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fomc | 1,977 | Yes, well they have consultation calls three times a day. And that's working out fine. We, of course, receive a call--from the so-called captain of the day, after they finish their day--and get the full information. We ourselves make an early morning call, around 7, and several other [calls] during the course of the mo... | 100 |
fomc | 1,977 | I think that's full exchange. | 6 |
fomc | 1,977 | Not full exchange, but much more than there used to be. There are still some elements, particularly on some of the more delicate intervention operations, which are passed at a higher level. But we get the information we need. | 45 |
fomc | 1,977 | Any other questions or comments? Very well, a motion to approve the transactions conducted by the foreign Desk would now be in order. | 26 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Seconded. | 3 |
fomc | 1,977 | The motion has been made and presumably seconded. I hear no objection, and therefore we pass to your recommendations, if any, Mr. Pardee. | 31 |
fomc | 1,977 | No recommendations. | 3 |
fomc | 1,977 | Well, it's a good day. All right, let's pass quickly before recommendations emerge. Mr. Kichline, we're ready for your economic report. | 30 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | I wonder how many of you may have read this morning's editorial in the Wall Street Journal. Well, we can't very well discuss that. | 28 |
fomc | 1,977 | Unless you want to read it to us. | 9 |
fomc | 1,977 | We might have a better discussion. | 7 |
fomc | 1,977 | Mr. Kichline has reviewed very competently the recent run of economic statistics, and these are summarized in the Greenbook and in the Supplement. I think it would be especially valuable if members of the Committee who have contacts with businessmen, and bankers, and citizens generally, in their own area, would comment... | 168 |
fomc | 1,977 | Well, Willis Winn and I, last week, had a meeting in Cleveland with a very representative cross section of the industrial world, and we gained some insights there as to what their thinking was, and I'd like to hear [Mr. Winn] summarize it. Unless you were-- | 56 |
fomc | 1,977 | Was I the recording secretary? Maybe I missed my role in this setup. I'm not sure that I'm summarizing our meeting, Dave, but I have been impressed that the press sometimes influences the thinking of businessmen [more] than their own appraisal of what's happened to them. I was interested particularly--when we were sort... | 139 |
fomc | 1,977 | But the steel companies had a poor second quarter. | 10 |
fomc | 1,977 | Earningswise-- | 4 |
fomc | 1,977 | Earningswise, exactly. | 6 |
fomc | 1,977 | But the volume is surprisingly good. | 7 |
fomc | 1,977 | Well, what good is volume if you don't make a profit? | 13 |
fomc | 1,977 | Well, they hope to turn it around, of course. But if you don't have volume either, then you've really got problems. | 26 |
fomc | 1,977 | That's the worst condition--no volume. | 8 |
fomc | 1,977 | When you sort of probe--you can't rent warehouse space, for example, across the country. And part of this is this inventory increase, but there haven't been any warehouses built for the last three years or so. And my guess is that, if sales continue to grow, you're going to see a big move in this direction. Second, the... | 187 |
fomc | 1,977 | You said five new office buildings in Cleveland? | 9 |
fomc | 1,977 | Yes. One of them is a state building; Standard Oil; the two banks; and a private development. | 22 |
fomc | 1,977 | Any of these speculative? Or just institutional? | 9 |
fomc | 1,977 | Just one. And so this is really a major change in the construction outlook, in this sense of the term. They are all cautious when they talk to you in one sense of the term, but you probe about their own business and it is surprisingly good. | 52 |
fomc | 1,977 | There's a great concern about the loss [on the] capital gains tax. There is a great concern about inflation and the loneliness of the Fed and it's position. They're very bullish as to the rate of capital investment expenditures. | 44 |
fomc | 1,977 | All of them are well fixed financially. They've really protected themselves against the squeeze, so you're going to get the expansion without going back into the financial market. Their positions will take care of it. | 39 |
fomc | 1,977 | Mr. Kichline, you didn't comment--or I perhaps wasn't listening carefully enough--on the trend of corporate profits. | 25 |
fomc | 1,977 | No, I did not. You're talking about the recent past, or our forecast, or both? | 20 |
fomc | 1,977 | Both. | 2 |
fomc | 1,977 | Profits in the latter half of 1976 were revised down significantly with the recent revision in the GNP and national income accounts data. The first quarter is very weak. The implicit profits currently contained in the GNP data, which we'll receive next week for the second quarter, indicate an increase of around 7 perce... | 265 |
fomc | 1,977 | Thank you. Yes, Mr. Jackson. | 9 |
fomc | 1,977 | The people with whom I've discussed the situation within the last three weeks have come back to a surprising concern about inflation. This appears to be the number one issue in the minds of most people that I've visited. They think business conditions are good, they think underlying demand is good. They think the bigge... | 119 |
fomc | 1,977 | Thank you. Mr. Mayo, please. | 9 |
fomc | 1,977 | I don't want to dwell too much on this, because basically, the comments we have had out of our directors are, I think, quite consistent with the staff projections. And so it gives support, I would say on the "feel" side, to what you might say is a more statistical approach. We have some softness in the Midwest in farm ... | 239 |
fomc | 1,977 | Thank you, Mr. Mayo. Mr. Rankin, please. | 14 |
fomc | 1,977 | Thank you, Mr. Chairman. At our board meeting last Thursday [for] the Fifth District, most of our directors characterized retail sales as moderately strong. Construction of single-family housing is apparently continuing at a high level throughout the District. There are some indications that it will pick up in multiuni... | 172 |
fomc | 1,977 | Thank you, Mr. Rankin. Mr. Balles, please. | 15 |
fomc | 1,977 | Well, by and large, as I reviewed the comments of the directors at our various Branches, I get a mixed picture, which is not unusual. But I think it may be more mixed now than I have seen in a while. My general impression is that business confidence is not quite as good as the business statistics. There are elements of... | 308 |
fomc | 1,977 | Thank you, Mr. Balles. | 8 |
fomc | 1,977 | May I ask a question about the lumber situation? My impression is that lumber prices are closer to their peaks. They're very high, yet you talk about mills unable to operate in a relatively efficient market like that. I'm surprised. | 45 |
fomc | 1,977 | Well, they've had some whopping big wage settlements going along with the rising prices. | 16 |
fomc | 1,977 | Is this slopped over from British Columbia, where they have those massive settlements? | 16 |
fomc | 1,977 | I gather that's true. | 5 |
fomc | 1,977 | Mr. Wallich now, please. | 8 |
fomc | 1,977 | I'd like to throw out a hypothesis about the investment and profits picture. I have long been puzzled: Why would capacity pressures [that are] clearly ahead--[firms] having invested less than the growth of the labor force seems to imply--[why are] we not getting any additional investment? Now, when one ties that togeth... | 169 |
fomc | 1,977 | In other words, we need a little more inflation? | 11 |
fomc | 1,977 | That is what I think is the likely course of events. There'll be price pressure upward that will get us investment at the delayed point--better late than never, but under conditions that will be somewhat inflationary. Well, that is a reasonable hypothesis. There is still ahead an element of strength in the economy from... | 188 |
fomc | 1,977 | Thank you, Mr. Wallich. Mr. Morris now, please. | 15 |
fomc | 1,977 | Mr. Chairman, I think I have some differences [with] the point of view of staff and the point of view of Mr. Winn. It seems to me that animal spirits in the [Keynesian] sense are pretty well [hid]. Governor Wallich's analysis is correct. But I think, in addition to that, you have the psychological factor of all these u... | 411 |
fomc | 1,977 | Well, as I indicated at the end, when we put this projection together, we did not have the retail sales data. It's not so much July which shows an increase, which we had been anticipating, but it's from a considerably lower level than had been indicated earlier because of the downward revision in June. So taking that, ... | 203 |
fomc | 1,977 | Would you care to comment on President Morris's pattern question that he talked about? | 16 |
fomc | 1,977 | Well, I think it's quite possible. I think, really, the best bet now is not to have a repeat of 1976. I'm not sure it's in the cards. I'd be reluctant to go that far, and as I read what President Morris said, it's essentially what we're talking about, but a much stronger performance going into the early part of 1978. S... | 213 |
fomc | 1,977 | When you say significant, what percentage rates of increase over the first quarter do they think about? | 19 |
fomc | 1,977 | From first [quarter] the first [quarter] in business fixed investment? | 15 |
fomc | 1,977 | I was thinking from the first quarter to the second quarter. | 12 |
fomc | 1,977 | Excuse me; all right. The number they have is about 7 percent for totals. In the first quarter, it was down 2.6 percent, and if you take out petroleum refiners in the first quarter, capital appropriations rose about 1 percent. And in the second quarter, if you take out petroleum, the increase is indicated to be about 1... | 172 |
fomc | 1,977 | All right, thank you, Mr. Morris. Mr. Baughman, please. | 18 |
fomc | 1,977 | Mr. Chairman, I hesitate to generalize from one of the strong areas of the country, but all the indications we see, of course, are suggestive of a continued, rather heavy flow of funds into new investment and continued expansion in activity. And even our retail firms represented on the board--we have three of them at t... | 547 |
fomc | 1,977 | That stems largely from the projection for imports, which, if you note in this projection is bouncing around a good deal [and is] related to the staff's expectation with regard to oil imports particularly. In the fourth quarter, it is anticipated that there will be a substantial stockpiling of imported oil, which drive... | 238 |
fomc | 1,977 | Thank you. | 3 |
fomc | 1,977 | All right, thank you, Mr. Baughman. Mr. Kimbrel now, please. | 21 |
fomc | 1,977 | Mr. Chairman, [we see] a good deal of concern in the farm area at the moment because of the extended drought and difficulties of the corn crop and the possibilities of some financing of the farmers against the difficulties of the production of corn. However, many of the others are coming along very well--peanuts, soybe... | 291 |
fomc | 1,977 | Thank you, Mr. Kimbrel. Mr. Partee, please. | 16 |
fomc | 1,977 | Well, Mr. Chairman, I think I agree with Frank Morris that we're likely to have a quarter or two here of considerably less rapid growth in the economy, for much the same reasons that he gives. I think that retail sales are showing signs of sluggishness. You can't really anticipate that durable goods spending by consume... | 822 |
fomc | 1,977 | Thank you, Mr. Partee. Mr. Roos now, please. | 16 |
fomc | 1,977 | Mr. Chairman, I find myself, as a non-economist, somewhat confused. In looking back over the year and a half that I've had the privilege of attending these meetings, and listening to inputs such as we're presently providing, that year and a half in terms of business conditions has been a strong period. We've had basica... | 240 |
fomc | 1,977 | I don't think anyone has expressed such a view. | 10 |
fomc | 1,977 | Well, sir, am I correct to assume that if our economy does better than what it has over the average of 10 or 15 years, that we're really apparently in a fairly comfortable condition? I mean, what I'm getting to, and then I'll hush up, sir, is that I think that the public generally, that the business community, tends to... | 238 |
fomc | 1,977 | Thank you, Mr. Roos. Mr. Coldwell now, please. | 16 |
fomc | 1,977 | Mr. Chairman, that's an interesting act to follow because Governor Partee has covered what I was going to say in rather considerable detail, and I don't see any point in repeating it. Except my final answer is that I'm quite happy with a slowdown in the economy in the fall of this year. In the spring and early winter o... | 219 |
fomc | 1,977 | I agree with Governor Coldwell, by the way. I should have said that I don't think it's a bad thing--the profile that's developing. | 29 |
fomc | 1,977 | No, I feel the same way. | 8 |
fomc | 1,977 | What I was trying to get Mr. Kichline to say earlier is, the pattern might even be a better one for long-range growth in this economy--to have a little slowdown in the fall of this year. | 44 |
fomc | 1,977 | Thank you, Mr. Coldwell. Mr. Volcker now, please. | 16 |
fomc | 1,977 | Mr. Chairman, I think I found the staff analysis quite persuasive this morning, as I guess most people did in a qualitative sense, in terms of the continuing momentum of the recovery. When my staff puts the numbers together, just following up in these comments that were just made, they get a slower rate of growth in th... | 752 |
fomc | 1,977 | Thank you, Mr. Volcker. Mr. Eastburn now, please. | 16 |
fomc | 1,977 | Well, I would second those last words Paul gave us. A couple meetings ago I reported on the sentiment of businessmen in our area, which of course is not the most vigorous area in the country, and it's one of concern and remains one of concern. I think [their sentiment] is more pessimistic than the statistics would sugg... | 173 |
fomc | 1,977 | Well, the way we go about this is to tie it to the Bluebook path B, and we have incorporated from quarter two [1977] to quarter two '78, 5-1/4 percent [growth in] M1. So implicit in the forecast this time is, I think--Steve, is it something like 4 percent in the next three quarters? | 77 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | So what we have as the offset to that, of course, is higher interest rates. So we have higher interest rates this time than last time, and it comes out that way. So we tie it really to the longer-run target and do not allow for a judgmental feel as to what may happen on the high side of the range or the low side. | 73 |
fomc | 1,977 | I see. | 3 |
fomc | 1,977 | Well, thank you, Mr. Eastburn. Anyone else like to speak or speak once again? Well, if not, just to break the monotony, I'd like to say a few words. There's little doubt in my own mind that the expansion that we've been experiencing will continue for some time. I share Mr. Volcker's doubts as to whether the slowdown th... | 739 |
fomc | 1,977 | A question and a comment, Mr. Chairman. We're finishing the third year of an automobile boom which has characteristically run in the threes. Now I don't know whether the change in the financing and the possibility that next year is the last year of the large car may help sustain that to a fourth year. But if you go bac... | 106 |
fomc | 1,977 | Yes, they are. Down to 60 days. | 11 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | Was '75 an up year? | 7 |
fomc | 1,977 | Yep. [unintelligible] term '75 to '77 is the end of the three-year cycle. A comment on the [stock] market, Mr. Chairman. You've had the first boom in the early '70s; it was an individual boom. The second one was an institutional market. I have a feeling that now you've got an insider market--that explains part of this ... | 87 |
fomc | 1,977 | What does that mean, precisely? | 7 |
fomc | 1,977 | My guess is that a very much larger proportion of trading is done by people that used to be on the floor and have gone upstairs and are trading among themselves. The market itself is in very much disarray [as an] organization and you've got strange--I don't know all the answers to this, and the market is concerned abou... | 144 |
fomc | 1,977 | Well, statistical studies to date apparently do not support the position that the options market on calls has done anything to depress the general market. My elbow is still uneasy about this. There is a counterculture, if you want to distinguish it that formally, developing now with the evolution of puts, that will cou... | 317 |
fomc | 1,977 | Thank you. Mr. Jackson, please. | 9 |
fomc | 1,977 | I don't know that I'd share that judgment about the threat of the capital gains tax. It appears that the stock market has had a type of segregated action: The so-called high-growth, high-multiple corporation has had an agonizing readjustment in future expectations of their growth, or the profits that might be achieved ... | 311 |
fomc | 1,977 | Well, there are a lot of things going on in the market, of course, Phil. I was just referring to a new incremental factor. Now there [are] certainly many individuals that have got sizable profits in stocks like IBM, Xerox, and, you know, the high flyers of yesteryear, even though they're down from their peaks. I wouldn... | 176 |
fomc | 1,977 | The current fad of indexing hasn't been mentioned here, which I think supports the same analysis that's been given, as an additional factor, with people saying, I give up, I cannot--no investment manager can give me a consistent record of beating the S&P 500. Let me get an index fund that will buy the S&P 500. And they... | 99 |
fomc | 1,977 | I agree with you on that, Bob, and I think there's a lot of what they call closet indexing going on. The managers not admitting that they're indexing, but they're acting as if they were indexing, out of the same sort of desperation that made this fad go as far as it has. The actual number of overt index funds is still ... | 78 |
fomc | 1,977 | Why should indexing have a negative effect on the overall level of stock prices? That's what they're saying. | 20 |
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