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fomc | 1,980 | The one number I can read accurately from this whole list of numbers is our projection of unemployment in the fourth quarter of 1980, which is 7.3 percent. In New York we're probably giving more weight to defense spending than the Board staff is giving, not only in terms of defense spending by the Federal government bu... | 287 |
fomc | 1,980 | What are you assuming on the saving rate? | 9 |
fomc | 1,980 | It drifts up and for the year 1980 averages 4-1/2 percent. | 20 |
fomc | 1,980 | Yes, there's a big difference between the Board staff forecast and ours on the saving rate. On the federal fiscal situation, for fiscal 1980 we are looking at a deficit close to $45 billion; I'd say $40 to $45 billion. And for fiscal 1981, depending upon a tax cut, we have $40 billion on the low side without a tax cut ... | 107 |
fomc | 1,980 | Do you think there should be one? | 8 |
fomc | 1,980 | Do I think there should be one? For a change, I would agree with Mark Willes. But some of the numbers are hard for me to estimate in terms of the full impact of defense spending, whether out of the government or the private sector. In terms of the consumer, I just don't know how to read currently the effect of the mild... | 125 |
fomc | 1,980 | I take it that you think there's a fair amount of uncertainty. | 13 |
fomc | 1,980 | I wouldn't put it in quite the same language as Mark, but I am uncertain. | 17 |
fomc | 1,980 | Governor Coldwell. | 4 |
fomc | 1,980 | Well, Mr. Chairman, this is the last chance I get to say this so I am going to say it. In fact this is my last FOMC meeting. | 35 |
fomc | 1,980 | Why don't you stand up, Phil? | 8 |
fomc | 1,980 | No, I am not going to chance that! I agree that there's a high degree of uncertainty, but our track record and our past performance clearly indicate that we've underestimated the rate of inflation and I expect we will continue to do so. I think there's going to be a rapid defense build-up, but impacting largely upon ex... | 220 |
fomc | 1,980 | So you're not in favor of a tax cut, I take it. | 14 |
fomc | 1,980 | I am certainly not in favor of a personal income tax cut. I think there is a case to be made to improve the rate of business capital stimulation in the area of improving job expectations, but I would question whether this is the right time to do that. There's a fundamental fact of high inflation, which we need to conti... | 238 |
fomc | 1,980 | Thank you. We're going to be left with your decision for the rest of the year! Mr. Smoot. | 23 |
fomc | 1,980 | Thank you, Mr. Chairman. I had very little time to prepare for this. Dave is not well and sends his best, however, to all of you. The last time I was down here I did have time to prepare a great deal and I was very confused. Now I haven't had much time to prepare very well and I am still very confused! Nevertheless, we... | 285 |
fomc | 1,980 | If I understand you, your forecast has a tax cut in it? | 14 |
fomc | 1,980 | Yes, we would anticipate one. I would also subscribe to Mark's comments that differences of 1/2 or 1 percentage point at this time really appear to be somewhat meaningless. | 37 |
fomc | 1,980 | Mr. Guffey. | 6 |
fomc | 1,980 | Thank you, Mr. Chairman. The staff's forecast is a bit more pessimistic than our forecast, and that largely centers on two differences. One is the saving rate, which the Board staff's forecast suggests will increase over the coming year while we believe it will be either flat or at least at a low level, thus giving con... | 262 |
fomc | 1,980 | Governor Partee. | 4 |
fomc | 1,980 | Well, I have been concerned about defense spending as a question mark in the outlook. I must say that the chart the staff has provided us, showing an alternative with $10 billion more defense spending this year and $20 billion more in 1981 and in 1982 on top of the 6 percent real growth that's already in there for nonp... | 545 |
fomc | 1,980 | Yes. You wouldn't particularly push for a tax cut earlier. | 12 |
fomc | 1,980 | No, I think we ought to wait. I think it will be necessitated by a high and rising unemployment rate, and I figure that will be obvious to everybody by early next year. So it's a next year venture rather than this year. When it occurs I agree with the comments that have been made that we ought to do what we can to make... | 109 |
fomc | 1,980 | Governor Teeters. | 4 |
fomc | 1,980 | Well, I would like to go back to the last chart again, as Mark did. You notice those tolerance lines, the top and the bottom, are fairly narrow over the next three quarters. So it seems to me that we're looking basically at a fairly set outlook for the next three quarters and possibly into the fourth quarter, and I don... | 561 |
fomc | 1,980 | Mr. Balles. | 5 |
fomc | 1,980 | Mr. Chairman, I would like first to turn to page 3 of this package of charts and ask a question to the staff and then make a comment. On the calculation of the high employment budget you show for 1980 and 1981, Jim: These are your calculations, I assume, rather than the official figures set forth by the Administration? | 72 |
fomc | 1,980 | They're our calculations but we use the same procedure, which has been revised. | 15 |
fomc | 1,980 | In other words, it's benchmarked at a 5.1 percent unemployment rate? | 17 |
fomc | 1,980 | Correct. | 2 |
fomc | 1,980 | All right, thank you. My comment is this: Within the last couple of years our Research Department has done quite a bit of work [on this subject]. In fact, we circulated a paper to the rest of you, just to share this view, giving an alternative noninflationary full employment rate, which we estimate to be somewhere betw... | 381 |
fomc | 1,980 | A part of the question, if I may just interrupt, is whatever the level, how much does it change? | 23 |
fomc | 1,980 | You have an improvement, John? | 7 |
fomc | 1,980 | Yes. In my calculation, it changes from a $37 billion stimulus on the high employment basis, which adds in off-budget financing of $17 billion and assumes a 6 percent noninflationary full employment rate in fiscal 1980, to a $12 billion surplus in fiscal 1981. Now that is quite a movement. But it starts late this calen... | 85 |
fomc | 1,980 | What kind of assumption do you have on normal GNP growth? To put those figures together, you need some assumption on normal growth too. Is 2-1/2 percent what you used? That's what I think the staff here is using as their assumption. | 53 |
fomc | 1,980 | I'd have to turn to Mike [Keran]. Do you have a figure readily at hand on what we assumed for normal growth of GNP? I am not sure we assumed [something on] that. | 41 |
fomc | 1,980 | Well, you have to make some assumption to come up with the calculations. | 15 |
fomc | 1,980 | Well, it falls out of the 6 percent unemployment assumption--a certain growth in the labor force, a certain growth in productivity, and that kind of thing. | 33 |
fomc | 1,980 | But you have to have a normal growth that will keep the unemployment rate at 6 percent. I don't know what Mike used, but I am sure he has a figure. | 35 |
fomc | 1,980 | He may have a figure; I don't have it readily at hand. We'll get it for you later. | 21 |
fomc | 1,980 | It would be the same, [2-1/2] percent. | 15 |
fomc | 1,980 | 2-1/2. | 6 |
fomc | 1,980 | Turning to the other questions you raised, Mr. Chairman: Our staff forecast for the economy for this year is quite similar to the forecast of the Board's staff, showing a decline in real GNP from the fourth quarter 1979 to the fourth quarter 1980 of exactly the same amount, 2.1 percent. We have the CPI going up by 11.1... | 89 |
fomc | 1,980 | That's fourth quarter-to-fourth quarter, though; that's not [the rate] in the fourth quarter. | 21 |
fomc | 1,980 | No, that's from fourth quarter-to-fourth quarter. Our figures show in the fourth quarter of this year a rate of 9.7 percent. That is our staff view; I am not that optimistic. That is where our two staffs differ: The Board's staff sees a continued rise in the inflation rate through part of this year; our staff has a mor... | 85 |
fomc | 1,980 | The [Board's] staff shows a decline in the consumer price index for this year. | 18 |
fomc | 1,980 | Yes, down to 9.2 percent [in the fourth quarter]. | 15 |
fomc | 1,980 | Right, but I was thinking of their trend line on the GNP deflator, which is going up for a while. Our unemployment rate by the fourth quarter of this year is almost the same as theirs; ours is 7.6 and they're showing 7.7 percent. The difference in our views is that our staff is more optimistic with respect to a fairly ... | 388 |
fomc | 1,980 | You're not advocating a tax cut? | 7 |
fomc | 1,980 | No, sir. I support your view 100 percent. | 12 |
fomc | 1,980 | Mr. Black. | 4 |
fomc | 1,980 | Mr. Chairman, the Greenbook revision resulted in a move from a V-shaped decline to a sort of saucer-shaped recession, which is probably in the right direction. Despite this, I think the underlying foundations of the economy are quite weak. What strength we have had recently has come mainly from efforts on the part of h... | 379 |
fomc | 1,980 | You want to say that again? | 7 |
fomc | 1,980 | To get down to the figures, I think the drop in GNP might be nearer 3 percent than the 2 percent the staff has projected. Since I expect us to do well in the policy area, I would put the fourth-quarter rate in the consumer price index a bit lower, at 9 percent. I would guess their unemployment rate is not very far off;... | 116 |
fomc | 1,980 | Mr. Kimbrel. | 6 |
fomc | 1,980 | Mr. Chairman, our views are not significantly different from those enunciated by the staff. To put numbers to them: For real GNP, we're looking at a minus 2 percent; for the unemployment rate, we're in the neighborhood of 8 percent; and for the CPI, 11 percent. We do feel, though, that the fiscal [package] may be consi... | 270 |
fomc | 1,980 | You said 11 percent on consumer prices. Is that year over year or during the fourth quarter? | 20 |
fomc | 1,980 | Fourth quarter-to-fourth quarter. | 7 |
fomc | 1,980 | Do you have a fourth-quarter figure itself, just for comparability purposes? | 15 |
fomc | 1,980 | I guess 9 or 9-1/2 percent. | 13 |
fomc | 1,980 | Mr. Baughman. | 6 |
fomc | 1,980 | Mr. Chairman, a question [to the staff] first. Insofar as there may be a windfall profits tax, are you assuming that the revenues raised thereby will be placed back into the economy or is that pretty much outside the projections here? | 51 |
fomc | 1,980 | No, it's included in the projections. The windfall profits tax--technically I think the words associated with it are "energy trust fund," but that's a misnomer if one believes that the revenues are segregated--is included in the budget figures. For 1980 we have something like a net addition of nearly $5 billion to reve... | 132 |
fomc | 1,980 | Thank you. I don't have a view significantly different from the staff. I think the degree of uncertainty in the outlook is not unusual at this point in time; it's probably less now than it was a couple of months ago. It seems to me that the cork is out of the defense expenditure bottle now and that that will probably g... | 216 |
fomc | 1,980 | Mr. Roos. | 5 |
fomc | 1,980 | I base my projections almost entirely on a rate of basic money growth, and the figures I will suggest are predicated on a rate of growth of M-1A and M-1B of roughly 5 percent. If there is a 5 percent basic money growth rate, I would see real GNP declining by maybe 1 percentage point fourth quarter-to-fourth quarter. I ... | 455 |
fomc | 1,980 | Mr. Winn. | 4 |
fomc | 1,980 | I think it's great that we get these scenarios out on the table. My only concern is that my camera may be in sync but it may be out of focus. So the picture that comes out may be quite distorted. But let's take several of these assumptions that we've passed over. First, the level of interest rates. I must confess that ... | 330 |
fomc | 1,980 | No, we have not. | 6 |
fomc | 1,980 | If you do this, you get a different scenario. Again, this doesn't occur over night but it is another factor that seems to me is down the road. | 32 |
fomc | 1,980 | What was "this"? | 5 |
fomc | 1,980 | If you put a draft in the picture, then it changes these employment figures. | 16 |
fomc | 1,980 | Probably in 1981. | 6 |
fomc | 1,980 | It's probably down the road; I don't say it is immediate. But, again, as one [looks at] various scenarios with some different inputs, there are different results, obviously. While housing is down, I too am amazed at the amount of money that is even showing up for housing at the moment. So, as I look at the level of rat... | 448 |
fomc | 1,980 | Did you have an unemployment rate or a price [forecast]? | 12 |
fomc | 1,980 | I get an [average] unemployment rate from the fourth quarter to the fourth quarter of maybe 7 percent, but I think it will probably go higher before it comes down unless we get a draft and some other things that would change my numbers. I don't know what is going to happen, but you get a different picture if you change... | 70 |
fomc | 1,980 | You're in the high uncertainty group? | 7 |
fomc | 1,980 | Very much so. | 4 |
fomc | 1,980 | Mr. Morris. | 4 |
fomc | 1,980 | Mr. Chairman, we ought to be recorded as generally supporting the Board staff's projection and its numbers. However, unlike most of the others, if the forecast is in error, I think it will be because the recession could be substantially more severe than they are projecting. We had a miss in our forecast in the last hal... | 408 |
fomc | 1,980 | We'll get every hypothesis on the table! Governor Wallich. | 12 |
fomc | 1,980 | It seems to me that the odds have clearly moved in the direction of less recession and more inflation than they were some time ago. I think the degree of uncertainty is very high because the saving rate is abnormal and, therefore, potentially unstable. And if we move to higher rates of inflation, people could react ver... | 634 |
fomc | 1,980 | Mr. Mayo. | 4 |
fomc | 1,980 | First, to go back to the charts for just a minute: I greeted with some astonishment the chart on unit [labor] cost indicators where output per hour, having deteriorated badly from the beginning of 1976 to the present or the last available quarter, suddenly takes a new spurt of enthusiasm and becomes positive. And your ... | 100 |
fomc | 1,980 | Basically it is associated with our assumptions or conclusions about more rational behavior by employers in regard to their staffing. The deterioration in productivity is the other side of the coin of this tremendous increase in employment relative to the lack of growth in output. We're anticipating that the pressures ... | 138 |
fomc | 1,980 | In effect, you're suggesting that whatever labor hoarding has taken place to date really isn't going to continue. And that's one of the reasons your unemployment rate is moving up as much as it is. Is that correct? | 43 |
fomc | 1,980 | That is true, yes. | 6 |
fomc | 1,980 | My other question on the charts relates to defense spending. Frank stole my headline on that by his mention of long lead times on defense contracts. I find the assumptions both in the budget and in your table on real defense spending unreal. I don't think it is possible unless there is an awful lot of shelf items invol... | 526 |
fomc | 1,980 | Governor Rice. | 3 |
fomc | 1,980 | Well, Mr. Chairman, what I wanted to say was said by Frank Morris. I have no reason to argue with the staff forecast with respect to GNP, the unemployment rate, and the CPI. Given what we know today, these projections seem to me to be the most probable outcome. But, I suppose like everybody else, I do have some worries... | 314 |
fomc | 1,980 | Governor Schultz. | 3 |
fomc | 1,980 | Well, as everybody around here is aware, I have had a high degree of uncertainty about what was going to happen. I have a little less right now, so far as my feelings about the near term are concerned. I see three areas of weakness. First, I think the economy is a little weaker than the numbers will show in January bec... | 688 |
fomc | 1,980 | Well, I have missed one personal objective of speeding up the coffee hour appreciably. But since we're short of 11 a.m., let me make a couple of observations. I do have the feeling in listening to some of the different economic forecasts and comments that our staff, which is sometimes accused of being Keynesian, feels ... | 1,075 |
fomc | 1,980 | I think we can start. Let me make a couple of preliminary remarks and just devote our attention to the long-term ranges at this point. One preliminary remark is that, whatever we do, I am afraid that we inevitably are going to have quite a lot of confusion with the changes in definitions [of the monetary aggregates] co... | 255 |
fomc | 1,980 | Well, we may have to consider it; it may be more important than lagged reserve accounting! | 20 |
fomc | 1,980 | I do think this is going to be troublesome to explain, but we inevitably have to do it. Another complication, which we don't have to face right now, but it is inherent in this situation, is that basically the reason we have both M-1A and M-1B is to allow for growth in NOW accounts, and that [dichotomy] is a transitiona... | 650 |
fomc | 1,980 | Mr. Chairman, my feeling hasn't changed a lot since our last meeting. It is true that the economic outlook has changed somewhat from what most of us expected. In particular, the government's demand on resources appears likely to be much greater than we earlier thought. But far from providing the reason for relaxing or ... | 443 |
fomc | 1,980 | Let me just say a word. You reminded me about M2, M3, and bank credit. First of all, I'd just note that if people feel strongly about the weight to be put on those numbers, they ought to say so. Secondly, in the normal course of events, given the way we are operating they may get a little less weight than they have in ... | 182 |
fomc | 1,980 | Well, I have said most of what I felt along that line. I would emphasize M-1B because it catches the transaction balances better; M-1A has lost a lot of the transaction balances. | 42 |
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