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fomc | 1,980 | Mr. Chairman, if we are satisfied that M-1B will come in fairly low in its range, are we going to be willing to have it come in higher in '81? | 38 |
fomc | 1,980 | It's going to have to. | 6 |
fomc | 1,980 | We can reopen the question of '80, but at this stage before considering '81, have I captured the consensus for the staff and the writing they have to do for the testimony? In a very formal sense the numbers are the same, but the interpretation is of some considerable importance here. | 58 |
fomc | 1,980 | I think that captures it exactly. | 7 |
fomc | 1,980 | Okay. For '81 I think we are in much more difficulty, frankly. We have a real dilemma, inconsistency, tension, or whatever you want to call it between the projections and what we'd like to see happen in the economy. If the staff estimates mean anything, in a very straightforward way what they imply for the aggregates--... | 427 |
fomc | 1,980 | I think you're entirely right. It's not easy. On the other hand, if you surround your discussion of 1980 with a good deal of qualitative explanation about the uncertainties regarding the shifts in demand for money, and so forth--and extend that into 1981--you will have provided the background for a good deal of wafflin... | 69 |
fomc | 1,980 | I don't think that avoids the problem, but I agree with what you are saying. Whatever else we say about '81 we ought to say that there is a lot of uncertainty about the M1s and particularly about the relationship between M-1A and M-1B. Somebody here put it very dramatically with zero on one and 7 percent on the other o... | 167 |
fomc | 1,980 | One possibility would be to say that our presumption at this very early stage is that the Committee will wish to continue its long-run fight against inflation by some gradual reduction of the aggregate targets but, given the uncertainties on all these technical aspects such as the shift in the demand for money and a fe... | 78 |
fomc | 1,980 | [Unintelligible.] | 6 |
fomc | 1,980 | Either that Nancy, or leave the top where it is and drop the bottom a little and that will make it look as if we're cutting it down some. | 31 |
fomc | 1,980 | Look, one of the problems we are likely to face next year is that we will be tempted to set a target that is too low and we will exceed it. And it seems to me that our credibility in the long run is going to be worse off if we exceed it than if we are realistic about what we can accomplish. Given the fact that it's 12 ... | 96 |
fomc | 1,980 | What do we have to say in the directive, Mr. Secretary, about 1981? Nothing, do we? This isn't a directive question, is it? | 33 |
fomc | 1,980 | I can answer that perhaps by telling you what we said at this time last year. After citing the ranges for 1979, the directive said: "The Committee anticipates that for the period from the fourth quarter of 1979 to the fourth quarter of 1980 growth may be within the same ranges, depending upon emerging economic conditio... | 106 |
fomc | 1,980 | In what [part of the] directive does that appear--in the operating [paragraphs]? | 19 |
fomc | 1,980 | It's in the longer-term paragraph, isn't it? | 10 |
fomc | 1,980 | That's right. | 3 |
fomc | 1,980 | Why do we need it in there now? | 9 |
fomc | 1,980 | That was the decision made at the time that the Committee considered it. | 14 |
fomc | 1,980 | I thought that's what the Humphrey-Hawkins Act called for. | 14 |
fomc | 1,980 | It calls for a decision, but I don't know that it says how it has to go in [the directive]. We have to put down some language in the report anyway, but I don't quite see why it has to be in the directive. Steve has some [suggested] language. Let me just try it out in terms of the tenor of it. "Looking ahead to 1981, th... | 150 |
fomc | 1,980 | And of the need to keep some of our [citizens] employed. | 15 |
fomc | 1,980 | I think you forgot to include the international considerations. | 10 |
fomc | 1,980 | I'm not sure I would want that first sentence. | 10 |
fomc | 1,980 | I just looked at this language a minute ago. It takes the approach of saying we would like to get them lower but then putting a caveat on it. I suppose the question is whether we want to say-- | 43 |
fomc | 1,980 | Suppose M-1A comes in at 3.55 percent for 1980, just within the lower end of the band. Would we really want to say that for 1981 our objective is to get a lower figure? | 48 |
fomc | 1,980 | Well, it probably will be for M-1A; M-1B is going to give us the trouble, I think. | 27 |
fomc | 1,980 | M-1A would come in better only because of what happens to NOW accounts. | 17 |
fomc | 1,980 | That's right, only because of what is-- | 9 |
fomc | 1,980 | [Unintelligible] talk about ranges. We might want to have somewhat [narrower] ranges but even that is too risky, I think. But certainly we wouldn't want to say that in 1981 growth is going to be lower than the point estimates that we have for 1980. | 62 |
fomc | 1,980 | Well, we can get a certain amount of leeway in the M1s because of the technical problem. I think we just ought to say flatly that in the case of M-1A and M-1B, NOW accounts are likely to have a big influence. So M-1B could well be above what it was this year and M-1A might be below. But that's just taking account of th... | 113 |
fomc | 1,980 | If we have the maximum shift on M-1B of 5 percentage points, with a midpoint of 5-3/4 percent the midpoint could be 10-3/4 percent. If we have the maximum shift on M-1A, the midpoint would be 1-1/2 percent. | 64 |
fomc | 1,980 | Because of that complication for next year, which we can explain without quantifying, we in a sense get off the hook. The real bind is M2, which isn't changing in concept, isn't subject to these distortions, and isn't subject to the same so-called demand shift as M1. I'm not sure we can say this, but at one point I tho... | 149 |
fomc | 1,980 | We still have the housing market out on M2. We wouldn't want to emphasize reducing that on a long-- | 22 |
fomc | 1,980 | No, I'm saying we would tell them we may not reduce M2 and leave every implication that we're reducing M1. Then when they ask by how much and we have to give them some figures that are affected by NOW accounts and one can't tell-- | 50 |
fomc | 1,980 | M-1B is going to be increased. | 10 |
fomc | 1,980 | It will be. We would explain that M-1B will go up because of [the NOW accounts], but it's not a real increase; it's only a statistical increase. | 35 |
fomc | 1,980 | I think the markets would like that even less than if we were more general. That may get us in trouble. | 23 |
fomc | 1,980 | May I ask a technical question? Is it possible to target on M2? | 16 |
fomc | 1,980 | Oh, sure. We were giving some consideration to elevating M2 in emphasis in our targeting procedures this time. In the end that seemed [unlikely to] solve the Committee's problem and it involved a little more difficulty in terms of the continuity of the presentation. As you say, next year there's an obvious case for it.... | 106 |
fomc | 1,980 | We can target on M2 but of all the aggregates it's the least easily controlled, and we're going to have more misses. | 25 |
fomc | 1,980 | We have enough trouble with the M1s. Why go to M2 when it includes two things we have absolutely no control over? | 27 |
fomc | 1,980 | One way we can resolve this target for next year is the way Fred suggested. I don't know whether we want [to or not]. It's fairly straightforward to say the [1981] targets are going to be at or below [the 1980 targets]. I think it's a [choice] between saying that and saying in effect what this other statement says, whi... | 95 |
fomc | 1,980 | Mr. Chairman, I would like to emphasize what Governor Teeters said. There's a real trap in setting M2 targets that we think we can achieve because, with these new monetary instruments, we can't. As Steve just pointed out, M2 is loaded with [components] over which we don't have even indirect control--the money market fu... | 98 |
fomc | 1,980 | I question that proposition. I don't think M2 is going to be any more difficult to control than M1. | 23 |
fomc | 1,980 | Well, we have a difference of opinion. That's what makes horse races and stock markets. | 18 |
fomc | 1,980 | Well, M2 is getting more stable. In the past it has slowed when interest rates went up. Money market mutual funds are likely to go up when [rates rise] so that's a stabilizing element. | 42 |
fomc | 1,980 | There are two conflicting forces working. It's less directly controllable in one sense, but it has a much more stable relationship with the economy than-- | 29 |
fomc | 1,980 | And these shifts in balances tend to take place within M2 rather than out of it into something else. | 21 |
fomc | 1,980 | Well, for '81 the consensus [though we're not unanimous] is that we have to be qualitative rather than precisely quantitative about it. Nobody wants to propose an increase. I would suggest, and it seems to capture the majority but not the full consensus, that we make subtle noises about how we'd like to get [the ranges... | 97 |
fomc | 1,980 | Mr. Chairman, could I make an observation? On M-1B, if we had known when we set these long-run targets that we would hit the midpoint or the revised midpoint of 5-3/4 percent, I think we would have been reasonably happy with that. We had expansion of M-1B in 1978 of 8.2 percent and in 1979 of 7.6 percent. And if we get... | 227 |
fomc | 1,980 | I agree with you totally, Bob. | 8 |
fomc | 1,980 | Do you ever formulate the preliminary targets for [the year ahead] in relation to the targets rather than the performance? | 23 |
fomc | 1,980 | Well, we are relating it now to the targets, which I think is part of the difficulty. Where we would want to come out in terms of changing [the ranges] and the actual number we would want next year does depend upon where we come out this year. If growth in the M1s comes in very low this year, as is possible, certainly ... | 118 |
fomc | 1,980 | That was my presumption until I heard Bob's comments just now. Of the two choices you've put to us--hope to get [growth] down but heavily qualified as against being neutral--I prefer the [former]. My reason is that if it's heavily and sufficiently qualified, it's not a constraint on our flexibility to do what we decide... | 156 |
fomc | 1,980 | Let me suggest that whatever we decide we put a footnote, in effect, in the report--I don't know that it literally would be a footnote--noting that we are talking about a target here. We don't know where 1980 will come out but if M1 did in fact come out very low in 1980, [our] target in 1981 may in fact [be consistent ... | 115 |
fomc | 1,980 | I think we're better off just talking about the ranges, Paul. It will exacerbate Tony's problem if we have a footnote that says we may have a higher M1 and we may not. | 40 |
fomc | 1,980 | Why don't we do what is necessary to keep M1 where we want it, in the middle of the range? Why do we feel that we have to wait and see where it comes in when, indeed, through open market operations we have it within our ability to have it come in, at least over a period [of time], roughly where we want it? | 73 |
fomc | 1,980 | Would you do that even if the last two months required us to go to some fantastic growth rate, say, 20 percent? | 26 |
fomc | 1,980 | Well, we can resume with that as the subject of our agenda immediately after lunch. I think we agree, at least tentatively, on an unchanged range [for M-1A] this year and for expressing the view that it might come out in the lower part of that range. | 58 |
fomc | 1,980 | But I understood the consensus to imply that we wouldn't do anything extreme to force M-1A into the range if it happens to grow slowly all the rest of the year except the last couple of months. | 41 |
fomc | 1,980 | By "anything extreme" what do you mean other than to reduce interest rates? | 16 |
fomc | 1,980 | We can only answer that question with a subsequent discussion [in which we characterize our views] with precision. It's a little difficult because we don't have precise words in front of us. I suppose Steve's formulation of words, hastily done, is one option in which we express a hope but not a commitment to get [growt... | 106 |
fomc | 1,980 | Which way? | 3 |
fomc | 1,980 | That we say in general terms that we'd like to see the aggregates lower but whether it's possible or not depends upon a reassessment at the end of this year in the light of all the circumstances, and we are going to look at it [then]. | 50 |
fomc | 1,980 | That's really the point. | 5 |
fomc | 1,980 | Yes. | 2 |
fomc | 1,980 | Now [the question is] whether we put it in the directive. | 14 |
fomc | 1,980 | Well, let me worry later about whether we put anything in the directive. The [policy record] is going to include a discussion of the difficulties surrounding M1 next year anyway because of the NOW accounts problem. All that should be in there in qualitative terms in any event. But just in terms of giving the thrust, ou... | 121 |
fomc | 1,980 | Mr. Chairman, how does that differ from four years ago when Arthur Burns said in commencement addresses that we're going to gradually reduce the rate of money growth and we equivocated and procrastinated and that's why we're in this pickle today? | 46 |
fomc | 1,980 | In that particular respect, it does not differ. It's the same as what he used to say four years ago. But I am assuming that the Committee is not prepared, which I think is the question you asked, to say right now that tentatively the ranges [for 1981] will be X, Y, and Z and that those ranges are lower than the ones fo... | 96 |
fomc | 1,980 | Mr. Chairman, don't the facts indicate that the Committee has not equivocated in that respect? If I remember the numbers right, in 1977 the growth rate of M-1A was 7.7 percent; in 1978 it was 7.4 percent; in 1979 it was 5.1 percent; and in 1980 it will undoubtedly be less yet. The problem is, Larry, that money and pric... | 132 |
fomc | 1,980 | But, Lyle, we believe that there is a direct tracking of the rate of growth of money and prices and also the rate of growth of money and output. | 33 |
fomc | 1,980 | Well, I think we have lunch approaching. | 9 |
fomc | 1,980 | Before we got into that discussion, what you said just prior to that sounded pretty good to me. It was somewhat in accordance with your talents: It was even more waffling than what Steve had to say! | 43 |
fomc | 1,980 | Steve is not waffling enough for me. | 10 |
fomc | 1,980 | I would like to waffle a bit more than what Steve said, and I thought you had done that very effectively. | 23 |
fomc | 1,980 | I could certainly agree with your waffle. Your waffle I like. | 13 |
fomc | 1,980 | Yes. | 2 |
fomc | 1,980 | Has my waffle been recorded? | 6 |
fomc | 1,980 | Just put a little syrup on it and we'll-- | 10 |
fomc | 1,980 | That's what you're likely to do! | 7 |
fomc | 1,980 | Was somebody listening to that [closely] enough to try to [put some wording together] after lunch? | 22 |
fomc | 1,980 | I would suggest that your waffle, Mr. Chairman, is probably one that would fit better in the policy record. And the Committee could be silent in the directive. | 33 |
fomc | 1,980 | I'm not quite sure why we need anything in the directive. It's not a decision. This kind of vague statement isn't going to affect what we do before the next meeting anyway. | 35 |
fomc | 1,980 | I'm told that my subommittee, of which you were a member at the time, proposed that it be in the directive. I can't remember why. | 32 |
fomc | 1,980 | Well, I can't remember why either. Unless somebody can think of a reason, let me propose that it be in the report but not in the directive. I don't see off-hand what purpose it serves in the directive since it's a vague statement anyway. | 50 |
fomc | 1,980 | Coming back to this proposed waffle: Before you ask for a show of hands you ought to make people understand what the alternative is--the second thing they're going to be asked to show their hands on--which I gather is a completely neutral statement. | 49 |
fomc | 1,980 | Completely neutral? It's not neutral in the sense of raising the range, but neutral as between changing it or not changing it. | 26 |
fomc | 1,980 | Okay. Even though I welcome the adherence of Chuck and Lyle, I'd like to-- | 18 |
fomc | 1,980 | That makes you suspicious of it? | 7 |
fomc | 1,980 | Well, what you said in your reformulation of Steve's [wording] is that consistent with our long-run policy, we would like to see the aggregates lower in '81 as well, but we don't know if we can make it for such and such reasons. What I would like to suggest we say--again because I'm thinking of the market impact, which... | 141 |
fomc | 1,980 | Well, that is not the language that I would use. I would suggest, particularly since it's 2 o'clock, if there is a willingness to work in this direction--and that seems to be the consensus--that we see if our staff can come up with a formulation before the end of the meeting that incorporates words that we can look at ... | 80 |
fomc | 1,980 | We're not committing to the waffle, though, by doing this? | 13 |
fomc | 1,980 | Not at this stage, no. Why don't we have a few sandwiches for the time being. | 19 |
fomc | 1,980 | We're suggesting that the staff, rather than have lunch, eat their work! | 15 |
fomc | 1,980 | Well, we have sandwiches right next door, I believe. | 12 |
fomc | 1,980 | Mr. Chairman, with regard to President Solomon's point on-- | 13 |
fomc | 1,980 | If we work on this waffle, it finally will be a pancake. | 14 |
fomc | 1,980 | We are going to have waffles for lunch! | 9 |
fomc | 1,980 | The Open Market Committee will be known as the International House of Pancakes! | 15 |
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