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fomc | 1,980 | We can certainly do [the calculation] and circulate it. | 12 |
fomc | 1,980 | If I may, Mr. Chairman, I have one more question. It's related to the chart entitled "Domestic Nonfinancial Sectors," the opening chart in the fourth section. I'm particularly interested in the reality of what will be going on in financial markets in terms of federal borrowing, broadly defined. The red bars on the char... | 125 |
fomc | 1,980 | No, it does not. It includes the Treasury issues and a small amount of agency issues. It does not include FNMA or the Home Loan Banks, for example. We have numbers that start at $75 billion for 1980; there's a narrower definition of the budget and it does not include the off-budget items. | 65 |
fomc | 1,980 | $75 billion? | 4 |
fomc | 1,980 | That includes the off-budget agencies, just not the sponsored ones, doesn't it? | 16 |
fomc | 1,980 | Right. | 2 |
fomc | 1,980 | It does include the off-budget? | 7 |
fomc | 1,980 | It depends upon how one defines off-budget. My understanding is that it literally includes the off-budget agencies but it doesn't include the [agencies] not owned by the government, [such as] FNMA and the Home Loan Banks. | 47 |
fomc | 1,980 | That's right. It captures the [funds raised by] the Federal Financing Bank, for example, as a Treasury issue. | 25 |
fomc | 1,980 | How much bigger would the number be if you included the so-called privately owned, government-sponsored enterprises and the mortgage pools? I have a hunch it would be considerably bigger, but I'm not sure. | 40 |
fomc | 1,980 | Yes. One of the problems here, by the way, is that this chart covers "nonfinancial" [as defined] in our flow of funds accounts. We consider the sponsored agencies to be the financial sector, so we are dealing with a different concept here. But in 1980 we have sponsored credit agencies raising about $11-1/2 billion of f... | 122 |
fomc | 1,980 | That makes a difference, doesn't it? | 8 |
fomc | 1,980 | Oh, yes. | 4 |
fomc | 1,980 | Thank you. | 3 |
fomc | 1,980 | Governor Gramley. | 4 |
fomc | 1,980 | I have one detail question and then two substantive questions. This Administration forecast [that you show] is not yet published, is it? | 27 |
fomc | 1,980 | No, it is not. | 6 |
fomc | 1,980 | This is the one coming out in July? | 9 |
fomc | 1,980 | Is this firm? | 4 |
fomc | 1,980 | We understand that the economic assumptions are firm as a basis for the midyear review. What are not yet firm are the precise outlays and receipts--the budget side associated with the economic forecast. But it has not yet been presented officially; my understanding is that it will not be delivered until July 21. | 62 |
fomc | 1,980 | The first substantive question I'd like to ask Jerry. On the compensation per hour projection, you noted that one element of optimism isn't in the line shown here--the fact that it includes an increase in compensation due to payroll taxes in 1981. So, in fact, in order to get this performance, private compensation woul... | 167 |
fomc | 1,980 | That's correct. | 3 |
fomc | 1,980 | To get the kind of performance in compensation that's shown here we're going to have to have a very significant slowdown in the rate of increase in average hourly earnings adjusted for overtime and mix. | 36 |
fomc | 1,980 | That's correct, and we do build in a calculation of the effects of mix on the compensation figures. The average hourly earnings index itself declines between '80 and '81 by slightly more than 1 percent. I don't have a figure for the fourth quarter '81; it would be a bit more than that, though, as opposed to a compensat... | 105 |
fomc | 1,980 | The second question I'd like to direct to Mr. Kichline. In the discussion of the assumptions on the first page, you've noted that M-1A goes up by 4-1/2 percent. But the Bluebook says something else is involved that I think we need to be aware of, namely that the assumptions about interest rates that are plugged into th... | 134 |
fomc | 1,980 | That's right. In effect, the way to view the 4-1/2 percent [M-1A growth] is that it has the power of old-time 7-1/2 percent money, old-time being pre-1974 money. | 52 |
fomc | 1,980 | Thank you. | 3 |
fomc | 1,980 | Mr. Mayo. | 4 |
fomc | 1,980 | First, I think the staff forecast is very well put together. My staff's forecast is close to that of the Greenbook but I personally feel a little more pessimistic just because I think we're coming out, I hope, of a very wrenching inflationary experience, which I believe tends to lessen our ability to rely on econometri... | 242 |
fomc | 1,980 | Well, the early number the Administration was working with on outlays was something like $578 billion, $3 billion higher than the staff's estimate. Now, that may come down a little. We looked back at the last eight fiscal years, from 1972 through 1979, and the mid-session review has overestimated actual expenditures by... | 182 |
fomc | 1,980 | Well, [comparing] the $59 billion Administration [preliminary deficit estimate], for what it's worth, and your $52 billion, I take it that you feel the receipts will do a little better. That's part of it? | 47 |
fomc | 1,980 | For 1980? | 5 |
fomc | 1,980 | Yes, for 1980, the year we are in right now. | 15 |
fomc | 1,980 | Yes. We have $4 billion more in receipts than their preliminary number. And as I say, it's really a technical matter. Their forecast is not materially different from ours for the second and third quarters--the last two quarters of the fiscal year. | 50 |
fomc | 1,980 | This is also minor, but do your projections for '81 assume that what the Congress is trying to do on speeding up corporate tax collection [will materialize]? | 32 |
fomc | 1,980 | Yes, it includes that; it excludes certain other things. It excludes, for example, the withholding of interest and dividends. We made some adjustments where we felt it was quite unlikely that the Congress would be willing to go along with the Administration's proposals. | 51 |
fomc | 1,980 | Thank you. | 3 |
fomc | 1,980 | Mr. Black. | 4 |
fomc | 1,980 | Mr. Chairman, our differences with the staff forecast have widened a bit this time. For 1980, we believe that the drop in real GNP will probably be greater than the staff is projecting. This concern stems mainly from three factors: the growing evidence that the international situation may be weaker than we've been assu... | 344 |
fomc | 1,980 | Is that because compensation goes up a lot less in your forecast, Bob? How do you have less inflation? That's what I'm asking. | 27 |
fomc | 1,980 | Well, we keep the money supply under better control. | 11 |
fomc | 1,980 | I understand that. But looking at the factors of costs and prices, is it better productivity? | 19 |
fomc | 1,980 | Yes, I would think so. If we make progress on the inflation front, I think people's expectations are going to turn around very markedly. And we have [projected] more private investment than has been assumed, offering commensurate increases in productivity. | 51 |
fomc | 1,980 | Well, not [until] next year, though. | 11 |
fomc | 1,980 | Mr. Eastburn. | 5 |
fomc | 1,980 | I was interested in the estimates of uncertainties accompanying the forecast, which were based essentially on a number of simulations. I wonder if you'd take a minute to put that into qualitative judgmental terms and let us know what you think the chances are on the up side and on the down side of the forecast. | 60 |
fomc | 1,980 | In 60 seconds. | 5 |
fomc | 1,980 | As you know, we do recognize that forecasting point estimates is not the way to go in terms of associating some degree of [certainty with the forecast]. We believe there is a standard error associated with any forecast, and that's why we've attempted to work with the model in generating ranges of uncertainty or confide... | 92 |
fomc | 1,980 | I wasn't clear on that. Let me make sure I understand. The Humphrey-Hawkins targets are the Administration's forecast in the terminology you're using? | 31 |
fomc | 1,980 | Well, in the short term, yes. The first two years are defined as the short term; they represent projections but in fact are short-term Humphrey-Hawkins targets. | 36 |
fomc | 1,980 | When you say Humphrey-Hawkins targets do you mean the Administration's projections that are in these charts? | 22 |
fomc | 1,980 | That's right. | 3 |
fomc | 1,980 | That's not what Messrs. Humphrey and Hawkins had in mind, though. | 16 |
fomc | 1,980 | In general, I would say that with the monetary policy we have assumed--looking at the model results in both years, particularly 1981--there is a fairly small probability of [an outcome] within a narrow range of those targets. I didn't go into this in the presentation, but a good deal of the difficulty revolves around t... | 190 |
fomc | 1,980 | May I follow up and ask another related question, which is a simple one? How confident do you feel in your Greenbook projections and what side are the errors on? | 34 |
fomc | 1,980 | Well, given the policy assumptions, I feel fairly comfortable with the real side forecast that we have. I know there's been a tendency for economists to underestimate the strength in the economy at turning points. But in general we have built in very restrictive monetary and fiscal policy assumptions relative to past c... | 159 |
fomc | 1,980 | In other words, two plus two still equals four but maybe it's-- | 14 |
fomc | 1,980 | All this depends upon one's judgment of this 3 percent shift in M1 demand. What was that shift in the past year, say? | 28 |
fomc | 1,980 | Very little, if you mean over the course of 1979. | 14 |
fomc | 1,980 | I was thinking of the past 12 months. | 10 |
fomc | 1,980 | From reading the model--which is all this is talking about--in the year 1979 there was virtually no shift. There was a little downward shift, but I wouldn't take the model that seriously on that. For the year ending in the second quarter of 1980 there was a shift of about 3 percentage points, all of which occurred in t... | 75 |
fomc | 1,980 | Governor Wallich. | 4 |
fomc | 1,980 | As far as the forecast is concerned, which I view as very well done, I find myself much closer to the Administration's than to the staff's, certainly for 1981. I think we have to count on a high nominal GNP, quite possibly a good rise in real GNP, and an even higher deflator than either the Administration or the staff ... | 349 |
fomc | 1,980 | As far as the first point is concerned, it's always possible that we are estimating capacity incorrectly. But we have tended to scale down the effective capacity level in our index by introducing a factor of downtime that is much greater than we had earlier. So I think we're far more realistic in terms of effective cap... | 197 |
fomc | 1,980 | Governor Rice. | 3 |
fomc | 1,980 | My question has been answered. | 6 |
fomc | 1,980 | Governor Teeters. | 4 |
fomc | 1,980 | I'm curious about your projection [for the external sector]. I know you said yesterday that the real growth of our trading partners was strong--and Japan's was quite strong--in the first quarter. But [these countries] seem to me to be subject to the same pressures that we are: high interest rates and rising oil prices.... | 93 |
fomc | 1,980 | I'd make several points. We are definitely assuming that [other countries] will have a slowdown. [We expect real GNP] growth to go from approximately 4 percent in the last two years, 1978 and 1979, to 1 percent. To some extent zero is an artificial number in this context; indeed, the same forces will be operating on th... | 334 |
fomc | 1,980 | But that is one of the risks in the forecast. Things could be considerably worse-- | 17 |
fomc | 1,980 | Yes, but we may be going through the same phenomena. I've asked the staff about that. We're worried about that with a nine-month lag, right? In general, we've been forecasting a slowdown in every [Greenbook] and we haven't seen it yet in the numbers. After real growth in the first quarter on the order of 3 percent, dep... | 127 |
fomc | 1,980 | There will be a few further complications if the LDCs don't get financed. Governor Partee. | 20 |
fomc | 1,980 | I'm fairly comfortable with the forecast. I have a feeling that the staff might be on the optimistic side with regard to prices. I noticed that food price increases are really nothing exceptional at all in this forecast and intuitively I would have expected a considerable burst in food prices later this year and early ... | 478 |
fomc | 1,980 | Mr. Morris. | 4 |
fomc | 1,980 | I think this balance sheet ratio page is telling us something. It shows us very clearly that compared to 1974-75 the corporate sector is less liquid, the household sector is substantially less liquid, and the commercial banks are less liquid. At the same time, we are going into a recession of about roughly the same sca... | 153 |
fomc | 1,980 | I don't know that I'd say "before" and refer to 1974 and 1975. We had very special factors then, involving particularly the REITs. I do think, however, that the combination of high inflation, which is really the problem behind this whole chart, as well as sluggish income growth in general portends difficulties for indi... | 148 |
fomc | 1,980 | Mr. Winn. | 4 |
fomc | 1,980 | I think somebody ought to be optimistic here and try to search for what might be a more positive approach or we are going to have all the probabilities on the wrong side of the forecast. Your housing starts figure, as I understand it, is for single-family homes. | 53 |
fomc | 1,980 | No, it's both single-family and multifamily. | 10 |
fomc | 1,980 | Combined. | 2 |
fomc | 1,980 | Well, the inventory of single-family homes is rather a puzzle in terms of the overhanging supply, which may be larger than it seems. But in apartments and the whole commercial area, one can't beg, borrow, or steal space. One gets the feeling that that could snap back somewhat more quickly than it has in other cycles. S... | 74 |
fomc | 1,980 | One can't beg, borrow, or steal space, but with the rent control laws and all that does anybody want to build? | 25 |
fomc | 1,980 | Yes, it's starting to pick up in some areas. At least the builders and the people in the financing area are talking about a fairly sharp turnaround, Paul. So that's a positive. Second, if one looks at these declines, how much is psychological and how much is real in terms of the shock effect that we had? And to what ex... | 452 |
fomc | 1,980 | I thought you were going to introduce some animal spirits to overcome the animal inventories! Well, one of the difficulties of having so comprehensive and able a presentation is that it provoked a great deal of discussion and [consumed] a great deal of time. Nothing looks very happy, except Mr. Winn's last interjection... | 233 |
fomc | 1,980 | We spent a long time on the business outlook; I think we should have spent a long time because [the staff presentation] was interesting and illustrated some of our problems very amply. But I don't think we are going to get beyond the long-term ranges before lunch, so I suspect we will [continue the meeting] after lunch... | 1,031 |
fomc | 1,980 | [Statement--see Appendix.] | 6 |
fomc | 1,980 | You did not consider the possibility--maybe it shouldn't be considered, but let me raise it--of correcting, in a sense, the M-1A/M-1B relationships for what has gone on so far. | 44 |
fomc | 1,980 | Well, we did. We assumed that an unchanged policy from what was adopted in February meant that M-1A growth could be about 1/4 point below the midpoint of the range and M-1B growth about 1/2 point above the midpoint. | 54 |
fomc | 1,980 | But that's not reflected in the ranges you are proposing. | 11 |
fomc | 1,980 | We didn't change the ranges, but we spelled that out as an assumption. | 15 |
fomc | 1,980 | Theoretically, we have the option of-- | 10 |
fomc | 1,980 | That's right. That's why I particularly stressed M-1A and possibly M-1B; but M-1A is a more logical candidate. | 30 |
fomc | 1,980 | Just to put this in context: The charts that you have drawn later [in the Bluebook] for the short-run ranges are based upon what we know through June. M-1A and M-1B are both below the cone [for the year thus far]; in fact, they're below the channel. If we took the estimate you have for July--which may be in a state of ... | 143 |
fomc | 1,980 | That's right. | 3 |
fomc | 1,980 | Projecting M2 into July--June is already [plotted on the chart]--it looks a little more clearly above the midpoint. | 28 |
fomc | 1,980 | That's right. We expect that by the time the year is out, M2 will have grown [at a rate] somewhat above the midpoint. | 29 |
fomc | 1,980 | And M3 will be just a little below the midpoint. | 12 |
fomc | 1,980 | Do you have an M3 estimate for July? I don't know whether you do or not. | 19 |
fomc | 1,980 | I do have one. The July rate of growth for M3, at 5.8 percent, is weaker than that for M2 and M1 because we still have very weak bank credit demands and consequent reductions in large CDs. | 47 |
fomc | 1,980 | What you basically have for the July projection is: M-1A below the cone, though probably within the channel; M-1B just about at the lower side of the cone; M2 higher in the range; M3 a little low in the range; and bank credit--what, below the bottom of the range? | 67 |
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