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fomc | 1,979 | I'd be willing to support the 10-3/4 to 11-1/4 with a funds rate of 11 percent and have your [proposed] ranges of 4 to 8 and 7 to 11 percent. But I would be very much opposed to the mixed directive. It seems to me that we're at a potential turning point of rather major proportions and if the money supply does come in v... | 104 |
fomc | 1,979 | I'm not sure with those specifications that we need the mixed directive. | 13 |
fomc | 1,979 | I'd prefer that, too, because I think it would look awfully bad to have a biased directive in what may be a developing recession of size. So if we have that very tight constraint on the funds rate, we won't move it obviously without consultation. I might point out that we can move it up if in fact Mark's fears are [rea... | 92 |
fomc | 1,979 | No other comments? | 4 |
fomc | 1,979 | Mr. Chairman, I think I make a lot more of these trigger points than most people do, and Henry's and Mark's points are important to me in selecting the ranges because they do trigger [action on the funds rate] at different points. In one case it triggers when [the aggregates] get near the top or move beyond the top of ... | 312 |
fomc | 1,979 | Mr. Chairman, I've been sitting here puzzling over some of the comments with respect to what the speakers perceive to be the need to move to 11 percent to hold the growth of the aggregates in late August and in September to something less than has already been projected. First of all, those are guesses. So it seems to ... | 197 |
fomc | 1,979 | I will stipulate that a 1/4 or 1/8 percentage point move on the federal funds rate isn't going to have any pronounced effect on the growth rates in the next two months--if that's the only thing we're worried about. I'm not sure it's the only thing we're worried about. [Unless] somebody else wants to say anything, all I... | 267 |
fomc | 1,979 | From my perspective, Mr. Chairman, it's most important that we move to 11 percent promptly. I don't think 10-7/8 does us any good because we're in effect already there. I am bothered by the [monetary growth] ranges having a level as high as 8 percent or even 7-1/2 percent, but I can buy that with a money market directi... | 173 |
fomc | 1,979 | Well, shall we get a show of hands from voting members on 10-3/4 to 11-1/4 percent and the midpoint where it is, with 4 to 8 percent and 7 to 11 percent [on M1 and M2]? | 56 |
fomc | 1,979 | Preference or acceptable? | 4 |
fomc | 1,979 | Well, let me have preferences first. | 8 |
fomc | 1,979 | What's your midpoint? | 4 |
fomc | 1,979 | 11 percent. | 3 |
fomc | 1,979 | Which directive, Mr. Chairman? | 7 |
fomc | 1,979 | Following Phil, here, the money market directive at the moment. With that high a range, I'm a little worried about an aggregates directive. Again, there's just some uncertainty about what will happen in the very short run. I just looked over Tom's shoulder and New York already has a lower estimate for these aggregates;... | 76 |
fomc | 1,979 | They did before, too. | 6 |
fomc | 1,979 | Well, I don't attribute any great weight to that other than the inherent uncertainty in these things. I have been watching those numbers enough that my discount factor is extremely high. The trouble is my discount factor on all these numbers is extremely high in any short-run period. Let me just ask the preferences fir... | 72 |
fomc | 1,979 | So, you're asking: Is this acceptable? | 9 |
fomc | 1,979 | This is alternative number one? | 6 |
fomc | 1,979 | We'll try out another one, but let's try this one: 4 to 8, 7 to 11, 10-3/4 to 11-1/4 [moving to the midpoint of] 11 and a money market directive. | 52 |
fomc | 1,979 | 1, 2, 3, 4, 5, 6, 7, 8, not counting yourself. | 27 |
fomc | 1,979 | Well, we can try out another one if somebody tells me what to try. Is it with slightly lower ranges for the aggregates? | 26 |
fomc | 1,979 | I would bring those down a little. | 8 |
fomc | 1,979 | Well, let's try them a half point lower, with the same federal funds and what--change it to an aggregates directive just to get a little variety? | 31 |
fomc | 1,979 | Yes, let's do that. I think it makes a whale of a difference. | 16 |
fomc | 1,979 | Who suggested money market? Well, who likes that better? It's 3-1/2 to 7-1/2 and 6-1/2 to 10-1/2, and the same federal funds range but with an aggregates directive. | 53 |
fomc | 1,979 | Do you really mean better or just acceptable? | 9 |
fomc | 1,979 | Well, let's say acceptable. That seems to have a smaller vote than the other. | 17 |
fomc | 1,979 | Four. | 2 |
fomc | 1,979 | I don't know what other combination to try, so I think we'll just go with the first one unless somebody has an inspiration here. | 26 |
fomc | 1,979 | The only way I can see that you really might separate this as to what we're looking for is 10-7/8 to 11-3/8 percent on the federal funds range with a money market directive. | 44 |
fomc | 1,979 | The overwhelming impression I have is that at this point the changes are not highly significant. Let's vote on the original. | 23 |
fomc | 1,979 | It's 4 to 8 percent, 7 to 11 percent, a funds rate range of 10-3/4 to 11-1/4 percent with an 11 percent midpoint, and a money market directive. Chairman Volcker Yes President Balles Yes President Black No. I agree with half of it, but I think the ranges are too high with a money market directive. | 80 |
fomc | 1,979 | Governor Coldwell Yes President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice No Governor Schultz Yes Governor Teeters Yes Governor Wallich Yes First Vice President Timlen Yes It's 10 for and 2 against. | 45 |
fomc | 1,979 | Thank you. It's 1:30 p.m. What other business do we have here? Oh, I had one thing I wanted to mention, the [lending of] Treasury [securities], if we can dispose of that in a hurry. I take it there was one question that preoccupied the staff, which is whether we charge when we lend securities. I find it difficult to im... | 155 |
fomc | 1,979 | I'd like to charge because it's a substitution for direct borrowing. | 12 |
fomc | 1,979 | I would like not to charge because we do in fact get the return on the securities. This is a-- | 22 |
fomc | 1,979 | But don't we want to urge them not to do this? | 12 |
fomc | 1,979 | If it will speed up things, I thought of a great Solomonic approach on this of charging an eighth, which is less than we charge-- | 30 |
fomc | 1,979 | How about 3/16th! | 8 |
fomc | 1,979 | Without objection, we'll charge 1/8 point. | 11 |
fomc | 1,979 | I think that's silly. I'd just leave it at zero. | 12 |
fomc | 1,979 | I'm really at the wishes of the Committee on this one. I take it there's a certain amount of prevailing sentiment to charge. Do we want to have a vote on this or just agree? Without objection, it'll be an eighth. Oh, [do we need to talk about] swap renewals, Mr. Pardee? | 65 |
fomc | 1,979 | There's nothing coming up before the next meeting that is of importance, so I would pass on it. | 20 |
fomc | 1,979 | Okay. I had one other item. The House Banking Committee issued a report on monetary policy and there is a paragraph in that report which says: "The law requires the Federal Reserve to report on its monetary targets to 1980. In this the report is disappointing. The Federal Reserve merely indicates that tentative approva... | 271 |
fomc | 1,979 | Thank you. The date of the next meeting is September 18. The meeting is adjourned. | 22 |
fomc | 1,979 | We'll come to order, if I can find my copy of the agenda! I might tell you before we start that we will have a small alteration in procedure after the meeting. Instead of traipsing over to the dining room for lunch, I thought we would expedite things by bringing you a few sandwiches over here. So, we'll give you a brea... | 126 |
fomc | 1,979 | It probably will have that effect. | 7 |
fomc | 1,979 | If it has that effect, we'll have another change of procedure at the next meeting! [I need to] get approval of the minutes [of the August meeting]. Without objection, they are approved. Mr. Pardee. | 45 |
fomc | 1,979 | [Statement--see Appendix.] | 6 |
fomc | 1,979 | Any questions? | 3 |
fomc | 1,979 | Would you explain briefly for me how the foreign exchange swap conducted by the Bundesbank sops up domestic liquidity? | 22 |
fomc | 1,979 | We're in the process of preparing a paper on that, which I hope we will be able to circulate to the Committee. They have dollars in their portfolio. They sell those dollars spot to the market in exchange for marks. Since what they are effectively doing now is simply selling a participation in their holdings of Treasury... | 188 |
fomc | 1,979 | Thank you. | 3 |
fomc | 1,979 | Scott, you alluded to the fact that as the energy induced segment of inflation improves--or recedes--it may bring some improvement into the picture. Don't most of the foreign exchange market partipants really look at the monetary induced part of the inflation picture, which of course reflects money growth? Don't they l... | 112 |
fomc | 1,979 | Well, the market is concerned about inflation however it is induced. There are some monetarists in the market who do follow closely the aggregates, but they are just one segment. There are others who worry about other things. There are even some chartists out there who couldn't care less about any of these broader numb... | 80 |
fomc | 1,979 | Mr. Balles. | 5 |
fomc | 1,979 | Mr. Chairman, I don't know what credence we ought to put in the rumors, and maybe we shouldn't even bring them to this table. One of my directors called up very excited yesterday about a rumor that the dollar was going to be devalued, mind you, sometime in October. I suspect, but I don't really know, that this is a pre... | 119 |
fomc | 1,979 | People in the market have a lot of questions as to what happened over the weekend--there was no communique--and I really don't know anything further. As for a devaluation of the dollar at this stage, there's no mechanism to do it since we are on a floating rate basis. As I Said, we have been looking at this 180 [German... | 354 |
fomc | 1,979 | Mr. Partee. | 5 |
fomc | 1,979 | To say a word in favor of devaluation, it strikes me, Scott, that we're not the only ones by far having trouble maintaining our currency against the mark. I notice, for example, that last week the Swiss were buying their own currency in quantity and selling dollars in order to finance it at the same time we were sellin... | 252 |
fomc | 1,979 | I don't think we're operating as if we have a fixed exchange rate. | 14 |
fomc | 1,979 | It's been quite a while that we've been trying to keep the rate at 180 or 181. | 20 |
fomc | 1,979 | The Swiss also have bought dollars once the market psychology tipped in the other direction. So their earlier sales were in conjunction with a policy of aligning their rate with the mark and, as I said, that did trigger some sentiment that the Bundesbank was hitting on the exchange rate. But once the franc began to ris... | 89 |
fomc | 1,979 | A couple of comments. I don't think it's right to say we're in an interest rate war or anything of that sort, as some of the circus newspaper commentary suggests. As near as I can see, what the Bundesbank has been doing generally is well justified by their internal situation and normal criteria that they would use. The... | 335 |
fomc | 1,979 | But what do we do if the rate really does need to be 170 instead of 180? | 20 |
fomc | 1,979 | Well, [you say] "does need to be." I don't know what that implies. | 19 |
fomc | 1,979 | In terms of purchasing power parity, rates of inflation-- | 11 |
fomc | 1,979 | What can you say about that? In terms of purchasing power parity, you can argue that if 180 was right six months ago, something less than 180 ought to be right now. But that assumes that 180 was right some months ago, which nobody knows. In fact, I get the impression that many people here and abroad [thought that 180 w... | 244 |
fomc | 1,979 | Well, if you want to cover them now, yes. Over the next month we will be going through the first cycle of renewal of the swaps that we incurred in the operations in late June and in late July. These involve some 17 swaps, totaling $1,797,000,000. It's the first renewal; I'm just reporting it. | 70 |
fomc | 1,979 | We have a proposal to provide for the first renewals if and when necessary, I take it, and I assume they will be necessary. Any discussion? Without objection, I think that is done. Now we have to ratify the transactions, too. I guess I skipped over that. Would someone like to so move? Without objection they will be rat... | 78 |
fomc | 1,979 | [Statement--see Appendix.] | 6 |
fomc | 1,979 | Comments or questions? | 4 |
fomc | 1,979 | Well, on the last point, I think it's ridiculous. Can't we at least get some action [by] the responsible part of Congress to quit this nonsense? | 32 |
fomc | 1,979 | Would you like to volunteer, Mr. Coldwell? I think we can duly note that that's the unanimous view. | 23 |
fomc | 1,979 | Doesn't the new bill give us some promise, though, that they're going to try to put in a system where the [increase in the debt ceiling] would be sort of automatic without all the testimony and hocus pocus? | 46 |
fomc | 1,979 | I don't know how automatic it will be; I know very little about it. I know they're trying to hoist it off on the budget committee and I don't know whether that's going to [happen]. | 41 |
fomc | 1,979 | They're trying to tie the debt ceiling to the budget resolution, but whether that will-- | 17 |
fomc | 1,979 | There obviously is logic in that, but whether it's just going to make the budget resolution that much more difficult, [I don't know]. Mrs. Teeters. | 32 |
fomc | 1,979 | The problem of putting it in the budget resolution is that the resolution is not signed by the President. They have to make some sort of alteration in their resolution in order to have it signed by the President. | 41 |
fomc | 1,979 | I would remind you that this is an opportunity to talk about the budget deficit and, therefore, not to be completely despised even though it is rather illogical to first vote [in favor of1 the deficit and then refuse to allow it to be financed. But it gives the defeated party a chance to come back a second time and cri... | 69 |
fomc | 1,979 | That's the theory. It seldom happens in any very orderly way. | 13 |
fomc | 1,979 | Well, it's such a waste of time. The Secretary of the Treasury and the staff have to spend untold hours getting ready for something that really involves just spinning wheels. | 34 |
fomc | 1,979 | It seems like it comes around a couple of times a year now. | 14 |
fomc | 1,979 | Among other things, [they] have escalated [the] social security [issue]. It's fully escalated because it was attached to a debt ceiling goal once when we sat there and wondered whether it should be vetoed or not. We have to ratify the [domestic] transactions, if there are no further questions. | 66 |
fomc | 1,979 | So moved. | 3 |
fomc | 1,979 | Without objection, that is done. Mr. Kichline. | 13 |
fomc | 1,979 | [Statement--see Appendix.] | 6 |
fomc | 1,979 | I wonder if we can confine our comments now to rather pointed questions. Mr. Coldwell. | 20 |
fomc | 1,979 | Jim, in the change of your output [forecast]--and I don't mean to be critical because you've obviously got to change it as things [evolve]--there seems to be a shift, by a rather sizable amount, between the third and fourth quarters on real GNP. You've increased the third quarter by 2-1/2 percentage points and decrease... | 175 |
fomc | 1,979 | Those don't account for most of the revisions. We have anticipated them for some time. The bulk of the difference between Q3 and Q4--that is, getting a deeper negative in Q4--is the inventory side. Other than that, we have had most of the changes built in for some time. The biggest changes really were in Q3 and represe... | 144 |
fomc | 1,979 | For the fourth quarter you're saying consumption is reasonably stable? | 11 |
fomc | 1,979 | It's declining slightly in real terms; it's down 1 percent in real terms and we had it down a half percent in real terms last month. | 29 |
fomc | 1,979 | S o your swing in these two quarters is principally an inventory swing. Is that what you're saying? | 20 |
fomc | 1,979 | Well, it's [a swing of] $16 billion dollars from the third quarter to the fourth quarter, and that would translate into roughly 2-112 to 3 percentage points at an annual rate. | 41 |
fomc | 1,979 | Which is about the difference-- | 6 |
fomc | 1,979 | One question, Jim: Is this the first time you've shown an actual liquidation of inventories? | 18 |
fomc | 1,979 | I think we had the courage of forecasting a minus 0.1 a couple of months ago, but it was very small. | 26 |
fomc | 1,979 | And you haven't shifted the timing of that liquidation? | 10 |
fomc | 1,979 | No, but the size of it has become different; that is, the second- and third-quarter accumulation has been larger than we had anticipated earlier and we now have a larger correction in the fourth quarter. | 41 |
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