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fomc | 1,977 | Thank you, Mr. Guffey. Mr. Morris now. | 14 |
fomc | 1,977 | Mr. Chairman, I have two comments. I think there's one measure of confidence that we shouldn't overlook, and that is the remarkable performance of the bond market in the last few weeks despite the fact that we pushed up short-term rates--and in fact probably because of it, because we showed the determination to move pr... | 124 |
fomc | 1,977 | How do you interpret that, Frank? | 8 |
fomc | 1,977 | I think there is an expectation that we are not going to have a sharply rising trend in interest rates. That also shows up in the Treasury bill futures markets. The Treasury bill futures yields are going down, reflecting an anticipation of that. | 47 |
fomc | 1,977 | You think this behavior of long-term interest rates reflects, in part, confidence in the Federal Reserve's policies? | 22 |
fomc | 1,977 | I think so, yes. | 6 |
fomc | 1,977 | Well, that's been my own judgment, but it's a hard thing to be sure of. | 18 |
fomc | 1,977 | I think if we had not moved in the face of that April bulge [in M1], we would not have had a decline in the long-term yield. | 33 |
fomc | 1,977 | How did you relate the stock market to that, considering that many of these long bonds are purchased by people that would normally have been in equities to a certain extent. And they obviously are not going to. | 41 |
fomc | 1,977 | Well, I think if we get this continued confidence in the bond market, it's going to spread to the stock market as well. | 26 |
fomc | 1,977 | But both could be consistent with not expecting a boom-- | 11 |
fomc | 1,977 | That's right. | 3 |
fomc | 1,977 | --a willingness to invest in long-term instruments and holding away from the stock market. | 17 |
fomc | 1,977 | My other comment is less optimistic, Mr. Chairman. Getting back to the wages issue, which I think is going to be very critical in the next 18 months or so. I was talking recently with John Dunlop, and he is very pessimistic on wages. And his argument is that we've had a number of settlements recently in automobiles and... | 150 |
fomc | 1,977 | I trust Dunlop puts a good deal of emphasis on that kind of analysis of the wage market, that is, the differentials, and in fact that proved to be a very important factor in areas like construction and raising wages. | 46 |
fomc | 1,977 | A little louder, please. | 6 |
fomc | 1,977 | Excuse me, I think there's no question that that's going to have a significance. That's going to play some role in wage determination in the near future. My own feeling about wages, I think, has deteriorated slightly because I'm afraid of the feedback from the rapid increase in prices that we've had recently. And I thi... | 85 |
fomc | 1,977 | You know, I think it would be a good idea for the staff to keep in touch with John Dunlop and one of our own [Reserve Bank] directors, Arnie Weber. They are probably the most astute students of the labor market that we have. And in judging wage trends, I think it would be a good idea for you to talk to each of these tw... | 82 |
fomc | 1,977 | He is pretty happy about the construction sector. But it's outside of construction that he thinks we're-- | 19 |
fomc | 1,977 | He thinks steel and autos are well ahead of their [projected production] and so on. | 19 |
fomc | 1,977 | Yeah. | 2 |
fomc | 1,977 | Thank you, Mr. Morris. Mr. Fossum, please. | 14 |
fomc | 1,977 | Mr. Chairman, I'd give the Committee a little sense of the sentiment from the Southeast based upon the expressions by our directors at their recent meeting. I'd say, almost to a person, our directors expressed, not pessimism, but very cautious optimism about the near-term economic future. And this is based in considera... | 273 |
fomc | 1,977 | Thank you. Mr. Coldwell now, please. | 11 |
fomc | 1,977 | Mr. Chairman, there are only three spots in the change, or in the projections, which raised some flags for me. First, the inventory change, shifting--from the first quarter to the second quarter--from 12.1 to 3.0. And secondly, the increase in final purchases jumped from 39 billion to a 57 billion rate. And then, final... | 106 |
fomc | 1,977 | Those are for the second quarter? | 7 |
fomc | 1,977 | Between the first and the second quarters. I think, as I look over these figures and other matters, that the directions are right. I wonder if the magnitudes are quite that much in the way of change. I particularly question the degree of change in inventory because I think you're going to get more rather than so much l... | 162 |
fomc | 1,977 | As far as inventories are concerned, Governor, the first quarter was extremely strong in part because it was a substantial shift--a swing in inventories from the fourth [quarter] to the first. The actual rate of inventory accumulation in the second quarter is higher than the first at a reasonably--not a high rate, cert... | 262 |
fomc | 1,977 | All right, thank you, Mr. Coldwell. Mr. Lilly now. | 16 |
fomc | 1,977 | Well, I just wanted to point out that they would be unable to build 1978 models until the legislation that was in front of the Congress to reduce the emission standards was passed. I'm very much concerned about the 11-1/2 million annual rate of autos that you have projected, which includes the 25 percent decrease in im... | 198 |
fomc | 1,977 | What is the status of that legislation? | 8 |
fomc | 1,977 | It's still in conference. | 5 |
fomc | 1,977 | Expected soon? | 3 |
fomc | 1,977 | Well, you know, last May 25 it was expected almost daily, and nothing has happened, and we've all-- | 24 |
fomc | 1,977 | Who's holding it up? Do you know? I haven't been told. | 14 |
fomc | 1,977 | Well, I don't know. | 6 |
fomc | 1,977 | [Unintelligible]. It seems to me there's one last week-- | 15 |
fomc | 1,977 | We have kept in touch following your comments last month, Governor. We kept in touch with this legislation and, obviously, you are perfectly right. The producers are disturbed, quite worried-- | 37 |
fomc | 1,977 | Well, here's Ford, you know--now putting a label of '77 on a '78 model--incidentally that has an interesting effect because they're going to have to sell it at '77 prices, they think. So it's actually coming on the market a little cheaper. | 55 |
fomc | 1,977 | It might be a good idea to extend the thing. | 11 |
fomc | 1,977 | They do anticipate-- | 4 |
fomc | 1,977 | I was afraid they might see that. | 8 |
fomc | 1,977 | They do anticipate action very soon on this legislation. And on the basis of our discussions with Detroit, we have continued to assume that the legislation will get out very soon and that they will be able to move on to '78 production on schedule. And they are making that assumption. | 56 |
fomc | 1,977 | At higher prices. | 4 |
fomc | 1,977 | At higher prices. | 4 |
fomc | 1,977 | All right, thank you, Mr. Lilly. Mr. Winn now, please. | 17 |
fomc | 1,977 | Two brief comments, Mr. Chairman. First, in terms of our capacity measures. I'm quite impressed, on the one hand, with what industry has been able to do with some small retooling in terms of dramatically increasing the capacity of output for their plants. And so part of the new technology is just being factored [in] as... | 293 |
fomc | 1,977 | [Statement--see Appendix.] | 6 |
fomc | 1,977 | Thank you for a very interesting report. Any questions of Mr. Meek? | 16 |
fomc | 1,977 | I wonder to what extent open market operations in bills offset what the Treasury does by running off its bills? You mentioned one week where the numbers seemed to be not too dissimilar. But then you said that, over the quarter, the Treasury reduced bills, I believe, by $10 billion, which surely is much more than the Fe... | 71 |
fomc | 1,977 | Well, our operations in the short run, of course, add to the available supply of market bills, and in this period they reduced the shortage in the market. Nonetheless, the shortage of bills in the market has been one of the reasons that the bill rates have been out of line with other short-term rates during this period... | 66 |
fomc | 1,977 | Any other questions? Well, thank you. And Mr. Kichline, could you introduce us to the Bluebook at present? | 27 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | Thank you. I overlooked an action that is required on the operations at the Domestic Desk that we need to approve if we are so inclined--what the Desk has done during the past month. | 38 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Motion has been made and actually seconded. | 9 |
fomc | 1,977 | Do they have to buy them themselves if we don't approve? | 12 |
fomc | 1,977 | I hear no questions or objections. All right, any question to Mr. Kichline? | 19 |
fomc | 1,977 | Jim, on alternative B, you are looking at an M1 [growth rate] rising from 1.9 [percent] in June to 8.2 in July. Would you tell me what the pattern of that was in 1976? | 51 |
fomc | 1,977 | For the June-July period? We have it in one of these tables if I can locate it. M1 in June of last year declined 1.2 percent and in July rose 7.1 percent. | 44 |
fomc | 1,977 | So your pattern isn't much different. | 7 |
fomc | 1,977 | No. | 2 |
fomc | 1,977 | One point higher. | 4 |
fomc | 1,977 | No, that is right. We are starting clearly at a June base that's roughly a bit higher. But essentially the same sort of thing in terms of, after two months or so, we assume that resumption of growth will occur. That's what we've built into our patterns this time. This is two months after this massive bulge-- | 67 |
fomc | 1,977 | Yet, your economic situation is sharply different. | 9 |
fomc | 1,977 | That's right, if our forecast is right, it will be stronger this time around than last. | 19 |
fomc | 1,977 | Which ought to then build a higher rate for M1, shouldn't it? | 15 |
fomc | 1,977 | Well, since we have a little bit higher rate on average for that period, we have a higher rate. | 22 |
fomc | 1,977 | I know, but starting at the lower base you still are moving roughly the same-- | 17 |
fomc | 1,977 | We, by the way, are just about on track now in terms of [the second] quarter. We had an 8.2 percent annual rate of growth, and we have about the same this time. So, on average in the second quarter this year and last, there's not much change. | 61 |
fomc | 1,977 | All right, thank you, Mr. Coldwell and Mr. Kichline. Mr. Morris please. | 22 |
fomc | 1,977 | Mr. Chairman, I'm very much disturbed by this prospect of an early July artificial bulge in the money supply. It seems to me that our response ought to be to adjust the seasonal adjustment factors to reflect the fact that our present seasonals are wrong. To do otherwise is to give a market which is very sensitive to th... | 151 |
fomc | 1,977 | You have me as a supporter, at least tentatively. What is the answer to Mr. Morris? | 21 |
fomc | 1,977 | Well, this is the first July that we had this. [Previously there were two instances] of this sort of experience--the third time around [will be] this July. In April, there were clearly a number of things going on. We had three special factors, I remember, plus sort of underlying transactions demands. So one of the issu... | 173 |
fomc | 1,977 | Well, I think seasonally adjusting weekly data involves a lot of uncertainty anyway. But it seems to me that we do have some historical basis for making an adjustment we ought to use. | 37 |
fomc | 1,977 | Well, is this seasonal? You've had two occasions--two different weeks and two different months, and the third one is coming up. Now, the two seem to go the same direction, so do you already bet and change the seasonal? What if the third one doesn't happen? | 56 |
fomc | 1,977 | Suppose you didn't call it a seasonal? Suppose you called it an identifiable special factor that you are correcting for? | 23 |
fomc | 1,977 | It's not very identifiable, is the trouble. | 9 |
fomc | 1,977 | What's that? Well, not the amount, no. | 11 |
fomc | 1,977 | One way of handling it is, when you announce the figure, emphasize that this happened. | 18 |
fomc | 1,977 | It seems to me that's the better course to go, Mr. Chairman. I don't visualize this, just by reading the explanation correctly, as a seasonal at all. It's an increase in the money supply that is on the books of the private sector for a longer period of time during a month, during the year. | 63 |
fomc | 1,977 | If it happened every year, then the seasonal would take [it] into account, and we would not be showing a big bulge. It's [because of] the fact that it doesn't happen every year that we've got a problem. | 47 |
fomc | 1,977 | But that's my point, I think, Frank, that this isn't a seasonal. If it happened every year, it would be up every year because you have a larger volume of money in the hands of the Social Security recipients for a longer period during that year. But I don't think it is a seasonal at all. | 63 |
fomc | 1,977 | It won't happen, of course, in the same month. It only happens when, as I understand it, the first of the month is a weekend. | 31 |
fomc | 1,977 | Well, the third of the month is on Saturday or Sunday or holiday. I might say there's a chance-- | 22 |
fomc | 1,977 | Isn't this analogous to the kinds of adjustments our statisticians have learned how to make in retail trade because of the shifting date of Easter? | 28 |
fomc | 1,977 | Exactly, or the number of trade days in a month. | 12 |
fomc | 1,977 | I have sympathy for what Mr. Morris has suggested, having worked on problems of that sort, not recently, but over many years in the past. What I could say in defense of the staff is that what they are allowing for, this exceptional factor, is not very large. And when you make your seasonal correction, the elements of u... | 98 |
fomc | 1,977 | How much are we talking about? | 7 |
fomc | 1,977 | In dollar terms, a billion and a half. But let me just say for that particular week, July 6, our weekly pattern consistent with alternative B has a not-seasonally adjusted increase of $10 billion and a seasonally adjusted increase of $3 billion. So there's a $7 billion seasonal adjustment there in that week already, so... | 89 |
fomc | 1,977 | Will you translate that into percentage change, too, Jim? A third of your 8.2 would be-- | 23 |
fomc | 1,977 | Yeah. Without it we would be down to a 5.8 percent annual rate of growth in July. | 22 |
fomc | 1,977 | 5.8 without this special Social Security factor. What is it with that factor? | 17 |
fomc | 1,977 | 8.2. | 4 |
fomc | 1,977 | Gentlemen, I think you've heard me say time and again at this table that 4 equals 8, and now we have 6 equaling 8. And I still would go with Mr. Morris, I think, but it's not a factor of much consequence, really, practically, because of uncertainty in measurements that surrounds our entire operation here. | 72 |
fomc | 1,977 | Conceptually, I don't see why this affects more than one week. Why isn't it all washed out the next week? | 24 |
fomc | 1,977 | Well, but it's spread out. The average effect on the month. | 14 |
fomc | 1,977 | I understand that, but you get a higher month because one week is higher. | 16 |
fomc | 1,977 | And therefore the rate of change is-- | 8 |
fomc | 1,977 | It's that the change from [the week of] July 6 to [that of] July 13 is different with the higher level in the first week. We have it all washing out in the first 15 days of July. And that's indeed what happened, if our interpretation is correct, in both October and April--that it's a first-half phenomenon, and it occur... | 99 |
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