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fomc | 1,977 | That does assume, as you say, that there will be some acceleration in growth abroad. Are exports pretty sensitive to rates of growth abroad? | 28 |
fomc | 1,977 | Yes. In fact, the only thing we really have to go on are the growth projections in the major industrial countries, and there, at least in the past, our equations, somewhat to my surprise, are somewhat more accurate. [Export] projections tend to be somewhat more accurate and cyclically sensitive, especially for us, than... | 230 |
fomc | 1,977 | And you've also assumed that we will not have a repetition, as far as countries other than Japan are concerned, of what happened in Japan this year when real GNP rose but real imports diminished. | 39 |
fomc | 1,977 | They didn't grow very much, that's right. | 9 |
fomc | 1,977 | No, according to the latest report from your staff, it's been an actual diminution. I think that's reasonable. Any other questions in this area? | 29 |
fomc | 1,977 | On this point, how do you assess the competitive position and the changes therein in the past two years or so? | 23 |
fomc | 1,977 | Judging against the other industrial countries, our price competitiveness has improved somewhat over the last two years by about 2 percent; and the decline of the dollar, in this respect in dollar terms, would add another 2 percent. In the parlance of the day, that is a real exchange rate depreciation. It is not within... | 86 |
fomc | 1,977 | You're looking at overall indexes. | 6 |
fomc | 1,977 | Right. Did I answer your question, or did I not hear the second part? | 17 |
fomc | 1,977 | There is no question. I just commented, you're looking at overall what, wholesale price indexes? | 19 |
fomc | 1,977 | And consumer price indexes, and wholesale price indexes for manufacturers. | 12 |
fomc | 1,977 | I think what Mr. Volcker is saying is that, if your comments were based on the price behavior of items that enter foreign trade, you might reach the same conclusion or a different conclusion. | 39 |
fomc | 1,977 | I don't know what conclusions you would reach on this basis. | 12 |
fomc | 1,977 | Well, with respect to Japan and Germany, which are the only places where you really get good price data, their export price data showed less of a rise than their domestic price data. | 37 |
fomc | 1,977 | And ours showed more. | 5 |
fomc | 1,977 | And ours show the same to a little bit more, right, in our unit value, and then to the extent you use that [then we have less] deterioration with respect to those countries. | 39 |
fomc | 1,977 | One other question. Does your agricultural forecast take in the new information concerning the drop in production estimates for Russia? | 22 |
fomc | 1,977 | Yes, I think that we have already [included] to the extent possible a fairly heavy demand from Russia and the overstock here starting the first of October. They had come in [unintelligible] and requested the upping of the ceiling to 15 million tons. Now, it is true that no one has been able to confirm the orders for th... | 141 |
fomc | 1,977 | Is that speculation about a 20 million ton demand from Russia out of the picture or is that realistic? | 21 |
fomc | 1,977 | I just don't have the information to judge. I think the 15 million probably is consistent. The piece that was in the paper, I think it was down to 205 million tons during harvest--that was, in fact, what we were using as a basis for projecting. | 56 |
fomc | 1,977 | Is there any sort of a guess as to the extent to which existing U.S. import limitations and foreign countries' export restrictions imposed at our behest influence the total volume of imports? | 37 |
fomc | 1,977 | I think, on the first point, we tried to put together an estimate of how much the recent or current trade restrictions by the U.S. might affect imports, and I think an optimistic number on the high side would be $1 billion, and probably the true number is something more like $500 million. | 62 |
fomc | 1,977 | I don't understand. $1 billion refers to what? | 11 |
fomc | 1,977 | How much higher our imports would be in the absence of the kinds of recent--over the last year or so--measures to restrict our imports. | 30 |
fomc | 1,977 | May I ask a question of our New York Bank representative, Mr. Pardee? What is the opinion of the New York Bank's staff about the prospective value of the dollar in foreign exchange markets? | 40 |
fomc | 1,977 | It depends on who you talk to within the New York Bank staff. | 14 |
fomc | 1,977 | Well, I'm talking to you now. | 8 |
fomc | 1,977 | All right. I'm not a forecaster. I think that most economists would come up with a forecast very close to what Mr. Truman has just outlined. I'm skeptical, myself, of any forecast on the trade account. In recent years we've had errors on the order of $20 billion--in '75 and '76. | 65 |
fomc | 1,977 | Well, I'm talking about the value of the dollar, not the value of our foreign trade. | 19 |
fomc | 1,977 | Yes, but the people in the exchange market are following these numbers, [and] to the extent that the trade balance does improve or weaken, this will influence thinking about the dollar. | 37 |
fomc | 1,977 | All right, any other questions or comments about our foreign trade or the prospective value of the dollar in foreign exchange markets? | 24 |
fomc | 1,977 | Mr. Truman, what element have you factored in with respect to the challenge of steel dumping? The possibility of some change being-- | 27 |
fomc | 1,977 | No we had not, we had not. We have enough trouble dealing with things we think we know something about rather than that. To the extent you have this lower growth in steel, for whatever reason, and that would not have been [unintelligible]. It is true that, over the recent months, the growth has leveled off--particularl... | 124 |
fomc | 1,977 | You don't have any protectionist, any explicit protectionist stuff at all. | 15 |
fomc | 1,977 | No, no new measures. | 6 |
fomc | 1,977 | Just a couple of comments on the international situation, since you asked. I rather share the feeling Governor Coldwell already expressed--these export figures look pretty optimistic against the background of the prospective growth trends abroad, as I see them, and I think that points up the probability that downward p... | 156 |
fomc | 1,977 | Now that, of course, Paul, would mean that it would also tend to hold down the recovery anyway. | 22 |
fomc | 1,977 | Well, I don't think it will hold it down to the same extent it has. It will tend to level off. | 24 |
fomc | 1,977 | It's an algebraic subtraction. | 6 |
fomc | 1,977 | Well, to the extent that the recovery here languishes, our imports could also grow less rapidly, and therefore the outcome as far as our trade balance is concerned is quite uncertain--the trade deficit may diminish instead of increasing. | 45 |
fomc | 1,977 | The trade deficit would presumably improve if we had imports diminished, but the dollar would still be influenced probably by interest rates as well as the improved deficit, and so one really doesn't know--whether that works on the upside, too. Cannot be sure of the deterioration of the trade balance--and if interest r... | 74 |
fomc | 1,977 | I think that's what's been happening, might continue--if not-- | 13 |
fomc | 1,977 | You've got the trade balance, you've got the interest rate differentials, and you have the broad economic prospects for the country. You would think that the U.S., a country in which it's desirable to invest because the prospects of profits look good and improving--even with low interest rates, money will flow here. | 62 |
fomc | 1,977 | Or the consequences abroad, or the lack of growth, could produce political instability, which would produce inflows regardless of the rate. | 26 |
fomc | 1,977 | Well, all right, we've come close to a catalog of the possibilities. Now we move on to-- | 21 |
fomc | 1,977 | May I ask a factual question in that regard? What price in imported oil did you include in these projections? | 22 |
fomc | 1,977 | We have been assuming--and there's some basis for it but not much--[that it] will rise by 5 percent over the course of 1978. So it rises approximately from the $13.44 per barrel in the fourth quarter of this year to $14.11 in the fourth quarter of next year. That is roughly in line with the rate of inflation--stays con... | 83 |
fomc | 1,977 | All right. Mr. Mayo, may we hear from you? | 13 |
fomc | 1,977 | Thank you, Mr. Chairman. First, on the international [outlook], I spent the week before last in Japan and was faced with this very question, time and time again, as to the dollar-yen relationship, and mostly with reference to what pressures were going to be within the two governments. And my answer was the very simple-... | 290 |
fomc | 1,977 | Nothing outstanding. The most recent news has been on the good side. Housing starts have held up somewhat better than we had anticipated, and there seems to be a certain sense--indications of continued demand. It's true that there are some suggestions that some of the overheated aspects of housing demand in California ... | 118 |
fomc | 1,977 | Well, the range that I saw, the very highest, was something like just slightly over 2 million, and the average was well under it, say 1.8 to 1.9, and your figure seems to be a little above the top of the range of quite a few economists that we've talked to. | 65 |
fomc | 1,977 | Is yours a supply constraint? | 6 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | That is, then starts can't stay up because there are shortages. | 13 |
fomc | 1,977 | Partly, they have no wallboard; there are all sorts of shortages that are holding things up. It was different from the shortages three years ago that held a lot of things up--for instance, you couldn't get plumbing fixtures, but you could build most of the house and put in the fixtures at the end. This type of building... | 92 |
fomc | 1,977 | Insulation, I guess, is important. | 9 |
fomc | 1,977 | Insulation is a problem, wallboard is a problem, and I am not up to date on this, but I have the impression that some forms of framing lumber are in very short supply. | 39 |
fomc | 1,977 | Well, this would not necessarily slow down starts. If they slowed down completions--[increased] the length of the period under construction--thereby running up costs, and negative effects on starts stemming from that source--actually, I would not be surprised if, in the multifamily sector, experience were a little bett... | 82 |
fomc | 1,977 | That's my point, I don't have the facts on which to base a projection, but it appears that apartment housing and [federal] urban development multifamily programs perhaps are a little stronger than some people originally estimated it. There was a push in the fall of last year to accelerate the rate of starts temporarily... | 160 |
fomc | 1,977 | The strong supplies of funds, and I hear stirrings on the demand side that I didn't hear a few months ago. | 24 |
fomc | 1,977 | Well, the demand side has improved. Unfortunately, we got the opposite side of that equation. Gross rents may go up, but it takes net rents--as we keep reminding ourselves--to go up before you get any production that comes along behind. I do think that the one thing that should be the follow-up question, Bob, is that t... | 110 |
fomc | 1,977 | Yes, I think that's right, Phil. And furthermore, our people have come to the conclusion that, as far as the impact of disintermediation is concerned on the thrift institutions, it isn't the 6 percent breakpoint, it's a higher point than that because most of the new money has gone into CDs and a lot of it into six-year... | 89 |
fomc | 1,977 | I think your best news there was the most recent sales figures that we saw both in existing and in new housing. We had several months where it looked like production exceeded the sales, but there was a quick one-month catch-up in that, and it occurred during a part of the year where you normally have heavy sales. So wh... | 177 |
fomc | 1,977 | I have two other observations, if I may. This is relating-- | 14 |
fomc | 1,977 | Relating to what subject? | 6 |
fomc | 1,977 | This is relating to agriculture. | 6 |
fomc | 1,977 | Well, let's pause for a moment. Is there any other observation on the housing market? | 18 |
fomc | 1,977 | Mr. Chairman, one interesting thing that's come to our attention lately, which seems to fly in the face of some of the things others have been saying, is a report from the vice chairman [of our Bank's board], who is involved in all sorts of wood and wood products industries. And he reports that since about Labor Day, l... | 146 |
fomc | 1,977 | That's just within the past-- | 6 |
fomc | 1,977 | Starting about Labor Day, yes sir. | 8 |
fomc | 1,977 | Thank you. Mr. Roos. | 8 |
fomc | 1,977 | Mr. Chairman, on last Thursday, we were in Louisville with the individual that heads up the appliance division of General Electric. And their projections are very much in terms of what they anticipate for the housing industry, and they were almost indescribably positive in their attitudes for the next year to 18 months... | 81 |
fomc | 1,977 | All right, Mr. Partee. | 8 |
fomc | 1,977 | Well, I might say that I talked to the economist with the National Association of Home Builders recently, following that convention. He talked to a great many builders in the course of that convention, and his impression is that single-family building is likely to come down in the year to come, but the multifamily migh... | 160 |
fomc | 1,977 | It's money and demand rather than supply. | 8 |
fomc | 1,977 | Money and what? | 4 |
fomc | 1,977 | And demand rather than supply. | 6 |
fomc | 1,977 | Why do you say money--not much has happened to mortgage interest rates. | 15 |
fomc | 1,977 | It's the projection. | 4 |
fomc | 1,977 | In the projection, Mr. Chairman. | 8 |
fomc | 1,977 | It's this bill rate | 4 |
fomc | 1,977 | I see. Well, now wait, are you projecting significantly higher mortgage interest rates? | 17 |
fomc | 1,977 | Well, we have mortgage rates, for what they're worth, sort of middle of the next year in the 9-1/4 percent area, so up a quarter or half, depending on where you are in the country. But more importantly than just the rate constraint, we have implicit in our forecast what we believe to be some constraint on funds availab... | 95 |
fomc | 1,977 | I'm a little puzzled. I would have said that, in view of the liquidity of the thrift institutions and their enormous borrowing potential from the Home Loan Banks, etcetera, I would not expect a shortage of funds, say, over the next 12 months, even if you have a significant reduction in the inflow of funds to thrift ins... | 69 |
fomc | 1,977 | Well, we think the near-term factors are quite positive on the financial side as well as elsewhere, and hence we do have, what I think is--quite right, President Mayo--a fairly optimistic housing forecast relative, certainly, to the ones I'm familiar with. But if you look ahead, as consistent with our bill rate forecas... | 273 |
fomc | 1,977 | Even if we get a mix, Mr. Chairman, of slightly lower rates of single-family starts or construction and slightly higher rates of multifamily, the net total constant-dollar effect of the two would be flat, or maybe even a reduction, because of the difference in the cost per unit. So you need to be very careful between l... | 77 |
fomc | 1,977 | Mr. Kimbrel, please. | 8 |
fomc | 1,977 | Mr. Chairman, we have not had a chance to pursue this to great lengths, but there have been several indications in the last two, three weeks that life insurance companies are indeed beginning to invest in our area, in single-family investments, mortgages. | 50 |
fomc | 1,977 | Single-family mortgages? | 4 |
fomc | 1,977 | Single-family mortgages in our area. Now, whether that could be characterized yet as a major decision, I'm not sure, but there are known instances that that is beginning to happen. | 36 |
fomc | 1,977 | Well, the large life insurance companies are not doing that. | 12 |
fomc | 1,977 | Mr. Chairman-- | 4 |
fomc | 1,977 | That may have opened up in the last 60 days--first time in over 15 years. | 20 |
fomc | 1,977 | Well, I asked the head of Prudential whether he had any interest, he said absolutely not. Just the other day. | 25 |
fomc | 1,977 | But his neighbor across the street is doing that, though. Equitable is, indeed. Because this happens to be one of those that we're familiar with. | 31 |
fomc | 1,977 | How are they doing it? How do they assemble the mortgages? | 13 |
fomc | 1,977 | Well, now this-- | 5 |
fomc | 1,977 | Are their field offices doing it or do mortgage bankers? | 11 |
fomc | 1,977 | I believe they're having their normal brokers. | 8 |
fomc | 1,977 | Mr. Winn, please. | 6 |
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