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fomc | 1,980 | The country banks? | 4 |
fomc | 1,980 | Yes, the country banks. There is some complaint, too, on the way the Farm Credit Agency credits enter into this. Some of that is not credit we're trying to discourage, like Farmers Home Administration per se. The more Farmers Home Administration does, the less of that type of credit the commercial banks will do, and th... | 76 |
fomc | 1,980 | Mr. Morris. | 4 |
fomc | 1,980 | Mr. Chairman, our staff has about the same economic forecast as the Board's staff. I have a gut feeling that if the forecast is wrong, the result is likely to be a deeper recession. I am thinking primarily in terms of the financial strains that the system will be under. I think we've all been amazed at the willingness ... | 234 |
fomc | 1,980 | That's true of many banks, too. | 8 |
fomc | 1,980 | It's true of banks, too, but it's much more the case with the savings banks, particularly in New England where the average yield on their portfolios is very much lower than on the West Coast. That's because (a) we've been a slow growing region; and (b) New Englanders don't change their houses as frequently as people in... | 276 |
fomc | 1,980 | What do you conclude from all this for our current posture? Tighter, easier, unchanged? | 19 |
fomc | 1,980 | Well, I think our current posture is doing the job. I would advocate the alternative B approach. I don't see where the situation now requires a tighter posture. We have to evaluate what needs to be done. And I think we're going to see, as the staff is forecasting, a major collapse in housing in the next few months. | 67 |
fomc | 1,980 | Mr. Timlen. | 5 |
fomc | 1,980 | Mr. Chairman, I haven't talked to [any business contacts] since Friday, except to that group of bankers who were here yesterday. But I must say that through Thursday of last week, businessmen, and by that I mean mostly industrialists, were still telling us in New York that they have great confidence in 1980 being a pre... | 520 |
fomc | 1,980 | Mr. Forrestal, what wisdom do you bring us from Atlanta in your first presence here? Welcome. | 21 |
fomc | 1,980 | Thank you, sir. It's nice to be here at this interesting time. Shifting to another part of the country, Mr. Chairman, the Atlanta District shows a remarkable reversal in attitudes concerning the economic outlook, it seems to me. Just a month ago our directors and businessmen generally were virtually discounting any rec... | 592 |
fomc | 1,980 | Mr. Black. | 4 |
fomc | 1,980 | Mr. Chairman, we are in general agreement with what the staff has [projected]. If we were to shade it a little, we'd shade it along the lines that Frank Morris described because of the unrest we see in financial markets, along with weaker housing and also probably weakness in investment, all of which we think may be mo... | 474 |
fomc | 1,980 | Mr. Winn. | 4 |
fomc | 1,980 | Mr. Chairman, the crosscurrents are so extreme that it's difficult to sort them out and get a fix, particularly with last weekend's adjustments not being factored into many people's thinking. Three or four things, I think, are interesting. One is that we turned off commercial construction--that is, apartment houses, of... | 914 |
fomc | 1,980 | We're certainly not dealing in eighths anymore. | 9 |
fomc | 1,980 | I know, but it's amazing to me that they can tell you what hour we intervened and at what rate. That hasn't changed. But I am really concerned about this April bulge and how it will be interpreted. | 44 |
fomc | 1,980 | Mr. Balles. | 5 |
fomc | 1,980 | At times like this, Mr. Chairman, regional differences do show up rather starkly. West of the Rockies there are precious few signs of any present or impending recession, particularly as our directors view [the situation]. With the obvious exception of housing and autos, things seem to be moving along at a very rapid ra... | 336 |
fomc | 1,980 | Your area covers a not insignificant part of the national scene. | 12 |
fomc | 1,980 | True. Well, with regard to the Bluebook alternatives, I can't really add much to what has already been said. All things considered, I would agree with much of what Willis Winn mentioned: One more month like February and our credibility is going to be in bad shape. We recently had the first of the ABA/FRB seminars, whic... | 247 |
fomc | 1,980 | I think we ought to have a coffee break now, but let's make it short. | 17 |
fomc | 1,980 | I have to address myself to conditions before last Friday. At that time businessmen in our area were generally feeling pretty good about current business, but I suspect that's changing. My own guess is that we are going to have a recession of at least the magnitude of the Greenbook projections and perhaps deeper. In vi... | 151 |
fomc | 1,980 | Do we have the technical capability of offsetting that refund? | 12 |
fomc | 1,980 | Well, there is some funds rate that would do it. But I would quickly mention that there is no certainty that [the projected] bulge is going to appear. We took 5 percentage points out of the seasonal factor this year relative to last year; and cumulatively that seasonal factor has been adjusted over the past two or thre... | 98 |
fomc | 1,980 | I am interpreting this as the best estimate on the part of reasonable people of what's going to happen. | 20 |
fomc | 1,980 | Exactly. I just want to be covered both ways. | 11 |
fomc | 1,980 | If you look at page 7 [of the Bluebook], Dave, which shows the monthly profile: In alternative B, for example, April has a growth rate of 8.6 percent for M-1A and May has two dashes, which I assume means 0, and June has 2.8 percent growth. Something could be taken out of April and put it into May as far as the path is ... | 88 |
fomc | 1,980 | Yes. I am sure that is true. And in ordinary conditions, I wouldn't care. We could certainly tolerate these numbers. But the point, which has already been made, is that the credibility of the System in that short period of time-- | 49 |
fomc | 1,980 | My point was simply that we wouldn't necessarily have to move to alternative C; we could change the profile of alternative B. | 24 |
fomc | 1,980 | Mr. Guffey. | 6 |
fomc | 1,980 | Thank you, Mr. Chairman. The agricultural sector has been reasonably well covered in the comments made by Mark Willes and Bob Mayo. Our banks supplying credit to the agricultural sector are very tight with respect to loan/deposit ratios. But contrary to what Mark suggested, we have found that the country banks are faci... | 592 |
fomc | 1,980 | Mr. Roos. | 5 |
fomc | 1,980 | Well, [Mr. Guffey and I] are both from Missouri, and my approach to [policy] will underscore the great diversity of thinking that occurs in the great state of Missouri, Mr. Chairman. Very briefly, the general condition of the economy as we see it is a fairly level one with the exception of the building and real estate ... | 329 |
fomc | 1,980 | Mr. Mayo. | 4 |
fomc | 1,980 | Mr. Chairman, I would only add on the agricultural side that I think some of the trauma accompanying the announcement of the grain embargo has subsided. There is a much calmer approach to the problem and a little more Federal government credibility than [earlier] in the farm community, although they are still somewhat ... | 366 |
fomc | 1,980 | Mr. Rice. | 4 |
fomc | 1,980 | Well, Mr. Chairman, generally I go along with the staff forecast. It seems to me that the new anti-inflationary program will have the effect of making the coming recession deeper than it might have been and might even bring it on sooner. If I have any skepticism at all [about the Greenbook forecast], it's in the area o... | 532 |
fomc | 1,980 | Governor Wallich. | 4 |
fomc | 1,980 | It's very difficult to tell what effects our policies are having. These high interest rates may hit some borrowers very hard but they don't seem to hit others at all, and the net effect one can't predict. I see that Charlie Schultz, after the President's program was announced, predicted a 2-1/2 percent rise in GNP for ... | 604 |
fomc | 1,980 | Mr. Baughman. | 6 |
fomc | 1,980 | Mr. Chairman, it seems to me that our posture of restraint had begun to bite before this past weekend. [If it was] biting before this past weekend, presumably it will bite a little more now. I have to admit I've held such views on several earlier occasions, so I don't know how much weight to put on my current view. We ... | 601 |
fomc | 1,980 | Governor Teeters. | 4 |
fomc | 1,980 | Mr. Chairman, I am in favor of alternative "B." Even [with "B"] the rate of growth [for M-1A] in the period from April to June would be dropping to almost half of what it was in the first two months of the year; even compared with the first three months, it's very low. If we go to alternative "C," we're going to be cut... | 166 |
fomc | 1,980 | Governor Partee. | 4 |
fomc | 1,980 | Well, I don't know what's going to happen to the economy. Perhaps I am associating with people who are in difficult situations and have become very pessimistic, and it may be affecting me. So, I may be more pessimistic than I ought to be. I would point out that the projection seems to me very, very sensitive to the sav... | 824 |
fomc | 1,980 | Could I just ask a question? Isn't it true, if we stick to the 4-3/4 percent annual rate of growth under alternative B, that we are going to have to reduce the rate of growth later in the year? | 48 |
fomc | 1,980 | Yes. | 2 |
fomc | 1,980 | A little, but that will be easy to do because there is a much lesser demand for money in a recession. | 23 |
fomc | 1,980 | Assuming we have a recession. | 7 |
fomc | 1,980 | That's all this is really saying--how far one is going to let interest rates decline in the second half of the year. | 25 |
fomc | 1,980 | But we are setting the timing of the recession rather precisely, it seems to me. And I am not too sure that we're going to get it starting in the second quarter. | 35 |
fomc | 1,980 | Well, your suggestion will certainly help assure that we'll get it because if we cut the path in the immediate period to come, I would guess we're talking about 25 percent interest rates. And I think that-- | 42 |
fomc | 1,980 | Well, we're really just talking about a few hundred million dollars [of added M1 growth]. | 19 |
fomc | 1,980 | That's all right; it's a very hard thing to bring about. It involves more in M2 and M3. | 23 |
fomc | 1,980 | You're absolutely right. | 4 |
fomc | 1,980 | It's quite a lot on the margin. | 8 |
fomc | 1,980 | Governor Schultz. | 3 |
fomc | 1,980 | I doubt that we can get out of this situation without a recession, and I think the unkindest thing we can do is to drag this on. It seems to me that the greatest pain can come if we let it go on and on and our financial institutions really do begin to go under. Small businesses and others can stand a lot of pain for sh... | 159 |
fomc | 1,980 | Let me make a few observations that occurred to me in listening to all this. First of all, it's clear that the economy is fairly level, so any month we look at these figures we're going to find some things down and some things up. What that means for the future isn't very clear. There's considerable strength and resili... | 1,315 |
fomc | 1,980 | "C" would mean 4-1/4 percent per quarter for the rest of the year. | 20 |
fomc | 1,980 | "C" is 5 percent for the first two quarters, as I have calculated it, and the midpoint [of our annual target] is 4-3/4 percent. It comes close to the midpoint but is a little above. | 48 |
fomc | 1,980 | Yes, because February is behind us. | 8 |
fomc | 1,980 | Oh, there's no question that we have recorded a high number for February, which has contributed to that result. But we have recorded it. But again, I [wouldn't] worry too much about where this comes out within a range of 1/4 or 1/2 or even 3/4 percentage point on a February-to-June number, since all of those difference... | 592 |
fomc | 1,980 | Would you consider taking a shorter period of time--in other words, setting a target for March through May? | 22 |
fomc | 1,980 | I could, but it's probably going to take a lot of arithmetic here. As I say, we're going to be meeting again in a month and we can fine-tune the quarter further then. So that really concerns me less than an understanding about what our posture should be in the next month and how we will reconcile all the doubts and err... | 151 |
fomc | 1,980 | What would you do to the funds range? | 9 |
fomc | 1,980 | Well, I don't feel terribly strongly about that because we obviously have a very flexible technique for changing that range if the occasion arises. But in the spirit of what I am saying, if the Committee wanted to raise it--particularly the upper end--such a decision would reflect the attitude I am talking about. I don... | 209 |
fomc | 1,980 | We have suggested a borrowing assumption of $2-1/2 billion on "B" and about $2-3/4 billion under "C." | 31 |
fomc | 1,980 | I don't know what the right number is, but assuming you judged those two correctly, I would be inclined to use the higher number. I am talking about the very short run for the staff's initial planning. Now, if the money supply came in lower, you would reduce it. | 57 |
fomc | 1,980 | The higher number would be more consistent with the behavior of borrowing in the last two weeks. We're having a hard time interpreting whether demand or technical problems-- | 30 |
fomc | 1,980 | I think the market is confused at the moment, understandably, about what all these recent actions mean. One interpretation is that we would deliberately try to ease pressures on the money market. [Market participants] are looking for the substitute in this voluntary program. There's another interpretation that says tha... | 460 |
fomc | 1,980 | Where are borrowings? Where were they last week, Steve? | 13 |
fomc | 1,980 | Around $3.4 billion. And they're averaging $3.1 billion thus far this week and were $1.9 billion yesterday. | 28 |
fomc | 1,980 | With quite a lot of excess reserves out there? | 10 |
fomc | 1,980 | It's worth keeping in mind that one reason borrowing has been high was the anticipation of something happening in the discount rate. Something did happen and there's a much greater uncertainty factor than usual, given the whole surcharge situation now. I think there is more need for flexibility in whatever understandin... | 62 |
fomc | 1,980 | If borrowings were, let's say, in the $2-1/2 to $3 billion range, what part do you think would be at the 13 percent rate and what part at 16 percent? | 43 |
fomc | 1,980 | I don't know. But I actually went back to [estimate what that breakdown would have been in] the fourth quarter of '79. And if actual borrowing [and its distribution] hadn't changed because of the surcharge--it would have, but if it hadn't--it turns out that of the average daily borrowing of $1.8 billion in that quarter... | 179 |
fomc | 1,980 | I missed a little of this. Any of the borrowing figures we're talking about now are below the recent level, which raises a little question, I guess. | 31 |
fomc | 1,980 | I think that's appropriate, Paul. My guess is that the big banks will back away from the window and try to preserve their flexibility. | 27 |
fomc | 1,980 | Well, we just don't know. I think that's possible. But it's implicit in this that we start at what is a lower level of borrowing than we have had just recently. And if the money supply figures were coming in a little high relative to the projections we now have, we might raise [the borrowing level] a bit. I guess that'... | 76 |
fomc | 1,980 | I was assuming, Mr. Chairman, that one of the implications was that the Committee didn't want to be as accommodative in April as we had in [the Bluebook] and that for whatever path the Committee decides we might lower both March and April and shift a little of that into May and June. | 61 |
fomc | 1,980 | Mr. Chairman, I object strongly to raising the floor on the funds range. I have a feeling that when we hit the recession we're going to hit it very suddenly and that we may very well get into a credit crunch. It seems to me that it would be wise to keep the wide band and as [much] flexibility as possible. It also goes ... | 146 |
fomc | 1,980 | I find it very difficult to conceive that we're going to get to the lower end of the range before the next meeting anyway. This is probably the least important number we put down. And from that [perspective], it doesn't bother me. | 48 |
fomc | 1,980 | I agree with that, but the idea of keeping the range wide in case we do get into a crisis situation appeals to me. | 26 |
fomc | 1,980 | It does seem to me, though, Nancy, [given that] we have raised the discount rate since the last meeting, that to accept that floor, which is slightly below the 12 percent discount rate [unintelligible]. Operationally, one has to figure that banks would first pay off the borrowings before the [funds rate] went lower. So... | 87 |
fomc | 1,980 | I still think the wider the range, the better, because we really don't know what we will be getting into in the next two or three months. And the possibility of a credit crunch is out there; it's not an impossibility at all. | 49 |
fomc | 1,980 | It's quite probable. | 4 |
fomc | 1,980 | That would press the upper end, not the lower. | 11 |
fomc | 1,980 | It depends on what happens afterwards, Henry. | 9 |
fomc | 1,980 | I think we're talking about the visuals of what is announced a month from now and I can't convince myself that this is an absolutely crucial decision. One could argue that raising the funds range is consistent and reinforces the notion that we're not backing off. On the other hand, if we don't change it, it can be inte... | 275 |
fomc | 1,980 | Make it 4-1/2 percent for the half-year then. | 15 |
fomc | 1,980 | We can put in 4-1/2 percent for the half-year, which is right on "B." It doesn't capture the flavor that I thought [we might want to convey] of putting it a little below that. But in very round numbers, it's not very different. When we get down to the point of how to express it within a 1/4 of a point, it's difficult. ... | 171 |
fomc | 1,980 | I think in October or sometime the language--not the number--was something like "4-1/2 percent or a little less." | 28 |
fomc | 1,980 | Yes, maybe we can use that language. I think it captures what I am trying to say, maybe better than I said it. Well, let me review the bidding here. Suppose we put the directive the way it is written [in the Bluebook] and talk about the entire half-year [target as] 4-1/2 percent or a little less. For the funds rate ran... | 158 |
fomc | 1,980 | That looks low to me. | 6 |
fomc | 1,980 | Which one? The borrowings, Henry? | 9 |
fomc | 1,980 | Based upon the very recent experience, it does look a little low. | 14 |
fomc | 1,980 | Well, the very recent experience, yesterday, was $1.9 billion. | 16 |
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