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fomc | 1,980 | It might prolong it. | 5 |
fomc | 1,980 | You're on, Mr. Rice. It's just that you have to expand on your comment because you are next on the list. | 25 |
fomc | 1,980 | Mr. Chairman, given the forecast for nominal GNP for this quarter which I believe is 5 percent and is, of course, very weak, and given the forecast for the inflation rate which I understand is 15 percent for this quarter, I would-- | 52 |
fomc | 1,980 | The consumer price index. | 5 |
fomc | 1,980 | The consumer price index, yes. I think this is a good quarter to try to keep the rate of growth in money at the low end of the 1980 range. That would give us leeway to allow it to expand at a faster rate later on in the year if that appears desirable, and I think it will appear desirable. So for this quarter I would fa... | 140 |
fomc | 1,980 | Mr. Balles. | 5 |
fomc | 1,980 | Mr. Chairman, as a number of people around the table have already noted, 1979 was a nonrecession year. It's a bit of a humbling experience in terms of our ability not only to fine-tune but to forecast. As I recall your statements on the subject, I think it's to your credit that you spoke out and said that you weren't s... | 197 |
fomc | 1,980 | Mr. Guffey. | 6 |
fomc | 1,980 | Thank you, Mr. Chairman. I, too, would opt for alternative C, taking advantage of what would appear to be fairly slow growth in money that we are focusing on in the first quarter. I would note that historically--in recent history at least--we haven't had very much growth in money in the first quarter and, quite likely,... | 218 |
fomc | 1,980 | Mr. Roos. | 5 |
fomc | 1,980 | I would like to be listed under the alternative B team. I think there is a possibility that "C" would represent too drastic a reduction from a higher level of money growth to a lower level of money growth, and that could have recessionary implications. So, I would opt for "B." | 60 |
fomc | 1,980 | Mr. Winn, would you like to say something? | 11 |
fomc | 1,980 | I guess I was shaken by last year's experience with money growth, so I am suspicious of almost any number we put on these things, frankly. I remind you that any number we pick is fine-tuning of a degree, and I'm not sure the numbers differ that much in terms of the fine-tuning aspect. I suppose because of last year's e... | 92 |
fomc | 1,980 | Mr. Schultz, you're left; you are not volunteering. | 12 |
fomc | 1,980 | I'm just very uncertain about where this economy is going to go, particularly in this quarter. I can foresee a situation in which growth of 6 percent could be very restrictive and growth of 3 percent could be very loose, depending upon what happens. So I come out between "B" and "C" and I would hope that there's some r... | 173 |
fomc | 1,980 | Well, we seem to have some differences of opinion, but they are not enormous. So let's ruminate a few minutes and drink some coffee and see whether we can bring this to a conclusion. | 39 |
fomc | 1,980 | Gentlemen, ladies. After great Solomonic perusal of the preferences expressed by the members of the Committee and others, and evaluation of those qualitative comments that were made--the acute ones and I discarded the others--let me make a general comment. I think, as a number of people have mentioned, that we have an ... | 725 |
fomc | 1,980 | I'm not quite sure you said what you wanted to say. | 12 |
fomc | 1,980 | Well, I may have said it wrong, but I think you-- | 14 |
fomc | 1,980 | You mean we should react more rapidly if M1 growth goes up with the interest rates falling than if M1 growth went down and interest rates were rising. | 31 |
fomc | 1,980 | No, either way. In other words, if M1 [growth] were low and interest rates were also low, we would be slow about changing. But if it were low and interest rates were high, we would change more quickly. It's how quickly we move to make the judgment, which might have to be made. It's just this judgmental issue, which we ... | 464 |
fomc | 1,980 | A stronger number, Mr. Chairman, is for [the week] we are not [yet] going to publish. | 24 |
fomc | 1,980 | It's not the number we are going to publish this week but the number we would publish next week. It's a very unreliable indication, but for what it's worth, it is not inconsistent with this kind of range. But it doesn't suggest that there is great danger of [Ml] falling way down in the range in January. That's if that ... | 71 |
fomc | 1,980 | We would be projecting a 5 percent rate of growth in January instead of 3-1/2 percent, if that number held up. | 29 |
fomc | 1,980 | So the proposal is for: 11-1/2 to 15-1/2 percent, or unchanged on interest rates; between 4 and 5 percent on M1 with the understanding that I suggested about 7 percent in M2; and starting out--but looking at that very hard in a week or two in the light of this recent aberration--with something like $1 billion of borrow... | 84 |
fomc | 1,980 | One cosmetic thing. Would it be better to say "about" 4 to 5 instead of "between" 4 and 5? It sounds very specific, as if we expect it to come between the numbers. I realize that's what we mean, but we won't accomplish it. So maybe if we said "about" 4 to 5 percent--. | 74 |
fomc | 1,980 | [The sentence] says "seeks". I don't know how-- | 14 |
fomc | 1,980 | And "on the order of" is what you have for the second part. | 16 |
fomc | 1,980 | "On the order of" is what I have for the second part. I have the slight feeling that maybe "between" is a little better cosmetically, but it's no big deal. Henry. | 40 |
fomc | 1,980 | Well, I have a couple of points of uneasiness. One, it seems to me that we may be biasing this in the direction of lower interest rates by the low borrowing assumption. What happens if borrowing is higher? Then, presumably, until the nonborrowed reserve path is adjusted, total reserves would be higher than we thought. ... | 89 |
fomc | 1,980 | I'm not quite sure that's right, Henry. We are getting into this darn lagged reserve accounting again. But in the immediate future, which is going to be relevant for judging this, we will know what the level of reserves is. We are just judging the nonborrowed reserve path, saying we are putting the nonborrowed reserve ... | 153 |
fomc | 1,980 | Not the very recent experience. | 6 |
fomc | 1,980 | That's right. Basically the $1 billion was arrived at--other than that it's a round number--by being halfway between the experience of the last week and the previous week. | 35 |
fomc | 1,980 | It would seem to me a lot more sensible if the Committee instructed the Manager to seek a total reserve path that would be compatible with these [Ml and M2 growth rates] rather than have the FOMC try to estimate what the [appropriate] level of borrowing is. I think we could eliminate that from our agenda without any lo... | 75 |
fomc | 1,980 | Well, you are going to have an argument, I suspect, with Governor Coldwell. Let me repeat. I think what we are doing is that we are aiming at a total reserve path and it's 4-1/2 percent [Ml growth] under this version. The instrument that we affect is nonborrowed reserves. What we don't quite know how to do is [how to d... | 124 |
fomc | 1,980 | If we worked with a monetary base--and I know that is a dirty word--we'd obviate all these problems, I think. | 29 |
fomc | 1,980 | It does make a difference what the source of reserves is, and we should not ignore that. It may be a refinement, but borrowed reserves are not quite the same thing as owned or nonborrowed reserves. | 42 |
fomc | 1,980 | From my standpoint, I suppose I'd be perfectly happy with what you suggested, Frank--just leaving it to the engineers, as Larry said--but I'm not sure the Committee as a whole is willing to leave it entirely to the engineers. | 47 |
fomc | 1,980 | President Morris, if you did that, some of the staff could sit around and make a decision and say: Well, we think borrowing ought to be zero. And the funds rate would be dropping very sharply immediately. We wouldn't make such a callous arbitrary decision, but you would be leaving that possibility open. | 62 |
fomc | 1,980 | I don't really understand that. | 6 |
fomc | 1,980 | Well, it's because we know required reserves for next week, and the Desk has to make the choice of whether those required reserves will be met by borrowing at the discount window or through the Desk's provision of nonborrowed reserves. If those required reserves happen to equal the total reserves that seem proper, the ... | 69 |
fomc | 1,980 | But you can't [play] that game for a quarter. You can do it-- | 17 |
fomc | 1,980 | No, but that is always the position we are in for any particular week. Even looking beyond the week for which we know the reserve number, we know what level of total reserves we want to aim for to [support] 4-1/2 percent or whatever the number is. What we really don't know in a sense is how to get there, because we don... | 83 |
fomc | 1,980 | And, therefore, I don't think it makes any sense for the Committee to tell the Manager to follow a nonborrowed target unless we also tell him not to pay attention to total reserves. Now, in the last month he had to change the nonborrowed target. I think that was the correct thing to do. | 64 |
fomc | 1,980 | Well, if I understand the comment made yesterday and this is combined with your comment, we have to get some kind of compromise. We are interested in total reserves. Our success or lack of success in reaching that target will depend upon, over a period of time, how much banks borrow and how much we put in as nonborrowe... | 279 |
fomc | 1,980 | I really think it's meaningless. But if people get some solace from it, maybe it's all right. | 20 |
fomc | 1,980 | If you are willing to convert everything from borrowing to nonborrowed reserves, sure, you can call it meaningless. I don't believe it is meaningless. I think it's quite meaningful if we shift from $1.5 billion of borrowing to zero borrowing. | 50 |
fomc | 1,980 | The staff presumably would only reach that judgment in the light of their own assessment as to whether it's consistent with the total reserve path. They have that constraint. And if they keep being off the total reserve path, presumably we will get a new staff or something because they are making the wrong judgments. B... | 134 |
fomc | 1,980 | Mr. Chairman, I come out right where Frank did. It's not only the matter of borrowing, it's a matter of what liabilities the banks use up or [whether they] release reserves that are not part of the money supply. All those things have to be estimated and there are a lot of them. To me borrowing involves the same sort of... | 80 |
fomc | 1,980 | Well, if you want to proceed this way, I will tell you instead of asking you in a sense--and permit you to object--that the staff is planning to seek borrowing of $1 billion initially and they will use their best judgment as time passes. If you want to object to that, object, but it doesn't have to be part of the decis... | 108 |
fomc | 1,980 | You mentioned the staff and the departure of the staff if we are off the total reserve path. In that regard the Committee should remember that with lagged reserve accounting, if deposits turn out to be strong, borrowing will rise and there is no way in the world to get back on a total reserve path in as short a period ... | 81 |
fomc | 1,980 | But it will dictate because we have a 3-month-- | 12 |
fomc | 1,980 | No. Whatever we start with, if nothing else goes wrong and we are moving above path, the immediate manifestation of that is a rise in borrowing; if we are moving below path, the immediate manifestation is a decline in borrowing. That's what happens. | 50 |
fomc | 1,980 | I don't want to prolong this either, but I have some confusion on a related point and that is the role of the discount rate. I had been under the impression that the philosophy [at the Board] was that, given lagged reserve accounting, the differential between market and discount rates was not an effective factor in enc... | 120 |
fomc | 1,980 | Let me say that the question of lagged reserve requirements, which keeps coming up here, and the discount window posture, which bears upon this question, are under review. Within the next month or so I think we have to put both of these matters, certainly the reserve requirement issue, on the agenda. Are we going to be... | 74 |
fomc | 1,980 | That lagged reserve requirement [study] will be ready within a couple of weeks. | 17 |
fomc | 1,980 | What about the discount window? | 6 |
fomc | 1,980 | That will not be ready in that time frame. | 10 |
fomc | 1,980 | Not before the next meeting? | 6 |
fomc | 1,980 | I doubt it. It could be accelerated, but I don't think-- | 14 |
fomc | 1,980 | The point I am making is mainly that any comment at the moment is tentative depending upon where we go on that. But given the way we are now operating--the way I look at it anyway--the amount of borrowing presumably will affect the level of market rates relative to the discount rate. A couple of comments were made this... | 236 |
fomc | 1,980 | The practical aspect, as far as those of us at the Reserve Banks are concerned, is that we do have our Board meetings once every 14 days and they make recommendations on the [discount] rate. With a fairly restrictive directive so far as the aggregates are concerned, there might be some question one way or the other as ... | 71 |
fomc | 1,980 | That judgment--I think I made this point before--seems to me to be more important than it used to be. That's because if you propose either an increase or a decrease in the discount rate, we can basically say that the message, if we're all interpreting it the same way, is that we want market rates higher or lower. We're... | 348 |
fomc | 1,980 | I do think that the level of borrowings is somewhat of an index of possible need. That is, if we got a high and rising level of borrowings, that would mean we're exceeding the monetary targets and there would be more indication for a rise in rates than if we got a low and declining level of borrowing; in the latter cas... | 88 |
fomc | 1,980 | In general. | 3 |
fomc | 1,980 | Yes, I don't think it really will seem all that inconsistent over time. | 15 |
fomc | 1,980 | Mr. Chairman, could you explain how the discount rate influences-- | 13 |
fomc | 1,980 | The market rate? | 4 |
fomc | 1,980 | That's a little different than I thought. | 8 |
fomc | 1,980 | Well, Mr. Axilrod has a nice econometric function which hasn't worked so well recently, but nonetheless reflects the theory. Banks are reluctant to borrow. Their willingness to overcome their natural reluctance to borrow depends upon how cheap the discount window is relative to market rates. With a given reluctance to ... | 237 |
fomc | 1,980 | Well, that's a very interesting view of the world. | 11 |
fomc | 1,980 | It will hold, President Willes, for 2 weeks; that's certain under lagged reserve requirements. | 21 |
fomc | 1,980 | Now, the higher interest rates are then going to affect everything else, so we begin getting a different answer. But in the short run I think that's what happens. | 33 |
fomc | 1,980 | That's implicitly assuming no change in excess reserves, Mr. Chairman. I don't think that's right. | 19 |
fomc | 1,980 | Well, the changes that can occur, such as changes in excess reserves and changes in total deposits that banks can bring about, would have to be enormous in order to offset any significant shortfall of reserves because the multipliers are so high for M1. That multiplier is on the order of 10 and for M2 it's on the order... | 106 |
fomc | 1,980 | If they change their liabilities, it will ultimately affect reserves, and that's what would occur from the higher level of interest rates. It's not going to affect reserves for 2 weeks. | 36 |
fomc | 1,980 | I'm trying to say what the difference is between lagged and nonlagged reserves. It is a small one, as far as the [reserve] adjustments go. | 33 |
fomc | 1,980 | Because even with nonlagged you still have this tremendous multiplier. Yes, I agree. | 18 |
fomc | 1,980 | That's right. | 3 |
fomc | 1,980 | Well, I don't want to prolong the discussion, but it makes me very nervous that we would take what in effect is a deterministic, very short-run model and decide the time path for changes in the discount rate, then market rates. I think that's a very questionable thing to do. | 57 |
fomc | 1,980 | I don't understand quite what you are saying. It doesn't mean that we can't change the discount rate. It just tells us to recognize that if we change the discount rate, the short-run impact is going to be to put market rates up, which may be what you want. | 55 |
fomc | 1,980 | Well, what's the short run? Is it 2 weeks or 4 weeks or 6 weeks? We could get exactly the opposite results if you change the time horizon by a relatively small amount. | 40 |
fomc | 1,980 | I don't know about the small amount. But there's no question that if you put up interest rates, the ultimate result might be to reduce the money supply, which might have all sorts of impacts and produce lower rates over a period of time. | 48 |
fomc | 1,980 | Fairly quickly. | 4 |
fomc | 1,980 | I'm talking about the immediate impact. | 7 |
fomc | 1,980 | Reduce the money supply and get lower interest rates! | 10 |
fomc | 1,980 | Well, we don't have to wait-- | 8 |
fomc | 1,980 | Do you want comments on this compromise or what are you going to do? Mr. Chairman, I'd rather have [a range] centered on 4 percent than the 4-1/2 percent you've chosen. The [risks] of 5 percent are too high to me. I think we ought to be aiming for something less than that in this coming quarter to make sure we do not o... | 151 |
fomc | 1,980 | Any other comment? | 4 |
fomc | 1,980 | I feel somewhat the same way. Evidently these [choices] do not matter a great deal [individually], but the combination of what seems to me historically low borrowing, an unchanged lower end of the funds rate, and a somewhat higher rate of M1 [growth] all cumulates a little in my view. | 65 |
fomc | 1,980 | Well, I am on the opposite side. Somebody needs to speak. It looks as if the chances are that we will have something like 5 percent [Ml] growth. I don't think we ought to be deliberately following a mechanism that pushes rates up in this quarter, which is probably a declining quarter in the economy. I'm prepared to hav... | 110 |
fomc | 1,980 | I also think it's the wrong time to have interest rates going up. If the economy slides off, for once we should be going with it rather than lagging behind it. | 35 |
fomc | 1,980 | Steve, I thought you said alternative C was consistent [with the current] rate, not an upward [move in the] rate. | 27 |
fomc | 1,980 | Alternative C in the first quarter we assume would be [consistent with] something like the present interest rate level; it might go down a bit, but more likely-- | 33 |
fomc | 1,980 | [Down] a bit, but not upward. | 10 |
fomc | 1,980 | Not in the first quarter. | 6 |
fomc | 1,980 | But it seems to me we want to have some flexibility here. If the economy does slide off, I think we'd want to see interest rates slide off. If we go to a very stringent monetary policy of 4 percent [Ml growth], we are sort of gluing the [funds] rate at 14 percent with a possibility of it going higher. As I say, it woul... | 111 |
fomc | 1,980 | As I see it, Steve said the best estimate the staff can make at this time is that January [Ml growth] looks like 5 percent. That would mean that if we center it on 4 percent, we're going to have to have some additional restraint at this point in time, and I'm not sure that that's that we want. | 68 |
fomc | 1,980 | Any other comments? | 4 |
fomc | 1,980 | For once, Mr. Chairman, though Governor Rice and I voted at [opposite] ends of this spectrum, we have agreed that either of us could accept the other's position. | 36 |
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