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fomc | 1,979 | Would we if we move [the FOMC meeting date]? | 13 |
fomc | 1,979 | Yes, sure. | 4 |
fomc | 1,979 | I might suggest, Mr. Chairman, the possibility of having this meeting on January 8 if that's agreeable. If we're going to follow it with the Conference of Presidents, that takes another day. Is something wrong with January 8th? | 48 |
fomc | 1,979 | Only for Governor Wallich; I think that's all. | 11 |
fomc | 1,979 | How about the 4th? | 7 |
fomc | 1,979 | Not the 4th; I won't be here. | 11 |
fomc | 1,979 | Could we not precede [the FOMC meeting] with our Conference of Presidents. | 18 |
fomc | 1,979 | Yes, I wonder whether you could do it in the opposite order, with the Presidents' conference first. | 21 |
fomc | 1,979 | Yes; we could shift it to January and Ernie could preside instead of me. | 18 |
fomc | 1,979 | So if we did that, it would be the 8th and 9th. | 18 |
fomc | 1,979 | You'd have the Presidents' conference presumably on the 8th and the FOMC meeting on the 9th instead of vice versa. | 29 |
fomc | 1,979 | Your preference at the moment is to have it in January. So in terms of our planning we should be thinking more of January than December, right? | 30 |
fomc | 1,979 | Again that's my preference if nothing goes wrong, but you know that seldom happens in this business. So I'm not sure what the most likely [date] is. I guess my preference would be to move it later because the money supply numbers will be in better shape and clearly we'd have the OPEC business behind us. But if things g... | 78 |
fomc | 1,979 | It would just be easier in planning if we could fix on one or the other as the dominant one. I'm happy to go to January. I think that makes a lot of sense, but I would prefer to fix on one date rather than two. | 50 |
fomc | 1,979 | I think that's true. Why don't you turn it around? | 12 |
fomc | 1,979 | Well, let's state it the other way around. Let's have a presumption that we will have it on January 9, but keep the other date open just in case things go wrong. | 38 |
fomc | 1,979 | Sold. | 2 |
fomc | 1,979 | Let me ask the subcommittee chairmen to get their reports in as if it were going to be in December. | 23 |
fomc | 1,979 | That means they'll be on time for the 9th anyway! All right, let's presume it's on January 9th, but keep December 18th open in case we're hitting the federal funds [limit] or something is going on internationally or whatever. | 51 |
fomc | 1,979 | Does that assume, Mr. Chairman, that we'll still meet on February 5 ? | 17 |
fomc | 1,979 | Yes. On February 5 we'll still have to make the final decision on the targets. So I would expect to have a preliminary discussion of them on whatever date we meet before then. It won't be until February 5 that we will know the budget and some other things anyway, but we are going to have a preliminary discussion whenev... | 101 |
fomc | 1,979 | So moved. | 3 |
fomc | 1,979 | We are adjourned. | 6 |
fomc | 1,980 | [That was the change in System holdings of securities] since when? | 14 |
fomc | 1,980 | That was for all of '79. | 8 |
fomc | 1,980 | Steve, if you want to add something that bears upon the nature of the operations, this is probably as good a time as any to do it. | 30 |
fomc | 1,980 | Mr. Chairman, we have some tables we could pass out, which are somewhat similar to the ones that we made available to the Committee at the last meeting and which might be helpful in considering how and whether to proceed with these techniques. These tables are designed to elaborate the numbers that underlie Mr. Sternli... | 1,578 |
fomc | 1,980 | I'm sure that's crystal clear! So, I think it's time to raise questions--not just on the details of Peter's operations, but questions that bear upon the operating techniques generally. Governor Partee. | 40 |
fomc | 1,980 | Well, just a comment. I think I understood the direction of your adjustments, Steve, as you went through this. But I certainly don't understand it from this table on the second page. I can't make out the magnitude of the adjustments. The arithmetic just doesn't work very well, at least as I was trying to follow what yo... | 134 |
fomc | 1,980 | He couldn't get in the total reserves. | 8 |
fomc | 1,980 | We fell short on total reserves, not on the nonborrowed. | 14 |
fomc | 1,980 | Well, one of the things that is disturbing me--about the whole period really but particularly the last month or so--is that we don't seem to be getting any market impact. We have to have feed-through if this process is going to work. And yet, regardless of the shortfall in reserves and the shortfall in money and the fa... | 159 |
fomc | 1,980 | Well, Governor Partee, that's certainly a very fair question. It has always been an issue, so far as I understand the procedures. My understanding of the original Committee decision was that we would put more weight on nonborrowed reserves than on total reserves, but still the Manager would have freedom when there was ... | 522 |
fomc | 1,980 | There may be a fair [amount of] instability in that demand. You may remember a month ago, or seven weeks ago or whenever [the meeting] was, we thought there had been an increase in the demand for borrowings compared with earlier in the experience when there wasn't. | 56 |
fomc | 1,980 | What plausible reason do you have for the funds rate staying as high as it has with borrowings as low as they are? | 25 |
fomc | 1,980 | I don't have any very good reason at $600 or $700 million, but at $1.2 and $1.3 billion I think that's returning more to the historical pattern. When we evaluate the spread of the funds rate over the discount rate, $1.2 or $1.3 billion of borrowing isn't unreasonable. What was out of the historical pattern was November... | 146 |
fomc | 1,980 | If I can interject, these last few days seem difficult to explain; the rather low level of borrowing is just not what one would associate with a funds rate of around 2 percent over the discount rate. And, as Steve mentioned, because of that we made an interim adjustment in what we were aiming for in nonborrowed reserve... | 161 |
fomc | 1,980 | I know it's awfully early, but what bothers me about this whole experiment so far, Paul, is that I don't get any sense of dynamics working. That is, we had a very nice outcome taking the quarter as a whole. I think everybody around the table would agree that the money number calmed down and the markets have been better... | 171 |
fomc | 1,980 | We would have seen what you are talking about if the funds rate had seemed to reflect this low level of borrowing. | 23 |
fomc | 1,980 | I think that's probably right. | 6 |
fomc | 1,980 | Governor Coldwell. | 4 |
fomc | 1,980 | Steve, for my simple-minded, poor mathematical abilities, tell me if I can make this statement and say it's reasonably accurate: That the things that threw you off were the demand for excess reserves and the shortfall in borrowing. The latter was being made up by an enlarged nonborrowed path and the former--coupled wit... | 94 |
fomc | 1,980 | [Yes], in looking at the uses of total reserves. But if you really make it tough for yourself and analyze this by looking at the sources of total reserves, as I think one should--if you think you're on a total reserve target, which the Committee has not clearly said it's on, having said it's much more on a nonborrowed ... | 629 |
fomc | 1,980 | We're back in 1937. | 7 |
fomc | 1,980 | Well, we still haven't found out whether there are any dynamics here that will work or not. | 19 |
fomc | 1,980 | I think that's true. But I also think we're giving this an unfair test in assuming that we can be within 1 percent of whatever the money supply [target] is. | 35 |
fomc | 1,980 | I was going to say, Mr. Chairman, if I may, that I don't know what the test of success is, but if the Committee was aiming at 4.2 percent in M1 and achieved 3 percent, by my measure that's success. | 52 |
fomc | 1,980 | By all past [measures]. Governor Wallich. | 11 |
fomc | 1,980 | If it wasn't a coincidence, it's wonderful. [CHAIRMAN VOLCKER]. If it was far off, the staff would say it was a coincidence! | 31 |
fomc | 1,980 | The Chairman giveth and the Chairman taketh away! | 11 |
fomc | 1,980 | The mechanism described just now must have some similarity with what went on during the '30s when [the FOMC] found that it could not generate the money supply it wanted. Well, I don't know what [the FOMC at the time] wanted, but at any rate most of the expansion they did engage in, mostly through gold purchases not sec... | 631 |
fomc | 1,980 | Well, I think you sorted out those points very well, Governor Wallich. Borrowing has always had this kind of dual role. It's a source of reserves, but it's a source of reserves with a string on it and is certainly less expansionary than if those reserves came from open market purchases or even from float or some other ... | 163 |
fomc | 1,980 | They differentiate that much between buying money and borrowing it? | 11 |
fomc | 1,980 | But why would they change in mid-course? You seemed to be right on track in the first four-week period and then something changed and they became more reluctant [to borrow] in the past three weeks. | 41 |
fomc | 1,980 | Well, we're puzzled, particularly because during the first two weeks of this last [period], as Steve said, it looked as if banks might be getting back to a more normal relationship of borrowing and the discount rate. And this current week just seems to be a little world of its own; I think it is really too [early] to d... | 74 |
fomc | 1,980 | You didn't comment on the excess reserves, but I don't suppose that can go all that far. | 19 |
fomc | 1,980 | I tend to associate that with the year-end pressures to a considerable extent, perhaps more than the new operating techniques because, after all, they didn't jump to hold high excess reserves right after October 6th. | 42 |
fomc | 1,980 | The funds rate was also volatile in the earlier period. It just seems to have been almost cemented in the last two or three weeks. | 28 |
fomc | 1,980 | It has been surprisingly stable, yes. | 8 |
fomc | 1,980 | It seems to me that they would have been more cautious at first--in the post-October 6th period--than currently. | 27 |
fomc | 1,980 | Exactly. That's what's so puzzling, Governor Teeters. One would have expected a response of a bigger demand for reserves--that is, wanting less borrowing and more excess reserves--earlier and then getting used to it later. And what we're seeing now is an increased demand for free reserves in the last three or four week... | 117 |
fomc | 1,980 | And much less volatility in the funds rate. | 9 |
fomc | 1,980 | Well, that may depend on certain other factors like the attitudes of people in the funds market and how [they react] to the volatility. [ | 29 |
fomc | 1,980 | Mr. Willes.] | 5 |
fomc | 1,980 | Thank you, Mr. Chairman. I'll just make two brief comments. I'll start out by saying that I don't pretend to understand the procedures, so my comments are probably way off the mark. But the discussion fascinates me. It strikes me very much like the discussion one reads in the paper each morning where people are explain... | 415 |
fomc | 1,980 | If I may, Mr. Chairman, the staff feels the same reluctance you do about modifying any paths, President Willes. In this three-week period it was the first time we did it in any consistent way during the twelve weeks this experiment has been running. And it was only, of course, because it seemed that we had a very clear... | 206 |
fomc | 1,980 | I wonder if some of the lack of dynamism or some of the sluggishness in this whole process might not be a reflection of the fact that large segments of the markets aren't quite sure exactly what we're doing. That leads me to the question that I would direct to Steve or Peter: What would happen if we specifically and pu... | 165 |
fomc | 1,980 | I think there is some appeal to that, President Roos, except that in a period like this where we felt there was an overriding reason for making these adjustments in the path, I would wonder if in this whole dialogue to the public announcing a path and then having to modify it could lead to considerably more uncertainty... | 84 |
fomc | 1,980 | As this process goes on, Peter, and as we become a little more comfortable and confident in the process, would you anticipate that we would describe more publicly and more specifically what we're doing? Obviously, if unforeseen circumstances cause us to change, we could certainly explain why we're changing. | 56 |
fomc | 1,980 | Well, I would certainly hope that we can get to the point where we can explain more to the public about the general methodology and how we formulate these paths and carry them out. At what point we might want to or be able to post the path on the wall while we're going through a period, I don't know. I feel it's too ea... | 76 |
fomc | 1,980 | [I'd make] two other points regarding [the issue] you raised, President Roos. I don't think publishing a reserve path will make the relationship between reserves and deposits any more predictable. I doubt that public relations [efforts] would work in the direction of making that relationship more predictable because I ... | 270 |
fomc | 1,980 | Mr. Chairman, I must say that as a former discount officer I find my views very sympathetic to those of Governor Wallich. I'm reminded of the fall of either 1966 or 1969, when there was a good deal of discussion as to why the funds rate was so low. In my mind the explanation that fall was that under some program of eas... | 137 |
fomc | 1,980 | You didn't talk to the people at the Desk, did you? | 13 |
fomc | 1,980 | Yes, I did. Spence Marsh and I went through that; I think it was in 1966. Yes, we have had some problems. | 31 |
fomc | 1,980 | They got an extra billion dollars? | 7 |
fomc | 1,980 | Yes, they did. I think Governor Mitchell had some kind of program involving access to the window if a bank promised to be a good fellow in terms of not being aggressive and making business loans. I think the rate may have stayed high this past week because banks for some reason or other--maybe the reason Henry cited--h... | 144 |
fomc | 1,980 | Mr. Chairman, going back to October 6th, I think you wisely recommended to us that we not put all our eggs in one basket in terms of operating on a reserves target but that we experiment for a while with multiple targets. Now we not only have multiple operating targets, we have multiple intermediate targets in the vari... | 193 |
fomc | 1,980 | Well, there may be some differences [of view] among the staff on the issues you raised, President Balles. I'll respond to two of your points. I have not thought for the ten to fifteen years I've thought about it that there was ever any use to lagged reserve accounting, and this experience of the past three months reinf... | 390 |
fomc | 1,980 | How are you going to use total reserves as a guide without making some judgments about borrowing? | 18 |
fomc | 1,980 | Well, we're inevitably going to have to make the judgments one way or another. But, for example, if banks aren't borrowing and we're on a nonborrowed target, we're going to fall short on total. If we're on a total reserves target and they are not borrowing, we automatically sort of have to put in more nonborrowed reser... | 78 |
fomc | 1,980 | If they are not borrowing. | 6 |
fomc | 1,980 | If they are not borrowing. It's simply like that. We, of course, will always have these kinds of judgments to make. | 26 |
fomc | 1,980 | Steve, do I assume your absence of any comments on the base to mean that you haven't really been paying all that much attention to it? | 28 |
fomc | 1,980 | To be perfectly frank, we've paid no attention to the base in the process but we've paid attention to currency. That's because if currency were falling short persistently as it did last time--if it fell short $500 million, then that would mean to me not to put in $500 million more of reserves because doing so would pro... | 206 |
fomc | 1,980 | You'd want to substitute $500 million in deposits for the $500 million shortfall in currency. | 20 |
fomc | 1,980 | Right, so we'd use a fraction of the reserves. | 11 |
fomc | 1,980 | Well, I'd point out that our debate about total reserves dates back to 1969, which tells you how long we've been thrashing around this problem. But we shouldn't be too impatient with this. We have a lot to learn about how to run this system. I certainly don't feel the way Mark does that the adjustments to the nonborrow... | 234 |
fomc | 1,980 | Well, we have to make some decision and we might as well dispose of it now, if we can, as to how to proceed at least until the next meeting, but I would presume it is going to be for beyond the next meeting. We are clearly open to modifications of the precise technique. Unless we want to argue otherwise, I think implic... | 231 |
fomc | 1,980 | That's right. Well, maybe lagged reserve accounting isn't the impediment I think it is. | 19 |
fomc | 1,980 | If we hadn't had a nice little bulge in the money supply in the last published figure, December would have been a lot below [our objective], but I don't think it was entirely our good management that produced that bulge at that particular time. | 50 |
fomc | 1,980 | Mr. Chairman, I don't have any problems with continuing on the procedure. I do think there's some question as to whether the Committee would wish to leave with the Manager and whoever else is guiding this the right to change the nonborrowed path by exceptionally large amounts. The amount it was changed this time doesn'... | 101 |
fomc | 1,980 | Well, let me return to that. On the very general question, leaving aside modifications of the kind you're proposing, I just want to be explicit about whether we want to continue this general type of procedure. Obviously, we're on it and it has worked; on the surface, anyway, it has worked. The results are more or less ... | 123 |
fomc | 1,980 | We haven't [moved the funds rate], anyway. | 11 |
fomc | 1,980 | That's right. We haven't done it in any direct way. I'm not sure how many people are convinced they know just where the federal funds rate should be now. Anyway, we avoid that explicitly. On the other hand, I would remind you that nothing that has happened--or that I've observed recently--makes the money/GNP relationsh... | 235 |
fomc | 1,980 | I don't see that we have any alternative. Nothing seems to have been suggested as a clear alternative to continuing this and monitoring it awfully closely. | 29 |
fomc | 1,980 | Well, at the extreme, obviously we can go right back to what we were doing before. But I think it's fair to say, and I don't want to push it that cleanly, that there's a compromise every place along the line--on where we set the interest rate limits, on where we're operating, and on how much exercise of judgment we put... | 155 |
fomc | 1,980 | Shifting back from a very successful experiment certainly would be hard to explain. | 15 |
fomc | 1,980 | There's no question. | 4 |
fomc | 1,980 | The reaction would be devastating. | 6 |
fomc | 1,980 | It surely would. | 4 |
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