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fomc | 1,977 | And selection of which of the three, right. | 10 |
fomc | 1,977 | In essence, this is the same subject that was discussed at the conference call, but that was not a meeting, and this is a meeting of the FOMC. | 34 |
fomc | 1,977 | Are we ready for a showing of hands? | 9 |
fomc | 1,977 | This is not--we wouldn't be indicating a preference for one of the three. I have trouble with your dealing as principal with the Committee. | 28 |
fomc | 1,977 | But you're indicating that one of the three is going to be acceptable to the Committee. | 17 |
fomc | 1,977 | That means in effect that New York will continue its provision of the service of RPs to all customers. | 21 |
fomc | 1,977 | But through the System account. | 6 |
fomc | 1,977 | But no matter how it's done, you will continue to provide that service. | 15 |
fomc | 1,977 | May I also understand, Mr. Chairman, that the proviso that Alan added, which is that if there is ever any difficulty, interference with open market operations, he will immediately bring it to our attention? | 42 |
fomc | 1,977 | Beyond that, if there is a real difficulty with System operations during this interim period , we won't do it on that day. | 25 |
fomc | 1,977 | Because you have been able to do it only due to a large movement. | 15 |
fomc | 1,977 | We would only be able to do it in conformance with past practices during these fortuitous large movements in the System. | 25 |
fomc | 1,977 | You want a showing of hands, Mr. Chairman? | 11 |
fomc | 1,977 | Yes, I would. This is in favor of a suggestion that I had made. Do you have any expression of opposition? Okay, well, we will proceed and ask for a ruling in conjunction with the Board legal staff and in conjunction with the Treasury. | 51 |
fomc | 1,977 | Does that mean that you will ask the IRS for a ruling either way, for [the System] account or New York? | 25 |
fomc | 1,977 | Yes. I guess we are just left with the date of the next meeting, which is July 19. | 22 |
fomc | 1,977 | Why do you say it's overdone in terms of fundamentals? | 12 |
fomc | 1,977 | I think, Mr. Chairman, there is nothing that's happened since June 23--taking that as the base date--that would cause a 4 percent depreciation of the dollar against the mark and the Swiss franc. | 43 |
fomc | 1,977 | No, nothing has happened since June, yes, but what about what happened before then, and the market was quiescent in absorbing it? | 29 |
fomc | 1,977 | Well, if you take last year, Mr. Chairman, we have depreciated by about 14 percent against the mark, the Swiss franc, the Belgian franc, and the gilder and about the same amount against the yen. So over a longer period there has been a substantial movement of exchange rates. | 61 |
fomc | 1,977 | With a differential in price increase of about 4 percent, I guess. | 15 |
fomc | 1,977 | I'm sorry? | 3 |
fomc | 1,977 | About a 4 percent difference in price increase, I would guess. | 14 |
fomc | 1,977 | Yes, right, right. | 6 |
fomc | 1,977 | And a 14 percent depreciation. | 7 |
fomc | 1,977 | Going back to June 30 of 1976. | 11 |
fomc | 1,977 | The Bundesbank reaches to the beginning of 1976, and they say it's on the order of 19 percent. | 24 |
fomc | 1,977 | Now, there have been developments this morning, Mr. Chairman. As I say, we intervened yesterday, more than we have, but still a modest amount, and not enough to keep rates even steady, but [continuing to moderate its] going down. Today the Germans have already bought $191 million. They see signs of OPEC flows of money ... | 349 |
fomc | 1,977 | Well, my own feeling is that the markets are behaving quite rationally in view of the magnitude of our trade deficit--it's enormous. In view of the prospect--these things get around--that no improvement in that trade deficit or in our current account deficit, for that matter, is in sight. In view of some acceleration i... | 136 |
fomc | 1,977 | Mr. Chairman, as you know, what we've been doing is just following the rate down, not trying to maintain it at any rate. At some point I think it becomes much more expensive to operate in that way, and I'm not suggesting that we ought to have pegged rates here, by any means. But the continual depreciation in a rather b... | 116 |
fomc | 1,977 | Well, I think some pronouncements by the Treasury have been unfortunate, and I think it's always an unhappy day when the major financial officer of the government conveys the thought that his country does not care about the value of its currency in a foreign exchange market. And something approaching that apparently ha... | 113 |
fomc | 1,977 | I might say, I agree with you, Mr. Chairman, and I also think that it's not clear to me that it isn't U.S. official policy to let the mark and the franc and other countries with balance of payments surpluses as current account surpluses rise against the dollar, so I am not at all sure that it would be--without a great ... | 100 |
fomc | 1,977 | I wonder how we'll proceed in the market. Is the market aware of the moderate intervention you've been doing? | 21 |
fomc | 1,977 | Yes, I think they have become aware of moderate intervention. | 12 |
fomc | 1,977 | And how are we perceived by the Europeans? As doing enough so that we're not going to [be] blamed for benign neglect? | 26 |
fomc | 1,977 | I think the impression would be that we're not doing enough under current circumstances. | 15 |
fomc | 1,977 | But are they doing too much? | 7 |
fomc | 1,977 | Well, up to just recently, when the Germans came back in, the Germans and the Japanese were really staying out of the market. The Japanese intervened heavily the day before their Sunday election, I think for political purposes. The countries that have been intervening are the weak currencies--the pound sterling, the li... | 89 |
fomc | 1,977 | One of the problems that we've had with floating exchange rates is the tendency to overshoot and to have exaggerated movements of rates. Many people in the central bank community have been rather pleased that they have avoided some of these wide swings that we had in '73, '74, and coming into '75. And now, partly [give... | 149 |
fomc | 1,977 | The underlying economics are quite debatable, it seems to me. An exchange rate move does not change a current account very much until a year or two later. So that's really what we're saying--these exchange rate movements are necessary to alter the German, Japanese, etcetera, surplus one or two years down the road. Now,... | 170 |
fomc | 1,977 | Mr. Chairman, if I may add one other point. It seems to me that one of the reasons that investment demand has been so sluggish in Germany [is that], if they see a continual appreciation of the mark against other currencies, they don't quite see where their markets are going to be in the future. I think a further apprec... | 121 |
fomc | 1,977 | What about the U.S. economy? | 8 |
fomc | 1,977 | That's the opposite side of the plan. | 8 |
fomc | 1,977 | Where do we have a current account deficit from? We've got it partly from oil. It's our own oil program as well as expansion. I think the rest of it is largely cyclical, as Henry suggested. And it is likely to continue. And I do think there's a question whether this exchange rate change, going much further, anyway, is ... | 346 |
fomc | 1,977 | And the rate of speed is really the only thing we can influence. When you look at these large amounts that Europeans, not primarily Germany and Switzerland--Alan said the British and the Italians--billions they've thrown into the market. We couldn't operate on that scale, and so we could not expect to do very much to t... | 107 |
fomc | 1,977 | I am not sure you're right about that. I think that operating on the scale on which Alan has been doing isn't going to make much difference one way or the other in the present mood of the market. | 41 |
fomc | 1,977 | Well, I'm saying, to the rate of movement, not to an ultimate equilibrium level. | 18 |
fomc | 1,977 | That's what I'm addressing myself to. | 7 |
fomc | 1,977 | Mr. Chairman, could I ask a factual question? Alan, how does the amount of intervention by all countries in this current situation compare with other situations since we've had trouble with the British? | 38 |
fomc | 1,977 | I would think that the gross amounts are not far different than from other periods. There have been other periods where it's been even greater. And you had a different composition of intervention when the Japanese used to be very heavy interveners. They have really refrained and intervened only once, I think quite heav... | 132 |
fomc | 1,977 | Probably a statement by the Treasury that it's satisfied with the rate movement would help a heck of a lot more than any intervention. | 25 |
fomc | 1,977 | I agree with that | 4 |
fomc | 1,977 | I don't agree with that. I think Treasury ought to keep quiet for awhile. That's the best contribution they can make now. In fact, I advised them that way this morning at a breakfast. Well, this isn't easy, gentlemen. You know, we all would like to see the world stand still--let's not kid ourselves, that is a bias that... | 251 |
fomc | 1,977 | Mr. Chairman, I don't see how we can jump into a massive intervention if the Administration part of this government is going to talk the other way. | 30 |
fomc | 1,977 | Well, needless to say, I've thought about that. I don't know what else we can do here, really. What is your recommendation, Alan? Do you have any? Or do you want us to just sit here and shed tears along with you? | 51 |
fomc | 1,977 | I think, Mr. Chairman, for the moment, we should temporize. Talk to the Treasury and see if we can pinpoint their views, whether they feel that they've had enough adjustment for the time being. Again, I am not thinking of a permanent peg but sort of a relief from what has really stemmed from too much talk and too much ... | 107 |
fomc | 1,977 | Well, that's the way traders think--what happened yesterday. But the underlying forces do catch up with them. Well, look, we're talking to the Treasury, you keep on talking, that will go on-- | 42 |
fomc | 1,977 | Yes, sir. I should suggest that we go about as we have, maybe intervening on the scale that we had to yesterday, perhaps a bit more. This would entail additional drawings on the swaps, but not massive drawings. | 46 |
fomc | 1,977 | Alan, what are the ramifications of significant changes in official holdings? | 13 |
fomc | 1,977 | Well, this is a thing that does concern me, because we are relying really on large OPEC flows to finance our current account deficit, which isn't going to change overnight. And if you get a redirection of those flows--even [if] they are not terribly large, because you know, there's not too many places they can go in an... | 94 |
fomc | 1,977 | Well, now, you refer to a flow of OPEC money into foreign currencies. Is this a rumor, or is this a fact? Do you know? | 32 |
fomc | 1,977 | I think, in our conversations with the Desk this morning with Germans, they see some as a fact. I think there is much more in terms of rumor than there is in fact, but I think there is something in fact. | 46 |
fomc | 1,977 | Well, would you try to ferret out precise facts for me, please? | 16 |
fomc | 1,977 | We will, indeed, Mr. Chairman. | 9 |
fomc | 1,977 | Are you referring, Alan, to switches of existing holdings or redirection of the new money that they have to-- | 23 |
fomc | 1,977 | I think it's more the switches of existing holdings. But we had huge payments into OPEC accounts just over the last weekend and yesterday--the midmonth oil payments. Some of that is in overnight money and can move out very rapidly. | 47 |
fomc | 1,977 | To what extent has that total flow been reduced by the change in levels of exports as a result of seasonal impact and also by all reserves having been built up? | 32 |
fomc | 1,977 | I don't really have current facts, Governor, on that. | 12 |
fomc | 1,977 | As I recall from the weekly report last month, at least one of those countries that had normally made substantial RPs [repurchase agreements] had substantially reduced deposits to transfer what small amount there was to Europe immediately to cover some of their old-- | 49 |
fomc | 1,977 | I don't really think you are going to find much statistically here. And this floating rate system--you can't have a net capital flow except to the extent there's intervention--for every transfer, you're going to find somebody in the other direction. The question is at what rate it's taking place? | 57 |
fomc | 1,977 | Well, there's been over $3 billion on interventions. | 11 |
fomc | 1,977 | Any further comment? Is there a motion to approve transactions at the foreign Desk? | 16 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Seconded. | 3 |
fomc | 1,977 | A motion has been made and, I take it, approved. Do you have any recommendations, Mr. Holmes? | 23 |
fomc | 1,977 | Mr. Chairman, we have no swap maturing in the current period. And as I say, we have started drawing on the German swap--for the first time in I don't know how many months, we've had to draw on a swap line. | 50 |
fomc | 1,977 | Have they been at all restrictive, as they sometimes have been? | 13 |
fomc | 1,977 | No, I discussed it very briefly in Basle as a contingency, and they had no problems. | 20 |
fomc | 1,977 | How are you getting your Swiss francs now, Alan? | 11 |
fomc | 1,977 | We are buying them from the Swiss National Bank. | 10 |
fomc | 1,977 | Not in the market? | 5 |
fomc | 1,977 | No, Mr. Chairman. Once in a while, we have a chance to pick some up from one of our customers who's a seller, and we do that from time to time. | 37 |
fomc | 1,977 | Well, for a while, I'd stay out of the market. | 13 |
fomc | 1,977 | Oh, absolutely. We don't want to make it any worse than it is. | 16 |
fomc | 1,977 | I might just note that, when you speak of massive intervention, that is a residue from a previous massive intervention with the support of the Treasury. Still paying it off, six years later. | 38 |
fomc | 1,977 | A somewhat different context. Oh, fixed rates. | 10 |
fomc | 1,977 | Was that required by law at that time? Legally, we couldn't have done anything else, could we, but perhaps defend the dollar? | 28 |
fomc | 1,977 | We were on a fixed rate then. | 8 |
fomc | 1,977 | We could have gotten off the gold standard faster. | 10 |
fomc | 1,977 | But that was a very major action. | 8 |
fomc | 1,977 | The Treasury could have bailed us out. | 9 |
fomc | 1,977 | Gentlemen, let's look to the future. And we will do that presently. Mr. Kichline, may we have your views on the economic outlook? | 33 |
fomc | 1,977 | [Statement--see Appendix.] | 6 |
fomc | 1,977 | [Statement--see Appendix.] | 6 |
fomc | 1,977 | Mr. Kichline and Mr. Zeisel, I think you have provided this Committee with a very illuminating set of charts and interpretations. We're all very grateful to you. Any questions or comments? Mr. Wallich, please. | 47 |
fomc | 1,977 | I'm a little puzzled by the balance of forces that I see projected here. With the rate of expansion that is indicated--that is, a slowing in 1978 even below 5 percent--I don't see much wrong because, as time goes by, we are getting closer to the full-employment ceiling and, even sooner probably, to the manufacturing ca... | 216 |
fomc | 1,977 | Well, as you point out, this is a matter of offsetting forces operating. On the positive side, you point out that fiscal policy is becoming somewhat more stimulative, but only rather briefly. It happens to be occurring over the next half year or so, and then the high-employment budget begins to move back into balance a... | 245 |
fomc | 1,977 | If they did give support to the economy, it wouldn't last. | 13 |
fomc | 1,977 | It would be a very brief kind of activity, and possibly a destabilizing one at that. | 19 |
fomc | 1,977 | You have supportive business inventory numbers, as I read it. | 12 |
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