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fomc | 1,979 | Yes, because of the lag effect. | 8 |
fomc | 1,979 | One of the issues involved, which is very important, particularly as we get into the ' ~ O S , is that we have assumed some lag in the supply-side effects. We are talking about partial decontrol in 1979--it's very limited--and it's bigger in 1980. But by the end of 1980, decontrol in domestic prices is only about 55 pe... | 96 |
fomc | 1,979 | Willis. | 3 |
fomc | 1,979 | Jim, in the last three weeks we've been getting a little more evidence that disintermediation is starting to take place. We see it in terms of traffic in the Bank--direct purchases of [Treasury] securities--and we see it in looking at some of the institutional outflows. Parallel to that is the fact that long-term rates... | 163 |
fomc | 1,979 | Well, on the thrift institution side, for mutual savings banks the numbers available through early April indicate a substantial decline in rates of inflow. For S&Ls, the March data show inflows up a little. | 43 |
fomc | 1,979 | That's right, but the April data-- | 8 |
fomc | 1,979 | We have scattered reports for April and we have been picking up the same sort of thing. Our own forecast, however, is not for a sharp deceleration of inflows but rather a gradual slowing. We don't have any massive change there. I might note, though, that in the mortgage market on the financing side we have been picking... | 128 |
fomc | 1,979 | Willis, I might just say that it took a little while for this money market certificate change to take hold. There were various cut-off dates. The credit unions didn't [get] cut off until the end of the month. In one city in Alabama we let every [institution] go to the end of the month. It took a while to get all that a... | 105 |
fomc | 1,979 | I wonder if the flows are going to go into market investments? | 13 |
fomc | 1,979 | They might because, after all, the compounding effect was cut back, so there is also a greater disadvantage compared with the market than there was. | 30 |
fomc | 1,979 | I think we are going to see more. | 9 |
fomc | 1,979 | We'll just go [unintelligible]. Paul. | 11 |
fomc | 1,979 | All I have is the GNP deflator in your forecast, which I think is 9.4 percent this year. What would that be in terms of consumer prices? | 35 |
fomc | 1,979 | We don't forecast the CPI directly; we do forecast [the deflator for1 personal consumption expenditures, which is a close approximation for the CPI. For 1979 we have them virtually the same--about 9 - 1 / 4 percent for personal consumption expenditures and the deflator. | 59 |
fomc | 1,979 | We are going to have to have a pretty low rate of price increase in the second half of the year to make 9-1/4 percent, given this first quarter. | 36 |
fomc | 1,979 | Yes, by the time we get into the summer, say July or August, if we don't begin to see substantially slower rates of increase in the CPI, then this inflation forecast is clearly at risk of being too low. | 44 |
fomc | 1,979 | [Statement--see Appendix.] | 6 |
fomc | 1,979 | Thank you, Steve. Yes, Larry, we'll have a time for questions. | 16 |
fomc | 1,979 | I'd like to ask one clarifying question and also a question after that. Early in your statement I believe I heard you say, Steve, that the slower growth of the monetary aggregates reflects slower demand for goods and services. Then further on I understood you to say, if I understood correctly, that in an inflationary e... | 88 |
fomc | 1,979 | There's a slight conflict, you're quite right. I said early on that the slower growth [in the monetary aggregates] we're now having is consistent with our staff projections of a slowing later on in economic activity. But then I went on to say that the slow [monetary] growth we're having was sufficient to finance this r... | 133 |
fomc | 1,979 | Could I just ask one further question, Mr. Chairman? What factors mitigate, in your thinking, the view that there will be a rebound in the monetary aggregates in the period ahead? What evidence would there be to justify your point of view other than wishful thinking? | 54 |
fomc | 1,979 | We only have two [pieces] of evidence. One is that the most recent week's data show a slowdown in the [decline] in the outstanding amount of savings deposits at commercial banks. That decline has gone on for five months; savings deposits have been dropping very sharply since late last fall. I think that mainly [reflect... | 275 |
fomc | 1,979 | John Balles. | 4 |
fomc | 1,979 | Thanks, Mr. Chairman. I always find it difficult to disagree with Steve, particularly after such a lucid exposition as the one he has just gone through. I do have to quarrel though, Steve, with the conclusion that Larry has already addressed. What is the evidence that money will rebound? Last month, you may remember, I... | 952 |
fomc | 1,979 | I think we have "Balles rule number one" now: That near troughs and peaks forecasts of money are wrong in the wrong direction. | 29 |
fomc | 1,979 | Well, in short, Mr. Chairman, those are my misgivings. And I say that with apologies to the staff because I know this forecasting is a tough j o b . But when we detect systematic errors that run on as long as these have, I for one feel that we've got to make some mental adjustments. This to me says that it would certai... | 194 |
fomc | 1,979 | John, thank you for those inputs. Chuck. | 10 |
fomc | 1,979 | Well, I just want to comment on what John said. I have some sympathy with that, John. The fact is that I might admit that [what you talked about] used to be one of my inside devices for forecasting if we had extended misses in the staff projections. Incidentally, Steve doesn't really do those. In his position I used to... | 283 |
fomc | 1,979 | Well, I think your point is well taken, Chuck. I'm not a strict monetarist and I'm not a strict Keynesian either. I don't know what that makes me--a non-monetarist and a non-Keynesian. Eclectic is one word. I used that word recently to a friend and he said: Did you say epileptic? In any event, there is a plausible case... | 294 |
fomc | 1,979 | We'll have Henry Wallich's question and then start the go-around and see where we really come out. | 21 |
fomc | 1,979 | I wanted to ask Steve what his reasons were for placing much confidence on the existing relationship. As Chuck said, there is at least a possibility that that relationship has changed. It has changed, I think, for two years running and has led us to an overprediction of $30 billion in that time, if I remember. People a... | 244 |
fomc | 1,979 | Well, Governor Wallich, I really don't know and I don't think anyone knows when exactly we'll get back on the relationship. AS YOU said, in the early stages of this expansion beginning around the end of ' 7 4 it took us 2-1/2 years to so-called "get back on the relationship." We have always assumed that this demand shi... | 315 |
fomc | 1,979 | I agree. | 3 |
fomc | 1,979 | Well, ladies and gentlemen, I think it might be appropriate now to start on item six [on our agenda], which is a Committee discussion of the economic situation and policy implications. What we've been doing recently is asking for you briefly to give your views on the economy, if they involve any significant differences... | 138 |
fomc | 1,979 | Mr. Chairman, I think we're in an almost no-win situation today. We're in a posture that was of our own making, in that we're reaping what we sowed 2 or 3 years ago by refusing to face up to the fact that by stabilizing interest rates we were permitting the aggregates to grow much too quickly. I think concerning oursel... | 321 |
fomc | 1,979 | Thank you, Larry. Bones | 6 |
fomc | 1,979 | Mr. Chairman, [after] listening to our own directors on Friday and [based on1 our own testing of the activity and the sentiment in our District during recent days, we are more nearly attuned to the [analysis] by the staff this morning than we've been in some time. We recognize the enormous uncertainties about prices, t... | 99 |
fomc | 1,979 | Thank you very much. Jim. | 7 |
fomc | 1,979 | Yesterday in meeting with my own staff on this, I think I suffered an information overload. One of the alternatives that was presented to me was called "the pure ignorance theory" That is, we don't know how the economy got here and we don't know where it's going. And I must say that I felt embarrassingly comfortable wi... | 71 |
fomc | 1,979 | That is the most honest comment we've had today ! | 10 |
fomc | 1,979 | Nevertheless, I have to agree with Bones in that we can find no major area of disagreement with anything the staff has said at this point; we have minor points of difference, but nothing dramatic. If one can abstract from this horrible inflation problem, things don't appear to be out of kilter. [The economic expansion ... | 93 |
fomc | 1,979 | Thank you very much. Willis. | 7 |
fomc | 1,979 | I hate to see such unanimity over there. I don't want to be a counterforce today. The inflation situation is still very bad. It seems to me that any easing would be misinterpreted and could only be counterproductive. On the [plus] side, it seems to me that the transfer mechanisms really are at work, both from the budge... | 151 |
fomc | 1,979 | Fantastic. I've never seen this happen at these FOMC meetings before! Bob, you must have some different view. | 24 |
fomc | 1,979 | There has to be one in every group! I have more doubts than usual about the staff's forecast, which is really one of stagflation for eight or so quarters. I don't deny that there's a possibility that can happen, but to me the weight of past evidence suggests that we're more likely to get cumulative effects and slip int... | 657 |
fomc | 1,979 | Thank you very much, Bob. Nancy. | 9 |
fomc | 1,979 | I would like to draw the attention of the Committee to the change in our perception of what has been going on out there. Three or four months ago we were looking at a projection for the first quarter--I'm not criticizing staff, my own perceptions have changed markedly as we've gotten more data--of a rate of growth in G... | 361 |
fomc | 1,979 | Thank you, Nancy. Chuck. | 7 |
fomc | 1,979 | Well, I think the picture is mixed. It seemed to me possible that we could have one final surge of activity and I've been quite worried over the last six weeks or so that that might be developing in the business sector in business equipment and in inventories. Whether right or not, I've become rather more calm about in... | 505 |
fomc | 1,979 | They're netted out in M 7 aren't they, Chuck? | 13 |
fomc | 1,979 | They are, but we don't really [track that]. I've found, for example, that our Bluebook doesn't have M I . But they are netted out in another way. That is, the f l o w of funds accounts have a line for funds raised by nonfinancial sectors. That is like final demand in the GNP, if you will. In looking at that and relatin... | 454 |
fomc | 1,979 | Thank you, Chuck. Paul. | 7 |
fomc | 1,979 | Let me make a couple of observations. I sit here listening to all this about the aggregates and it seems to me that the only reasonable conclusion is not to put much weight on the aggregates. We see relationships that go way out of the range of historical experience. We haven't any idea of the validity of the forecast ... | 135 |
fomc | 1,979 | Plus or minus 3 percent | 6 |
fomc | 1,979 | That is precisely the difficulty. The reason they have come up with this forecast is that one doesn't know whether the 3 percent error will in fact be plus or minus. I must say in talking about projection errors that I am much more concerned about the persistent errors in the projections of the inflation rate than I am... | 342 |
fomc | 1,979 | It depends on the expected rate of inflation. | 9 |
fomc | 1,979 | That is right. My observation would be that the expected rate of inflation has increased somewhat in the last six months and the nominal rate of interest has not. Therefore, the real rate of interest has declined. I don't see any reason why the profitability of investment under present conditions would be declining in ... | 129 |
fomc | 1,979 | Thank you, Paul. Henry. | 7 |
fomc | 1,979 | I think we are in a very difficult situation. The real sector points down. Inflation points up. And the question is whether we can do anything about the downturn of the real sector without aggravating the inflation. I think the answer is no. It is very probable that a slowdown is ahead after four years of cyclical expa... | 605 |
fomc | 1,979 | Thank you, Henry. Phil. | 7 |
fomc | 1,979 | Mr. Chairman, I see no reason to prolong what you've heard from Paul Volcker and Henry Wallich. I agree with their positions. I would point out to the Committee that we've had several months now of status quo and in that several months we've had at least a 3 percentage point increase in the inflation rate. And I can se... | 75 |
fomc | 1,979 | Thank you. Jim. | 5 |
fomc | 1,979 | Mr. Chairman, if one were to array the 8 or 10 most prominent forecasts, including the Greenbook forecast, clearly the Greenbook forecast with its rather heroic estimates of plus 1 percent real growth in six quarters would come up on the optimistic end of the array. Our own view is that we are heading toward a recessio... | 201 |
fomc | 1,979 | Thank you, Jim. Ernie. | 8 |
fomc | 1,979 | Mr. Chairman, I have no particular quarrel with the staff forecast. It's interesting, however, that the discussion--with just a couple of exceptions--tends to suggest that the risk is on the down side rather than the up side. It seems to me that the evidence is probably increasing that we have a fair amount of risk on ... | 410 |
fomc | 1,979 | Because of the tornado, that's true. | 8 |
fomc | 1,979 | Was that a nonmember bank? | 7 |
fomc | 1,979 | A national bank. I assume that it could be characterized as an involuntary member. Well, we immediately sent people to the area [affected by the tornado] to indicate that we were prepared to do what we could to assist. They reported that there were long lines of people drawing currency from the banks. One question I as... | 239 |
fomc | 1,979 | Thank you, Ernie. John | 7 |
fomc | 1,979 | Just to add briefly, Mr. Chairman, to what I said before, we should not have a dilemma, especially for those of us who expect a downturn, hopefully mild, sometime this year and going into early 1980. Intuitively, one is tempted, of course, to tamp a bit harder on the credit brakes because of the recent news on inflatio... | 672 |
fomc | 1,979 | Thank you, John. Mark. | 7 |
fomc | 1,979 | Thank you, Mr. Chairman. When economic theory and data appear to be in such disarray, it seems to me that we ought to introduce real factors. AS exhibit A I would like to show the Committee the last shoe I was able to purchase, which cost me $559. It was made in Nebraska, which is someone else's District, I'm happy to ... | 101 |
fomc | 1,979 | Well, I'm glad to get facts back into this [discussion1! | 14 |
fomc | 1,979 | I would simply like to say, when I see all these arguments about real interest rates coming back to haunt me, that I'm beginning to wonder why I did that. Inflation numbers in the first half have been very bad; I don't think that should surprise any of us. They've been a little worse than we expected, I guess, but we d... | 118 |
fomc | 1,979 | Thank you, Mark. Bob. | 7 |
fomc | 1,979 | M r . Chairman, I think the Board staff's forecast is a very good one though improbable. I agree with Mr. Volcker; it never happens that way. But to make it have jiggles is even more improbable. S o let's keep our balance on the improbability theory. Like so many others, I feel that if anything the Board staff's foreca... | 559 |
fomc | 1,979 | Thank you, Mr. Chairman. I'm at the end of the table and perhaps everything has been said. I look forward to these meetings. [I was pleased1 particularly this morning to learn that we have a new industry in Nebraska and they're apparently very persuasive if they can sell that shoe for $559 to Mark Willes! As for the Bo... | 577 |
fomc | 1,979 | Thank you very much, Roger, and thank you all. Those were very interesting inputs. I would suggest that we take a 15 minute break and reconvene. | 33 |
fomc | 1,979 | While we're waiting, I'll merely say that my impression prior to joining this Committee was that it was just a social gathering of folks who enjoyed getting together once a month. But this meeting almost makes me believe that you've earned your pay--excessive though it may be! I'm talking of the Governors, of course! I... | 178 |
fomc | 1,979 | I wonder what would happen if we didn't have a [new] directive. I guess we would continue on the old directive. | 25 |
fomc | 1,979 | We continue with the old directive. I call your attention to page 5 of the Bluebook on which you see the three alternatives the staff has laid out. Having looked at that, hold your finger there and I call your attention to page 9. If one [starts] from the present position of Ml and M2 and plots out the ranges, in the c... | 1,708 |
fomc | 1,979 | Well, if we're expressing preferences for the first go-around, Mr. Chairman, I'd have to say I lean toward the specs of alternative A as far as M1 and M2 are concerned. I would not make the federal funds range as low as is shown under alternative A; I would suggest 9-1/2 to 10-1/4 percent. And I would like to see some ... | 99 |
fomc | 1,979 | Thank you very much, John. Bob Black. | 10 |
fomc | 1,979 | Mr. Chairman, given my views of the economy and how I perceive monetary policy to work, strangely enough, I think all these aggregates ranges are really too low. I'd prefer for M1 a range of 5 to 9 percent--which would trigger action under a strict monetary aggregates directive if the rate came in under 6 percent--and ... | 236 |
fomc | 1,979 | You'd keep the fed funds where it is. Yes, John? | 14 |
fomc | 1,979 | Excuse me, I forgot to add that I would prefer the monetary aggregates directive. Excuse me, Bob. | 23 |
fomc | 1,979 | Bob you were finished, weren't you? | 8 |
fomc | 1,979 | Yes, I was. | 5 |
fomc | 1,979 | Okay. Phil | 3 |
fomc | 1,979 | MI. Chairman, the view of the world that you portrayed in your initial [comments] just doesn't happen to square with my view of what monetary policy can do nor with my belief in the desirability of public policy [moving] to restrain inflation. So I still would advocate that we put additional restraint in this package. ... | 108 |
fomc | 1,979 | And where would you put the funds rate now? Leave it where it is? | 16 |
fomc | 1,979 | At 10-1/4 percent, the midpoint. | 12 |
fomc | 1,979 | Bones Kimbrel. | 5 |
fomc | 1,979 | Mr. Chairman, I would much prefer at this particular juncture to see [policy] cast in terms of a money market directive. I have trouble with these [Bluebook] ranges. I personally would not like to see them change, so I'd like roughly 2 to 6 percent on M1 and 4 to 8 percent O h M2. I would very much dislike having the f... | 182 |
fomc | 1,979 | Okay, thank you. Bob Mayo. | 8 |
fomc | 1,979 | Mr. Chairman, I would stick with alternative B. I would not object, however, to a tightening of 1/8 point or so, which would bring us closer to 10-1/4 percent [on the funds rate]. I think that could give a sign of resoluteness without getting us in trouble of over-reacting. Again, I would follow it as we go along and t... | 159 |
fomc | 1,979 | Thank you, Bob. Chuck. | 7 |
fomc | 1,979 | Mr. Chairman, I think we really ought to be easing. It's past time. We've already gotten ourselves into considerable difficulty with respect to the behavior of the real economy. And I agree that there isn't much we can do to restrain the kind of inflation we have now other than to encourage moderate demand over the lon... | 551 |
fomc | 1,979 | Thank you, Chuck. Nancy. | 7 |
fomc | 1,979 | I would counsel that we stay unchanged. My [view] is that we should probably be easing. But again I don't think we're quite to the point where we should be doing it and [worsen] inflation. I think it would be the wrong move. I have no quarrel with the specifications of alternative B and I would go for a money market di... | 74 |
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