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fomc
1,979
In other words, we could leave the 9-3/4 percent [lower limit] and merely say that we'd have a call if it got down--
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That way you wouldn't have--
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We'd have an understanding to that effect. Well, it looks as if we'll probably have a telephone conversation anyway. With that caveat, let's see who would buy that: Aggregates ranges of 0 to 5 and 4 to 9 percent, and 9-3/4 to 10-1/2 for the funds rate, with the 10-1/4 percent rate maintained for the time being and a co...
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Why don't you just call the others; don't call me. MR. ALTMA". Vice Chairman Volcker.
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Well, I guess this is within my limits of tolerance. If we go down to 9-3/4 percent on the funds rate, we ought to go to 8-1/2 percent on M2. That would make me a little happier but you're right about the understanding on the funds rate. MR. ALTMA". President Balles.
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No.
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President Black.
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Yes.
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Governor Coldwell.
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I agree with Paul. I prefer 8-1/2 percent [on M2] but the rest of it is acceptable.
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President Kimbrel.
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I could buy it, but I would prefer the 8-1/2 percent also. MR. ALTMA". President Mayo
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I also would prefer the 8-1/2. M R . ALTMA". Governor Partee.
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I can't support it. MR. ALTMA". Governor Teeters.
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I can support it. MR. ALTMA". Governor Wallich.
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NO.
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Do the same thing with 8-1/2 percent. MR. ALTMA". Vice Chairman Volcker Yes President Balles No President Black Yes Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee No Governor Teeters Yes Governor Wallich No
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Well, John, to make it acceptable to you what changes would need to be made?
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Some that are not acceptable to the clear majority. I have felt for several months now, and have so recommended, that we should be edging down on the funds rate. And I think this time I've got to stick to my guns.
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Okay. Chuck what change would you need to be satisfied?
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I could accept it a l l if we had a monetary aggregates directive.
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All right, we'll test that. Henry, you're [in a position similar to that of] John Balles, I suppose. You want to tighten and he wants to go lower and you can't change your philosophical position I suppose.
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I could compromise on a small increase in the funds rate, to 10-3/8 percent, but I don't see anybody who is much inclined to go that way.
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Well, let's just see what the vote would be if it were an aggregates directive instead, with 0 to 5, 4 to 8-1/2, and 9-3/4 to 10-1/2 percent.
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Would the aggregates directive be consistent or inconsistent with the Axilrod caveat?
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Oh, no it can't be consistent with that.
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No. then it's a money market directive.
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[Unintelligible.]
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We'd have to get rid of that.
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He said we wouldn't go below 10 percent--
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Without consulting.
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With a monetary aggregates directive, if the aggregates are weak, we're going to go below 10 percent.
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The caveat was "without consulting.'
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But if we go to a [monetary aggregates] directive, Steve's scenario would change. How would it change?
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Yes. we would move the funds rate up or down well before the aggregates got to the outer limits of the ranges. We'd move more promptly.
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If the aggregates are strong, we would tighten sooner; and if they are weak, we would ease sooner without consulting until the funds rate gets to 10 percent and then we'd consult.
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But these [aggregates] are very unreliable now. I don't know why we should expose ourselves to that.
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Well, that's just the sentiment--
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I don't know why you say they're so unreliable. They haven't been unreliable at all except for one month--April. They've been very reliably weak every month.
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If you want to tighten, that's not reliable !
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I don't think it's quite as good, but I can go along with it.
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John?
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No.
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Still "no." Bob Black?
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I cannot [agree to it], Mr. Chairman, if I interpret it correctly that this would mean we would raise the federal funds rate if M1 started coming in at 3-112 percent. That would be a tightening. If we had a money market directive on the top and an aggregates directive on the bottom, I could live with it a lot better. I...
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All we would do is move the funds rate 118 point at 3-112 percent [on M11. That's right at the borderline isn't it, Steve?
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Yes. The usual zone of indifference has been that or sometimes a little larger, depending on the uncertainty we feel about the aggregates.
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And M2 would [have to] be up there, too.
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At 6-114 percent, the way I figure it.
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About a 4 point zone of indifference.
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Anyway, Bob, your sentiment would be--
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I would vote against that, Mr. Chairman. As I interpret an aggregates directive, this is much tighter on the top side and it's easy on the down side. I'm more concerned about the weakness in the economy and I wouldn't want to tighten that soon.
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Phil.
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Yes.
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Bones.
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I really don't like it.
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We're losing ground, Chuck. We gained your vote and lost three. Stop the count: let's forget it.
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I thought it was clever.
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Not clever enough. Have you another suggestion?
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No, I don't. I'd rather cut the funds rate to 10 percent right now, so I feel unhappy if I'm not permitted to do that. I would rather [vote against] the directive if that is not called for.
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Well, we have a majority, I gather, of six to three. I wish we could narrow that spread. Is there anybody here from the State Department who knows how to put Israel and Egypt together?
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We're not doing very well.
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Couldn't we promise Henry that at the proper time we will tighten and promise Chuck that at the appropriate time we will ease?
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That's good. Let's leave it there.
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And get the vote on that.
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How do we know when the appropriate time is, M r . Chairman?
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Leave it up to the Chairman! Well, I think we better conclude this so we can go to lunch. We now have before us a proposal, which we are going to vote on officially. Maybe somebody will be kind and at the last moment switch. The range for M1 would be 0 to 5 percent and the range for M2 would be 4 to 8-1/2 percent. The ...
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Put down a maybe! Thank you very much, I think. I suppose we will be calling up for a new directive in the interim period.
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Especially with a I-week interval.
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Yes, I'm sure we will be. Now we'll move to consideration of the Manager's recommendations with respect to foreign currency operations. I'm very sorry that we have no swaps to renew this month, Alan!
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That's exactly what I was going to say!
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Well, I'm sorry.
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It is rather nice to be out of swap debt for the first time in almost ten years--the first time going back to the pre-71 period [unintelligible] Swiss franc debt.
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You're not going to retire on that note!
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No, I don't think that will be possible. It might be worthwhile, M r . Chairman, to say a few words about our market operations on behalf of the Treasury as well as the Federal Reserve. As you know, earlier this year we were sharing with the Treasury any purchases of Deutschmarks that we made in the market, typically o...
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Any comments or questions?
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What do you mean by once again sharing Deutschmark purchases? We have shared them in the past?
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Oh, yes.
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Deutschmark purchases?
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Yes. All year, up until the time the Treasury got out of debt, we were sharing.
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I see.
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Does that mean that we'll be accumulating D-mark balances?
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That would mean we would be accumulating. The amount, of course, would depend on what the Committee decides.
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Alan, could you recapitulate quickly how much the Treasury accumulated over what period of time so that one can get an idea of how fast this accumulation occurred?
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The accumulation comes very fast on some days and then it just disappears. So I think one can't really take an average that's meaningful here. But the billion Deutschmarks have been accumulated since April 21, including purchases on April 27.
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Is there some flexibility, if we should be [approaching1 our limits on that accumulation, of pushing more of the intervention on the Bundesbank? My impression is that they have been reaching for it anyway.
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I don't think there is any problem in pushing the Bundesbank to sell dollars. They are quite happy to do that.
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Until they reach a liquidity constraint problem which--
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Which is [some distance] away yet.
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We could find ourselves accumulating in a couple of weeks an amount that we have debated about over a month on whether we should or should not. I just would like us to be aware of that.
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Well, we have [agenda item] number 9 coming right up for debate again.
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It could easily amount to a couple hundred million dollars a week, couldn't it?
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Easily. It could be that in a day
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The alternate choice is to have a strong dollar and, therefore, cut our inflationary pressures in this country. That would be rather unfortunate because it would show that we're interested in fighting inflation!
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That's our only hope now.
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Well, shall we move to item 9 ? We have [on the agenda] a discussion of the System's holdings of foreign currency balances. We have a memo, which I assume has been circulated to everyone. It's a very short memo. Steve and Alan will you [introduce the subject]?
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M r . Chairman, the Committee had a discussion of three memos [on this issue] at the last meeting. Following that discussion, the Committee asked us to present a specific proposal. This memo, briefly put, is our specific proposal. I have nothing further to add. Mr. Holmes?
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Mr. Chairman, I might just say a word about our current understanding with the Germans on the accumulation of Deutschmarks. At the very beginning the Germans At the May BIS meeting, however, Chairman Miller and Dr. Emminger agreed that it I understand, too, that Under Secretary Solomon reached an agreement with the Ger...
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There's no misunderstanding on the 4.1 billion.
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The 2 billion I think--
7