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fomc | 1,980 | But M-1A and M-1B will be published on the same time schedule. | 19 |
fomc | 1,980 | Are we planning to go public with the nomenclature M-lA and M-1B? Isn't that going to get us some laughs? In other words, I think either M-1A or M-1B would be a very acceptable aggregate, but can't we rename the baby M1 again and explain it? I think every columnist in the world is going to write that you economists are... | 92 |
fomc | 1,980 | It probably is a problem, and our only defense is that reality is complicated. | 16 |
fomc | 1,980 | If you had your druthers, Steve, M-1B is what you'd focus on now? | 21 |
fomc | 1,980 | It doesn't really much matter, Governor Coldwell, because NOW accounts are such a small proportion. But I have a feeling--don't make the obvious retort, please--that I know more about M-1A than I do about M-1B. And until M-1A declines into a much smaller proportion of the world than it now is, I would tend to prefer M-... | 146 |
fomc | 1,980 | We'd get a very funny M-1B if we got a big nationwide movement to convert savings accounts into NOW accounts. | 25 |
fomc | 1,980 | Yes, but that's down the road. | 8 |
fomc | 1,980 | Well, down the road 3 months from now. | 11 |
fomc | 1,980 | It may not be very far, but we don't know-- | 12 |
fomc | 1,980 | If they don't enact that [legislation], then there's no difference between them, basically. | 18 |
fomc | 1,980 | Don't you have a problem of not being able to seasonally adjust these measures because you don't have the data [on the components that account for] the difference between M-1A and M-1B? | 42 |
fomc | 1,980 | That's right. Thus far we feel that we don't have enough historical experience to seasonally adjust the other transactions balances that go into M-1B. | 30 |
fomc | 1,980 | Basically, the quality of M-1B is going to be somewhat uncertain for a while until we have more experience with it. | 26 |
fomc | 1,980 | Well, we've had a number of years of NOW account experience in New England; I doubt that our seasonal is that much different from the rest of the country. | 32 |
fomc | 1,980 | It's much colder! [Laughter] | 8 |
fomc | 1,980 | But lately they don't get as much snow. | 9 |
fomc | 1,980 | When there are nationwide NOW accounts, what we won't know about M-lB is the extent to which and how fast its velocity is going to revise downward, as people shift savings into NOWs rather than just demand deposits. We simply aren't going to know that. Similarly, we're not going to know very much about how much is goin... | 85 |
fomc | 1,980 | I think a proportion of savings deposits moved in the present Ml--after M1 got squeezed so much. | 21 |
fomc | 1,980 | Well, Mr. Chairman, it seems to argue for focusing on M-1A until we get a nationwide NOW account bill. | 26 |
fomc | 1,980 | Yes. | 2 |
fomc | 1,980 | Oh, no. I think the way it's going to work out may be slightly different. If we don't have a nationwide NOW account bill, it's not going to make much difference. As the staff shows in its estimate here, [growth in M-1A and M-1B] are within 1/2 percentage point. If we get the nationwide NOW account bill, there may be a ... | 108 |
fomc | 1,980 | So will M-1A. | 7 |
fomc | 1,980 | So will M-1A, but I would guess to a lesser extent. | 16 |
fomc | 1,980 | Until [the shifting] disappears. | 7 |
fomc | 1,980 | But we can't seasonally adjust M-1B. How can we use that right now? | 19 |
fomc | 1,980 | I don't think the seasonal factor is that bad because NOW accounts are a fairly small proportion of the total. Now, if they were 1/2 or 1/3 of the total-- | 39 |
fomc | 1,980 | The more we discuss this, the more I hate to say we have a target for either one of them. Maybe that is a note upon which to stop. | 32 |
fomc | 1,980 | Maybe I shouldn't say anything, but would it be possible in this transition period to publish M-lA and to use M-1B as a memorandum item with a notation that, indeed, M-1A will be replaced by M-1B when the transition period is completed? | 57 |
fomc | 1,980 | Well, we were planning to publish M-1A and M-1B right next to each other. I really don't believe large problems will come from that. Then we'd show a couple of other items, the RPs and the money market funds and go on to M2, which will include the RPs and money market funds. The difference in level between M-1A and M-1... | 103 |
fomc | 1,980 | I don't anticipate that there will be too much trouble with that. But it is complex. I think the complexity of this is inherent in the facts and the circumstances. | 33 |
fomc | 1,980 | But it's particularly important when the Committee expresses its view in the directive to the Desk as to whether or not equal weight is to be given or what we're focusing on. Thus, it would [reasonable] to put M-1B in the public domain but as a memorandum item, initially at least, so that the public and the markets can... | 71 |
fomc | 1,980 | I just don't know how worthwhile it is to try to guess whether it's better in a memorandum item or the table. We may have the problem that M-1A will look very low. And would we want to keep publishing a figure that looks very low without having a figure along side it that looks relatively high? I don't know how we can ... | 74 |
fomc | 1,980 | Besides, Paul, it's additive. M-1A plus the components make M-1B, which then goes into M2. So it's logical just to extend it along the columns. | 38 |
fomc | 1,980 | I'm fascinated by what Steve just said in terms of the table for publication. Can you go through that again? | 22 |
fomc | 1,980 | As I understand it, the first column would be M-1A, the second column M-1B, the third column overnight RPs and overnight Eurodollars, which would just be Cayman Islands Eurodollars, and the fourth column would be money market funds. The fifth column would be M2, which would include the first, third, and fourth columns ... | 77 |
fomc | 1,980 | So people could construct any M they want? | 9 |
fomc | 1,980 | That's right. | 3 |
fomc | 1,980 | The other two are kind of memorandum items in a column because they have some characteristics of a payments-- | 20 |
fomc | 1,980 | But you're not going to publish the difference between M-1A and M-1B as such. | 21 |
fomc | 1,980 | But we'll have all the components. We'll have a separate table with all the components of all the aggregates as well. So, that will all be available. | 31 |
fomc | 1,980 | This table that you just described will be published monthly and then there will be weekly publications of M-1A and M-1B? | 28 |
fomc | 1,980 | We'll be publishing that table weekly. There will be weekly estimates of M-1A and M-1B and of all the commercial bank components of all the Ms, including those in M2 and M3. M2 and M3 will only have monthly figures, but the table will be published weekly. M-1A and M-1B will have weekly figures, as will the commercial b... | 88 |
fomc | 1,980 | This may be just a preference, but what were the main reasons you were reluctant to include overnight RPs and Eurodollars in the M1 measure? | 31 |
fomc | 1,980 | There was considerable Board discussion on that; perhaps I should let the Chairman summarize it. | 17 |
fomc | 1,980 | I'd prefer that you do that! [Laughter] Mr. Axilrod is being modest because I remember he was vehemently on one side of the argment, the reasons for which escape me. | 42 |
fomc | 1,980 | Many members of the staff, including myself, felt that there was a large investment component to RPs. That is, we felt that money managers were not viewing RPs--to an extent of 100 percent or [even] 50 percent--as a substitute for demand deposits but were viewing them as an alternative to investing in 3-month bills or ... | 130 |
fomc | 1,980 | Mr. Axilrod felt that way. Governor Rice, as I recall, felt the opposite. It's basically a question of whether they are actively or passively managed, I think. | 37 |
fomc | 1,980 | Our econometric evidence, I believe, is quite mixed. The staff is well divided on the subject. With the Board divided and the staff divided, the Board came up with a very judicious decision. | 41 |
fomc | 1,980 | Mr. Chairman, does the Committee not feel that the marketing or explanatory aspect of this is important? I'm talking about the ability to relate to my friendly broker, who busted out of school his sophomore year! I'm being facetious, but isn't it important to make an effort to be as clear and as simple as possible in d... | 67 |
fomc | 1,980 | Well, I think it's an important problem, and one with which we anticipate some real difficulties. I take a literal exception only to your final point. The effort to be as simple as possible may be misleading. I come back [to my view that] the reality is complex. That is the difficulty we are dealing with during this tr... | 241 |
fomc | 1,980 | Would we drop the other if-- | 7 |
fomc | 1,980 | Well, if they don't change the law, we probably can. I'm just talking offhand. If they don't change the law, I think that argues very strongly for dropping some of them. | 38 |
fomc | 1,980 | If they change the law, we could drop M-1A. | 14 |
fomc | 1,980 | Wouldn't you drop M-1A if they change the law? | 14 |
fomc | 1,980 | Yes, and we'd drop the M-1B components. But we're certainly going to get share [drafts], which are developing. | 27 |
fomc | 1,980 | Two years from now we'll probably drop it anyway, assuming they have a nice clean law and don't change it within a 2-year period. | 28 |
fomc | 1,980 | I'd just assume, Mr. Chairman, that it would be a useful explanatory device for the Committee, if there happens to be a surge in M-1B, to be able to point to a drop in M-1A so that no one reads too much [into the surge in M-1B]. | 63 |
fomc | 1,980 | One can reverse all this and say that by exposing the problems that lie in these figures inherently, we're going to be better off in the end and people will understand it better. But there is a hump to get over yet. There's no question. | 49 |
fomc | 1,980 | Wouldn't the real problem occur, Steve, if we got a surge in M-1B and [the funds] didn't come out of demand deposits? If we got a big jump in share drafts-- | 41 |
fomc | 1,980 | If M-1B was surging and M-1A was strong, I assume things would be read into that. | 25 |
fomc | 1,980 | But we might have a drop in M2? | 10 |
fomc | 1,980 | Yes. We could have a drop in M2. | 11 |
fomc | 1,980 | As I say, the more we discuss this, the more uneasy it makes me. | 17 |
fomc | 1,980 | I know, but you didn't discuss the size of M2 here. | 14 |
fomc | 1,980 | I think a few people will understand it much better and a lot will undersand it much less. | 20 |
fomc | 1,980 | Well, maybe it's a net advantage if Larry Roos' third grader--his broker--doesn't understand it! | 23 |
fomc | 1,980 | Did you do well in the market last year, Larry? | 12 |
fomc | 1,980 | Have we finished with this subject? | 7 |
fomc | 1,980 | One more question or suggestion, Mr. Chairman, if I may. I think there's a big difference between what we publish and what we target. I certainly have no problems with what is proposed to be published here, for those both inside and outside the System who'd like to experiment with different versions or measures of mone... | 218 |
fomc | 1,980 | You don't have L on here do you, Mr. Axilrod? Do you have another table where that appears? | 24 |
fomc | 1,980 | Well, I'm not sure we're going to be up-to-date on L by February. | 17 |
fomc | 1,980 | I guess we'll publish another [column] on that table, which is L. | 16 |
fomc | 1,980 | As an information variable, just like M3 is an information variable. I would hope we could have some discussion of this tomorrow before we make even provisional decisions on what the ranges should be or what magnitude we ought to be talking about. | 47 |
fomc | 1,980 | I was hoping to have a little discussion this afternoon on that subject--not necessarily on that aspect but-- | 21 |
fomc | 1,980 | Well, if I had to do it right now, I'd pick M2 for one of those versions. I think having two variables as intermediate targets is really about all that is needed and all we can meaningfully handle. | 44 |
fomc | 1,980 | Could somebody tell me exactly what the Humphrey-Hawkins Act says? I thought it indicated Ml, M2, M3, and credit. | 30 |
fomc | 1,980 | It just says "monetary and credit aggregates." | 11 |
fomc | 1,980 | But in practice, as we go along week by week in the future we're going to be on M-lA and M-1B because we won't have the data for M2 and M3. That doesn't mean we will get an [overlap] at the end of the month. But when we're making some of these weekly decisions I suspect we're going to be biased, just by the availabilit... | 87 |
fomc | 1,980 | Well, the purpose of these measures is not so much to hit them all at once, which is impossible, but to be warned if something is going off track. The purpose is to have a sense of the relativeness of the things we're mainly aiming at. | 52 |
fomc | 1,980 | Well, that can come up in the later discussion. Let's turn to the long-range targets, again not with the intent of reaching any decisions but of having an informal exchange in a preliminary way of what seems to make sense here. The first point I had was that, in fact, there's going to be a lot of confusion with the new... | 1,455 |
fomc | 1,980 | She controls the staff that puts it together. | 9 |
fomc | 1,980 | When is that preliminary figure due--in a few days? Well, I guess it's due out in a week or more than a week. | 28 |
fomc | 1,980 | Right. | 2 |
fomc | 1,980 | I don't know whether that [statement by Ms. Slater] reflects [the number they will publish] or not. They will get some more information before they publish that number, won't they? Do they get retail sales? | 45 |
fomc | 1,980 | Yes. They will have information later this week on the employment situation, and they need inventory numbers. Inventory is important and data are due [to come out] on January 18. | 37 |
fomc | 1,980 | Well, I don't know what that reflects, but it's in the same direction we've been seeing of [the economy] having more strength than was anticipated. When one looks at the business picture one has to say, as reflected in the fact that the figures keep coming out better than the projections, that in a sense we're pretty c... | 1,001 |
fomc | 1,980 | I'd like to respond in three points: One, we've been talking for three years or so now about our basic strategy being one of gradually reducing the [growth of the] aggregates. I think your points about the business situation and inflationary expectations and the image are exactly right. In view of that, it seems to me ... | 151 |
fomc | 1,980 | What is strategy four? | 5 |
fomc | 1,980 | Strategy four is a progressive reduction in M1 growth from 6 percent to 5 percent to 4 percent in successive years, assuming a tax cut of $30 billion. | 35 |
fomc | 1,980 | Let me just say a word here and I'll shut up about it. When I look at these different strategies, all of which come off the econometric equation from the base forecast, I must say that I have great doubts about these adjustments in the econometric equations. I guess you're driven to strategy four because it looks [good... | 71 |
fomc | 1,980 | I'm not arguing the numbers at all, Paul. I'm arguing the basic philosophy of proceeding [with] a gradual reduction. All right, that's the first point. The second point is that I feel strongly that we should not announce that strategy and specifically that we should not announce numbers. I think we have a credibility p... | 224 |
fomc | 1,980 | Well, you're now talking about 1980 and beyond. From your last comment do I infer--I don't want to put words in your mouth--that consistent with that you like the idea of not narrowing the range, anyway, in the short run? By the short run, I mean 1980. | 62 |
fomc | 1,980 | Yes. I didn't address the question of the range, but I think that's right. | 17 |
fomc | 1,980 | Do you have any feeling about where the range should be in 1980 as a very tentative [view]? | 22 |
fomc | 1,980 | Well, I think alternative 2 is too sharp a reduction from where we are. But around 5 percent is what we ought to have as a central tendency. | 33 |
fomc | 1,980 | I don't think anybody should feel at all wedded to what they tentatively say today. We have another whole month before we [need to decide]. Mrs. Teeters. | 35 |
fomc | 1,980 | I would support what Dave was saying. Announcing 3-year targets is an invitation to losing all our credibility. We have enough problems projecting out 1 year let alone 3 years. To box ourselves in by saying we're going to come down to certain levels by 1982 is an unnecessary restraint and an unnecessary danger. We may ... | 317 |
fomc | 1,980 | It was a demand shift! [Laughter] | 10 |
fomc | 1,980 | The econometric equations didn't fit. There's a strong possibility that something is going on that has nothing to do with our careful reserve management and all the rest. We just may be in the period of the 6 months when the money supply goes down. And [last year] we didn't really have a very good explanation as to why... | 125 |
fomc | 1,980 | What would [your view be] if we say on the long-range issue that we are not going to publish any figures but merely say that we are on a long-range program to reduce inflation and we're just going to set money supply [targets] each year that are consistent with a continued reduction in inflation? | 61 |
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