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fomc | 1,979 | You have a pretty good decline in goods consumption in that quarter. Mr. Timlen. | 18 |
fomc | 1,979 | Jim, my question relates to the development of last Friday, the apparent settlement of the General Motors negotiations. I was wondering if you had any hard information as to the terms of that contract as signed and what implications it may have for prices and as a precedent for other contracts or a possible reopening o... | 65 |
fomc | 1,979 | Well, we don't have detailed information. We checked late last night and found that the Council on Wage and Price Stability didn't have the contract yet, so I didn't get so discouraged about not knowing the details. We do know that the wage increase was pretty much in line with past contracts; on our estimate we would ... | 161 |
fomc | 1,979 | That's about the area of the teamsters [settlement], isn't it? | 15 |
fomc | 1,979 | That's right, it's not really out of line with what we had expected earlier but it is a sizable increase. S o the publicity associated with that I think would have a negative effect in terms of holding wages down. | 43 |
fomc | 1,979 | I don't have much better information but what I have conforms with what Mr. Kichline just said. Mr. Balles. | 26 |
fomc | 1,979 | Jim, you have a rather strange looking pattern in the quarterly trend in the GNP deflator, if I've got the right numbers here. For this year it's 9.3 percent in the first quarter, 9.2 in the second, 8.1 in the third, and then it suddenly jumps to 10.3 in the fourth quarter. There's probably an answer for that, but what... | 85 |
fomc | 1,979 | The federal government pay raise. | 6 |
fomc | 1,979 | Could that be the entire [reason] as far as you see it? | 15 |
fomc | 1,979 | Well, that's a large part of it. The pay raise will be a I percent increase, and I don't think the seasonals take proper account of that. It's a shift in mix. The fixed weight [measure] is actually declining 0 . 2 percent from the third to the fourth quarter. There may be other factors at work, I'm not sure. But the fo... | 92 |
fomc | 1,979 | I realize that that's a factor. I'm just surprised at the magnitude--that it could swing the whole GNP deflator by a point and a half. I'm not questioning the figure; I'm just expressing my surprise. | 43 |
fomc | 1,979 | I don't know, something else may be at work. I just can't answer your question other than that the federal pay raise is one influence and I would think it would be the major factor. | 38 |
fomc | 1,979 | We also have [for] the third quarter an increase in the import prices--because of the oil price increase--which has a depressing effect on the measured GNP deflator in the third quarter. so some of the third quarter "lowness,"if I might put it that way, is in the deflator itself; we don't see so much in the fixed weigh... | 80 |
fomc | 1,979 | Mr. Winn. | 4 |
fomc | 1,979 | I think we ought to look at the wage behavior of this year with a sense of encouragement, not discouragement. With inflation running what it is, I think it's surprising that the settlements in the electrical area and even in the automobile area for current employees have been remarkably restrained. Maybe they've done a... | 71 |
fomc | 1,979 | You say even "in the automobile area." I take it you-- | 14 |
fomc | 1,979 | Well, in this case, for current employees it looks as if the total cost might come out to 11 percent--that's my estimate --on an annual basis. [The total is] 33 to 35 percent and part of that is for the retirees, not for the current employees. So if you adjust that back down, given double digit inflation behavior, I th... | 86 |
fomc | 1,979 | But does the 33 and 34 percent include the extra time off, extra vacations? | 18 |
fomc | 1,979 | It does not. | 4 |
fomc | 1,979 | But the electrical settlement really wasn't that-- | 8 |
fomc | 1,979 | Well, I think what you say has some validity looking backwards. I don't know where to put the automobile agreement; I have a little doubt about that. That's a question we have: Looking forward, will that rather favorable record, considering what has been happening in prices, be sustained? I think this is one of the maj... | 70 |
fomc | 1,979 | I understand that this is not making our problem any easier, but I think we ought to recognize that there has been some restraint this year. | 28 |
fomc | 1,979 | I might say in terms of these guidelines that I don't feel up-to-date on that and I don't know the details. I understand the argument has been whether to have a guideline at all, with the alternative being this tripartite labor/management/public commission to look at wage settlements and pricing behavior. It gets posed... | 145 |
fomc | 1,979 | Well, I think they'd be well advised to drop the guidelines. To raise the guideline going into a recession doesn't seem to me to be a great contribution toward stability. And all these inequities and distortions are building as we go along. | 48 |
fomc | 1,979 | Well, that's a tempting course except when you look at what I think Willis, by implication, was referring to. Wages have been fairly well restrained given this price behavior and given the pressure for a catch-up. S o , is it really wise to drop [the guidelines] right now? That's basically the issue they're struggling ... | 303 |
fomc | 1,979 | I'd just like to make one more comment, Paul. It seems to me that we're in an environment in which we have the most advertised recession in history, with talking our way into it perhaps contributing more because I think we're going to get an uptick in this third quarter, too. I don't know how that's going to be manipul... | 124 |
fomc | 1,979 | A strange phenomenon, I confess, is that everybody has assumed we are in a recession and we are getting an increase in the gross national product. I don't know. That's still a forecast, of course. | 41 |
fomc | 1,979 | The businessmen always say that, Willis. | 8 |
fomc | 1,979 | I know, but they read it in the press. | 11 |
fomc | 1,979 | Their business is off 1 percent from the very highest level it ever reached: that's a very good rate of operation. It's the inflection, and I thought the Redbook started to point out quite a few areas of inflection. | 47 |
fomc | 1,979 | If I may just add one question, Mr. Kichline: How do you get an increase in output per hour in the fourth quarter while the gross national product is declining significantly? | 37 |
fomc | 1,979 | We have a substantial employment adjustment built into this forecast, so it's coming out of labor input. | 19 |
fomc | 1,979 | That would be unusual at that early stage--wouldn't it--of a decline [in activity]? Can that adjustment move that fast? | 27 |
fomc | 1,979 | Well, it's part of what would be a fairly smooth and rapid adjustment, which is built into our forecast on the inventory side. My view would be that I have been surprised that we haven't had more in the way of reduction of labor input to date. And in light of new information on inventories and final sales, it becomes c... | 137 |
fomc | 1,979 | You have unemployment getting to where by the end of the year? | 13 |
fomc | 1,979 | Averaging about 6 . 9 percent for the fourth quarter, so it would be close to a 7 percent or 7 . 2 percent rate [in December]. | 37 |
fomc | 1,979 | I don't want to monopolize this, but I'd like to raise one more question about your inventory calculation for the fourth quarter. We're going to have a big crop harvest in corn and soy beans and with the price changes being what they were I wonder if that may not throw the inventory calculation off again in that period... | 71 |
fomc | 1,979 | That's right. I'd say the price side is a very tricky part of this. We have in the third quarter an inventory valuation adjustment of slightly over $40 billion, and once it gets into those huge ranges, it becomes very difficult. In the fourth quarter, we expect something smaller but still large to prevail. On the crop ... | 129 |
fomc | 1,979 | One of the main problems on the crop issue is the inability to move the crops. Rail capacity is very low. With the Rock Island strike and so forth, the Iowa farmers are really going to [unintelligible]; they just can't move anything. They still have a large share of last year's crop sitting there. | 64 |
fomc | 1,979 | Mr. Axilrod, do you want to give us a perspective on financial relationships? | 18 |
fomc | 1,979 | [Statement--seeAppendix.] | 7 |
fomc | 1,979 | Let me ask a couple of questions. You went over three reasons why the money supply increased more rapidly over the late spring and summer. It struck me last night that there may be an additional reason. I'll just comment on it. You do all these equations and everything else to get something called gross national produc... | 157 |
fomc | 1,979 | It's quite possible; these equations may very well not be picking up the true transactions needs if they don't have the full price effects of the imported prices in them. And they don't. The GNP is measuring domestic output prices. So that's quite possible, in which case we would not really be supplying more money than... | 141 |
fomc | 1,979 | Or one would hope to get a leveling in the import prices. | 13 |
fomc | 1,979 | Yes. | 2 |
fomc | 1,979 | I was confused last night when I looked hastily at these flow-of-fundsprojections. Maybe there is an obvious explanation but we talk about short-term credit demands and commercial bank demands being very heavy these days. When we look at these figures for the half year--we only have them on the half-year basis--they sh... | 193 |
fomc | 1,979 | They've been shifted, I think, this month. | 11 |
fomc | 1,979 | Well, that helps explain it. Even so, [their growth] was fast in the first half of the year, too. But this column of figures seems a little inconsistent with what we talk about happening in the market in the short run. Is that because we got a drastic change in the fourth quarter or what? | 64 |
fomc | 1,979 | Well, there is a considerable drop in what we projected in bank loans and commercial paper raised in the fourth quarter. A l s o , we were talking mainly about business credit demands but there has been a slackening currently in consumer credit demands. S o we have a little tapering off in the current quarter relative ... | 117 |
fomc | 1,979 | I haven't looked at the quarterly figures, but one reading of this is that it does [suggest that] we're on the verge of a rather steep decline in the fourth quarter. Do you have quarterly figures? | 41 |
fomc | 1,979 | Well, we have total funds raised coming down in the third quarter relative to the second, but the second quarter was an unusual peak. And the third quarter is above the first quarter, though well below the second and then it goes down further in the fourth quarter. But again, the fourth quarter remains above the first ... | 65 |
fomc | 1,979 | I might note that in the third quarter the evidence we now have--or at least it is our current projection on the consumer side--suggests that household funds borrowed will drop $14 billion at an annual rate from the second-quarter level. And going into the fourth quarter, that's down another $1 billion. So in the house... | 120 |
fomc | 1,979 | But the third quarter will show a big increase in bank loans and-- | 14 |
fomc | 1,979 | Mr. Chairman, it's not all that unusual to have a burst in bank credit as the economy moves into recession. The cash flow of business is-- | 30 |
fomc | 1,979 | My question is why it didn't show up in these figures. | 12 |
fomc | 1,979 | We have business loans projected to be increasing slightly less than the terrifically high second-quarter pace. So in the current quarter it is down $6 or $1 billion at an annual rate. | 38 |
fomc | 1,979 | It is down. | 4 |
fomc | 1,979 | And it drops $14 to $15 billion in the fourth quarter. | 14 |
fomc | 1,979 | However, I would add, Mr. Chairman, that that's partly offset in the short-term markets by an increase in borrowing in the commercial paper market. We have a projection for September which has lower business loans than we had in July and August. | 49 |
fomc | 1,979 | I have a quarterly figure here now, which shows a very sharp drop in the fourth quarter in the short-term debt of nonfinancial corporations. It's very sharp. Mr. Roos. | 37 |
fomc | 1,979 | Yes sir, Mr. Chairman. In listening to Steve, I found myself very much confused or disturbed by an underlying question that maybe he or someone else can answer. In Steve's analysis of what's happening in M1, he decribed three possible or at least two exogenous factors. One is the public's desire to draw down cash balan... | 317 |
fomc | 1,979 | Mr. Axilrod | 5 |
fomc | 1,979 | The answer is yes. | 5 |
fomc | 1,979 | I'll be very elliptical, Mr. Chairman, in the interest of saving time. I was of course couching my own discussion in the terms in which the Committee has been framing its policies. If the Committee had been framing its policies in terms of the monetary base or reserves or something like that as an operating device, I w... | 502 |
fomc | 1,979 | Well, Paul, the reason I asked the question--and I ask it purely in a constructive way, not to just reopen the classical argument--is because of the problems that we've had in controlling money growth. [Given] your statements, which I think are great, that we're never going to accomplish our ultimate goal until we achi... | 187 |
fomc | 1,979 | My feeling would be that you're not out of order in raising that question, Mr. Roos. We would be out of order in having an extended discussion of it today, because I don't think we're going to resolve it. I presume that today, for better or worse, we have to couch our policy in what has become the traditional framework... | 111 |
fomc | 1,979 | Do we still have the Committee on the Directive? | 10 |
fomc | 1,979 | I think we do, and we'll consult with that Committee. Are there any other questions specifically directed toward Steve's report before we open [the discussion1 up more generally? | 34 |
fomc | 1,979 | Steve, I'd just like to deal with the first of the three possible explanations that you gave. If I heard the words right, I interpreted you as saying that there has been some revival in money demand. | 41 |
fomc | 1,979 | In the first one, I was trying to say that to some extent people may have reduced their demand deposits and savings deposits earlier because of ATS accounts and the high interest rates and found that they just couldn't run with such small deposits so they've put some back in. [I would] just sort of forget that addition... | 67 |
fomc | 1,979 | I realize that's a possibility. I must say I'm skeptical, though, as I look at the sharp rise we've had in short-term interest rates in that same period when the growth of the Ms has taken place. I would have thought that would have encouraged further the use of RPs and money market instruments, and we know from the fa... | 90 |
fomc | 1,979 | Of the three explanations, I would put the lowest probability myself on that one. | 16 |
fomc | 1,979 | I would, too. | 5 |
fomc | 1,979 | It's relatively low, but in the absence of evidence I was reluctant even to weigh them. | 18 |
fomc | 1,979 | Well, if there are no other questions-- | 9 |
fomc | 1,979 | Well, on that point though, John, we were getting an increase in velocity of 9 . 8 percent in the fourth quarter and 12.3 percent in the first quarter. That just couldn't continue. It may have gone too far the other way: it was negative in the second and third quarters--or slightly negative. Certainly something was goi... | 89 |
fomc | 1,979 | I'm still confused somewhat by these figures when 1 look at the quarterly flow of funds. We have had higher interest rates recently, which are normally accompanied by an increase in individual purchases of credit market instruments, if I remember these flow-of-funds ambulations correctly, and a decline in deposits. Ins... | 104 |
fomc | 1,979 | Well, that's in part the definition of money market mutual funds, the problem in the switch from-- | 20 |
fomc | 1,979 | You just [reclassified them] between those two quarters without telling anybody. | 15 |
fomc | 1,979 | No, but money market funds grew very rapidly [and] the structure was changed. Between the second and third quarters money market funds are expected to have grown very rapidly at an annual rate. | 38 |
fomc | 1,979 | And they're in deposits. | 5 |
fomc | 1,979 | And they're in deposits, not in credit market instruments. So if you look at past history, it's quite a distorted picture. | 25 |
fomc | 1,979 | Didn't you correct the history? | 6 |
fomc | 1,979 | Well, we didn't have any money market mutual funds pre-1974, so if you look at-- | 21 |
fomc | 1,979 | You didn't reclassify them between the second and third quarters; it's just that they've grown more rapidly. | 21 |
fomc | 1,979 | The second quarter was also changed. The numbers are consistent. What you have in the first half of the year in effect was that households purchased a lot of Treasury securities at a time when foreign central banks were selling off Treasury securities. In terms of the overall pattern of flows-- | 55 |
fomc | 1,979 | Excuse me, relative to 1966, 1969, and 1970, given our treatment of these securities today, we're finding a money market type instrument being classified as a deposit. It's really the same [phenomenon] as in 1966, 1969, and 1970 when funds moved out of banks into other higher yielding instruments. | 75 |
fomc | 1,979 | There is one other factor, Chairman Volcker. Beginning in that period in the second half where we had that sharp swing back to savings deposits, which I have been interpreting as part of this precautionary mood [response], they had been declining rather sharply. Then they've been increasing in very recent months and th... | 90 |
fomc | 1,979 | Well, let's proceed with general comments on the business outlook and policy prejudices--or policy orientation anyway. Mr. Baughman. | 27 |
fomc | 1,979 | Mr. Chairman, first let me make just a comment on retail sales. We are probably the only District that has maintained that questionable old series on department store sales, but in the four weeks ending on September 8, such sales showed a very strong increase relative to the year-ago period. All in all, that average wa... | 90 |
fomc | 1,979 | It was up how much? | 6 |
fomc | 1,979 | It was up 10 percent from a year ago in the four weeks ending September 8; and from the beginning of the year through those four weeks it's up 7 percent. So there was a definite step-up, compared to what had preceded that 4-week period, which occurred pretty generally across the metropolitan areas in the District. Thos... | 654 |
fomc | 1,979 | Governor Coldwell. | 4 |
fomc | 1,979 | Mr. Chairman, I have been listening here for some time, trying to cipher out what I think this economy is going to do. I think Steve's comment that it is uncertain is probably a good portrayal of my position. I have doubts that the staff's switch between the third and fourth quarter is going to come out as perfectly as... | 590 |
fomc | 1,979 | Let me just interject, if I may, to the presidents in particular: We have a lot of discount rate proposals in, and anybody who wants to comment on what has been proposed as your turn comes up, [please do sol. Let us know what course [you favor] or what rationale you want to present or whether you disagree with your dir... | 72 |
fomc | 1,979 | Mr. Chairman, do you want us to do that now or when we get to the specifications? | 20 |
fomc | 1,979 | I think in a general way you could do it now, but you may want to return to it more precisely when we get to the specifications. Governor Wallich. | 33 |
fomc | 1,979 | Mr. Chairman, it seems to me that we face basically a question of timing. If the economy goes into recession, as it may already have done--interrupted temporarily maybe, but perhaps a more prolonged one than we originally thought--at some point we have to ease. But at the present time it seems to me the signs are still... | 529 |
fomc | 1,979 | Mr. Eastburn. | 5 |
fomc | 1,979 | Thank you, Mr. Chairman. I would like to take a little different position than has been taken up to this point. I believe one thing that is very good in the discussion that we have been having is that we are talking about longer-run strategy--a kind of cyclical strategy, I think. Everything that has been said up to now... | 526 |
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