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fomc | 1,977 | Well, gentlemen, they say a little humble crow is one of the most therapeutic medicines that any individual can have. Having led the argument for reducing the ranges three months ago, I'll have to eat a little of my own medicine and say that I don't share that judgment today. Why? First, I recognize that we have got th... | 859 |
fomc | 1,977 | Thank you, Mr. Jackson. Mr. Kimbrel now. | 14 |
fomc | 1,977 | Mr. Chairman, in our visits and contacts, we seem to be encountering about as many people who think that we, the Federal Reserve System, are going to fail in our mission of trying to maintain some inflation control as there are those who think that we may overdo. So with that, I guess, I personally then become regretfu... | 246 |
fomc | 1,977 | Thank you, Mr. Kimbrel. Mr. Gardner, please. | 15 |
fomc | 1,977 | I'll be very brief. The procedures that we have set for ourselves are to determine the long-range proper course of action followed by monthly deliberations to achieve those targets. It seems to me entirely appropriate to reinforce our dedication to the principle of moderate growth consistent with the expected performan... | 288 |
fomc | 1,977 | Thank you, Mr. Gardner. Mr. Balles next. | 13 |
fomc | 1,977 | Mr. Chairman, as a lot of others around the table, I have found your 12 points very persuasive, especially with regard to the real economy being our ultimate goal and also how we have to maintain credibility with the public. And I think you have been wise in your testimony to follow the strategy of gradually lowering t... | 432 |
fomc | 1,977 | Thank you, Mr. [Balles]. Mr. Partee. | 14 |
fomc | 1,977 | Well, Mr. Chairman, I'm in a real quandary today. I look at the economy and I wonder whether it's the kind of an economy in which we want to have a substantial rise in interest rates, a substantial shift in the flow of funds away from the thrifts and the banks into the market, and the characteristics of a tightening in... | 395 |
fomc | 1,977 | Very little, and they still compare favorably with where they were at the beginning of the year or April. | 22 |
fomc | 1,977 | Yes, I understand that. I've done all those calculations, and I have them from the lows and for what they've done this year and so forth, but I'm afraid that we may be at a point where markets, with another 150 basis point rise in bills, would move and would move considerably. Now the question is of strategy. I suppose... | 1,176 |
fomc | 1,977 | Thank you, Mr. Partee. Mr. Winn next, please. | 15 |
fomc | 1,977 | Mr. Chairman, I'd like to note to the Committee that this is the period in our discussion when time is standing still. I'd like to follow Chuck's comments-- | 33 |
fomc | 1,977 | Let me just interrupt. Now, somebody on earth or in Heaven, is, I think, sensing the mood of the Committee and controlling the clock. | 30 |
fomc | 1,977 | We are now a legislative body; they do this all the time. | 14 |
fomc | 1,977 | Strange things have happened in this room. Now, Mr. Lilly, you got this room cooled off. | 22 |
fomc | 1,977 | You want the time to march forward now. We've got this one back here--we can put the chimes on it. | 25 |
fomc | 1,977 | Time stands still for a little while, but not indefinitely. Yes, Mr. Winn. | 18 |
fomc | 1,977 | I'd like to join Chuck a little bit in looking backward, in the sense that we are now making projections on assumed relationships, and yet we really haven't accepted these relationships in terms of the overshoot, in terms of any kind of future economic or price behavior that I saw in terms of our projections that we ta... | 409 |
fomc | 1,977 | Thank you, Mr. Winn. Mr. Volcker now. | 13 |
fomc | 1,977 | We obviously face the most difficult dilemma that we've had for a couple of years in deciding what to do here. I must confess, as I look back just a little bit, not understanding everything that's been going on, I am not unhappy with the actions we took over the past three or four months. If, in effect, we have to comp... | 478 |
fomc | 1,977 | All right, thank you, Mr. Volcker. Mr. Roos next, please. | 19 |
fomc | 1,977 | Mr. Chairman I would prefer ranges roughly similar to alternative C, with a 4 to 6 percent for the M1 target and M2 and M3 reduced to either the alternative C proportions or others that have been mentioned. I would support a reduction of M2 and M3, and a maintenance of our current M1 range. I could not support a wideni... | 586 |
fomc | 1,977 | Thank you, Mr. Roos. Mr. Lilly now, please. | 15 |
fomc | 1,977 | Well, I think that one thing that's come out quite clear in the discussion today, is that we really don't know what's going on in M1. And until we do know, it seems to me ill advised to be making any changes whatsoever in our longer-range projections. And I agree with Phil Jackson in the sense that I think we should [u... | 159 |
fomc | 1,977 | Thank you, Mr. Lilly. Mr. Smoot, it's only proper that you could have the last word for this. | 25 |
fomc | 1,977 | I've learned two things in sitting here for the first time. One is that my perspective is different here than it is back there; and secondly that there is some advantages of going earlier in the process. We considered the arguments relating to the credibility of the Federal Reserve, and we think that there's some merit... | 219 |
fomc | 1,977 | Thank you, Mr. Smoot. It's pretty clear that there is a strong consensus in favor of retaining the present range for M1. It's pretty clear also that there is a strong consensus in favor of reducing one way or another the upper limit, or both the upper and lower limit, of both M2 and M3. Now the range of views expressed... | 241 |
fomc | 1,977 | Four. | 2 |
fomc | 1,977 | How many of you would prefer alternative B? | 9 |
fomc | 1,977 | Seven. | 2 |
fomc | 1,977 | Well, I think that's pretty clear. Now we're ready for a vote unless one or another member of the Committee would like to make a comment. | 29 |
fomc | 1,977 | I take it that bank credit would be plugged in at 7 to 10? | 17 |
fomc | 1,977 | I beg your pardon? | 5 |
fomc | 1,977 | Bank credit would be plugged in at 7 to 10? | 13 |
fomc | 1,977 | Bank credit would be--I'll comment on that at the present. We'll be voting as follows: On a projected rate of expansion of M1 between the third quarter of this year and the third quarter of 1978, the range of 4 to 6-1/2 percent; and a range of 6-1/2 to 9 percent for M2; a range of 8 to 10-1/2 percent for M3; and a rang... | 137 |
fomc | 1,977 | Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes Governor Gardner Yes President Guffey Yes Governor Jackson Yes Governor Lilly Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich No Eleven to one. | 49 |
fomc | 1,977 | Very good. We'll move on now. A very brief comment, I think, is all that is needed at this time, Mr. Partee, on the work of your Subcommittee on the Directive. The work is not completed. You submitted a memorandum; the memorandum has been read, studied, and thought about by the Committee, and a very brief comment from ... | 91 |
fomc | 1,977 | I think, Mr. Chairman, that all we have is worth only a very brief comment. I believe the memorandum is clear and [properly] brief, and I assume you've all read it. What it amounts to is that we haven't been able to determine as yet with the assistance of the staff whether it is a desirable thing to change the approxim... | 527 |
fomc | 1,977 | We anticipated the results of your deliberations. | 9 |
fomc | 1,977 | Yes, that's right. Either that or [the FOMC] took guidance from what the [sub]committee had already done. But that's all I have to say. This is a very important issue, and we're going to be exploring it methodically and in a concentrated way over the next several months. But at this point, this is all the advice we can... | 96 |
fomc | 1,977 | I do not. | 4 |
fomc | 1,977 | That's it. | 3 |
fomc | 1,977 | Well, the only comment I have is to urge you to push along with these studies, and to insure that you do that, we will give you as a minimum one minute, as a maximum whatever time you need, to report at the very next meeting. All right, would anyone else like to comment? Mr. Balles, please. | 69 |
fomc | 1,977 | Just a question to Chuck. One of the things that was very revealing about your report, and I'm afraid too many of us have overlooked, is that when we give this equal weight to M1 and M2, that in effect M1 really accounts for 70 percent of the total. I haven't had a chance, Chuck, to do the arithmetic, but maybe your [s... | 127 |
fomc | 1,977 | Well it's about 2 to 1. But I'm not sure that that's the right thing to do, you see. | 24 |
fomc | 1,977 | Well, I'm not sure either, but if we were to go that direction, what we would have to do is to give M2 2/3 weight, you see. | 36 |
fomc | 1,977 | That's about right. | 4 |
fomc | 1,977 | Okay. | 2 |
fomc | 1,977 | Well, gentlemen, I think we're ready to turn to our shorter-term targets. There are various possibilities, by no means exhaustive, set forth on page 7 of the Bluebook. Mr. Axilrod can help us on interpreting what is in the Bluebook, and his help will be at a maximum and he will be brief. | 68 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | Thank you, Mr. Axilrod. Any questions? Yes, Mr. Morris. | 18 |
fomc | 1,977 | Mr. Chairman, in thinking back on past periods when we've had bulges in monetary growth, if you look back historically in those events, say, last half of '68, last half of '72--it has been typical that the staff has been projecting for the months immediately ahead of us a marked slowing in monetary growth. And I think ... | 115 |
fomc | 1,977 | President Morris, I'd like to respond to that, and make two comments. In the first place, following each of the bulges, there has been a marked slowing in money growth. In April, M1--the latest numbers--grew 19.4 percent, in May it grew 0.7, and in June 4-1/2. In July, M1 grew 18.3 percent, in August 5-1/2, and in Sept... | 256 |
fomc | 1,977 | A good deal stronger. | 5 |
fomc | 1,977 | That's right. It had been stronger than we had anticipated, and I have not gone back six Bluebooks ago to see what interest rate that we were projecting you would have to have had in the third and fourth quarters to hit your target. I suspect we're not very far off those interest rates right now, but I simply don't hav... | 155 |
fomc | 1,977 | You still do feel, don't you, Steve--staff still feels that there's a lagged response to interest rate increases? I think, if it's so, why, we ought to keep in mind that we are talking about a considerably different level of rates than we were three months ago. | 57 |
fomc | 1,977 | That's the basis for our analysis, that growth will slow down in November and December; indeed, even in January we have slower growth. On our money market models, you're beginning to get an effect of 50 or 60 percent in the third and fourth month and you begin to wear out your effect entirely by the sixth or seventh mo... | 191 |
fomc | 1,977 | Well, I think the only point I was trying to make is to caution the Committee that we shouldn't necessarily assume that the bulge is over, and on the basis of similar past experiences, where the Committee has acted on that assumption, we had made wrong decisions. | 53 |
fomc | 1,977 | All right, any other question or comment? Well, if not, I think that the Committee now has a decision to make. We can break for luncheon right now, or if we're in the mood to move speedily, we can get through with our business and still not be famished. | 59 |
fomc | 1,977 | We've all had a cookie. | 6 |
fomc | 1,977 | What's the sentiment of the Committee? Do you want to work ahead toward--to help that process, let me suggest to the Committee that the ranges for October-November specified under alternative B look quite reasonable to me. I think I would prefer, a little, a money market directive; but the monetary aggregates directive... | 97 |
fomc | 1,977 | Well, in view of the uncertainty of the market and our trying to find out where we're at and whether these bulges are [so out of hand], I certainly like alternative B, but I'd like very much the money market directive. | 47 |
fomc | 1,977 | All right, thank you. Mr. Coldwell. | 11 |
fomc | 1,977 | Same thing. | 3 |
fomc | 1,977 | Thank you. Mr. Morris. | 7 |
fomc | 1,977 | Well, Mr. Chairman, I can't buy the federal funds range specification of alternative B. I think we have to make a decision today whether to stand on the status quo, which I think is what alternative B is, or whether we ought to move toward more restraint. I come out-- | 58 |
fomc | 1,977 | Alternative B does permit a little additional restraint. And if your feelings about the bulge that you expressed earlier were justified, that's the way we would be moving. | 32 |
fomc | 1,977 | Except that, given the record of the past seven months, to constrain us to a move of a 1/4 [point] I think is inadequate. I don't think the evidence suggests that we've hit a level of the funds rate which is conducive to getting the growth in the aggregates under control. So I would suggest a federal funds range of 6-1... | 113 |
fomc | 1,977 | It not only would be easier; I think you'd have to show of hands in that direction. | 19 |
fomc | 1,977 | But I've been asking myself the question, can the economy--is it strong enough to tolerate the prescription I've made? I think it is, in part because I think the thrift institutions are somewhat less sensitive to movements in short-term rates than they were in '73 and '69. But looking back to common earlier periods whe... | 462 |
fomc | 1,977 | Well, while I disagree with you today, I might agree with you next month, depending on how the economic information comes in. But I do want to say that you've made a very effective argument for your case, one that should be taken seriously. I'm not supposed to editorialize, but I speak from the heart, you see. Mr. Will... | 74 |
fomc | 1,977 | Thank you, Mr. Chairman. I agree very much with what President Morris said. I would add this one thought. There seems to be a rather substantial difference of view in the Committee as to what is most likely to jeopardize real economic activity. There is a cogent concern that a further increase in interest rates will do... | 277 |
fomc | 1,977 | Thank you, Mr. Willis. Mr. Kimbrel is next. | 15 |
fomc | 1,977 | Mr. Chairman, I come out very close to that [position] just enunciated. Earlier we had indicated that we feel slightly more optimistic than the staff had projected, and we remain hopeful, of course, that the money demands will ease off, but we are continuing to be anxious about the concern for inflation. I think we wou... | 139 |
fomc | 1,977 | Thank you, Mr. Kimbrel. Mr. Partee. | 14 |
fomc | 1,977 | Well, I was going to be very brief, but I must say, Frank, you've challenged me, then, to speak a little more [unintelligible]. I've been in this room for a good many years also, and I find marked differences between this and the previous occasions where there have been surges. The first one is that we have a utilizati... | 652 |
fomc | 1,977 | Thank you, Mr. Partee. Mr. Guffey next. | 15 |
fomc | 1,977 | Thank you, Mr. Chairman. With all the recital of what has happened back in 1962, in these various eras, I feel a little bit inadequate, but I would like to associate myself with some of the comments that Frank Morris has [made] with regard to the ultimate prescription. I don't think I'd be quite as bold as he has been,... | 238 |
fomc | 1,977 | Thank you, Mr. Guffey. Mr. Volcker next, please. | 17 |
fomc | 1,977 | I expressed some happiness earlier about [our having] compromised pretty well between different considerations. I am a little fearful, as some other people have suggested, that alternative B, taken straight out a little bit, ceases compromising and doesn't give enough weight to the risk that the aggregates are going to... | 483 |
fomc | 1,977 | Of course, if the aggregates were high enough, we would communicate with one another before the next meeting. Mr. Black now, please. | 28 |
fomc | 1,977 | Mr. Chairman, I guess my position is sort of a cross between that of Mr. Guffey and Mr. Volcker. I had recently intended to suggest a lower range of M1 and leave M2 as shown in alternative B, but I guess really the thing that controls me most would be the adoption of a money market directive at this time, since the tri... | 146 |
fomc | 1,977 | Thank you, Mr. Black. Mr. Balles, please. | 14 |
fomc | 1,977 | Mr. Chairman, in view of our deliberations today on the long-term ranges, and reflecting back over the past couple of years on why we have overshot those ranges, and in view of my own judgment that, probably as a net result we have provided too much monetary stimulus, I am concerned about continuing to exceed in the fu... | 493 |
fomc | 1,977 | Thank you, Mr. Balles. Mr. Jackson. | 12 |
fomc | 1,977 | I think I would prefer, to get to the point, to leave the aggregates as indicated in alternative B, but I would prefer a money market directive with the federal funds range from 6-1/4 to 7 percent. The reason for that is, I think, while I would share the judgment that going below 6-1/2 would probably be a mistake, my l... | 230 |
fomc | 1,977 | Thank you, Mr. Jackson. Mr. Mayo next, please. | 14 |
fomc | 1,977 | I'm not far apart from Governor Jackson. I think I would prefer 6-1/4 to 7 with a 6-1/2 asymmetrical midpoint. I don't share John's concern about the relationship of the upper ends of the short-term range vis-a-vis the long-term range because I think the same argument can be made on the lower ends, that we are below th... | 154 |
fomc | 1,977 | Thank you, Mr. Mayo. Mr. Winn, please. | 13 |
fomc | 1,977 | Mr. Chairman, I am perhaps out of order, but I am concerned about the behavior of interest rates in the period ahead and the implications of that, and yet I think we have to react to what's happened in the aggregates area in the past as well as our concern about what the future projections would be. And I'd like to urg... | 170 |
fomc | 1,977 | Thank you [unintelligible]. | 8 |
fomc | 1,977 | Gentlemen, I listened carefully to Frank's description of our frailties, and I was pleased with Chuck's response, because he took into [account] the environments surrounding the conditions in the past. I have no memory of those conditions at this table. It seems to me we're dealing with a curious change in velocity. Ag... | 615 |
fomc | 1,977 | Thank you, Mr. Gardner. Mr. Wallich next. | 13 |
fomc | 1,977 | I lean toward a money market directive because the aggregates seem to be hard to interpret at this time. I would go for the aggregates with B. On the funds rate, even if we have a money market directive that argues for a relatively narrow range, I would prefer to widen it a little. I think the arguments in favor of hav... | 217 |
fomc | 1,977 | You are in favor of an immediate rise? | 9 |
fomc | 1,977 | I would be in favor of an immediate rise. Well, we're really within that range, you know, 6-1/2 to 6-5/8. | 35 |
fomc | 1,977 | No. | 2 |
fomc | 1,977 | We have been over quite a few times, not with the weekly rate, but it's moved up to there. I would say 6-5/8. | 32 |
fomc | 1,977 | Thank you, Mr. Wallich. [Unintelligible.] | 14 |
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