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fomc | 1,977 | Mr. Black? Please. | 6 |
fomc | 1,977 | Peter, has market sophistication reached the point--now that they [have] deemphasized the recent figures on money supply and [have] moved on to monthly figures--that they also, similarly, [have] deemphasized any bulge in the April money supply, remembering that this happened last April and was then reversed the next co... | 87 |
fomc | 1,977 | I don't know that they really have. Some of the recent week-to-week reactions have been a little milder, but there is still a good deal of sensitivity to the weekly numbers and interest in seeing how the Desk might respond. There is, of course, a consciousness that the growth was slower in February, so that if there we... | 123 |
fomc | 1,977 | On that point, Mr. Chairman--I was going to mention this later--but I report the impression of my staff, rather than an impression I get directly, that the market has looked into this bulge problem, [and] their estimates of the bulge from the rebates is substantially larger than our own, meaning the New York Bank's. I ... | 121 |
fomc | 1,977 | Paul, to compound the confusion, our estimate is larger than yours, too. | 16 |
fomc | 1,977 | Well, I mean much larger. | 7 |
fomc | 1,977 | Well, I think our staff estimate will satisfy everyone because it will not present a single point estimate, it will present several estimates. I was just talking to Mr. Axilrod, and I think he had in mind presenting three sets of estimates; each set of estimates will cover several months, and I suggested that he might ... | 98 |
fomc | 1,977 | Mr. Chairman, may I ask a question? Peter, has there been any reaction in the market to the change in our policy on purchases of agencies? | 31 |
fomc | 1,977 | Very little, as I commented. Very few people in the market raised the question about it, and it was done in rather a low-key way, and we've been unable to detect any change in the quotations for the eligible versus ineligible issues, either as to the level of prices and yields or the spreads on those quotations. | 65 |
fomc | 1,977 | Now, that is very good, as I understand. It really means that we've been so wise in not becoming the dominant factor of market increase. If we had been, you'd see some market reaction. | 40 |
fomc | 1,977 | Well, I think activity had been pretty light in those issues. | 13 |
fomc | 1,977 | Are the dealers showing you any agency issues for purchase? | 11 |
fomc | 1,977 | We haven't had occasion in the last few months to go in and buy agency issues when we do get quite a sizable range of offerings. | 27 |
fomc | 1,977 | What you're saying, then, is that only when you go out and ask for the agency offerings do you get some offerings. | 25 |
fomc | 1,977 | Right. There've been too few occasions when we have anything to do, away from our go-rounds. Those with Treasury coupon issues will occasionally have some foreign-customer orders, so that it's worth the dealer's while to show us occasional Treasury coupon offers, but it would be rare with an agency. | 61 |
fomc | 1,977 | I hear no other question or comment. Now the time has come for a motion to confirm transactions of the Desk. Is there such a motion? | 29 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Motion has been made and seconded. I hear no dissent. | 13 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | May I ask a technical question? Wouldn't that show up if this was being financed in the funds market? Wouldn't that show up in other liabilities? | 31 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | Well, then, have you had a verification of it? | 12 |
fomc | 1,977 | Well, we get reports on, the daily report of deposits of federal funds and other borrowings. RPs--there are varying definitions, District by District, so it's not exactly comparable. And what I was reporting on--our aggregation of that for all member banks, with some added allowance for the nonmember banks--and this fi... | 160 |
fomc | 1,977 | We can't distinguish between the federal funds and RPs. | 11 |
fomc | 1,977 | No, we don't, but I don't think that Governor Partee-- | 14 |
fomc | 1,977 | Federal funds in concept would be borrowed from another bank and thus would not change total bank credit. | 19 |
fomc | 1,977 | No, no. I was giving you net. I was netting out, and this would be the loans to the nonbanks. This would be from all nonbanks. An S&L, for example would be a lender here. A corporation would be a lender under an RP. An S&L could be under federal funds. | 68 |
fomc | 1,977 | All right, any other questions? Mr. Wallich, please. | 14 |
fomc | 1,977 | Can one try to anticipate the behavior of businesses as they look toward the rebates and the bulge? Is it reasonable to think that it will be different from the behavior of banks, in that the businesses must anticipate a spurt in sales, therefore an increase in liquidity? This ought to cause them to be less liquid in a... | 77 |
fomc | 1,977 | Well, if they were going to do anything in anticipation of sales, I would assume they would build up inventory somewhat and possibly borrow from banks in order to do so, which would be, in a sense, reducing their liquidity somewhat. I have no evidence of an unusually substantial inventory buildup in anticipation of suc... | 70 |
fomc | 1,977 | There was, as I mentioned earlier, actually a rundown of inventories late in the year. The only thing we have for January to date is manufacturing and wholesale trade inventories. There was some rise in materials, particularly, and raw materials, and goods in process. It's felt that a significant amount of that was a b... | 90 |
fomc | 1,977 | I wouldn't disagree with your analysis that it might call for an increase in inventory. But the more immediate look ahead suggests simply that more cash is going to come in, and they may meet that from existing inventory as well as from a previous buildup. So that the main impact of looking ahead to the bulge would see... | 78 |
fomc | 1,977 | --would fall just prior to the refund. I don't think we saw anything like that in 1975. | 22 |
fomc | 1,977 | You may have said this, but it didn't sink in. You said the second quarter does not contemplate the effect of the rebate. Is that correct? | 30 |
fomc | 1,977 | No, what I said was that we expect a substantial effect in the second quarter but that the March-April figures currently before the Committee do not include any effect of the rebates directly because we don't expect the payments to begin until May. | 47 |
fomc | 1,977 | And yet, you do expect a significant effect in the full second quarter? | 15 |
fomc | 1,977 | Yes, at the moment, on the order of 2 percentage points on average, but that's quarter-over-quarter, roughly. I would expect substantial effects in May and June--very large, in fact. | 41 |
fomc | 1,977 | I guess my timing is a little bit different. I thought you might get those mailed out in late May, and you might start getting an impact in mid-June, which would mean that your deferred impact would be into the third quarter. | 48 |
fomc | 1,977 | On that mailing period you would get less effect in the second quarter, assuming our rough assumption at the moment, [which] is that the first mailing will be around the end of the first week in May. Now, again, that will depend on when the legislation is passed, whether the Treasury can gear up to mailing out the chec... | 84 |
fomc | 1,977 | I'm looking at your pattern here, on whatever table this is on p. 5 of the Bluebook, showing the M1 pattern for the alternative B. In effect, you've got stability for three quarters and a 3-1/2 percent jump in one quarter. | 55 |
fomc | 1,977 | Yes, that quarter, the second quarter, does include about roughly plus 2 for the rebates, and the third quarter roughly a minus 2. | 30 |
fomc | 1,977 | Coming back to the discussion concerning inventory, I thought we had a prospect of relatively slow inventory growth in the first and second quarters, which does not seem to me to imply major expansion for inventory purposes in bank credit. | 43 |
fomc | 1,977 | Slow growth in inventories in the second quarter? | 9 |
fomc | 1,977 | First, and second. | 5 |
fomc | 1,977 | Yes, I understand the first, not the second. | 11 |
fomc | 1,977 | Well, at least in the early part of the second. Maybe that's my problem. I'm looking really through mid-May. | 24 |
fomc | 1,977 | Our assumption has been that there would be a moderate rate of growth in inventory investment--actually, a rate of inventory investment that's quite modest during this period. If I may refer to the discussions I've had with business people, particularly at the retail trade level, I have asked them about their anticipat... | 99 |
fomc | 1,977 | You're reporting the thinking of an economist. | 8 |
fomc | 1,977 | I am reporting the thinking of an economist at one of the chains. I suppose I should distinguish between businessmen and economists--you're right, Mr. Chairman. But the company policy in this particular chain and in the case of several others was to be rather conservative in building inventories during this period. | 58 |
fomc | 1,977 | Of course, you could have offsets, too. That is, the retailers could build it up, and it could come out of the manufacturers in the first instance. | 33 |
fomc | 1,977 | Yes. A different stage of inventory operations here, but who's doing the financing through bank credit, I guess is the question. If you're building your M1 growth exclusively on the rebate, that would be one thing, but I gather you are not. | 50 |
fomc | 1,977 | Lord no. | 3 |
fomc | 1,977 | On the strength of the economy, bank credit demands, and so forth; partly on the inventory expansion. | 21 |
fomc | 1,977 | Right, right. Now, we would expect a rather substantial second quarter based on the strength of the economy, which, of course, in itself also reflects partly the rebates. But, in addition, it's the particular effect on the rebates and people just holding cash for, on average, a little bit longer than they normally hold... | 67 |
fomc | 1,977 | Any other questions or comments? If not, we are ready for the discussion on monetary policy. Gentlemen, I am inclined to think that we don't have a very difficult job today. Having said that, I will say no more, for a while anyway. Who would like to speak first, at somewhat greater length but not excessively? | 67 |
fomc | 1,977 | I don't know whether it's difficult or not, but I want to be radical and suggest that we be particularly sensitive to our long-range intentions on the aggregates today, and that should make it easy. I say that against the feeling that the business outlook is quite satisfactory, but the risks may be greater of maybe get... | 954 |
fomc | 1,977 | Thank you, Mr. Volcker. I would pretty much endorse what Mr. Volcker has stated. And it might possibly focus our discussion a little better if I suggested some numerical specifications for the Committee to shoot at one way or another. I would suggest that we adopt a range of 4-1/2 to 8-1/2 for M1, 7 to 11 for M2, and s... | 130 |
fomc | 1,977 | Mr. Chairman, I am going to have to start talking before Mr. Volcker. He stole what I wanted to say. I had a slightly different perspective, but it tracks what he had in mind. I really had in mind bringing that M1 down to the 4 range and lifting the top of the M1 to 9, but giving some movement in there, as Mr. Volcker ... | 261 |
fomc | 1,977 | Thank you, Mr. Coldwell. Mr. Black, please. | 14 |
fomc | 1,977 | Mr. Chairman, I have a feeling that in the second quarter we are going to see a pretty substantial bulge in the aggregates. We've touched on many of these points, and our own work suggests we'll have even a greater rise in April associated with the buildup in balances by individuals around the April tax dates. Then, wi... | 515 |
fomc | 1,977 | That was 6 to 10 for March and April--those two months. You want a 6 to 10 range for March-April--before the refund is paid out? | 37 |
fomc | 1,977 | All right, thank you, Mr. Black. Mr. Eastburn, please. | 17 |
fomc | 1,977 | Thank you, Mr. Chairman. I've been impressed with the earlier discussion of the degree of uncertainty that I think exists for the next few months. I think if we had perfect knowledge, we'd try to anticipate some things--we'd try to anticipate the price increases which a number of us feel are likely but we're not sure a... | 293 |
fomc | 1,977 | Your first number you meant 4-5/8 to 4-3/4, and the second you meant 4-5/8 to 4-7/8? | 38 |
fomc | 1,977 | I think one thing this might do, with Paul's suggestion, would be to put us in a position of being prepared to introduce greater flexibility on the upside if that appears necessary. | 35 |
fomc | 1,977 | Thank you, Mr. Eastburn. Mr. Kimbrel now, please. | 17 |
fomc | 1,977 | Mr. Chairman, I thought I'd acknowledge the [unintelligible] weather conditions induced and the uncertainties, but I guess I am quickly moved to the feeling that Governor Partee discussed somewhat earlier. I think the economy actually is going to be much stronger in the third and fourth quarters than we have [assumed].... | 252 |
fomc | 1,977 | Thank you, Mr. Kimbrel. Mr. Mayo, we will hear from you. | 19 |
fomc | 1,977 | Well, again, my remarks were made by Paul Volcker, to whom I give my thanks. I have the same reasoning that he has, apparently. Maybe it's because I'm holding in my hand the Federal Reserve Bank of New York pencil, which I apparently stole when I was there two weeks ago, and it must have some effect. But, anyway, in th... | 284 |
fomc | 1,977 | Thank you, Mr. Mayo. Mr. Guffey. | 13 |
fomc | 1,977 | Mr. Mayo has said what I would like to say, in the sense that the range that has been stated [for M1], 4-1/2 to 8-1/2, is satisfactory and probably more consistent with our staff projections of what may happen in the remainder of March on into April. But more importantly, with respect to the federal funds rate, we woul... | 186 |
fomc | 1,977 | Thank you, Mr. Guffey. Mr. Baughman now, please. | 18 |
fomc | 1,977 | Mr. Chairman, I am in agreement with what you have suggested. I have to admit I had jotted down 4 to 8 for a range on M1, as compared to 4-1/2 to 8-1/2, but obviously that's a very small difference. I see no need to change the range on the federal funds at this time. I am sympathetic, however, to Mr. Eastburn's suggest... | 140 |
fomc | 1,977 | Thank you, Mr. Baughman. Mr. Partee next, please. | 17 |
fomc | 1,977 | Well, Mr. Chairman, I'm in a quandary, really, which I guess results in my being agreeable to your suggestion. I do think strongly that our problem in the months to come is going to be overly large monetary aggregates growth and that we're going to have deal increasingly with rising interest rates as a prevalent thing ... | 545 |
fomc | 1,977 | Thank you, Mr. Partee. Mr. Wallich now, please. | 16 |
fomc | 1,977 | Well, it seems to me that we have a decision more of strategy than of economics here. The economics of the situation, for what my view on it is worth--we have shocks ahead. They come mostly from the monetary side, but to some extent inventory accumulation also from the real side. That counsels, broadly speaking, sticki... | 332 |
fomc | 1,977 | Thank you, Mr. Wallich. Mr. Jackson now, please. | 15 |
fomc | 1,977 | Mr. Chairman, I just think that the underlying economic situation is stronger than the staff expects, and that the prospects for continued expansion are probably better than they estimate, although how materially is hard to anticipate, as much as it's hard to anticipate anything. It's my guess that we will see some inc... | 294 |
fomc | 1,977 | Thank you, Mr. Jackson. Mr. Winn is after you. | 14 |
fomc | 1,977 | Mr. Chairman, have we got too short of a horizon in our view today? How do we face the blip in terms of the tax [rebate] on M1? And coinciding with an underlying thrust, we may not get the decline after we get the blip because the economic situation may counter the normal sort of a decline in M1 that we're thinking abo... | 269 |
fomc | 1,977 | Well, as far as the bump in the money supply is concerned, I think we will have to make our estimates. They could be wrong, and we should accommodate the bump that we estimate. Then if it turns out that the rate of growth greatly exceeds our estimate, we will have to recognize that and counter it, but if it's within th... | 114 |
fomc | 1,977 | 6-1/2. | 6 |
fomc | 1,977 | All right, 6-1/2--we're down to 8/10 of 1 percent. Well, we made a mistake in 1975. I think we should be a little more careful this time than we were in 1975 and not take our staff projections quite as literally as we tended to at that time. But apart from that, if the figures come in very much above our estimate, we'l... | 592 |
fomc | 1,977 | Mr. Chairman, I think a good deal of public reaction and psychology in the market place will probably depend on your follow-on remarks and how we will handle this bulge in the Ms because of the rebates. You had some very interesting things to say about that in recent testimony, about how we had learned some lessons and... | 107 |
fomc | 1,977 | The next time around will be next week. And the Senate Budget Committee wants to go into these very questions, very closely. And the testimony I think will deal with that--that is, the prepared statement, quite apart from the oral questioning, which is going to be intensive in this area. And it may be a good thing. | 67 |
fomc | 1,977 | I think that would clear the air quite a bit, and particularly if it came through that, for the year as a whole, unless we see some significantly different change in the business outlook than we do now, we would probably end up within the ranges that we heretofore specified, the 12-month ranges. If that point got acros... | 293 |
fomc | 1,977 | Thank you, Mr. Balles. As far as public psychology is concerned, I just want to add one more observation. There was a feeling, rather widespread within the Congress, at least, that we deliberately set out to frustrate the will of the Congress in connection with the tax rebates in 1975. And I think that this is a questi... | 90 |
fomc | 1,977 | Well, Mr. Chairman, I would accept your specifications, and I also agree with you that our actions in the coming months ought to be in response to the facts as they come in and not in anticipation that the projections will be realized. I think, in general, this Committee has functioned better when it moved on the basis... | 142 |
fomc | 1,977 | Thank you, Mr. Morris. Mr. Lilly now, please. | 14 |
fomc | 1,977 | Well, I'm somewhat more bullish than the staff. However, I agree with your ranges for M1 and M2. I would like to repeat what I said last month; if I can see the outer limits [for the federal funds rate] from 4-1/4 to 5-1/4, it's just that it is easier to get that 5-1/4 in there now than it will be a month from now. I l... | 109 |
fomc | 1,977 | Thank you, Mr. Lilly. And we haven't heard from several members of our family. Who would like to speak next? Yes, Mr. Van Nice, please. | 34 |
fomc | 1,977 | I think I share Mr. Balles' concern as to what our long-range targets are going to be. I could comment more wisely on our short-range targets if I knew what's going to happen perhaps next month, when you review the long-range target. We had a shortfall in the aggregates in the first quarter of the year, particularly in... | 194 |
fomc | 1,977 | Thank you, Mr. Van Nice. And we'll hear from Mr. Gardner next. | 17 |
fomc | 1,977 | Well, gentlemen, I'm pleased with many of the perceptions that have been expressed, and I particularly want to identify with Mr. Morris's view that we do better when we don't deal with our expectations but we deal with what our current knowledge is. And I have nothing, really, to add to the discussion, because I synthe... | 384 |
fomc | 1,977 | Thank you, Mr. Gardner. Mr. Roos, would you like to speak now? | 19 |
fomc | 1,977 | Well, I have nothing of value to add other than to say that I'm fully agreeable with 4-1/2 to 8-1/2 for M1; 7 to 11 on M2; and perhaps the upper limit of the fed funds rate placed at 5-1/4. | 63 |
fomc | 1,977 | Thank you, Mr. Roos. Well, then, I think that on the basis of the opinions that have been conveyed by members of the [Committee], I'm quite ready to make a recommendation to the Committee for a vote, which I think will express the consensus pretty closely. Such differences as exist among us are very minor. And very few... | 234 |
fomc | 1,977 | Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous. | 49 |
fomc | 1,977 | All right. Then we have a few matters of business that we need to take up, and let us turn to item 9 on the agenda, which deals with the authority of the Desk to lend securities from our account. Mr. Sternlight, would you good enough to comment on-- | 58 |
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