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fomc | 1,978 | Do you feel they are making progress on your viewpoints? | 11 |
fomc | 1,978 | Oh, yes. | 4 |
fomc | 1,978 | Okay. | 2 |
fomc | 1,978 | In Larry's case, the mechanistic tying of the short-term [growth] rates with the long-term rates did not bother me quite as much because I do think it will force out into the open a more conscious consideration [of the] relationship. [Secretary's note: The raw transcript ended at this point. It seems likely that the me... | 80 |
fomc | 1,979 | Good morning, ladies and gentlemen. Welcome to our historic meeting. It's not only earlier [in the month than usual] but also involves for the first time the new Humphrey-Hawkins process. I assume that doesn't mean much [will be different], but it does mean, [since we cancelled our regularly scheduled meeting in Januar... | 132 |
fomc | 1,979 | Yes. | 2 |
fomc | 1,979 | Okay. And Mr. Kimbrel is not able to attend. So from the Cleveland and Atlanta Federal Reserve Banks, we have First Vice Presidents Walter MacDonald and Kyle Fossum here. I think all the Reserve Banks are covered. I have a very sad chore to face--it's happened to me twice in my short tour here, which is historic in my ... | 178 |
fomc | 1,979 | Thank you, Mr. Chairman. [Statement--see Appendix.1 | 14 |
fomc | 1,979 | Thank you, Scott. Any questions OX comments? | 11 |
fomc | 1,979 | Mr. Chairman. | 4 |
fomc | 1,979 | Yes, Ernie. | 5 |
fomc | 1,979 | This may not be the appropriate place for this question, but do you see anything [in] the international developments that are affecting currency [flows] that would help explain what we are seeing in the measures of the domestic monetary aggregates? | 46 |
fomc | 1,979 | I don't think I am qualified to answer that, but I don't know of anything. | 17 |
fomc | 1,979 | I'm not sure anybody is, Scott. We have not been able to draw any very close connection between the two, Ernie. It may be there, but we have not been able to find it. | 41 |
fomc | 1,979 | Yes, Dave. | 4 |
fomc | 1,979 | Scott, what conditions would be necessary to permit a decline in the funds rate without a serious impact on the dollar? I presume that a decline at this time would have adverse effects on the dollar. | 39 |
fomc | 1,979 | Yes, I think it would. Perhaps more time with a sense of stability in the market and a less jittery atmosphere [would help]. We had a very jittery atmosphere in January. The dollar has shown more resilency over the weeks since January 1. It was able to absorb the impact of the measures taken by the German monetary auth... | 121 |
fomc | 1,979 | Would it require obvious indications of a weakening in our economy? | 12 |
fomc | 1,979 | Dave, there are a number of factors on the fundamental side, including an improvement in the trade deficit, perhaps a sign of real moderation in the economy and, of course, less inflation, which nobody expects in the short run. All those things 1 think would take the onus off a decline in the funds rate. | 65 |
fomc | 1,979 | I was trying to find out to what extent they really want us to have a recession. | 18 |
fomc | 1,979 | The knee-jerk reaction at the moment in exchange markets is to respond positively to any indication that the U.S. economy is a little less buoyant. After the decline in the leading indicators, there was some buying of dollars. So, any indication that the economy is cooling off is seen as bullish for the dollar by some ... | 83 |
fomc | 1,979 | Scott, suppose we only had continued weakness in the aggregates and we edged the fed funds rate down. Do you think we would still get the kind of reaction you are talking about? | 36 |
fomc | 1,979 | It depends on what else is going on in other places. The same numbers can have a different effect if they come through one day [versus another day]. | 32 |
fomc | 1,979 | If it happens on the same day that there is a large strike in the Baltimore Canyon, the answer is that it would have no effect on the dollar. | 31 |
fomc | 1,979 | But I was really asking, other things equal, would the market think [weak money growth] was sufficient reason for our lowering the federal funds rate? | 30 |
fomc | 1,979 | When the Germans tightened, they first had their vice president give a speech that made everybody mad and had people expecting a very sharp tightening of monetary policy. When they did tighten, it was less [than expected1 and a lot of people had to scramble to cover positions. So it depends on how it's done and what th... | 70 |
fomc | 1,979 | Larry. | 2 |
fomc | 1,979 | If whatever policy we adopted were publicly [announced] by the Chairman or whomever as having certain specific objectives, wouldn't that help clear the air? In other words, do the exchange markets have to function shrouded in mystery about all of this? If we were to let the fed funds rate drift down, why couldn't we ma... | 78 |
fomc | 1,979 | It's a question of credibility. We have gone for so many months trying to establish credibility and it is a very, very slender reed at this stage. As I said, the initial reaction to the statements coming out of Washington was negative, or skeptical. It was filtered through the various news services. Chairman Miller in ... | 122 |
fomc | 1,979 | Thank you, Scott. Our next step is to ratify, if you are willing, the transactions since the previous meeting. Is there any objection? Hearing none, we will approve those transactions. Next we have the report on domestic open market operations. Peter Sternlight. | 54 |
fomc | 1,979 | Thank you, Mr. Chairman. [Statement--see Appendix. ] | 14 |
fomc | 1,979 | Diversity is the spice of life. [In some respects] it's too bad that it's a good thing. Peter, I guess there will be four times a year now when the period between meetings will be a little different than in the past. Should we put your [intermeeting leeway] authority on a per week or per month basis? Would that help or... | 80 |
fomc | 1,979 | It depends so much on what one expects the particular factors affecting reserves to do that I don't know whether it would be logical to tie [that authority] merely to the length of the intermeeting periods. Maybe we should undertake some further study of it and, if it seems appropriate, come back with a recommendation ... | 71 |
fomc | 1,979 | All right. Questions or comments? Phil | 8 |
fomc | 1,979 | Mr. Chairman, I think we ought to keep the [intermeeting leeway] at $5 billion if there is a substantial possibility that--CHAIRMAN MILLER It's $3 billion, not-- | 41 |
fomc | 1,979 | $ 3 billion is the standard. | 8 |
fomc | 1,979 | I know. I'm saying that we ought to keep it at the $5 billion [we authorized for this past intermeeting period1 because I think there is a possibility that we may get a very sharp movement in float, especially if the weather happens to clear up, and the Desk will need to do some rather sizable offsetting purchases. And... | 93 |
fomc | 1,979 | I think that's a good idea. I really don't know what great 1-elevance it has, and we certainly can raise it easily enough, but I think Phil's right. It's a 6-week interval and there is a lot of churning in the market. We don't know what the weather is going to be. Why not make it $5 billion? | 73 |
fomc | 1,979 | Well, we had [increased it to $5 billion and then raised it $1 billion more, which] put it at S 6 billion. So, when you say "keep it," YOU really mean "set it" at $5 billion. | 52 |
fomc | 1,979 | Set it at $5 billion. | 7 |
fomc | 1,979 | You remember we had it at $5 billion and then we raised it. | 15 |
fomc | 1,979 | We raised it another $1 billion. | 8 |
fomc | 1,979 | Any other comments or questions? Shall we authorize $5 billion between now and the next meeting? Will that be satisfactory? | 24 |
fomc | 1,979 | So moved. | 3 |
fomc | 1,979 | So moved and seconded. All in favor say "Aye." Opposed? So voted. We also need to ratify the transactions since the previous meeting. Is there any dissent from approving those actions as reported to you in the usual [written] report plus the verbal report? Hearing none, we will approve that. Thank you very much, Peter.... | 270 |
fomc | 1,979 | I suggest that we take a few minutes to see if there are any questions of Jim or [his colleagues]. Yes, Larry. | 26 |
fomc | 1,979 | I have a question. Jim, on the last page of the monetary policy alternatives section, where you show projected growth in Ml of 6-114 percent, the footnote indicates that that is in the absence of ATS accounts. In other words, if you included ATS accounts, that 6-114 percent would be considerably higher? | 67 |
fomc | 1,979 | I'm sorry, the footnote perhaps is misleading It would be something like 3 percent growth in observed M1. | 23 |
fomc | 1,979 | In other words, it's really adjusted. | 8 |
fomc | 1,979 | That's right. | 3 |
fomc | 1,979 | Okay. | 2 |
fomc | 1,979 | Bob Mayo. | 3 |
fomc | 1,979 | Jerry, 1 find myself quite comfortable with almost every page of this fine presentation except the unit cost indicators. I'm just wondering if you're whistling [in the dark] a bit both on compensation per hour and on productivity. On the trend in productivity, I suppose there's a natural inclination to say: Well, we re... | 133 |
fomc | 1,979 | You're absolutely right. And, of course, this is one of those areas, among others, about which we know relatively little. We know almost nothing about this, particularly recently. We have an assumption of a 1 percent rate of increase [in productivity]; our feeling is that under the pressures of rapidly rising wages, bu... | 166 |
fomc | 1,979 | I find it optimistic. That's my problem, I guess. I hope you're right, but I don't believe it at this point. | 26 |
fomc | 1,979 | John Balles. | 4 |
fomc | 1,979 | Jim or Jerry, in an otherwise exceptionally well done presentation, I was startled by only one thing and that was your figures with respect to the impact of fiscal policy. You have a chart that shows the full employment surplus for this fiscal year at $8.7 billion, which is a startling contrast to the Administration's ... | 147 |
fomc | 1,979 | All right. There are differences between our estimates of the change in the high employment surplus/deficit and those of the Council [of Economic Advisers]. These are not projections of levels; we specifically did not project levels because there is a pretty universal sense that one can get almost any level one likes d... | 292 |
fomc | 1,979 | Well thanks, Jerry. If you happen to have an explanatory memo on the technical details--we don't have time to go into it now--1, for one, would be very pleased to see it. | 41 |
fomc | 1,979 | I have three. | 4 |
fomc | 1,979 | Which one do you want? | 6 |
fomc | 1,979 | It really does have a bearing [on our decisions] because if fiscal policy is going to be on the restrictive side--and you may well be right, I'm not challenging you--that obviously has some implications for what we can do on the monetary policy side. So I'm going to be very interested in seeing how you got these differ... | 68 |
fomc | 1,979 | When you say '"change," Jerry. you mean that there's an improvement in each year from 1976 through 1980. You're just bringing them up. | 32 |
fomc | 1,979 | There's a movement toward [restraint] in each year by differing amounts. | 15 |
fomc | 1,979 | I see. Well, I hadn't quite noticed that earlier. | 12 |
fomc | 1,979 | From stimulus to restraint, yes. Mark Willes. | 11 |
fomc | 1,979 | Thank you, Mr. Chairman. I'd just like to ask one question about the monetary policy assumption. Up until the fourth quarter of 1978, money grew on average about 8 percent. You have an assumption of 6-1/4 percent, adjusting for ATS. Does that also include any adjustment for the 2 percent shift in the demand for money? | 74 |
fomc | 1,979 | Yes, it does. It's consistent with the Bluebook; in effect, you add 2 percent to the 6-1/4 percent. A s you know, in the fourth quarter--and apparently in the current quarter, the way things are shaping up--the money demand function has begun to differ from actual experience. We're picking up some of the drift that Ste... | 123 |
fomc | 1,979 | It's not quite believeable, but we did assume 6 months ago, even 9 months ago, that we would begin to get this drift around the fourth quarter of 1978. It has begun to develop; whether it will continue or not we can't be certain, but we had assumed it and we have continued to assume it. | 68 |
fomc | 1,979 | When you say add 2 percent, what I'm trying to figure out is what measured M1 growth will be consistent with this. We can take 3 percent off for ATS? | 36 |
fomc | 1,979 | Right, about 3-1/4 percent. That's all. | 14 |
fomc | 1,979 | That's all. Now, what about the shift in demand for NOWS? | 15 |
fomc | 1,979 | Well, if we don't get that 2 percent shift, then at the level of interest rates assumed the actual growth will turn out to be 5-1/4 percent if we're right about the ATS [effect]. | 44 |
fomc | 1,979 | Another way of viewing it, in terms of what you're suggesting, is that the observed 3-1/4 percent rate of growth in money in pre-1974 days has the power of 5-1/4 percent money because of the effect of [the shift]. | 56 |
fomc | 1,979 | That's how they get rates as low as they did. If we didn't have that shift in demand for money, interest rates would be higher. | 28 |
fomc | 1,979 | And another way of saying it is that if measured money adjusting for ATS is 6-1/4 percent, without the shift it's really 8-1/4 percent. | 36 |
fomc | 1,979 | For this level of interest rates, if we don't get the shift we'd have 8-1/4 percent. | 23 |
fomc | 1,979 | For this level of interest rates--which in effect means if that shift takes place, then there'd be no change in monetary policy in terms of M 1 from the past two years on your assumption for the forecast period. Right? If that shift takes place, then you're not assuming any additional restriction in monetary policy fro... | 74 |
fomc | 1,979 | That's right. | 3 |
fomc | 1,979 | I think that's correct. The only caveat that I would note is that this isn't a new assumption. We have essentially been assuming that this shift would take place at this time. | 36 |
fomc | 1,979 | It wasn't taking place last year. | 7 |
fomc | 1,979 | That's right. | 3 |
fomc | 1,979 | And we got 8 percent growth. | 8 |
fomc | 1,979 | That's right. | 3 |
fomc | 1,979 | If we get 6 percent growth plus the 2 percent, then we're essentially where we were in '78 and most of '77. | 28 |
fomc | 1,979 | That's right. | 3 |
fomc | 1,979 | All right, thank you. | 6 |
fomc | 1,979 | Except that we're substituting some velocity for some money supply. MR. AXILROD(?). Yes. That's right. | 25 |
fomc | 1,979 | That's what we've been doing. | 6 |
fomc | 1,979 | So the published figures are going to come out-- | 10 |
fomc | 1,979 | 3 percent. | 3 |
fomc | 1,979 | Yes, that's right. In other words, we're sticking our necks out a little on some velocity estimates. We need to pay a little more attention to them this time, if we read the Bluebook literally, than we have before. | 48 |
fomc | 1,979 | That's one way of putting it. It's the other side of the demand for money. | 17 |
fomc | 1,979 | Let us proceed then to ask Steve Axilrod to give his comments and recommendations on the longer-run ranges. Then we'll go around and have each of you give us your input on how you see the economy and the policy implications in tenns of how you see the long-run ranges. | 58 |
fomc | 1,979 | [Statement--see Appendix.] | 6 |
fomc | 1,979 | [What about] bank credit, Steve? | 9 |
fomc | 1,979 | Well, I think I would stay with the alternative B range, which is 1 percentage point lower than what we now have; that would seem to me quite consistent with the slowing in growth. | 39 |
fomc | 1,979 | I would just like to remind everyone--as you know since we've talked about the Humphrey-Hawkins legislation and Steve mentioned this--that what we're really talking about involves one important difference in setting long-term ranges. And that is that we will not in this calendar year have new ranges based upon new base... | 443 |
fomc | 1,979 | May I ask a question? | 6 |
fomc | 1,979 | Larry. | 2 |
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