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fomc | 1,977 | I'll comment very briefly as indicated in the March 4 memorandum, Mr. Chairman. The [System Open Market] Account Manager continues to find the lending program reasonably necessary to the effective functioning of the government securities market and, hence, to our open market operations. The dollar volume of lending was... | 178 |
fomc | 1,977 | Any comment? Any dissent from the recommendation? | 9 |
fomc | 1,977 | Is it true that you need to find this reasonably necessary to the functioning on the market account? Can you do that in good conscience with the volume of governments that are outstanding now? | 36 |
fomc | 1,977 | Given that we have a charge that's double what other lenders are charging and that people are coming to us, we believe that the fail situation would be materially worse if our lending program was not there. So I think we can reach that conclusion. | 48 |
fomc | 1,977 | All right, any other comment? Any objection to permitting the Desk to function as it has been functioning in this area? I hear none. Let's turn to item 11 on the agenda, the Authorization for [Domestic Open Market] Operations. No changes are being proposed by the staff. Do members of the Committee wish to propose any c... | 292 |
fomc | 1,977 | Mr. Chairman, the [sub]committee--a well-balanced group--met and discussed the issues which are fully set forth in the memorandum. I hope everyone has had a chance to read it. If you have, you know it's the [sub]committee's conclusion that the Desk continue to use repurchase agreements in bankers' acceptances, which is... | 588 |
fomc | 1,977 | Well, thank you very much for your report and for the work that you've done in connection with it. Does the Committee want to discuss? There are several recommendations, Mr. Kimbrel you have a-- | 42 |
fomc | 1,977 | Just a question, Mr. Chairman. Timing really must have come into the discussion--with these exceptional cases or delicate banking structure--that you resolved to your own satisfaction. | 34 |
fomc | 1,977 | I think we did, Monroe, basically by the majority view that we no longer would purchase directly because, when we use the repurchase agreement, we have an additional point in strength. And therefore, the issue to which I think you're alluding would probably be of minimal importance. | 56 |
fomc | 1,977 | Mr. Mayo, please, and then Mr. Coldwell. | 13 |
fomc | 1,977 | I note at the bottom of page 1 of the report of the subcommittee that one member of the subcommittee, namely Governor Gardner, favored continuation of outright System operations within recent limits and so forth. I find myself somewhat sympathetic to that point of view--although there are no reasons as such given in th... | 368 |
fomc | 1,977 | Well, I can only say, Bob, that the [sub]committee did not address the implications of an incipient growth of regional new markets of acceptances. Perhaps we were over-awed by the size of New York, and the fact is, we didn't think of your particular point as we deliberated. | 63 |
fomc | 1,977 | Mr. Coldwell, please. | 7 |
fomc | 1,977 | Mr. Chairman, I found myself perfectly compatible with the majority's recommendations on this matter. I think it does leave--with the intention of the authority that's in the directive--the possibility of reopening. I would not be too sympathetic with the idea of using the Open Market Desk as a means of fostering regio... | 90 |
fomc | 1,977 | I have no difficulty with the report of the [sub]committee, but I do have a question on one point, and that is, let me read paragraph [unintelligible] on page 8 of the [sub]committee's report. "The FOMC also may want to consider the term prime as applied to acceptances described in the Authorization for Domestic Open M... | 247 |
fomc | 1,977 | That's what this says. | 5 |
fomc | 1,977 | Well, it's not the way I interpreted Mr. Gardner's--Mr. Gardner left an opening for the Desk to use its judgment. | 27 |
fomc | 1,977 | Well, I'd hope not to give the implication that there isn't--the opening that I believe should exist, Mr. Chairman, is the fact that we were buying Franklin National's bankers' acceptances too close to the day that Franklin National became a problem. Now, I shouldn't be talking about what the Desk was doing at a period... | 184 |
fomc | 1,977 | But at that point the Desk--here is my warning--the Desk should not act on its authority. | 21 |
fomc | 1,977 | I agree. | 3 |
fomc | 1,977 | If there is a question that the Desk has about a particular bank, then before it takes any action which deviates from market judgment, it should consult promptly with the Committee. Unless that is done--unless there is such consultation, the possibility of real trouble-- | 52 |
fomc | 1,977 | That's one of the major issues. You see, if you're buying outright and you have knowledge, why then you are in a conflict-of-interest sort of situation. | 32 |
fomc | 1,977 | I know. I think that's good. | 8 |
fomc | 1,977 | If you're dealing in RPs, it's a financing mechanism. It seems to me you can very readily just take the market's judgment for the collateral you accept for the RPs. That's one of the reasons I supported the majority view of the [sub]committee rather than Governor Gardner's view. | 59 |
fomc | 1,977 | Any other question or comment? Yes, Mr. Volcker. | 13 |
fomc | 1,977 | Just very briefly, Mr. Chairman. I don't feel strongly about this issue. I get a little nostalgic about this long tradition of the acceptance market that the System explicitly nurtured, and it's in the law. On the other hand, there's an element of artificiality at this point when we operate the way we do, and here's th... | 99 |
fomc | 1,977 | Well, I sense an attitude of acceptance of the subcommittee's report. Am I interpreting the Committee's thinking correctly? Well, we can take a formal vote. Any dissent? There is none. Then the Committee's unanimous. And we haven't done badly. It's only 5 minutes after one. | 60 |
fomc | 1,977 | Good morning, gentlemen, we will get our meeting under way. President Balles is home and unable to attend--he's ill, but mildly. And his first vice president, a similar situation, so that San Francisco, one part of our country, is eliminated for this meeting, I am sorry to say. However, we are very glad to welcome you,... | 148 |
fomc | 1,977 | Thank you, Mr. Chairman. This constitutes a statement of current status of these suits, the first of which, the Committee will recall, is Merrill v. FOMC. That suit against the Committee was brought in May 1975 by a public interest group, and the Federal District Court issued an order involving two mandates: One, with ... | 784 |
fomc | 1,977 | The significant thing about all that is the date--that means that this is still alive. I was hoping it had died by now. | 27 |
fomc | 1,977 | I, too, Mr., Chairman; that is the significance of it. May I suggest, Mr. Chairman, that--pursuant to a direction, I believe, earlier given within this Committee--if other inquiries or questions are put to the Reserve Banks by members of the House staff, may I urge, Mr. Chairman, subject to your affirmation, that they ... | 108 |
fomc | 1,977 | Oh yes. Let's be more specific. If any one of you [receives such a request], or if a request goes to any of our Reserve Banks, please advise Mr. O'Connell promptly. | 41 |
fomc | 1,977 | Thank you, Mr. Chairman. I have nothing further to report. | 14 |
fomc | 1,977 | This particular request has one element of difficulty in it because of the supplement to the operation [unintelligible] which the New York Fed highlights the rate change from a very low rate to the discount rate presently. I would suggest that the Bank would not comply with this request--that they limit their complianc... | 75 |
fomc | 1,977 | Mr. Chairman, if I may, that direction is given. That is the understanding I had with Mr. Guy yesterday afternoon. He will send both to myself, not the supplement. | 37 |
fomc | 1,977 | Any other questions or comments pertaining to the lawsuits? All right, thank you, Mr. O'Connell, and we now proceed. A motion to approve, if we so desire, the minutes of the March meeting--such a motion would be in order. | 52 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Seconded. | 3 |
fomc | 1,977 | The motion is before you to approve the minutes; the motion has been seconded. I hear no dissent. Let's turn to Mr. Pardee. | 30 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | By what points has the yen appreciated over the past months. | 12 |
fomc | 1,977 | Now by a net of 1-1/2 percent ,and that's from the December figures. We started at around 279, got down to 271. | 33 |
fomc | 1,977 | Any questions or comments on Mr. Pardee's report? Well, thank you, Mr. Pardee. A motion to approve all the good deeds of the foreign Desk? | 35 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Motion has been made. | 5 |
fomc | 1,977 | Seconded. | 3 |
fomc | 1,977 | Motion has been made, and I think it's been seconded. Do you have any recommendation? Thank you very much. We are ready now for your report, Mr. Kichline. | 38 |
fomc | 1,977 | [Statement--see Appendix.] | 6 |
fomc | 1,977 | [Statement--see Appendix.] | 6 |
fomc | 1,977 | Well, thank you very much, Messrs. Kichline and Zeisel. We are ready now for the discussion of the economic and financial outlook. And I think that we probably will need to spend more time on this subject today than we have in previous meetings. There's a new development in the governmental sphere, as well as in the pr... | 173 |
fomc | 1,977 | I wonder if I might ask for some clarification on these revised projections. I was interested in noticing that the result of the deletion of the rebate issue had changed your estimates for personal consumption expenditures and inventory investments pretty significantly but that you had showed practically no effect on b... | 122 |
fomc | 1,977 | Judging from the behavior of the stock market, certainly last week, and bond markets as well, financial market participants looked upon this action as quite a favorable step and associated it with somewhat less upward pressure on interest rates and a lesser inflationary impact. In our own staff forecast, we did have a ... | 151 |
fomc | 1,977 | That's offsetting then--I mean, you've got the effect of somewhat lower interest rates to stimulate, but you have the effect of a lower investment tax credit to hold back. | 35 |
fomc | 1,977 | That is correct. | 4 |
fomc | 1,977 | It is hard for me to believe that the original investment tax credit proposal would make an appreciable influence in the market for capital equipment--the difference of going from 10 percent to 12 percent, meaning a 2 percent difference in the price of equipment in a world in which prices are advancing 6.8 percent annu... | 97 |
fomc | 1,977 | Of course, I don't suppose the interest rate effect is very large either. The interest rates are maybe a quarter lower than the other. | 27 |
fomc | 1,977 | On percentage terms, it's probably just about a wash, certainly after taxes. | 15 |
fomc | 1,977 | The major effect, one way or another, is the effect upon confidence. | 15 |
fomc | 1,977 | We noticed from Bob Black, in the directors meeting last time, some evidence that the [sentiment was positive] as a consequence of the reaction of financial markets | 32 |
fomc | 1,977 | That's what I really would expect, but I may be wrong, but everyone I see seems to be much pleased by the fact that the rebate was withdrawn--at least the business sector. | 37 |
fomc | 1,977 | On that same point, to what extent does a consumer confidence index reflect pessimism as a result of the elimination of the rebate? | 26 |
fomc | 1,977 | Well, it would be too early to tell. | 10 |
fomc | 1,977 | I've seen no results; it would take a while before we get that kind of report. | 18 |
fomc | 1,977 | I have not seen recent Sindlinger reports. In the last three months or so, he has been reporting a decidedly bearish attitude; but that coincided with an exceptional surge in retail sales, which is very difficult to sort out. | 46 |
fomc | 1,977 | Well, I find it easy to sort out. | 10 |
fomc | 1,977 | All you have to do is reverse what Sindlinger says. | 12 |
fomc | 1,977 | Mr. Kimbrel, please. | 8 |
fomc | 1,977 | Question, this to Mr. Zeisel. In your report, you make reference to the change in minimum wage. What sort of projections are you using with regard to your expectations of what the minimum wage will be? | 43 |
fomc | 1,977 | We have taken a position which is something of a compromise between the proposal made by the Dent bill and the Administration's proposals. We are assuming a July 1st, 1977, increase to $2.65. The Carter proposal was $2.50 on July 1st. The Dent bill was for $2.85. In talking to some people on the Hill, they fear that so... | 128 |
fomc | 1,977 | All right, thank you, Mr. Kimbrel. Mr. Eastburn, please. | 19 |
fomc | 1,977 | My comment is a question on price indexes. In our exercises before these meetings, we project on through 1978, and we have the deflator ranging around a 6-1/2 percentage increase in that period. Your projections don't go that far, but they'd been starting out at a much lower base. Have you done anything through 1978 th... | 98 |
fomc | 1,977 | No, we haven't gone beyond midyear, and as we say, our projections for the first half of 1978 are about 5-1/2 percent for the fixed-weight index. It varies slightly from the deflator because of variables, items such as pay raises. Certainly the problem in the nonfood sectors [is that the] underlying [trend in these pri... | 226 |
fomc | 1,977 | All right. Mr. Mayo, please. | 9 |
fomc | 1,977 | I have several questions for the staff, Mr. Chairman. First of all, I don't want to phrase this too crudely, but the President's anti-inflation program came out Friday. Did this influence--is there any allowance for this in the revision of the projections? | 56 |
fomc | 1,977 | No, there is not. | 6 |
fomc | 1,977 | Second question, there has been a lot of talk about people having spent their rebate already, in anticipation of its coming. Did staff find that persuasive enough to make any allowance in your revisions? | 38 |
fomc | 1,977 | It's extremely difficult to assess that. Obviously, retail sales would be very strong, and that would be consistent with some anticipatory buying, but we are unable to evaluate that. We've made a small allowance for that, assuming that some spending occurred in the first quarter. But not a great deal. | 59 |
fomc | 1,977 | You did cut back the second quarter consumption increase, didn't you? | 13 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | Even though the rebate wouldn't have been paid out until very late in the second quarter? | 17 |
fomc | 1,977 | Well, we were working with assumptions that the rebates would begin about mid-May. | 16 |
fomc | 1,977 | And between the last month and this month, while we still had rebates, we had changed our assumption to incorporate some of the rebates in the third quarter, some with payments to nontaxpayers, so that the earlier projections that we said incorporated-- | 51 |
fomc | 1,977 | My third question relates to the projection of real GNP in your latest revision, which shows an increase in real GNP with the rebate out for the fourth quarter, and first quarter and second quarter next year. I guess I am a little surprised that you have introduced a negative effect of the rebate--if I may put it backw... | 78 |
fomc | 1,977 | That, in a sense, falls out of the arithmetic. The rebate is assumed to have a temporary impact on the level of GNP, and in the early quarters, quarters two and three in 1977, it boosted activity to relatively high rates of growth. Stripping that away, what we find is that the rebate was having a dragging influence lat... | 107 |
fomc | 1,977 | I see, so you really have to look at the real dollars here, rather than the rates, to completely understand. | 24 |
fomc | 1,977 | The levels [without the rebates] remained below what they would have been with the rebates, despite the fact that the rate of growth accelerates. | 29 |
fomc | 1,977 | We tend to do this elliptically, to make it simple, but sometimes it gets more complicated. | 20 |
fomc | 1,977 | If I might, it seems to me that's consistent with what you would think the interest rate effects would be. I imagine you've got more housing than you did last time. And that would fall late this year and early next year because interest rates would be lower than they would have been had the rebate been paid [by financi... | 87 |
fomc | 1,977 | We didn't change housing projections, but we did raise total construction expenditures slightly. | 15 |
fomc | 1,977 | Were you surprised by the housing report yesterday? | 9 |
fomc | 1,977 | Yes, we were--quite surprised. | 8 |
fomc | 1,977 | As indicated by the fact that our forecast is too low for the first quarter. | 16 |
fomc | 1,977 | The reason for my question is that, if that figure had been available, the staff might have raised slightly the estimates for residential construction. | 27 |
fomc | 1,977 | Definitely, we will revise them upward. | 8 |
fomc | 1,977 | Thank you, Mr. Mayo, for your questions. Mr. Coldwell, please. | 18 |
fomc | 1,977 | Mr. Kichline, would you repeat to me the odds on the scenario for higher interest rates, please? | 23 |
fomc | 1,977 | The odds on the scenario? | 6 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | If one were to look at our track record, you know what the odds would be. But ignoring the past and simply going on, this is a conditional forecast, as you know, and it's premised upon the underlying GNP package, which we view as quite strong. Second, it is premised upon alternative B in the Bluebook longer-run path of... | 302 |
fomc | 1,977 | Well, your words, I believe, in the Greenbook reflect a "balance" or "equilibrium," I forgot the word you used, of demand and supply of credit largely through the third quarter of the year. My question is, what upsets that balance? | 54 |
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