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fomc | 1,977 | Mr. Zeisel will answer the first, and I'll take it my hand at the second. | 19 |
fomc | 1,977 | In terms of the balance of the economy, we still are obviously running with capital spending significantly below what it should be, given past performance in an expansion period. And the outlook is still somewhat unclear in that regard. We anticipate moderate rates of growth, but it will be some time before the rate of... | 230 |
fomc | 1,977 | But you're overlooking the very sharp turnaround that has occurred in our foreign trade balance. And this is a drag on our economy. We not only have a deficiency in business capital investment but also in our net foreign trade. And the outlook, at least for this year, is for some further deterioration in this regard. S... | 83 |
fomc | 1,977 | Any further deterioration from the current level? Further deterioration this year certainly, but I-- | 17 |
fomc | 1,977 | I don't know. Mr. Reynolds, would you comment on that? | 14 |
fomc | 1,977 | I didn't hear the question. | 6 |
fomc | 1,977 | The question is whether we would expect the trade balance to decline further from the level we've reached in the first quarter, not from last year. | 28 |
fomc | 1,977 | No, I don't think so. | 7 |
fomc | 1,977 | But from last year. | 5 |
fomc | 1,977 | But from last year, certainly. | 7 |
fomc | 1,977 | All right, now, Mr. Kichline for the second. | 14 |
fomc | 1,977 | The second question as I understand it relates to the performance of investment and whether we're getting good gains in investment only when we tend to get much higher rates of capacity utilization. I think that [idea] is drawn generally from the performance of the early '70s to date, and I would hesitate to make a for... | 245 |
fomc | 1,977 | I think your answer is very helpful, but it doesn't deal sharply with the question that Mr. Wallich has put to you. | 26 |
fomc | 1,977 | Well, it's very clear in our forecast that we do not-- | 13 |
fomc | 1,977 | Let me just elaborate for a minute. I want to make a suggestion. You were referring to the so-called Eickhoff phenomenon, and that is a very interesting piece of analysis. And it calls for, I think, empirical study, and has the staff done that? | 55 |
fomc | 1,977 | We have not. | 4 |
fomc | 1,977 | I think it would be extremely worthwhile to look into that with very great care. | 16 |
fomc | 1,977 | I might note that we are quite concerned about the whole investment area in a variety of ways and that we're undertaking-- | 23 |
fomc | 1,977 | I know, but I'm talking specifically about the so-called Eickhoff phenomenon. | 16 |
fomc | 1,977 | That's right. That's part of it. What I was saying is, we're taking a broader tack in our research program, focusing on the business investment sector, and this is one part of the answer. We do not have any independent staff analysis to contribute at this point. | 54 |
fomc | 1,977 | I think it would be very instructive, as a part of that study, but as an isolated part, to start with that theory and try to determine to what degree there is a good empirical basis for it, to support the theory. Thank you, Mr. Wallich. Mr. Roos now, please. | 64 |
fomc | 1,977 | Early in the meeting, the Chairman referred to the energy package and to the possible effects of it. And as we discussed your projections, obviously automobiles sales and similar factors were cited as reasons for positive interpretation of what may happen. Are we going to get into any significant discussions on the eff... | 86 |
fomc | 1,977 | We have not included it in our forecast. We have not had an opportunity to analyze the program in detail. In fact, we don't know all of the details and the critical parts regarding rebate schemes, for example. It presumably would have a substantial impact on the economy. The only other comment I can make, I guess, at t... | 160 |
fomc | 1,977 | Legislative action is almost certain to postpone the need for detailed analysis too, I think. It's going to take them a long time. | 28 |
fomc | 1,977 | I'd like to comment on that a little. I don't have much to say, but I am troubled. If this meeting had been held a week ago, I would have made a very bullish statement about the economy, and I have, fairly consistently for some time, with perhaps renewed emphasis. The President's renunciation of the rebates strengthene... | 914 |
fomc | 1,977 | Mr. Chairman, I gather, from what you're saying, that there are not really any surprises in there that we haven't pretty well read already. | 29 |
fomc | 1,977 | I'm told that the article that appears in the Wall Street Journal is more or less right, but of course, some changes have taken place, and other changes may take place within the next two days. Well, the President will be addressing the Congress, I believe, tomorrow evening, and then the legislation will be sent up a w... | 84 |
fomc | 1,977 | Isn't it possible that, in addition to creating uncertainty, which would have a negative effect on real output--[it would] enhance price expectations--higher price expectations? | 34 |
fomc | 1,977 | If I were to make a judgment at this time, and it's obviously premature, it would be that the effect on economic activity would be negative; and the effect on prices will be negative in the sense of prices moving higher. But I'm not ready to make a judgment. | 54 |
fomc | 1,977 | You say there is an initial price increase of energy, that is not [unintelligible]. | 20 |
fomc | 1,977 | No it doesn't. | 4 |
fomc | 1,977 | If it is the way it's been described, at least there is the advantage that [it] does work through the price mechanism, mainly taxes and rebates, and-- | 33 |
fomc | 1,977 | Well, I would not describe that as working through the price mechanism; I certainly would not. I would say "work through the price mechanism" if you leave things pretty much to the market and leave taxes and rebates pretty much alone. | 47 |
fomc | 1,977 | Well, that would be very difficult in today's conditions if you want to achieve those objectives. | 18 |
fomc | 1,977 | That I'm not sure of, by that I'm not implying any criticism. I was just getting the terminology here. | 22 |
fomc | 1,977 | Well, it's a price-rationing effect--it may not be a supply-inducing effect. | 20 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | I-- | 2 |
fomc | 1,977 | It's a manipulation of prices. | 6 |
fomc | 1,977 | Your description reminds me of the FIA [Financial Institutions Act]. | 12 |
fomc | 1,977 | Well, that's exactly what happened. You have a coalition defeating the Financial Institutions Act. And the coalition consisted of commercial banks, to some degree the S&Ls, the homebuilders, the AFL-CIO, the Federal Reserve-- | 46 |
fomc | 1,977 | Strange bedfellows. | 6 |
fomc | 1,977 | And I think it was very similar because nobody really understood the Financial Institutions Act. | 16 |
fomc | 1,977 | It seems like you described them as individual [unintelligible]. | 14 |
fomc | 1,977 | But, individual interest groups, not excluding the Federal Reserve, understood specific parts of it, or they thought they did. | 24 |
fomc | 1,977 | I have to add, you were talking about the Financial Reform Act, gentlemen. | 16 |
fomc | 1,977 | I think that's a valid comment, yes, but I personally would say that with less emphasis with respect to the Financial Institutions Act. My own reaction to the Hunt Commission Report was, I couldn't understand it because it had so many recommendations. I could grasp 1, 2, 3, 4, 5, but when you have 100 recommendations, ... | 80 |
fomc | 1,977 | Mr. Chairman, we had an energy program proposed to the Congress that lived [unintelligible] for 12 months. And it went through almost exactly the process you described. The one key difference was that Congress was never persuaded to seriously consider it. But your comments about the uncertainty that this kind of proces... | 88 |
fomc | 1,977 | Any other comments on the economy? Well, it's almost 11, and therefore it's time for a coffee break. | 23 |
fomc | 1,977 | Gentlemen, as I think you know, we will have to testify on our 12-month monetary ranges on May 3, 1977, and therefore we need to deliberate today on setting the ranges for the next 12 months. In view of the uncertainty connected with the energy problem, there is a chance that we may possibly want to reconsider before t... | 1,241 |
fomc | 1,977 | Well, Mr. Chairman, I agree completely with your recommendation on M1 for the very same reasons, this area of uncertainty and the potentially serious misunderstanding of our objectives if, [at] the moment the rebate disappears, it seems that we are about to tighten up. I think that would not serve us well in our admini... | 326 |
fomc | 1,977 | Thank you, Mr. Mayo. Yes, Mr. Roos. | 14 |
fomc | 1,977 | No sir, I don't mean to go on-- | 10 |
fomc | 1,977 | Yes, please. | 4 |
fomc | 1,977 | I would disagree with my good friend, Bob Mayo. It seems to me that the time couldn't be better for a more meaningful reduction in these aggregates figures. The President has enunciated a desire to get to 4 percent in a couple of years in terms of rate of inflation [and] dropped the stimulus package. It is almost unani... | 288 |
fomc | 1,977 | Thank you, Mr. Roos. Mr. Partee, please. | 15 |
fomc | 1,977 | Well, I disagree with Larry, and I agree with Bob, except that I feel that we really shouldn't make any move at all in the aggregates ranges at this time, in M1, M2, or M3. First of all, it seems to me that what has happened with regard to the rebate is perceived by the public and will be perceived by the Congress as a... | 770 |
fomc | 1,977 | Thank you, Mr. Partee. Mr. Volcker, please. | 15 |
fomc | 1,977 | Let me say first, Mr. Chairman, I just read this memorandum of Mr. Broida's during the break, and I found it a very interesting and persuasive document in terms of the difficulties of bringing these numbers down. I was also a little concerned as I read it. It seemed to put the Committee entirely in a rather passive voi... | 294 |
fomc | 1,977 | Well, the one good thing about that message--there are two good things about that. First, that there was such a message concerned with the inflation problem, never mind this specific program. The second good thing about it is that the President indicated that it would be the objective of the Administration to reduce th... | 109 |
fomc | 1,977 | I agree with what you're saying. I think the business community has almost gotten neurotic in their concern about the Administration, and over time, that may be dissipated. I think they are misreading. I hope they are misreading it to some extent. And I think this message may go in that direction. But I still think the... | 454 |
fomc | 1,977 | Fortunately, the decision, whatever decision we take, will not be announced until May 3rd, and both the business and political community has a way of remembering only what happened yesterday or during the preceding week. So there will be a little distance between the two. | 53 |
fomc | 1,977 | Well, that's the range of my indifference, I guess. Not quite indifference, but tolerance. | 21 |
fomc | 1,977 | Well, I think that's a good a way of describing it. Thank you, Mr. Volcker. Mr. Coldwell, please. | 28 |
fomc | 1,977 | Mr. Chairman, I have a little difficulty today. I listened to what others have said about this. I am really more concerned about the performance than I am the ranges. And while we can jiggle the ranges around, we have taken some steps, as was pointed out, to reduce the ranges, and yet you point out our actual performan... | 497 |
fomc | 1,977 | Thank you, Mr. Coldwell. Mr. Guffey now, please. | 17 |
fomc | 1,977 | Yes, Mr. Chairman, I agree with the philosophy that I think has been expressed, that we continue to make some movement. But as we took a look at the ranges that we've been operating within the past as a track record, and particularly focusing in on the midpoints, what has been projected is such that you're suggesting t... | 112 |
fomc | 1,977 | That's the very recent past; that's not the long-range record, I believe. Mr. Axilrod, what are the facts? | 27 |
fomc | 1,977 | You go back as far as 1967, the differential between M1 and M2 is reading roughly 3-1/2, 2-1/2, 0, 2.3 but then it gets up to around 5 then 2-1/2, so I would say it's in the order of 2-1/2 plus or minus something--previous to the past three years or so. | 88 |
fomc | 1,977 | I went back to 1975 and 1976, and it ranges 4.4-- | 20 |
fomc | 1,977 | M2 and M3 recently have exploded. | 9 |
fomc | 1,977 | I see nothing that would materially change that in the period ahead, so as a result-- | 18 |
fomc | 1,977 | Well, but M3 and M2, there are indications of their slowing down. | 17 |
fomc | 1,977 | To be sure, but projections of the staff would suggest that the interest rates that will affect those two aggregates are not going to start moving up until some time in the third quarter, which would affect the slowing of growth of M2 for example. If I read it correctly. | 55 |
fomc | 1,977 | That is, the rise in market rates would tend to bring M3 and M2 down. | 19 |
fomc | 1,977 | To be sure, but I think that's not projected by the staff until some time into the third quarter, into the fourth quarter | 25 |
fomc | 1,977 | But that's already under way--under way not so much because of the rise in interest rates but because of a feeling on the part of thrift institutions and, to some degree, commercial banks that they are flooded with money and they are no longer advertising as they had for their certificates of deposit. Some are no longe... | 90 |
fomc | 1,977 | They have been for some months--some reduction in offering rates. And very recently we've had a slowdown in net inflows in time and savings deposits relative to what it had been in the fourth quarter. We are projecting, Mr. Guffey, further slowdowns in the summer and fall, when we believe interest rates would start ris... | 80 |
fomc | 1,977 | Well, just to follow this for just a minute if I may, whether it is believable or not, I would like to suggest that, because of the past track record and the fact that the slowdown may not come until later in this year, we not drop M2 or M3 at the upper rate; leave them the same, and to try to fulfill what I believe ve... | 179 |
fomc | 1,977 | Without arguing the point, I just want to be clear about my own suggestion to the Committee. I had struggled and struggled with the idea of bringing the lower limit of M1 down and might well have made that suggestion to the Committee. But learning about the energy message, my present suggestion to the Committee is to l... | 83 |
fomc | 1,977 | You mentioned a couple of times the President's stated objective of the 4 percent [inflation] rate in '79. I guess I could have asked the staff a question long before the meeting, but the [President's speech] wasn't available all that time. What should the rate of growth of M1 and M2 be in 1979 and late in 1978 to have... | 108 |
fomc | 1,977 | I would say, in view of the Committee's recent practice of assigning approximately equal weight to M1 and M2, that lowering the one or the other, either at the lower end or the upper end, we are making a move in that direction. Now, whether the magnitude is sufficient or not, or more than sufficient, is another questio... | 85 |
fomc | 1,977 | I have no quarrel with the recommended course. | 10 |
fomc | 1,977 | Thank you, Mr. Lilly. Mr. Kimbrel, please. | 15 |
fomc | 1,977 | Mr. Chairman, I have labored with the thought that there's probably never going to be that ideal time for us to make these moves, but listening to our own people and observing events in our own area, I continue to be considerably impressed with inflationary expectations, the prices, businessmen who are still fearful th... | 240 |
fomc | 1,977 | Thank you, Mr. Kimbrel. Mr. Jackson now, please. | 16 |
fomc | 1,977 | Mr. Chairman, one thing that hasn't been mentioned is the more recent environment of inflationary prospects and [unintelligible]. First, we have had recent price increases, and while the staff projection indicates that those will flatten out, and perhaps [during] the balance of the forecast period they may not be anywh... | 451 |
fomc | 1,977 | Thank you, Mr. Jackson. Mr. Willes now, please. | 15 |
fomc | 1,977 | Thank you, Mr. Chairman. My original predilection was to be very quiet today and listen and be instructed by the members of this Committee. But as I have listened to the discussion, it appears to me that the issues are sufficiently important that the District should at least be represented in deliberation. One of the h... | 534 |
fomc | 1,977 | Thank you, Mr. Willes. Mr. Wallich now, please. | 16 |
fomc | 1,977 | I'd like to set forth new considerations: First, I think when we set longer-run ranges we ought to look at the base drift which has taken place, and this is very usefully reflected in the appendix here. Over the last quarter or so, there hasn't been significant base drift, so we [do not] have much getting back on track... | 731 |
fomc | 1,977 | Thank you, Mr. Wallich. We'll hear next from Mr. Black. | 16 |
fomc | 1,977 | Mr. Chairman, I guess I'm going to be the hawk today. I thought several times that someone was going to steal all I had to say, but I still come out a little further to the right on this. The question to me still is not whether we should cut the limits but really by how much. For a long time you have been testifying, a... | 208 |
fomc | 1,977 | Thank you, Mr. Black. Mr. Morris now, please. | 14 |
fomc | 1,977 | Mr. Chairman, I like your proposal, and I agree with Henry Wallich that the rebate was killed because the economy is performing much better than we thought it was at the time the rebate idea was generated. And for the same reason, it seems to me that this is exactly the kind of time monetary policy ought to respond. I ... | 376 |
fomc | 1,977 | Thank you very much, Mr. Morris. Mr. Eastburn, please. | 16 |
fomc | 1,977 | Thank you, Mr. Chairman. I came to the meeting with the notion that the M1 floor should be lowered by 1/2 percent, and I discovered, listening to the conversation, that it is a more complicated issue than I thought. There has been a great deal of discussion about the public impact, the psychological effect of what we m... | 368 |
fomc | 1,977 | Thank you, Mr. Eastburn. Mr. Baughman, please. | 16 |
fomc | 1,977 | Mr. Chairman, I guess it seemed to me that, in the review of Mr. Broida's document, it is essentially a report card, [and] he gives us, at best, about a "C" in terms of what we might characterize as classroom performance. But the document does not grade us on what we might call our lab performance, where you observe th... | 246 |
fomc | 1,977 | Thank you, Mr. Baughman. Mr. Winn now, please. | 16 |
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