 5 percent. An alternative to that would be to narrow the range--leave the bottom end at 3 percent and pull the top end down to 6 percent. I can live with 1988 the way it is, but I think it's important to signal the markets that we're serious out in 1989. I think we'll get some benefits out of that without having to pay a price in terms of short-term interest rates.",232
-fomc-corpus,1988,So are you coming out for III or not?,10
-fomc-corpus,1988,Are we voting now?,5
-fomc-corpus,1988,"No, I only wanted to--",7
-fomc-corpus,1988,I'd come out for III if we could make either one of those two adjustments.,16
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"I'm for maintaining the current 1988 ranges and the 1989 ranges that go with II, essentially for the same reasons that Governor Johnson expressed. I think we should proceed slowly and save, if you will, some of that ammunition for the final determination of the ranges in February. I'd rather keep going forward at that point, like Governor Angell was saying, than having to backtrack early next year and then going to a higher range some time next year. I think it is more important for us to meet our targets and to show that we want to make some continuing progress.",117
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Well, I will ""ditto"" Governor Heller exactly. I would reaffirm '88 and go for II at this time for '89, for the reasons he just articulated.",36
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"I'd maintain the '88 ranges and I'd be in favor of alternative III for '89. If I were fine tuning at all, I would widen the ranges when we are going through a period of some uncertainty, but the latter is beginning to clarify. This might be an opportunity to narrow the range again and perhaps go to 3-1/2 to 7. I don't feel strongly about that; I can live with III.",87
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I am in favor of maintaining the existing ranges for '88 and in keeping with my position this time last year, I think that it makes sense to maintain the same ranges for '89 because we do have another crack at this early next year, and it makes a lot of sense to keep our powder dry. And if we need to tighten further, I would certainly go to II or III; but in the meantime, I don't think the markets, as a matter of fact, think we are paying much attention to the monetary aggregates at the moment. We keep saying we aren't, so I don't know how it is that we are supposed to send this tremendous message to the financial markets by knocking these ranges down substantially at this point.",146
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mr. Chairman, I would reaffirm 1988; I can accept alternative III for 1989. However, I would prefer to maintain the current 4 to 8 range for 1989 for the time being, with the appropriate language in your testimony that another look at the beginning of this upcoming year is something that we would look forward to.",71
-fomc-corpus,1988,[Your view is] similar to Governor Angell's?,12
-fomc-corpus,1988,"It's somewhat similar, yes. The record of our ability to forecast has not been terribly good over time. And the fact that we are looking out 6 quarters, to me [unintelligible]. I'd rather keep the flexibility and look again in February.",52
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I favor sticking with what we have for '88 and alternative III for '89. And I'm inclined to agree with what Martha said about the market impact. I don't think the markets place a lot of weight on this. I think we are heading in the right direction and we ought to do that; but in the final analysis, if we had to violate the ranges in either direction I suspect as a Committee we probably would. And I suspect that's how the market probably perceives this.",97
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"Well, I have nothing to add. I'd keep the ranges we have for this year and go for alternative III for next year.",26
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"I'd stay where we are for '88, alternative III for '89.",15
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"I've always been uncomfortable with setting a range for the year in the middle of the preceding year. I am very sympathetic to the idea that we keep the present range at this point for 1989 and tell Congress that, if we are thinking in February as we think today, that we'd probably reduce it. But I think our ability to forecast velocity is so limited, that to try to set a range for 1989 in June of 1988--that is something. We've always done it that way; but, at the same time I know that once we set it in the middle of year one, it is difficult to revise it in the middle of year two. It develops a certain inertia and people get concerned about what would happen to our image, and so on. It seems to me that if we get into a pattern of keeping the existing range, and telling the Congress we'd be more comfortable setting the subsequent year's range in February, that we'd be better off in the long run.",199
-fomc-corpus,1988,"Let's vote first on 1988. Unless I'm mistaken, it seems we have unanimity to reaffirm, but let's put that to a vote.",29
-fomc-corpus,1988,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins Yes Governor Johnson Yes Governor Kelley Yes President Parry Yes Governor Seger Yes,43
-fomc-corpus,1988,"Let me ask a factual question on the 1989 ranges. Do we have the custom of assuming that people are voting on I, II, and III as representative averages? Do we do this or what?",42
-fomc-corpus,1988,"Well, Mr. Chairman, in fairness, you have 6 people who have clearly shown that they favor alternative III. Even though I don't, I can vote for it; I'm not going to vote no. On that gesture, I think it would be a mistake.",54
-fomc-corpus,1988,"No, I'm asking: Is the procedure here one in which one puts up a proposition on alternative III and asks yes or no? Is that the way it is run?",34
-fomc-corpus,1988,It seems to me--,5
-fomc-corpus,1988,"I agree with Governor Angell. I am uncomfortable with alternative III, but I would not want to record a vote against it, knowing there's a majority for it. I would like to show more unanimity than that.",44
-fomc-corpus,1988,How about half way--3-1/4 to 7-1/4?,18
-fomc-corpus,1988,We've already been polled; we know where we stand.,12
-fomc-corpus,1988,"May I make a suggestion? As I've listened, there really is not disagreement here. What the issue really rests on is the forecasting ability of this group for a period that far ahead. Why can't I capture that in language in my testimony? So, I'd say that this is the intention, but recognize that it will be revised, as it has to be, in February.",75
-fomc-corpus,1988,Like President Morris said: a) it is very difficult to go back on what we have done; b)--,22
-fomc-corpus,1988,"Well, basically I'm saying that no matter how you do it, it is an intention that inevitably will be reviewed. And I presume that this is not locked in concrete, as it shouldn't be.",39
-fomc-corpus,1988,"If you took the case that Governor Johnson cited, where something happened between now and February such that you had lower rather than higher interest rates, in those circumstances, I'd have no trouble at all myself with changing the targets in February.",46
-fomc-corpus,1988,It would be appropriate.,5
-fomc-corpus,1988,I think there's just a little loss in credibiliity in doing that.,15
-fomc-corpus,1988,"Then we are moving in the wrong direction. In that sense, it sends bad signals to the market, especially if you make some progress and you're getting lower interest rates. And then you say, well, now we are going to increase our monetary growth.",51
-fomc-corpus,1988,Let me say what I have to say.,9
-fomc-corpus,1988,"I'd be very reluctant to reverse myself later on, having voted for it now.",16
-fomc-corpus,1988,"If we go for alternative III and it turns out to have to be reversed, too, you would be in the same position. You are not going to tell me that--",35
-fomc-corpus,1988,I prefer III to II.,6
-fomc-corpus,1988,"Why don't we do this: Let's vote on III, with the understanding that the language [in my testimony] will try to capture the reservations that people have indicated.",33
-fomc-corpus,1988,Those reservations are on both the high and low sides.,11
-fomc-corpus,1988,"[Laughing] Well, you mean just one!",11
-fomc-corpus,1988,[Laughing] He's got several reservations! We are voting on alternative III.,16
-fomc-corpus,1988,"Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins Yes Governor Johnson Yes Governor Kelley Yes President Parry Yes Governor Seger No, reluctantly",45
-fomc-corpus,1988,"Mr. Chairman, there is directive language that goes with these alternatives that is pretty straightforward. You can do it after the coffee break, if you prefer that. The language is on page 8.",40
-fomc-corpus,1988,"Can we reconvene? Jerry Corrigan has an interesting idea that he broached at the coffee break. I would like general views on it, as it would solve some of the problems we were discussing on the 1989 targets. Jerry.",49
-fomc-corpus,1988,"In listening to the conversation, I must confess that I was a little struck with the comments that Wayne Angell, Bob Heller, Frank Morris, Manley Johnson, and Martha Seger were making about the year-forward targets, as we are required under the law to stipulate in July. The thought that I mentioned to the Chairman was that, in connection with his testimony, he would obviously state that the Committee established the 1989 targets as they were just voted. He would then go through his usual song and dance about uncertainties, but he would take that song and dance one step further and specifically say that, indeed, the Committee was impressed with how much these uncertainties have increased, if anything, over time. Consistent with that, in the future the Committee may well show a strong tendency in July to merely restate the current year's targets for the following year. That would not necessarily always be the case, but there would be a strong tendency in that direction, simply as a further manifestation of the uncertainties that arise in trying to state the targets that far in advance.",216
-fomc-corpus,1988,Very good.,3
-fomc-corpus,1988,"The advantage of that occurs in the event that we are in a position next February, for example, where the types of occurrences that have been expressed here do evolve and we are required to change. What we have done, in effect, while adhering to the requirements of the statute, is basically establish the notion that setting the 1989 ranges is clearly a problem in July 1988, and the fact that it turned out to be a problem in June or July of 1988 isn't that much of a surprise. That gives us, I think, a reasonable basis to change, which could be captured if we were to be very vague in the report and in my testimony, but I gather that really is inappropriate, given the Humphrey-Hawkins statute language. Jerry's notion, within the statutory language, creates the type of conditionality which I think that Wayne and Don and a few others have indicated.",183
-fomc-corpus,1988,"Mr. Chairman, I have two problems with that. One is that you would be going into next year without having set any long-run targets.",29
-fomc-corpus,1988,"I'm sorry; let me restate it. What Jerry is recommending is that we are actually stating the targets--specifically, alternative III--and instead of having some language around it about uncertainty and how the targets may be changed, that we stipulate that henceforth, starting in July 1989, we would assume that the then-current ranges would be automatically extended into the subsequent year but be subject to review in February.",85
-fomc-corpus,1988,"My other problem is more serious. And that is, that I would like to see us state tentative targets over the long run that tell the market what we have often said in the past--that we want to get these aggregates down to the point that we've got noninflationary growth. To me, [the approach recommended by Jerry Corrigan] would show less resolve than I think [is desirable].",81
-fomc-corpus,1988,"Mr. Chairman, I think what Jerry and the others are getting at is valid, but I'd like to suggest a slightly different wrinkle as to how to achieve it, which I think gets around a potential difficulty. I would rather say that the uncertainty has increased and that it has become increasingly difficult to make judgments; that we will make our best estimate in July, but the [congressional] committees ought to understand that we may be changing or revising in February more than in the past. I think there is an advantage in saying it that way because it tends to be more in the spirit of the statute. Some years ago--I've forgotten exactly when it was--we didn't send up in July ranges for the following year, and Senator Proxmire said we weren't following [the statute] by what we were doing. This way, if you say that in the future we are just going to continue the current ranges into the next year, I think someone could say to you that what you're really doing, in effect, is revising the statute. If you go the other way and say we'll give it our best effort, but you ought to realize it is highly preliminary and almost routinely you might expect changes in February, then you do it more in the spirit of the statute, and I think it accomplishes the same thing.",267
-fomc-corpus,1988,"I think I would agree with Ed; I don't like the suggestion that we indicate that we might be very likely to continue the prior year's target in July. I think we go through a very serious exercise here. It is clear that the staff has done that and I think staff at each of our Banks has done that as well. if we are going to do it in a serious way, I think we ought to pay some attention to it. You know, we just don't have to do much work if what we're going to do most of the time is indicate that we are going to retain the current year's target for the next year. I don't see any virtue in that. I hink Congress ought to realize that we are trying to do the best we can and be aware that, at times, we may change it in one direction or another come February.",171
-fomc-corpus,1988,"In the context of this further discussion, let me just read--and throw into the well--two paragraphs suggested by Don Kohn. The first is: ""The Committee will be reconsidering the ranges in early 1989 and recognizes that they could be changed, depending on conditions at that time."" Another alternative is: ""It was understood that all these ranges were provisional and that they would be reviewed in early 1989 in the light of intervening developments."" At any rate, those are two more suggestions.",103
-fomc-corpus,1988,"I like Don Kohn's second suggestion best of all. I would prefer that we not make it seem as if we are really all that uncertain about these. I don't like the qualifications that might make it seem we are not going to stick with them. I prefer to have something very simple, like Don Kohn's second suggestion.",67
-fomc-corpus,1988,"Don Kohn's second one, I must admit--",11
-fomc-corpus,1988,Can you read it again?,6
-fomc-corpus,1988,It was understood that all these ranges are provisional and that they would be reviewed in early 1989 in the light of intervening developments.,28
-fomc-corpus,1988,Isn't that what we always say?,8
-fomc-corpus,1988,"I think, Mr. Chairman, that the problem will go away anyhow, now that we're getting them down to a range--you know, the midpoint is 5 percent--which Professor Friedman has always advocated as a permanent growth range from now until eternity. So, I think in the near-term future we won't have these problems any more.",68
-fomc-corpus,1988,Is that Ben Friedman? [LAUGHTER],10
-fomc-corpus,1988,We can go back to a one-day meeting! [LAUGHTER],15
-fomc-corpus,1988,Does anyone have any objections to Don's language?,10
-fomc-corpus,1988,"The adjective ""provisional"" could be confusing because we talk about the provisional range for debt all the time.",22
-fomc-corpus,1988,"How about ""tentative""?",6
-fomc-corpus,1988,"How about ""preliminary""?",6
-fomc-corpus,1988,The statute says preliminary.,5
-fomc-corpus,1988,I like the word provisional.,6
-fomc-corpus,1988,It is a good word. I am just pointing out that we also use it in another context all the time for the debt range.,27
-fomc-corpus,1988,Is that a problem?,5
-fomc-corpus,1988,"The previous sentence that comes right before this has to do with debt. The way it was drafted was: ""The Committee provisionally set the associated monitoring range for growth in total domestic nonfinancial debt""--",40
-fomc-corpus,1988,Take that one out.,5
-fomc-corpus,1988,Why don't you read the whole paragraph?,8
-fomc-corpus,1988,"The paragraph for 1989 with the alternative III ranges--it's at the bottom of page 18 in the Bluebook or, if you're looking at the other document, it would be page 3, lines 56 to 60--would read as follows: ""For 1989, the Committee agreed on tentative ranges for monetary growth measured from the fourth quarter of 1988 to the fourth quarter of 1989 of 3 to 7 percent for M2 and 3-1/2 to 7-1/2 percent for M3. The Committee set the associated monitoring range for growth in total domestic nonfinancial debt at 6-1/2 to 10-1/2 percent. It was understood that all these ranges were provisional and that they would be reviewed in early 1989 in the light of intervening developments."" There's another paragraph on M1. It reads: ""With respect to M1, the Committee reaffirmed its decision in February not to establish a specific target for 1988 and also decided not to set a tentative range for 1989. The behavior of this aggregate in relation to economic activity and prices will continue to be evaluated in the light of the behavior of its velocity, developments in the economy and financial markets, and the nature of emerging price pressures.""",265
-fomc-corpus,1988,"I would like to ask one more question. [Unintelligible] I don't have any problem with that, but I'd like to clarify one more thing with Don Kohn. I should have asked this earlier, but it is not going to change anything. Going back and looking at the [unintelligible], the staff forecast is 6 percent nominal for 1989--",77
-fomc-corpus,1988,"It's 6-1/2 percent, I think.",12
-fomc-corpus,1988,6-1/2.,6
-fomc-corpus,1988,"That's what I said--around 6. The central tendency of the FOMC members is around 6. The midpoint on this alternative III is 5 percent. Anybody who looks at that is going to say, well, the trend rate of M2 velocity is zero, and that automatically means that the Fed is targeting higher interest rates. Is that going to be obvious to people?",78
-fomc-corpus,1988,"It's not really that obvious. I think it would imply some small increase in interest rates, but it depends on what happens over the second half of this year. It is very hard to say until you know what happens in the second half of this year what the velocity would be next year, because whatever might happen in the second half, interest rates have a [unintelligible]. It's not necessarily--",81
-fomc-corpus,1988,But they can draw that conclusion from what has already happened.,12
-fomc-corpus,1988,"It is close. I think if rates were held about steady here, with the staff's GNP forecast you'd probably get something on the order of 5-1/2 percent [M2 growth] next year. So, it would be a small increase in velocity, just with the lagged effects of what we've done through yesterday. At least that's what the models say. It is not that obvious--especially with 4 points in the range.",91
-fomc-corpus,1988,I didn't want anything obvious. I would be uncomfortable with somebody looking at the range and seeing a big interest rate increase just to get the velocity number. Okay.,32
-fomc-corpus,1988,"On that M1 sentence--again, this is just a drafting issue, but we are saying that the behavior in relation to economic activity and prices will be evaluated in light of economic developments and emerging price pressures. Somehow it seems redundant to me. It's not a big point, but I think we could do a better job drafting this.",67
-fomc-corpus,1988,"You could just take out ""in relation to economic activity and prices."" One question is whether the Committee wants to shorten this thing at all. We felt that this had been repeated sufficiently.",37
-fomc-corpus,1988,"That probably is a good way to fix it, Don.",12
-fomc-corpus,1988,[Unintelligible] repeat this rationale so maybe this aggregate will continue to be evaluated in the light of its velocity. [,26
-fomc-corpus,1988,Mr. Kohn.],5
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"May I make a comment on that? We will be discussing, probably in both the testimony and the report, something that captures the discussions we had on the monetary base--what it is that we concluded--and I might also mention the focus on future research relative to that. Let me just raise a couple issues here. When you look at the number of pieces of information that will be coming out in the next several weeks, we are going to be confronted, I think, with a lot of potential changes that we cannot effectively foresee. That includes the resolution of what is an extraordinary rise in the exchange rate, which really is something of a surprise and has to be a part of anything we are considering relative to what we are going to do with respect to policy. As a consequence of that, I think we should have a telephone conference in a couple of weeks--after the employment data, and probably after the PPI data, are released--to review whatever it is that we agree to today. I suggest that because I don't think that I would feel comfortable with a directive covering the next six weeks, given an economy with a capability of doing a lot of things that are shifting all over. In that context, and listening to the economic forecast, I would opt for asymmetric language toward tightness and I very much think that it would be appropriate to add an additional $50 million to the borrowing, which would bring total borrowings up to about the $600 million level. I would opt for that, if for no other reason than, as I understand it, that we probably need to be at that level to reaffirm the 7-1/2 percent funds rate we have in the market currently, and that is where people in the market essentially expect it to be. My concern is that we not be perceived to be reversing policy; and I think that putting that sort of posture forward gives us the flexibility to decide, under whatever conditions exist in a couple of weeks, either to move or not to move thereafter. Mr. Boehne.",410
-fomc-corpus,1988,"I have two issues that I am trying to balance here. One is how I foresee the risks in the economy and inflation, and the other is that we snugged just a week ago. Taking those two issues into account, I would prefer that we maintain the existing degree of pressure on reserve positions. I would have an asymmetric directive on the side of tightening. Under alternative B, I would round down those halves so that instead of 5-1/2 percent for M2 I would make it 5 percent, and instead of 3-1/2 percent for M1, I would make it 3 percent. I think your advice about having a telephone call is well taken. On the business of being worried about whether the funds rate is 7-1/2 or 7-3/8 or 7-5/8 percent, again, I think we ought not peg that so tightly. I have no problem with borrowed reserves at $550 to $600 million or something like that. But I don't think we should worry that much about whether the federal funds rate goes up an eighth or down an eighth. I think it'll be good to get back to our pre-October 1987 posture on that.",248
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I would support what you have in mind. I don't perceive the move on the telephone call--I guess it was last week--or what you're proposing now, as really pegging the funds rate. What I perceive it to be is an intelligent move which the market really has discounted--and perhaps it has discounted more tightening than, in fact, we've undertaken. Not only has it discounted it, but it has discounted it very constructively, if you will, in terms of how markets are performing. I think we would all generally agree that we're in an environment where probably more [tightening] will be necessary. I perceive what you're suggesting here is that we take advantage of that and just validate a rate and a policy expectation that's already discounted in the market. And on that basis I would do it. In terms of the policy record, I don't know how we could communicate it in such a way that it doesn't appear that the Committee has in two successive weeks here taken two further tightening actions. There's probably a way to handle it, in terms of words, so it doesn't come across that way. I think that would be desirable. And I would favor the asymmetric language.",235
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Mr. Boehne said it pretty well. There is good reason to maintain the current posture, especially in view of the high dollar that we're seeing at the present time. If you see a marked turnaround in markets, international or domestic, then I'd say in two or three weeks, or whenever that occurs, we can have a conference call and change our policy posture as may be appropriate at that particular time. So, I'd be for the $550 million borrowing assumption and a conference call. I don't know whether a conference call means we are asymmetric or not. I think I'd rather have the Committee take action than have the Desk automatically do it.",129
-fomc-corpus,1988,"Well, I don't think the Desk is just basically a [unintelligible]. The asymmetric language indicates the direction in which the Desk would be leaning without necessarily acting.",34
-fomc-corpus,1988,"Yes. As long as that's before it happens and the phone call is not a reaffirmation of action. That's what I'd like to see. I'd be glad to go along with the asymmetrical language, with a phone call.",45
-fomc-corpus,1988,Mr. Hoskins.,5
-fomc-corpus,1988,Just for clarification: Is that [telephone] meeting a conference or is it a vote?,18
-fomc-corpus,1988,"It could be either. It is a question of whether something of great significance happens or if we agree that nothing has happened. It's only that it is possible that we may get a significant move in the exchange rate; we may get some very significant data which may change the psychology of the market as a consequence of the payroll data. We've got the PPI coming out, amongst a lot of other figures. So, it's a type of period when I think it's useful for the Committee to be a little more active because there are crucial decisions to be made. President Black.",114
-fomc-corpus,1988,"Mr. Chairman, I guess the real question is whether we've done enough up until now. If you look at the real activity signs, I guess that would say probably we have; but if you look at the recent behavior of the aggregates--unless that's an aberration of some sort--that says we haven't. My guess is that we haven't done quite enough yet, so I was thinking in terms of that level of borrowed reserves that would be associated with an expected federal funds rate of 7-3/4 percent. But I could live with what you're suggesting, with an asymmetric directive and the understanding that we get together in a couple of weeks and take a look at it.",136
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"I guess my preference would be for alternative ""C"", because I think all of the analysis we have seen over the last two days would support it very strongly. As a fallback position, though, I think I could see taking it in a couple of bites. I must admit that a move up to $600 million on borrowing is not quite the size of bite I had in mind; but if we were to make some move now and then agree to talk about this in a couple of weeks, I certainly could go along with that.",107
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Mr. Chairman, on the basis of the forecast, my preference when I came into the meeting was for some slight tightening--and by slight I mean something around $100 million additional to the borrowing target. That would be somewhere between ""B"" and ""C"". But in light of the uncertainties that you see in the additional data that will be coming in, I don't have any strong objection to doing it in stages. I would like to point out, though, that in my mind there is a problem with that, in the sense that if we keep doing this in small bites and we keep responding to individual pieces of information, we're taking a shorter-term view than I think the Committee should be taking. I think that we need to be more forward-looking and not seem to be reacting to individual pieces of information. I think that's what the markets are doing at the moment. They're focusing on very short-term considerations, and I think we ought to be more forward-looking. The other thing I would say, I think Tom Melzer was saying as well. We ought to take advantage of the seasonal pressures that are in the market and do pretty much what we did last time--that is, take advantage of what the market is doing with respect to the federal funds rate. But the bottom line is that I would go with your suggestion. And I would certainly want to have an asymmetrical directive. With respect to the directive, if I may, I would like to make two other suggestions. Since the focus of this discussion this morning seems to be on inflationary pressures, it would seem to me logical to put that phrase ""indications of inflationary pressures"" first in the directive. In a more general sense, the language in the directive keeps talking about--and we've used this for a long time--the strength of the business expansion and I wonder whether it wouldn't be better, given my predilection for a longer-term view, to say the strength of the forecast for the business outlook rather than expansion.",402
-fomc-corpus,1988,I don't know whether we shouldn't try to embody that in the 1989 question. It's a little too sensitive to capture in the operational paragraph because that paragraph is essentially the short-term instruction to the Desk. And I was wondering whether or not we can't capture what you're trying to do in the Humphrey-Hawkins report itself.,66
-fomc-corpus,1988,"Well, that would help. Even though it's short-term and is a direction for the Desk, I still think it can embody that other concept.",29
-fomc-corpus,1988,Sorry--[could you repeat that?],9
-fomc-corpus,1988,"Even though this is a short-term directive to the Desk, I think you still can embody that longer-term forecast and outlook in that language, but I don't feel strongly about that.",36
-fomc-corpus,1988,"I think you can but the trouble is you may be putting a lot more in there than we need. However, I think we can catch the philosophy you're suggesting because it's certainly the philosophy of the Committee. And we could capture that in the report. President Keehn.",54
-fomc-corpus,1988,"Mr. Chairman, I agree with the direction you're suggesting, but I might get there a slightly different way. I wonder if there hasn't been enough movement in the rates that a change in the discount rate would be appropriate. I think I understand the tremendous sensitivity about that, but I wonder if it couldn't be explained as rather a technical move, perhaps a following move, at this point. And if the Board members were to do that, then the borrowing level would be adjusted accordingly. If you were not comfortable with that, then I would agree with the increase in the borrowing level to $600 million with asymmetric language.",123
-fomc-corpus,1988,"Let me just take a minute on that. One thing we do have to avoid is an international ratcheting game between the United States, the Germans, and the Japanese. We are in continuing consultation with them and we are all trying to avoid that sequence. I'm not certain they would agree at this stage that, with a move on the discount rate, we would not trigger a set of circumstances [that would lead to a ratcheting of rates]. First, if we change the discount rate, which the markets are not expecting, we'd probably have the dollar go up 3 yen and 3 pfennigs pretty quickly. And I think that would almost automatically require that the Bundesbank match it because they are under severe political pressure with the exchange rate weakening for them. So, one of the things that we have to be careful about--and I might add one of the reasons why I think we have to calibrate in the way that we are--is that we have to be very careful not to trigger an international competitive spiral. I think that is not an inconceivable risk here.",220
-fomc-corpus,1988,"Mr. Chairman, this gets us into an awkward position with regard to our boards of directors. When we first sent in our recommended increase in the discount rate, we had in mind a half point increase in the federal funds rate, which we virtually have achieved. That would suggest that we really ought to withdraw our recommendation, which is hard to explain to them because we can't really tell them what the System has done at the Open Market level.",88
-fomc-corpus,1988,That is a--,4
-fomc-corpus,1988,"It gets into a ticklish position. We did withdraw our first one for that very reason. We had gotten up to where we wanted to go, so we withdrew it and then decided it needed to go more.",43
-fomc-corpus,1988,"But what may solve the problem--we can handle it, I think, if I announce in my testimony what we have done at that point.",29
-fomc-corpus,1988,"Sure, that would be very helpful. I've been debating what I would say to them because I can't really tell them what I know.",27
-fomc-corpus,1988,Except you can say that money market rates have moved to the level--,14
-fomc-corpus,1988,"As I say, the market assumes that the System has tightened.",13
-fomc-corpus,1988,"Why not have a following discount rate move? If we believe the discount rate should be roughly in line with other rates, then we could probably get by with having it move up. My concern is that if we move ahead on the funds rate and we leave the discount rate behind, it's going to get more difficult to raise that rate the further forward we go. And I have some concerns that we're just dropping that rate as any kind of a useful tool at all.",93
-fomc-corpus,1988,At some point we're going to have to do something.,11
-fomc-corpus,1988,"Yes. I was going to say--at some point I think if we decide that we have to lock in the structure, obviously that's what you want to do. I think there's still enough uncertainty out there, at least on my part, that I wouldn't want to lock that floor in. But there will be a point, obviously, when that needs to be done.",74
-fomc-corpus,1988,"And therein lies another problem for the directors because, under our new procedures, if we haven't gotten a recommendation in, they are not going to be in that first wave. And that's going to be very disappointing to them.",44
-fomc-corpus,1988,"Should that event come, we will try to be--",11
-fomc-corpus,1988,I think it will be very helpful to give them a chance to join.,15
-fomc-corpus,1988,"It might be useful if they understood that, to some extent, movements in the funds rate were embodying what their preferences were.",26
-fomc-corpus,1988,"Well, that's what we really told them.",9
-fomc-corpus,1988,"I think if they can understand that, then they shouldn't be disappointed on the discount rate--as long as we're getting it done one way or the other.",31
-fomc-corpus,1988,"I don't think they are all unduly disappointed, but it's awfully hard to tell them the full rationale for your recommendation when you really can't tell them what the Open Market Committee has decided.",38
-fomc-corpus,1988,Maybe we ought to consider announcing promptly what we do; then you could tell them.,17
-fomc-corpus,1988,"That would solve that particular problem, Martha.",9
-fomc-corpus,1988,And create others. President Stern.,7
-fomc-corpus,1988,"I like your suggestion, Mr. Chairman. To me, the key thing at this point is the asymmetrical directive. I don't feel personally that it's necessary to do much immediately, but as I noted earlier--and many of us discussed this--I think the risks are on the side of more inflation looking down the road. And I would like to be positioned to address that if and when it's appropriate. I certainly can support raising the borrowing target to $600 million associated with alternative B. I don't view that as having much of an effect one way or the other at this point.",117
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,I'm pretty much where Gary Stern is. I would prefer not to make a further move at this point and to have asymmetric language. But I'm comfortable with your suggestion and would be happy to support it.,40
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I'm in favor of maintaining the present degree of reserve pressure with asymmetric language, and reconvening via telephone in the next two or three weeks. In fact, it seems to me we could even wait until that time to put the extra $50 million in the target because, as I understand it, the fed funds rate is running right around 8 percent at the moment.",75
-fomc-corpus,1988,This is on the statement date today; it was 8 percent earlier today.,16
-fomc-corpus,1988,"I'm sorry, what was that?",7
-fomc-corpus,1988,Statement date.,3
-fomc-corpus,1988,"Today is the quarter-end statement date. Funds were trading earlier in an 8 percent area, even a little higher. We did some early repurchase agreements and the funds rate came down below the 8 percent level the last I heard. It is still pretty high.",54
-fomc-corpus,1988,"It has been up close to 8 percent even before today, though, hasn't it?",18
-fomc-corpus,1988,"Well, yesterday.",4
-fomc-corpus,1988,Thanks.,2
-fomc-corpus,1988,"Well, that's the end of that.",8
-fomc-corpus,1988,I assume that with $600 million we will drift back to 7-1/2 percent.,20
-fomc-corpus,1988,"When we get past the quarter-end pressures, I would expect that, certainly.",16
-fomc-corpus,1988,I guess I don't have that much faith in the accuracy of our models.,15
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"Since I'd be between ""B"" and ""C"" anyway, I'm quite comfortable with the formulation that you put on the table, Mr. Chairman.",30
-fomc-corpus,1988,Maybe I should--is there anybody else?,9
-fomc-corpus,1988,"Yes, go ahead.",5
-fomc-corpus,1988,"I'm sort of like Gary Stern, Mike Kelley, Bob Heller and others who have said they would like no change at this point but that the risks are asymmetric. My view is that that's where the greatest probability is. My preference would be generally no change, but subject to review at some point with the probability that we might move. However, the Chairman has indicated a willingness to go $50 million additional on the borrowing, and I think if there really is a risk of the funds rate settling back below the 7-1/2 percent, I can live with going with $600 million now to avoid that. I think the funds rate is important. I've never viewed this as targeting fed funds unless you leave it stable all the time. My view is that you want to move it, but you want to give a message with that funds rate, and I guess you should be willing to move it as you need to. So, I think the 7-1/2 has a significant message, and basically I think the markets have discounted it, as Tom Melzer says. And I wouldn't want to see them get a different impression from that. So, if in fact going to $600 million means a 7-1/2 percent funds rate, roughly, I can support that. I can also support the asymmetric language, but I would want to make sure that that doesn't mean it's automatic. I think that the conference call should be purely for review, and there's no automatic move on borrowing at that stage. We may actually feel totally differently when we review the evidence. As long as that's well understood, I think I can support this directive.",333
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mr. Chairman, I, too, would agree that your proposal is reasonable and quite acceptable, with one proviso, however--that $600 million does indeed mean 7-1/2 percent and not greatly over that level. My point is that it seems to me the next step in the tightening process quite likely is the discount rate. And in my own view, it would be an inappropriate action to tighten further now. As a result, your proposal of going to $600 million, if that really means a funds rate of about 7-1/2 percent and not greatly higher than that, is very acceptable to me.",128
-fomc-corpus,1988,I think President Hoskins is next.,8
-fomc-corpus,1988,"Yes, I'm ready. I guess since a $200 [million increase in the borrowing target] made the markets happy, maybe we ought to consider that again! But I don't think there's much support for that. To try to reduce inflation at all in 1989, I think we would have to move at least 50 basis points before the end of the third quarter. That would imply a ""C"" path to me. A trade-off obviously for the ""C"" path, given what Peter Sternlight said yesterday with respect to a discount rate move causing the funds rate to rise, would be living with a ""B"" path with a discount rate increase. I have some reservations similar to President Forrestal in respect to reacting, or appearing to react, to incoming information on an every two-week basis. I think the market has been doing that and I think we should try to set a tone of a little more stability than that. I also am concerned that this tit-for-tat kind of following market rates up may not get us out in front of inflation. It's like trying to nibble it to death, it seems to me. And it's not clear to me from our moves to date that we've tightened significantly. If you look at the monetary aggregates, which is the point Bob Black made, you could make a case that we haven't changed much at all. If you look at bank credit, we had two months of pretty strong growth relative to the last 6 months. So, the concern would be that if the markets are moving rates, while we're allowing them to go up, in fact, we're providing more reserves than--",328
-fomc-corpus,1988,"You've got a point on the reserve thing, but on the rates, the funds rate has basically led all the other short rates. It's higher than the T-bill, commercial paper rates, and everything else. Your point on reserves is well taken, but we've certainly been ahead on the short rate issue. Some of that could be the supply problem but--",71
-fomc-corpus,1988,"Yes. It's just very difficult for me to untangle. I think you understand what I'm concerned about--that it's not obvious to me that we're ahead of the game all the time. So I guess my preference would be for ""C"". But I think if we were to move with the $50 million now and seriously consider $100 million if the data that you're concerned about come out to support that kind of move, then I could live with your suggestion.",92
-fomc-corpus,1988,Another $100 million then or--,7
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"Borrowing of $550, $600 million--how important is that? Borrowing of $600 million with a 7-1/2 percent fed funds rate is a return to what we decided not to do. I just don't understand how we could do that. We voted to follow a borrowing target, and the present level of our borrowing target is $550 million. And if we tighten, we tighten. Now of all the times to choose to tell the markets we're tightening, this is the lousiest time I have ever heard of. I mean, the markets have received so well what we've done. It has been an immaculate arrangement of achieving objectives. And I don't see how we're going to go in here and do this. I'm reluctant to have to vote ""no"". But in the past I've gone along, and every time I've been sorry. We did this last September. We had a deal; we said what we'll do is increase the borrowing. But we didn't do it. And then the markets discovered it 3 weeks later and the timing was just as bad as it could be. I just don't understand why we can't maintain present borrowing pressures; then we will know what we're doing. There will be no misunderstanding. Why not have a conference call in the meantime if something happens? I don't know what the dollar is going to do, but if the dollar rises and continues to rise--sometimes if you're in the financial marketplace and you want to go bet against what the market's doing you can go ahead and do it if you like. This dollar might have more [room] to run up than it has to go down. If it does, it would seem to me that it could very well get that much more top heavy, that much more over where the trade requirement is. And I want to have some ammunition to do it when it's time to do it.",377
-fomc-corpus,1988,You're trying to say that going from $550 million to $600 million is going to do all that?,21
-fomc-corpus,1988,I'm saying that going to $600 million is either going to cause us to abandon borrowing targeting and make it be 7-1/2 percent or--,31
-fomc-corpus,1988,"No, no; leave the 7-1/2 out. I'm trying to follow you as to why going from $550 million to $600 million is going to create all the problems you're suggesting.",41
-fomc-corpus,1988,"Well, if it's not a problem, then there's no problem leaving it at its current level. If $50 million isn't important, there's no problem leaving it at $550 million; and then when we have our conference call, let's go to $700 million if we need to.",56
-fomc-corpus,1988,"No, it's a legitimate question as to whether you want to be at $550 or $600 million. But the presumption that you're creating is that going from $550 to $600 million is going to create some crucial unwinding, which strikes me as rather unlikely.",54
-fomc-corpus,1988,"Oh, I believe it is. I believe the long bond market is poised; I think it has accepted what we've done so far in a marvelous way--",31
-fomc-corpus,1988,But there's no--,4
-fomc-corpus,1988,But I think to tighten at this moment in time with nothing out there--,15
-fomc-corpus,1988,"That's not true that nothing is out there. What is out there are potentials of inventory accumulation; in fact, the May figures that just came in today do show a bit more inventory accumulation than I thought we were getting. The crucial question I think we ought to ask is: What happens if we're wrong? Supposing that we go to $600 million and that's the wrong judgment, in retrospect. What's the down side? And the down side strikes me as really quite minimal at this point, because I don't think anybody is perceiving the issue of a significant weakening occurring in the economy at these rates. We haven't even started really serious inventory accumulation. If we had an overhang of inventories I could readily imagine this whole thing tilting over. One extraordinary aspect of the success that we have had to date--namely the tilting of the yield curve--is the fact that we are getting a lower long-term bond rate and hence, more effective demand coming from those areas of investment; it's the investment parts of the economy which reflect long-term interest rates. And we've got short-term rates where they probably are beginning to bite on the inventory picture. That strikes me as about right.",236
-fomc-corpus,1988,"But I see the inventory thing just the opposite. It seems to me that tightening is going to accumulate more inventories, not less inventories.",27
-fomc-corpus,1988,Well--,2
-fomc-corpus,1988,Involuntary--,4
-fomc-corpus,1988,Because you're going to slow down final demand.,9
-fomc-corpus,1988,"Yes, but if the tightness has moved long-term rates down, there's far more final demand that sits in the long-term bond market than sits in the short end.",34
-fomc-corpus,1988,But it has occurred because our tightening has made sense to the markets.,14
-fomc-corpus,1988,"Yes, and there's every reason.",7
-fomc-corpus,1988,I think it has effected a slowing in the economy.,11
-fomc-corpus,1988,And this week is not the time to tell the markets we're tightening.,14
-fomc-corpus,1988,"But wait a second. The markets believe implicitly in the fact that we are in the process of tightening in a gradual way. If we put $50 million into the borrowing, it's just not credible to me that that can have any significant effect other than to reinforce the market's view that we're gradually tightening. We've been gradual and very responsible in this.",70
-fomc-corpus,1988,"I think I know exactly what you mean, Wayne. I think what Wayne is saying is this: If the record of that $50 million change is announced to the market as a further tightening move, even though the funds rate may not move at all from where it is, that would be [a concern to him]. Is that what you're saying, Wayne? Obviously, if it doesn't move the funds rate, in my opinion, it's not a further tightening. But I think you're saying you don't want to be seen on record as having raised the borrowing target at this point.",115
-fomc-corpus,1988,"That's right. In other words, if we really went to $600 million and the existing fed funds rate reflects $600 million, I have no problem. But my understanding is that Peter and Don have been following a $550 million target. And if you change a $550 million target to $600 million, the best Fed watchers know that we've snugged. Does anybody disagree with that? The best Fed watchers know we've snugged.",87
-fomc-corpus,1988,Sure.,2
-fomc-corpus,1988,"Not on $50 million, they wouldn't.",9
-fomc-corpus,1988,They do.,3
-fomc-corpus,1988,I think the last time they did.,8
-fomc-corpus,1988,They already know we did. The best watchers know we snugged. And then [do we want] to do it again and to have them say we did it again with this timing and possibly the dollar where it is? I'm ready to go to $700 million when we need to or I'm ready to go to a discount rate change if we need to.,72
-fomc-corpus,1988,"Well, the problem is that you don't want to go to $700 million. I could turn the arguments around and be on the other side of this thing if you start to talk about $700 million, because what we do now is basically in advance of events. I think we have been ahead of the power curve. We have been surprisingly, successfully, ahead of what is an emerging inflationary process. In fact, I think it is very difficult to find a period such as this in which Fed policy has done as much as it has. The one thing I just absolutely find unacceptable is that we throw away any of the gains that we have made. And the notion that we are moving into a period where the the economy is still quite strong, and we decide to wait and see, strikes me as risking at this point the loss of what we've accomplished since we started to tighten.",177
-fomc-corpus,1988,"You mean to say that staying at $550 million, which would maintain the existing arrangement, and having a telephone conference call in 2 weeks, or 1 week if we need to, is different from going wherever you want to go at that time--whether it's $600 or $650 or $700 million?",63
-fomc-corpus,1988,"Yes, because what it basically does is it reaffirms the asymmetry of our approach toward this particular market, which the financial markets have very clearly indicated is exceptionally appropriate policy. And it is terribly important for the adjustment process to keep that in place.",51
-fomc-corpus,1988,"I think we need some clarification, though, on what $550 million and $600 million mean.",20
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,"Before we get too deep into this. To the Desk and to Don, what does $550 million mean? Is $550 million going to cause the funds rate to settle back down below 7-1/2 percent?",45
-fomc-corpus,1988,"I think it's terribly hard to say, Governor Johnson. When the Committee had its conference call on June 22, we were looking at funds rates that had come up to 7-3/8 to 7-1/2 percent; and we thought then that putting in place a $550 million would tend to validate and accept that. Over the final week of the month, we've gotten higher funds rates with these quarter-end pressures. In the period that ended yesterday, we ended up with borrowing at $520 million: we never did get even the modest bulge that we thought we'd get on the final day. And I guess the funds rate averaged about 7.57 or 7.58 percent for the 2 weeks--I don't know, I don't have the statement.",158
-fomc-corpus,1988,7.58 percent.,5
-fomc-corpus,1988,"My guess would be that as these quarter-end pressures fade, the funds rate will get back toward something like what we looked at in mid-June--if we stayed at $550 million that we'd get back to 7-1/2 percent or a shade under. So I feel comfortable saying that with $600 million it'd likely be around 7-1/2 percent, but I couldn't argue strongly that it would not be 7-1/2 percent or a shade over also.",99
-fomc-corpus,1988,"But, Peter, the question that I have here is: If we stay at $550 million, will any reputable Fed watchers say we've loosened?",30
-fomc-corpus,1988,Just keep the question.,5
-fomc-corpus,1988,"No, if we stay at $550 million, will any--",13
-fomc-corpus,1988,"Well, let me rephrase the question.",9
-fomc-corpus,1988,"No, I want the answer to my question.",10
-fomc-corpus,1988,"I'll answer it; I will say ""no.""",10
-fomc-corpus,1988,"Okay, I agree with your answer.",8
-fomc-corpus,1988,"Okay, I'm delighted. Let me ask you this: What do you think is the probability of having to go to $600 million or more?",29
-fomc-corpus,1988,50/50.,4
-fomc-corpus,1988,What do you think the probability of having to go below $550 million directly from here is?,19
-fomc-corpus,1988,15 percent.,3
-fomc-corpus,1988,"It strikes me, therefore, that if you take that literally, the chances are higher that we'll go up from here rather than down.",27
-fomc-corpus,1988,That's why I want to have a tilt policy.,10
-fomc-corpus,1988,"Yes, but the point is that if that is in fact the case, the risks are very clear; and one has much more clout per unit of action by moving in advance. I must admit I'm really trying to listen to your argument and I'm having difficulty with it, because there has been a general thrust of policy here which has been extraordinarily successful. And I think what the additional $50 million is doing is essentially ratifying that. When they ask me, do I think the world is going to come to an end at $550 million, well, obviously not. Looking at what the markets know or what they don't know, I'm not even certain who will catch the $50 million or not catch it. If they do catch the $50 million, will they consider the fact that we have tightened to be something negative? That, I strongly suggest, is probably untrue. The markets in this context cannot perceive of a further slight tightening of the targets as being negative. I really can't [see it].",203
-fomc-corpus,1988,Well--,2
-fomc-corpus,1988,Remember this economy--,4
-fomc-corpus,1988,That's the reason we have a 12-member group--because some people might see it differently.,19
-fomc-corpus,1988,"Well, I think we've conveyed our points. I will take it out on a tennis court and see if--",22
-fomc-corpus,1988,"Well, I feel sorry for that ball!",9
-fomc-corpus,1988,"I would like to make just one comment. We are always discussing this in terms of the risks of having to move it up another notch. But we don't discuss the notion of suppose we went up to $700 million, would we be willing to risk bringing the rates back down? In that context, we're some times following. I think if we thought about it another way and said yes, we can move it down as well as up--the idea being that maybe you do get out in front, and if you have made a mistake, then you'd be willing to--",114
-fomc-corpus,1988,"Well,--",2
-fomc-corpus,1988,"Let me answer that, since I'm on the other side of this issue. If we were to go to $700 million right now, I think we would be putting too much upward pressure on the exchange rate and I think that would create international problems which have the same order of magnitude as the discount rate. So, while I will argue the other side of this, I think I would also argue against that for the reasons I suggested. We still haven't heard from Presidents Boykin or Morris. If they have any inclination--",104
-fomc-corpus,1988,I would go with your prescription.,7
-fomc-corpus,1988,"I will too, Mr. Chairman. I would add on the discount rate that it seems to me that we ought to reserve action on the discount rate to have something in the closet that we can bring out to cope with a sharply declining dollar. I'd remind you that the last rally phase for the dollar lasted six weeks. Maybe this will be more prolonged; I rather doubt it.",76
-fomc-corpus,1988,"It has been depreciating since the beginning of the year, practically. This recent surge is shorter, but the net depreciation from the beginning of the year is what Ted?",34
-fomc-corpus,1988,"Oh, it's 11 or 12 percent. MR. JOHNSON 11 or 12 percent.",21
-fomc-corpus,1988,"Well, it depends on against what [the depreciation is measured]. [Secretary's note: Several people spoke at once and their comments were unintelligible.]",31
-fomc-corpus,1988,"Well, Frank, what are you going to do when the dollar is falling and the price of gold is soaring? And those things are there; then what do we do? Increase the discount rate?",40
-fomc-corpus,1988,"Yes. I think it's a very useful instrument for that kind of a situation because it's an instrument that's very visible to people abroad. And I think we could act without really fundamentally changing our monetary policy and still get some bang to the buck. Whereas if we go on aligning the discount rate to the funds rate and we do run into such a period, we don't have anything to use in that kind of a situation except intervention. I think we could support intervention with a rise in the discount rate; that would be very useful in that context if it happens.",111
-fomc-corpus,1988,Any other comments or is everyone getting hungry?,9
-fomc-corpus,1988,"Yes, I have one more comment. I think it was Mr. Forrestal who suggested a slight re-ordering in the operational paragraph. Wouldn't it be appropriate on the bottom of page 19 in the last sentence, ""taking account of"" to move that ""conditions in financial markets"" [further down in the list] to be together with the reference to the foreign exchange markets? So that would read on the next page ""developments in foreign exchange and domestic financial markets"". That's not our top concern clearly and I'm open to whether you want inflation first or the business expansion first. I'd be happy to go along with Mr. Forrestal to put inflation first, business expansion second, and then the financial and markets together.",147
-fomc-corpus,1988,I'd like to associate myself with that.,8
-fomc-corpus,1988,Any other comments relative to that comment?,8
-fomc-corpus,1988,I think it's a good idea.,7
-fomc-corpus,1988,"Yes, inflation ought to be first.",8
-fomc-corpus,1988,"Well, let's vote. Let's put that in and let's stipulate for a vote that $50 million increase in borrowing and going asymmetric. I guess the word slightly is relevant. Would you read that as revised?",42
-fomc-corpus,1988,"It would read, ""In the implementation of policy for the immediate future, the Committee seeks to increase slightly the existing degree of pressure on reserve positions. Taking account of"" --inflation first?",39
-fomc-corpus,1988,Do we do inflation first?,6
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,Let's do inflation.,4
-fomc-corpus,1988,"""Taking account of indications of inflationary pressures, the strength of the business expansion, developments in foreign exchange and domestic financial markets, and the behavior of the monetary aggregates, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from June through September at annual rates of about""--someone suggested 5 but ""B"" is 5-1/2--""about 5-1/2 percent and 7 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 5 to 9 percent.""",164
-fomc-corpus,1988,"I have a comment before we vote, if I may, for clarification.",15
-fomc-corpus,1988,Pardon?,3
-fomc-corpus,1988,"Before we vote--. As Norm just read it, the third line there would read that we were increasing pressure, which would be associated with alternative ""C"". The $50 million estimate falls far short, in my view, of alternative ""C"". And I would not use that word.",58
-fomc-corpus,1988,It should be maintaining.,5
-fomc-corpus,1988,I would use maintain as being better associated with a $50 million increase.,15
-fomc-corpus,1988,What's everyone's view?,4
-fomc-corpus,1988,Good point. I agree with that.,8
-fomc-corpus,1988,I don't agree with that.,6
-fomc-corpus,1988,We have in previous meetings.,6
-fomc-corpus,1988,We're only trying to clarify--,6
-fomc-corpus,1988,"We've always done it. We've always done it slightly on this, on that, on a $50 million change.",23
-fomc-corpus,1988,"I would start having problems with using the language connected with alternative ""C"" and also using asymmetric language.",21
-fomc-corpus,1988,"I was going to say something along the same lines. We are changing the borrowing number, that is true. And that normally has been associated, as Governor Angell says, with slightly.",38
-fomc-corpus,1988,Slightly.,4
-fomc-corpus,1988,"However, some people have a different view about how you measure reserve pressures. And if we're saying it's not going to change the funds rate--we're only changing borrowing pressure and the funds rate basically stays stable around 7-1/2 percent--total reserve pressures are not really changed in the market. All we have done is change the borrowing target; total reserves would be the same.",78
-fomc-corpus,1988,I wonder if a better way to do it would be to think of a borrowing target of $550 to $600 million and whether it's $600 million or $550 million depends on where the funds rate is. And then use the language to maintain about the existing degree of pressure.,56
-fomc-corpus,1988,"Well, now, I could go with that.",10
-fomc-corpus,1988,That's also good.,4
-fomc-corpus,1988,"Yes, we can do that or we can basically consolidate the previous $50 million into this language in some way. In other words--",27
-fomc-corpus,1988,But that's really taken [into account]; even maintain means consolidating.,14
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,May I ask for a little clarification? I read President Boehne's language as really going to a funds rate target--,25
-fomc-corpus,1988,"Yes, it sounds that way.",7
-fomc-corpus,1988,That's where you are anyway; let's don't--,9
-fomc-corpus,1988,"Well,--",2
-fomc-corpus,1988,You want the funds rate at 7-1/2 percent--that's what people are saying.,20
-fomc-corpus,1988,I don't interpret it that way.,7
-fomc-corpus,1988,The borrowing level itself is not published.,8
-fomc-corpus,1988,"That's correct, it is not.",7
-fomc-corpus,1988,"It has to be interpreted by market participants. I thought that your proposal incorporated the underlying assumption that going to $600 million gives you a 7-1/2 percent funds rate, roughly. That seems acceptable to me and that translates in my mind to maintain the current--",55
-fomc-corpus,1988,"Why don't we say ""about maintaining"" then. The about seems to capture most everybody's view of it.",22
-fomc-corpus,1988,"Say ""about""? About what? How's that read?",12
-fomc-corpus,1988,"I've got to ask a question then. If we do that and we go to $600 million, is there a side constraint on that?",28
-fomc-corpus,1988,"Sorry, is there a what?",7
-fomc-corpus,1988,"Is there a side constraint on that? In other words, if the fed funds rate does turn out to be 7-5/8 percent, is that a problem?",35
-fomc-corpus,1988,Or 8-1/4.,8
-fomc-corpus,1988,"No, we have decided on going to a borrowing target.",12
-fomc-corpus,1988,We're on a borrowing target?,6
-fomc-corpus,1988,"We're on a borrowing target, yes.",8
-fomc-corpus,1988,"But you're not going to like my explanation of my vote if you do it that way, because I'm going to say that the maintain wasn't what we did. Otherwise, I can't explain my vote.",39
-fomc-corpus,1988,"He would have no way to communicate that, when he dissents on this. How's anyone going to know why he dissented unless he spells it out?",32
-fomc-corpus,1988,Unless I tell something you don't want me to tell.,11
-fomc-corpus,1988,"Yes. Well, you'd have to spell it out.",11
-fomc-corpus,1988,"I think it is the case, Mr. Chairman--let's see if Peter agrees with me--that whatever we think funds are today or yesterday or the day before, that our view would be that if you stated $550 million, funds would be just a tick lower, practically imperceptibly, but perhaps a little more perceptibly than if you were at $600 million. I think it is a slight firming relative to what would persist if we kept the $550 million and it's--",99
-fomc-corpus,1988,"Well, let's go to $565 million then.",10
-fomc-corpus,1988,Are there things to say that there has been some--?,12
-fomc-corpus,1988,"Look, I think we're getting--",7
-fomc-corpus,1988,It's splitting [hairs].,6
-fomc-corpus,1988,"We are getting a little silly, gentlemen.",9
-fomc-corpus,1988,"If you abstract from this, special pressures are factors that would push the federal funds rate up. We have, by going $50 million higher, done a slight tightening. How's that? And I think it ought to reflect that.",47
-fomc-corpus,1988,Now you're talking about doing a little more.,9
-fomc-corpus,1988,I think it's got to have--,7
-fomc-corpus,1988,What did this two-week period that just ended come in at?,13
-fomc-corpus,1988,7.58 percent.,5
-fomc-corpus,1988,7.58 percent?,5
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,That's the average?,4
-fomc-corpus,1988,No--I mean in terms of borrowing? MR. KOHN(?). $520 million.,20
-fomc-corpus,1988,$520 million.,4
-fomc-corpus,1988,"This argument really wouldn't develop if we had asymmetric language and decided to discretely move, but later. We are arguing about angels on the head of a pin here.",33
-fomc-corpus,1988,We really are.,4
-fomc-corpus,1988,Angels? Or devils?,7
-fomc-corpus,1988,What if you make it a very slight increase?,10
-fomc-corpus,1988,Is there a word less than slight?,8
-fomc-corpus,1988,Very slight.,3
-fomc-corpus,1988,"No, that's fine-tuning to the point we're really--. Slight means very slight; slight means slight.",22
-fomc-corpus,1988,Slight is the proper word to go to $600 million.,13
-fomc-corpus,1988,Slight's great.,5
-fomc-corpus,1988,"It is; really, it is. Let me put it this way: there may be some of you who have troubles. You shouldn't really, because it really is slight. I must say to you, I sympathize with the problem you're raising, but I really don't know how you get it less than slight.",63
-fomc-corpus,1988,Maintain.,2
-fomc-corpus,1988,And then it does--,5
-fomc-corpus,1988,Some of us have been suspected of slighter than--,11
-fomc-corpus,1988,The directive has been read. May I request that we vote?,13
-fomc-corpus,1988,Is it at $600 million with slight?,9
-fomc-corpus,1988,Increase slightly.,3
-fomc-corpus,1988,Yes. Does anyone wish it to be re-read for clarification?,13
-fomc-corpus,1988,"Are you ending up with ""increase"" or are you ending up with ""maintain""?",18
-fomc-corpus,1988,Increase slightly.,3
-fomc-corpus,1988,Right. Go ahead with the vote.,8
-fomc-corpus,1988,"Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell No President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins Yes, reluctantly Governor Johnson Yes Governor Kelley No President Parry Yes Governor Seger No",45
-fomc-corpus,1988,"The only thing remaining on our schedule is the confirmation for the date of the next meeting, Tuesday, August 16th.",25
-fomc-corpus,1988,"Thank you. Are there any questions for Mr. Cross? If there are no questions, I would entertain a motion to ratify the actions taken since the last FOMC meeting.",37
-fomc-corpus,1988,So move it.,4
-fomc-corpus,1988,Second?,2
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection. Joan Lovett, would you report on the--",13
-fomc-corpus,1988,"Could I, Mr. Chairman, just make a comment rather than raise a question? Sam Cross mentioned in the course of his remarks that he thought that intervention on the part of the major central banks in this intermeeting period had helped curtail, if you will, the rise of the dollar. I think that's a fair statement. I want to actually make a more general, albeit a brief statement, about intervention because I think it has gotten a bit of a bad name. It's not that I have any illusions about the ability of intervention to be decisive in terms of the position of a currency either short term or long term--but I do think there is a characteristic of the foreign exchange market, at least as I see it, that we have to keep in mind. And the characteristic is the equivalent of these very sophisticated and very aggressive forms of program trading in the foreign exchange markets whereby individual institutions and individual traders take very, very large positions. And they're willing to push those positions to the very limit. One of the things that those trading strategies do is reinforce, in my judgment, the tendency toward one-way markets--in a context in which the perception is that you can make a quick buck by pushing that as far as possible. And as long as those trading strategies are as dominant as I think they are, the dangers that can be associated with one-way markets become all the greater, and the tendencies for the exchange market to overshoot all the greater. My point in those circumstances is this: I think that intervention does play a useful role in reaffirming the fact that there are two-way markets. And I think that in and of itself is of value even if one can not argue persuasively that a particular exchange rate could or should emerge from the process. But I do think that the presence of the central banks does create something of a conviction toward two-way markets. If there's any doubt about that, all you have to do is talk to traders. They will say that they tend to be much more cautious when they feel that the central banks may be on the scene. So, I do think that these trading strategies--and the way at least I think they manifest themselves in the market--provide to me a fairly convincing case that there is merit or wisdom in the central banks showing their hand from time-to-time in the market even if one is agnostic about the effects in terms of a particular exchange rate at a particular point in time.",491
-fomc-corpus,1988,"When do you envisage--was it 1984, 1985, 1986--that this process would have changed? Because, obviously the evaluation of the Jurgensen Report, which endeavored to filter through all such relationships, was unable, at least to the best it could judge, to find any significant intervention impacts. Is this something that you're suggesting is--",75
-fomc-corpus,1988,"I think the character of the market has changed in the last several years. All you have to do, in one sense, is just look at the sheer volume of transactions. If you use CHIPS transactions as a proxy--an imperfect proxy, but one which still is a pretty good way to do it because our survey suggests that something like 90 percent of the CHIPS traffic is foreign exchange transactions--they're up. And if you look at what has happened in the development of the derivative markets in foreign exchange, perhaps especially the options [market], it's very clear that the sheer size of the market and the amount of turnover has grown enormously. Look at the profits that all the major banks and investment banks are generating quarterly from foreign exchange trading. I still can't fully understand that myself. But every single quarter, with an exception here or there, all of these major firms are generating very sizable profits from foreign exchange trading. If you look at some of the individual trading strategies, at least in some cases, they are a very elaborate form of program trading applied in a different area. I think all of those things taken together do constitute a change--admittedly over time--but a change in the character, the structure, the fabric of the market. And I wouldn't argue with any conviction that the totality of those things is decisive, in any sense of the word, in producing these tendencies to overshoot that we see in the markets. But I do think that they can be tempered a bit. Indeed, as I said, the foreign exchange traders say they behave differently when they sense the central banks are on the scene. Again, I'm not trying to make an argument that necessarily would dispute any of these earlier reports--finding point estimates and being able to say that this pattern of central bank intervention produced this result. I'm agnostic myself about that.",371
-fomc-corpus,1988,"But at some point, the type of hypothesis you're raising is testable.",15
-fomc-corpus,1988,It should be.,4
-fomc-corpus,1988,"Mr. Chairman, in the Jurgensen report, it's fair to say that group did not really examine closely, in a statistical sense, the effectiveness of intervention in the framework that President Corrigan is putting forward. In fact, it concluded that in the very short run there was some case for the effectiveness of intervention, and that I think is close to what President Corrigan has said is a testable proposition. That's about all you can say. Translating that in terms of the early 1980s, and the notion that some central banks then had--and even now have--a practice of being in the market in order to constantly provide a sense of two-way risk [unintelligible]. The Bank of Canada, for example, follows a strategy of that type. And from time-to-time the Bank of England has done it, although not recently. And that was recognized as one motivation for intervention that was different from a motivation designed to alter the medium-term course of exchange rates. And I think President Corrigan is now commenting on the merits--saying that in some situations, there might be a case for intervention, even recognizing that in terms of altering the medium-term course of exchange rates, a sterilized intervention is likely to be singularly ineffective.",255
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Mr. Truman said part of what I wanted to say, but I think there's an important distinction between the types of intervention. The kind that just dribbles $50 million in every day, which seems to me at least to have virtually zero effect, is the kind of intervention that shows up in the Jurgensen Report as having very little effect. On the other hand, if you're hitting a one-way market with a certain relatively large intervention, then you really get the market impact that you're talking about. But I think what you've got to ask is whether by doing that you're also creating uncertainty. I think you are. And by creating the uncertainty you're reducing the incentive to take positions, because they're built on the one-way certainty. Then you've got to ask yourself the broader question of whether a central bank is contributing to increasing or decreasing the uncertainty. Clearly, we like to think that we are moving the market towards the ultimate equilibrium, thereby somehow or other reducing fluctuations. But I think that is really tough to substantiate econometrically because you're dealing by necessity with small samples and periods that are very difficult to compare.",224
-fomc-corpus,1988,What is the average in terms of dollar transactions per day?,12
-fomc-corpus,1988,The average in terms of what?,7
-fomc-corpus,1988,Dollar transactions per day?,5
-fomc-corpus,1988,The United States or worldwide?,6
-fomc-corpus,1988,"Well, worldwide.",4
-fomc-corpus,1988,We don't really know.,5
-fomc-corpus,1988,You don't know?,4
-fomc-corpus,1988,We know what we do and they know what they do.,12
-fomc-corpus,1988,I think [theirs is] very large relative to what [we] do.,17
-fomc-corpus,1988,Very large.,3
-fomc-corpus,1988,"On the part of the United States--. Sorry to give you numbers, but worldwide it's probably equal to at least $300 or $400 billion a day.",32
-fomc-corpus,1988,"Yes, but, Sam, that is not the relevant number for intervention purposes. What is relevant, I think, is the size of the open position in the market.",34
-fomc-corpus,1988,"Well, that we don't really know.",8
-fomc-corpus,1988,"And clearly no one knows, but that's what you're trying to do.",14
-fomc-corpus,1988,"When we are intervening we are trying to bring about a certain influence. And certainly, the market is constantly and intensely out there watching to see what signs we--and by that I mean the central banks collectively--are giving. They are very much concerned about whether there is evidence that the central banks are going to [intervene]. The central banks can hurt them when they choose to come into the market. And they certainly pay great attention to that in all cases. And they can, on occasion, keep some of these movements from moving in one direction or another and kind of getting--",118
-fomc-corpus,1988,"Well, I'm not a purist on intervention. I think there are times when that certainly is constructive. But I would believe that to intervene all the time is a good way of demonstrating that you have very little power and, thereby, you are not affecting in any way this perception of a two-way risk. It seems to me that if central banks are willing to alter the basic scarcity of their currency they can do a great deal to influence its exchange value. And if intervention is trying to coincide with central banks' willingness to do that, it can indeed give a perception of a two-way risk. I find it particularly dissatisfying to have intervention to the level and the extent that we have done during this intermeeting period while at the same time we clearly wanted to decrease the scarcity of dollars in world markets. I see no point whatsoever in demonstrating that we were unsuccessful. They might find it out anyway without our so clearly making it evident.",189
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"I wasn't going to comment because I think my position on this is fairly well known. But Jerry has raised the issue in the context, I guess, of orderly markets. I'm not sure what a one-way market is other than the fact that people are bidding the price up or down on a particular instrument. And I don't see this instrument as much different than any others. We trust the markets to do pricing in general, so then I don't see why we have a particular problem with allowing markets to price currencies. If it's an orderly markets argument, then it seems to me that we should come in when markets are presumed to be disorderly; and that means not very frequently. If we are in all the time, then it defeats the purpose, it seems to me, of the orderly markets argument. I'm not in favor of the orderly markets argument either. I think there may be points in time when we would want to intervene in situations where there's a panic or crash. Other than that I just don't see what we gain by it, other than getting a wider spread between bid and ask. It seems that we are adding uncertainty to the market unnecessarily.",230
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I have sort of a technical question. I'm not a purist on intervention either, although I think there are times when the signal is useful and there are times that it's useful for reasons of international cooperation, even regardless of the substance--",47
-fomc-corpus,1988,I would agree with that.,6
-fomc-corpus,1988,"But the one thing I have been worried about recently is--this is a question I guess for Joan Lovett and Don Kohn and Sam Cross--when we are doing consistent interventions and it's working in the other direction from our open market operations, it does run the risk I think of confusing the federal funds market as to what our reserve needs may be. If we have a larger drain need--say it appeared when we are tightening--if the market is not aware of our intervention actions to sell dollars, they may not know specifically or may considerably underestimate the draining requirements of the Open Market Desk. And that can lead to some strange behavior in the funds market, it seems to me. How do we deal with that? It seems to me that we don't want that kind of uncertainty in the funds market. Maybe we want the two-way risk on the foreign exchange market, but we don't want this uncertainty in the open market operations.",186
-fomc-corpus,1988,"That hasn't been a factor during this most recent period, in part because so many people in the market are trying to put together estimates about how reserves are going to behave--very much the same way we are. Data on reserves are released with a lag, but it's a relatively brief lag, so people are able to speculate as to what factors are influencing reserve behavior. That brief lag may cause people to wonder momentarily in a transition period about the impact on the funds rate. But I think over just a relatively short length of time they've been able to perceive that. For example, in the recent period, people have been watching the Federal Reserve's balance sheet and have seen a rise in other assets and have concluded from that rise that while there are many components in it, the foreign exchange component has probably been a fairly large one; and therefore, our needs to add reserves going forward would be smaller than they had thought heretofore. So it seems as though it has worked out in this past period. Any sort of disturbance on the funds market has been fairly brief.",215
-fomc-corpus,1988,I agree with what Joan said--there can be no more than a 7-day lag before they get our balance sheet. I would just add that I think the only time that it was--,39
-fomc-corpus,1988,"Seven days, though, can be important.",9
-fomc-corpus,1988,"But most of the time those transactions are quite small, particularly taking account of what's done for our own account. It really is lost in the noise relative to the Treasury balance, float, and all those other things.",43
-fomc-corpus,1988,But truly that's just as big.,7
-fomc-corpus,1988,"There was one period here, in which we did the off-market transactions with that had a much larger effect and caused us, I think, to have a slightly different view of our own reserve needs than the market did. But that wasn't the usual kind of intervention.",53
-fomc-corpus,1988,I think it was only temporary.,7
-fomc-corpus,1988,And that only lasted three days in terms of--,10
-fomc-corpus,1988,"One other part of that--whenever there is central bank intervention, the financial markets have been quite sensitive to listen to that. Each morning one hears what the rumors are as to whether central banks are in or not in, so that when they take a look at what they think might be affecting reserves, that would be one thing they tuck in the back of their minds to some degree.",78
-fomc-corpus,1988,"Most of our intervention has been done in a way which was designed to be noticed, because that was part of the purpose. And I have been impressed with the extent to which the people who watch these things closely have a pretty good fix on the amounts being done, and they know the purposes.",59
-fomc-corpus,1988,"A good example, though, is this yen trans-action that we are doing, which is not constructed to be noticed I think.",26
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,And that's reported with a 7-day lag?,10
-fomc-corpus,1988,"It's not reported per se, but it's in 'Other Assets'.",13
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,"It gets in the balance sheets and we will announce it. I give a quarterly report in September, and in that we will indicate that we have purchased these currencies. We will not be specific about the source--the counterpart--but we will indicate publicly that we have picked up these currencies.",58
-fomc-corpus,1988,"Unless there are any further questions on this issue, I would like to move forward to domestic operations. Joan Lovett.",24
-fomc-corpus,1988,"Thank you, Mr. Chairman. [Statement--see Appendix.]",13
-fomc-corpus,1988,Any questions for Ms. Lovett?,8
-fomc-corpus,1988,Did you say bond markets were down 3/4?,12
-fomc-corpus,1988,"Initially this morning, when the trade numbers first came out, the long bond was down about a point. It seemed that for a brief juncture it would be holding, and I don't know whether it changed further since.",44
-fomc-corpus,1988,"I think right before we came in, it had come back a little bit from the low point. So it was probably down about 1/2 point or less.",34
-fomc-corpus,1988,What is the trade number?,6
-fomc-corpus,1988,$12.5 billion.,6
-fomc-corpus,1988,Was there any revision to the number for the previous month?,12
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,I will cover that in the next--,8
-fomc-corpus,1988,Lee.,2
-fomc-corpus,1988,"I have one question. Are you perceived in the markets as changing the way that you signal market participants as to where you want reserves or where you want the funds rate? Are you making a distinction between customer and System operations that is different? It seems to me, as I observe it in the newspapers anyway, that we are trying to signal more directly where we are with respect to funds.",78
-fomc-corpus,1988,"Well, I think, during part of the period there was an effort to let the market know that if expectations had carried the rate beyond what the Committee had voted, that seemed to be a way of letting them know that. The reason, of course, was that these expectations could become embedded; and we were trying to signal that they were really moving faster than the Committee had instructed. The longer those things persist, the more people begin to feel that--if these expectations really get imbedded in the structure of rates--when the Committee meets again, we may have taken the decisions from it. So we felt it necessary to give a signal when rates seemed to be ratcheting higher. That was particularly true when funds seemed to be getting sticky at the 7/8ths level.",158
-fomc-corpus,1988,That kind of gets to the heart of whether we are focusing on borrowings or the funds rate and all that.,23
-fomc-corpus,1988,"Right. Well, we got the borrowings.",10
-fomc-corpus,1988,"President Hoskins, I will be discussing that briefly in my briefing as well.",16
-fomc-corpus,1988,"Any further questions for Ms. Lovett? If not, may I have a motion to ratify the Desk's operations since the last meeting?",29
-fomc-corpus,1988,I'll move.,3
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection. We will now go to our economic staff reports, and we will have Messrs. Prell and Truman sequentially.",27
-fomc-corpus,1988,"Thank you, Mr. Chairman. Ted will be following me with some comments on this morning's trade data as well as some remarks on the implications of recent foreign exchange market developments. [Statement by Mr. Prell--see Appendix.] [Statement by Mr. Truman--see Appendix.]",57
-fomc-corpus,1988,Thank you. Questions for either gentleman?,8
-fomc-corpus,1988,"Ted, I have a question about your net export number. With this small decline in the value of the dollar that you're assuming, wouldn't a model forecast typically give less of an improvement in net exports than what you're showing? It seems to me that for this year it's something like $47 billion, and for the next year it's $32 billion. At least some of the models I've seen would suggest that with that kind of very small decline in the value of the dollar you would have a more significant slowing in the improvement in net exports than you have. Was that managed to some extent or--",118
-fomc-corpus,1988,"Well yes, I think to some extent it was because, as I mentioned, we were encouraged by what we had seen in the first half of this year. So, given that, along with other anecdotes and so forth and so on, we have carried a bit more of that through to the second half of the year. And, in effect, that attenuates some of the effect of the dollar alone on the forecast. So we scaled it back a little bit on the basis of an assessment of what the appreciation to date has achieved for us, or how much it's going to achieve for us.",121
-fomc-corpus,1988,So at least that's one area where perhaps it could turn out that there'd be a little less pressure in terms of growth?,25
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,"Okay, thank you sir.",6
-fomc-corpus,1988,It could also be a little more. I must say you try to put it down and--,19
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I was just going to ask Ted: Have you redone your projections of net exports since you got the Census merchandise trade figures?",30
-fomc-corpus,1988,"Essentially, they are very close, [even] with the revision. Although the June number is ""bad"", the May revision was quite large and in fact if anything, the two together were a little better than we expected in our forecast. They were a little worse than what was implicit in the GNP numbers. But it translates to something like maybe a 10th or two at an annual rate on the second-quarter real GNP. So that's not going to change anything. And both components pretty much matched up with what we suspected.",109
-fomc-corpus,1988,"This figure for net exports for, say, the fourth quarter of 1989 would not be very far off from $47.2 billion then?",30
-fomc-corpus,1988,"Yes. The number would be exact. I think that number, if I may put it that way, had less impact on us than normal. I wouldn't--",32
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Mr. Chairman, I want to compliment the staff for giving us these drought-adjusted GNP projections because I think these really give us a more realistic appraisal of the pressure on resources that we are likely to see during the rest of the year than the ordinary GNP numbers. The decline from the drought is hardly a usual source of decline in the GNP because it doesn't generate any resources that you can shift into other uses in the economy. So, if you look at drought-adjusted growth rates for this past quarter and the next two quarters, you get 3.6 percent for the second quarter--a number I got from my staff--3.8 percent in the third quarter, and 2.8 percent in the fourth. And I must say that this adds up to two full years now of running the economy substantially in excess of our long-term growth potential. We have a real barn burner of an economy on our hands. That's the only thing I can see.",196
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,I wanted to ask Mike a question. What percentage of the GNP growth rate is investment demand considered to be in terms of the components of the growth rate? Is that a big factor?,38
-fomc-corpus,1988,"If we look at the next couple of quarters, real BFI accounts for a third of the GNP growth in the third and the fourth quarters. Over the course of next year, it accounts for about 20 percent of the growth.",48
-fomc-corpus,1988,It's pretty significant.,4
-fomc-corpus,1988,It's clearly a key dynamic income-generated sector in this forecast.,12
-fomc-corpus,1988,"If you add in the inventories that go with that as one of the long production cycle, you're getting nine months of consolidated inventory in front of the expenditure outlook. I suspect the numbers would be a significant increment over that.",44
-fomc-corpus,1988,"As I noted, we now are looking for inventories, at least over the second half of this year, to be positively contributing to GNP growth. And we are looking for it to be significantly in the manufacturing area, related in part to this durable goods strength in business equipment in particular.",58
-fomc-corpus,1988,How big of a factor is PDE in that?,10
-fomc-corpus,1988,"It's the bulk of it--if not more than that if we are right in our forecast of negative nonresidential structures over the second half and essentially flat next year. So the whole story is producers durable equipment. And a large part of that story is our reading of the current trend in the computer and office equipment area, which has been growing very rapidly. While we had it tailing off noticeably over the forecast period, it remains a strong element in the forecast.",94
-fomc-corpus,1988,"The reason I'm asking is because I was struck by the presentation to the Board yesterday and talking with Charlie Schultz earlier who made a comment I thought was kind of interesting. He said that a lot of that PDE growth--correct me if I'm wrong--is the deflator. The decline in prices for producers durable equipment is generating a lot of the real output side of that. If you apply a fixed-weight deflator to PDE, I don't know that you get a totally different result, but what does it do?",102
-fomc-corpus,1988,I think that would overstate the contribution that makes. The PDE deflator is declining--,18
-fomc-corpus,1988,It's not the PDE deflator; it's the computer component.,12
-fomc-corpus,1988,Computers.,3
-fomc-corpus,1988,"Indeed, but looking at the total PDE number--",10
-fomc-corpus,1988,"I was noticing yesterday it was down about 3 percent, or 2-1/2 percent.",21
-fomc-corpus,1988,"The total PDE deflator is declining at something over 2 percent a year in this forecast. Given that we have PDE rising at 14 percent this year and 6 percent next year, it isn't the whole story by any means.",47
-fomc-corpus,1988,"It's not the whole show. Well, say you apply the fixed-weight deflator though, how much would that take out of the growth in PDE?",30
-fomc-corpus,1988,It's not so much I think the fixed-weight as the question of whether you want to really deflate those computer expenditures at that rate.,27
-fomc-corpus,1988,"Okay that, then.",5
-fomc-corpus,1988,I don't--,3
-fomc-corpus,1988,"I'm not suggesting we should, but I'm saying I think that's a relevant measure. But--",18
-fomc-corpus,1988,"But if you didn't take that into account, it would be very misleading.",15
-fomc-corpus,1988,But I think the issue is--,7
-fomc-corpus,1988,"I think the other thing to consider is that, in a sense, your potential and actual growth would be lowered by the same token. Your measured real growth would be slower and your potential real growth would be slower, but resource utilization quotations in the short run wouldn't be materially different. So, I think we are getting distortions of some of the numbers, in effect, by this base-to-base year against which we are measuring PDE prices--computer prices in particular. But I think the real crux of the matter is that no matter how you slice it, we are at levels of resource utilization much higher than they had been or than we had expected. That's what's really driving our inflation forecast.",139
-fomc-corpus,1988,"Okay. But you're suggesting, though, that the potential number changes with the way you look at the deflator?",23
-fomc-corpus,1988,"Well, if you were to assert that GNP growth has been overstated by the use of these 1982 price deflators, then presumably potential GNP growth is also being commensurately overstated. So it doesn't give you any more room to maneuver. I think it's important to have some handle on what's happening with the capital stock for one's assessment of productive potential. But that's a much longer-horizon issue. This is sort of like those other questions relating to the possible mismeasurement of output whether it's [unintelligible] or anything else that affects both actual and potential output [unintelligible]. And it doesn't do much for the gap.",135
-fomc-corpus,1988,"Isn't the analytical issue raised here that you may be overstating inflation a little bit--that there has actually been more real growth because of declining prices, which has not been taken account of in the fixed-weight index. It seems to me that may be a bigger analytical issue in this area.",59
-fomc-corpus,1988,"Well, this gets into very complicated, almost metaphysical, issues. I'm not sure that there really is a problem in the sense of overestimating.",31
-fomc-corpus,1988,"But you can't look at the fixed-weight on one side only. It seems to me that you've got to be consistent. And like you say, if you believe the deflator issue is important on the growth side, then you should be looking at the implicit deflator otherwise--",55
-fomc-corpus,1988,I'm not sure; it depends on the question.,10
-fomc-corpus,1988,"Well, I think this question--",7
-fomc-corpus,1988,"Well, it's almost an apples and oranges problem, though.",12
-fomc-corpus,1988,Now we are about to get into the discussion of what is the definition of a unit of economic output. And that's going to go on for six weeks!,31
-fomc-corpus,1988,"Yes. Okay, I will stop.",8
-fomc-corpus,1988,"I'd appreciate that. I think they're horrible. We had a running debate at the Board meetings on this subject--on the effect of the shifting base of the price index in the GNP--which probably at this stage fills up about six looseleaf books of about 1,000 pages.",58
-fomc-corpus,1988,"That's right. It doesn't change the overall story, but it does around the margin. That's okay.",20
-fomc-corpus,1988,Change the structure. President Melzer.,8
-fomc-corpus,1988,"Mike, I wondered on the personal consumption expenditures, does the greater amount of floating rate debt--home equity loans as well as ARMs--in this cycle have a significant impact there?",37
-fomc-corpus,1988,"We've thought about that. I must say the amount of quantitative work we have done to date on this is not as much as I think we want to do over time. It's hard to get a fix on the household portfolio. Our assessment is that probably the amount of what I might call rate-sensitive assets does not exceed the amount of rate-sensitive liabilities in quite the same proportion as it previously did. But, on balance, an increase in interest rates tends to augment household cash flow. We don't think the changes that have occurred really would make a big difference in the responses of the household sector in the short run. But it is a new ball game to some extent, and there are distributional questions that we don't have a real good fix on. So I think it's something worth giving further thought and investigation to. But our basic assessment is that it doesn't make a big difference.",175
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"I was intrigued by your comments about inflation and what might be necessary to get it moving in the downward direction. In fact, your forecast does have it moving down and I think you have the peak in the fourth quarter. I guess that prompts the question: What kind of tightening do you have in mind in terms of interest rates?",66
-fomc-corpus,1988,"Well, there're two things I should say. One, the quarterly pattern between now and the end of next year reflects in significant measure the quarterly pattern of food price increases, which are strong until next spring and then are tailing off toward the end of the year. The second thing is that it reflects the particular pattern of oil prices and energy prices that we have assumed in this forecast. And that is an element that contributes to inflation in the first part of next year, after having been essentially flat in the second half of this year. So the bulge there is somewhat misleading. More fundamentally, we think the trend is one of acceleration at least through much of next year, and then tending into 1990 with an ever so slight upward tilt to compensation and underlying price trends. We assume that interest rates will continue to move up over the next couple of quarters and we essentially have that 9-1/2 percent area funds rate being reached by early next spring.",195
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"I was wondering whether Ted Truman could say a few more words about the economic, and particularly the monetary policy, assumptions that he has underlying the dollar forecast in other countries, especially Japan and Germany?",39
-fomc-corpus,1988,"For the monetary policy side, we have interest rates abroad rising at about half the amount that they do here over the forecast period.",26
-fomc-corpus,1988,What they will do in the future or they--,10
-fomc-corpus,1988,"Yes, that's right. So, that may be between 1/2 and 3/4 of a percentage point on short-term rates abroad over the forecast period. On the fiscal policy side, we don't have anything built in of a particularly stimulative nature in any of those countries. As you know, there's a slight expectation that fiscal policy in Germany will be coming in tighter in this forecast horizon.",81
-fomc-corpus,1988,Thanks.,2
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"Mike, could you elaborate a little bit more on the interest rate outlook pattern? I know you mentioned fed funds are expected to reach 9-1/2 percentby next spring, and I think you said long-term Treasury bonds, 10-1/2 percent. It's hard to hear this morning at this end of the table, but I think you said 10-1/2 percent by next spring. Are you suggesting that this will be the peaking of rates for this cycle or that this is just sort of a run?",109
-fomc-corpus,1988,"Again, I express that we recognize the uncertainty about these things and wouldn't want to be excessively precise in our characterization of what is involved in this forecast. But basically, we have the rates getting up to that level by the second quarter of next year and staying there.",53
-fomc-corpus,1988,"How about mortgage rates? I noticed in your commentary you indicated that you think housing is probably number one on the hit list, as we tighten further. But when I went through and looked at some of the forecast numbers I didn't see really major downward revisions. So, maybe you can tell me what kind of mortgage--",63
-fomc-corpus,1988,We've made only a modest downward revision in housing starts as we get out into 1989 some ways. We've made some upward adjustment in the mortgage rate forecast. Mortgage rates have been running a bit tighter to the Treasuries than they had previously. We have mortgage rates getting up towards 12 percent in the second half and very possibly around 12 percent.,72
-fomc-corpus,1988,12 percent.,3
-fomc-corpus,1988,"Are there any further questions for either gentleman? If not, we are ready to do our round robin. Who would like to start off?",28
-fomc-corpus,1988,"Well, Mr. Chairman, I'll start with the Eleventh District and get the less-than-good news out of the way early. I would say that the perception of what's happening in the Texas economy, and the Eleventh District generally, is improving somewhat. I think we are beginning to see some evidence showing through in the statistics. We did have growth in our District in the last half of last year that had kind of plateaued or stalled out during the first half of this year. But now we do think that we are seeing some renewed or resumed growth in the District and this is reflected in the employment numbers and that is primarily centered in Texas. Those categories where we are not seeing much improvement, of course, remain in the construction side of it, finance, and insurance. We do have our real estate remaining weak. We've had fairly good rains in our District, although somewhat spotty, but the feeling is that the rains have ameliorated the drought effects. The information that we are getting from our bankers around the District is that they don't see a major threat to timely repayment of agricultural loans in the District. We are somewhat nervous, I guess, about oil prices. If we do get a decline there, that obviously will be a negative. However, there has been so much adjustment to lower oil prices that it would not have the same effect as earlier declines had. Given the fact that our economy seems to be so much more closely linked to the national economy, and given the fairly good forecast for the national economy, we feel that that will continue to be a pull for us and will be positive. Attitudinally, as far as the financial situation is concerned, I think there is a great deal of relief with the approach to the resolution of the First Republic situation, and that has received very good press, has been very well received. Now the remaining speculation is whether the last big one will have to have some kind of relief.",391
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Mr. Chairman, economic activity in our District continues to show I think very, very considerable strength. That's particularly true in the manufacturing sector, and more specifically in those activities that are either related to exports or capital goods where those operating levels continue to be very, very high. The steel industry, for example, is continuing to run at quite close to capacity. The third quarter is normally a period in which the steel industry shuts down a bit to deal with maintenance, but this year the maintenance is being deferred to deal with continuing demand. Chemicals and paper are continuing to run at high levels. Auto production schedules for the third quarter are considerably higher than in the third quarter of last year. So, I do think on the capital expenditures side, Mike has certainly covered it very well. I think we are going to see higher increases in capital expenditures than we may have forecast. And I'm sensing from a lot of companies that they really are thinking about adding significantly to their expenditure level. I have just a couple of comments on the agricultural situation, other than crop estimates, which you've seen. First, implements: Interestingly, as we got started on this drought thing, it did not show up in implement sales. Through June they were holding pretty well; but the July numbers are now in and, on a comparative basis, July sales of tractors and combines, for example, are considerably under last year. That's not surprising, but certainly this is a negative feature. Agricultural banks, a second element of agriculture comments: We surveyed the agricultural banks in our District again last week, and the story I think continues to be more positive than one had expected it to be. The weak producers were weeded out in the previous adjustment. Those credits now on the books are farmers who are strong enough that they can deal with this drought without a renewal of significant problems among the banks. To me, the most surprising shift that I've sensed over the last month or two is this employment thing. There has been, I think, quite a modification in attitudes out there. There is now, I think, quite persistently a shortage of [unintelligible]. The manufacturers I have talked to are running at very high levels, and their constraint really is the availability of labor to deal with it. And that's also the case I think in the service sector. I was talking to somebody the other day that has opened two major retail stores in Chicago. They put out applications, or requests for applications, and they were flooded with people. But they have high standards for their employment, and the applicants came in short on that. Therefore, they have opened one of their stores very significantly undermanned. As I talk to people, it seems that the shortage of labor really is beginning to be felt. There are a couple of key contracts for which negotiations have just started. And I think people have been following that very closely. My sense of all this is that the wage side and the inflation picture are going to continue to accelerate. We are going to continue to see increases in wage costs.",610
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Thank you, Mr. Chairman. The Twelfth District economy continues to grow at a healthy pace, with particular strength in the coastal states, excluding Alaska. This growth appears to be putting upward pressure on wages. For example, in southern California, Oregon and Washington, employers are having difficulty hiring qualified workers at prevailing wages. I also might say parenthetically that in California the minimum wage rose to $4.25 effective July 1st. Inventories are satisfactory to lean throughout the District at both the manufacturer and retail levels. In some industries, including paper and aluminum, low inventory levels result from strong demand combined with limited production capacity. When we checked with District retailers, they indicated that the previously excessive inventories in women's apparel, which were quite a problem a couple of months ago, have been brought under control. If I may turn briefly to the national economy: Even with the drought, real growth is likely to exceed the growth of potential output during the second half of this year. And next year we expect growth similar to that in the Greenbook, assuming further significant tightening of monetary policy between now and mid-1989. We do have a somewhat stronger dollar and a smaller improvement in net exports, but in our forecast this is offset by stronger consumption than that which is incorporated in the Greenbook. With the economy continuing to grow above or at potential over the forecast period, inflation in 1989--measured by the fixed-weight deflator--seems certain to accelerate by the roughly 1/2 percent that is in our forecast and the Greenbook's.",314
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Well, Mr. Chairman, I'm going to tell a little different story today than I usually do. In fact, since I've been sitting on this Committee I have not had an opportunity to report lower economic activity in the Sixth District at any time. But I'm going to make that kind of a report today because activity in the Sixth District, with the exception of Florida, is slower than in the nation. I think this is partly a reflection of strength elsewhere. Of course, Louisiana and Mississippi have been in the doldrums for some time, but now Georgia is beginning to experience slower growth than the rest of the country, basically because of less immigration than in the past. Having said that, several of the region's manufacturing industries are quite strong. Paper and pulp products, for example, ship building, and petrochemical plants are starting modernization and expansion projects, basically in reponse to pressure on capacity. They also report higher prices for materials. I've talked to a lot of business people and really pressed very hard since the last meeting on the wage question. And I don't think I'm really much more ahead than I was the last time in the sense that, while there is this anticipation of higher wages and a fear that it's going to happen, I'm not hearing that it actually has taken place. Some of the people that I've talked to are in fact labor union people, and in the organized labor sector I don't get any report, at least in our area, of any pressure for wage increases of any kind. They report to me that job security is basically the major concern of workers at the present time. However, I would also report what Si Keehn mentioned that there does seem to be a shortage of labor, particularly in the service area. And a number of firms that I've talked to are having difficulty getting entry level people even though they're paying above the minimum wage. Of course, in Louisiana the unemployment rate is the highest in the nation and so the expansion that we have in some industries like chemicals is taking place in a very soft market for labor. In addition to this, we've had substantial layoffs and will continue to have substantial layoffs at Lockheed, where the work force is estimated to fall from 20,000 to 12,000 over the next 12 months--a very, very substantial layoff. And that's occurring right now. We are also getting cutbacks in the automobile plants, and TVA is cutting back in Alabama as well as in Tennessee and that's supplying labor to the region. We also have a fraction of Eastern Airlines cutting--, a relatively small impact, but a negative one nonetheless. Nonresidential construction in our region is stronger than the rest of the nation; it's up about 4 percent, which perhaps is a little surprising. I am a little concerned about the projects that are on the drawing boards, particularly in the city of Atlanta. I'm concerned that the volume of new office space is not going to be absorbed very soon. We have fortunately had some rainfall. It has been very spotty, but I think it has provided enough moisture to salvage the soybean crop, at least for the time being. So we are doing a little better there. Looking at the national economy, we have no basic differences with the Greenbook forecast. There's a slight difference perhaps in unemployment, which we don't expect to rise quite as much, and our inflation forecast would be marginally higher. I think, however we look at it, we are looking at a very strong economy. And I don't see that that is going to abate any time soon, and that obviously has implications for policy.",721
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"Anecdotal information that I've picked up in some recent calls would tend to confirm what's in the Greenbook. For example, I would describe retailers as guardedly optimistic. August got off to a good start in the first week and then was somewhat slow in the second week, but I think that was felt to be largely weather-related. In general, I think retailers feel that they've got their inventories in pretty good shape. They don't feel terribly exposed and they are guardedly optimistic about the prospects here. On the manufacturing side, you pick up the sense of strength still in capital goods orders--backlogs, and so forth. The commentary on the raw material price increases over the last year or so is that there's still some evidence of difficulty in passing all of that along. In the District itself, our numbers for the most recent quarter, which would be the second quarter, reflect what Bob Forrestal has described. Some employment declines show up in construction, textiles and apparel, food processing, and the like. But in general, we have paralleled the rest of the country. I don't attribute too much to this weakness. I think it has to do, as Bob said a while ago, with the fact that there's strength elsewhere as opposed to signs of imminent weakness in our District.",257
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"The District economy continues to operate at very high levels, with increasingly tight labor markets. The only part of the District where I'm hearing complaints about the pressures on wages is from the Jersey shore; and that's largely, I think, from the Second District's garbage floating down there.",55
-fomc-corpus,1988,We've got a lot of that.,7
-fomc-corpus,1988,"As I say, there's nothing new. As far as the nation--I think it has been said a variety of ways--but the bottom line is that we are in a territory of accelerating inflation and we have to resist that growth. The only questions are timing and magnitude. As far as the components of risk, I agree that the risks are on the upside on capital spending. But we may get more restraint on consumption this time around than we have in the past, largely I think because of the increase in variable interest rates on consumer-type loans, both home equity loans and also variable-rate mortgages. If people have to spend an extra $50 or $100 a month on mortgage payments, that gets right into consumption fairly quickly. I think the shorter lags on consumption really are what we want because, as you look at the profile of the expansion, we are getting personal consumption growing 2-1/2 percent and what we really would like to do is get it down in the 1 to 1-1/2 percent range to be able to bring about the shift toward the external sectors. So I think that we really do need to watch this consumption. We may find that we'll get quicker restraint from monetary policy tightening than we have in the past.",254
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"The story in the District hasn't changed much. There is still strength across the board in the manufacturing sector, so I won't bore you with the details of that. What we've focused on, and what many of you have focused on, is what's happening in labor markets. We have two areas where we have some shortages occurring right now. One happens to be in the service areas, at entry level positions. It's particularly bad in the Columbus area, which has had a very strong economy. The second area is in the more skilled positions in manufacturing, and that's across the board in a number of different cities where capital projects are underway. So, we are experiencing some labor shortages right now. A major bank in the Columbus area is talking about total compensation increases in the neighborhood of 5-1/2 to 6-1/2 percent--I can't define it any better than that--because of the difficulties of getting people on board in that market and the rising wage rates at the entry level. In terms of retail activity, the Pittsburgh market has a 15 to 20 percent hike in wages for entry level people because a major retailer there is in the market trying to hire 1,200 people. In terms of sales, They've noticed a significant increase in what she would call back-to-school buying. They would have expected about a 10 percent gain and what they're getting is something on the order of 25 percent. Now that is firm specific, so there could be some things that have gone on within the firm generating that. The only sign of weakness that I could find happens to be in a little stainless and steel strip indicator that I follow. It's an index of new orders put out by one firm, and that's dropped significantly in the month of July. What this seems to mean is that we haven't seen any signs of real weakness. We don't have a boom: but we have continuing strength across the board and some tightening up in labor markets. As we look at the national picture, we don't see it much differently than the staff, a little higher on the inflation side. I think we have a little more in terms of the labor compensation built in than they do, but not a lot. I think the risks are clear, probably not worth stating, but I'll do it anyway. They're obviously on the inflation side at this point. I don't think we've seen sufficient signs that our policies have impacted the economy. Maybe there's a lag that we haven't seen yet--that they will begin to impact. But I think we ought to gear our policy more towards the risk of inflation.",517
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I share Frank Morris's appreciation of the staff's efforts to give us some drought-adjusted figures for the GNP for the projection period. Obviously, that drought has been a severe blow to a lot of parts of the country, but there's really nothing that monetary policy can do in the short run to deal with that. So, I think we need to focus on these drought-adjusted figures in trying to plan the course of monetary policy. These figures show GNP, after a bulge in this quarter, working down on a drought-adjusted basis to around 2 percent in the early part of next year. That seems to me--in light of the tightness in labor markets and the higher levels of capacity in a lot of key industries--to be about as fast as we would want GNP to grow at this stage. I'm not quite as optimistic as Ed Boehne was--and I gather, probably Martha--that on the basis of these variable rates on consumer loans, consumption will slow down as much as the staff has guessed. They've got 1.3 percent throughout each quarter of 1989. If I had to guess, I would think it's probably going to run higher than that--although that would certainly be a desirable rate, in view of the necessity of getting that down to the point that we can accommodate an improvement in our balance of payments. What really bothers me most, I think, is what bothers most of the others; that despite all this tightening that we have done up until now, and the staff's projection of considerably more tightening beyond this, we've still got pretty big increases in inflation projected. For example, the CPI less food and energy is rising at over a 5 percent rate at the end of next year, and much the same sort of thing is true for the fixed-weight GNP deflator, which is close to 4-1/2 percent. These may be too high, I don't know, but they certainly seem reasonable to me, given the upward pressure on wages and employment costs that are now becoming increasingly apparent. And what this means to me is that we still have a serious inflation threat facing us. And if we have projected inflation at less than it actually turns out to be, then that's going to cross, I think, a pretty important threshhold in terms of what it would do to inflationary expectations. And I think that could be very serious indeed. So I hope we can hold it down some--at least as low as the staff is projecting. And I would like to think we can do better than that.",524
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"With regard to the national economy, a point that the staff commented on and that I would emphasize is that it seems the surprises this year really have been almost uniformly on the upside. The incoming statistics seem to continue to indicate strength, as I read them, and it seems to me that we have used up capacity more quickly than we had anticipated. As I look at the District economy, both the measures of economic performance and the anecdotes I'm hearing suggest to me that surprises may continue on the upside for some time longer. I commented last time that, at least in many of the diversified economies of our District, we had boom or close to boom conditions, and that's continuing in those economies. The one really new piece of information that I picked up in the last several weeks that I wasn't hearing much about earlier--and allowing for all the caveats such as I don't know what the seasonal factors are and the sample is small and so forth--is that I have heard from a wide range of manufacturers about their ability to raise prices now 4 or 5 percent. In some cases this is the first price increase in 2 or 3 years. But they are now putting them in place. And some have commented that this is now the first increase; they plan on another one later in the fall. So for what that's worth, I think I've started to hear a lot more, not about concerns about inflation, but about actual price increases.",288
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"Mr. Chairman, the New England economy appears to have moved into a new phase at the beginning of the fourth quarter of last year. For 13 years we were an economy that was growing faster than the economy as a whole, and about 40 percent faster in terms of the rate of growth in personal income. Since September of last year, we've seen a situation in which the rate of growth in New England is running a little over 1/2 the rate of growth of employment for the country as a whole and about the same rate of growth of personal income. I've been analyzing this and I've concluded that the reason for the slowdown is simply sheer shortages of labor. The unemployment rate is 2.8 percent for New England as a whole. And there's just no way that we are going to be a growth area in the next decade, it seems to me. This is causing some embarrassing spinoffs. The governor of Massachusetts has found his revenues coming in well below projections. And, of course, the reason is simply that Massachusetts is fully employed; we can't grow the way we've done in the past. The only state in New England which is doing better than the national average in terms of growth of employment and income is Maine. And that's the state with the highest unemployment rate and with a lot of people underemployed in the labor force. But the rest of New England is flat out. If you look at the areas of employment for this fully employed economy, there are only two occupational areas where we are doing better than the national average. One is finance, insurance, and real estate, and the other is construction. I find this rather alarming because the reason, of course, is that we still have this big commercial office building boom going on. we are starting to see signs around Stanford of surplus space. But I just got a report from and they're projecting that the current vacancy rate of 11 percent in Boston, which is still low by national standards, is going to drop to 8 percent by the end of 1989. I think this is baloney. And I think what it means is that by the end of 1989, the real estate business--and I'm afraid some of our bankers are going to find themselves having invested in some of these buildings--will be taking on the characteristics of Houston and Dallas. So, I think we are definitely in a turning point situation, which stems sheerly from the fact that we just don't have any labor for growth any more. I see state spending in Massachusetts being projected--, they're projecting a rate of growth of revenues next year of 8.3 percent. It's not going to happen. It can't happen in the slow-growing environment that we are going to have.",550
-fomc-corpus,1988,Big tax increase.,4
-fomc-corpus,1988,I think something has to give there. It's not going to be before the election. I think the euphoria is going to be disappearing and we'll be facing a lot of the problems of a slow-growing economy.,42
-fomc-corpus,1988,Do you have a significant in-migration?,9
-fomc-corpus,1988,"we are getting some in-migration, but the problem is our housing is so scarce that the price of residential housing has just ballooned in the past few years. It has gone to astronomical levels, we are up to New York and San Francisco levels. And it's very difficult to move people into Boston; they get sticker shock when they see our residential real estate prices. So I think the prospect of more than a modest in-migration is very, very dim.",93
-fomc-corpus,1988,"We are getting record in-migration in California. I think it's about 700,000 or something like that a year--it's incredible. And we have similar housing problems, but I guess it's just that you can find cheaper areas. Plus, there's a very large [unintelligible]. That seems to keep a lid on things a bit.",70
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"Well, in some ways, Mike Prell gave my report. I think I agree very much with how Mike characterized the economy. Getting to the anecdotal stuff, I really haven't much to add. There is more talk about scarcities in the labor market, even in terms of part-time jobs and things like that. In terms of anecdotes, I think we'll get a better fix on things in early September. I think most of these major companies come back after Labor Day and sit down and really begin the process of thinking in earnest about 1989 and so on. I think that some of the feedback that should begin to flow out of that will probably give us a better and fresher picture of what the situation is. But at least for now, virtually every comment I hear is very much on the bullish side. In the context of the outlook and the forecast, I have just a couple of comments. Looking at the external side of the Board staff forecast and, for what it's worth, the New York Fed staff forecast, both have real net exports in GNP terms in the fourth quarter of 1989 below -$50 billion. And I think that is quite a remarkable result in one sense. But I think it belies something else that gets kind of lost in the dust here--and that is, that both also have for the year 1989 a current account deficit that's still $125 billion. And those current account deficits are going to have to be financed. I mention that because, while there's a certain element of euphoria in markets and elsewhere about adjustments taking place, the fact of the matter is that in financial terms, as measured by the current account, we still have very, very large external imbalances. And for that matter, the budget deficit is still sitting there stuck somewhere around $150 billion. So, I don't see that a lot has been achieved in terms of significant progress on both the internal and external financial imbalances that are the root cause of many of our problems. On the inflation side, I guess my biggest concern by far at this point, Mr. Chairman, is that I think there is at least a 50/50 chance that the inflation genie is already out of the bottle. I don't take any forecast very seriously, but if we look, for example, at our own forecast--which by the way has a very modest increase in interest rates with orders of magnitudes about half of what Mike is talking about--it has a GNP deflator toward the middle and the end of next year at rates of increase of 4-1/2 percent and higher. It has a fixed-weight deflator of 5 percent and higher; it has a CPI of 5-1/2 percent and higher; it has compensation per man-hour at 5 to 5-1/4 percent and higher. By each one of those measures, the acceleration in the rate of inflation is somewhere in the area of 1 to 1-1/2 percentage points over what has been the experience for the past several years. That to me is very problematic in its own right. But what is particularly problematic is that it just doesn't take much at all for those price forecasts to end up a threshhold level higher. In other words, instead of pushing and penetrating 5 percent on some measures you could easily get results that break through the 6 percent level. It takes very little to go wrong, at least in the context of our price numbers, to produce that result. As I said, our forecast differs from the staff only in the sense that I think the interest rate assumptions or, if you will, the policy assumptions may be somewhat different. But when I look at the situation in that light, it does produce that fear on my part that we may already have an accelerating inflation problem on our hands that is going to be very costly to deal with.",786
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mr. Chairman, with respect to the Greenbook forecast, on a year-over-year basis our forecast would be very similar. However, looking at the shorter term--and I'm taking about the third and fourth quarters, and particularly the third quarter--our forecast is a bit higher. I hate to describe it as substantially higher, but in terms of final sales, for example, consumption is roughly a percentage point higher or so in the third quarter and also somewhat higher in the fourth quarter. That suggests that the last half of the year is a bit stronger than the Greenbook forecast. And it implies, at least to me, some further pressure on wages and prices that may not otherwise be built into the Greenbook over the forecast period. With regard to the regional forecast, as has been the case over the last couple--and perhaps the last three--years, we are improving in the District, but at a pace somewhat slower than the national recovery rate, as measured by personal income, for example, employment, and other similar measures. Retail sales are moderately higher than they were a year ago with inventories reported to be about in line--as a matter of fact, being trimmed within the last month or two. Auto sales are holding up; measured year-over-year they are a bit higher than a year ago. Two areas that are particularly important in our District are energy and agriculture. The level of energy prices has continued to damp the enthusiasm of people for going out and spending money to stick holes in the ground. As a result, there is not much enthusiasm--particularly in that belt which would include Oklahoma, parts of Colorado, and Wyoming, which are still depressed because of energy. Laid on top of that, obviously, is the agricultural situation of the drought, which has been very varied across the District. If you look for example, at Nebraska, parts of Kansas, and western Oklahoma, they've had ample rain and the crops will reflect that. If you look, on the other hand, at eastern Kansas, Missouri, and up into Si's area in Iowa and on east beyond that, the drought has had a very serious impact. Having that in mind, our numbers are a bit stronger than the Greenbook. It isn't clear to me whether or not some of that may be explained by the drought impact and the timing of that impact on those numbers. By and large in the agricultural sector, there will be an impact on the producers, but if you look into the financial sector that finances agricultural production--as I think Si may have mentioned his survey shows--the banks are in pretty good shape. As a matter of fact, they have gotten rid of a lot of the bad loans over the adjustment period. They have built their capital back, according to our survey, by over 10 percent. And in a sense, they are in very good position to accommodate this drought impact. I would find something to worry about if this were to be a two-year drought instead of a one-year drought; then that story would change dramatically.",608
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I have just one comment and a couple of anecdotes that I've picked up in the last few days. The comment involves the drought-adjusted real GNP growth figures. I too found these very interesting, particularly to see the amount of deceleration that it shows over the fourth quarter. That's really dramatic--from 3.8 to 1.8 percent. So it does paint quite a helpful picture. Also, one thing I haven't heard mentioned in connection with the drought is the fact that it motivated the people down the street here to rain about $3.9 billion on farmers in the form of cash. That ought to do something for somebody. On the anecdotes, a number of people in home building have expressed to me concern about the latest upward move in interest rates. I would say that their numbers are somewhere around 100 thousand to maybe even 200 thousand starts a year more pessimistic than what we are showing. Also, one of the things that has been pointed out to me involves defense spending and the impact of this investigation that's going on here in Washington--looking at the [unintelligible] and procurement process--and what this means as far as the slowdown in the actual granting of new defense contracts and also the payout of some existing ones. This may help your area, Frank; it gets a lot of this money up there. Also on the export side, a number of manufacturers are very concerned about this rebound in the dollar because they were just really moving forward to emphasize exports and to gear up for producing more products for export. And now, as they see the dollar rebound, they're concerned that maybe they'll get geared up just in time for the market not to be there. I think that that is something certainly to look at, particularly any increase that's above today's already higher levels. And the final thing I've picked up is in the consumer area. I was talking to a couple of days ago, who told me that the only strong area there was sales of air conditioners; you can all figure out why that has been the case. And the sales of lawnmowers have been very weak.",423
-fomc-corpus,1988,"I can explain that, Martha.",7
-fomc-corpus,1988,Snowplows are coming up.,7
-fomc-corpus,1988,One of us is really--,6
-fomc-corpus,1988,"But it is sort of interesting that that was the exact comment made. This person also mentioned the concern over the consumer debt burden and what that may do in the future, particularly if economic growth does slow dramatically. I believe that some retailers are looking at this variable-rate loan issue and whether or not the higher interest rates in the market feed back into the consumer budget more rapidly, because even though ARMs are often adjusted only once a year, the variable rate credit cards and the home equity lines often are adjusted monthly. Therefore, we would get a more prompt feedback. And I know there is some concern out there that that would be another source of restraint on consumer spending. So, that's just a little bit extra on anecdotes for you. Thank you.",150
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"It seems everyone wants to comment about the drought. Let me mention one item of caution, and that is that a drought has an impact not only upon the supply side of production, but also on the demand side. And no one really knows whether or not the demand side effects are less than or greater than the impact upon the supply side. So, I think I'd have to caution that there is a much larger segment of the U.S. society that is affected by agriculture and the loss of rain. It may affect behavior in regard to consumption as well as durable goods expenditures. So, I think there's some uncertainty here that needs to be kept in mind. In the second place, I think you have to remember that just as we have the drought-adjusted GNP figures for 1988, you're going to do the same process for 1989. We are looking at agricultural production in the grain area that is only at 73 percent of capacity; and that's going to go to 97 percent of capacity next year. And you're going to have a dramatic move forward, because when you change the acreage reduction to qualify for government programs from 27-1/2 percent to 10 percent, you're getting more than that change in plantings because the higher price will induce some people not to play the game. That is, there will be farmers who will leave the program restrictions altogether. So there'll be an impact for GNP that is not a capacity or inflation induced impact that does need to be considered. And the final thing I might mention about the drought is that no one really knows how much that bill they passed is really going to cost. It has a lot of complexities in it, in regard to $50,000 and $100,000 limitations and whether the $100,000 encompasses other payments. So there will tend to be, in some sense, probably less actual outlay than may have been anticipated.",386
-fomc-corpus,1988,You mean it'll be less than $3.9 billion?,12
-fomc-corpus,1988,"It could very well be less than $3.9 billion because no one has really done a microeconomic analysis regarding how many of the people who are supposed to receive the payments will be restricted by the caps. And there will be some farmers who will reject the payments because they do not want to commit themselves to two years of crop insurance. So, there are a lot of uncertainties there. I think that all of us would recognize that we have more strength [in the economy] right now than we would like to have. And I would agree with Jerry that certainly the rate of inflation currently going on is unsatisfactory. But it seems to me that that's an indication that our policy wasn't exactly what it should have been in previous periods. Certainly, in the fourth quarter of last year and the first quarter of this year, we did not have the monetary policy in place that in hindsight we would like to have had in place. I think we can learn something, however, by the impact of this discount rate increase and looking at the bond markets. Now, I have looked at key markets because I think there's a lot of instruction there. The bond market weakened, of course, as it always does when the discount rate increases. It almost didn't for 30 minutes this time; the bond market almost tried to remain strong in the face of a discount rate increase, because there were some people there apparently at first who thought that the Fed's going to be tighter, so that improves the outlook for inflation.",300
-fomc-corpus,1988,That wasn't the reason. They were all shocked into silence and incoherence.,15
-fomc-corpus,1988,They were waiting for the phone.,7
-fomc-corpus,1988,"But it didn't take long for the normal stance to develop, which was that, after all, if the Fed did this drastic thing which wasn't expected--and, of course, it makes the markets a little angry for us to do something that they don't expect us to do--then things really must be worse than they anticipated. And so we have a kind of feedback that, if we are not careful, impacts the bond market. Now the equity markets, it seems to me, also reveal some indication about how monetary policy affects perceptions. And I think the rate of real investment is not unrelated to equity market behavior. It seems to me that in spite of the fact that you can't see everything you want to see, Lee, there's some evidence there to say that there's some restraint in place. I think the foreign exchange markets also certainly can be expected to operate with feedback loops--from the bond market particularly. And when the U.S. bond market has a difficult period of time, then I think you'd expect foreign exchange markets to react to that. My own view is that the foreign exchange markets will probably continue to be stronger than anticipated, and indeed, that's our primary policy mistake--that we did not stand against the foreign exchange depreciation which in a sense is behind [our having] a heavier growth path than we should have had. I think commodity prices also are showing some effect of monetary restraint. And I don't know whether the rest of you have noticed it or not, but to me it's kind of pleasing to have M2 be on a 4 percent growth path; and maybe we'll get it down to 3 percent. When you get ready to do your report, Don, I guess I want to find out what impact a 9-1/2 percent fed funds rate and a 10-1/2 percent rate will have on M2 growth. Certainly, that seems to me to be a difference. And I guess it's pleasing to me to see that when M2 growth got up to 8 percent and right above our target range that, policywise, we were able to turn that around and bring that down to an acceptable level. Now I don't know whether 4 percent is right or 3 percent or 2 percent, but I guess I'm more confident than others are that if we stay with 4 percent or 3 percent or 2 percent on M2 growth that things will work out so that we'll all be happy with the inflation results down the pike.",499
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"Let me start out by observing that there's an enormous difference between the tone of this discussion and the tone of the discussion that you would hear, for instance, in the OECD economic policy committee or WP3. When foreigners are talking about the United States these days it is generally with admiration: Gee, I wish I were in your shoes--with the possible exception of the Japanese. I listen to this discussion here, and it is probably the most pessimistic discussion I've heard for the last two years around this table. I'm not exactly sure what accounts for that difference except that people look a lot more skeptically at their own future. Overall, I still think everything is going more or less according to plan. If you look at the various components of GNP, we continue to have the best progress in the export sector and the investment sector, and that's exactly the way it should be. We had growth last quarter of gross domestic purchases of 1.1 percent. If you look at the projections out--2.3, 1.4, 2.7, 1.7, and 1.2 percent--they are all in that ballpark range. So, certainly it's not going to be a runaway economy in any sense of the word. Yes, there are certain areas where we do see shortages; quite a few people have talked about skilled labor shortages. But I fail to see how a tight monetary policy will produce more skilled workers to alleviate that particular shortage. Actually, I saw a very interesting article produced by the Chicago Fed research department that was arguing essentially that the wage pressures wouldn't be as pronounced as many people were going to expect. I don't like the PPI increases any more than anybody else; I think that is a worrisome index indeed. But on the other hand, as Governor Angell just pointed out, the commodity prices which are even further down the pike, are again very well behaved and roughly on the level that they were exactly one year ago. I think the difference between the GNP deflator and the fixed-weight price index isn't only due to base periods and things of that sort. It's due to the fact that Americans are smart and they are shifting away from the expensive products to the less expensive products. As a result, actual inflation is less than the inflationary pressures which are emanating from some sectors. The dollar continues to be strong as well. I think overall if you have to make a judgment on whether you really want a much stronger economy, you would say no. Do you really want a much weaker economy? I certainly would say no. And, therefore, I've come up with the conclusion that we shouldn't tinker all that much.",541
-fomc-corpus,1988,Any further comments on this round robin?,8
-fomc-corpus,1988,I see commodity prices as having moved up more than Bob Heller does. I look at the indexes in the Economist magazine and they're all up 20 percent or better versus a year ago.,38
-fomc-corpus,1988,Depends on which one you look at.,8
-fomc-corpus,1988,It depends on which index you're looking at.,9
-fomc-corpus,1988,"Well, [unintelligible] whether you're using SDR, dollar, or sterling index.",19
-fomc-corpus,1988,Have they got grains?,5
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,The Economist index is the highest year-over-year rate of increase of any index.,16
-fomc-corpus,1988,That's [a reflection] largely of grain.,9
-fomc-corpus,1988,"I can't tell what's in it. It just says all items, food, industrial.",17
-fomc-corpus,1988,"If you're looking at the Federal Reserve index, it's within a fraction of a percentage point from the level a year ago. Is that correct?",28
-fomc-corpus,1988,It's the same with the Journal of Commerce. But there are a couple of them that are much higher; there are a couple that are no change.,30
-fomc-corpus,1988,Especially some indexes that are weighted.,7
-fomc-corpus,1988,"Depends on what you weight it by, too.",10
-fomc-corpus,1988,"Bob, you made the comment that the slowdown is just what the doctor ordered. Is that correct?",20
-fomc-corpus,1988,Domestic.,2
-fomc-corpus,1988,Domestic that we see in the forecast. What is the monetary policy implication associated with that forecast?,19
-fomc-corpus,1988,That's the next session. Governor Johnson's got a relevant comment.,13
-fomc-corpus,1988,"I don't know if it's relevant, but I've got a comment. I think everyone has laid out the risks pretty well. Almost everyone agrees that the risks are on the upside, and that's the way I feel. I think the risks are tilted more toward the upside, although I don't think they're zero on the downside either. We've seen that even with a half point change in the discount rate--it went from 6 to 6-1/2 percent, relative to where the funds rate is now. And in the scheme of things, you wouldn't think that would be a big factor, but you see nervous ripples in the financial markets when you do that. We've all seen over the last year or so how expectations can change fairly dramatically. And I think we have to be cautious about that. So, I think we should be concerned about the magnitude [and] the timing of the actions we take.",182
-fomc-corpus,1988,It seems to me you're also getting over into the next session.,13
-fomc-corpus,1988,"Okay, I'll get away from that. But the other thing I wanted to say on the overall view, in terms of actions that we've taken in the past and depending on what we do in the future: I don't think it's going to be that easy to manage the adjustment process by the actions we take. I think our moves, in the past, have had an effect of strengthening the dollar, and they would continue to do so. They're going to affect both domestic and overall demand. Either the exchange rate flows through and it weakens our competitiveness some, or foreign central banks try to stabilize the dollar and you're going to get a weakness on the foreign demand side. I know Ted pointed out there are some lags. But eventually that'll take place. So I'm not sure we should believe that we can get the adjustment process at the same time we get the slowing down. I think most of what we are seeing on the adjustment process is a result of where the exchange rate has come to this point. We've had a substantial adjustment on the discount rate; we'll have lagged effects for some time to come. But I think a price-stable economy here is consistent with a fairly large current account deficit. I don't think you can get them both down unless you have--I don't know, maybe a major recession would do it. But I'm not sure that's in our interest to do.",276
-fomc-corpus,1988,"If there are no further comments, and before we break for coffee, I was hoping that Don Kohn could get his remarks in.",27
-fomc-corpus,1988,"Thank you, Mr. Chairman. You'll need the coffee. It turns out my comments overlap substantially the subjects Governor Angell covered, post-drought anyhow. Wayne, you and I will have to think about the implications of that some time together. [Statement--see Appendix.]",55
-fomc-corpus,1988,Thank you Mr. Kohn. We'll take a break now and when we come back we will first discuss what Don has been suggesting and then we'll go to a round robin on the Committee discussion on policy.,41
-fomc-corpus,1988,[Unintelligible] Mr. Kohn and Governor Angell.,15
-fomc-corpus,1988,"Don, I appreciate your--",6
-fomc-corpus,1988,"Oh, I thought the questions were going to be for Governor Angell.",15
-fomc-corpus,1988,"Well, fortunately, I get to ask the questions.",11
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,"Don, for the fourth quarter of 1988 and the first quarter of 1989, M2 growth was, I think you said, 4 and 3-1/2 percent. Could you give me some confidence intervals on those estimates?",51
-fomc-corpus,1988,"Actually, I'll give you our point estimates and you can put your own confidence intervals around them. Mine would be very wide; I have 3-3/4 percent for the fourth quarter of 1988 and 3-1/2 percent for the first quarter of 1989.",59
-fomc-corpus,1988,Do you want to give me the standard error of the estimates then on--,15
-fomc-corpus,1988,"No. I don't have one, but--",9
-fomc-corpus,1988,"Well, give me just sort of a range.",10
-fomc-corpus,1988,"Oh, I would say plus or minus 1-1/2 percentage points.",17
-fomc-corpus,1988,"Oh, that's pretty narrow. Okay.",8
-fomc-corpus,1988,I just made that up.,6
-fomc-corpus,1988,"I don't mean to cast aspersions on your forecast, but that's pretty tight.",17
-fomc-corpus,1988,"The basic point, as I see it, is that the rise in interest rates that we already have will be damping M2 growth relative to its rates so far this year. So, I think we'll be seeing things at least below 6 percent, or under 5 percent. Now, I don't know how far under it will be--3-1/2 or 4 percent is our basic forecast--but I think the message is pretty clear.",91
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"On page 12 of the Bluebook you say that the tightening of reserve positions under alternative ""C"" immediately following the discount rate hike would be somewhat surprising to market participants. I find that statement surprising. It seems to me that the market is anticipating us to follow-up the discount rate increase with a firmer policy and that they'd be surprised if we didn't.",72
-fomc-corpus,1988,"I think that's true in a general sense. If you look at, say, futures market rates and things like that, bill rates are a little higher by the end of the year than they are now, but not by a lot. And I guess I think generally they expect us to firm. I'm not sure they'd expect a full half percentage point. The Bluebook in part was addressing that point--another half percentage point on the funds rate a week after the half percentage point increase in the discount rate. I think you're right in the sense that the market is anticipating some gradual firming of the funds rate over the remainder of the year. You can see that in these surveys of market expectations. But I don't think they'd be anticipating something of this magnitude this soon; that's all I meant to say.",160
-fomc-corpus,1988,"Wouldn't you see that in bills? I don't think you've seen that in the spread of bills over the funds rate. You've had a little bit of upward pressure, I think, because of supply conditions, due to the suspension of the long bond. But you don't see a big spread developing in bills over the funds rate.",65
-fomc-corpus,1988,"No, you don't. In fact, the bill rate looks a little low relative to the funds rate. I would associate that a little bit with some of the uncertainties associated with a discount rate increase, a little flight to liquidity--not much, but a little. But I think if you do look at the--",63
-fomc-corpus,1988,"The futures markets don't show the type of tightening that's in alternative ""C"".",15
-fomc-corpus,1988,"Not in ""C"", no. But at least the money market services surveys that we get do show some gradual firming seen by--",27
-fomc-corpus,1988,"Well, the question is, which is the more valid approach: to look at the futures markets for the Treasury bills, or at a survey of forecasters?",32
-fomc-corpus,1988,"If the forecasters have the investment funds, they ought to be consistent with one another.",18
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,"And if they are not, which do you choose?",11
-fomc-corpus,1988,I don't have specific numbers in front of me.,10
-fomc-corpus,1988,"My recollection, however, is that the forward markets are showing less of an increase than is implicit in the forecast.",24
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,"Certainly less than alternative ""C"".",7
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,I think this is a version of Governor Angell's question. But what has been the historic performance of the M2 model or equation recently? Has it been tracking reasonably well?,36
-fomc-corpus,1988,"It's not too bad. We missed last year--actually the GNP revisions didn't do us any favors because M2 was low already relative to the model projection by about a percentage point. Now it's low by about 2 percentage points after GNP was revised up. We have several models, but one of them I'm looking at--this is one that missed last year by about 1-1/4 percentage points in fact--was right on in the first quarter and underpredicted the second quarter by a couple of percentage points. It hasn't been bad. You should understand that these projections are not strictly model-based projections. We do take into account the errors that the models have been making, and make judgmental adjustments for that. We pay perhaps a little more attention to what they tell us about the interest rate effects; and then we factor that into our own sense of where velocity is going and the projections of income growth that we get from the Greenbook.",193
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Don, both alternatives cover a relatively short period of time. Would you indicate which of the two alternatives, ""B"" or ""C,"" is most consistent with the policy assumptions in the Greenbook forecast?",41
-fomc-corpus,1988,"Well, for the next six weeks it hardly matters, but the Greenbook really didn't have an increase of interest rates in that very short period of time necessarily behind its forecast.",35
-fomc-corpus,1988,"Nominally, for the current quarter, we take the existing funds rate as given through the end of the--",23
-fomc-corpus,1988,The quarter?,3
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"So, it's really more consistent with ""B,"" you'd say?",13
-fomc-corpus,1988,"Yes, but basically for the GNP forecast, we are more interested in the drift over the next several quarters.",23
-fomc-corpus,1988,"I think it's consistent with ""B"" but going to ""C"" the next time.",18
-fomc-corpus,1988,Firming some at some point in the fourth quarter.,11
-fomc-corpus,1988,Any other questions? Lee.,6
-fomc-corpus,1988,"Don, I took it that the last part of your discussion, with respect to operating procedures, was [a suggestion] that we might want to discuss them. So I guess I would like to make a statement about them in terms of my preferences. There were basically three options that were laid out: one is fed funds targeting; another is in between which is sort of half fed funds and half borrowings; and the last is straight borrowings target. In my view I would prefer straight borrowings target if, as you suggest, we can live with it in terms of allowing the funds rate to fluctuate a little bit more. I think there are disadvantages to doing what we are doing--that is, sort of half fed funds and half borrowing--because I do think it leads to some confusion in the marketplace. If I had to choose between the three options, I would choose the borrowings target because I think it's the cleanest and it's the one that leaves us with the best chance to get back to aggregates targeting, if we ever get confident with using the aggregates. But I would take explicit funds rate targeting over what we are currently doing, as long as we stay on what I would call an economic conditions kind of policy--that is, responding in the short term to changes in the numbers. It seems to me we are much better equipped to do that with an explicit federal funds rate target. But we have to be aggressive if we are going to move it and get around the concern that you had with that--that it gets too narrow on us. And it has been.",318
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Don, in connection with this issue of the deviation of the fed funds rate from the borrowing target, seasonal borrowing has been relatively high. How much of the deviation do you think is caused by that? And doesn't this high seasonal component suggest that we perhaps need a higher borrowing target than we otherwise would?",60
-fomc-corpus,1988,"I'd say it goes the wrong way. The idea of seasonal borrowing is that it doesn't respond quite as much to interest rate pressures as regular adjustment borrowing. You have an autonomous seasonal factor influencing that borrowing that should tend to bias the funds rate down rather than up relative to our expectations. So I would say that for some time the seasonal borrowing hasn't had any effect. It might at very low levels of adjustment plus seasonal borrowing targets, but we are not there any more. I think the most recent period is evidence of that. But you're right. If you thought that somehow it was having an influence, you'd raise the borrowing target at even higher federal funds rates. But I don't think it is.",138
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, I think I share Lee's objective of getting back to the point, if we ever can do this, where we can really control this supply of reserves--somehow measured--so as to control the rate of growth of the money supply. To put it I guess a bit unkindly, it seems to me that what we do now really is sort of a modern-day version of the real bills doctrine, in a sense. The market gets all the money it wants at some price or some borrowed reserve level. If it wants more, we pump out the reserves and we say the demand for money has increased. If it wants less, we sop up reserves and say the demand for money has declined. If we want to nudge it one way or another, through either the borrowed reserve target or through manipulating the federal funds rate, we change the price of money--in much the way the discount rate used to function under the old real bills doctrine. So I really don't see that it's much different from that. But, given the uncertainties that people feel exist in the aggregates at the present time, I think I would come out a little different from where Lee does on which of the various alternatives we should use. I would use the federal funds rate. I think we are confusing the public, we are confusing ourselves, and we are confusing the boards of directors by going through the borrowed reserve target. And in recent days, we've been resolving all doubts in favor of the federal funds rate, and I would prefer to just use that federal funds rate as long as we are on this kind of regime. But I think at some point the aggregates are going to behave in a more normal, predictable, way and we can reduce this degree of fine tuning that we've been following. And only then will I feel very comfortable with any policy decision. Now we have to pick out a level of interest rates somehow defined, and predict what will happen. The way I do that is to figure out what I think it is on an ad hoc basis and then I bear in mind that most of our mistakes I think have been on the side of being too easy, historically. So I put in a fudge factor and vote for something a little tighter than I think it probably ought to be on the ground that that's the way we usually miss. But I do hope our simulations suggest M2 is beginning to behave reasonably normally now; Don verified that to some degree. And I hope somewhere along the way we can get to the point that we are really controlling the supply of money rather than letting it be purely demand determined.",523
-fomc-corpus,1988,I think that's one of the most interest-ing events--which we haven't really focused on in the last six or nine months--how well behaved M2 has been.,33
-fomc-corpus,1988,M2.,3
-fomc-corpus,1988,"It has been very good really. Wayne said a while ago he was taking considerable comfort in M2; and I was taking a lot of comfort in that, too, until Don pointed out that it was the RPs and the Eurodollars that were weak. The consumer-type components of M2 were relatively strong, so that reduced my degree of comfort. Still, that's something that makes me feel better than I otherwise would because they've been--",89
-fomc-corpus,1988,"But Don, you've got built back in some rebound in those.",13
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,"And you've got weakening in the reserve balance, so that's still accounted for in the forecast.",18
-fomc-corpus,1988,In that--,3
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,Caught me drinking.,4
-fomc-corpus,1988,He can do that to people.,7
-fomc-corpus,1988,"On the issue of whether we have this hybrid, or borrowings or a federal funds target, there is no right answer here. And at different times one will be better than the other. But there are some lessons I think to be learned by both the successes and the mistakes of the past. You laid it out, Don, as kind of three choices: a federal funds, borrowing, or hybrid. But really the choices are over a much broader kind of a continuum. If you think, for example, at one end of that continuum you have a pure reserve targeting and at the other you have a pure federal funds targeting, and you think of reserves as a 10 and federal funds as a 1, this borrowing approach that we have been using the last few years is probably a 3. It's pretty close to federal funds rate targeting. It is a compromise toward taking account of the federal funds rate. If we compromise it further along the lines that we've been doing, we really move very, very close to a federal funds rate target. And there are advantages, and there are disadvantages. But I think that if we look back over our history, if you have an approach that--as we had with the borrowing figure--has a wiggle factor, it does allow the market to tell you something. It does allow the market to tell you that there is a greater demand for reserves. It also avoids the trap of pegging a federal funds rate. Now, I know that there is no one around this table who would ever, ever get caught up in the problems of pegging the federal funds rate. However, that risk is there for lesser mortals and I think one has to keep that in mind. The other thing is that it's easy around this table to ease. There's no trouble for a central bank to ease; that's very easy. The hard part is what we've been doing the last few months, to tighten. We need all the help that we can get when we find ourselves in that situation. And I think that the give that the borrowing approach allows in that procedure has been very helpful in the snugging up that we've been doing since March. And I think the more we move over to a federal funds rate, the more difficult it would be to follow that kind of snugging up. It's true that the market has led us sometimes; sometimes it was good, sometimes bad. We ought to be making decisions, not the markets. Nonetheless, when you get to the practical side of it, I think this technique was helpful for us to get out in front of the inflation curve earlier than I ever recall doing it. And I think this procedure helped. The other thing is--and I think this is an issue that one can talk about--that this procedure does give the Chairman a little more leeway than a federal funds target. And I think that, when we meet every six to eight weeks, it is important for the Chairman to have some leeway in this. Maybe everybody around the table will not agree every time he uses that discretion. But the way the markets operate, the way they're fast changing, and timing issues and all that, I for one think that it's important for the Chairman to have a little leeway. So that's where I come out. Even though there are disadvantages to reserve targeting or borrowing or whatever, I would not like us to move any more in the direction of the federal funds extreme. I would prefer to be pretty close to the borrowing rather than this hybrid that we've backed into the last six weeks.",714
-fomc-corpus,1988,"But, Ed, don't you think if you have asymmetric language that the Chairman could just as easily choose to move the funds rate as he could a borrowing number?",32
-fomc-corpus,1988,"I think, Manley, he could. I think he could in theory. I think in practice that this borrowing procedure gives him a little more flexibility and gives us a little more ability to move sooner than we might otherwise. I can't prove that's the case.",52
-fomc-corpus,1988,I think it proves that it is the case--that it's easier to move a borrowing target than it is to move fed funds.,26
-fomc-corpus,1988,Right. That's my point.,6
-fomc-corpus,1988,That's basically a political argument.,6
-fomc-corpus,1988,"If the Chairman calls up and says I've upped the borrowing $50 or $100 million that's one thing. If he calls up and he says I've upped the federal funds rate a quarter percentage point, there's a difference.",45
-fomc-corpus,1988,"The political perspective is quite different. If someone said well, the Chairman moved the fed funds rate--",20
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"I just can't comprehend that, I'm sorry.",9
-fomc-corpus,1988,Obfuscation.,4
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,I think there is a case--,7
-fomc-corpus,1988,"It's a political argument, though, and I think that's the strongest argument that Ed has made for the borrowing target. And I think that's why we stuck with it.",33
-fomc-corpus,1988,"I think if you're completely logical, Manley, you come out where you do. I just don't think human beings and human nature are completely logical.",30
-fomc-corpus,1988,But you're saying the Chairman would somehow have illusions himself that a $50 million change in the borrowing is not moving the funds rate?,26
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"I think [unintelligible] moves it, so be it.",15
-fomc-corpus,1988,"It seems to me that characterizing the recent period as being a hybrid is maybe a little bit too strong, because in the last statement periods we've really hit borrowings right on the head. And some times and days, there may have been some attempts to resist the funds rate. But if you are getting your target, then you must be pretty well content with the interest rates that are resulting from it. I know there was a problem very early in July, but I don't know that it has been operating all that poorly in the last few weeks. Would you agree with that Don, or not?",120
-fomc-corpus,1988,"Well, I think we came out fine.",9
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"But we did engage in some operations at certain times that we wouldn't have done if we'd been just paying attention to borrowing. In the end, everything turned out terrific.",33
-fomc-corpus,1988,That's right.,3
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Ed Boehne has said much of what I wanted to say I think, except that he came out the wrong place. I happen to view what has happened over the last few months--that is, the borrowing target as moderated, if you will, by the federal funds level--as providing the flexibility that I think serves this Committee fairly well, at least at this time. I must say that over the long haul I would move to the borrowing target. But for the near term--the rest of this year at least--I like what we've been doing. I agree with the proposition that moving the borrowing target is much easier, much more acceptable, and perhaps of some greater comfort to the Chairman, than moving the federal funds target. But I don't think we ought to be deluded. What we are doing when we are moving the borrowing target is targeting what we believe to be a federal funds level. But they work together; they have worked together over the recent past, although apparently there's some confusion in the market that I don't quite understand because of the Desk operations. I would not want to change at the moment; I'd like to do what we've been doing. I have a question I guess for Don, following onto Bob Forrestal's comment with regard to the seasonal borrowing level, which has peaked, and I think is at an historical high.",271
-fomc-corpus,1988,That's correct.,3
-fomc-corpus,1988,Roughly at $400 million.,8
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,"Traditionally, that starts running off about mid-August on down to the end of the year. Given the fact that we might maintain, for example, a $600 million borrowing level, my question is, with that seasonal running off, does that imply that we have a built-in tightening if everything else remains the same?",65
-fomc-corpus,1988,"If you believe that the seasonal was having an effect on the funds rate it would--that's the direction it would go. I guess I would just reiterate that our work in the past has failed to uncover a significant effect of that sort. Your direction is right; I don't disagree with your analysis. It just doesn't seem to show up in the data when we've tried to control for it. I think it would if we were at much lower levels of borrowings, perhaps. But particularly at this level, I guess I wouldn't expect it.",108
-fomc-corpus,1988,But over the last two or three months we've been essentially at a frictional level of adjustment borrowing.,20
-fomc-corpus,1988,Very close to it.,5
-fomc-corpus,1988,If you give credence at all to seasonal borrowing [ unintelligible] some slightly different characteristic--.,21
-fomc-corpus,1988,"I would say a bit above there, but not that far above.",14
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I can certainly accept targeting a borrowing figure. But it does concern me when the fed funds rate whips all over and then that confuses market participants. But I think the way to fix this--maybe we can discuss this issue at some future luncheon--is to release our minutes more promptly so people will know what we are up to. Then they wouldn't have to be going through all these little subtle signals trying to figure out what it is we are really doing. And, you know, if the fed funds rate goes to 9 this afternoon at 3:00, some people are going to suggest probably that it's there because we put it there. They won't know. I think that getting the information out more promptly about what our policy moves are would help to calm the markets down and would really eliminate some of this confusion.",166
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I may be a little confused, but I think this is the third time we are discussing this, and it has already been resolved twice. So perhaps it's already--",33
-fomc-corpus,1988,This is not the only issue that has ever been discussed three times.,14
-fomc-corpus,1988,"On the merits, I'll simply say I really feel strongly that it's in our interest to define our business as being in the business of reserves and not rates. I understand the linkage between the borrowings target and the funds rate, but the funds market has automatically been extended to other markets. And as soon as the public and politicians attribute to us having control over interest rates, I think we are on dangerous ground. They do enough of that anyway. So I think it's important how we define our business. Secondly, I'd say when policy is on the move there's going to be volatility in rates. There's more uncertainty, and that's going to be the case. I don't think it's a bad thing. And finally, even when the market gets ahead of us, it's not necessary to validate what gets built in. Now, I think it has made sense to do it where we've done it; and I've been in favor of that. But, for example, as we sit here today with a statement having been made with the discount rate, I think we have the flexibility not to validate what might be getting built in now and not give up any ground at all in terms of where we think we need to get. Those are the thoughts I have.",247
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"I think the problem that a lot of people perceive--and that's why it's on the table for a third time I guess--is precisely the problem that Joan was describing earlier, where the market was perceiving one thing and then the Federal Reserve was almost led along the path by the market. And unless we chose to do the opposite, in essence, we were caught. And that, I think, made some people uncomfortable. I think the other problem is that quite often you do have these technical problems. Recently, there haven't been any technical operating problems; but get a computer failure or encounter rainstorms in certain areas of the country, and borrowings are all over the map, and as a result, it gets difficult to really see what's going on. In addition, as Don Kohn was talking about, the reluctance of bankers to borrow or maybe a tighter administration of the window--which has not been suggested recently, but had been raised earlier--was perhaps influencing the amount that was actually being borrowed. I think overall I'd be in favor of moving closer, as President Melzer said just a minute ago, to the reserve targeting, because that's what we ultimately want to do. Obviously, there are problems [with that approach] too. So, if we can devise a procedure that gets us to a 5 or 6 on Ed Boehne's scale, I'm certainly willing to listen. But technically I haven't exactly figured out what that procedure would be.",294
-fomc-corpus,1988,"I think we all would like, if we possibly could, to get back to some form of money supply targeting, reserve targeting, because in fact that's what a central bank does. I think if it weren't for the extraordinary breakdown of relationships, we would never be having the first, not to mention the third, conversation.",64
-fomc-corpus,1988,"But, Mr. Chairman, the one thing that you can't fail to wonder about is why the relationship is better again than it used to be. Maybe it is because we are doing something close to fed funds targeting. And in that environment, you may see the money supply and GNP relationship being reestablished. And [perhaps] as soon as you start controlling ""M"" again then that relationship will tend to break down the famous Goodhart's law.",92
-fomc-corpus,1988,"Well, in an odd way. we are where we are controlling M. We all have been focusing on the--",23
-fomc-corpus,1988,"Yes, but in a short-term operational sense.",10
-fomc-corpus,1988,"But, we are not doing it day-by-day. I think that there has been a fairly consistent awareness of the fact that M2 has in fact been well behaved. Were it otherwise, I would suspect you'd be hearing different sorts of reactions at certain different times around this table.",56
-fomc-corpus,1988,Absolutely.,2
-fomc-corpus,1988,"Are there any other questions for Don? If not, let's get to the policy questions. Let me see if I can summarize what I think I'm hearing at the moment. There seems to be little change in the general view that the economy remains quite strong and that the underlying structure is firm. There are a few marginal weaknesses on the edge, but remarkably few relative to this stage of the business cycle expansion. In fact, I didn't even hear mention of weakness in the apparel-textile area, which is the only thing that I've been hearing in any context. Apparently it's not a big enough issue to be talked about. The thing that concerns me the most at this point, as I mentioned on our telephone conference the other day, is that inventories remain--as somebody put it--lean. That is reflected in low inventory-sales ratios and in remarkably contained lead times on the deliveries of materials and equipment. In fact, if anything in the last two or three months--leaving July out--lead times have actually softened some, suggesting that the usual underlying elements which generate demand for inventories have been largely absent. And yet it is very difficult to find a business cycle expansion that at its tail end does not begin to show some pickup in [inventory] accumulation. There is some accumulation going on in steel and some of the other materials, but in general it's not a big deal. It strikes me that our policy thrust ought to be in the area which cuts the top off of inventory accumulation, and if possible, capital goods accumulation. Real short-term rates are very crucial issues in inventory policy. We must be, I think, in a position where we feel comfortable that we are not financing a bulge in inventories that will eventually topple the whole system. And I think that we're not, but I'm not quite clear what to read into the July industrial production index which, looking at the detail, struck me as the type of distribution of output which is more suggestive of a backing up of materials production than shipments into the final sales area. In any event, whether one looks at it in terms of capital goods or inventory, there's just nothing out there which suggests that this is not continuing and will possibly even be moving at a rate in excess of the Greenbook [projection]. And what that tells me is that the odds are obviously strong that we will be having to tighten again in the future. As a consequence, I think there's no doubt that we should be continuing with asymmetrical language. At the moment I myself am content to sit tight, at least for the short run, largely because I think we shocked the market with the discount rate more than I thought we would. I was, I would say, uncomfortable with the Japanese markets and a little uncomfortable with our own. I think they're stabilizing now, but I do think that they still have adjustments coming from the discount rate for a while. I don't know whether or not it's several weeks, or longer, but I'd feel quite comfortable at this stage staying with the $600 million of borrowing requirement, but maintaining asymmetrical language, as a consequence of acute awareness that any forms of evident problems get met with tightening. Governor Angell.",636
-fomc-corpus,1988,"I agree with you that the markets, particularly the equity markets and to some extent the bond markets, did react in such a way as to indicate that a discount rate change is more than a $200 million change in borrowings. It really shouldn't be, but it does seem to be. I would favor the $600 million. I favor the increase in the fed funds trading range, that is 6 to 10 percent, to go with that. I would also be most appreciative if there was support here for moving the behavior of the monetary aggregates up in the order [of the factors listed] in the operational paragraph. I would prefer having it go to first place. I could certainly settle for it being in second place. In fact, if we said something like ""the behavior of the monetary aggregates consistent with reductions in the rate of inflation""--that combination would seem to be very appropriate for me. By that I don't mean that the growth rate of M2 in any one month ought to be a cause for a dramatic move. What I would mean would be that if the 26-week rate of change of M2, for example, were to get below 3 percent, I suppose that to me would be significant.",246
-fomc-corpus,1988,Do you accept asymmetric?,5
-fomc-corpus,1988,"Asymmetric would be fine. I would prefer symmetric, but I'd accept asymmetric. If I can get monetary aggregates, I'll take it.",27
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"I think the Chairman said it; his statement is clearly consistent with mine. As I said before, I think that the risks are still on the upside. I think we need time to see how the market digests this discount rate change, but I think we should be prepared to move [on the basis of] the economy's performance--especially if the inflation indicators continue to show pressure. But I think at this stage, the appropriate action is to support asymmetry in the language and maintain the $600 million borrowing with the discount rate where it is. Let's see how those winds blow.",118
-fomc-corpus,1988,Would you respond to Governor Angell?,8
-fomc-corpus,1988,"On Governor Angell's point, I wouldn't mind advancing the aggregates in the list a little bit if we all agree that they're behaving a little better. But inflation pressure I think is number one, the major issue. I'm sort of agnostic on whether the M2 demand is behaving that much better. I somewhat agree with the possibility of what Governor Heller suggested--that M2 velocity has something to do with the stability--, the prediction accuracy on T-bills and short-term interest rates, to some extent. So, I'm satisfied with where it is, but I can support moving it up; I'm sort of indifferent.",125
-fomc-corpus,1988,Governor Heller.,4
-fomc-corpus,1988,"When I joined the Board somebody told me that alternative ""B"" was always the correct one. I'm grateful to the staff that there are alternatives ""B"" and ""C"", so ""B"" is still the correct one.",45
-fomc-corpus,1988,We had a long debate in the Bluebook meeting about whether we should cut off the first letter of the alphabet.,23
-fomc-corpus,1988,"You've got to make it easy. I'm happy to support alternative ""B"". And I think the Ms are right in the middle of the target range; that's very good. I think we should avoid adopting a stop-go policy so we are not overdoing it on the tight side and see that danger would be there. I think I'd go along with Governor Angell on giving the monetary aggregates a bit more prominence. I'm not sure I want to move it to the first spot, but somewhere in the middle is fine. I think that that would be very good in front of foreign exchange and domestic financial markets. Overall, I support $600 million borrowing and I'd prefer symmetric language but be happy to go along with asymmetric.",143
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"I can support alternative ""B"" considering how recently we tightened and also the short time before the next FOMC meeting. However, it seems to me that further tightening will be needed soon, if it isn't needed now, and that alternative ""B"" can hardly be described as a policy that keeps us ahead of the curve with regard to the problems of excessive economic growth and intensified inflationary pressures. Therefore, I strongly recommend the asymmetric language. It would permit a tightening of policy in the intermeeting period if incoming data indicate no significant deceleration in economic activity. With regard to the ordering of the phrases in the second sentence of the operational paragraph, I would not be in favor of changing the position of the monetary aggregates because I know how quickly their behavior can change and we might regret moving them up to a more prominent place this early.",168
-fomc-corpus,1988,President Melzer.,4
-fomc-corpus,1988,"I agree with what you outlined, Mr. Chairman, the $600 million and asymmetric language. I feel strongly also that we are going to have to move again. I'm particularly concerned about the very rapid growth in the last couple of months of the narrower aggregates. And picking up on what Bob Black said earlier, I think that the nature of our implementation of policy is such that if the demands are there in the market for reserves we'll fill that demand at the given borrowings level. So I think we can't be complacent that we've done enough, certainly. But I also agree with what you said: I think it's important to let the prior move get digested. And I don't feel strongly that the ordering in the language has to be changed.",149
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Mr. Chairman, it seems to me that every-thing that we've heard around the table this morning plus the incoming data suggest that if the economy continues to be very strong we are going to have to take another move fairly soon. But I don't think now is the time to do it. One of the concerns I would have about moving right now is not only the shock to the domestic market, but also the destabilizing effect that it might have abroad--in the sense that you might get a ratcheting of rates around the world if we were to move very quickly after the action we've just taken. So I come out that we should stay where we are with the $600 million of borrowing. But I feel very strongly that the language should be asymmetric. With respect to the ordering of the directive, I don't really see any compelling case to change the order. I don't think the relationship between the economy and the monetary aggregates has been established, and I think the order does suggest the way in which we look at things for purposes of making policy. While I don't feel very strongly about it, I would rather keep it the way it is.",229
-fomc-corpus,1988,Governor LaWare.,4
-fomc-corpus,1988,"I'm completely in agreement with the analysis of the strength of the economy. I feel a little bit like I was in a vehicle that was accelerating down the road and I have an instinctive desire to hit the brakes a little bit and snub it down. But the thing that worries me is that I think the road's a little slipperier than it looks in the sense that there's some fragility in the infrastructure of the economy. First of all, consumers have a heck of a lot of debt. And the most recent instruments of that debt--equity credit lines, as we call them--I think have been abused in the granting throughout a large part of the industry. I think there's a significant danger that if we got into any kind of a downturn in the economy we could have a lot of consumers in a considerable amount of trouble in that particular area, because they've converted other kinds of debt to equity credit lines. Probably more important, however, is the heavy debt structure in the corporate sector. If you were to look at as many of these leveraged buyouts and takeover schemes as I have, you would find that in a lot of these the cash flows that are designed to service the debt that's involved are very skinny indeed. And they depend on a relatively stable interest rate structure and the ability over a reasonably short period of time to liquidate assets in order to get debt down to manageable levels. Well, it seems to me that a significant increase in interest rates--even one as modest as the one described in the Greenbook--over the next 12 months or so could create some major problems, at least for some of the situations that I've seen. And that could have a very sobering effect, it seems to me, on the overall economy through the problems that would be incurred by some very large companies. Another one that I guess tends to slip out of our minds occasionally is the real estate situation. It has been getting better, not only in the banks--which have increased their capital in order to sustain the possible losses in this area--but also in the country generally. The country has been benefiting from lower interest rates and the ability to restructure some of that. It seems to me that a lot of that ground that has been gained could be lost if the cost of servicing that debt goes up significantly, as it would because much of it is denominated in variable rates. Finally, this thrift situation--an aspect of which we intend to discuss at the luncheon today--has not gone away. It's getting worse. And a significant increase in the cost of money to these troubled thrifts is just going to accelerate the rate of loss in that industry. When you take all of those in the aggregate, it seems to me if we snub the brakes too hard and too fast, or oversteer this vehicle, we have a risk of going into the ditch. All I'm suggesting is that, while I think snubbing the brakes and being prepared to do so is important, I think we have to keep a very close eye on what the effects of significantly higher interest rates could be and be ready to ease up quickly if that happens. I'm not sure I understand all of the terms like asymmetrical language and so forth, but I certainly would support the $600 million target on borrowings. And I'd lean more toward the borrowings and reserve targets as opposed to either the funds rates or, with due respect to my friend Governor Angell, the aggregates.",694
-fomc-corpus,1988,President Black.,3
-fomc-corpus,1988,"Mr. Chairman, a while ago I commended Mike Prell and his associates for producing drought-adjusted figures on GNP. I would like, with equal vigor, to commend Don Kohn for producing an asymmetric Bluebook. I agree completely with what you said on policy, and a willingness to act further if the need should arise. I also agree with your statement that it might well happen that we will need ""C"" next month. [If that's the case,] I would hope we would have an intermeeting telephone conference like we've had. And finally, I would agree completely with Governor Angell's suggestion that we move the aggregates up to number one, which probably doesn't come as a great surprise to some in this room.",148
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"Well, I find it a close call between whether we tighten further now or whether we wait for a while. I think your suggestion about asymmetric language resolves that as far as I'm concerned, so that the specifications of ""B"" with asymmetric language look okay to me. I do think it probably pays here to take a little pause at least, and assess the results of our actions to date, given the uncertainties associated with any forecast and errors that go with these things as well. Along those same lines, I would admit that I take some comfort anyway in the slowing in M2 and the prospective slowing in M2 if Don's forecasts are in the ballpark. I would not be at all troubled if that in fact materializes, or even materializes a little more pronouncedly than Don envisions. I think that will help keep us on the right course.",172
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"Mr. Chairman, I agree with the policy pre-scription as you outlined it. Going back over the past several months, I think the record's been good; we have been moving in the right way. And I think it is appropriate to see if at some point this doesn't begin to have an effect. But I do think it's clear from comments that we've got more to go, and the question is more of timing as opposed to the direction that we are going. So, I would be in favor of the asymmetric language and a borrowing level of $600 million. And I'd allow the fed funds rate to seek its own market level. But also I think if there are any other indicators, I'd move again on this, and I do think the phone call procedure has worked out very well as a way of dealing with these interim changes. Certainly, I would encourage continuation of that. With regard to the language, I do feel that the pressure now is on the inflationary side and we ought to maintain that focus. So I would leave the language in the paragraph just as it is.",218
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"[I favor] alternative ""B"" with an asymmetrical directive. I would keep the ordering on the language the same. However, I think a legitimate point has been raised about M2 and I think we probably ought to take a look at it at the next meeting to see if the case for it has improved. If it has, then I think at that point it would make more sense to put it higher up on the list. But I think it would be premature at this point.",98
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"I, too, was surprised at the asymmetry in Don's Bluebook. And I thought about it a little bit and I figured if he can get rid of ""A"" this month, he can get rid of ""B"" next month. I don't have any faith in this trend.",59
-fomc-corpus,1988,It's not a trend!,5
-fomc-corpus,1988,"I think that kind of reflects my views on what we ought to be doing. I think the surprises, just from six weeks ago, in terms of the staff forecast have been on the upside; we are very strong relative to where we thought we were. Now policy is on the move. I think the markets expect policy to stay on the move. And I think that leads me towards a preference for alternative ""C"". I would be much more comfortable if the economy had been growing at 2 percent and we were waiting to see the effect of our policy. I don't think then it would be so urgent to move. Jerry Corrigan made a point earlier that the inflation problem may already be there, in terms of rising. I think he was referring to compensation costs. So it seems to me important to try to keep the thing moving along. I am sensitive to the issue raised that we have made major moves; and certainly people can disagree on the timing. But as I listen to the concensus around here, at least to this point, very few have indicated that we don't need to move. And I guess my point is we've started; we probably should continue. So we could use ""C"" with asymmetric language going the other way which would require us to kind of gradually pull towards ""C"" and not go directly to that.",268
-fomc-corpus,1988,I'm not sure what you mean by that.,9
-fomc-corpus,1988,"What I mean is we would choose ""C"" but we wouldn't move agressively towards ""C"" until we got stronger, until we got more data in. In other words, we have a commitment to be at ""C"" by the time we are at the next meeting--to a gradual tightening.",61
-fomc-corpus,1988,"Okay, so you mean you want to go to $700 million now and then to $800 million by the next meeting?",25
-fomc-corpus,1988,Right. So let me just finish off by saying I would prefer to move M2 up in the ranking.,22
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,"I find myself with Mr. Hoskins. I think we are moving too slowly. We've had in the past month evidence showing that the economy is much stronger than we thought a month ago. We've had this dazzling--more than 800,000--increase in payroll employment in two months, we are seeing the producer price index, excluding food and fuel, break out on the upside of the range that it has been in in recent years, we are seeing a rising trend in labor compensation. Granted, most of that reflects medical costs and not necessarily all wages, but it still shows the beginning of a rising trend in labor costs in the United States. I view this present situation as being asymmetric in this sense: that given the powerful [unintelligible] in time, if we were to move to a policy that was too restrictive we would have plenty of time to correct it as we did in 1983, 1984, 1987. But if we make the opposite mistake and have a policy that's too accommodating, we may find ourselves way behind the curve and facing a situation in which we only have two choices--accommodating an accelerating inflation or pushing the economy into recession. And it seems to me that is the real danger of moving too slowly in the face of evidence that the economy is picking up very strongly. Steve McNees reminds me that the average forecasting error four quarters out is 1-1/2 percentage point, plus or minus. If the error is plus, meaning that our forecast is on the downside, I think four quarters from now we will have only that choice: Do we accommodate a further acceleration of inflation or do we push the economy into recession? And that is the kind of choice we ought to be trying to avoid at all costs. The cost of moving now, running the risk of following too tight a policy now, is a lot less than the cost of being forced into making one of these two bad choices. And the only way you can avoid making one of those two bad choices, as we learned in the 1970s, is by taking a risk early in the game. During the 1970s we were doing exactly what we are doing here. We were moving policy in the right direction, but we were never moving it enough to stay ahead of what was going on in the system. I feel that we are making exactly the same kind of mistakes today. I would buy Hoskins' suggestion of moving initially to $700 million with the idea of closing up at an $800 million level. I think that sounds sensible rather than doing it all at once. But I have a very strong feeling that we are moving policy too slowly here.",544
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"Well, I guess I'm a ""B"", $600 million today. It's not a new [unintelligible]. First of all, I think the discount rate hike did catch almost everybody in the markets by surprise. Everyone is on vacation, and I don't think that we've had the full impact, particularly in the stock market. Also, we've had several rounds of tightening so far this year and I'm not convinced that all of those have been felt in economic activity yet. Also, I think the foreign exchange markets are very, very important to this process. And I would want to be sure that we didn't get the dollar moving so rapidly north and get it so strong that it would impede our ability to fix our trade imbalances. I think it's important to get that done over the long term. I do believe money matters and I think the monetary aggregates--particularly M2--have been looking quite good, behaving very well. In connection with that, I would go along with Wayne Angell's idea that we move it up. I'm not sure that today I'm willing to put it in spot number one, but I am willing certainly to move it up [in the directive listing of factors]. Some of the indicators of inflation and inflationary expectations, I think, look better than they did a couple of months ago, particularly looking at prices of such things as gold, oil, certain commodities. And I realize we have a weak producer price index and some of those, but I think the more sensitive price numbers are not looking necessarily worse. As I said, I would go for a $600 million borrowing target, and I guess I would prefer a symmetrical directive, but I can certainly live with an asymmetric one.",342
-fomc-corpus,1988,President Boykin.,4
-fomc-corpus,1988,"Mr. Chairman, I also would go with ""B"", a $600 million borrowing assumption, and the asymmetric language because I do think the next move will have to be up. As for the placement of the aggregates, I'm rather ambivalent on that at the present time. Having tightened the position, which would lean towards moving to a little more restriction, I must confess I have a little discomfort. I share many of the concerns that Governor LaWare pointed out. Given the situation that we have in the Southwest, and having I guess the bulk of the thrift problem centered down there as well as other things, I'm a little uncomfortable as rates move up--as credit becomes a little more restrictive--about what the full implications are going to be. I think it's going to make it fairly difficult for us. However, since there can only be one monetary policy and it has to be a national policy, I fully support the direction of what we are doing.",191
-fomc-corpus,1988,President Guffey.,5
-fomc-corpus,1988,"Mr. Chairman, I would also prefer your pre-scription, that is: ""B""; $600 million; asymmetric. It seems clear to me that the next move probably is up, but I have a feeling that we don't really know what the impact of our most recent moves has been. It's time to pause a bit and see what impact that has on the markets. The other issue--if it's true that the next move is up, and I think there's fairly strong agreement around the table--we are kind of in a box as far as I'm concerned, in the sense that you have this spread between the discount rate and the funds rate which many think does make a lot of difference. Over time as that broadens, I don't think we can lose sight of that spread. And as a result, after the move that's being talked about here in the intermeeting period, you may have to consider another discount rate increase. That has a market impact, an announcement impact, that I think has to be thought about long and hard. With respect to the outlook and moving it up, I'd just like to pause and see where we come out. With regard to the aggregate question, I have great faith in talking about the aggregates as an intermediate target for the long run, but I would prefer not to move it up from where it is now for intermeeting guidance for what policy should be. I think it's about in the right place, about number four. And we ought to keep it there until there's a bit more confidence that it means something for short-term policy guidance.",315
-fomc-corpus,1988,Vice Chairman.,3
-fomc-corpus,1988,"Like some others, there is at least a crisp debate in my own mind as to whether you could make a case that we should proceed promptly with a further move in the direction of tightening. But I am persuaded that the interest of orderly procedure, if nothing else, suggests that there is something to be said for what I will call a short period of gestation here. So in that setting, I would support the formulation that you suggested Mr. Chairman. I don't want to muddy the waters, but I would myself at least prefer the form of asymmetry that eliminates any reference to lesser reserve restraint whatsoever in the directive. I am absolutely convinced at this juncture that we are going to have to firm up policy further and I think the sooner we get on with that test the better. That's because, fundamentally, I agree with much of what Frank Morris says. I am afraid that even as we speak the inflation problem may be on top of us. And I agree with much of what John LaWare said about the financial risks. But the other side of that is that the one thing we know will get us those killer interest rates is a killer inflation rate. So I am very sensitive to those financial risks, but I'm also, as I say, very sympathetic with what Frank said.",257
-fomc-corpus,1988,"Okay. As I read all comments, it's clear that we have a strong central tendency for $600 million, asymmetric language, alternative ""B"". Amongst the members, there's marginal support for moving up the Ms, although little support for number one as yet. So I would suggest that what we do is to move the aggregates above foreign exchange, because it's hard to place that--",76
-fomc-corpus,1988,[Unintelligible.],6
-fomc-corpus,1988,That's probably the way to do it.,8
-fomc-corpus,1988,Because people believe that's what we are saying.,9
-fomc-corpus,1988,Move it where? Where are you going?,9
-fomc-corpus,1988,"He's going to take it above, into number three.",11
-fomc-corpus,1988,Promote it to three.,6
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,"Now, it's conceivable that it may get demoted--",11
-fomc-corpus,1988,That's my problem.,4
-fomc-corpus,1988,[Unintelligible.] There's definitely a majority of the members in favor of doing that. I've been tabulating as it goes along. But it is not a strong concensus.,37
-fomc-corpus,1988,I think your resolution is fair.,7
-fomc-corpus,1988,You do?,3
-fomc-corpus,1988,Yes.,2
-fomc-corpus,1988,I knew you might.,5
-fomc-corpus,1988,Does that mean that the markets--,7
-fomc-corpus,1988,"I'll just say for the record--I'm not going to make a fuss about it--I would prefer that it stayed fourth in line, but--",29
-fomc-corpus,1988,"Well, it's close.",5
-fomc-corpus,1988,But I had you down.,6
-fomc-corpus,1988,You caught it; I figured that.,8
-fomc-corpus,1988,I didn't bother asking you.,6
-fomc-corpus,1988,You want another vote?,5
-fomc-corpus,1988,We already have you down.,6
-fomc-corpus,1988,Use the 6 to 10 in here.,10
-fomc-corpus,1988,"The monetary aggregate growth, now that it's getting more emphasis--",12
-fomc-corpus,1988,"3-1/2 to 5-1/2 is what you've got in the Bluebook for ""B"".",24
-fomc-corpus,1988,"3-1/2 ""to"" or 3-1/2 ""and""?",18
-fomc-corpus,1988,"3-1/2 ""and"". Why, did I say ""to""?",16
-fomc-corpus,1988,Or I didn't hear.,5
-fomc-corpus,1988,Okay.,2
-fomc-corpus,1988,You say 3-1/2 and 5-1/2?,16
-fomc-corpus,1988,3-1/2 and 5-1/2.,13
-fomc-corpus,1988,"[The operational paragraph would read as follows:] ""In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint would or slightly lesser reserve restraint might be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from June through September at annual rates of about 3-1/2 and 5-1/2 percent, respectively. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent.""",181
-fomc-corpus,1988,Call a vote.,4
-fomc-corpus,1988,Chairman Greenspan Yes Vice Chairman Corrigan Yes Governor Angell Yes President Black Yes President Forrestal Yes Governor Heller Yes President Hoskins No Governor Johnson Yes Governor LaWare Yes President Parry Yes Governor Seger Yes [Secretary's note: Governor Kelley was absent and did not vote.],58
-fomc-corpus,1988,"The only remaining item on the      agenda is to note that the next meeting is Tuesday, September 20.",22
-fomc-corpus,1988,Can we have a motion to approve the minutes of August 16th?,15
-fomc-corpus,1988,I'll move it.,4
-fomc-corpus,1988,Is there a second?,5
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection, the minutes are approved. Similarly, we need a motion to accept the Report of Examination of the System Open Market Account, which was distributed in late August.",34
-fomc-corpus,1988,Move it.,3
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection. Mr. Cross, will you bring us up to date on operations in foreign currency markets?",21
-fomc-corpus,1988,[Statement--see Appendix.],6
-fomc-corpus,1988,"Any questions for Mr. Cross? If not, do I have a motion to approve his operations during the month since the August 16th meeting?",30
-fomc-corpus,1988,So moved.,3
-fomc-corpus,1988,Is there a second?,5
-fomc-corpus,1988,Second.,2
-fomc-corpus,1988,"Without objection. Mr. Sternlight, would you bring us up to date on domestic open market operations?",21
-fomc-corpus,1988,"Yes, thank you, Mr. Chairman. [Statement--see Appendix.]",15
-fomc-corpus,1988,"Any questions for Mr. Sternlight? If not, I'll entertain a motion for approval of the actions of the Desk since August the 16th.",30
-fomc-corpus,1988,So moved.,3
-fomc-corpus,1988,"Without objection. Now we'll go to the economic situation, Mr. Prell.",16
-fomc-corpus,1988,Thank you. [Statement--see Appendix.],9
-fomc-corpus,1988,"I might note that this morning the Commerce Department released revised second-quarter GNP figures where the second-quarter growth rate was revised down from 3.3 to 3.0 percent. That would still leave, after the drought effects, growth in the nonfarm economy in excess of 3-1/2 percent in the first half.",68
-fomc-corpus,1988,Thank you. Questions for Mr. Prell?,10
-fomc-corpus,1988,"Mike, could you give us some of the details of the revision in GNP, including the deflator and the fixed-weight deflator.",28
-fomc-corpus,1988,Sure. Both the deflator and the fixed-weight price index were revised upward. The fixed-weight price measure was raised from a 4.7 percent to a 5.0 percent increase. The deflator largely reflected this; it was up from 5.1 to 5.5 percent. It's a little bit of an unfavorable mix shift.,71
-fomc-corpus,1988,What was the composition of the change in the fixed-weight? What additional information did they have?,19
-fomc-corpus,1988,"It appears that most of the upward revision of the fixed-weight index occurred in the service category. That's an area where, in addition to using some information from the CPI, they also bring to bear additional information. For instance, they use wage rates of hospital workers to help estimate the medical care costs and information they're getting from the banking industry to estimate banking margins. So they do get some additional information in addition to the CPI.",85
-fomc-corpus,1988,That's a rather large increase for a second shot at the fixed-weight.,14
-fomc-corpus,1988,"We don't have the full detail yet, and we haven't had a chance to talk to people about enough of the details. We're flying a bit blind at this point.",33
-fomc-corpus,1988,Do you know which components of GNP were revised down?,12
-fomc-corpus,1988,"Yes. There were, of course, small revisions in a number of categories. The most dramatic revision in growth rate was in nonresidential structures. As we had noted in the Greenbook, the construction-put-in-place showed a substantial revision in June. So this isn't a shock. There was a modest upward revision in consumer spending. There was a small change in net exports. There were just small changes sprinkled around.",84
-fomc-corpus,1988,Mr. Parry.,5
-fomc-corpus,1988,"I have a question about your forecast of net exports. There's a very substantial improvement in the net exports over the period. I get the impression that if one were just to look at the model forecast, assuming a relatively moderate decline in the value of the dollar, that you wouldn't get that significant an improvement. Am I correct in assuming that your forecast has a large judgmental component; and if so, is that sort of the opposite of what we saw when the dollar was going down? When the dollar was going down, the model predicted a more quick response in terms of net exports. Now that the dollar has gone up, are we assuming that has a delayed response as well--in terms of slowing the improvement in net exports?",146
-fomc-corpus,1988,"There's only two things to say about the model over the forecast period. One is that in talking about trade these days, we have found that you have to sort out the effects of business machinery on both the import and export sides. On the export side in the model, we may be slightly more--well, actually, not even that much more--optimistic than the models we use. Taking the second quarter as a base, we have improvement of $40 billion in the volume of non-agricultural, non-business machine exports; and the model that we use has just improvement of $36 billion. So, the order of magnitude is quite small on that side and I think it's roughly the same on the non-petroleum volume. It's about the same in terms of the changes that we produce. The other thing that's going on is that, starting from the second quarter of 1989, you get improvement on the volume side in the agricultural exports--which gives you a boost in this period when we total these figures. That's a special factor.",211
-fomc-corpus,1988,So you don't know.,5
-fomc-corpus,1988,"We don't have a lot of optimism. In part, the optimism that we have is built into the level that has been associated with the first half of this year. We have to acknowledge that perhaps the first half has performed better than the models would produce for the year. And we had chosen not to take [unintelligible]. In that sense you have maybe more of a catch up with the [unintelligible] the first half of the year. To say one more thing: On the import side, we have increasingly tried to relate business machinery, which is quantitatively very important in GNP terms, to the forecast for business fixed investment in general. So that's driven in large part by that forecast and our assessment of a large portion of that [unintelligible] is sort of how the world markets for computers seem to be developing. [unintelligible]",178
-fomc-corpus,1988,"Yes, thank you.",5
-fomc-corpus,1988,President Hoskins.,4
-fomc-corpus,1988,"Let me just follow up on Bob's questions. Since the last forecast session, many of the major economies in the world have had upward revisions in their real growth forecast for the rest of this year and also for 1989. I'm wondering, how do you factor that into your export numbers? Or did you?",63
-fomc-corpus,1988,"Well, we didn't. The official forecasts have been revised up; they lagged way behind the data. We have not changed our forecast. In fact, this morning the Japanese GNP number came out for the second quarter, which shows a decline of 3.9 percent at an annual rate; That is largely statistical. We had built in a decline of 2 percent at an annual rate. So that's a [unintelligible]. Our sense is that, if anything--although we have about the same outlook over the six quarters of the forecast--it is at a materially subdued rate relative to what we've seen. And that's largely because we have a tighter monetary policy picture for most of these countries, and most of the countries are moving in the direction of fiscal restraint. Germany, the UK, and Japan are basically moving in the direction of fiscal restraint over the forecast period. And then you have that tightening monetary policy move.",187
-fomc-corpus,1988,"Mike, could you refresh me on what the interest rate increase is--the assumption based on your forecast.",21
-fomc-corpus,1988,We still have the federal funds rate rising to something in the vicinity of 9-1/2 percent by next spring. We have the long Treasury bond rate moving a bit above 10 percent.,40
-fomc-corpus,1988,President Morris.,3
-fomc-corpus,1988,I have a question for Mr. Truman. I note that you're expecting a better than $25 billion deterioration in net investment income this year as compared to last year. But you show no further decline in 1989.,44
-fomc-corpus,1988,"That's largely a function of the capital gains effects. You had net capital gains in the current accounts--I don't remember these numbers, but on the order of plus $15 billion--last year because as the dollar declined you had a favorable valuation effect on foreign investments. And this year, with the dollar appreciation, we are estimating a loss of $4 billion. The swing is essentially $20 billion in capital gains for this year versus last year. And that swing is what generates the investment income. Next year, with a much milder decline of the dollar--although we have a smaller positive factor--the swing is not nearly so important. There are some other special factors this year, including the fact there has been a tax ruling on foreign investments in the United States that requires them to report them as income deferred tax liabilities. That will generate a reported increase in income this year, and that's already in the third quarter. And that shows up as an outflow last year and will reverse [unintelligible] a bit next year when you get a positive net effect. And that's the main--",220
-fomc-corpus,1988,Governor Seger.,4
-fomc-corpus,1988,"I have basically two questions. One is, if we don't get the dollar coming off from existing levels, what will that do to our ability to produce these kinds of net exports?",36
-fomc-corpus,1988,You said there were two questions.,7
-fomc-corpus,1988,Do you want to do them one at a time or do you want to do several?,18
-fomc-corpus,1988,"The decline in the dollar is fairly gradual over the course of 1989. There's very little effect--essentially zero--in terms of the forecast of the real economy coming from that factor. It will begin to have an effect as you go off into 1990. Even the forecast of the dollar that we have using conventional models. You can have essentially an improvement in the trade balance falling out as you go into early 1990 if you just stop the exchange rate where it would be in the fourth quarter of 1989. If you stopped it where it is today, we would fall out earlier. That's something in the trade balance of around $100 billion, depending on what happens to growth differentials--if things turn around and begin to deteriorate, or if our growth is approximately the same as that of the rest of the industrial world. But the forecast itself is not heavily dependent in this time horizon on the course of the dollar.",191
-fomc-corpus,1988,"Some business people are concerned about their ability to be competitive at existing levels, but maybe that's not a predominant view. My second question is one involving a statement in the Greenbook that staff continue to believe that additional pressure in financial markets would be required to slow the expansion, etc. And I guess this goes to Mike: Do you think you've seen the full impact of the tightening moves that we've had to date?",82
-fomc-corpus,1988,"No, but our thought is that even after we have absorbed those, that we will not open up enough slack, so to speak, or reduce the pressures on the economy enough, to relieve the inflationary pressures. Therefore, we need to hold growth below potential for a period of time. What we have in our forecast is a very slight shortfall of actual growth from potential and very slight easing pressures on resources. And we think that, given the underlying tendencies in the economy, we are going to need a bit more restraint to keep things under control over the last two or three quarters of 1989.",122
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,Governor Angell.,4
-fomc-corpus,1988,"Yes, Mike, I'd like a follow-up question to Governor Seger's questions. Apparently, you have an optimum growth rate in mind, let's say, over the next four quarters. What would that optimum growth rate be?",44
-fomc-corpus,1988,"I don't know that we have an optimum growth rate. Basically, we sense that the pressures on resources are too great at this point to hold the inflation rate down to recent levels. And we feel some easing [of those pressures] is necessary. We believe the trend of real output growth is somewhere around 2-1/2 percent. Therefore, we believe that we've got to grow something under that in order to ease those pressures. We recognize the uncertainties about where the natural rate of unemployment is, if that's the operative concept. We recognize that the composition of activity can make a difference of--. This is a rough judgment, ultimately; I don't want to get too precise about it, but basically we think we need some additional restraint to get the economy below potential, and we believe that that probably is necessary.",163
-fomc-corpus,1988,"But, Mike, precision is helpful in communication. I can take the time to pry the number out of you by asking you a series of questions, but it would save some time if you'd simply tell us.",42
-fomc-corpus,1988,"I think I cited a number of 2-1/2 percent, Governor Angell, as what we believed potential GNP growth is. Therefore, it depends how fast you want to get the inflation rate down. If--",46
-fomc-corpus,1988,"What would you think would be the optimum adjustment process? I mean, do you like 1-1/2 percent better than 2-1/2 percent?",34
-fomc-corpus,1988,"Well, you're asking me to make a policy judgment, a subjective judgment about the short-run costs and benefits of a policy you have in mind. What we have tried to make is a positive statement: That if you want to avert some acceleration of inflation, we need to reduce the pressures on resources. The more that is done, the greater the chances are you will see no acceleration at all in the underlying inflation rate next year and that you will be able to tip it down noticeably in 1990. I think it will take more than we have built in here to make a decided move towards restoring a disinflationary trend by 1990.",131
-fomc-corpus,1988,"But, Mike, there's a policy assumption involved in the interest rate forecast and I am just not sure whether you'd prefer 1-1/2 percent real GNP growth or a 1/2 percent GNP growth or a negative 1/2 percent. I'd like to have some better understanding of what you think it would take in order to get this best adjustment.",75
-fomc-corpus,1988,"Again, I don't feel I'm in a position to declare the best adjustment. I suspect, going around the table here, the policymakers would have some different views about the risks they would want to take and how rapidly they would want to move to bring down the inflation rate. If I were to aim at the kind of inflation trajectory that you've outlined--declines of 1 percent a year in the inflation rate--I would suggest that you would need a substantially greater tightening. You would need to bring growth down substantially from what we have in order to get back on that track. I don't think we're on that track now, and I think you'd need substantially greater restraint--probably close to or even into recessionary conditions--in order by 1990 to have an inflation trend down to 3 percent at an annual rate.",164
-fomc-corpus,1988,Thank you. The last statement finally answered the question.,11
-fomc-corpus,1988,Governor Johnson.,3
-fomc-corpus,1988,"Mike, what did you say your federal funds rate forecast was? Lee asked, and I forgot. Did you say 9-1/2 percent?",31
-fomc-corpus,1988,"We're looking for around 9-1/2 percent. Again, I don't want to be too precise.",22
-fomc-corpus,1988,"Yes, I know.",5
-fomc-corpus,1988,A significant increase from where we are.,8
-fomc-corpus,1988,And you're saying about a proportional move up in the long-run rate to 10 percent?,18
-fomc-corpus,1988,Just about.,3
-fomc-corpus,1988,"The only question I have about that is that we haven't seen that kind of trend with our moves on the funds rate this year. We've had a 1-1/2 percentage point increase in the funds rate and actually a sharp flattening of the yield curve. Long rates stayed about where they were, maybe going up some, but much less than proportionally. I think the yield curve has flattened from about 2-1/2 percentage points down to less than 1 percentage point. What if that trend continues? What would the forecast say if the move to 9-1/2 percent on the funds rate was not accompanied by a proportional move in the long bond? What kind of differential effects would that have?",146
-fomc-corpus,1988,"As you know, some of this extreme flattening is a very recent phenomenon. Earlier in the year, you were getting more substantial increases in long rates as short rates rose. I guess underlying this projection, at least in my mind, is a sense that the markets may have overdone things recently and that part of this may be the lack of long bond authority and unusual tightness in the long end of the market at this point. But we do have what would be a fairly substantial rise in long rates along with the short rate increases in this forecast, partly on the presumption that the market will be surprised to some degree by what it takes in order to damp inflationary pressures. They would come around more to our view; there's a strict internal consistency in these forecasts.",155
-fomc-corpus,1988,"No, that's okay.",5
-fomc-corpus,1988,"If the rates don't rise--, they might not rise as much for a number of reasons. One could be a change in inflationary expectations. We may have had some of that recently, where the apparent willingness of the Fed to move earlier than some would have thought may have helped to hold down long-range inflation expectations. To the extent that that's going on, you're perhaps not getting a significant real rate effect and thus the damping influence on demand. If events transpire that cause real rates not to rise as much as we would anticipate in this forecast, then we might have a different outcome where investment demand may be sustained a bit more than we have [in the forecast]. There are innumerable scenarios that one could draw where the movement in long rates would have different implications.",154
-fomc-corpus,1988,"I understand. What I'm saying is, let's assume it's inflationary expectations being adjusted, and that's why the long rates haven't gone up. Say that continues to be the case, but the funds rate goes up to 9-1/2 percent without much change in the long bond due to improvement in inflationary expectations or something like that. What would be the differential impacts of that?",77
-fomc-corpus,1988,You're saying that if the flattening occurs entirely because of reduced inflation expectations--,15
-fomc-corpus,1988,"Okay, entirely, let's say, to debate the extreme.",12
-fomc-corpus,1988,"It would depend in the short run in part on whether it was a change in the long-run perception of what inflationary trends would be and in part on whether it was a reflection of a sense that the economy might be headed toward recession. Clearly, in other historical experience we've seen a marked flattening of the yield curve just before downturns in the economy. If we were to move up short rates as much as we're talking about here and the long rate didn't rise at all--that would be a very steep downward slope. And I suspect it would only occur in circumstances where people would perceive that there was a significant likelihood of a near-term weakening in the economy.",133
-fomc-corpus,1988,"Your view is, though, that these expectations will be revised in the near future and that the long bond will move back up?",26
-fomc-corpus,1988,"That's basically what we're assuming. It's very difficult to psych out the market at this point. One can come up with a number of alternative hypotheses about why the market has behaved in just the way it has recently--in interpreting recent news and so on. Another factor is the dollar situation, in terms of our longer-run external position and what we think ultimately we need to correct that. That's probably a factor that's going to be less favorable as we move along in the projection period. And, as I suggested, we're presuming that the market will perceive that a greater degree of restraint is necessary to rein in inflationary pressures than perhaps it currently is. They will come around to [unintelligible].",140
-fomc-corpus,1988,"And if that's the case, then the long bond would be surprised into further upward moves.",18
-fomc-corpus,1988,Right.,2
-fomc-corpus,1988,President Boehne.,5
-fomc-corpus,1988,"Mike, you've made I think a rather persuasive case both in your written comments and your oral comments this morning that we will need some additional restraint to hold aggregate demand to the level that's more consistent with reducing inflationary pressures. I wonder if I could get you to put yourself on the other side of that question. I wonder if you could help a slow mind this morning and articulate the case that maybe we won't need the kind of restraint that you're talking about to get the job done. In other words, I wonder if you could admit to where the cracks might be in your argument and the things that might happen that would say that while we might need a touch more restraint, maybe we've done much of the job that we need to do.",147
-fomc-corpus,1988,"I hope I wasn't too persuasive because there is a range of uncertainty about our forecast. For example, one of those areas of uncertainty obviously is the sensitivity of investment demand to what has already occurred in interest rate movements and the dollar. There's been some perception already that the future competitiveness of some U.S. industry will be less than people thought previously; perhaps the momentum of investment might not be as strong as we have in this forecast. Fiscal policy we have interpreted as providing a degree of restraint on aggregate demand. That is always difficult to interpret and it's conceivable that our underlying policy-action assumptions could turn out to be wrong. And we could have a greater degree of restraint being applied, damping activity more than [unintelligible]. Consumer spending has fairly consistently surprised us in this expansion by its strength, and as this has occurred, consumer debt levels have risen. We've outlined for you what we think the cash flow consequences are of rising rates on households. We feel this isn't a big problem, but again one would have to admit the possibilty of some surprise there. The oil price situation is something imponderable and that's a very difficult situation to sort out, because it has underlying aggregate demand effects if we were to get a change in the price from our assumption. I feel reasonably comfortable with the inventory situation, but there too, there may be some pockets in the retail level that could exert more of a drag on output in coming months than we have [assumed]. But I don't see that as a very great problem. So, I think there are any number of areas across the economy where conceivably things might turn out weaker than we have.",330
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,Governor Kelley.,3
-fomc-corpus,1988,"Mike, if you would for just a second speculate on the other side of the suggested policy recommendation for taking federal funds up to 9-1/2 and 10 percent--the possibility that that might induce a recession somewhere along the line. What would be the implications of a recession let's say in late 1989 or early 1990 if you began to see the federal deficit burgeoning and so forth? What would be the broad brush of a scenario of a recession, given the larger picture of where we are on the deficit and the new president in place trying to get new policies established and so forth?",122
-fomc-corpus,1988,"Well, I'm not sure that that recession would appear soon enough to greatly affect the discussions about the 1990 budget. But it's conceivable that, in your hypothesis, the picture could change and then one has to make a political judgment. There are many people, obviously, who would question the ability of the Congress to institute significant further deficit reduction measures if the economy appeared to be weakening. And the actual budget deficit in those circumstances could become very large in 1990, which in effect would exacerbate the long-run problem by adding further to the level of debt. So, it's a pretty dicey situation. I think it's clear that they will have an easier time putting together a budgetary package that makes substantial ongoing progress in reducing the deficit in an environment where the economic outlook appears to be reasonably satisfactory.",161
-fomc-corpus,1988,President Stern.,3
-fomc-corpus,1988,"Mike, a few minutes ago you alluded to inventories as a possibility of adding a little bit to the downside. But I have the impression that your inventory path is really pretty conservative. Is that a fair characterization?",43
-fomc-corpus,1988,"Basically, if we strip away farm and strip away autos, which are in good shape now--though there may be some accumulation over the remainder of the year. But I think that's a sort of a separable situation. Outside of that area, we're looking for a bit faster accumulation than we saw in the spring over the remainder of this year and then some slight tapering off. It's not a dynamic factor in this projection. And as the Chairman has pointed out, in an environment where business activity is fairly robust and capacity is getting tighter and prices are rising fairly rapidly for materials and so on, it's not inconceivable that at some point manufacturers will become more aggressive than we've put into this forecast. We have manufacturers increasing their inventories over the coming months; but there could be an outside risk, as I noted in my comments, that if things got out of hand on that score it could add perhaps to greater near-term strength in the economy. But it would set us up perhaps for more of a shakeout later on in 1989.",209
-fomc-corpus,1988,Governor LaWare.,4
-fomc-corpus,1988,"Mike, I'm having difficulty understanding the consistency between your interest rate forecast and the forecast for further downward pressure on the dollar. Help me with that one.",30
-fomc-corpus,1988,"Maybe I ought to do that. The forecast for the dollar is largely driven by the view that ultimately you have to have substantially smaller trade and current account deficits than we have now. The exchange rate adjustment will be part of what brings that about. We don't have any strong view about when we're going to get it, but it would be over the next five years, say. So in building the forecast we have tended to put in a moderate decline in the dollar as a background factor, which does not have a big role in the short run but it is the direction of where we think the pressure is going to be, as I said in my answer to the question from Governor Seger. In producing the forecast we tried to, in some sense, trim that longer-term view by what our assumptions about monetary policy here and others [unintelligible]. Over the past several meetings of the Committee we have tended to adjust up our forecast of the dollar; we have less of a decline in the dollar cumulatively over the period for basically two reasons. One is that the trade performance has been better than we--and I think a lot of people--expected. Therefore, in some sense, the amount of adjustment you need in this process is less. So you don't have to build much into the medium-term framework. We have moved the dollar up because the presumed stance of monetary policy has been somewhat tighter. But over this immediate horizon, we have the dollar flat, essentially, over the balance of this year. That is associated with a view that there's a perception of policy as being tighter. But as we move into 1989, there inevitably will be some slowing in the pace of current account adjustments from what we've had over the past three or four quarters, and we would expect to get some reemerging pressures on the dollar despite the increase in the interest rates that we have had. We have tried in a very crude way to talk about what it would take to stabilize the dollar, and it is a difficult question to answer convincingly--as I explained in the first part of my answer--if you view the dollar's course as being driven by medium-term factors. But the answer comes out somewhat like the answer to Governor Angell's question: That you need more than monetary restraint in the short run [unintelligible] the dollar.",471
-fomc-corpus,1988,Thank you.,3
-fomc-corpus,1988,"Any further questions for Mr. Prell? If not, we've come to the general discussion where the individual members will give us definitive forecasts of the outlook.",31
-fomc-corpus,1988,"Mr. Chairman, I'll lead off. As far as the Eleventh District economy is concerned, we're looking at what's happening or might happen in energy--which over the past year or so is showing a little bit of improvement and turning into more of a neutral factor for us. As far as the outlook for the economy generally, the overall mood of the people that we've talked to very recently has been a little more positive, although it's difficult for them--or for us--to point to specifics that show that something's happening. If we do get a sustained price for oil in the $14 range, that would probably indicate that we have no growth at all in our District economy, whereas we currently have a forecast of sluggish growth of something around 1 percent or less for next year. We are getting reports of substantial capital investments that are planned or that are under way in petrochemicals, particularly in Houston--the upper Gulf Coast area. And they are, of course, benefiting from the lower price of oil. We were fortunate over the last several days to have missed some of the rather devastating effects of Hurricane Gilbert. Although there were tornadoes and there was some damage, it wasn't anything close to what had been anticipated. The real estate area continues, of course, to be the biggest drag that we have. And I do have a real--as opposed to an anecdotal--comment on that. About five years ago, we had our bank property appraised in connection with a study that we were doing. The appraiser came up with a value in excess of $30 million, which a couple of our directors--particularly our then-Chairman who was in the real estate business--felt was low. We've just had our property reappraised in connection with another study we're doing. The same professional independent appraiser group did it this time. They're telling us that our property now is worth between $6-1/2 and $8-1/2 million. You know, that's something else.",403
-fomc-corpus,1988,What did you do to it? Did you take care of that place?,15
-fomc-corpus,1988,"Bob, it sounds like quite a bargain, doesn't it?",12
-fomc-corpus,1988,"Well, there are special factors. The key--and this is not the place to make this statement--but I'll make it anyway. What they're saying is our building is totally used up in terms of its usefulness.",43
-fomc-corpus,1988,Over the last five years!,6
-fomc-corpus,1988,"But I thought that was very, very significant. Granted, we have special circumstances; nevertheless I have a better appreciation of what the commercial banks have been having to deal with as they get new appraisals and reappraisals. And I don't believe anybody knows what real estate is worth any more.",61
-fomc-corpus,1988,"Well, conversion in terms of barrels of oil isn't that bad.",13
-fomc-corpus,1988,That's all I have.,5
-fomc-corpus,1988,President Forrestal.,4
-fomc-corpus,1988,"Thank you, Mr. Chairman. I'm sorry I don't have a real estate study to talk about this morning. Let me turn first to the national economy. I have very little problem with the Board staff's Greenbook forecast; in fact, if we were to build in roughly the same kind of restraint that's in the Greenbook we'd be very close indeed. I think all forecasts these days are a little bit cloudier than usual because of the statistical difficulties with the drought, so I think we need to be a little careful about forecasts generally. I'm very happy to see the recent deceleration, although I wouldn't want to put a lot of credence in a couple of months' data. But I think the thing the markets perhaps are not focusing on is that we are still growing beyond our potential. And that is really what's guiding my thinking and my judgment at the present time. In response to Governor Johnson, there was a discussion about the yield on the 30-year bond and long-term rates generally, and it seems to me that the market may very well be underestimating the strength of the economy and thus reducing its inflationary expectations. I think there is generally a tendency among market participants and business people that I talk with to feel that a slowing economy is a slow economy. I think we've gotten used to large numbers over the past several quarters and the focus is not really on the potential of the economy. So, I not only agree with the forecast, Mr. Chairman, but I agree with the analysis of the staff that unless the economy slows appreciably, we will have to restrain growth further--take additional [steps of] monetary restraint--by the end of the year. I don't think I need say very much about the District because not a great deal has changed since the last meeting. Growth in the Sixth District remains fairly spotty. The manufacturing tradeable goods sector is doing quite well, but the service sector--particularly in urban areas--is not doing well and is really quite sluggish. Construction is off. We used to report pretty regularly, as I said last month, that almost every state with the exception of Louisiana was doing better than the national average. That has really turned around. I think Florida now would be the only state that I would characterize as doing better than the national average. The unemployment rate in all of our states except Florida is now above those in the rest of the country. The good news part of that, I suppose, is that there's very little pressure on wages in this kind of a market. I probed a lot for that among our directors and other business people; and while you hear a little bit of concern about entry-level people and trying to attract them with higher wages, basically we're not seeing any wage pressure at all. The same thing is true generally of prices. The price increases, where they have occurred, have been kind of spotty and in industries that are really going flat out--paperboard, paper, and so on. The good news in all of this is that Louisiana and Mississippi are doing better than they were. That's basically because of some chemical production that is now occurring in Louisiana as well as the pickup in ship building. Although they are doing better, we have to remember that they're coming from a very low base and they would still have to be characterized, I think, as negative growth areas. On the agricultural side, higher prices for some agricultural commodities are going to improve farm incomes since the crop yields were not as affected in the southeast as they were in other areas of the country. That's all I have, Mr. Chairman.",722
-fomc-corpus,1988,President Keehn.,4
-fomc-corpus,1988,"With regard to the national economy--with some modest adjustments for the fourth quarter of this year and the first quarter of next year due mainly to agriculture--our outlook is quite consistent with the staff forecast in the Greenbook. With regard to the District, there's really very little that's new to report. With the obvious exception of agriculture, I think the economy continues to be really very strong. But there are just a few signs of moderation--nothing pronounced. I think there are somewhat slower growth rates in a couple of parts of our economy. Retail sales, for example, were much weaker in the summer months than earlier in the spring. And construction activity is down a bit. Another example is paperboard, which of course has been so very strong; after a string of almost two years of record monthly shipments, last month's shipments were down just a bit there. It's too early to tell if these early signs are indicative of a trend and if they're going to be sustained. It's entirely possible, I think, that the trends--particularly in some of the areas that I've mentioned--are the result of the exceptionally hot weather that we've had. Since the turn of the weather, I'm told by retailers that the flow of traffic in their stores is back up to more normal levels. So some of these things may have been very weather related. Perhaps the lack of any significant changes could be a good thing. Anecdotally, at least, I don't sense a continuation of the upward pressures on prices that were so very evident earlier this year. I still think that the risks are very much on the side of greater inflation. But I am beginning to hear some comments about the leveling of prices for a variety of materials--or certainly that more moderate increases are taking place as opposed to the big numbers that we had earlier this year. And at least one major manufacturer that I talked to the other day is forecasting that raw material purchases next year will be level with 1988--really no increase at all. Surprisingly, consistent with what Bob Forrestal has just said, I don't sense any deterioration on the wage front. Wage rates do not at this point seem to be accelerating. Also, there doesn't seem to be a hardening of attitudes on the part of labor. I'm told that the attitude of organized labor continues to be very constructive, given the continued progress on work-rule changes. So I think the news there continues to be pretty good. Companies are not losing ground on unit labor costs but, as a caveat on that, there are two major contracts out there that are currently reaching the final stages of negotiations. We'll just have to wait to see how those work out. Again, I think it's too early to tell whether these early signs of moderation will be sustained. But certainly they are favorable, and for now it just could be the case that things are falling into line pretty well.",575
-fomc-corpus,1988,President Parry.,4
-fomc-corpus,1988,"Mr. Chairman, the Twelfth District economy appears to be growing at a relatively brisk pace, and I'd say that the outlook for the District generally is favorable. A very strong order book for aircraft should assure strength in the Seattle area for a couple of years. That also boosts prospects in the aircraft industry in southern California. Prospects for the growth of exports are reasonably bright for such things as agricultural products, specialty products, and also transportation and electronic equipment. Agriculture in the west appears as though it may actually be benefiting somewhat from the drought as a result of the higher prices that more than offset the effects of very mild reductions in yields in the west. At this time, signs of weakness in the District are really quite spotty. And they're only concentrated in a few states--Alaska, Arizona, and Utah--and a very few industries as well. Residential construction is weak. Dairy and livestock are rather weak as a result of the fact that they're paying higher costs for feed. And aluminum and forest products are weak due to capacity constraints. It's rather interesting that even where you have weakness, it's in areas that are pretty much up against capacity constraints: in residential construction, for example, that's solely a result of extremely strong export demands for lumber. Weakness may intensify in the District if the very recent sharp slowing in retail advertising in California--which looks quite pervasive--is a precursor of softer retail sales. If I may turn to the national outlook, it's my view that it's premature to conclude that the recent softening of economic statistics is indicative of a trend that will persist through 1989. Rather, it seems more likely to me that if interest rates were to remain at present levels, growth of the nonfarm economy would probably exceed the growth of potential over the entire forecast period. Thus, prospects for the underlying rate of inflation still are a concern, though obviously we're going to see actual inflation rates buffeted by many special factors. If this expectation in our forecast is correct, then it seems to me that the process of tightening probably is not over and will have to be resumed sometime soon. Thank you.",423
-fomc-corpus,1988,Vice Chairman.,3