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fomc | 1,979 | Excuse me. Obviously, we're all very much interested in the recent behavior of the aggregates, and I was very much impressed with Steve's eloquence in describing what he considers to be some of the reasons for that behavior. But I don't have the intellectual capacity, Steve, to absorb all this as you say it. Would it b... | 120 |
fomc | 1,979 | Too bad we didn't have a tape recorder on. | 10 |
fomc | 1,979 | [Unintelligible] if that's how it works. | 12 |
fomc | 1,979 | Actually, I think we did have the tape recorder on. Certainly we can have it transcribed and sent to you. That's no problem at all. | 30 |
fomc | 1,979 | Thanks. | 2 |
fomc | 1,979 | I forgot that there's no green light [in front of me, as there is at Board meetings, to indicate that the tape recorder is on]. But we have the recorder on without a green light at the FOMC meetings. So, we'll start with Paul. | 53 |
fomc | 1,979 | Well, so far as the economy is concerned, I have been interested in whether the higher numbers of the fourth quarter are being carried over into a mood of more business buoyancy than we have had in recent months. I have contacted [several people in] the business community recently and they suggest that that is the case... | 442 |
fomc | 1,979 | Well, the recipient of the check has less, according to the bank. | 15 |
fomc | 1,979 | The recipient couldn't have less. He has the same as he would otherwise have. He cashes the check but-- | 23 |
fomc | 1,979 | But the Federal Reserve-- | 5 |
fomc | 1,979 | The fellow who writes the check has more and he spends the money. | 14 |
fomc | 1,979 | The Federal Reserve grants the credit. | 7 |
fomc | 1,979 | That's assuming that the bank gives credit for funds not received. | 12 |
fomc | 1,979 | They do that. | 4 |
fomc | 1,979 | They certainly don't give me credit! | 7 |
fomc | 1,979 | But they do to big corporations. | 7 |
fomc | 1,979 | President Volcker, we've looked into that with your staff. There may be a lot of biases in the money supply. To get a measured bias from what you're talking about, it appears that it has to be transferred between two zero balance corporate accounts. So we don't believe the effect would be very large. | 61 |
fomc | 1,979 | Well, my staff pretty well convinced me that it goes in this direction. Nobody knows, but the change in float has been so big that I think it might have had an [effect]. We'll see when float goes down what it is. | 48 |
fomc | 1,979 | I assume we're going to get float down, aren't we? | 12 |
fomc | 1,979 | Then we'll have the reverse effect if this explanation is right. | 12 |
fomc | 1,979 | I hope you're right because it certainly would help to explain January if you are right. | 17 |
fomc | 1,979 | In any event, this makes it particularly difficult. We've had this big increase in money market funds along the lines of a change in appraisals of cash balances versus other media. But, in looking at numbers for the long-term aggregates, I come up with ranges for M2 and M3 about like those in alternative A, but the M1 ... | 140 |
fomc | 1,979 | It sounds like alternative B. | 6 |
fomc | 1,979 | Well, it's more like "B" for M1, but I would go along with " A " for M2 and M3. | 28 |
fomc | 1,979 | Thank you, Paul. Chuck. | 7 |
fomc | 1,979 | Well, we're going to have to address a number of issues and make a number of linkages to get to these long-range aggregates. The first is the question of the correctness of the staff's economic projection. I can't say that I see anything much wrong with it except that I was reminded of Governor Shepardson's comment one... | 138 |
fomc | 1,979 | Well, I think the staff can guarantee that their dotted lines will not be achieved. | 17 |
fomc | 1,979 | In a way, that's the problem here. Because although I understand why the dotted lines are fairly straight, the line for the rate of growth in the real economy is straight at an extraordinarily low level. That is, for 6 quarters running the line shows an increase in real GNP of around 1-1/2 percent. | 67 |
fomc | 1,979 | Plus or minus 3 percent. | 7 |
fomc | 1,979 | And the staff has 6 quarters of industrial production increases of 1-1/2 percent or thereabouts. Similarly, for consumption and investment and business inventories, the [growth] rate numbers are all very stable and really quite moderate. The question I suppose a business cycle economist would have to ask is whether we ... | 249 |
fomc | 1,979 | At this time? | 4 |
fomc | 1,979 | Yes, at this time we have to say what the relationship of our policy for the next year is to the 2-year short-run goals [of the Administration]. | 33 |
fomc | 1,979 | [Unintelligible.] | 6 |
fomc | 1,979 | No. It's clear if you read the language of the Act, as I did yesterday afternoon. | 19 |
fomc | 1,979 | Well, Chuck, I think that's another issue. I have the language right here and we are to give our objectives onl\l for 1 9 7 9 . | 37 |
fomc | 1,979 | We are to give our monetary objectives-- | 8 |
fomc | 1,979 | And we're to say what the relationship is to the [Administration's] short-term goals--the relationship for 1 9 8 0 would be my guess. | 34 |
fomc | 1,979 | But you see, maybe this [requirement] was somewhat deliberate on the presumption that monetary policy has a leading effect on the economy. If you look at this [forecast], you see that although we're not far [from the Administration] for 1 9 7 9 on the real and the nominal, in 1980 we depart quite a bit further. And the... | 718 |
fomc | 1,979 | Thank you, Chuck. Nancy. | 7 |
fomc | 1,979 | Well, I have the same problem with the staff forecast. The economy is either going to recover or we're going to have a recession. I think the probabilities are on the side of a recession, but I don't see it occurring until the end of this year and the early part of next year. Part of the reason that we deviate from the... | 581 |
fomc | 1,979 | Thank you, Nancy. Bob. | 7 |
fomc | 1,979 | Our assessment of the economy pretty much parallels what I think Paul Volcker was saying. We come out with about the same growth in real GNP as the Board staff but we feel that the inflation rate is going to be above the staff's estimate. We expect the rate for the full year to run somewhere around 8-1/2 to 9 percent. ... | 289 |
fomc | 1,979 | Good planning! | 3 |
fomc | 1,979 | Well, an accident really. But we would now suggest that for the fourth quarter of '78 to the fourth quarter of ' 7 9 , we ought to be thinking in terms of 6 percent [Ml growth1 before ATS. Of course, the question of what we really want depends on the estimate of what ATS accounts will do. We think the staff is about ri... | 303 |
fomc | 1,979 | Thank you, Bob. Walter. | 7 |
fomc | 1,979 | Following in Bob's vein, let me say that business activity is relatively strong in our District. Many businessmen, however, are apprehensive about [the economy] later in the year. People are especially concerned about the consumer being over-extended in the housing market. The strengths in our District include steel an... | 168 |
fomc | 1,979 | Thank you, Walter. Dave. | 7 |
fomc | 1,979 | Well, Chuck has expressed my views about the projections--the lowness and the smoothness of the dotted lines--very well and I won't repeat that. I would say, however, that the often [repeated] statement that we have no imbalances in the economy overlooks the fact that we have an 8 to 10 percent inflation rate, and I th... | 312 |
fomc | 1,979 | Thank you, Dave. Kyle. | 7 |
fomc | 1,979 | We certainly see no signs of impending recession in the Sixth District, and this view is supported by almost all of our directors at our head office and branches who seem by and large to feel that their own areas of business are apt to fare better than the national economy. This attitude is particularly prevalent in Fl... | 262 |
fomc | 1,979 | Alternative C for M2 and M3? | 9 |
fomc | 1,979 | Yes, for M2, M3, and bank credit. | 13 |
fomc | 1,979 | Thank you, Kyle. Larry. | 7 |
fomc | 1,979 | Mr. Chairman, we just concluded a series of meetings with the chief executive officers of major industrial companies in our area and, as many others have said, we saw practically no evidence of anything but a strong economy. They were almost unanimous in that point of view. However, while the economy is strong, at leas... | 511 |
fomc | 1,979 | Thank you, Larry. We'll hop across the table to Roger. | 13 |
fomc | 1,979 | Thank you, Mr. Chairman. With respect to 1919, we agree rather closely with the staff's projections, except that we think the first quarter may not be quite as strong as suggested by the staff. But f o r the year as a whole we are fairly close--perhaps a bit more pessimistic but in a range that probably doesn't make mu... | 503 |
fomc | 1,979 | Thank you, Roger. My list says "Boy" Mayo, but I think it's supposed to be Bob. | 22 |
fomc | 1,979 | Thank you, Mr. Chairman. As one of the elder people around the table, I do indeed thank you! First, my answer to Chuck on the Shepardson phenomenon is that this merely indicates again that people on the staff are more comfortable with actuals than they are with estimates, and my solution is to make the solid lines stra... | 79 |
fomc | 1,979 | A little seasonal adjusting. | 5 |
fomc | 1,979 | Right. I find that this phenomenon is typical of a lot of businessmen, too. That is, they say: Well, we might have a recession, but I don't see it in my business; I'm not going to have one. And by gum you can go back to 1973 and 1974 and they were saying exactly the same thing. So they have a dotted line problem as wel... | 210 |
fomc | 1,979 | We have it declining in 1980. At the end of 1979 ATS accounts in total are, on our assumption, around [$26] billion. If half of that comes out of demand deposits that's about $13 billion. The total amount of deposits that are eligible about that time is $100 billion. So it's fairly modest if you look at it that way. It... | 168 |
fomc | 1,979 | That's all it could be at this time, that's true. My other point is an observation on the President's Economic Report. It's terribly obvious, at least to me, that the Council was trying very hard to come up with figures that somehow will tie in with the Humphrey-Hawkins goals down the line and has concluded that it is ... | 110 |
fomc | 1,979 | I think, Bob, that '79 and '80 are legitimate projections and the next three years are nothing but a straight line [extension]. | 28 |
fomc | 1,979 | Well, that's true. But even in '80 I think one of the main reasons we are more pessimistic than the Council relates to their attempt to have a dotted line again. | 36 |
fomc | 1,979 | They're aware that it's an election year also. | 9 |
fomc | 1,979 | I have heard about that, yes! My second observation on the Council report, which hasn't been mentioned here, is that there is a [notable] lack of discussion in the report of the whole capital investment problem, and investment is one of the items in Humphrey-Hawkins that gets a pretty high priority as I read the Act. I... | 391 |
fomc | 1,979 | Thank you, Bob. Mark | 6 |
fomc | 1,979 | Thank you, Mr. Chairman. I won't quibble with the staff's forecast. I would simply point out that we think they have done an incredibly good job on a horrendously difficult task. In terms of the probabilities, there is the possibility that the economy could be stronger as well as weaker. If businessmen really were conv... | 753 |
fomc | 1,979 | What if they are wrong? | 6 |
fomc | 1,979 | Well, I'm getting to that. If they are wrong--if all we get is ATS, for example, and not the downward shift in the demand for money--we then move up to the top part of the range which would be 3 percent plus the ATS, which is again 6-1/2 percent. If there is a greater shift in the demand for money then, of course, it w... | 250 |
fomc | 1,979 | But you do understand M1. | 7 |
fomc | 1,979 | Well, with a rather wide range of uncertainty. | 10 |
fomc | 1,979 | I'll just send you that M2 [study], Mark. Maybe Frank will do the same thing. | 20 |
fomc | 1,979 | Thank you, Mark. John. | 7 |
fomc | 1,979 | With regard to the business situation, our staff forecast is quite similar to the Board staff forecast in broad outline. The differences are not worth talking about because they are all within the range of the forecasting errors. So we have no problems there. Given that essential agreement, the issue comes down to the ... | 503 |
fomc | 1,979 | Thank you, John. Ernie. | 8 |
fomc | 1,979 | Mr. Chairman, on the general economic picture I think the staff projections are about as defensible a set of projections a s one can put together at the present time, and I would not pick on any particular aspect of them. I have made a concerted effort since our last meeting, in view of my judgment that the prospects w... | 129 |
fomc | 1,979 | In the Dallas area? | 5 |
fomc | 1,979 | That's where I had most of my conservations. And this is on the grounds that they are playing their cards close to their chests. They would much rather fix up, patch up, or put in a new machine when an old one breaks down and in fact go to overtime on their labor costs as compared with expanding basic capacity. It leav... | 567 |
fomc | 1,979 | Thank you, Ernie. Frank. | 8 |
fomc | 1,979 | Mr. Chairman, I have a very different perception of the economy than the staff has presented to us. I would like to think we could fine-tune the economy as nicely as our projection. But it seems to me that in the past month we have seen a very unusual combination of numbers. We've seen indicators not only in December b... | 412 |
fomc | 1,979 | He just wanted to check to see whether you read it! | 12 |
fomc | 1,979 | Yes. I think the numbers he came up with [today] are very prudent; I would like to see a widening of the M 2 and M3 ranges to 5 - 1 / 2 to 8 - 1 / 2 percent and 6 - 1 / 2 to 9-1/2 percent but [otherwise] I think his suggested ranges are very appropriate. | 82 |
fomc | 1,979 | Thank you, Frank. Phil | 6 |
fomc | 1,979 | Mr. Chairman, I guess I have a bit of a biased view of the world at the moment. | 21 |
fomc | 1,979 | Join the others! | 4 |
fomc | 1,979 | The prospects are highly uncertain but still couched on the favorable side. The hard evidence we have had to date is for a strong economy with a very high rate of inflation. As for the monetary aggregates, I must admit I have never had much hope for them. And what they're showing right now I would say is of doubtful va... | 364 |
fomc | 1,979 | Thank you, Phil. Henry. | 7 |
fomc | 1,979 | Everything that can be said is bound to have been said. I'm impressed by the fact that in the two quarters before what must be the best advertised and predicted recession, if it comes, the economy has been growing well above potential--at 6 percent and 4 percent rates--and we have had a steady pattern of underpredictin... | 560 |
fomc | 1,979 | Thank you, Henry, and thank you all. I would suggest, before we try to synthesize this and before I give you my own reaction, that we take our coffee break. The coffee has been cooling EURor the last half hour. S o , why don't we do that and then we will resume. | 63 |
fomc | 1,979 | Let's see, are most of us here? A l l those who count are. Well, let's see if we can resolve the problems that we face on these long-run ranges. I was first guided by the eloquence of the discussion that has already occurred. Then to be practical I looked at the numbers that come out on paper and the eloquence goes awa... | 382 |
fomc | 1,979 | But maybe for the wrong reason! | 7 |
fomc | 1,979 | Chuck came close with 2 to 4-1/2 percent. I don't know whether he's willing to drop his bottom number to 1-1/2 percent. | 35 |
fomc | 1,979 | Gentlemen, may I point out that that implies rising interest rates on our-- | 17 |
fomc | 1,979 | 1 - 1 / 2 percent? | 9 |
fomc | 1,979 | The 1-1/2 to 4-112 percent. | 14 |
fomc | 1,979 | The [lower] end of that, yes, but it depends. If we are at the upper end of that and if some of these other things take place, our money rate growth will be faster than it has been. | 45 |
fomc | 1,979 | That's right | 2 |
fomc | 1,979 | On the up side [Ml growth] will be faster than it has been: on the down side it could be consistent with what we have had or it could be lower. So, what we are really doing is widening the [range], which just means I will catch a little devil from the Chairmen of the [Banking] Committees, but I am willing to do that. T... | 264 |
fomc | 1,979 | I would point out, Nancy, that there was no reference made to this table on page 1 4 [of the Bluebook]. | 28 |
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