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fomc
1,977
Well, we have contemplated a nonborrowed reserves target, and it's perfectly possible, over a period of time--whether one would do that with or without interest rate constraints [is a] question that has to be solved on empirical grounds, to see what would have happened had one not done so.
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Could I ask a procedural question? Because, as I understand this, the [Sub]committee on the Directive is trying to work on a new procedure to be followed in the event that the courts do not allow our case--
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We're going to present a report at the next meeting that the Committee--
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Which could quite possibly be--it may possibly be--that no new procedure is advocated.
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And we will talk about the pros and cons and possible alternatives.
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But will a decision have been made by this Committee by December 1 as to what it's going to do if the court throws it out, or the Solicitor General--
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Well, I don't think we ought to try to prejudge them. Let's see how our own thinking develops. My own at the moment is that if we have to publish on December 1, it's not really terrible. It would have been a lag of 15 days. It's not a case of immediate publication.
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Well, the answer is we will have to publish what [we do] today. But we will still have the option of molding what we do at the December meeting.
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Well, we also will have the option of a supplementary instruction. Now, between meetings, we at times have changed our instructions, and we'll have that option.
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Well, that's one of the problems. I suppose, Tom, a supplementary instruction--of the kind that we have had sometimes in the past--will have to be communicated immediately under this same court decision. Is that right?
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I believe that the court's opinion contemplates that to constitute a substantive action of the Committee, amending its earlier directive, and must require it to be published.
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It's not usually a case where you're moving in one direction and then another; why, that really is more sensitive, in a way, than the meeting itself.
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In that regard--
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I don't think we want to prejudge what we're going to do just a little before December 1. We don't know how to do it today.
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We've got 20 days after December 1 to decide what you're going to do at the next meeting.
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Well--
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All I'm driving for is that there be in train some very tough contingency planning for the December 20 meeting.
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Well, that is the instruction that we have just given to Mr. Partee as chairman of the [Sub]committee on the Directive.
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All right. Well, that clarifies my question. We will have alternatives in case we lose.
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Not necessarily; not necessarily tough alternatives.
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We will give you a range of possibilities.
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One of the alternatives the court suggested to us was legislative relief.
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Well, I'm not waiting even one day on that. By that I mean I started conversations that I'm going to continue. Now, my problem is to test the waters, you see.
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I think the assignment to the [sub]committee to be an operational assignment--that is, assuming that you publish, what are your options, what kind of directive changes might be desirable or appropriate--rather than a legislative matter or even the matter of a court strategy.
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One more procedural question or legal question. Tom, is our instruction by the court to publish the directive? It isn't to publish the entire Record of [Policy] Actions?
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No. I interpret the court's move to immediately require publication of actions of the Committee, particularly, and it addressed itself to the directive and the targets. As I earlier noted, I believe that the balance of the policy record--constituting, as it does, adoption within 30 days--is not contemplated within this...
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Okay. Thank you.
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Mr. Chairman, would the Chairman request Mr. Holmes that he communicate with the [Sub]committee on the Directive any possible conclusions that he might reach in terms of the basic advantages and/or disadvantages of changing our whole basic strategy? So that the [Sub]committee on the Directive does not do its work total...
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Well, I think Mr. Holmes and others of the New York staff--just as Mr. Axilrod and others of our Board staff--will certainly be working, as a matter of course, with Mr. Partee's committee. Mr. Jackson now, please.
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Mr. Chairman, I think we need to appeal [the court's ruling], which is quite obvious, and at the same time I think the consequences are that we will be, prior to legislative actions, releasing our policies. I think those are the most likely prospects. I think that in the present state of the economy, we are unlikely to...
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Thank you, Mr. Jackson. Mr. Balles, please.
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Mr. Chairman, I think all the points that I had in mind have already been said. I fully support using all avenues of appeal and certainly urge the [Sub]committee on the Directive to put this out on the front burner, hoping we can have a full-scale discussion of it, preceded by some staff papers, for our December meetin...
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Thank you, Mr. Balles. Mr. Winn now, please.
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Mr. Chairman, I concur in the feeling--explore the alternatives available to us here to postpone our decision. But I join with Mark [in] a feeling that conditions have changed. We ought to think through more than just the directive problem, if this requires release, but the implication. I have a feeling that the public...
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Thank you, Mr. Winn. Any other comment? If not, let me try to summarize what I think is the broad consensus. And if I'm mistaken, please correct me. First, I think that there is general support for a thorough reexamination of our procedure with regard to the directive by Mr. Partee's committee and [for] such a report t...
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Let me test the consent of the Committee before we get under way. Would you like an expedited meeting, or do you want to take as much time as we usually do? That will help me in running the meeting. I will go either way. ALL. Expedite.
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All right. I take it the minutes of this [the October 17-18, 1977] meeting are approved.
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Seconded.
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And we'll move to a report by Mr. Holmes, which will be brief, on current policy operations.
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[Secretary's note: This statement was not found in Committee records.]
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Thank you, Mr. Holmes. Any special questions for Mr. Holmes? I hear none. Mr. Holmes, do you have any recommendations?
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[Secretary's note: This statement was not found in Committee records.]
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The recommendation is that we codify our procedures, that nothing new be attempted, and that the codification, after it's been completed by our staffs, be submitted to the Subcommittee on Foreign Currency Operations for final approval and actions. Is that satisfactory to the Committee?
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So moved.
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Any objections? All right, I take it that is adopted. Any other recommendations?
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That's all I have.
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We're renewing the swap--it's implicit.
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We are approving the actions of the Desk.
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Thank you, Mr. Coldwell. Now we will have Mr. Kichline's report on the economy.
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[Secretary's note: This statement was not found in Committee records.]
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[Interrupting] Third quarter of a year ago? I thought the uptrend started the first quarter of this year.
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Well, the recent low for the total was in the third quarter of 1976. You may be looking at dollars. I was looking at the--
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No, no, I'm not looking at dollars. All right.
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If I'm wrong, I stand corrected and I will fess up later. [Secretary's note: This statement was not found in Committee records.]
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Thank you, Mr. Kichline. I suggest that we dispense with technical questions to the staff and that we confine ourselves to expressions of opinion about the economic outlook, indicating specifically whether we generally agree with the staff or are more optimistic or less optimistic with respect to economic activity and ...
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Mr. Chairman, I would merely comment, in the vein you ask, that the staff seems to be moving in a direction which I had thought was probably the likely outcome, a shading of the fourth quarter '77. You have only taken 2/10 off of it this time. I was kind of hoping you would take a bit more off, but I think, in terms of...
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Thank you. Mr. Wallich now, please.
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I think the staff is about right, Mr. Chairman--has a sense of a slight sagging in the speed of the expansion, but not seriously. I do note increasing imbalances--Mr. Kichline has referred to some of them. We now are at a relatively high level of the full-employment deficit, and that, barring other government action, [...
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Thank you, Mr. Wallich. Mr. Mayo now.
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I generally concur with the staff projection. I think it's just about the same as my own. I would merely mention one other factor, which I dwelt on a little bit the last time, and that is that, at least in the eyes of many of our bankers in the Midwest, we do have a somewhat depressed state of agriculture in our Distri...
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Thank you, Mr. Mayo. Mr. Winn now.
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Mr. Chairman I think I am a bit more optimistic than the staff with respect to the first half of next year. It seems to me the pickup in retail sales, and what we get in the field in this area with the very tight inventory controls currently in effect, gives rise to a typical kind of inventory cycle for next year to fi...
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Thank you, Mr. [Winn]. Mr. Volcker now.
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I continue to feel that the staff projection is not at all unreasonable, but I also think it's on the high side of the range of probabilities that I foresee--progressively so as time goes on next year. Obviously there's time to still have a lot of things happen and affect the latter part of next year, but at present I ...
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Thank you, Mr. Volcker. Mr. Baughman now.
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Mr. Chairman, I substantially agree with the staff figures. I wouldn't offer any specific amendments in them. I would repeat what I said earlier; in so far as they may prove to be wide of the mark, my guess is that they will be low rather than high. It seems to me that I continue to see indications of some building str...
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Are you talking about Houston or a broader geographic area?
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Well, I am speaking primarily about the Southwest, but I am told by some of the builders who are domiciled there, but who work countrywide and even internationally, that this is gradually appearing elsewhere in the country as well. And I view that as both a favorable situation, given our balance of payments picture, an...
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Thank you, Mr. Baughman. Mr. Black now.
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Mr. Chairman, I'm in pretty close agreement with the projections of the staff, assuming no significant change in the level of business confidence. But in view of what I perceive to be excesses in the economy, if we should somehow or another miraculously resolve some of these doubts we've got about energy and regulatory...
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Thank you, Mr. Black. Mr. Balles, please.
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Mr. Chairman, reflecting on the staff views on the outlook, we continue to be in general agreement, at least through the first half of next year, although a little dubious about whether we'll see as much strength in the second half of '78. But laying that aside, as I have thought about what the key weak spots in the ec...
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Thank you, Mr. Balles. Mr. Kimbrel now, please.
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Mr. Chairman, I think our views do not differ substantially at all from that projections of the staff. If we [saw] any weakness, it might be that we would anticipate slightly less strength in the housing starts than the staff suggests. Visiting with our businessmen reveals interesting differences--they generally expect...
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Thank you, Mr. Kimbrel. Mr. Guffey next, please.
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Thank you, Mr. Chairman. I think that our views also do not differ substantially from those that the staff has projected, particularly through the first half of 1978. However, as Mr. Black observed, it is, I think, a real possibility, with the right kind of a statement from the Administration, that we could have a very...
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Thank you, Mr. Guffey. Mr. Partee now, please.
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Well, Mr. Chairman, I have nothing special to contribute. I agree that the tone is a little better than it was a month ago. And I think the better retail sales--the retailers have been talking about it for some time, but the statistics only showed them yesterday. It's part of it. I was surprised [when I looked] at the ...
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Thank you, Mr. Partee. Mr. Roos next, please.
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We basically find no substantial disagreement with the staff projections. The economy is strong in our District. We find in conversation with businessmen that their main concern is uncertainty--not only uncertainty with government actions; it also includes uncertainty about inflationary expectations. We would find a 4....
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Thank you, Mr. Roos. Mr. Willes now, please.
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Thank you, Mr. Chairman. I appreciated Chuck's comments on the longer-term outlook. I guess it seems clearer and clearer to me that what actually happens depends more and more on what we and other branches of government do between now and then. I have two interesting comments that were made to me that I think are indic...
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Thank you, Mr. Willes. Who'd like to be next? Mr. Gardner, please.
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I'm pleased that so many of you have been optimistic. I believe in a sequential analysis. And I look at the length of this recovery and recognize that, all through the recovery, we've had the troublesome question of lack of business confidence, business investment; consumer confidence has varied. I don't find that too ...
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Thank you, Mr. Gardner. Who'd like to speak now? Mr. Jackson.
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I share the sentiment that the staff has that the progress of capital investment will continue to be the real question. I think that the time lapsed since 1975 has begun to generally erode the risk aspect of the profit expectations that various enterprises will have in their minds before they commit [themselves to] lon...
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Thank you, Mr. Jackson. Who would like to be next. Anyone? If not, just let me say one word. I think the members of the Committee know my views on the economic outlook. The only thing that I would add is, I talked a good deal about taxes recently, and let me add a footnote to what I've had to say. The Administration th...
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Thank you, Mr. Chairman. [Statement--see Appendix.] That's all I have.
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Thank you, Mr. Sternlight. Any basic questions to put to Mr. Sternlight?
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I had to defend the actions of the Desk in a couple of meetings around the country in the last week. As a matter of intelligence that I should have ascertained before, when was the last time we sold against the Treasury auction?
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Well, we have made moves in the funds rate during Treasury financing periods on a couple of occasions. I don't know that I can recall when we took this specific action of selling Treasury bills outright in the market during a financing operation. But I think, last spring and the spring of the previous year, we were mov...
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It also was alleged that we had done the same sort of thing as little as a month or six weeks ago.
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If you mean by the same thing as sale of outright bills in the market, I think--
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During the auction.
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I can't recall the details of that.
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I think it would be helpful to supply an answer to Mr. Lilly's question in writing. Any other questions? Yes, Mr. Holmes?
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Mr. Chairman, one thing I wish you would just add for the Committee's information. We have got a favorable ruling [from] the IRS [Internal Revenue Service] on the matched sale-purchase agreement. We just got it yesterday morning, and [unintelligible] during the interval before the next committee meeting, we'll have the...
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All right. Thank you. I move that we approve the operations of the Desk. Motion has been made. Second?
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Seconded.
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Seconded. I think if there's no objection, I will have a brief report from Mr. Axilrod.
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