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fomc | 1,979 | Well, Mr. Chairman, I have just a slight reservation on this on the 8 percent side. I guess I'd rather have 11-1/4 to 12 percent [on the funds] range, using 11-1/2 as the "midpoint" but also using 11-3/4 as a possibility if those [aggregates] start moving up strongly toward the top of the range. I'm a little bothered a... | 145 |
fomc | 1,979 | Well, I'm not quite saying that. If the aggregates were strong enough, I think we could use this whole range here. | 25 |
fomc | 1,979 | If the aggregates were strong enough? You would say that [Ml growth] would have to get up to the full 8 percent in order to move even to the 11-3/4 percent? | 41 |
fomc | 1,979 | Well, we're not so far from that on the current projection. It's just a matter of judgment. At this particular phase in the business cycle, should we be moving more than that without at least having a telephone call? I don't think there is any question about that. | 54 |
fomc | 1,979 | I have no objections to having a telephone call. I'm a little bothered about saying that [Ml growth] has to be at 8 percent [before we confer] because I think 8 is too high. If it means that we've got to go up to 11-3/4 percent, then I'd rather take the decision now that we're going to go to 11-3/4 percent if [Ml growt... | 91 |
fomc | 1,979 | Phil, what would your preference be on ranges? | 10 |
fomc | 1,979 | If I had a preference straight out, the range would be 3 to 7 percent, but I'm persuaded that with the present projection 8 percent growth is a possibility. All I'm saying is that I'd much prefer to make sure that we do use some of the [funds] range if we're approaching that [upper limit]. I just think 8 is too high. I... | 105 |
fomc | 1,979 | If I had my preference, I'd have the same ranges suggested by the two governors: [a funds range] of 11-1/4 to 12 percent with an M1 range of 3 to 7 perent--I think the 8 percent looks very high--and an M2 range of 5-1/2 to 9-1/2 percent. I don't feel that this is strongly different from the numbers you put down. And I ... | 141 |
fomc | 1,979 | I wouldn't mind the 11-3/4 percent top on it, Tom. if we were going to use that top as [Ml growth] moved up toward the 8 percent. But I wouldn't require it to get to 8 percent before we use [the top of the funds range]. | 60 |
fomc | 1,979 | Use an aggregates directive and it becomes much more acceptable to me with those ranges. | 16 |
fomc | 1,979 | If I had my preference, I would put 9 percent as the top because I think we will have a large [number in] September. [Ml growth1 will be probably on the order of 10 percent; it could be 12 or it could be 8 or something like that. Why, when October [Ml growth] is moving down, would we raise the funds rate? There's an in... | 139 |
fomc | 1,979 | Mr. Chairman, I think setting this 11-1/4 to 12 percent [funds rangel and a 7 percent top on [the M1 rangel just automatically assures that we're going to start raising the interest rates again. | 50 |
fomc | 1,979 | That's not what I proposed. | 6 |
fomc | 1,979 | I would go with 3 percent [as the lower limit] and I would put 9 percent [as the top]. I think your proposal is being pretty [forceful] in putting it so low. I have noticed that the aggregates only work on the up side. During the long period of time the money supply was declining, we ignored the bottom level of [the M1... | 133 |
fomc | 1,979 | We have had a little more experience going over the top. | 12 |
fomc | 1,979 | Not in my-- | 4 |
fomc | 1,979 | Like disorder in the exchange market, it only occurs on the down side. | 15 |
fomc | 1,979 | Bob Mayo. | 3 |
fomc | 1,979 | I didn't elaborate on my own position earlier but I find I am much more comfortable with Alternative B as presented [in the Bluebook]. I would not object to going to the 11-1/2 percent midpoint with the 11-1/4 to 11-3/4 percent range. I don't think I would widen the range right now though, to 11 to 12 percent, say. I d... | 284 |
fomc | 1,979 | John Balles. | 4 |
fomc | 1,979 | Well, I guess I could live with the ranges that you proposed, Mr. Chairman, if we had an aggregates directive. When I keep in mind that part of the proposal was a money market directive that does bother me. [I say that] simply in the sense that at some point if we have any intent at all of coming within even the upper ... | 189 |
fomc | 1,979 | Now, that's a real difference. I'm not sure the other difference as stated is particularly significant as I read it. If we're starting off at 11-1/2 with a I percent current projection, we haven't got much room anyway whether we have an aggregates or a money market directive. I suspect they're the same on the up side; ... | 94 |
fomc | 1,979 | I think, Mr. Chairman, we could move [the funds rate] to 11-1/2 percent and then wait a week and take another look at the projections. Chuck mentioned a while ago that October is going to come in very low but I'm not at all sure that is true. I know that's what the projections say. So, that's what I would do. | 76 |
fomc | 1,979 | Well, if that's the case, we'd have to move up under either [form of the directive]. | 20 |
fomc | 1,979 | Well, if we move it to 11-1/2 percent, I think we've done it for the time being and we can wait until the projections come in and move further. I would align myself exactly with John on his specifications, with an aggregates directive. I have the same problem with a money market directive. That takes us further off tar... | 75 |
fomc | 1,979 | I think we're in the area of religion rather than substance. | 12 |
fomc | 1,979 | Well, I don't think it's that, Mr. Chairman. I think it's a question of how serious we are about the aggregates. And as I guess everybody knows, I'm right serious about them. | 39 |
fomc | 1,979 | Well, I am too, Bob, but I have trouble paying too much attention to the two-month figures. | 22 |
fomc | 1,979 | I do too, Bob, but we have had year after year of excessive growth and at some point we have to act in the short run if the long run is going to come out right. And I don't think we have, though recently we've done pretty well. | 53 |
fomc | 1,979 | That's what I'm arguing for, Bob. I think we've got a position in place now where we have the pressure on. Sure, we ought to be ready to reverse but I think we ought to be very careful not to tighten unnecessarily more than the 118 point we're talking about. | 56 |
fomc | 1,979 | I hope you're right, Bob, because I don't want to see interest rates go up. But I'm afraid they'll have to if we're to avoid [even] higher rates, a more serious recession, and more unemployment further down the road. | 47 |
fomc | 1,979 | Who else would like to get into this? | 9 |
fomc | 1,979 | Mr. Chairman, I'd like to join Bob Mayo with respect to the "B" ranges and standing pat at the moment. I would like to suggest--this is not a substantive issue--that if we have an aggregates directive with a 9 percent top [on the M1 range1 that's really about the same thing as if we have a money market directive with t... | 90 |
fomc | 1,979 | I think there's a possibility, Mr. Chairman, of some compromise here. To take off on Bob Black's suggestion-- | 24 |
fomc | 1,979 | Well, let's hear from the others first. Governor Wallich, you didn't give ranges, or at least Mr. Altmann didn't record them. | 29 |
fomc | 1,979 | I would go with 3 to 8 and 6-112 or 6 to 10; that would be my preference. | 27 |
fomc | 1,979 | Governor Rice. | 3 |
fomc | 1,979 | I would go with Alternative B. | 7 |
fomc | 1,979 | I should have added that I would prefer a money market directive because of the sensitivity of any interest rate movement now. | 23 |
fomc | 1,979 | Mr. Baughman. | 6 |
fomc | 1,979 | Mr. Chairman, first I think the Board should approve the half percentage point increase in the discount rate for those Reserve Banks that have in a request for that. Secondly, along with those who would like to see more emphasis on the aggregates, I think it would be desirable to go to an aggregates directive. In terms... | 174 |
fomc | 1,979 | Mr. Eastburn. | 5 |
fomc | 1,979 | I would support Alternative B, but I do think the arguments for a discount rate increase are good and I'd be prepared to recommend that. | 27 |
fomc | 1,979 | Mr. Morris. | 4 |
fomc | 1,979 | I would certainly subscribe to your recommendation, Mr. Chairman. | 12 |
fomc | 1,979 | Mr. Winn. | 4 |
fomc | 1,979 | I'd just spread the [range on the funds] rate, M r . Chairman, but I wouldn't quarrel too much [with your proposal]. I'd go with 11 to 12 percent and an aggregates directive. | 43 |
fomc | 1,979 | Mr. Gainor. | 5 |
fomc | 1,979 | We prefer an aggregates directive, Mr. Chairman, and we could go with the ranges you prescribed. | 20 |
fomc | 1,979 | Governor Schultz. | 3 |
fomc | 1,979 | I'm happy. At some point in time I'd like to see us go with a wider [federal funds] range and the aggregates directive but right now, considering the volatility problem, I'd be happy with your proposal. | 43 |
fomc | 1,979 | Well, there's no question that on the aggregates 3 to 8 percent is the [best compromise for M11. It hits both the majority and the midpoint of all the concerns; there are some higher and some lower, but there is a majority for that. It's the same for M2 at 6-1/2 to 10-1/2 percent. The difference of opinion lies more on... | 633 |
fomc | 1,979 | We'd also appreciate some guidance as to the Committee's feeling if [the projection] went up something less than that full percentage point. I know these are fine lines to draw, but we have to make those decisions. | 44 |
fomc | 1,979 | It's a very fine line as far as I'm concerned. | 11 |
fomc | 1,979 | Well, with the lower limit of 3 percent we wouldn't move. The possibility of coming in at 3 percent is just about zero, as far as I can see. | 35 |
fomc | 1,979 | It's not zero, but it's very low. | 9 |
fomc | 1,979 | It's probably a negative probability! [Laughter] You've got this stacked in one direction. | 18 |
fomc | 1,979 | Well, does it make a big difference, Nancy, whether we make it 3 to 8 or 4 to 8 ? | 27 |
fomc | 1,979 | Not much. | 3 |
fomc | 1,979 | Not much. | 3 |
fomc | 1,979 | I don't think it does. A range of 3 to 8 says we really don't want to move [the funds rate] down unless something important happens. Well, let's leave the money market/aggregates issue open for the moment. I guess I'm left thinking--I'm reluctant to say this because it's what I said before--that the nearest thing to a ... | 183 |
fomc | 1,979 | I could live with that. we would have a conversation if [Ml growth1 strikes at the up side and go to 11-3/4 percent. We'd have a second conversation to go beyond that. | 42 |
fomc | 1,979 | My basic feeling is that I think we ought to have a conversation at this stage of the game if we want to put the funds rate up that high. We shouldn't just put it on automatic pilot at this point. | 43 |
fomc | 1,979 | Even to 11-3/4 percent? | 10 |
fomc | 1,979 | I could think of a marginal circumstance in which we might want to have a conversation but I could think of nomarginal circumstances where if that is the directive, we would go ahead. I think you'll just have to leave that up to me. That kind of decision also depends some on the economic news we get and to some extent ... | 177 |
fomc | 1,979 | Me. I didn't vote. | 6 |
fomc | 1,979 | You don't like either one. | 6 |
fomc | 1,979 | That's right. Well, I would prefer a money market directive. | 13 |
fomc | 1,979 | But the whole thing is [beyond] your pale. I would feel somewhat more comfortable with the money market [formulation] under existing conditions. I think we are very much probing the outer limits of what we should do at the moment in terms of the basic economic situation. So I guess we'll just put the vote that way: 3 t... | 119 |
fomc | 1,979 | A very technical point Paul: 6-1/2 to 10-1/2 percent is a smaller range for M2 than we have for M1. Does that make sense? Should it be 5-1/2 to 10-1/2 percent? It's the least important [number] we're talking about. | 68 |
fomc | 1,979 | I don't have a strong opinion on that one. Does anybody else want to comment? | 17 |
fomc | 1,979 | Or at least have the same [width] range. | 11 |
fomc | 1,979 | I would judge that we may already have stretched some people's tolerance in making the M1 range 3 to 8 percent, Bob. So maybe we ought to leave it at that. | 37 |
fomc | 1,979 | It's a question of consistency. | 6 |
fomc | 1,979 | I'm concerned about that M2 number because I do believe we're getting considerable shifts [of funds1 from the S&Ls to the commercial banks. But that, of course, would tend to result in a higher number rather than a lower one. It wouldn't go the other way unless market rates were quite a bit lower, which isn't in prospe... | 69 |
fomc | 1,979 | It just seems, if we're going to have a 5-point range on M1, that we should have no less than a 5-point range on M2 | 33 |
fomc | 1,979 | Is there a strong preference for the 5-point range? | 12 |
fomc | 1,979 | Just to show my flexibility, Mr. Chairman, I'll say that I would go along with that. | 20 |
fomc | 1,979 | Let's just have a quick expression of preference on that. Do most people want to join Mr. Mayo on making this amendment? | 25 |
fomc | 1,979 | I'm sorry, would you repeat the numbers? | 9 |
fomc | 1,979 | I'm suggesting 5-1/2 instead of 6-1/2 percent on the lower end of the M2 range. | 27 |
fomc | 1,979 | Just as a general principle. | 6 |
fomc | 1,979 | I don't notice any upswelling of support. | 10 |
fomc | 1,979 | I don't either, but I don't [hear] any objection. | 13 |
fomc | 1,979 | I wouldn't have any great objection myself but let's stick with where we were. I guess we are ready for the vote. MR. ALTMA". Chairman Volcker Yes President Balles NO President Black No Governor Coldwell No President Kimbrel Yes President Mayo Yes Governor Partee Yes Governor Rice No Governor Schultz Yes Governor Teete... | 87 |
fomc | 1,979 | We have one other item on the agenda, as I recall. We can cover it quickly, I think. You have a memo, which I assume you have all read, which concludes that we should continue the practice of lending securities to government security dealers in case they need them to make up for failures. We would charge them roughly t... | 75 |
fomc | 1,979 | Well, it's either double or three times. | 9 |
fomc | 1,979 | Charging three times the market rate is a practice we have been following for some years, and I take it we review that practice periodically. | 27 |
fomc | 1,979 | It has been on about a 6-month review. | 11 |
fomc | 1,979 | Are there any questions of Mr. Sternlight or Mr. Peterson? | 14 |
fomc | 1,979 | A very well argued brief there! | 7 |
fomc | 1,979 | Splendid. | 3 |
fomc | 1,979 | Paul, marketwise, is there any way we could make this shift [in the funds rate] today rather than tomorrow, to throw the markets a little off balance in their shooting duck attitude toward us? | 41 |
fomc | 1,979 | Well, the way the funds market has gone this week, the funds rate has been averaging, through yesterday, 11.39 percent. But actually, the funds rate on the day yesterday was about 11-1/2 percent and today it was starting out on the firm side. We went in early because the funds rate had moved to 11-5/8 percent, so we we... | 89 |
fomc | 1,979 | Sounds like an easy transition. I take it there is no objection to the lending of securities. The meeting is adjourned, and it's one minute before one o'clock. | 35 |
fomc | 1,979 | Well, gentlemen, I think we might as well start. I hate to start without Emmett but he seems to have been incommunicado for 40 minutes now, so let's begin. Maybe we should take a minute to hear Mr. Kichline go over the latest business news. I realize you did that yesterday, Jim, but not everybody had the benefit of you... | 86 |
fomc | 1,979 | All right. I'll try to be brief. Economic activity in the third quarter appears to have expanded a little faster than we had anticipated earlier. We now believe that real GNP probably grew at an annual rate of around 1-1/2 percent, maybe a shade higher. Employment, production, and sales all seem to have been somewhat h... | 426 |
fomc | 1,979 | We might take just a minute to see if any of the Presidents in particular have comments they would like to make on the business scene from [a regional] perspective that would add to the statistical information that we've had on prices, production, or other fronts. Let's hear quickly. | 55 |
fomc | 1,979 | Well, I think we're seeing an amazing replay of 1974-75. We have declining final demand, with the economy cushioned by very large inventory accumulation that produces big demand for bank credit, resulting in growth in the aggregates. And we've been leaning against that growth by pushing up the federal funds rate. I gav... | 160 |
fomc | 1,979 | Did you see evidence of a credit crunch in that earlier period? | 13 |
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