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fomc | 1,978 | It's just so we can hold [the foreign currencies] and they have dollars, that's all. | 19 |
fomc | 1,978 | Well, I was just wondering, would we put it into some kind of short-term investment? | 19 |
fomc | 1,978 | We have investing arrangements now in all three of the currencies that would be involved. | 16 |
fomc | 1,978 | Because that might [amount] to quite a bit. | 11 |
fomc | 1,978 | It could be, yes. | 6 |
fomc | 1,978 | The present authority would be up to $1-1/2 billion. | 15 |
fomc | 1,978 | It would be counterproductive to pay off the Germans. | 11 |
fomc | 1,978 | It probably would be. It just gets very complicated when you try to look at it-- | 18 |
fomc | 1,978 | Accounting [is what] I was thinking of, but I think the monetary influence would be counterproductive if we pay them off. That is, you wouldn't get the advantage that the Chairman cited of borrowing abroad. And when you use it, you won't expand the money supply. | 55 |
fomc | 1,978 | Also, Chuck, we don't have a free draw on that swap; we have to consult with them. But if we have our own resources we have free leeway. If they are Treasury [resources], the Treasury can authorize us to use them, in effect. Any comments from others? Alan, thank you very much. I'm sorry I didn't let you complete your v... | 86 |
fomc | 1,978 | Before we leave the area, Mr. Chairman, I wonder if [Alan or Scott] would comment on the weakness reported on the foreign exchange markets this morning. | 32 |
fomc | 1,978 | The rates are where they closed yesterday. The weakness occurred yesterday afternoon and our market is just drifting back a little bit, so at this stage it's quite [calm] and hopefully may be steady for a while. But we're prepared to operate; we did intervene late yesterday afternoon when the rate was drifting off. | 62 |
fomc | 1,978 | Well, knock on wood, so far this has been a fairly peaceful war. | 16 |
fomc | 1,978 | Very successful, I think. | 6 |
fomc | 1,978 | Very. I really expected that we'd have to use more resources, to be frank. So if we just continue [working] on the fundamentals, we can make some progress. Any other comments or questions? Then we will proceed to Jim Kichline, who has been waiting patiently to give us the news, good or otherwise, about the economy. | 70 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | Thank you, Jim. Mark. | 7 |
fomc | 1,978 | I would like to make just one comment on Jim's comments on capital spending. It seems to me that the long-term cost of capital for business has not gone up. Bond rates, for example, went down after the November 1 announcements. So there's nothing in that which would indicate that business spending ought to be less. And... | 239 |
fomc | 1,978 | Could that be formulated through appropriations of spending very quickly in your area, Mark? Or would it be delayed until the last half of next year when we have a softness or slack in the forecast? | 40 |
fomc | 1,978 | Well, most of it would start to be spent in the last half of next year; it would take at least that long. | 26 |
fomc | 1,978 | These are long-term expansions. | 6 |
fomc | 1,978 | They are not rushing out to buy a piece of equipment. These are long-term plans for-- | 19 |
fomc | 1,978 | The kind that have been notoriously weak in the current expansion. | 12 |
fomc | 1,978 | Any other comments or questions? | 6 |
fomc | 1,978 | I would only point out on cost of capital that I had in mind equity capital, which has risen substantially in cost. PE ratios have declined. Stock prices are down, depending on how you measure it--which exchange or over the counter--10 to 20 percent. So I was really referring to equity. I think it's quite clear long bo... | 75 |
fomc | 1,978 | Yes, John. | 4 |
fomc | 1,978 | Jim, have you had a chance to look at the details in most of these [projections by] private forecasters who are now forecasting on behalf of their clients a recession? [In what sectors do they] expect this to come and why? You said it's not going to happen and I hope you're right. Nevertheless, there's that [unintellig... | 89 |
fomc | 1,978 | I think we have a real risk of talking ourselves into this--a recession that we don't need. | 20 |
fomc | 1,978 | But a lot of corporations subscribe to DRI or Chase Econometrics or whatever. As you well know, they are forecasting recession. My question was: Have you had a chance to look at the details there? | 42 |
fomc | 1,978 | We've looked at some but not in great detail. I think the differences are rather widespread, but the consumer sector is one where I think a general weakness shows up. We have, relative to a number of outside forecasts, a stronger personal consumption picture than many. Housing tends to be a bit weaker in some, not all.... | 139 |
fomc | 1,978 | Phil. | 2 |
fomc | 1,978 | Jim, you're grounding this all on the current level of restraint in terms of interest rates? | 18 |
fomc | 1,978 | Yes, and the expected impacts over time. | 9 |
fomc | 1,978 | But you are not talking about additional restraint. | 9 |
fomc | 1,978 | No, that's right. | 5 |
fomc | 1,978 | Or higher rates of interest than we now have. | 10 |
fomc | 1,978 | Well, we've assumed a funds rate of around 9-3/4 percent throughout 1979. So we are talking about 12 basis points or something. | 33 |
fomc | 1,978 | Well, 12 basis points; you can't be that [fine-tuned]. | 16 |
fomc | 1,978 | That's a smaller percentage though. | 6 |
fomc | 1,978 | I think the forecast is excessively pessimistic under these conditions. | 12 |
fomc | 1,978 | Dave. | 2 |
fomc | 1,978 | Well, reacting to what Phil said, I continue to find it difficult to see how you have this kind of soft landing with the very high inflation rates that are forecasted. And just on the other side of Mark's comment, at a recent meeting we had with business people, the view was unanimous that we are in for a recession. I ... | 79 |
fomc | 1,978 | Well, some of them want it. Willis. | 10 |
fomc | 1,978 | On the business [side], you get a strange dichotomy. If you ask them how their business is they'll tell you it's very good but they're told by their economists that it is going to get poor. Their own assessment is quite different from [their sense of the] general environment. On Jim's point on the consumption spending,... | 169 |
fomc | 1,978 | Chuck. | 2 |
fomc | 1,978 | I just wanted to raise the same question I raised yesterday [in the Board briefing]; I think it should be raised again today. The supplement to the Greenbook points out that general merchandise stores such as Sears, Penney's, and Federated--the big department stores--added to their stocks at a $4.2 billion annual rate ... | 117 |
fomc | 1,978 | I think that is clearly the one area we would point to--relatively high or, in fact, quite high inventories--as the major change across the country. As for the principal source of that large stock of inventories, we have made some calls around. I would say that the one thing that does stand out is that Sears has a part... | 201 |
fomc | 1,978 | It used to be, Jim, that department stores did 15 percent of their year's business in the five weeks from Thanksgiving to Christmas. I suppose, of course, that we have seasonally adjusted ratios here but for those whose inventories are now quite high, it's a very, very important season that they are moving into. | 64 |
fomc | 1,978 | Frank Morris. | 3 |
fomc | 1,978 | Mr. Chairman, I think the critical assumption that underlies the projections is a rather dubious one, and that is that we will be able to have a reasonable degree of control over the money supply over the projection period at the current level of the federal funds rate. We've had a couple of weeks--say, a month and a h... | 152 |
fomc | 1,978 | We are expecting money growth to be down in December, and if it weren't for the automatic transfers, we would have M1 growth up in the 8 to 9 percent range. Demands for credit have remained relatively strong in recent weeks. I'd also comment that we think there are some odds that we might not need a further rise in int... | 132 |
fomc | 1,978 | Ernie. | 3 |
fomc | 1,978 | In view of the comments about the disparate forecasts and that we might [talk] ourselves into a recession, I just wanted to balance the table a little bit by saying that flavor of conversation is not universal around the country. There are regions that are not seeing [a recession]. | 55 |
fomc | 1,978 | And they never have. I'm sitting here wondering why this might be and it occurred to me that a possible explanation is that we may have a smaller ratio of expert economists to businessmen in the population. | 39 |
fomc | 1,978 | Well, we have a very small ratio of expert anything. | 12 |
fomc | 1,978 | That depends on who's doing the judging. But I do hear reports from bankers that they are seeing some "flaky" real estate proposals, now suggesting instead of a weakening in the speculative interest possibly a pickup in speculative interest. I also hear reports that people are not inquiring what the interest rate is wh... | 83 |
fomc | 1,978 | Henry. | 2 |
fomc | 1,978 | Two points--one on Frank Morris's [comment] about strong demands for money ahead. Of course, this may cut both ways. If we accommodate them and hold the funds rate, presumably that would call for a revision to the forecast in an upward direction. Otherwise, if we don't accommodate, then it would be a downward revision.... | 77 |
fomc | 1,978 | The question is how long could you accommodate them. | 10 |
fomc | 1,978 | I am puzzled, Jim, by the dichotomy between the short-term and long-term outlook. The short outlook is quite good; everything, with some exceptions only, is strong. Longer, we've got weak indications. Isn't there a chance that the experience of good current performance is going to bring [about] quite a change in the lo... | 103 |
fomc | 1,978 | Well, I don't think there's anything inevitable about the forecast in the sense of economic activity weakening. I would look at the current situation and say that there are elements of strength. There are also elements that cause one a little bit of concern. And I would say that retail sales are one of those areas wher... | 292 |
fomc | 1,978 | I've cut off the list. We'll have three more comments and we will do a little go-around. Larry. | 22 |
fomc | 1,978 | Jim, has the staff addressed itself to capacity constraints in considering the possibility of a slowdown in output? | 20 |
fomc | 1,978 | We think, given our scenario, that capacity constraints will not be serious--that they are not a major factor in limiting the slowdown. The capacity constraints that we have heard most about tend to be in skilled labor rather than capital, although there are selected areas in the capital side. But given a weakening of ... | 79 |
fomc | 1,978 | It would follow, therefore, that if we felt it was necessary in monetary policy to deal with the softening that we could attempt to stimulate demand and have some productive results? In your judgment, it isn't a matter of bumping up against capacity [constraints]? | 52 |
fomc | 1,978 | Well, I think there we're reasonably close and it's hard to fine-tune these sorts of things. So if you said a number of 3 percent real growth or 2-1/2 percent real growth and it could be held there for some time, I wouldn't view that as a bad outcome, personally. If you pick a number like 4 percent, I think that does p... | 130 |
fomc | 1,978 | Thank you. | 3 |
fomc | 1,978 | Bones. | 2 |
fomc | 1,978 | Mr. Chairman, we are not quite as optimistic about the price level as the staff. Looking at some individual performances, I guess we pretty much are like the Southwest. People have been reading the professional economists and are fearful of recession. But if quizzed about their individual business, they simply do not e... | 127 |
fomc | 1,978 | Nancy. | 2 |
fomc | 1,978 | Well, gentlemen, there's a reason why the econometric models are predicting a recession. They're based on history. And these are conditions in the past that have always produced a recession. Only twice, in the latter part of 1963 and in the latter half of 1966, did we ever have growth this low without having a recessio... | 115 |
fomc | 1,978 | We have been scattering the shots recently and I'm going to suggest that we give brief comments individually on how we view the economy and its key elements of real growth, the fixed-weighted price index, and unemployment for the quarters under consideration here as compared with the staff's forecast. And I think we co... | 80 |
fomc | 1,978 | Mr. Chairman, is this third quarter to third quarter? | 12 |
fomc | 1,978 | Yes. Well, no, I would like to do the fourth quarter to the fourth quarter on real GNP and also on the price index and your estimate of the unemployment rate for the fourth quarter of 1979. Those numbers by the staff are 2.1 percent for real growth, 7.4 percent on the fixed-weighted price index, and 6.4 percent on unem... | 81 |
fomc | 1,978 | You want to do fourth to fourth rather than the third to third that's in the Greenbook? They have the policy period of Q3 '78 through Q3 '79. | 35 |
fomc | 1,978 | Well, I think it's time to start looking at the full year. | 14 |
fomc | 1,978 | You want a numerical estimate. | 6 |
fomc | 1,978 | Yes--or an indication. | 6 |
fomc | 1,978 | I had figured out what I'd put down for the third quarter to the third quarter; I don't quite know what I'd put for fourth to fourth. | 29 |
fomc | 1,978 | Well, [tell us] third to third; we'll give you that much leeway. | 18 |
fomc | 1,978 | If you take out the fourth quarter of this year and put in the fourth quarter of next year, it could make quite a difference. | 27 |
fomc | 1,978 | Well, we might all prefer to do the policy period. Why don't we do that? [The staff's figures are] 2.6, 7.5, and 6.2. | 41 |
fomc | 1,978 | Well, Mr. Chairman, whatever numbers I have--the [unintelligible] in my mind would be considerably greater than usual. I do think there's a chance of a recession; it can't be dismissed. But I don't see why it should be large at this stage. And I don't feel any more that way this month than last month. In fact, I think ... | 173 |
fomc | 1,978 | Thank you, Paul. Chuck. | 7 |
fomc | 1,978 | I think the staff projection is reasonable, and I think they are quite correct to have put in considerable effect from the happenings of the past month or five weeks. I also believe it is plausible to think that we have moved over the watershed into a recession phase. I don't think it's bad for us to talk about recessi... | 231 |
fomc | 1,978 | You get a tax reduction. | 6 |
fomc | 1,978 | It doesn't amount to much, Paul. I just don't think it's going to do anything. So my figure, which is a plausible scenario I think, is a real growth rate of 1/2 percent third quarter to third quarter. I think probably there will be some price effect, and I would guess [inflation] might drop to about [unintelligible] fo... | 107 |
fomc | 1,978 | Chuck, that's the first time I've had the Boston snow theory explained to me. They always said that the economic forecast depends on the amount of snow in Boston before Christmas and I now know why. It means a weak Christmas. I always wondered why that was. Did you ever plot the stock market against the snow in Boston?... | 70 |
fomc | 1,978 | I don't think this [staff forecast] is going to happen. Either we are going to slip over [into a recession] or we are going to get through it much better than this. I can't remember a period over the past twenty years in which we've foreseen a slowdown that didn't turn into a recession or we were proved absolutely wron... | 203 |
fomc | 1,978 | Any numbers? | 3 |
fomc | 1,978 | Well, if we go down, I think we are going to go down lower than you do, Chuck, to a rate of negative growth. And if we recover, we'll probably [unintelligible] through it. | 45 |
fomc | 1,978 | The reason I get a plus 1/2 is because of the fourth quarter. It adds quite a bit. | 23 |
fomc | 1,978 | If you take the fourth quarter out, you don't get it. Let me also point out that even though we have a tax cut coming January 1 we have a tax increase on January 1. And we have another tax increase coming in the fall of next year when the increase on the ceiling on social security payments [hits]. So you're going to ge... | 94 |
fomc | 1,978 | Thank you. Bob. | 5 |
fomc | 1,978 | Well, Mr. Chairman, I feel that we are not going to be able to accomplish as much on the inflation front as would be desirable, so I think there's going to be less strength than other people do and that a recession is likely. Along with this, of course, there will be more unemployment. I've already indicated that I thi... | 116 |
fomc | 1,978 | Thank you, Bob. Willis. | 7 |
fomc | 1,978 | I think the variables are too great to be very confident on any kind of projection. You can spell out four or five scenarios and I don't have a very strong feeling at this stage as to which one is going to happen. I think we're paying too much attention to the retail sales of the past month or so, which I think are aff... | 135 |
fomc | 1,978 | At least for galoshes. | 7 |
fomc | 1,978 | Across the country. Well, coats haven't done very well either. | 13 |
fomc | 1,978 | You might sell a few coats. | 7 |
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