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fomc | 1,980 | Governor Partee. | 4 |
fomc | 1,980 | Well, Mr. Chairman, last time I indicated some preliminary specifications that would have been consistent with alternative II. I want to argue this morning for alternative I. That's a difficult thing to do and I have always found myself unsuccessful in such arguments in the past. But let me try it once more. The staff ... | 790 |
fomc | 1,980 | Mr. Balles. | 5 |
fomc | 1,980 | I agree with those who have argued, starting with Governor Teeters and others, that in view of all the economic uncertainty, we do need a lot of flexibility as the year unfolds. And for reasons that Chuck has just reviewed, I would support the idea of having a 3-point range. As I often do when we get to this time of th... | 686 |
fomc | 1,980 | I don't think there's much difference between M-1A and M-1B, barring this legislative change; the difference is a small number. | 30 |
fomc | 1,980 | I found more to the change [unintelligible]. I think there was some confusion last time. Wouldn't M-1B-- | 28 |
fomc | 1,980 | They both will. The problem is that if we get the law change, M-1B will rise both because it's taking [funds] out of M-1A and out of M2. | 41 |
fomc | 1,980 | Only because it's taking funds out of M2. | 10 |
fomc | 1,980 | Yes, it will only rise because it's taking funds out of M2. M-1A will go down. [M-1B] will rise because it's taking out of M2; and M-1A will decline because [funds will be taken] out of that aggregate. | 59 |
fomc | 1,980 | Well, in short, I would like to make a pitch for targeting M-1B and M2 as opposed to targeting M-1A and M-1B, [as suggested] in the draft directive language. Our own experience in the past has led us to place somewhat more confidence, in terms of the old definitions, in M2 as a predictor of inflation and real GNP. Of c... | 194 |
fomc | 1,980 | Governor Wallich. | 4 |
fomc | 1,980 | I think we face more inflation and less recession than would have been [the case] before recent changes in the economy. Now the question is: How does one finance a higher nominal GNP with a given amount of money supply? In Chuck's calculation you have to look at the nominal GNP and ask how it can be financed from the r... | 547 |
fomc | 1,980 | There's no drift on M2. | 7 |
fomc | 1,980 | There may be no drift in M2, but that depends on how one believes these extraordinary items, Eurodollars and so forth, impinge. Well, that leads me to alternative III. I think we do need wide ranges because it's simply impossible to target several aggregates and make them consistent using anything like a single number.... | 106 |
fomc | 1,980 | Mr. Willes. | 5 |
fomc | 1,980 | Thank you, Mr. Chairman. I just couldn't disagree more with some of the comments I have heard and I agree entirely with some others. Chuck and I have this running discussion about how we finance nominal GNP. He has his view. My view is that if you try to do [it his way], you just chase your tail. If in fact there is a ... | 124 |
fomc | 1,980 | Oh, I don't disagree with that. It's a question of whether one thinks this [degree] of weakness in the economy is reasonable. | 27 |
fomc | 1,980 | That's right. Now, what I find most puzzling--and I will copy one of Fred Schultz's lines, which I always thought was mine, and that is that I have a very simple mind-- | 41 |
fomc | 1,980 | Well, some of us will agree with that! | 10 |
fomc | 1,980 | I would think, if we agree that the outlook is very uncertain, that rather than arguing for more flexibility we would argue for less. That's because if the time pattern of the economy is very unpredictable, then there's no way we can respond to change it in a predictable way and, therefore, we ought not to be respondin... | 409 |
fomc | 1,980 | There's a [trickiness] of these figures. I think it's fair to say that M-1A was artificially high last year because we did get some transition [flows] into NOW and ATS accounts, part of which came out of M2. Mr. Kimbrell. | 57 |
fomc | 1,980 | Mr. Chairman, one specific thing I would like to see is that the 1980 targets be related to the 1979 targets and not the 1979 results. We are all [talking about] the uncertainties. Of course, there does not seem to be much uncertainty about [the risks of a] recession and all of us are accepting that there are going to ... | 211 |
fomc | 1,980 | Mr. Smoot. | 5 |
fomc | 1,980 | Governor Partee argued for alternative I, based on the higher anticipated nominal GNP. Looking at my own staff's projections, our nominal GNP figures would be somewhat higher than the Board's. But they also encompass a money supply growth rate in the 4-1/2 to 5 percent range. Depending on which one of those I pick, I a... | 225 |
fomc | 1,980 | Mr. Mayo. | 4 |
fomc | 1,980 | Mr. Chairman, unlike the humility of Mr. Schultz and Mr. Willes about being somewhat simple-minded, I must be humble in saying that my mind finds things very complicated. I have tried hard to move toward being simple-minded on some of these things. We have different approaches to some of these problems. However, I find... | 411 |
fomc | 1,980 | Mr. Guffey. | 6 |
fomc | 1,980 | Thank you, Mr. Chairman. Chuck Partee has moved from one recommendation to another from last month to this month and I will also, but going the other way. Last month we were looking at a somewhat weaker economy and it seemed that perhaps the inflation rate would fall off a bit through 1980. Also, the deceleration from ... | 382 |
fomc | 1,980 | Mr. Timlen. | 5 |
fomc | 1,980 | Mr. Chairman, I consider myself neither simple-minded nor complicated-minded, but just poorly educated for this forum. Having said that, I would have some preference on the technical side for the wider 3-point range shown. In terms of the aggregates to focus on, my preferences would be M-1A and M2. We have commented ar... | 329 |
fomc | 1,980 | Governor Coldwell. | 4 |
fomc | 1,980 | Mr. Chairman, it seems to me that we have been talking here about a series of figures which, quite frankly, I don't completely understand and in which I have a great lack of confidence. The redefinitions seem to have added about 2 percentage points to these past figures. We are questioning the function; we are question... | 136 |
fomc | 1,980 | With a 300 to 400 basis point increase in interest rates. | 14 |
fomc | 1,980 | Yes, that's quite correct. In the coming year it looks to me as if we're talking about a GNP increase anywhere in the 8 to 10 percent range and maybe up to as high as 11 percent--that encompasses most of the forecasts I heard this morning--and making some progress in reducing the stimulation that both monetary and fisc... | 143 |
fomc | 1,980 | That's [alternative] III plus. | 7 |
fomc | 1,980 | Is that for M-1A, Phil? | 10 |
fomc | 1,980 | M-lA. | 4 |
fomc | 1,980 | Governor Teeters. | 4 |
fomc | 1,980 | Well, I am looking at where we want to be at the end of the year. I can't conceive of our ending up at 11 percent bill rates and a 7 to 8 percent unemployment rate. I would [be inclined toward] an M1 target of 5 percent, but that implies 11 percent on the T-bill and that's only a drop of one percentage point in that ra... | 139 |
fomc | 1,980 | We're out of names. | 5 |
fomc | 1,980 | Paul, we have talked about the kind of minds we have. I think we can all claim to have confused minds. And it's clear that that's going to be the problem you face in your presentation. I would urge that we be sure to have the contrast between last year's targets and this year's targets on a similar basis so that people... | 82 |
fomc | 1,980 | I happen to agree with that. I am confused. Were we going to present the comparable figures on the old basis? Was that your intention, Mr. Axilrod, if I may interrupt? | 40 |
fomc | 1,980 | We hadn't intended to but we can. | 8 |
fomc | 1,980 | I missed that in the Bluebook. | 8 |
fomc | 1,980 | We presented them in an appendix in the Bluebook, giving the comparable figures to alternative II. That will be a decision for someone to [make]. That does run the risk of adding to the confusion, I might add. | 45 |
fomc | 1,980 | I understand. I think you have to leave that to us, but I personally have some sympathy for doing it this particular time and then maybe forgetting about it. | 32 |
fomc | 1,980 | Those would be the figures on the same basis? We won't present last year's on last year's basis and this year's on this year's basis-- | 27 |
fomc | 1,980 | What I think we will do is present last year on last year's basis and on this year's basis. The question is whether to present this year's target on this year's basis and on last year's basis, [showing] what the equivalent target is. | 49 |
fomc | 1,980 | It seems to me that we have to get this into perspective. | 13 |
fomc | 1,980 | There's no difference for M-1A. | 9 |
fomc | 1,980 | It sounds complicated, but it's just two columns. | 10 |
fomc | 1,980 | Yes, that's right. There's no difference for M-1A. That's the same as the old Ml, as I recall, for the year as a whole. | 33 |
fomc | 1,980 | I have a tendency to want to eliminate the confusion [caused] by too many numbers. We only add to the confusion. So, I would be inclined to use M-1B at the moment as being the most meaningful, although I share Henry's feeling that it's not a very good measure still in terms of-- | 65 |
fomc | 1,980 | If I could just interject a comment: I understand the longing for simplicity, but I am afraid the reality is complicated. And M-1B is the figure that is going to be most thrown off by the uncertainty about NOW accounts. It is just a fact of life. | 56 |
fomc | 1,980 | Mr. Chairman, just as a response to that: I assume from the Bluebook, Steve, that these different alternatives were set forth on the assumption that we would not get nationwide NOW accounts. | 39 |
fomc | 1,980 | That's right, at this point. | 7 |
fomc | 1,980 | If we do get them, we'll obviously have to go back to the drawing board. | 17 |
fomc | 1,980 | Well, we'd have to make an estimate, and the estimate that is likely to be most different is for M-1B. | 26 |
fomc | 1,980 | I think you should emphasize in the press briefing that we are quite possibly going to have to change the specifications. | 22 |
fomc | 1,980 | Yes, we'd have to change the targets, not the definitions. You see, the danger is that we could get a big transfer from savings accounts into M-1B, and that's going to make that figure look very peculiar. And we won't know it in advance. | 54 |
fomc | 1,980 | I think the admonition that we are not casting these in concrete forever is a very important one at this stage. We have a chance to look at these again based on [unintelligible]. The inflation problem still dominates the public's attitude both toward our policy and what we are trying to achieve, and I would certainly w... | 93 |
fomc | 1,980 | Governor Rice. | 3 |
fomc | 1,980 | Mr. Chairman, I favor alternative II with a range of 3 percentage points. Given the outlook for inflation over the next year, I think we're really going to have to show some reduction in the rate of growth in the aggregates. While I agree with Governor Partee that we want to be mindful of the amount of tension that we ... | 134 |
fomc | 1,980 | Mr. Morris. | 4 |
fomc | 1,980 | Mr. Chairman, last month I argued for alternative III, but on further reflection that seems a bit too tight, so I would move to alternative II. I would keep the 3-point range, however, because I think it is important for our credibility that we end up with a result that's within the range. I think the experience of the... | 207 |
fomc | 1,980 | Mr. Schultz. | 4 |
fomc | 1,980 | Well, I am not opposed to some degree of confusion. Last meeting it seems to me that we had a pretty hard time being very precise about these things. At the last meeting, I made mention of Heisenberg's theory of uncertainty, which in physics is a theory that when you try to observe sub-atomic particles the act of obser... | 180 |
fomc | 1,980 | Mr. Baughman. | 6 |
fomc | 1,980 | Mr. Chairman, I am inclined pretty much along the line on which Bob Black started this discussion in that narrower ranges would seem desirable. And if we take a narrower range, then it seems to me that alternative II is appropriate. If we retain the wide range as stated in the Bluebook, which I am characterizing as wid... | 315 |
fomc | 1,980 | Mr. Roos. | 5 |
fomc | 1,980 | Mr. Chairman, I am a little at a loss to understand why some of our colleagues, who I know are much more economically sophisticated and learned than I am, express confusion and concern as to whether or not we have a fundamental policy mandate and whether or not we can accomplish that. If one looks at this in a simplist... | 614 |
fomc | 1,980 | There's obviously a majority for retaining a 3-point range, as there was last month. I would defend that in my own mind by the uncertainty of the figures that Frank Morris and others have referred to and the real uncertainty in the economy, which goes in the direction of [our needing] a little leeway. I would note in t... | 98 |
fomc | 1,980 | The Bank of England? | 5 |
fomc | 1,980 | No. They have a 5 percentage point range, as I recall, 4 or 5. Four, I guess. | 26 |
fomc | 1,980 | The Swiss have just a point or two. | 9 |
fomc | 1,980 | And a pretty good inflation record. | 7 |
fomc | 1,980 | But [their target] varies with the rate of inflation. | 12 |
fomc | 1,980 | Do the Swiss have a pretty good record? They had something like a 15 percent increase in the money supply in some recent year, and they abandoned the target. | 33 |
fomc | 1,980 | I mean the range has to be seen relative to the rate of inflation. At 10 percent inflation, 3 percent [growth in money] isn't much. At 2 percent [inflation] it would be a great deal. | 47 |
fomc | 1,980 | I think we can get off this subject. | 9 |
fomc | 1,980 | The Swiss did that on a contrived basis, though, to make their goods more competitive. It wasn't because the mechanism is not workable. | 28 |
fomc | 1,980 | Be that as it may, the greatest single view is for alternative III. There is a certain amount of clustering at alternative II, and one for alternative I. And there are some in between alternatives II and III and between II and I. One possible approach would be to adopt the Balles approach, which he justified in part in... | 157 |
fomc | 1,980 | No, it doesn't become impossible, Mr. Chairman. But I remember last year that the old M2 ran above the projection, and that is the aggregate the Committee has come closest to cutting down to just about the lowest that is economically sustainable. I would just add that point. I think we gave very low, or conservative, e... | 79 |
fomc | 1,980 | Remember, you have money-- | 6 |
fomc | 1,980 | Which way is the risk more? If interest rates decline, do you think M2 would balloon or not? | 22 |
fomc | 1,980 | Well, in the old days, I would have said it would have ballooned. Nowadays, with interest rates so far above ceiling rates, we don't have that effect. We have put the money market funds into M2 and there is going to be a lot of substitutability between the money market funds and other elements of M2. The risk is for hi... | 96 |
fomc | 1,980 | I might just point out that M2 [growth in 1979] was very close to the upper limit on alternative II, John, and for M3 [actual growth] was the same as the upper limit on alternative II. The aggregate that is really low is bank credit. I don't quite understand that. | 63 |
fomc | 1,980 | Well, these are in my judgment very narrow differences. Let me just try, after everybody has listened to all of this, two alternatives: alternative III straight and alternative II straight. I might say it didn't make much difference in clarifying any strong preference to add the views of nonvoting members onto those of... | 92 |
fomc | 1,980 | Mr. Chairman, this will just be-- | 9 |
fomc | 1,980 | I am just talking about a flat "III." | 10 |
fomc | 1,980 | Really, between the one or the other-- | 9 |
fomc | 1,980 | Now let me try "II." Who would find alternative II "acceptable"? Four. Let me try the Balles alternative and see how many would find that acceptable. | 33 |
fomc | 1,980 | Read it. | 3 |
fomc | 1,980 | It's alternative II for M-1A and M-1B, if I understand it correctly, and alternative III for M2 and M3. Maybe that would be the nicest, if we could achieve a consensus on that. | 46 |
fomc | 1,980 | What about bank credit? Is that alternative III? | 10 |
fomc | 1,980 | I've been implicitly assuming that bank credit takes a subsidiary role in this as it indeed has in the past. | 21 |
fomc | 1,980 | It is, of course, one of the figures. | 11 |
fomc | 1,980 | One could argue about that, I suppose. | 9 |
fomc | 1,980 | It's so violently different from [the actual experience in] 1978 and 1979. | 19 |
fomc | 1,980 | I would like to have somebody explain the Balles approach to me. I find Steve's comments important here. Why shouldn't it be alternative III on M-1A and M-1B and alternative II on M2 and M3? That would seem to me more consistent with what actually happens in the economy. Am I looking at it the wrong way? | 72 |
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