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fomc | 1,979 | Well, I don't have a measure of credit crunch but I do have measures of the funds rate and the rate of growth in the money supply, and the behavior of those is quite similar. | 38 |
fomc | 1,979 | My recollection is that we had a very different situation with respect to credit availability but I was told just recently that a bank from Chicago was working diligently in an eastern area to round up business loans. We wouldn't have had that, I think, in 1975. | 54 |
fomc | 1,979 | Well, I think the money center banks are still very aggressively looking for loans. But if you go outside the money centers, the banks are very tight. At least they are in New England. | 39 |
fomc | 1,979 | Of course, the real estate situation is entirely different, with 1.8 million housing starts. That compares with what we had, say, in the summer of '74 when starts were down to a 1.1 million annual rate or thereabouts and there just wasn't any mortgage money. | 59 |
fomc | 1,979 | But the state and local sector is much weaker than it was in 1974-75. | 19 |
fomc | 1,979 | That's true. | 3 |
fomc | 1,979 | That is hardly speculative although it's a little speculative. In '74 it was virulent. | 18 |
fomc | 1,979 | In '74 we had a constraint in terms of capacity that we haven't faced to a big degree. | 20 |
fomc | 1,979 | To follow up on what Ernie said, I've had conversations in some depth with various directors over the last week and whether they're businessmen or bankers they report essentially the same story--that the present level of interest rates, in contrast to the situation generally in '74, is just not deterring borrowing in a... | 154 |
fomc | 1,979 | We have plenty of tightness at 90 percent of our banks but they probably don't account for more than half of the business. And the other 10 percent can get money whenever they want. | 39 |
fomc | 1,979 | But bank credit was expanding pretty rapidly in the first half of '74. | 15 |
fomc | 1,979 | Any other quick comments? | 5 |
fomc | 1,979 | Yes, Paul. A quick and informal [survey] of some people in our area confirms a bit what I think Frank [Morris] was saying. There's increasing concern about the inventory situation and the likelihood that the recession is going to be more severe than they had thought. This is on the part of retailers and of bankers who ... | 86 |
fomc | 1,979 | We had a businessmen's meeting in our Bank about a week ago and we had three or four industrialists as part of the group. Of the three or four, all were predicting a rather good year in 1980 with the exception of one that is a supplier to the automotive industry. It's generally the same kind of [story] we've been heari... | 148 |
fomc | 1,979 | If there are no other comments--. Bones did you want to comment? | 15 |
fomc | 1,979 | I'd simply echo [Tom Timlenl. In the last week we had a series of business leaders in from Jacksonville, Atlanta, and New Orleans. They [exhibited] an enthusiastic lack of confidence in so many areas. But for their own individual businesses the only expression of any concern was from a convenience store operator with a... | 118 |
fomc | 1,979 | Sales at Sears Roebuck were ahead of last year for the first time in twelve months. | 19 |
fomc | 1,979 | Was a year ago bad, do you recall? | 10 |
fomc | 1,979 | Well, Sears has gone through particular problems. | 9 |
fomc | 1,979 | It seems to me that they were in bad shape about a year ago. | 15 |
fomc | 1,979 | It shouldn't be used as an example for the whole country. | 12 |
fomc | 1,979 | Wards had a very small change over a year ago. | 12 |
fomc | 1,979 | Yes, but Penneys and Kmart are still doing fine. | 13 |
fomc | 1,979 | Well, let me say where I think we are even though Emmett is still absent. I appreciate your all standing by so patiently over the past few days, but we've had a few complications putting this together, with some people out of town and so forth. Just in terms of the schedule for today, I think we have to assume that the... | 418 |
fomc | 1,979 | The reporters left the room when [Secretary] Miller said that Paul had gone home. They just rushed to the phones. | 24 |
fomc | 1,979 | That typically is the case these days. I arrived at the airport and there was a reporter accompanying me on the plane. I don't know when he got to a telephone; he couldn't until we got to London. I have thought that one way of managing the markets might be to ascend in an airplane and just circle, with a refueling [pla... | 4,714 |
fomc | 1,979 | Paul, in your review you made no mention of controls. I hear more rumors about those than you can shake a stick at these days. | 28 |
fomc | 1,979 | Bank credit controls or any kind of controls? | 9 |
fomc | 1,979 | Various types. | 3 |
fomc | 1,979 | Well, let me just say a word on that. In this situation we get more talk about that, and there are certainly market rumors. I don't know that I hear such strong rumors that controls are a great possibility right now but there is a very large segment of market opinion that says if not now we are going to be driven to [i... | 390 |
fomc | 1,979 | Paul, it seems to me that the situation we are faced with is pretty much as you outlined here. Maybe I could streamline this for my own thinking. I see our objectives as perhaps four-fold--centered around dampening [inflation] expectations, achieving some credit restraint that might flow from that, hopefully strengthen... | 373 |
fomc | 1,979 | I'm glad you mentioned the commodities issue. I don't know whether all the Presidents have caught up with this, though I presume they have. Beginning a little more than a week ago, late in the previous week when the gold market was gyrating, there was some very clear evidence that this psychology was getting into the m... | 160 |
fomc | 1,979 | Lead went up 20 percent. | 7 |
fomc | 1,979 | Lead went up 20 percent, too. It was frankly a bit of scary psychology to say the least. That has also in some sense relapsed for the moment in this [general] atmosphere of nervous anticipation. | 43 |
fomc | 1,979 | I might make a general comment, Paul. I approach the situation a little differently than Phil does. And I don't pay as much attention to foreign and international aspects as you do. The thought I would like to emphasize or underline is uncertainty. I think the staff forecast--which I believe is not that much different ... | 796 |
fomc | 1,979 | I agree with Chuck. His analysis fit my views very closely. Despite my view that the recession is going to be sharp, I think we are in a situation where we have to be willing to do something dramatic today. It's not clear to me that a change in operating procedures is going to gain us much yardage on the foreign exchan... | 78 |
fomc | 1,979 | Unless they think it's more of a commitment. | 9 |
fomc | 1,979 | That means that we also have to have some traditional measures to go along with it that they will understand | 20 |
fomc | 1,979 | No question. | 3 |
fomc | 1,979 | I think the Committee has to understand that we are talking about something that will give the Manager discretion; [I'd] give him at least 2 percentage points on the up side in the next few weeks. We have never done that--that's a dramatic change in our behavior--but that's what we are talking about. And I think our cr... | 91 |
fomc | 1,979 | If I may just interject, Frank, I agree with what you are saying and I think [the issue] has to be approached in that light. But presumably the guts will have a number on it--the degree of our guts on the up side. | 52 |
fomc | 1,979 | Well, that's right. But it's got to be a pretty big number. | 15 |
fomc | 1,979 | I understand. | 3 |
fomc | 1,979 | The other thing is that we are going to need to educate the market very soon on this. So, if we go ahead with this change to a new procedure, I think you ought to have a press conference today. | 44 |
fomc | 1,979 | Well, if we have a new procedure, I will have a press conference. Whether I have it today or Monday is an open question. | 28 |
fomc | 1,979 | [If you have it today], the markets will have the weekend to absorb this. | 17 |
fomc | 1,979 | Well, I don't know. We have a holiday on Monday and we may do the press conference Monday morning. You can assume that I will have a press conference if we go through [with this change]. | 41 |
fomc | 1,979 | Are the bond markets closed? Okay. | 8 |
fomc | 1,979 | The stock market is open, but that's it. | 10 |
fomc | 1,979 | Could I add one other point? I follow along with Frank on this. However, I think there is one [aspect of making a change] that is a disadvantage. I don't think this can be a short-run change in technique because it is going to require a certain amount of time for it to work out. I understand the point that you made abo... | 138 |
fomc | 1,979 | Well, I don't want to accept that. I don't think we can make that decision now. If we [change our operating technique], I do accept the fact that to some degree we have prejudiced the discussion we will have at the end of the year. We will have to have a reason then to move back to the traditional method. But I don't t... | 108 |
fomc | 1,979 | We'd run it for several months in any event. | 11 |
fomc | 1,979 | Oh yes. I think we are committed for several months. | 12 |
fomc | 1,979 | I'm thinking partly in terms of the public impact that this will have. If the impression is conveyed that this is something we are just trying, I really don't think it will have the impact on credibility that we need to have. | 45 |
fomc | 1,979 | Maybe we lose some, but in this particular situation I don't think we lose the whole [impact] or anywhere near that. We may lose 10 to 20 percent of it. Let me comment on a point that has come up a couple of times. I don't think we are talking about a program here just to support the dollar. I know [different] people p... | 354 |
fomc | 1,979 | I think there would be considerable agreement that the kinds of steps that were taken last November were viewed as bridging actions. They were effective but, of course, they can only be effective as long as some fundamental changes are being made that get around to solving the problem. One aspect of that, from the stan... | 727 |
fomc | 1,979 | Bob Mayo. I'll get back on course. | 9 |
fomc | 1,979 | Mr. Chairman, I would like to enthusiastically support the change in emphasis in our operations. I have felt for a long time that we were doing the best that we could, but I've changed my position on that under these circumstances of the most sensitive monetary situation that I can remember at any time in our history. ... | 901 |
fomc | 1,979 | Thank you, Mr. Chairman. I believe almost everybody who has spoken up until now has said that they would endorse the change in operating procedures. I'd just like to raise a voice, not necessarily in opposition to it but at least to question it. First of all, let me say that I agree that there's a need for something to... | 549 |
fomc | 1,979 | Mr. Timlen. | 5 |
fomc | 1,979 | Mr. Chairman, it is clear to me that expectations of Some strong action by this group this weekend are at a high level. I'm not sure that the Committee should always respond to expectations, but in the circumstances today the proposal of combining something new and different with strong traditional steps has real appea... | 219 |
fomc | 1,979 | Governor Wallich. | 4 |
fomc | 1,979 | I think the main argument in favor of the reserve strategy is that it allows us to take stronger action than we probably could by the other technique. We are much more constrained in the other technique by the appearance of very high interest rates. In the new strategy interest rates become almost a by-product of a mor... | 307 |
fomc | 1,979 | Which is what direction--up or down? | 9 |
fomc | 1,979 | it is quite clearly down. Upward we can control [through] money supply. We're aiming at a tight money supply, and that raises interest rates--or that is what we [are talking about]. But downward has a totally different implication. It involves a signal that we've switched policy and the markets are going to respond acc... | 164 |
fomc | 1,979 | Let me just make a couple of comments. I'm not sure it's self-evident that in interest rate terms the new technique is stronger. It may or may not be, depending upon what happens to the money supply. I think that is inherent in the new techniqde. It also depends upon a judgment on how much traditional-type action we wo... | 137 |
fomc | 1,979 | Paul, at some point I think we need to hear from your associates in New York as to how they would operate under this technique if we adopt it. I think that is part of-- | 38 |
fomc | 1,979 | We'll get into that. I'm just getting general reactions now--and I think they should be rather general--of the type that we have had so far. Let me just say, too, that on the issue of interest rates coming down there probably are going to be differences of opinion; there always are. But I don't think we can sit here to... | 294 |
fomc | 1,979 | M r . Chairman, i picked up on your earlier observation that we can get there either way--with some modification of our present technique or by shifting emphasis to reserves to a greater degree. I'm somewhat inclined to think that if we do announce that we have made a rather basic change in our mode of operation--in ou... | 264 |
fomc | 1,979 | Those are the objectives. | 5 |
fomc | 1,979 | I don't think so, but that will come out in a later discussion, I think. | 18 |
fomc | 1,979 | We will be read as accepting some reserve measure as the objective--a kind of M target in the financial sector before we get over to the real sector. As I say, I agree with your suggestion that we can get where we want to go by either route. It would seem to me that it might be appropriate to take [action] in two steps... | 142 |
fomc | 1,979 | Mr. Winn. | 4 |
fomc | 1,979 | Paul, during this past period, the rumors were everywhere. One of the ones that bothers me the worst is the feeling of an explosion on the wage front. For example, we see banks violating the guidelines pretty generally. Some of my most knowledgeable friends seem to be predicting 20 percent increases next year and that ... | 294 |
fomc | 1,979 | I think some of those will come out later in a more detailed discussion. Mr. Rice. | 19 |
fomc | 1,979 | Mr. Chairman, I favor moving to the new operating technique--the change of emphasis--at this time. I believe our current approach has not been working and we need to change our style. But in changing our style in this case we probably also are changing our strategy at the same time. I believe it's more than just a matt... | 538 |
fomc | 1,979 | Mr. Black. | 4 |
fomc | 1,979 | Mr. Chairman, Governor Rice has made many of the points that I wanted to make, but I'd just like to say that I feel better about what I've heard around this table than I've ever felt at any time since I've been attending these meetings. I think we are now on the road to formulating better monetary policy. I often think... | 1,009 |
fomc | 1,979 | Mr. Roos. | 5 |
fomc | 1,979 | Well, Mr. Chairman, I assume that my credibility with you and my colleagues would be severely jeopardized if I came out flatly in opposition to this proposal! [Laughter] I also was told by my father to keep my mouth shut when things are going well. So all I'll say is briefly: God bless you for doing this! [Laughter] | 73 |
fomc | 1,979 | I would say that when Bob Black and Emmett Rice agree, I would expect everybody else to be able to agree! | 24 |
fomc | 1,979 | There are one or two things that I didn't agree with here but that's okay. Do you want to take a little coffee break or not? SEVERAL. Yes. | 34 |
fomc | 1,979 | Okay. we will return to a more detailed exposition unless somebody wants to say something at this point. | 20 |
fomc | 1,979 | Mr. Coldwell is developing a computer for forecasting the money supply, converting it into the reserve base, nonborrowed reserves, borrowings, and the federal funds rate! [Secretary'snote: A s the meeting was in the process of reconvening, Mr. Coldwell was demonstrating an electronic device of some kind.] Let me try to... | 3,230 |
fomc | 1,979 | Recognizing that, M r . Chairman, rather than try to plug in numbers today and agree on detailed procedures--if, as I assume, we have a consensus on a change of approach--wouldn't it be wise to ask the staff to work on that? Perhaps we could ask the Board staff as well as selected or interested staff representatives fr... | 233 |
fomc | 1,979 | I will make two comments, Mr. Roos. I don't think it would be more productive because I hope the Committee as a whole, at this particular meeting at least, will not get into that detail. We will be in an absolute morass if we attempt to arrive at some judgment as to whether the staff has made all these translations cor... | 314 |
fomc | 1,979 | Well, I thought we were going to get into the numbers. I was off base there. | 19 |
fomc | 1,979 | Well, any way we go we have to get into the money supply number. If we're going to go this way, the Committee is going to have to make a decision on the federal funds constraint and what biases--if I can put it that way--we want to introduce into the operations, particularly in the next couple of weeks. A number of peo... | 162 |
fomc | 1,979 | Couldn't your announcement say that over a mandatory period of a couple of weeks we are going to do this in an orderly, gradual, manner? Do we have to do it right from the beginning? | 39 |
fomc | 1,979 | Yes | 1 |
fomc | 1,979 | No way. | 3 |
fomc | 1,979 | We are going to have to go through a learning procedure anyway. Even if we were to postpone it for a couple of weeks, we have a lot to learn and we might as well start learning now. | 41 |
fomc | 1,979 | I personally don't think that the nature of the problems we have are susceptible to sitting down around the table and saying: "Do we use this figure or do we not use this figure?" We can argue about that kind of thing if we are willing to adopt this experiment in a fairly rigid way for a period of a year. I, frankly, a... | 121 |
fomc | 1,979 | But we don't want to keep the funds rate biased upward too long. | 14 |
fomc | 1,979 | No. Well, inherent in this technique, the Committee can keep it biased however it wants to keep it biased. We have to discuss that. But in the mechanics of the process that I described, let's say we biased it for the first two or three weeks, quite deliberately, and we were wrong. It turns out that in fact we didn't ha... | 270 |
fomc | 1,979 | In your announcement Monday, will you announce any figures? | 11 |
fomc | 1,979 | No. We would announce that we want to be within the targets for the year. | 17 |
fomc | 1,979 | Right, but not any more precise figures. What I'm worried about, for example--and I'm not trying to get specific--is the 8 percent monetary base figure referred to in this document. Our research staff said that if the people who watch this saw an 8 percent figure for monetary base growth, that would immediately destroy... | 72 |
fomc | 1,979 | I think that's purely an [incidental] number. | 11 |
fomc | 1,979 | They will, of course, be able to make a calculation if we say we're determined to be within the targets for the year. They will see how much more room there is for the remainder of the year for growth in the aggregates that we have been using as [our target] variables. | 58 |
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