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fomc | 1,978 | For M1 I think the weakness of the last couple of months makes it desirable to begin to give some credence to continued weakness. Thus I think it's probably important to not only have a cap on the upper limit but to have a lower point where you may want some response--although I suggest that the response would be not p... | 121 |
fomc | 1,978 | Does everyone understand the proposal? | 6 |
fomc | 1,978 | He didn't give a funds rate range. | 8 |
fomc | 1,978 | Yes he did, 9-3/4 to 10-1/2. | 18 |
fomc | 1,978 | With a move to 10. | 7 |
fomc | 1,978 | An immediate move to 10 is a suggestion. Does everybody understand this? | 15 |
fomc | 1,978 | Could I ask a question about that funds rate range? Steve, would you contemplate a reduction to 9-3/4 percent? Does the bottom of that range really mean anything? | 37 |
fomc | 1,978 | Well, I was suggesting that possibility if M1 and M2 came in at the bottom of their ranges, literally, down to 2 percent [for M1] or 5 percent in the case of M2, giving some weight to both. That is, if it was down on M1 but up on M2, no. | 69 |
fomc | 1,978 | You have a money market [directive] on the down side and an aggregates on the up side. | 20 |
fomc | 1,978 | That's right. That's what I was, in effect, suggesting. | 13 |
fomc | 1,978 | You have to get to the bottom limits to reduce [the funds rate] but on the tightening you can do it on the way up. It's a new Federal Reserve invention. | 35 |
fomc | 1,978 | That's why I didn't know whether it was an aggregate or a money market-- | 15 |
fomc | 1,978 | It's a hybrid directive. Yes, Mark? | 9 |
fomc | 1,978 | Can I just make sure I understand the arithmetic? | 10 |
fomc | 1,978 | Yes, please. I want everybody to understand it before we comment on it. That's one of the rules--that we understand before we play. | 29 |
fomc | 1,978 | The forecast for December is 2 percent and if you had 3 percent ATS that would be 5 percent for December. If you had your proposed 6 percent cap on M1 for the two months, that would allow 10 percent growth in January--or if you add another 3 percent for ATS, 13 percent in January. | 69 |
fomc | 1,978 | It would say that at that rate of growth the Manager would be at the top of the funds rate range. Since I don't know that you could affect that [M1 growth] in that month, to "allow" is a funny word. | 49 |
fomc | 1,978 | You would move [the funds rate] before you get to the top, with an aggregates type directive. | 21 |
fomc | 1,978 | I would assume that with this directive and those specs the Manager would be at the top of the funds rate range at that point. | 26 |
fomc | 1,978 | And, Mark, might I point out that December's not in the bag. I think the biggest weeks are still to come. Historically, you know, major movements occur right before Christmas and right after Christmas--the window-dressing. We have less than the normal amount of confidence in our forecast for December than for other mon... | 72 |
fomc | 1,978 | I'm not trying to delay the issue; I'm trying to understand. | 13 |
fomc | 1,978 | With those facts, if it worked out that way, I would assume that the Manager would be at the top of the funds range. | 27 |
fomc | 1,978 | So that, theoretically, you could get about 8-1/2 percent for the two months if you add ATS back in. But that would be with the funds rate moving up potentially as high as 10-1/2. | 48 |
fomc | 1,978 | That would be my understanding. | 6 |
fomc | 1,978 | Any other questions about the substance of the proposal? Then let me just ask how the members react to that. Paul. | 24 |
fomc | 1,978 | Well, these are my feelings. I'm nervous about any decline here, as I said. But with the asymmetrical aspect, I guess I could live with it. I would prefer having the lower parts of the ranges even lower. But I can live with it. | 53 |
fomc | 1,978 | Okay. Ernie. | 5 |
fomc | 1,978 | I can live with it. | 6 |
fomc | 1,978 | Mr. Chairman, I would prefer [on M1] a 1 to 6 range and the 4 to 8 range on M2. I'm willing to buy the fed funds rate but I'd like to throw in for Committee consideration a slight amendment to it. I'd agree to the 9-3/4 to 10-1/2 range and the move to 10 but I'd like to see a little device we have [used]--not recently ... | 187 |
fomc | 1,978 | What he does is he hits 10 and then errs on the side of tightness. | 18 |
fomc | 1,978 | Right, and he hits 10-1/8 and he errs on the side of ease. It allows a little more flexibility than this business of naming a single rate. I think we have been caught on that too much. It also provides a little bit of lack of knowledge to the market; maybe they won't nail it quite so tight. I guess with those changes, ... | 85 |
fomc | 1,978 | Sounds like you don't buy it. | 7 |
fomc | 1,978 | All right, I don't buy it if that's the way you want to interpret this. I was trying to see areas in which I could move and still-- | 31 |
fomc | 1,978 | Yes, but you have substantial differences on the ranges of the aggregates, as I understood you. | 19 |
fomc | 1,978 | Well, 1 percentage point on one end of M1, and 1 point on each end of M2. | 24 |
fomc | 1,978 | Thank you. Dave. | 5 |
fomc | 1,978 | As I indicated earlier, my preference would be for alternative A straight through, but I think that the proposal is acceptable. I do have a concern, as I indicated to Steve in my question, about a reduction in the funds rate given the international situation. And I'd like to suggest that if that appears to be imminent ... | 70 |
fomc | 1,978 | Okay. Chuck. | 4 |
fomc | 1,978 | Well, I find your proposal acceptable. I would say that I'm becoming increasingly concerned that we do not find ourselves in a lock as we begin to move into a period of weakness. I think this tends to do that because we don't really allow for any downward movement in the funds rate. That's all right with me because of ... | 124 |
fomc | 1,978 | Okay. Nancy. | 4 |
fomc | 1,978 | I find it unacceptable. I think it's absolutely the wrong time to take another increase in the tightening of credit. What it will bring about is an increase in the prime rate. I'm sure you are going to go to 10-1/2 percent within ten days on this thing. And that's going to get all the hawks sending the prime rates to 1... | 97 |
fomc | 1,978 | Okay. Henry. | 4 |
fomc | 1,978 | I think we have to focus more on the funds rate than on the aggregates. I think it's a delusion that we are steering the aggregates by means of the funds rate. The funds rate now has a special function, namely to regulate the dollar situation. So I don't think we should have any decline in the funds rate. I think we sh... | 156 |
fomc | 1,978 | Okay. Mark is next. | 6 |
fomc | 1,978 | I would like first to make a commercial, Mr. Chairman, and disavow that I am a monetarist. We hold a balanced portfolio in Minneapolis. | 33 |
fomc | 1,978 | He's like an Episcopalian not being a Catholic. | 11 |
fomc | 1,978 | Someday when we have more time we will explain the substantive differences between the monetarist and what's even worse, I might say, and that's a rational expectations-ist. But that's another story. I can live with the specifications that Steve gave, on the assumption that we really don't envision any circumstances wh... | 88 |
fomc | 1,978 | Thank you, Mark. Willis. | 7 |
fomc | 1,978 | I can accept the suggestion made by Steve. I think I would prefer dropping the ranges to 0 to 6 on M1, 4 to 8 on the M2, and 9-3/4 to 10-1/2 [on the funds rate]. | 57 |
fomc | 1,978 | But you would accept the specifications? Well, I would certainly agree that we could go with this proposal at this time. I would think that the idea of erring on the up side of 10 with a little flexibility makes a little sense. I think the Desk could see the advantage of not letting it drop below 10 again and, therefor... | 138 |
fomc | 1,978 | I understood a semi-commitment to the suggestion--I believe it was Dave's suggestion or someone's--that we not let the funds rate drop. And I thought the inference there was below 9-7/8. Your comment I construe as indicating the inclination to not let it drop [below] 10. Could we get some clarification on that? | 73 |
fomc | 1,978 | No, no. Unless a change in the aggregates indicated a shift, if we're moving to 10 now, that 10 would be operated erring above 10. But changes would move from that point in either direction. | 45 |
fomc | 1,978 | But I think the answer is yes, that we've got to have pretty weak aggregates to drop below the 10. | 23 |
fomc | 1,978 | We would consult. We are going to consult on the 16th of January in any case, but we would consult in the meantime. | 28 |
fomc | 1,978 | Mr. Chairman, what does this move do to the economic forecast? | 14 |
fomc | 1,978 | Well, in terms of 10 percent, that's really only 12-1/2 basis points, and I think the answer is really nothing. If we begin talking about going to 10-1/2, that's really quite different; we'd be talking about a weaker economy, particularly in the second half of 1979. | 67 |
fomc | 1,978 | How much weaker? | 4 |
fomc | 1,978 | Jack, do you remember? I think you're talking, I don't know, about 1/4 or 1/2 percentage point. We are already taking a couple of tenths off because of the OPEC effect in the second half. So you're talking about an economy that in our view would be less than 1 percent real growth. | 69 |
fomc | 1,978 | And what do you think the probability of two quarters of negative growth would be if we went to 10-1/2? | 26 |
fomc | 1,978 | One [in] three. | 6 |
fomc | 1,978 | Governor Teeters, I think one factor you'd want to consider in this is how permanent that 10-1/2 is. It's a question of whether or not Jim is talking on the assumption that it goes to 10-1/2 and stays there. It would be a somewhat different outlook, I'm sure, if it went to 10-1/2 and came back down in a few weeks. | 83 |
fomc | 1,978 | Well, I haven't seen anything come back down since I've been here. | 14 |
fomc | 1,978 | I'm just adding that as a point. | 8 |
fomc | 1,978 | Look at the roller coaster, what I call Mount Everest. It came back down. | 17 |
fomc | 1,978 | Even the economy hasn't gone down. | 7 |
fomc | 1,978 | One of the problems is that growth was supposed to be about 3-1/2 percent in the fourth quarter and it's over 4 percent. That's one of the problems, unfortunately. Well, let's run down your check list. I will vote for that proposal. | 54 |
fomc | 1,978 | Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Partee Yes Governor Teeters No Governor Wallich No President Willes Yes President Winn Yes The vote is 8 to 2. | 46 |
fomc | 1,978 | Thank you very much. We completed that action at 11:40; we are doing very well. I don't know if you liked that procedure or not but I think that we got all the comments. Perhaps you can give me privately your evaluation of whether that's going to be a better way to do it or not. We now need to move to a few other impor... | 97 |
fomc | 1,978 | Mr. Chairman, my recommendations will fall in three categories: routine swap rollovers, the System open position, and the System's warehousing facility for the Treasury. The System has seven D-mark drawings totaling $451 million equivalent and six Swiss franc drawings totaling $114 million maturing between December 30 ... | 162 |
fomc | 1,978 | We'd have a February meeting before February 15, wouldn't we? | 14 |
fomc | 1,978 | Yes, we have one on the 6th. | 11 |
fomc | 1,978 | Typically, we have asked for renewals covering a period after the next Committee meeting. It gives us a little opportunity to work out repayments ahead of time. | 31 |
fomc | 1,978 | But Chuck was pointing out that some of those come due after our next meeting. | 16 |
fomc | 1,978 | That's right, but typically we ask for renewals of [any swaps maturing] a week to 10 days after the next Committee meeting. | 29 |
fomc | 1,978 | There's very little [likelihood] that we are going to pay off--what was it--over $2 billion? | 24 |
fomc | 1,978 | Two billion, 40 million. | 7 |
fomc | 1,978 | The answer is that we have to roll them over. The authorization would be to roll them over in the absence of acquiring the currencies with which to repay. | 31 |
fomc | 1,978 | That's right. | 3 |
fomc | 1,978 | May we have your approval for that proposal? Hearing no dissent, it is so ordered. You have other proposals? | 23 |
fomc | 1,978 | Yes, Mr. Chairman. Our heavy intervention in the exchange market brought our open position to within less than $200 million of the $5 billion authorized by the Committee last Thursday. An intermeeting rise in that limit would have required publication this Friday, and given the speculation both in the market and in the... | 124 |
fomc | 1,978 | So this was a period of 100 percent funding by the Treasury which, as you know, is unusual and it should be noted. | 27 |
fomc | 1,978 | For two days. | 4 |
fomc | 1,978 | For two days. | 4 |
fomc | 1,978 | Mr. Chairman, I think a good case can be made for suspending the overall open limit authorization. Such action would underscore the System's commitment to the November 1 program and particularly avoid the need for an intermeeting change in the authorization that might [cause] a market misreading because early release o... | 159 |
fomc | 1,978 | Well, this is a point on which we don't have strong feelings. I might say that we've been somewhat concerned about a series of [announced] actions that would allow foreign currency traders to track what our intervention has been. Therefore, one of the reasons for a larger open position than we normally would like for c... | 195 |
fomc | 1,978 | Well, either way is possible. I think naming a number like $8 billion tips off the market in an undesirable way. However, suspending the limit entirely, even though we certainly would maintain very close consultation, I think is not ideal in principle. So I'd look for an alternative way. We could suspend the [limits on... | 228 |
fomc | 1,978 | But we would still have to suspend the aggregate limit. | 11 |
fomc | 1,978 | No, you can't do that. | 7 |
fomc | 1,978 | No, they are different things. | 7 |
fomc | 1,978 | You'd have to give [the Desk] room on the aggregates. | 14 |
fomc | 1,978 | We either have to give a specific number or a suspension. | 12 |
fomc | 1,978 | Are you suggesting that you can take the aggregate limit and put it under the procedural instructions? | 18 |
fomc | 1,978 | The aggregate limit would disappear under this proposal. You would not be without some control. | 17 |
fomc | 1,978 | Mr. Chairman, I think it's not [a good idea] to eliminate the [limit on the] aggregate open position. (A) I don't think it's desirable from a public relations standpoint; and (B) I don't think it's desirable from the Committee's standpoint. | 54 |
fomc | 1,978 | I happen to have a preference along with Governor Coldwell on this. This is the basic limit and I think the Committee probably ought to have one. I would swallow the public relations disadvantage and make sure it's big enough, but I could go either way in the end. | 54 |
fomc | 1,978 | As I say, there's no strong feeling. If there's any sentiment for setting an $8 billion limit--the previous one was $5 billion--we'll move it to $8 billion. That would be perfectly fine. It will be disclosed; whether that will create any concern or not, I don't know. It shouldn't. It would indicate to people we've gone... | 80 |
fomc | 1,978 | I favor the $8 billion. | 7 |
fomc | 1,978 | I think I have some preference for a limit, but I think we [unintelligible] and if it turns out-- | 26 |
fomc | 1,978 | Why don't we then consider the proposal to move the limit to $8 billion? Are there any comments or dissents? Hearing none, we will approve that. Oh, incidentally, I should say because Henry said it, but I'm not sure it was disclosed properly and perhaps you are [not aware], our relations with Treasury from here on are ... | 99 |
fomc | 1,978 | Mr. Chairman, I'd also like to recommend that the authorization to warehouse foreign exchange for the Treasury be raised from $1-3/4 billion, which the Committee approved last week, to $3-1/2 billion. That increase in the authorization last week accommodated the successful sale of $1.6 billion Treasury D-mark bonds las... | 194 |
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