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fomc
1,977
Thank you, Mr. Winn. Mr. Kimbrel now, please.
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Mr. Chairman, it isn't often that our view in the deep South coincides so much with New England, but this morning I'm very close to Mr. Morris. We've done a little more than our usual checking on attitudes and relationships with businessmen in the last couple of weeks. And we find them ebullient. We find the expectatio...
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It keeps the price up.
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Right, right. The vegetable people have already come along with a crop to regain [unintelligible]. Flowers and houseplant people are full speed ahead, so they are very happy. Tourist [offices] admitted that the studies they are making with relation to gasoline are not very scientific, but they are [saying] that [it] wo...
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Thank you, Mr. Kimbrel. Mr. Wallich now, please.
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I am one of those who worried about the economy, but more because I didn't understand what was going on than because I had a negative forecast. Now I am impressed by the very peculiar behavior of the aggregates. I think this may be a time where one might contemplate a money market directive. I think that no matter what...
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That is, ahead according to Otto Eckstein.
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Well, that's a hint according to Otto Eckstein; then more may be ahead according to--
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Is that 150 from here, Henry?
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From here to 6-3/4 or 7. But we've three more bites of the size that we have taken just now. Each time will take a great effort of will on our part to steel ourselves for that. And given that the aggregates behavior right now has been helping us and justifies the appearance of a further move, I'd go to a 5-1/4 to 6 on ...
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Thank you, Mr. Wallich. Mr. Gardner now, please.
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Gentlemen, I have been listening to a great deal of wisdom. I guess we all know who we are today. I think originally, until I heard the Chairman's suggestion, [unintelligible] I asked myself, in view of the buoyancy of the economic indicators, what would we be doing if we hadn't had a 19 percent growth in M1 in April? ...
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Thank you, Mr. Gardner. Mr. Lilly now, please.
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Well, I'm glad to be almost at the last because, as the meeting started out, I had kind of a sense of dismay about whether I was going to be able to voice my theory. But then Frank spoke up, and now I have somebody to speak against. Thank you, Frank. We have moved 70 to 80 basis points since last January, depending on ...
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All right, thank you, Mr. Lilly. Mr. Mayo now, please.
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Mr. Chairman, as a preamble to my remarks, I should report an observation coming out of my recent brief vacation in Greece. I decided that, despite my confidence in the staff projections and in the ability of this Committee to do a good job, I'd like to consult the independent sorts of wisdom, so I spoke with the Oracl...
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Thank you, Mr. Mayo. Mr. Volcker now, please.
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I'm afraid New York is not to be confused with Athens, although I sometimes think the roof is falling in. Everything that I could have said has already been said in one way or another. Let me just say in terms of the business situation, where I think that a fair number of uncertainties could develop later this year and...
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Thank you, Mr. Volcker.
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Mr. Chairman, as mentioned earlier, it seems to me I see indications of a spreading speculative inclination in the economy, and while competitive efforts of extenders of credit to put out funds probably don't guarantee speculation--
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I am having a little difficulty hearing you, Mr. Baughman.
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It seems to me that the competitive efforts of lenders to put out funds don't guarantee speculation, but they do nevertheless provide an environment in which it can be continued and spread. And so it seems to me that we're at a point where we should be pretty sure we don't add further to liquidity in the economy and [t...
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Thank you, Mr. Baughman. Mr. Guffey, we haven't heard from you yet.
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Mr. Chairman, waiting until or near the end to speak should be of some help, but it is not to me this morning because I had an underlying philosophy or feeling to want to take a bite against inflation. But I'm also troubled by the fact that we have received a rather substantial surprise in April. And there is not a gre...
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Thank you, Mr. Guffey. And we will hear from you, Mr. Roos.
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Thank you, Mr. Chairman. We feel a greater concern of danger at the upside than we do at the downside. I personally don't share the concern that has been expressed this morning that there could be a slight slackening in the rate of in the recovery. I think if the recovery continues to move ahead at its present rate ove...
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I'd like to pick up where you left off and say a word about cemeteries. I think cemeteries should be used more extensively than they are. They could serve a novel purpose, namely to bury economic forecasts. Now where we were about three months ago or so, and the Administration came forward with a fiscal package, the Ad...
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Mr. Chairman, while you are studying that, may I ask Mr. Kimbrel a question? In discussing the Florida freeze, you mentioned that you thought it might have been an act of providence. We are aware that certain of your townspeople are now running the United States government, but I didn't know they had taken over the wea...
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I hope they do a better job of that than they do some other things.
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Is there anybody left in Atlanta?
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Really got our share of--
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They certainly loaded the airplanes to Atlanta from Washington every Friday night.
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Gentlemen, I could take a great deal of your time and my time summarizing these figures, and, if you will permit me, I will not do that but simply make a suggestion to the Committee that I think comes close to summarizing the central tendency of the Committee's thinking. I would suggest we vote on the following: A mone...
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Could we take a vote on money market versus aggregates?
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Yes, let's do that. Let's have a show of hands on monetary. Those that prefer a monetary aggregates directive, raise their hands, please.
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Seven.
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Estimating errors really are getting tough around here.
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Do you mean to say we can't even count hands?
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I didn't say that.
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Good. Any other questions or comments? If not, will the Secretary be good enough to call the roll.
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Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes It's unanimous.
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Anything else we have to do today?
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Set the date for the next meeting.
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Well, I think the date is set. We will go to lunch punctually, and we will have three members of the staff with us. We are going to discuss the legislation with regard to NOW accounts and paying interest on reserve requirements. I hope all of you can come, because this is a matter of great importance to the System.
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Gentlemen, we are starting a bit earlier, and the reason is that I will have to leave this meeting at about 12:15. I would hope that we could get through with the monetary policy directive by that time; and without interrupting members of the Committee or interfering with the flow of thought, I hope that we can accompl...
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Seconded.
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The motion has been made and seconded, and I take it there is no objection. And we will pass now to the report on the state of the economy. Mr. Zeisel, would you be good enough to address the Committee?
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[Secretary's note: This statement was not found in Committee records.]
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Thank you, Mr. Zeisel. The increase in rentals. I haven't followed those figures recently. What has the rise, and the average rise, in rentals been?
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Those figures, I must say, are not the best base that we have, but they come from the CPI, and they show a fairly steady rate of increase in rentals over the last year.
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Of how much?
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I don't have that figure with me, I am afraid.
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I somehow have the impression that the rise in rentals has been below the rise in the consumer price index.
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I think that's right. But, of course, the rise in the consumer price index, Mr. Chairman, has accelerated considerably recently because of the food and the--
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Does anybody know? We are all homeowners, and we don't have rental--
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We can obtain that number and provide it in a few minutes for you.
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All right, any question or comment? Yes, Mr. Black?
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Jerry, could you give us a little bit more on the revised first-quarter figures for GNP? I'm interested more than anything else in why it was revised upward and what final demand did.
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The revision occurred basically in corporate profits repatriated from overseas. Its counterpart on the product side is net exports. So two figures on the income side were corporate profits, which now show a slightly larger rise than they did in the earlier estimate; and net exports, which show a slightly stronger figur...
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Were inventories about the same?
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Inventories were unchanged from the earlier figure.
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But you did mention the figures on final demand in percentage terms, and I was trying--
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Final demand [was] revised up to a 4.2 percent real rate of growth for the first quarter.
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That's the one I missed; thanks a lot.
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All right. Mr. Eastburn, please.
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A comment and a question. I noticed in the New York Times that there was a listing of forecasts for 1978--some 35 forecasts. Which, as I read what the Greenbook has, would put your forecast at the upper end of the list, probably at the top end of the list. I have some reservations as to whether that will materialize, a...
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Do you want to elaborate on that--the grounds for pessimism as voiced at the meeting?
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Yes, I think it's a function of several things. One is the fact that businessmen feel lost, that they don't know where things are going, that the old rules no longer apply, that they don't know what government is going to do, particularly in the area of energy. And although they have become used to uncertainty, I think...
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Now, wait now. When the retailer says that, I would interpret it to mean that the increase between the first half of 1976 and the first half of 1977 is of a certain magnitude and that he expects that the increase from the second half of 1976 to the second half of 1977 will be of the same magnitude, which is that's the ...
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That was the way I interpreted it--that, in fact, his forecast is not pessimistic, but his attitude is pessimistic. And I suspect that the pessimism is overdone in many cases, but I think it is there and is reflecting itself in attitudes toward capital spending and willingness to take ventures and to move out in the ne...
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It's very heavily judgmental.
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Is there a difference between what the model is saying and what the--
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The model is weaker, and particularly consumer spending is weaker. And the pattern on inventories is such that, at the end of the projection period, accumulation of inventories is about the same. But in the earlier periods, the model is considerably weaker, which would give you a somewhat weaker second half, particular...
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Is the increase in the saving rate larger on the model than it is in the--
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Yes, right. That's what happens. The saving rate drifts up higher. I might note that it looks like the model is indeed going to be off on the consumption sector in the first quarter and second quarter. It clearly understated the degree of spending.
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The model doesn't sustain capital spending as strongly as we--
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Can't hear you.
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Excuse me, Mr. Chairman, the model does not sustain capital spending as strongly as we do judgmentally into '78.
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Well, I think these differences may account for our tendency to be somewhat lower.
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Of course, the relationship of consumption to capital spending and the generation of income is obvious.
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All right, thank you. Mr. Balles now, please.
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Mr. Chairman, I would like to ask a question about the Board staff forecast, mainly to clarify my own understanding of what's been happening here. As I look over the inflation forecast made monthly since the first of the year, we know it has been moving up steadily, starting off with a forecast of 5.5 percent for the y...
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Well, we have gone through a period in which the economic information that's come in has grown progressively stronger. The evidence, for example, of consumer markets has been for a considerable degree of consumer optimism, apparently. Retail sales have been very strong, and we have been going through a process recently...
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I think also the interest rate side--I don't recall precisely what we had for interest rates, but I do know by this time we had anticipated higher market rates, so that if velocity is pretty much on course, I think what is off is indeed that interest rate levels are less than we had anticipated given the kind of streng...
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Well, net-net, I was guessing that what was happening was that implicitly your velocity forecast has risen over this period, because normally you would expect a combination of steady monetary growth and inflation to produce some reduction in real growth, and yet you don't have that. Am I interpreting your figures corre...
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I think that's right. I don't have the numbers back in the January-February period. It's clear that over the balance of the projection period, we have M1 velocity rising at around a 7 percent annual rate, which is really very high, as you know.
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I noticed that in the Bluebook. I thought it was awfully high.
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Let me just note that we do have some numbers on this residential rent index in the CPI, and in '75 and '76, that index had been rising at around a 5-1/4 percent annual rate. And in the first quarter of this year, it's 5.8 percent. The monthly pattern is, February, a 3.6 percent annual rate, 6 percent in March, 8.4 per...
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That's gross rent, that's not net rent, which is a little bit--
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That's right.
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Net rent may well have gone down, based on those figures.
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All right, thank you, Mr. Balles. Mr. Partee now, please.
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Jerry, I was surprised how pessimistic your comments were regarding prices. I was surprised because I'm not that pessimistic, obviously. But I wonder whether what you're picking up in the GNP forecast, and second quarter forecast in particular, isn't a reflection of past increases, principally in food prices. If you lo...
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Yes, you are perfectly right. My view of the price situation has deteriorated along with, I guess, my perception of what seems to be happening. You are perfectly right, also, the adjustments at the moment are very largely in the food component. Those prices came in much larger than we had anticipated for the last coupl...
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6 to 12.
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12 for the quarter. And this is, in itself, a shock. There are elements in wholesale food prices that are still to come through to retail--coffee is a particular case.
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But there we've been reading of reductions.
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What we have been getting unfortunately--well fortunately--
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Wholesale price of coffee has been coming down. But the retail price has been below the wholesale.
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That's correct. That's exactly--
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