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fomc
1,979
I have no particular concern about how we express this as long as the policy action--
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Nancy was for a money market directive, as were Mark and Bob, and Chuck--one, two, three, four, five, six. I think that's the way we're going to have to go if we are going to hang this together. Can we just look at this and see if we can get some agreement on the ranges and a money market directive? The suggestion that...
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Too high on the aggregate ranges.
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fomc
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Ernie?
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fomc
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I share that feeling; I think 9 or 9-1/2 percent [money growth] is too high for a money market directive.
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Phil.
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fomc
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Too high.
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Dave.
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fomc
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I would buy these.
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Chuck.
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fomc
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I would take a somewhat lower range on M1 and M2 than those suggested, but I would want to cut the funds range to 10-1/4 percent, [not retain] the 9-3/4 to 10-1/2 percent. I'd focus on aggregates around those ranges, which I think is very close to what Dave proposed to us.
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fomc
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Nancy.
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I would buy 4 to 9 percent and 5 to 9 percent for M1 and M2 and cutting the upper limit on the funds range to 10-1/4 percent.
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Henry.
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fomc
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The aggregate ranges are too high for me, particularly the midpoints.
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Mark.
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I agree with what Chuck said, assuming he meant a low enough range on the aggregates.
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fomc
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HOW low is low?
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fomc
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I was thinking of cutting a point off
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fomc
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Both ends or just on top?
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fomc
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Both ends.
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3 to 8 and 4 to 8 percent.
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fomc
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All right. Bob.
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fomc
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I would buy the 3 to 8 and 4 to 8 but I would stick to the 9-3/4 to 10-1/2 percent funds rate range.
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fomc
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Okay. Now. we're in good shape. Let's leave the rate question; the rate question sounds as if it's whether to leave the top side at 10-1/2 percent or cut it back to 10-1/4 percent. What we're going to do now is see if there's a majority who will accept 3 to 8 percent and 4 to 8 percent.
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fomc
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Sorry, Mr. Chairman, may I just ask a question? I'm not sure what Steve is assuming in these numbers about the demand shift for the first quarter.
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A lot--3-1/2 percent.
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fomc
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So if we got 8 percent growth for the 2 months, what would that be for the quarter if we get the 3-1/2 percent shift?
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fomc
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The quarter is about 3/4 percent, so add 3-1/2 to that plus 3 percent [for A T S J . if you want to put it in those terms.
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fomc
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So we'd get 6-1/2 to I-1/2 percent.
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fomc
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Somewhere on that order.
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fomc
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I must say, Mark, that I really do think we're talking about an arithmetic--
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fomc
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I'm just trying to understand, Chuck, what the numbers are. I think we're talking about policy and not arithmetic.
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fomc
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Well, Steve is frank to say that he is expecting these aggregates to pop back up and adjust this process. He is very frank to say so and is worried about dealing with that, right?
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fomc
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Well, also, a considerable pop back up is needed to get them back on the Committee's path.
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fomc
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Yes. we're way below.
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Good.
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fomc
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We had a lot of sentiment going for ranges of 3 to 8 percent and 4 to 8 percent. We had at least 3 or 4 folks who said they would buy that.
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fomc
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May I ask a question? If we went with that, what would that do to the funds rate? Does that continue to make the ranges consistent with a funds rate of around 10 percent?
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We think a 10 percent funds rate will yield about a 7 percent growth rate [for Ml]. The odds on that are not extremely high, so what the Committee is discussing is where it may wish to trigger a funds rate movement. I would interpret this [Ml] range to mean that if M1 were growing at a rate close to 7 percent or above,...
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Well, I want to be sure we understand that we're going to consult before we move [the funds rate]; we're going to do that in any case. So these are triggering consultation more than they are triggering action, and I think that should be borne in mind in trying to resolve this.
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That's why I think we ought to cut the funds rate range to a range [centered] around where we are, [by going to] 9-3/4 to 10-1/4 percent. I must say my notion for accepting these lower aggregates is associated with [the presumption of a centeredl funds rate--with the idea that [we will consult] if we run up toward the ...
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How would you like 9-7/8 to 10-3/8 percent?
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fomc
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Where is it exactly now?
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fomc
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About 10 percent or a little above.
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What are you suggesting?
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fomc
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9-7/8 to 10-3/8 percent--1/8th on either side to play with--
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fomc
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I would be much more liberal.
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fomc
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I'll bid 3/53.
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fomc
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Well, all this not very important if we're going to have a consultation before we move.
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fomc
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Here is a proposal, and you've got 3 minutes to decide and then we're going to lunch. Steve is suggesting that we could say this: "System open market operations are to be directed at maintaining the weekly average funds rate at about the current level, provided that over the February-March period the annual rates of gr...
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fomc
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So we use the full range of 3 to 7 percent?
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fomc
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Yes. And there is no fed funds range
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fomc
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But he has 5 to 9 instead of 4 to 8 percent [for M21.
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fomc
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But he compromised; he gave you 3 to I.
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fomc
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On MI..
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fomc
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This says we don't do anything while they are within the range but consult when [either] is outside.
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And if any of you wants to consult earlier, give me a call. I'm a very good consulter; I'll consult with the Committee on whether the situation calls for supplementary instructions.
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fomc
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And leave the funds rate alone.
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fomc
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Did you specify a range or not?
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fomc
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No range on fed funds; leave it alone and if we're within these ranges, we hang in there. If growth moves out of those ranges we consult with the Committee to see if anybody wants to supplement the instructions. This is known as "copping out."
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fomc
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With the general understanding that we expect the rates to stay approximately where they are right now.
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fomc
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Well, the instruction would be to do that.
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Maintain about the current rate.
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Alan, do you have any problems with that?
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None at all, Mr. Chairman.
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fomc
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Well, we could have said it in fewer words, couldn't we? Let's call the roll. I'll vote for that, which is known as the Axilrod compromise.
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fomc
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There is no mention of the federal funds rate in here at all except it says we stay where we are. MR. ALTMA". Maintain the funds rate.
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fomc
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It [sounds] a slightly ominous note because it suggests that if the aggregates behave for another period of time as they have behaved so far, then we'll make a decision to ignore them.
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fomc
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Just as we've done in the last seven weeks.
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fomc
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That's what one can read into that.
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What we can read now is that we've decided after our consultation not to lower the rate despite the aggregates. If anybody wants to read that the reverse is true now, they haven't read recent history. I'll vote for it anyway. MR. ALTMA". Vice Chairman Volcker No President Baughman Yes Governor Coldwell No President Eas...
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fomc
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Okay, we have two recalcitrants who can finally redeem themselves by shifting their votes.
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[I'd like to] get a little more language in there about foreign exchange. It's in there but as such it says we look at the foreign exchange market.
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fomc
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We'll give you up to 6 words to improve that if you change your vote.
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fomc
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We might improve it just by eliminating the words that follow the foreign exchange--those on the domestic financial markets.
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Who cares about the domestic economy? We're only concerned about the foreign exchange rates! CHAIRMAN MILLER Well, what it says is "while giving due regard to the program supporting the foreign exchange value of the dollar, to developing conditions in domestic financial markets, and to uncertainties associated with the...
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M r . Chairman, could I just ask if we shouldn't elaborate beyond ATS and also mention money market funds? That has been a very powerful force.
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Well, we could say "to the uncertainties associated with the introduction of ATS and other shifts"--
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fomc
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I really think we could do away with that whole phrase.
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fomc
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That phrase could be left out, really.
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fomc
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Leave out everything except the foreign exchange market.
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fomc
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We probably should take out the reference to ATS; I think you're right, Bob. We're singling out something that's a dead horse. We can just say "due to uncertainties," the fact that we don't really know. Phil, we're up to you. Did you shift your vote?
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fomc
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Where are we? Did we leave out these phrases or what?
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While you're thinking about it, we'll go on to consideration of the Manager's recommendation with respect to foreign currency operations. Alan Holmes.
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[Statement--seeAppendix.] [Secretary's note: Mr. Holmes recommended an increase from $150 to $500 million in the Committee's informal limit on foreign currency holdings.]
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Alan, as I understand it, this informal limit i s really a limit [within the formal amount] of what otherwise could be held under the Foreign Currency Authorization. So what we're doing is saying that if we're on the long side, it will be less than the total allowable position--which could be bigger if we were on the s...
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I would guess that we wouldn't get to that amount. But the markets are so volatile these days.
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fomc
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I don't think we will either. But we have [acquired] a billion dollars of D-marks in a couple of days which was very favorable to us. And we might have other occasions where we want to continue--
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fomc
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Well, I don't think we ought to get ourselves into a substantial long exposure willy nilly, but I think what Alan is suggesting is within the range of operating necessity. Nevertheless, I would hate to see us acquiring $500 million, [going] up to $1 billion and then to $1.5 billion. Those things sometimes happen.
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fomc
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Also, we don't want to make such a decision unless we intend to look at it in depth; this is not something we are trying to sneak up on. I just think we need some operating room.
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But we do need to look at this in depth at some point because we are getting to the point where we are operating in foreign currencies.
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Absolutely
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We have to look at this question; I don't think this $500 million implies that we've answered it.
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That's right.
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Well, Mr. Chairman, I'd be satisfied as long as we don't get beyond the debt we now owe in any single currency.
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fomc
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Then you are going to be long.
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fomc
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Well, we're buying right now.
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fomc
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We have yen and we don't have any [yen] debt.
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I meant in terms of the $500 million cumulatively.
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