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fomc | 1,977 | It depends on your timing. | 6 |
fomc | 1,977 | You've got to watch time-- | 6 |
fomc | 1,977 | That's what I was going on to say, Mr. Chairman. In the process of tightening, long rates may go up, but after that tightening is accomplished and those who have been caught with positions in the process of tightening have adjusted [to] it, then I think that the long rates would tend to drop back and be only slightly h... | 82 |
fomc | 1,977 | Do you include mortgage rates in that? | 8 |
fomc | 1,977 | No. I think mortgage rates would tend more than the corporate bond yields to rise permanently because you begin somewhere to have some effects on-- | 27 |
fomc | 1,977 | -intermediation? | 4 |
fomc | 1,977 | --intermediation. But then Regulation Q adjustments might be a factor there. | 16 |
fomc | 1,977 | But you have a timing question on the rate at which you change the short rate, too. | 19 |
fomc | 1,977 | That's how I started off. | 6 |
fomc | 1,977 | Mr. Roos, please. | 7 |
fomc | 1,977 | In our efforts to hold short rates down, the present tendency of the aggregates to increase persists. Isn't it logical to expect that long-term rates will move upward in anticipation of inflation? | 36 |
fomc | 1,977 | That's one possibility, President Roos. It hasn't happened thus far. | 14 |
fomc | 1,977 | Don't you think that it's partially due to the fact that the market believes that we are determined to avoid inflation? | 22 |
fomc | 1,977 | I think that's right. And if the recent rates of growth in M1, for example, continued for some months, it's quite possible you would have feedback effects on long rates. However, I ought to amend that because, if it continues at that rate, and it becomes evident to the market that this is not being associated with an a... | 173 |
fomc | 1,977 | Well, there is also the question of what has been happening to the monetary aggregates. If you look at M1, which I think is what you did tacitly, Mr. Roos, the story is very disconcerting from the point of many of us, certainly mine. But if you look at M2, we can take a little comfort. Let's not take too much comfort, ... | 224 |
fomc | 1,977 | Mr. Chairman, but isn't the monetary base expanding in an alarming fashion, 6.6, 7.9, 8.8, 9.6 [unintelligible]? | 40 |
fomc | 1,977 | Well, without accepting the "alarmingly"--I don't get alarmed easily--it's disconcerting, but I attach more importance to monetary aggregates than I do to the monetary base. Now I may be mistaken about this, but that is the way I have become accustomed to using monetary statistics. | 59 |
fomc | 1,977 | Well, I think functionally, what's happened is that M1 is growing more rapidly, and the time deposits that are added to make M2 are growing less rapidly, and M1 has a much higher reserve requirement than M2. There's a time deposit component of M2, that's why the monetary base is growing more rapidly. | 66 |
fomc | 1,977 | May I ask one more question of the Desk? Peter, given this dialogue that Steve and several others have been having, is there strength in demand at the short end of the market which the Committee would have to resist in a rate advance? | 48 |
fomc | 1,977 | Strength of demands for credit? | 6 |
fomc | 1,977 | Strength of demand largely for investments is what I was thinking of. | 13 |
fomc | 1,977 | I'm still not sure--do you mean the strength of demand for credit or demand for investors? | 19 |
fomc | 1,977 | Well, I'm thinking of investors demanding short-rate bills. | 11 |
fomc | 1,977 | I'd say there's a good bit of demand there of liquidity and demand for a variety of instruments. | 19 |
fomc | 1,977 | --which would be a resisting factor for your moving the rate up very rapidly. | 16 |
fomc | 1,977 | It could work to slow that effort, but I think the rates--as I think that we would still be able to have a-- | 27 |
fomc | 1,977 | Well, I'm not saying that you couldn't do it. I'm merely saying you've got a resistance factor built into it. | 23 |
fomc | 1,977 | It's pushing, yes. | 5 |
fomc | 1,977 | I think another way of putting that, Governor Coldwell, is that that's been a factor in the course of this recovery and has kept the three-month bill rate below the federal funds rate. | 38 |
fomc | 1,977 | You could view that as giving a little more leeway to move your federal funds rate without disintermediation, too. | 25 |
fomc | 1,977 | Well, there are no further questions to Mr. Sternlight-- | 13 |
fomc | 1,977 | I move to ratify the Desk actions. | 9 |
fomc | 1,977 | Motion to ratify what Mr. Sternlight has told us we're doing. | 15 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | That motion's approved. Then let's listen to you, Mr. Axilrod. | 17 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | All right, thank you, Mr. Axilrod. Any questions? | 15 |
fomc | 1,977 | Mr. Chairman, may I ask a question of you? I find myself confused again hearing some of the explanations as to exogenous factors that may have caused the aggregates to perform as they did. We frequently explain after the fact certain things that have happened that have caused these things to fluctuate beyond our target... | 196 |
fomc | 1,977 | Let me rephrase your question, and I may run the risk of misrepresenting your thoughts, but do stop me if I do that. We set, let us say, a certain goal for ourselves for the rate of growth in M1. And if we were determined to achieve that rate of growth without regard to other factors or consequences, I think we could c... | 105 |
fomc | 1,977 | I wouldn't dispute it over a three- to six-month period. I would [dispute it], Mr. Chairman, over a one-month or two-month period. | 33 |
fomc | 1,977 | I think that's a useful qualification. I think we could do it. But I don't think that we have that degree of determination with regard to a given targeted figure. And I would question whether we should. Our job is not to worship at the shrine of a specific number that we agree upon at a given time. To the extent that w... | 116 |
fomc | 1,977 | Mr. Chairman, I'm not--if our stated and, I assume, understood objective is to gradually inch down the rate of inflation, and this has been often repeated, don't we have some commitment to that goal even if it means some temporary dislocations of interest rate levels and things like that? I mean, in other words, isn't ... | 75 |
fomc | 1,977 | I'd say it is, but there is a question as to how much dislocation you'd be willing to cause, and at what time. | 27 |
fomc | 1,977 | Well, it's just not interest rate levels either. It's output and demand and employment and profits and the whole fabric of the economy that has to be taken into account. | 33 |
fomc | 1,977 | And inflation. | 3 |
fomc | 1,977 | Yes, in dealing with the inflation problem, which was your question. | 14 |
fomc | 1,977 | Mr. Wallich. | 5 |
fomc | 1,977 | Well, I'd like to get some light on the nature of the shocks that money supply has recently received. The rule of thumb says that if it's a monetary shock, ignore it, and keep interest rates constant. But doesn't that imply that-- | 48 |
fomc | 1,977 | Now I have to stop you. What does that mean? | 12 |
fomc | 1,977 | It means that if there is a shock from the financial, monetary side-- | 15 |
fomc | 1,977 | No, no I still have to stop you. What does that mean? | 15 |
fomc | 1,977 | What does that mean? A rise or fall in the demand for money--technically known as the LM curve. | 23 |
fomc | 1,977 | Well, take, for example, the Penn Central crisis situation. | 13 |
fomc | 1,977 | That would be a very clear example. But I'm thinking simply of occasions where we've got a $3 billion increase in one week or a $5 billion increase in one week and don't have much of an explanation. But they bring us to very high growth rates, and if we take our long-term ranges seriously, we would have to go to very l... | 280 |
fomc | 1,977 | Well, Henry, I still don't know the question. You don't know which it is at any given time with any certainty--whether it's a random movement or the beginning of a new trend or a continuation of an existing trend. | 45 |
fomc | 1,977 | Well, if it were a random movement, in my opinion, it should over time be offset by some other-- | 23 |
fomc | 1,977 | But what I'm saying is, if you could identify these movements as random or otherwise, our problem would be very simple. Our problem is so difficult precisely because we don't quite know how to do that. | 40 |
fomc | 1,977 | Well, I agree with that, yes. | 9 |
fomc | 1,977 | Yes, but then I don't know what your question is. I thought your question assumed that we're able to distinguish and identify properly. | 26 |
fomc | 1,977 | Well, I am trying to distinguish, and I say one of the distinguishing characteristics should be that a series of shocks in one direction upward should eventually be followed by movements in the opposite direction, indicating-- | 40 |
fomc | 1,977 | If you know that they are random. But if you don't know that, that's where you have your problem. | 22 |
fomc | 1,977 | Well, if they're not random--we need to distinguish, this is right. I'm assuming when you get a shock like that, at first sight, that it is random. Now we have to examine was it or was it not. If it wasn't, then we've got to take it seriously and not ignore it. | 63 |
fomc | 1,977 | Mr. Axilrod, the baby is yours. | 11 |
fomc | 1,977 | Governor Wallich, one point I would like to make is that I think the size of the monthly disturbances we've had is a strong random element in an 18 percent and a 13 percent [move]. It may seem supernatural that many of them are occurring on the first month of the quarter, but we have not been able to think of a reason ... | 641 |
fomc | 1,977 | May I pursue this just one minute, Mr. Chairman? Steve, had you looked into--and [can you] give me a good explanation for--the correlation for currency increases with the precise months when M1 goes up? | 46 |
fomc | 1,977 | No. We have noticed that, of course. Currency is a small number. | 16 |
fomc | 1,977 | Well, I understand it's a small number with a huge increase, but what's the correlation in your reasoning, why currency moves up. | 26 |
fomc | 1,977 | If I could relate it all to transactions in that month, it would be an obvious correlation because currency tends to reflect transactions. You can't quite do that, so we don't really have an explanation that I know of for that, Governor Coldwell. We could try to think about it, but we simply do not. It could be just si... | 98 |
fomc | 1,977 | Well, as you look through the monthly ups and downs, I think one would have to conclude, and maybe you said this, the evidence is that the number on M1 growth is working higher. | 40 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | It's a high number. | 5 |
fomc | 1,977 | I think we need to make up our mind whether this is the kind of unexpected increase which one should ignore and stay with interest rates or whether it is one that one should take as an indication of future movement, future aggregate demand, prices and output, and should act accordingly to restrain. If one thinks it-- | 63 |
fomc | 1,977 | It's a question of whether to accommodate what we're now getting or is this more than needed, so there is no question [unintelligible]. | 29 |
fomc | 1,977 | Henry, in either case, isn't it a permanent build in the stock or supply of money? | 19 |
fomc | 1,977 | If it is a truly random shock, I would say it would be offset by a move in the opposite direction in time. | 25 |
fomc | 1,977 | It hasn't been. | 4 |
fomc | 1,977 | Right. Since it hasn't been, it raises this suspicion that it is not [random]. Now there are two possibilities. One is that people have changed their demand for money so that with a given GNP, they want more. If that's the case, we should accommodate it, because it doesn't mean anything to GNP. But if it means that-- | 71 |
fomc | 1,977 | I don't know that I would accept that. The people may change their habits once again and in the process of building up too much money, that money will do its work later on without raising [unintelligible]. | 44 |
fomc | 1,977 | Just to a degree. | 5 |
fomc | 1,977 | I was postulating the possibility that they had changed their demand function so that they wouldn't do this-- | 20 |
fomc | 1,977 | You mean a permanent change. | 6 |
fomc | 1,977 | --permanent change in their demand function, just as we've had a downward shift. | 17 |
fomc | 1,977 | I know, but the trouble is, in the real world these changes are short lived and we have oscillation. | 23 |
fomc | 1,977 | Well, you know, we had a downward shift of the demand curve of about $30 billion. Had we believed in that demand curve, we would have driven interest rates into the floor, trying to push the money supply on that demand curve. We didn't. We kept interest rates at reasonable levels and therefore reduced the supply of mon... | 174 |
fomc | 1,977 | Governor Wallich, so I wasn't misunderstood, let's say the shortfall ended up totaling around $40 billion. There's no evidence that I can see that the public is trying to recapture that. The evidence that I see is that the shortfall may not get bigger. That is, there's no-- | 60 |
fomc | 1,977 | And that evidence is short lived? | 7 |
fomc | 1,977 | Very short lived. | 4 |
fomc | 1,977 | Evidence for six months? | 5 |
fomc | 1,977 | Two quarters, that's correct. Very transitory. It's not very [unintelligible]. | 19 |
fomc | 1,977 | If they should try to recapture it, the growth rates would be staggering. | 16 |
fomc | 1,977 | Yes, oh, it can be impossible. You'd have a 15-20 percent. | 19 |
fomc | 1,977 | Mr. Chairman, is it not possible that, with our preoccupation in keeping interest rates down, we're pumping an awful lot of money into this-- | 30 |
fomc | 1,977 | Well, did you say preoccupation of keeping interest rates down? I'm not aware of any such preoccupation on the part of this Committee. | 28 |
fomc | 1,977 | Well, can we have it, sir, can one have it both ways? In other words, can we have low interest rates and low rates of aggregates growth, or are these things inconsistent and doesn't one have to make a choice sometimes of not trying to have the best of both worlds? | 58 |
fomc | 1,977 | They're consistent in a recession, Larry. | 8 |
fomc | 1,977 | They are? | 3 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | If I may go back to Steve's-- | 9 |
fomc | 1,977 | We could make a choice. When you speak of a choice, one certainly can avoid either extreme. There is some middle ground one may want to choose. And it may be the better part of wisdom. Before we're through this morning, I'm going to urge just that. | 54 |
fomc | 1,977 | If I may pursue this one moment further, Mr. Chairman, if we're back on the old demand curve at a lower level, the slope is the same but the level has been reduced by $40 billion. That would mean, then, that we would not be able to count on the same velocity gain on which we've counted so far to finance an 11 percent i... | 111 |
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