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fomc
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Well, I was thinking of the Dow Jones [industrial average] in particular. The general market has performed better in the last year than the Dow Jones has. And our thrift plan has performed better than the Dow Jones has.
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The depressing prices of the growth stocks have overweighed in most professional portfolios, so, in order to get closer to the index, they are selling growth stocks and buying others.
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If I was to take $10 out of one and put it into something else, why should that change the level of the market?
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Because the major indexes are weighted very heavily by the growth stock, much more so than the general market. The general market has done better than the growth stocks.
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Gentlemen, I want to ask a question of staff and make one point. Last year, we were in the midst [of the] bicentennial and a presidential election, and the country's bicentennial [celebrations were] dispersed. I don't know how much travel occurred. Resort travel, vacation business is a very large industry in this count...
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Any advice you may be able to give us on that point--
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Well, I just went to the local beach, so it's not a good guide. And you're just back from vacation, so I presume it's sort of hazardous for me to venture out with an answer.
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Well, having followed long lines of campers and recreational vehicles, and having been totally astounded by the traffic in rural Maine seaports, yes.
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We have [some] selected data on hotel occupancy and figures from the airline industry, but unfortunately I am just not familiar with those currently, and Jerry, too, is not up to date. So I'm afraid we can't provide a reasonable answer to question at this time. But we can prepare a memo for you on that.
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We find New England resorts have been doing very well.
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I think the Redbook comments would support that for our area.
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I understand from one of my directors, a chairman of an oil company, gasoline consumption is actually down this summer.
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[Unintelligible].
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Year-to-year decline.
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Not what [President] Carter says. The Administration is very concerned, of course, that Americans have not stopped driving and have--
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But there's some other indications of this, too, that travel is down this summer from last summer. One of our directors is an airline director and travels--
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Mr. Chairman, we have a director who is a high executive in Holiday Inn, and this came up at our meeting last week, and I regret that I don't recall the precise statistic, but the hotel and motel and travel industry has had--last year was up considerably in terms of volume from previous years--this man's a walking ency...
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Very strong in central Michigan, northern Michigan.
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Well, thank you. This may not be worth a memorandum, Jim. The point I wanted to make is that, in my career in lending, banking, it seemed to me that there are two sides to this question of profit. [Unintelligible], one significant way to increase profits of course, is to make capital investment. And we know that capita...
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May I ask to what extent our industrial capacity in this country presently differs from the industrial capacity of other major industrial countries throughout the world? It is the question of, we're closer to the top than they are, and therefore future demands worldwide might be supplied [unintelligible]?
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I have the impression that in a number of the major countries, capacity utilization rates are somewhat below those of the U.S., and world supplies in many of the basic commodities are in quite a strong position, but I'd like to defer to Ted Truman.
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Well, I don't have the information with me.
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Just in general, your impression.
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Well, my general impression--
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Does an answer exist to the question?
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The Wharton School puts out global capacity utilization indices--
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Oh my heavens--
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--but the last figures that I saw were only through the last quarter of last year. At that time, if my memory is correct, capacity utilization figures in this country were somewhat higher than abroad, but [the figures are] not up to date. The only other figures you can use [are] figures on how we perform relative to pr...
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I don't think we can even answer that question reliably for the United States. And the Wharton index is worthless for the purpose of answering either for the United States or foreign countries. And we just have to make up our minds. There's a great deal that we would like to know and that, in view of our responsibiliti...
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It strikes me as that is the essential question to Governor Wallich's potential hypothesis, as to what extent will pressures from capacity utilization in this country and capital expansion be ameliorated by the capacity of other industrial nations if they increased their [exports] to the U.S., which would not enable pr...
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Of course, other countries [are] probably further away from capacity pressures than we are here. As far as our own situation is concerned, if we were to go, just in a model sense, to full employment overnight, we would not have the capacity to employ the labor force. I think that's quite clear. The Council of Economic ...
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I had an industrialist spring a new idea on me, at least new to me, in terms of why he wasn't building a plant. He said, "I don't need to build a plant because if my demand overruns me, I've got several plants abroad that are at a much lower capacity utilization, and I could import to the United States if I run into ca...
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It's interesting.
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You have a good proxy for this capacity abroad, in the sense, when you look at all the people that are asking for import quotas, you get a pretty good sense as to who is faced with a [capacity] overhang abroad, to wit, the steel industry being number one, and the TV people being number two.
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Well, gentlemen, unless there is a desire to continue the economic discussion--you know, our staff has to write a report, and I think, let's have a show of hands, simply to help the staff write its report. It's a function that we, I think, should keep in mind. The staff might have difficulty, on the basis of the discus...
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Expansion to continue.
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At what rate.
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At any rate.
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At any rate--okay, let's have a show of hands of those who expect the expansion in the second half of this year to be significantly lower than in the first half of the year.
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Now what are our alternatives going to be?
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[Unintelligible].
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Lower.
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Significantly lower.
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2 percent.
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Less than the staff forecast?
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Significantly lower.
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Significantly lower.
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Eleven, Mr. Chairman.
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Well, now--
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That's counting all--
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You're not going to put these numbers in the report--
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No.
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After all, adjectives serve a function. Now, let's have a show of hands of all those who are reasonably confident that the expansion will continue through 1978.
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What's the definition of reasonably?
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I'm listening to the adjectives.
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I'd like to see all the questions.
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Okay, let's have a show of hands of all those who expect business capital investment to rise at a faster rate than it has hitherto during the next 12 months or so.
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Faster rate.
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There's a pretty fast rate in the first quarter--
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At a faster rate than the past--
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Over the past year.
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Over the past year.
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I expect it to continue.
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All but one.
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Well--
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Mr. Chairman, I think your questions have produced a set of answers that may not be fully reflective of what's been going on here as conversation.
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You see, I wanted to supplement what has gone on in conversation, and I could just see the reports each month--which I read word-for-word, more than once--and I could see the initial report before you see it. And in the absence of the questions that I've just put to the Committee, I think we would convey to the general...
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[Statement--see Appendix.]
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Has the market moved to an expectation of a discount rate change?
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There's been a good deal of talk of the discount rate change and a fairly widespread expectation of a move of at least 1/4 [point], with some people beginning to talk of a change of as much as 1/2.
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Would you say that the market is adjusted to a 6 percent funds rate, or is that process still going on?
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I find it a little bit hard to answer. The market has moved less than I would ordinarily expect it [if it were] to accompany the move up to a 6 percent funds rate. In that sense I wondered, as this process has gone on, whether that adjustment has fully taken place, and yet when I couple this with the fact that the deal...
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Once they think the move is complete, why, they would tend to restore [unintelligible]--or at least cover their position.
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I think they'd tend to move toward covering some of that short position.
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What was the bill rate yesterday in the auction?
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5.67.
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5.67.
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What's the 90-day futures market for bills looking like?
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I don't have a figure in my head on that, but it's tended to pretty well just be a measure of the difference between the three- and six-months bills.
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Out to June '78, I think it's almost 7 percent now.
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If you go out for this three-month bill on the second quarter, it's on average about 6.8 percent; I was averaging. And in the third quarter '78, its 7.1 percent, which is about the 7 Mr. Balles has mentioned.
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Given the dealers' net short positions, do you find any congestion in the market?
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Any congestion in the--
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In the bond sales?
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No, the Treasury's sales went very well, and dealers took down about the normal proportion they would usually take down--roughly half, a little less than half in this case, and they rather quickly sold out of that.
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What about corporates?
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Corporate bonds--the calendar's been moderate, and the issues have gone fairly well, with little evidence of congestion.
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Didn't the federal funds rate go above 6 yesterday?
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The effective rate on the day was just about 6--6.01. Some of the trading was above 6, and late in the day the trading was largely at 6-1/8.
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All right, any other question or comment? Yes, Mr. Winn.
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Peter, do we have any feeling as to what the foreign sellers were doing with the proceeds of sales of bills?
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Well, yesterday we had some very heavy foreign account selling of bills. Much of that was in order to purchase coupon issues. Yesterday was the delivery date for the Treasury's new issues. There had been some sizable foreign-account takedowns of these new issues, and that was a big chunk of the foreign sales.
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Mr. Eastburn.
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Governor Coldwell asked my question, but just to make sure I understand it--Peter, is it fair to say that there would not be much adjustment in the market if the discount rate went up 1/2 percentage point?
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I would think that the market has fully discounted 1/4 percentage point. I don't think they have fully discounted 1/2 percentage point. I think there would be some adjustment.
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Some adjustment, but not a great deal.
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Any other questions?
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I move we ratify the suggested action.
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Second the motion.
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Well, the motion has been made to ratify the actions of the Desk, and I take it there's no objection. We might as well break for coffee now.
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