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fomc
1,977
Two months. I don't know. The last figure went up quite rapidly in inventories. That was--
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Yes, but look at the adjustment that has taken place in prices, and it has been taking place in production and employment [in] nondurable goods. You had a run-up in inventories. Retail trade leveled off at a very high level, so the trend is still very strongly upward. The prompt adjustment on the part of the business c...
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I agree. The last inventory figure we have still shows a rapid increase, but I would expect some decline--
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What was this--
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They're responding to that increase, that's right, that's right.
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You had the response, I think, or you are having a response in the sphere of production and employment.
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And in that connection, the staff did moderate their projection, I think, with an offset on monetary stimulus or less restraint, however one wants to word it. I think that's in the right direction. I don't think their figures reflect this kind of prospective inventory development that perhaps you have been suggesting a...
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All right, thank you, Mr. Volcker. Mr. Wallich now, please.
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Well, I would like to note first that I believe our staff forecast is relatively high compared to forecasts made by other professional forecasters. Is that right?
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In general, that's right. We are on the high side of the outside forecasts we have looked at.
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At the same time, as I look at the details, I'm puzzled why the forecasts are all so relatively low, tapering off toward mid '78. Here we go into a late period of expansion with a very high budget deficit; there's a lot of capital investment to be made up; we're approaching capacity ceilings; and so it puzzles me why t...
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All right, thank you, Mr. Wallich. Mr. Coldwell next, please.
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Mr. Chairman, I find myself differing in pattern and perhaps in some of the details of the forecast. I have a feeling the second quarter is going to show a higher figure than the staff is showing. I hope the third and fourth quarters show lower figures, because I think we get a more sustainable pattern if you slow this...
338
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Thank you, Mr. Coldwell. Mr. Partee now.
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Well, as I look at the projection of quite regular increases in real GNP, I guess I have something of the same feeling that Governor Coldwell does, that the patterns may differ considerably from what's been projected. And I'm reminded, as I often am, of Governor Shepardson's complaint that the lines on the right-hand s...
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Thank you, Mr. Partee. Mr. Mayo.
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Chuck has said what I have in mind very well. I think we are still in a strong recovery, even though it is slowing and we see these various evidences and various problems for which we have no solutions at the moment. I would merely add one other observation on the capital spending thing from one of our principal capita...
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Thanks, Mr. Mayo. Yes, Mr. Roos.
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Mr. Chairman, I find myself puzzled somewhat by our process. Having participated in these meetings for about a year and a half, I have been unable to really define, or have defined for me, the objectives in terms of how we actually quantify what we think to be a satisfactory rate of growth in output. At each of these m...
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Well, I can't say you are off base. But I should say that I think of the world rather differently. Now I have been at this for a good many years, and I have found that I can make pretty fair judgments about the direction of the economy and even recognize turns. But as far as magnitudes are concerned, I don't know how t...
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Mr. Chairman, my speech is brief. I don't see any basis for challenging the staff forecast at this point in time. I feel as Paul Volcker does that if there are errors in the forecast for the next few quarters, the reality is more likely to come out on the low side than the high side. And I think that our ability to for...
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What I really meant about that is--look, I certainly didn't mean to suggest that we change our practice, and I spoke cryptically. I meant the economy doesn't change that much over the period of a month. I think it is more a matter of the character of our discussion than the frequency of our meetings. I think we pay too...
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We have the same problem as the market does in interpreting us--what's a wiggle and what is a trend?
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Mr. Lilly, please.
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Well, I can't disagree with the staff. I think they're somewhat on the bullish side, but you ask if there are any significant differences. I don't have any significant differences. I do have something that I want to underscore that you mentioned a couple of times--the fact that we may be working very hard here to creat...
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That's the 50 percent. What is it, 50 percent of half--
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Starts there, but it gradually moves up.
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Does it, beyond 50? What it is now, around 46 or 47?
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Close to the increase, slightly under 50.
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It moves up to 53 percent by 1980, 1 percentage point a year.
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Oh boy. Well, with the minimum wage, if you leave it alone in an inflationary environment, its bite, you see, will be progressively reduced. But under this kind of legislation, there will be no let-up. There will be cumulative force asserted on the wage structure.
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It's certainly counterproductive to correct the situation--
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You know, I remember very vividly, one day I got off the plane in New York and--oh, this was some 20 years ago. [David] Dubinsky, who was then head of the [International] Ladies' Garment Workers' [Union]: "Arthur, can I give you a ride?" "Oh sure, into the city." So I stepped into Dubinsky's Cadillac, and we had a nice...
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And there are more things heard than that, Mr. Chairman. It's really a defense of the mature and more highly experienced worker against competition from the young, who might otherwise undermine his pay and his job, and also a defense of the stronger Northern unions against the South.
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It's akin to the bar examinations.
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See, we defend them against competition from the young, we defend them against competition from abroad.
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The South, mostly, in our country.
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Well, gentlemen, I think we'll take our coffee break now, and then when we get back, we'll start on long-term targets.
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We will return to our deliberations. We want to turn now to the discussion of the longer-term ranges for our monetary aggregates. I will have to testify on that subject next week. The date was originally set for July 26, but there's been a change, and the testimony will be given on July 29. On July 26, the Committee [o...
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You have to move fast to get in.
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Mr. Winn. I don't see anyone else.
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To speak first--how can I--you have 14 names.
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Oh no. You can speak at any time. Just nudge me hard.
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All right.
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Mr. Coldwell, please.
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Mr. Chairman, I'm prepared to move more strongly than you're suggesting. I would like to see us set the M1 target at 4 to 6 percent, knocking a 1/2 percent off both sides. And the M2 target, from 6 to 9 percent. I do this because I think the recovery has moved along well enough. I'm not terribly satisfied with some of ...
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Thank you, Mr. Coldwell. Mr. Wallich, please.
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I would agree with the proposal, Mr. Chairman, that you've made, with some provisos. First, I would not want to get back on the track [that] alternative D implies, and that would be a much larger move than you've suggested. But as a matter of principle, I think we are maneuvering here somewhat. We're not hitting our ta...
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Thank you, Mr. Wallich. Mr. Black, please.
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Mr. Chairman, I find myself in complete agreement with your assessment on the economic situation. And I thought we were going to come out with exactly the same figure because you made precisely the same points in developing your suggestion for the long-term targets that I had intended to make. But I come out somewhat c...
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Let's be clear about that last sentence of yours. As far as our doing something, we do what we think is right. Now, there are no political factors that make it hard to reason. To the extent that there are political factors, I think they're of another kind. We have very troublesome legislation in the Congress, and what ...
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And you can get what I want within either set. It's just a question of how wide it is.
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I beg your pardon?
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I said, either set of ranges would encompass what I really want. It's just a question of how wide it is.
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Thank you, Mr. Black. Mr. Jackson now, please.
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I believe the real issue that will face the Committee will not be whether we will accommodate a lower rate of growth in M1 that's suggested by the 4 to 6-1/2, but whether we will move against the higher rates of growth. For that reason I would favor a 4 to 6 range for M1. Having done so, I think the consequences would ...
230
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Thank you, Mr. Jackson. Mr. Mayo, please.
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Mr. Chairman, I come out with a preference for the 4 to 6 prescription for M1. I feel that, again, it would not only continue our basic policy, which you have appropriately announced over time, but this is an occasion where it fits in terms of a period where the economy is growing strongly, and yet where I think we can...
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Thank you, Mr. Mayo. Mr. Balles next, please.
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Mr. Chairman, I would thoroughly agree with the general proposition about reducing M1, and for the reasons that you mentioned. I would also mention an additional reason. About a year ago the staff did a very perceptive job in estimating the effect of financial market innovations. As I remember, the latest figure shows ...
262
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Thank you, Mr. Balles. Mr. Eastburn.
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Thank you, Mr. Chairman. My view of the economic outlook calls for essentially no change in the intent of policy. I'd be willing, however, to modify this to continue the policy of gradually nudging down as you suggested. But I think there is the question of base drift; the staff figures, incidentally--I think in the Bl...
262
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Thank you, Mr. Eastburn. Mr. Kimbrel now, please.
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Mr. Chairman, I, too, feel that it's an appropriate time for us to make some lowering of these targets, for the reasons already suggested. There appears to be adequate liquidity in the system, a foreign exchange consideration. The economy, as certainly we read, appears to be moving rather well. I would hope that we cou...
194
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Thank you, Mr. Kimbrel. Mr. Roos, please.
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Mr. Chairman, I would echo what has been said by the past two or three speakers. I feel strongly that the upper range of M1 should be reduced, and I would subscribe to the 4 to 6 percent range in M1; 7 to 9 in M2. I personally do not feel that it would avoid some reduction in the rate of [economic] growth, even if we e...
168
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Thank you, Mr. Roos. Mr. Partee next, please.
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Well, Mr. Chairman, I didn't find the staff projection of the economy objectionable. I think the 5-1/2 percent rate of growth over the next year in real terms is about right. I wouldn't mind it drifting off a little bit as we go through the period and into the latter part of '78, and I think, indeed, that that probably...
832
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Thank you, Mr. Partee. Mr. Volcker next, please.
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Well, I'd look at this problem in substance. I find myself, in effect, quite happy with what we did last time. And in some sense I'd like to see those numbers unchanged, but we've had this problem of base drift. What I'd really like to see--I know you explained to me, Mr. Chairman, that this is too difficult to explain...
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All right, thank you, Mr. Volcker. Mr. Guffey now, please.
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Mr. Chairman, our analysis of the economy is very, very similar to what the staff has already projected this morning. And as a result, we would be happy if the long-range targets were retained very much as was set last time. Further, in view of the fact that we have been missing and we've been in the upper part of our ...
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Thank you, Mr. Guffey. Mr. Winn, please.
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Mr. Chairman, I'd like to emphasize the point John Balles made. In our area, the banks are actively soliciting the transfer of corporate accounts from demand deposits to the savings account. For example, a company keeping an average $80,000 demand deposit is being encouraged to shift $79,000 over to a savings account, ...
193
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Thank you, Mr. Winn. Mr. Willes, please.
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Thank you, Mr. Chairman. In part of my attempts to educate myself on what the Committee has been doing, I took a look at the economic outlook that the Committee appeared to agree to in January of this year and then the policy that was decided at that time--the base that was associated with that. And then I compared tha...
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Thank you, Mr. Willes. Mr. Gardner now, please.
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I didn't speak to the staff projections, but I do feel that it was very valuable. And I do feel that we still have much to look forward to in this very quiet recovery, gaining ground slowly. That's good in my judgment. There are the obvious points of difficulty that have been addressed here, but on the long-range propo...
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Thank you, Mr. Gardner. Mr. Morris, we haven't heard from you.
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Mr. Chairman, I, too, come out with Governor Partee. My preferred position would be no change at this time. I don't feel that credibility requires that we change our long-range goals every quarter. But I think we are entering into a period of decelerating growth. I like the tone of the economy now. I think it is clear,...
342
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Thank you, Mr. Morris. Mr. Lilly now.
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I have nothing further to add. I think Chuck pretty well stated my feeling, and I would support your proposal.
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Thank you, Mr. Lilly. Mr. Baughman would say something now.
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Mr. Chairman, it seems my views are rather out of step with the group today. I'm rather impressed with the statement on page 6 in the Bluebook.
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Now wait, now wait. Your views are out of step and therefore I want to be sure--I want to hear every word. Would you speak a little more loudly please?
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I'm impressed that the staff concluded at page 6 in the Bluebook that alternative D maintains the picture that we've had thus far this year, in terms of long-term targets. And it seems to me that we do have a significant problem of base drift confronting us. It seems to me that that's likely to be perceived as a proble...
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Close to alternative?
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D. The last one. The one which the staff characterizes as continuing the current policy posture.
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Well, thank you, Mr. Baughman. Gentlemen, we're faced with a very hard decision. Speaking personally for a moment, I wish I could join my colleagues who were inclined to move toward somewhat lower growth rates. I wish I could--temperamentally, yes; that's what I would prefer to do. But I do have an obligation to this C...
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I think it would be the alternative C figure, Mr. Chairman; 7 to 10.
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Well, I would really prefer to leave that to the staff.
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It might be [unintelligible].
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Why even have it?
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What's that?
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Why even have it?
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Why do we have to have it?
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Oh, I think it's quite important to have a credit figure as well as the money figure because we don't want to go completely monetarist at this Committee.
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I happen to be of that persuasion, too, but I still wonder why we just create a figure that we add on to the pack.
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Well, I think that's a--
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It's pure cosmetics.
4