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fomc | 1,980 | I was a little concerned on reading those memoranda that Sweden isn't in very good shape. | 18 |
fomc | 1,980 | Oh, no, it isn't. They just had a long strike, you know. | 17 |
fomc | 1,980 | It raises the question in my mind why they aren't borrowing in Europe, and whether we are to some degree conceivably-- | 25 |
fomc | 1,980 | They are borrowing. | 4 |
fomc | 1,980 | Officially? | 3 |
fomc | 1,980 | Yes, they are making official borrowings in the Euromarkets. | 15 |
fomc | 1,980 | No, the Eurodollar. I mean from European official sources. | 14 |
fomc | 1,980 | Are you asking why they want to raise the short-term swap lines? | 14 |
fomc | 1,980 | Yes. | 2 |
fomc | 1,980 | Well, remember, there is political importance to their not being in the European Monetary System. The Germans were furious when [Sweden] dropped out of the snake. That [furor] has died down and there's reasonable cooperation, but I think they would look to the supplier of the currency in which they keep their reserves ... | 103 |
fomc | 1,980 | Why are they having trouble with the BIS? MR. PARDEE(?). Because that's the seat of the European Monetary System and the members of the Board there are-- | 33 |
fomc | 1,980 | Sweden is a member of the BIS, isn't it? | 12 |
fomc | 1,980 | Yes, and it has a swap line with the BIS. | 12 |
fomc | 1,980 | They have a swap line they just-- | 8 |
fomc | 1,980 | They have drawn on it, with BIS agreement, but they have not gotten agreement from the BIS to increase the swap line. | 25 |
fomc | 1,980 | How big is their swap line? | 7 |
fomc | 1,980 | It's million. On the point of when we impose conditions, I would rather wait and see what the circumstances are when they come in for a drawing. We can then review it with the [Foreign Currency] Subcommittee and put on the conditions that are more or less specific to the circumstances at the time. That is why I think t... | 136 |
fomc | 1,980 | If we do this, we have to announce it right away--meaning within three or four days--right? | 22 |
fomc | 1,980 | Yes. It should be included in the Selected List of Actions that would be available for inspection [this coming Friday]. We don't need to make a public announcement as such. It would also be in the Policy Record, and any conditions attached to the increase in the line would presumably appear in the Policy Record, which ... | 130 |
fomc | 1,980 | What are they going to say when this is announced? MR. PARDEE(?). As little as possible. We were discussing having it come out on a Friday afternoon. It's coming very shortly after this strike, and they did not want the market to think that they were acting in response to the adverse publicity of the strike. | 65 |
fomc | 1,980 | Well, we are going to have to say something, it seems to me. | 16 |
fomc | 1,980 | Well, we can say that the Federal Reserve and the Riksbank agreed on an increase in the swap line from $300 million to $500 million. Full stop, unless we want to add that this shows a cooperation between the two central banks--or some language like that which we have worked up in the past. | 64 |
fomc | 1,980 | It's no problem for us, but it is a bit of a problem for them. | 17 |
fomc | 1,980 | They are aware that we would have to publish this increase within a very short period of time and also that we would have to publish any operations under the swap line with the usual lag of one month. | 40 |
fomc | 1,980 | It will be a little longer this time because we don't have a June meeting, won't it? | 19 |
fomc | 1,980 | This comes out earlier [than the Policy Record]. | 10 |
fomc | 1,980 | This coming Friday. | 4 |
fomc | 1,980 | Well, it seems to me that in terms of conditions we shouldn't discriminate between the Swedes and others. I think 90 days is reasonable and renewal for another 90 days is reasonable. I'm mainly concerned about a takeout because even though Sweden may be a good risk--it certainly still has a very high rating in the Euro... | 148 |
fomc | 1,980 | Well, this doesn't strike me as perfection in terms of a precedent, but at the same time I see no strong reason to turn it down. I do think we need an understanding now that they are going to pay it off. I don't have any problems between 60 days and 90 days or whatever and we can even exclude a renewal. But I think the... | 124 |
fomc | 1,980 | I thought it was 90 days. | 8 |
fomc | 1,980 | It's 90 days for the drawing. | 8 |
fomc | 1,980 | The increase in the line from $300 million to $500 million would only be for one year. As for an actual drawing, they would advise us ahead of time that they would be drawing on it and there would be a 3-month limit to the bridge financing. | 54 |
fomc | 1,980 | I think that's reasonable. | 5 |
fomc | 1,980 | Well, with that understanding, are there any objections? It just looks to me as if Sweden may be in trouble before the end of the year on this. | 32 |
fomc | 1,980 | How dependent are they on foreign oil? | 8 |
fomc | 1,980 | They are terribly dependent. They have the highest per capita consumption of gasoline--imported gasoline --in the world. We happen to have some domestic [production]. Also, this recent wage settlement of 11 percent does not improve their competitive position, although it doesn't worsen it. If you look at the weighted b... | 168 |
fomc | 1,980 | But the current account deficit is $750 per Swede. | 12 |
fomc | 1,980 | Yes. They have probably the highest standard of living in the world and they owe only $4 billion. The current account deficit, they believe, will be between $3-1/2 to $4 billion; I noticed that the Board's staff thinks it will be closer to $5 billion. They do not have any creditworthiness problem. But unless they chang... | 89 |
fomc | 1,980 | Do I hear any objections? [Hearing none], that is approved and we can go to Mr. Sternlight. | 24 |
fomc | 1,980 | I'm sorry, I have some other comments. I'd just note that there will be some first renewals of swap drawings in the days subsequent to the next FOMC meeting. Normally, in our renewal cycle we report on these at this time. [Each] is just a first renewal, so no action by the Committee is needed. We have swap drawings of ... | 116 |
fomc | 1,980 | Mr. Sternlight. | 5 |
fomc | 1,980 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,980 | Questions? | 2 |
fomc | 1,980 | Yes, Mr. Chairman. Peter, I'm a little confused about your April operations. You attempt to achieve our aggregate growth targets, as I understand it, through the establishment and achievement of certain reserve paths--either for total reserves or the base. Is that correct? | 53 |
fomc | 1,980 | We are trying to achieve nonborrowed reserve levels that have been associated with the Committee's targets. I don't think we are able to achieve, on a month-to-month basis, the Committee's monetary growth targets. | 43 |
fomc | 1,980 | Well, I noticed [in] the Bluebook that [the staff], as I assumed the Committee as a whole would be, again was trying to understand the reason for the rather substantial drop in the rate of money growth during [April]. Now, during that month actual reserve growth was 2.7 percent for total reserves and 1.9 percent for th... | 76 |
fomc | 1,980 | Right. | 2 |
fomc | 1,980 | Let me ask you this: Do you have specific figures in terms of the monetary base, for example, that you try to achieve as a guide for your operations? | 33 |
fomc | 1,980 | No, not in terms of the monetary base. But we do have specific figures for nonborrowed reserves that we are trying to achieve--in this case for both the 4-week interval and week by week. We have an objective that can be modified from one week to the next because of technical factors. On one occasion we added some to th... | 90 |
fomc | 1,980 | These figures--the 2.7 percent, say, on total reserves and the nonborrowed part of that--I assume are significantly lower than the path that you sought. Is that a fair statement? | 42 |
fomc | 1,980 | Total reserves are certainly lower. The nonborrowed figure, as I mentioned, is coming out about on track. | 23 |
fomc | 1,980 | Let me just ask this, pursuing this line of questioning: Isn't it possible for you to achieve or at least to get closer to your path objectives than these two figures? It's mechanically possible to do, is it not? | 44 |
fomc | 1,980 | Well, as I say, on nonborrowed we are coming out about on track for this period. For the total reserves, I think one can get a different view depending on what intervals one takes. I tend to think of this as the four-week block of time between Committee meetings. And total reserves are coming out well below the path, b... | 79 |
fomc | 1,980 | What adjustments can you make, or do you make, if you see that we are coming out below the desired path, to supply reserves so they come out to a higher level? I thought you almost automatically try to adjust for that situation. | 48 |
fomc | 1,980 | Well, part of the whole procedure that we are on now involves an almost automatic adjustment, because if total reserves are coming in weak and money supply is coming in weak, aiming for nonborrowed reserves means that there is going to be less demand for borrowing. I described how the borrowing had fallen off and with ... | 73 |
fomc | 1,980 | When you observe that, Peter, can't you take compensating actions to inject reserves? | 17 |
fomc | 1,980 | In part what happens is that it is an almost automatic response because as we aim for the path of nonborrowed reserves it calls for less borrowings, and conditions ease. And over time--not within a month's time but over some longer time--this is supposed to generate greater monetary growth. | 59 |
fomc | 1,980 | Couldn't you achieve a base path objective if you wanted to? | 12 |
fomc | 1,980 | I'm not sure we could achieve it; I think we could come closer than we did if there were no federal funds rate constraint. | 26 |
fomc | 1,980 | In other words, within the family, to be candid, is it the federal funds constraint that really causes us to miss these paths occasionally? | 28 |
fomc | 1,980 | Not entirely. Over a period of time that may be true. But we are running into precisely that problem now, and that's what the debate will be this morning, I presume. But the Desk provided nonborrowed reserves more or less on path. It could have speeded that up, and we would have run into our federal funds constraint, a... | 97 |
fomc | 1,980 | It's somewhat like a freight train, you know. There's the engine and the caboose. And what happened is that we've now jerked forward and the borrowings have gone down. | 36 |
fomc | 1,980 | We went right through all the borrowings, so we are face to face with-- | 17 |
fomc | 1,980 | If you have an engine where both ends of that train are going in opposite directions, you have a very strange situation. | 24 |
fomc | 1,980 | I think there is a certain amount of looseness in the relationship, and the looseness that has been used up this month-- | 26 |
fomc | 1,980 | We did run into the funds rate constraint during the period, and the Committee acted on it. | 19 |
fomc | 1,980 | We are now in the rarified atmosphere--one we haven't operated in before--where we have no borrowings. | 23 |
fomc | 1,980 | Let me ask a question. Aside from any constraint that may arise in the lower end of the fed funds rate range, isn't it the directive of the Committee to the Manager to achieve the target on nonborrowed reserves, given the Committee's borrowing assumption? If the actual borrowing level comes in lower than the assumed bo... | 94 |
fomc | 1,980 | It's possible. | 3 |
fomc | 1,980 | It's possible, but there's no clear-- | 8 |
fomc | 1,980 | Well, it's a matter of judgment in between meetings; Mr. Axilrod sits there and scratches his head and Mr. Sternlight does and occasionally I do. | 33 |
fomc | 1,980 | Mr. Chairman, isn't this the dilemma that plagued us over the pre-October period, though, where we had incompatibility between our fed funds objective and other objectives? | 34 |
fomc | 1,980 | We would have run short on total reserves, and certainly the monetary base in any [case], even this time. But we don't escape, I suspect, all the dilemmas of the real world by whatever we said in October. And we are there right now. | 53 |
fomc | 1,980 | A lot of people in the real world--and I'm sorry to [belabor this] but I know we have them in the real world where I live--are hoping desperately that when this incompatibility occurs we will do what we said we were going to do: Keep our eye on the reserve growth targets and let interest rates fluctuate. That really is... | 83 |
fomc | 1,980 | [Interest rates] had a lot of flux in the last month. | 14 |
fomc | 1,980 | This is attributing to the money supply a significance that I see hardly any economists attributing to it. The money supply is a means of getting [desired] interest rates. People who want a stable rate of money growth want wide fluctuations in interest rates. So we can always decide how much interest rate fluctuation w... | 120 |
fomc | 1,980 | Well, we've announced our targets to the Congress not in terms of interest rates but in terms of aggregates. We've never mentioned interest rates in our targets to Congress. | 32 |
fomc | 1,980 | But if the money supply is a means of controlling interest rates, it is a better means than for us to set [interest rates] arbitrarily low, as we have in the past. | 38 |
fomc | 1,980 | In the interest of facilitating the discussion, I think these issues will arise in a more practical way a little later. | 23 |
fomc | 1,980 | Mr. Chairman, may I ask Peter a question? Is there any reason to expect a further back-up in short-term interest rates? | 27 |
fomc | 1,980 | Not from what I see here, particularly. If monetary growth should speed up, certainly it would be possible. | 22 |
fomc | 1,980 | It depends upon why it speeds up. Short-term interest rates are down this morning. That's the long-term trend through 10 o'clock this morning! | 30 |
fomc | 1,980 | There was a time when we used to think an increase in the money supply would cause interest rates to fall. | 22 |
fomc | 1,980 | It depends. If the economy gets stronger and credit demands increase and the money supply rises, interest rates would rise. If we're pushing up the money supply, then presumably they would fall. | 37 |
fomc | 1,980 | But, if the economy remains weak, with an increase in the money supply one would expect them to fall. | 22 |
fomc | 1,980 | They might, yes. | 5 |
fomc | 1,980 | All of this discussion does point up the importance of the discount rate, however. That's because we could have moderated the fall in the funds rate, the [final] standard, if borrowings had been above zero. That is something we are going to face in the period ahead, and thus the Board [should] give considerable [though... | 113 |
fomc | 1,980 | That's all we have anyway. | 6 |
fomc | 1,980 | We have to ratify the domestic transactions. Without objection, they are ratified. Mr. Kichline. | 23 |
fomc | 1,980 | [Statement--see Appendix.] | 6 |
fomc | 1,980 | I wonder whether we shouldn't pause for a little discussion of the economic situation. [I hope] it doesn't go on too long because there are particular technical issues on the financial side that will need some discussion. | 41 |
fomc | 1,980 | If you assume that we have a mortgage rate of around 12 to 13 percent for the rest of the year, do you have any projections as to what the level of housing starts would be later in the year? | 44 |
fomc | 1,980 | Yes, we have housing starts rising to a little over 1 million units by the end of this year and continuing on up to about 1-1/2 million units next year. Our forecast for the remaining months of the current quarter is for a bit further decline on average. But starts would average 900,000 for the current quarter and then... | 138 |
fomc | 1,980 | May I ask: In your projection of personal income did you anticipate the number that came out yesterday, which was essentially zero? | 25 |
fomc | 1,980 | Yes. In fact that was largely based upon the labor market developments in April, which we had available. Wages and salaries declined at about a $7-1/2 billion annual rate. And that's one of the principal ingredients giving us for the second quarter a virtually unchanged saving rate even though consumption spending is d... | 75 |
fomc | 1,980 | Governor Partee. | 4 |
fomc | 1,980 | I wonder if you would talk a little about your projections on the saving rate, Jim. What bothers me is that you have such a small rise in the saving rate over the next year when one considers that it has been abnormally low and that we seem to see every evidence that people are trying to pay down debt and improve their... | 97 |
fomc | 1,980 | That's quite correct in terms of the forecast that we have, in which the saving rate really never gets to 5 percent and then drifts lower. That is at least a percentage point below what one might have expected on the basis of experience prior to the last two or three years. There are a number of factors involved. Essen... | 363 |
fomc | 1,980 | Mr. Eastburn. | 5 |
fomc | 1,980 | I tend to be at least as pessimistic as the projections. There's one other factor that could enter in and I wonder if you have explored it, Jim. And that is the [potential] catastrophic aspects of this, with large numbers of bankruptcies both in the nonfinancial and financial side--in municipal finances and so on if th... | 69 |
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