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fomc | 1,978 | No, I think you could still use M2, as we have before, because that shouldn't be affected. It's just the distribution [between M1 and M2]. | 34 |
fomc | 1,978 | You could pull in some funds from the thrifts but probably the magnitude is not that enormous. | 19 |
fomc | 1,978 | We'll have to make an estimate, Ernie, as time goes on to see if we feel that money is moving from the thrifts. But you could use [M2] because savings accounts have existed heretofore in that, so you'll be getting both the savings account proportion and the transactions balances; [there's just a] shift of the proportio... | 75 |
fomc | 1,978 | I had understood you to say that M1+ likewise could not be used. | 16 |
fomc | 1,978 | No, I think it is the only control variable for a narrow money definition. | 16 |
fomc | 1,978 | At this stage. John Balles. | 8 |
fomc | 1,978 | Well, first of all, Mr. Chairman, I happen to come out with the kind of recommendation that Steve started off with and that you spoke to. Keeping M2 and M3 unchanged is my fairly strong preference. I think what the debate will probably hinge on is whether to keep M1 and, if so, at what range and whether to add M1+ and,... | 263 |
fomc | 1,978 | Mr. Chairman, would you prefer for me to respond to that now or at the point where you're discussing the [short-term ranges]? | 27 |
fomc | 1,978 | I'd like to see us get the long-term ranges set and we'll come to the short-term. On whether we use M1 at all, I think we can have a different decision there, John. We're dealing with this requirement to report to Congress and give these ranges and there are quite a few people who want to speak on this. I hope there's ... | 208 |
fomc | 1,978 | What does a collateral item mean? | 7 |
fomc | 1,978 | A memo item. | 4 |
fomc | 1,978 | Footnote. | 3 |
fomc | 1,978 | Mr. Chairman, could you qualify it by saying as a footnote? And just as a [unintelligible] Congress will go crazy. | 30 |
fomc | 1,978 | Yes. We put these things in and the associated [developments] in M1+ would be in the footnote, yes. I gather there was a pretty strong [consensus] for that. | 41 |
fomc | 1,978 | As the footnote. | 5 |
fomc | 1,978 | Do you mean [have language] in the directive like "the associated range for M1+ and bank credit" or in a footnote to the directive? | 32 |
fomc | 1,978 | It makes no difference to me. I don't know. We normally go through the M1, M2, and M3 and then say the [associated range for] bank credit. | 37 |
fomc | 1,978 | The question is how much weight it has in the operation. | 12 |
fomc | 1,978 | Well, that's a separate question from putting it in the longer-run ranges. | 15 |
fomc | 1,978 | I don't think we ought to put it as "the associated range." The way that's written is that the following are our targets and these would be compatible with those targets. We don't know whether M1+ is compatible. | 44 |
fomc | 1,978 | You realize, John, there is no weight associated with these. | 13 |
fomc | 1,978 | Couldn't this be handled in the text [of your testimony], Mr. Chairman, without-- | 18 |
fomc | 1,978 | Yes, it could be handled in a way that does not [characterize] it as a substitute target or tolerance range. Maybe we ought to try some language on you. I think we'll have time to circulate this before I testify, which is quite a ways off. | 54 |
fomc | 1,978 | Are you saying the same thing then for M1? Is that also treated in this way? | 19 |
fomc | 1,978 | M1, I assume, would be given as a normal tolerance range. We'd have ranges for M1, M2, and M3; we'd treat bank credit as we normally do; and then we'd have some comment on M1+ by way of a [memo item]. | 56 |
fomc | 1,978 | Would we assume ATS in M1 in testimony or would we-- | 13 |
fomc | 1,978 | We're going to have to revise our targets if the ATS is [not put into effect]. We'll have to have a telephonic meeting and change our targets if ATS is blocked. That's what we'll have to do. | 42 |
fomc | 1,978 | But we would not have M1+ in the directive? | 12 |
fomc | 1,978 | No, M1+ wouldn't be one of the [ranges stated there]; that's what I sensed everybody wanted. | 22 |
fomc | 1,978 | But you're having M1 now in full parity with M2 and M3 in these long-term targets? | 21 |
fomc | 1,978 | M1, I think, should be downgraded. | 12 |
fomc | 1,978 | I think so. Let's do it again. An M1 range is to be stated but in a downgraded mode. Is that what everybody's agreeable to? | 33 |
fomc | 1,978 | M1 downgraded? | 6 |
fomc | 1,978 | M1 downgraded--not eliminated but downgraded. | 13 |
fomc | 1,978 | In explanatory text? | 4 |
fomc | 1,978 | Well, what I think you do is put in a qualifying phrase. | 14 |
fomc | 1,978 | A textual comment to qualify it [along the lines of]: This has uncertainties associated with it because we haven't been able to assess the effects of ATS. There's no weight on this one; this is the long-run range. This is just each individual one. So I think all you do with M1 is say that this range is set with the rec... | 89 |
fomc | 1,978 | Mr. Chairman, we have similar kinds of uncertainty when time deposits start bumping against ceilings and so on. We never qualify those. It's not at all clear to me why we are going to summarily downgrade M1 just because we have increased uncertainty of a kind that's similar to what we have often with M2 or M3. | 67 |
fomc | 1,978 | Well, I'm delighted to do it any way you want because I don't think it's going to shake the world one way on the other whether we just leave it cold or comment about it. | 37 |
fomc | 1,978 | We are just talking about one quarter, too. | 10 |
fomc | 1,978 | I have no strong feeling. I'll do what the Committee wants. But let's resolve it one way or the other. There's no problem in M2 and M3. There is no problem, apparently, in putting in M1+ as some sort of range with a comment. First, how many of you want a qualifying statement about M1 that would be of the nature of indi... | 117 |
fomc | 1,978 | Mr. Chairman. | 4 |
fomc | 1,978 | Yes sir, Roger. | 5 |
fomc | 1,978 | There was one point. Apparently around this table there is an assumption that it is wise to publish an M1+ and I would just like to raise a question about it. The work that we have done suggests that M1+ is indeed a measure or modifier to M1 as we go through this period of adjustment and uncertainty. But with respect t... | 127 |
fomc | 1,978 | Disintermediation could affect it. | 8 |
fomc | 1,978 | Yes. It seems to me that if we now surface that and tell the public that we have another measure called M1+ and we give the definition of it, we may have a very hard time getting away from it as we move into the Humphrey-Hawkins testimony. As a result, I would prefer that we publish M1 with some recognition and qualify... | 137 |
fomc | 1,978 | I'll go back to our list; Larry. | 9 |
fomc | 1,978 | Well, Mr. Chairman, just a procedural suggestion. You recall some months ago I proposed to this Committee that we make more use of our economists throughout the System. It seems to me that several issues are surfacing, [such as] the Humphrey-Hawkins issue and this issue, that require or justify a certain amount of seri... | 163 |
fomc | 1,978 | Well, Larry, I think we can't wait until January when we're making the decision; we will have to make the decision at the February meeting. I don't know how our schedule fits with the 20th but that being [the date of the Humphrey-Hawkins testimony], I do think we do need some pre-discussion. We can't come up to the wir... | 107 |
fomc | 1,978 | Well, as I said, we defined our obligation, Larry, as being one where we have an investigation of these questions and report to the Committee by the January meeting or before--maybe by the December meeting. | 42 |
fomc | 1,978 | Can we have something in December? Then there will be time. | 13 |
fomc | 1,978 | Now, in writing our report we are going to be using staff input and there could well be some staff contribution from staffs other than those represented by the members of our subcommittee. If there is something that can be done, Steve Axilrod is the staff director of the subcommittee and he's the one to work through. B... | 162 |
fomc | 1,978 | [I'd like to] follow up, Mr. Chairman, by saying that the staff has been under instructions to prepare alternative definitions of money. [Not only] in view of the discussion but even before the discussion, we were planning to circulate those before year-end throughout the System. | 56 |
fomc | 1,978 | I think we need some lead time. I think Larry is absolutely right. None of us can digest this in one meeting or one session. We want to go back to our staffs and discuss it. Paul. | 42 |
fomc | 1,978 | I don't know where we are procedurally, Mr. Chairman. I'm ready to talk about substance if you're finished with this. | 26 |
fomc | 1,978 | Well, let's see if Frank Morris has any more on that. | 13 |
fomc | 1,978 | I agree with Phil. I wish Steve did have the courage to come out [with a recommendation] to eliminate M1. The idea that it's a better economic indicator I just don't think stands up, at least in the statistical analysis. That analysis shows that since 1966, M2 correlates better to GNP than M1. So it's not clear to me i... | 186 |
fomc | 1,978 | What we need is to return to the halcyon days when the Central Bank operated in secrecy. | 20 |
fomc | 1,978 | I think we need some market input to this new concept of M1+. One possibility is that there are other things that might be included--for example, overnight RPs. I would hate to see us put M1+ in a directive until we've had some feedback from the market and from the academic world as to whether it is a reasonable altern... | 82 |
fomc | 1,978 | I think what we ought to do is cut down that definition. I noticed they had credit union share drafts in there. Maybe we ought to just say M1+ is M1 plus savings accounts at the commercial banks for now. That picks up the NOW accounts at banks and it picks up the automatic transfers. | 62 |
fomc | 1,978 | What does that do to Mr. Axilrod's projections of the rates of growth, though? | 20 |
fomc | 1,978 | Very little. | 3 |
fomc | 1,978 | Well, the credit union share drafts-- | 8 |
fomc | 1,978 | Just define M1+ as being M1 plus savings accounts at commercial banks. | 16 |
fomc | 1,978 | The others are pretty minor, except for the NOW accounts in New York. I'm not sure what will happen there. | 23 |
fomc | 1,978 | I meant for just now, Steve. And then for the first of the year we can talk about redefinitions. | 23 |
fomc | 1,978 | Roger, have you covered your point? | 8 |
fomc | 1,978 | Yes sir. | 3 |
fomc | 1,978 | Okay, Dave Eastburn. | 6 |
fomc | 1,978 | I've voted my preferences. I'd just like to join those who would express a good deal of caution about M1+. Instead, I'd concentrate my efforts between now and February on devising a new basis for doing this and saving the consideration of M1+ until then. | 53 |
fomc | 1,978 | Well, we have heard a number of comments. Let me read you [my summary]. I think we have settled that we will publish [a range for] M1. I think that was pretty well recommended. We've had a rather large plurality in favor of footnoting or indicating something on M1+, but now we have heard some contrary arguments. Shall ... | 190 |
fomc | 1,978 | With downplaying, sir? | 6 |
fomc | 1,978 | Yes. [I count] 10. That's a pretty large percentage. We weren't counting. How many don't? Let's see, that's six. Now let's have the voting members. How many would like to use it? [It's] seven; we have a plurality. Okay. | 56 |
fomc | 1,978 | I don't think it's a major issue if [M1] is downgraded. | 17 |
fomc | 1,978 | Yes, okay. Now we'll come back to substance, Paul, and get our ranges set in three minutes. | 22 |
fomc | 1,978 | You had a little discussion [before] the break that got into the substance of policy, and I just want to say that I want to be prudent and cautious too. I don't think we could be accused of not having been prudent and cautious and gradual. I do have some question as to whether we pitched it at the right level in the la... | 183 |
fomc | 1,978 | I don't think inflation has accelerated since I have been at the Board, to put it bluntly. It has gone down since I've been at the Board. It was 10 percent; now it's 8 percent. So I'm not sure that I can share those sentiments. Since I've been here I've been presiding over a decline [in inflation] of 2 percentage point... | 75 |
fomc | 1,978 | I was thinking of a period of probably 15 to 18 months. | 15 |
fomc | 1,978 | Well, you fellows fouled it up before! Nancy and I didn't. | 15 |
fomc | 1,978 | There is something to what you say. But I also think inflationary expectations have hardened a bit during this period even while the actual rate is going down from 11 to 8 or whatever it is now. And that is a problem. I do think this is a critical period, partly because the President's program gives us a little chance ... | 467 |
fomc | 1,978 | Let's try something, Paul. We do have a time constraint and everyone has this in mind. Suppose we take Steve's suggestions first. He had 2 to 6 for M1 and maintaining 6-1/2 to 9 for M2 and 7-1/2 to 10 for M3. So that M2 and M3 are the present ranges and M1 would be 2 to 6. I don't want to cut off the options, but let's... | 131 |
fomc | 1,978 | The only problem I have with it is that I don't see why the M1 is so high. It's a degraded item, but-- | 27 |
fomc | 1,978 | Well, because we don't know. There might not be any automatic transfer shift at all. | 18 |
fomc | 1,978 | You don't know in either direction. | 7 |
fomc | 1,978 | Yes, that's the trouble. How many did you count? | 12 |
fomc | 1,978 | I think seven, but I-- | 7 |
fomc | 1,978 | Try it again. On the voting members how many would accept the proposal Steve has made? Six. Okay, how many could not? It couldn't be more than five. Three. Phil, you didn't vote, did you? | 45 |
fomc | 1,978 | No. I kind of like it both ways, M1 and M2 with [and without] ATS. | 22 |
fomc | 1,978 | Pardon? | 3 |
fomc | 1,978 | I'd like an M1 with no ATS in there, too. | 13 |
fomc | 1,978 | Well, we are going to come back if there's no ATS. | 13 |
fomc | 1,978 | Well, I'm asking: Can we live with the 2 to 6 percent? I have no problem with it. Then the question is: Do you also have M1 if there's no ATS? | 40 |
fomc | 1,978 | If there's no ATS, we are going to have to have a conference call and decide what we do with the ranges. | 24 |
fomc | 1,978 | What [if there are] no shifts of any substance over the next quarter? | 16 |
fomc | 1,978 | We would have had the range too [low]. We would be outside our range. We wouldn't get it down to 6 percent. That's the risk of the 2 to 6 percent. | 39 |
fomc | 1,978 | Mr. Chairman, let me emphasize that these are 1-year ranges; these aren't for one quarter. Therefore, we have a lot of time to explain that we made a projection and we missed. | 40 |
fomc | 1,978 | All right, let's call the roll on that. I think we have enough, so let's call the roll. We are doing M1 at 2 to 6, but with the understanding that we will have a new meeting to decide this by telephone in case we have a block on ATS. | 59 |
fomc | 1,978 | With the understanding also that M1 is substantially downgraded in the language? | 16 |
fomc | 1,978 | Yes, it's qualified. We agreed to that before. All right I'll vote for it. | 18 |
fomc | 1,978 | Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Jackson Yes Governor Partee Yes Governor Teeters Yes Governor Wallich No President Willes No President Winn No | 40 |
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