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fomc | 1,977 | Or do you know? | 5 |
fomc | 1,977 | But in some cases I think they're just not telling us the [truth]--they say they're still in dollars, investing in dollars, and so forth, and yet we hear from the market that they've been buying other currencies. Since they operate in the Eurocurrency markets, no one can see them very well, even the others. | 66 |
fomc | 1,977 | So your impression is, this is more than a threat, then? | 14 |
fomc | 1,977 | It's a process. It's a management process. These people are all studying and have advice from consultants in the U.S. and London on how to manage their reserves. And you're talking about portfolio management. | 40 |
fomc | 1,977 | That's not what they tell me. What they tell me is that the dollar becomes weak and that will put great pressure on the price of oil, and they accent that development rather than going out of dollars into other currencies. | 44 |
fomc | 1,977 | Well, this is what the policymakers are saying. I'm talking more about the ones who are managing the portfolios, or funds, whoever deals in that area. Sometimes it's the same person, but we're talking about two different questions. | 45 |
fomc | 1,977 | But if there were such a move, we would have to be able to observe an increased proportion of Eurocurrency loans made in D-marks and yen, and that's the Eurocurrency, and so on. Somebody's got to create assets if he's going to assume liabilities in those currencies. I'm not aware that one sees that, actually. | 67 |
fomc | 1,977 | That's one of the manifestations, I think. | 9 |
fomc | 1,977 | To what extent could these shifts in currencies be a reflection of the change in the currencies in which they're buying their imports? For example, that trade with Japan and Germany has picked up relative to that in the U.S.? | 44 |
fomc | 1,977 | Yes. This is part of the reason why it's so difficult for us to say categorically that, at one given week or one given month or quarter, there's more purchases of D-marks by OPEC central banks then at other periods. We don't have a link to the direct transactions picture. The problem in the market is that there are cer... | 138 |
fomc | 1,977 | Yes, Mr. Black. | 6 |
fomc | 1,977 | Could I ask Scott one more question? | 8 |
fomc | 1,977 | Certainly. | 2 |
fomc | 1,977 | Scott, has this diversification by the OPEC countries out of dollars accounted to any significant degree for the movement in the dollar? | 25 |
fomc | 1,977 | It's perhaps a contributory factor, but I would not call it a major factor. | 17 |
fomc | 1,977 | [Unintelligible.] | 6 |
fomc | 1,977 | To the extent that we have seen, there is some, perhaps some increase, it is a factor. We're not calling it a significant factor. I'd rather place the policy concern on these other matters that I outlined. | 43 |
fomc | 1,977 | Well, that was my guess. I just wasn't-- | 11 |
fomc | 1,977 | But the fear of this--we're dealing with market fears. We're not dealing with facts, we're dealing with fear. People worry about all of these things to the extent that these fears [arise], some of them confirmed, then the market jumps. At this stage, the market is jumping to sell dollars at any opportunity, at any even... | 81 |
fomc | 1,977 | So a good part of that could stem from fear of [unintelligible] past week or so? | 22 |
fomc | 1,977 | May I make one more comment? | 7 |
fomc | 1,977 | Yes, please. | 4 |
fomc | 1,977 | At the risk of taking too much time, I'm disturbed by Scott's comment that if we intervened on a very large scale, this would have a different effect from others doing it. I suspect, if that is true, it is true for a reason that we might not want to accept, namely that all our other policies would be bent toward mainta... | 168 |
fomc | 1,977 | I'm not sure, Henry, that's the only interpretation the market places upon our intervention. I think there's also the simpler interpretation--that we in the Federal Reserve think the market has gone too far, and we don't think there's a lot of risk involved in increasing our level of intervention. | 56 |
fomc | 1,977 | It's just a matter of erasing the market's worst fears rather than turning upside down all the rest of our policy. The market needs reassurance in this. | 31 |
fomc | 1,977 | Because you think the market thinks we want it down positively. | 12 |
fomc | 1,977 | Well, they're afraid that we want it. | 9 |
fomc | 1,977 | Where "we" means what? | 7 |
fomc | 1,977 | Well, this is more the U.S. Treasury than the Federal Reserve. | 15 |
fomc | 1,977 | Well, you can't erase the trade deficit, which is growing by leaps and bounds. That certainly would seem to indicate the direction for the dollar, other things equal. And for us to try to resist that in volume--I mean, at first it might seem that we know something that they don't, but later it might just seem that we'r... | 71 |
fomc | 1,977 | Well, we can't devalue against the Saudi currency or the [unintelligible] currency or [against] all these other countries that we're having a deficit with. The Japanese [unintelligible]. We have a surplus with Western Europe. And you get into the argument as to whether a devaluation at this stage would help us. The Tre... | 113 |
fomc | 1,977 | I would endorse the comment made by Mr. Pardee. I think that if Secretary Blumenthal had not said one word, the market would behave in much the same way. Of course it is. And I don't think that we can correct that to any appreciable degree by raising interest rates in this country. After all, take a look at where inter... | 240 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | The motion has been made and seconded. I hear no objections. Do you have any recommendations to the Committee, Mr. Pardee? | 28 |
fomc | 1,977 | I have no formal recommendations, but I would briefly note the situations which could lead to requests for swap drawings by other central banks. [Situations noted by Pardee not recorded.] | 36 |
fomc | 1,977 | All right, thank you. I think we're ready to move on. Mr. Sternlight, may we have your report now on the domestic Desk? | 30 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | All right, thank you, Mr. Sternlight. Any questions? Any comments? Yes, Mr. Wallich. | 24 |
fomc | 1,977 | Well, as you saw these aggregates coming toward you, Peter, were you--I'm trying to get a sense of your timing. Evidently you have to make decisions--whether today, tomorrow--how soon you move with the rate. Were you comfortable with the way things worked out, and was the directive as given helpful, capable of being ex... | 71 |
fomc | 1,977 | I think so, Governor Wallich. Well, both the directive and the sense of the discussion at the meeting gave us what we thought was a course of normal procedure to move in a gradual fashion. The strength was apparent, as I said, just within a day or two after the meeting, and we just about immediately moved from 6-1/8 to... | 138 |
fomc | 1,977 | When New York and the Board don't have exactly the same estimates, how do you proceed? | 18 |
fomc | 1,977 | We give primary weight to the Board's estimates. We look at the New York estimates just as a kind of measure of, well, it's just kind of a reminder that these, after all, are projections, and not necessarily the final word on the subject. | 52 |
fomc | 1,977 | Peter, as you say, you were coming to the upper limit on your ranges almost right away, which is not surprising, because the Committee biased the ranges downward last time. And then as I look at the Bluebook, why, of course, the latest estimates are well above the upper end of the range for M1 and somewhat above M2. Ca... | 101 |
fomc | 1,977 | Well, I think there's a continual communication with the Chairman that includes discussion with senior staff members as we go along. | 23 |
fomc | 1,977 | You didn't regard this as being obviously inconsistent, at least until right toward the very end of the period. Is that right? | 25 |
fomc | 1,977 | It was really only in the aggregates--by October 6--that we were really above the range, and at that point we were aiming for the 6-1/2 percent top of the funds rate, and this was--as these steps are taken as we go along, there's a consultative process in which we are in touch with senior staff of the Committee here. | 76 |
fomc | 1,977 | Mr. Chairman? | 4 |
fomc | 1,977 | Yes, Mr. Roos. | 7 |
fomc | 1,977 | Following that same line, and maybe this is too hypothetical for you to answer. What degree of increase in the aggregates would cause you to cease the-- | 30 |
fomc | 1,977 | I didn't hear the question. | 6 |
fomc | 1,977 | I said what--how far would the aggregates have to go before Peter pressed the panic button-- | 19 |
fomc | 1,977 | I think that if we were 1 or 2 percentage points above the tops of the ranges, this clearly raises a question that should be brought to the Chairman's attention. | 35 |
fomc | 1,977 | The Chairman, let me say, is really not asleep. And I think that the Committee, the entire Committee, should take very seriously Mr. Sternlight's very accurate description. There is a constant consultation and communication between my office and Mr. Sternlight. And therefore there's no need to press any panic button, b... | 180 |
fomc | 1,977 | Mr. Chairman, can I address a question to Peter and possibly also Scott? Do you see any rather direct or more or less mechanical relationship between the accelerated growth in holding domestic balances and what has just been described with respect to the pressures on the dollar internationally? | 52 |
fomc | 1,977 | I'm not sure what domestic balances you mean? | 9 |
fomc | 1,977 | I was thinking of the money stock. | 8 |
fomc | 1,977 | Yes. I'm not sure I do see any direct connection there. There tends to be a reaction in the exchange markets to our money supply figures, which Scott had commented on, though I gather this very last time there was less reaction than there had been on other occasions when we would have to show a big increase in the aggr... | 83 |
fomc | 1,977 | May I add a word here? It seems to me Mr. Baughman's comment would be very appropriate in any other country in any other circumstances than those of rapidly rising interest rates. You create more money. There's an implication that money will flow out of the country, and under floating rates that means there'll be press... | 136 |
fomc | 1,977 | But in an exchange market, there's no direct relationship between the money supply and what are demands for dollars. At 4:00 on Thursday afternoon, everybody's making a bet on what the numbers are going to be. It's just like betting on football games on Sunday. And then, when the numbers come through, they jump one way... | 162 |
fomc | 1,977 | Yes, Mr. Balles. | 7 |
fomc | 1,977 | Mr. Chairman, I was just wondering if Peter or perhaps later Steve might be covering this, as to whether the staff has any insight on that very large surge of the aggregates for the past period. What I'm getting at is, there seems to be a suspiciously strange pattern developing on quarterly dates with the big surge in ... | 95 |
fomc | 1,977 | Well, the answer can and will be very short. | 11 |
fomc | 1,977 | I have no special--there has been, as you pointed out, this phenomenon, and it may very well be that our weekly seasonals are bad. To a lesser degree, our monthly seasonals might be bad because they'll revise somewhat. We don't have any special reason, but I would point out that these surges have tended to disappear. S... | 120 |
fomc | 1,977 | I'm glad to hear you're as frustrated as I am in terms of explaining it. I'm not really glad; I wish you had an explanation, which I don't. | 32 |
fomc | 1,977 | Any other questions? Very well. Is there a motion now to approve the operations of the Desk during the past month? | 24 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Seconded. | 3 |
fomc | 1,977 | The motion has been made and seconded; I hear no objection. Let's turn very briefly to the lending authority under which we function, the lending authority to the Treasury. Mr. Broida, would you be good enough to say a few words on this subject? | 54 |
fomc | 1,977 | Mr. Chairman, we've distributed a memorandum to the Committee noting that--now that the need for the $3 billion limit has passed--you recommend that the Committee return to the $2 billion limit specified in paragraph 2 of the Authorization. | 48 |
fomc | 1,977 | I'd like to add just one word. The reason for that reference for the particular recommendation is that I hope it can be adopted without discussion. There's no great logic attaching to it, and I could go with $3 billion and I could go with $5 billion, but if I open up the question, we might have an extended discussion. ... | 91 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | Seconded. | 3 |
fomc | 1,977 | And there's no logic to support it. | 8 |
fomc | 1,977 | They don't hardly ever use it. | 7 |
fomc | 1,977 | And when they do, we can change the rules. | 11 |
fomc | 1,977 | I second it. | 4 |
fomc | 1,977 | The motion has been made and seconded, and we stay with the present illogical rule. Very well now, I think we'll move to the consideration of the longer-term ranges for the monetary aggregates and then have a few words by Governor Partee, who will tell us something about [unintelligible] the [Sub]committee on the Direc... | 632 |
fomc | 1,977 | That's correct. | 3 |
fomc | 1,977 | The fourth fact is that, whereas M1 has been growing this year much faster than during 1976, both M2 and M3 have been growing more slowly this year than they did during 1976. The fifth fact to keep in mind is that the excessive growth of M1 has been confined to the past two quarters. Sixth fact to keep in mind is that,... | 1,723 |
fomc | 1,977 | We should be returning to our duties. I introduced the subject of longer-term ranges, and now we're ready for what I trust will be a thorough discussion by the Committee. Who wants to be first? Mr. Mayo, Mr. Morris, then Mr. Wallace. | 53 |
fomc | 1,977 | Mr. Chairman, I think you have given at least all of the reasons for various alternatives that I have thought of. I think your narrowing of them to the two is quite appropriate. I find myself strongly in favor of leaving the M1 range unchanged. I believe that the achievement of our basic objective of lowering the monet... | 116 |
fomc | 1,977 | We're not ready for monuments. | 6 |
fomc | 1,977 | Well, monument isn't the right word. Okay. I accept that, Mr. Chairman--let's say as the illustration of our dedication to principle here, and the principle is, I think, very important. I would find that to change M1--in my book, at the moment--runs significant risks of misinterpretation without any compensating substa... | 343 |
fomc | 1,977 | Thank you, Mr. Mayo. Mr. Morris next, please. | 14 |
fomc | 1,977 | Mr. Chairman, I come out in the same place that, although I would find alternative C acceptable, I think alternative B, in which we retain the present range for M1 and adjust M2 and M3, is preferable. I think that we have a prima facie case over the past seven months that perhaps we may be returning to the relationship... | 149 |
fomc | 1,977 | Thank you, Mr. Morris. Mr. Wallich next, please. | 15 |
fomc | 1,977 | Well, I was heartened by your emphasis, Mr. Chairman, on pointing at the economy rather than at the aggregates, because the two seem to have parted company, and also pointing to the overshoots. I think that reduces our credibility problem. I think we have some credibility problem no matter what we do. The best thing is... | 94 |
fomc | 1,977 | I wish that were true. | 6 |
fomc | 1,977 | At any rate, I don't think we're going to maintain that belief by setting low ranges, then allowing the base to drift up and overshooting them. That, I think, doesn't help us, nor does it help us really to have unrealistic targets that people don't think we can attain. I do think we need to see what has happened. These... | 477 |
fomc | 1,977 | Thank you, Mr. Wallich. We will hear next from Mr. Black, please. | 19 |
fomc | 1,977 | Mr. Chairman, in considering our new longer-run targets this time, we took a little more careful look than we ordinarily do at the recent behavior of aggregates and continue to be quite puzzled by this behavior in M1. It just is very perplexing. It's almost never that you have anyone moving at the same sort of rate as ... | 367 |
fomc | 1,977 | Thanks, Mr. Black. Mr. Coldwell. | 11 |
fomc | 1,977 | Mr. Chairman, it's a very difficult decision because we're looking at an interpretation of what we come out with. My interpretation is slightly different from yours. I think we have a question of credibility in practice versus policy prescription that we put forth to the general public. And I don't believe that lowerin... | 398 |
fomc | 1,977 | Thank you, Mr. Coldwell. Mr. Baughman. | 14 |
fomc | 1,977 | Mr. Chairman, I don't know whether it's because I hold a little more optimistic view of the general business climate than some that have been expressed around here and whether I am possibly more impressed than some with the tremendous surge in the growth of these aggregates in recent months. But I was inclined to move ... | 363 |
fomc | 1,977 | Thank you, Mr. Baughman. Mr. Guffey. | 15 |
fomc | 1,977 | Yes, Mr. Chairman, it seems to me that we're running into a potential credibility problem if we do indeed lower, particularly, M1 again. If we haven't been able to hit the current target ranges, then to lower even further implies much more, I think, than maybe we want to imply at this point. As a result, your suggestio... | 209 |
fomc | 1,977 | Thank you, Mr. Guffey. Mr. Willes now. | 15 |
fomc | 1,977 | Thank you, Mr. Chairman. I find your arguments for both cases very persuasive; wish I'd made them myself. You indicated that on M1 you had an open mind, and to the extent I can, I'd like to nudge you in the direction of the 6 rather than the 6-1/2. I found the argument that you gave for that particular alternative very... | 301 |
fomc | 1,977 | Thank you, Mr. Willes. Mr. Jackson now, please. | 15 |
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