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fomc | 1,978 | Yes. On this round we have not done that. We have in the past on some similar things--essentially the impact of oil price increases on foreign prices [or] inflation rates and they are, of course, significant. | 46 |
fomc | 1,978 | Well, ladies and gentlemen, according to my reading of the Greenbook the staff has projected for the third quarter of '78 to the third quarter of '79 a real GNP growth of 3-1/2 percent, a gross business product fixed-weighted price index of 7-1/2 percent, and an average rate of unemployment in the third quarter of 1979... | 177 |
fomc | 1,978 | Of course, we predicate our projections on specific rates of money growth; and based on a 6 percent money growth projection, our real GNP estimates are somewhat below the staff's. We would estimate about a 2.1 percent rate of real GNP growth during the year at 6 percent M1 growth and inflation at about 6.5 percent, whi... | 80 |
fomc | 1,978 | Unemployment? | 3 |
fomc | 1,978 | Unemployment is almost 6.1, which is almost the [same]. | 16 |
fomc | 1,978 | Thank you very much. Bones. | 7 |
fomc | 1,978 | Mr. Chairman, we too are a little more pessimistic than the staff, with real GNP at about 2-1/2, unemployment at about 6-1/2, and our price index at about 8-1/2. | 52 |
fomc | 1,978 | You're different in both directions from Larry. Thank you. Dave. | 13 |
fomc | 1,978 | Quantitatively, I have no major difference with the Greenbook forecast. Qualitatively, I have two comments--picking up on Jim's comments about where the risks lie--that the risks are on the downside for the real economy and on the upside for inflation. I'd certainly like to stress on the real economy that qualitatively... | 302 |
fomc | 1,978 | Willis. | 3 |
fomc | 1,978 | I would say perhaps a little lower on the real GNP--real output of 2-1/2 to 3 percent--and a little higher on prices, at 7-3/4 to 8-1/4 or something of that kind. What disturbs me in all of these forecasts are the price developments. I just don't think you can talk to people without coming away with a different sense t... | 122 |
fomc | 1,978 | Bitterness? | 3 |
fomc | 1,978 | On the price developments. | 5 |
fomc | 1,978 | Translated into what? | 4 |
fomc | 1,978 | Well, their reactions are either going to be explosive on one side or complete withdrawal on the other. At the moment I'm not sure how that will fall out but it's a very widespread feeling and the first time I've encountered it. It's such that you can't talk to any group without that being the dominant factor in the pi... | 64 |
fomc | 1,978 | Bob. | 2 |
fomc | 1,978 | Mr. Chairman, my view on the long-run economic outlook, like the staff's, has really not changed a great deal since last time. It's somewhat tempting when you see the strength that we've got in residential construction and business fixed investment, and also the pickup in retail sales, to think that things may be a lit... | 282 |
fomc | 1,978 | Nancy. | 2 |
fomc | 1,978 | Well, I think the risk on the downside has increased considerably since about a month ago. This is little changed from the projection of last month, and my own perception of the economy is of one reaching a peak in terms of expansion. I would like to associate myself with the worries that we've never accomplished what ... | 152 |
fomc | 1,978 | Thank you. Chuck. | 5 |
fomc | 1,978 | Well, I feel a little better about the economic situation than I did a month ago. I think we've [now] got more evidence that production has moderated and that final sales have picked up and it's one of the most important balancing items there is in the equation. So if we're getting another adjustment--a modest, midcour... | 318 |
fomc | 1,978 | Thank you, Chuck. Phil. | 7 |
fomc | 1,978 | I think things are looking a little better although, unlike Chuck, I would say that on balance inflation probably looks a little worse. That's because, despite the good crop situation, I think our income outlook is for higher wages all the way across the board. I'm not optimistic about the improvement in productivity t... | 123 |
fomc | 1,978 | Thank you. | 3 |
fomc | 1,978 | I'm in the happy or unhappy position of feeling just about the same way I felt last month, which is-- | 22 |
fomc | 1,978 | We all remember what that was. | 7 |
fomc | 1,978 | I agree with all the comments that the risk is for slower growth on the growth side and more inflation on the inflation side. In fact, I project a slightly slower real growth rate and a slightly higher inflation rate. I don't know what the implications are of these comments, which I suppose I agree with, that it's diff... | 334 |
fomc | 1,978 | Thank you. Henry. | 5 |
fomc | 1,978 | For the short run and for one month, I think the picture is better. Housing is well maintained and business investment looks stronger, so the expansion has gained another few months of probable life. No expansion is immortal. If the peak is next year, [this expansion] will be four years old and that will be well above ... | 235 |
fomc | 1,978 | Phil. | 2 |
fomc | 1,978 | Mr. Chairman, I think I'd agree with a lot of what I have heard around this table--much of what Henry, Philip, Chuck, and Nancy said. I do have the same relative position: that we have seen some improvement in the economy this past month. In a kind of fundamental sense, it is getting a bit better. I don't find any evid... | 241 |
fomc | 1,978 | Frank. | 2 |
fomc | 1,978 | Mr. Chairman, the numbers have come in a little stronger in the past month than I'd expected. At the same time, we're shifting our policy period from the second quarter to the third quarter and this sort of offsets things. But we still come out much more pessimistic than the staff, with something like 1-1/2 to 2 percen... | 132 |
fomc | 1,978 | Ernie. | 3 |
fomc | 1,978 | Mr. Chairman, I have no particular difference with the staff's projection with respect to production. With respect to inflation, I share the view that we are likely to see stronger price movements than projected here. And along with that, it seems to me that there's a good possibility we will see somewhat more unemploy... | 350 |
fomc | 1,978 | John. | 2 |
fomc | 1,978 | Well, we see somewhat less real growth than the Board's staff, which has been the case now for some months. But I would like to emphasize one factor that I have not heard discussed, although I can agree with many of these views about the risk of less real growth than the staff has projected. And that is that, based on ... | 188 |
fomc | 1,978 | You think these unemployment figures are wrong, John? | 10 |
fomc | 1,978 | Well, I think they need to be interpreted with great caution, given the sense one gets just by talking to firms trying to hire people in today's labor market. I get this from my directors all of the time; Boeing is having tremendous difficulties. | 49 |
fomc | 1,978 | That's a West Coast observation. | 6 |
fomc | 1,978 | They want to add 25,000 people to the payroll. [They are] hiring away people at higher salaries from all sorts of local firms, including the [Seattle] branch of our Bank, I'm distressed to say. The labor supply just doesn't seem to be there for firms actively in the market, and that's going to be a constraining factor.... | 148 |
fomc | 1,978 | Mark. | 2 |
fomc | 1,978 | Mr. Chairman, what Henry and Phil said is pretty much what I was going to say on the forecast. The only other comment I was going to make was about Dave's comment on the President's program. I think enough of that program has been [leaked] that people have figured out what they think it's going to be. To the extent tha... | 168 |
fomc | 1,978 | Bob. | 2 |
fomc | 1,978 | Mark's last point is an interesting one. I've sensed a little of this, too, Mr. Chairman, in a feeling that businessmen in several areas in the Midwest are more anxious this time around to protect their profit margins than they were in the 1973-74 experience. They still feel a little bit wounded from that. And the net ... | 351 |
fomc | 1,978 | Roger. | 2 |
fomc | 1,978 | Thank you, Mr. Chairman. I guess you could characterize our feeling as one of a bit less optimism than the staff has projected. Particularly with respect to GNP, we would look for a performance of around 3 percent, which we don't view as pessimistic, frankly. It is about as high as we would hope for. Secondly, on the p... | 394 |
fomc | 1,978 | Bones, do you have any comments you want to make? | 12 |
fomc | 1,978 | Well, Mr. Chairman, maybe [my question should be] directed to you. With the several references to the Administration's anti-inflation program, I wonder if there are any significant items of intelligence that you would feel free to share with us. | 51 |
fomc | 1,978 | I'm not in the loop, so I can't share them. I think they have gone underground with their program after considerable discussion early in the year about the framework of what might be done. I'd just comment on a couple of things. I think we are now in an era when labor--skilled labor--is less mobile. Therefore, when you... | 411 |
fomc | 1,978 | I don't disagree with you at all. | 8 |
fomc | 1,978 | So, you may find other reasons why they ignore the President's program and break it, or you may find reasons that they can sanction it and keep them in it. In my company we did business with the government and if they could sanction us and hold us, we would have gone out and worked like the dickens to get more unit sal... | 436 |
fomc | 1,978 | Mr. Chairman, in connection with what you have just said and this exercise we went through, one of the things that is confusing to me is that we speak in terms of pessimism and optimism, and we seem never to have really defined what we think would be the [desirable] rate of growth or what we are pessimistic about. For ... | 391 |
fomc | 1,978 | Larry, I was not present at any FOMC meeting in 1973 or 1974, but I assume the Federal Reserve didn't deliberately intend to [precipitate] a recession. I sat in Boston in '73 and '74. And yet we had the most severe one we have had. So I just have to say that my own experience is that the leader of economic policy will ... | 181 |
fomc | 1,978 | Mr. Chairman. | 4 |
fomc | 1,978 | I don't think this is the time to debate. I would say only one thing. We have pulled off a minor miracle and I think we should take a little more confidence ourselves in pulling off that minor miracle of contributing to a slowdown in the economy on a balanced condition. The decision to authorize the money market certif... | 256 |
fomc | 1,978 | But even the most ardent monetarists, Mr. Chairman, have spoken up consistently for a very gradual reduction. But I think we are interpreted by people who disagree with us as suggesting some precipitous reduction in the aggregates growth-- | 47 |
fomc | 1,978 | I understand you don't. I only look at the nominal interest rates and I know that we are getting very near the point where we will have results in the economy from interest rates. That's the way people behave. We can have a theory all we want. We can do it as gradually as we want but if we have to get 12 percent intere... | 265 |
fomc | 1,978 | Aren't these long-term interest rates, though, somewhat of a reflection of inflationary expectations? In other words, if the aggregates continue to grow aren't those-- | 33 |
fomc | 1,978 | Is the money supply increase also a reflection of the inflation? | 12 |
fomc | 1,978 | We need to take a break and come back after coffee to pursue this. | 15 |
fomc | 1,978 | Ladies and gentlemen, we have a busy hour ahead, with a couple of small matters to take care of. We're supposed to at this time look at the long-run ranges for the monetary aggregates. And we have, of course, complications because of the automatic transfer service being available effective November 1, a short period fr... | 94 |
fomc | 1,978 | No, I've checked it recently, Mr. Chairman. You've stated it correctly that the matter of stay is still within the discretion of the court. | 29 |
fomc | 1,978 | You might all turn to page 5 of your Bluebook. Steve, if you would lead off with your comments, I would appreciate it. | 29 |
fomc | 1,978 | Thank you, Mr. Chairman, I hope my comments will be less complicated than the Bluebook but it's a very complicated situation. So I apologize in advance for both. I would, as statistical background, like to make two or three points to the Committee first. For the year just ended, that is the year ending in the third qua... | 599 |
fomc | 1,978 | Completely in vain, as I recall. | 9 |
fomc | 1,978 | On the other hand, raising the M1 range may have an adverse effect on inflationary psychology. Moreover, recent overshoots in M1 growth would seem to argue at least arithmetically for lowering its range if the Committee wishes to achieve a 6 to 6-1/2 percent M1 growth over the longer run--if the Committee takes that as... | 1,319 |
fomc | 1,978 | Thank you, Steve. There are a couple of points I would make on the long-run ranges. I could be persuaded to drop M1 but, on balance, I suspect that it might be better if we retain it in some form. I might point out that over the weekend Congress did pass the modified Humphrey-Hawkins bill, and I expect the President to... | 688 |
fomc | 1,978 | I just want to say that the Subcommittee on the Directive met yesterday and we've been struggling with this question of relating the short-run ranges or targets with the long-run targets. We reviewed the Humphrey-Hawkins legislation and, of course, it does change in some rather fundamental respects the setting of targe... | 219 |
fomc | 1,978 | Thank you. May I add, Chuck, one other thing? And that is that I think we shouldn't mix this up with what we may want to do on the short range. | 36 |
fomc | 1,978 | No, I agree with you. | 7 |
fomc | 1,978 | We may or may not want to use M1, so I think this is a different issue. I don't want to get involved in that now, but it seems to me for this purpose of testifying--on November 16, is it Steve? | 51 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | Now, I would caution one thing. We have quite a bit of time between now and the time of that event. If we should have a court decision adverse to us--a stay or something else--I think we have to come back to the FOMC and not go to the Senate Committee with something that's out of date. So I think we have to adopt somet... | 96 |
fomc | 1,978 | Even if there is a stay, I would point out that New York has NOW accounts and that's a big state, and we would have to take that into account. | 33 |
fomc | 1,978 | Yes, we have a lot of problems. | 9 |
fomc | 1,978 | Chuck, would you elaborate on what you meant by the sliding base? | 14 |
fomc | 1,978 | Well, we now do [set ranges] for the upcoming year. So for example, this time we're considering third quarter to third quarter and last time it was second quarter to second quarter. Now the lock is on the calendar year and the re-estimate in July is on the same calendar year and the next one; so there won't be the kind... | 77 |
fomc | 1,978 | There won't be the quarterly updates. Maybe there will be a new one every year. It could be a mid-course correction. Before we start the round questions, Paul, you may have something you would like to comment on this. | 46 |
fomc | 1,978 | I just had a question of Steve. If I understood him correctly, he's saying continue the present ranges of 6-1/2 to 9 and 7-1/2 to 10 for M2 and M3, but go to 5 to 7-1/2 for M1+. I'm just asking for the technical consistency. If you look at the Bluebook, it would say that the 5 to 7-1/2 would be consistent with higher M... | 108 |
fomc | 1,978 | Yes, we centered those M2 and M3 [ranges] around the midpoints of the current [ones for] M2 and M3, which would encompass our best estimate. In alternative B, for M2 our best estimate is 8-1/4; [for M3 it's] the midpoint between 8-1/2 and 11, which is 9-3/4. That would be encompassed by the present M2 and M3 ranges. I ... | 164 |
fomc | 1,978 | It seems to me not unreasonable, Paul, to do that, although I do think there is the possibility that we'd run over the top of M2 because of the diversion of funds from thrifts to the banks. My own preference would have been for 5 to 8 on [M1+] for the same reason. I think it's very hard to estimate. And remember, M1+ w... | 138 |
fomc | 1,978 | Mark Willes. | 4 |
fomc | 1,978 | I found Steve's presentation very helpful. I'd like to follow his presentation to make a couple of statements as much by way of making sure I understand what he said as well as arguing what I think is right. If you look first at M1, for example, without adjusting for automatic transfers, there is a question as to wheth... | 473 |
fomc | 1,978 | I'm confused. If you take the other side, and you have 1-1/2 as another probability, you're talking about an 8 percent M1. | 33 |
fomc | 1,978 | May I comment on that? | 6 |
fomc | 1,978 | If you have 1-1/2 and you hold it at 6, then clearly you've biased it the other way. That's precisely my point. The only way that I can see to deal with that is to try and figure out what you think the most likely outcome is and then go accordingly. | 61 |
fomc | 1,978 | Well, there are two comments I would like to make. One is statistical and the other is economic. On the statistical point, it's almost impossible to deal with--pardon the jargon--two independent [variables] and to encompass all the tails of the ranges. You maybe ought to have a 10 or 12 percentage point range, and that... | 380 |
fomc | 1,978 | Bob Mayo. | 3 |
fomc | 1,978 | Mr. Chairman, I think we're trying too hard again. I would like to see us keep to the M1 range of 4 to 6-1/2 percent on the grounds that we really don't have much idea as to what's going to go on, not only on automatic transfers and how long it's going to take but we also don't know on New York NOW accounts. Let's keep... | 254 |
fomc | 1,978 | Phil Jackson. | 3 |
fomc | 1,978 | I would argue that the thing to do would be to drop M1. Several reasons lead me to that. First, we do have a new system of projecting the aggregates and, therefore, anything we do today is only going to [be in] effect, for all intents and purposes, over the next two or three months as a long-range policy guide. And in ... | 485 |
fomc | 1,978 | Phil Coldwell. | 4 |
fomc | 1,978 | Well, I like some of the things that Philip is trying to aim toward but I question whether this is the time to do it. I really don't know that ATS is going to do all that much violence to us over the next two or three months. I think there's a lethargy to this but I don't know. Consequently, it would be my suggestion t... | 157 |
fomc | 1,978 | Chuck. | 2 |
fomc | 1,978 | Well, I agree quite a lot with Phil Jackson, but I think what we have to recognize as more important than anything else is that M1 can no longer be a control variable. There will be no way of having any precision in the estimate of the proportion of ATS that belongs in M1. What we'll get in ATS is a combination of here... | 455 |
fomc | 1,978 | Especially since we're not giving up the other measure, so we are not losing-- | 16 |
fomc | 1,978 | We have to modify what we say about the other measure. What we will accept within this range will depend on the extent [of the ATS effect]. | 30 |
fomc | 1,978 | We'll keep M2 and M3 also. | 9 |
fomc | 1,978 | Could I ask Chuck a question about his comment that M1 after ATS cannot be used as a target variable? Would that comment also apply to the other aggregates? | 32 |
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