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fomc | 1,977 | Mr. Chairman, in the interest of time, I would just like to summarize the first part of my report, which was to the end of indicating that strong credit demands were a major force in picking up interest rates in the second and third quarters of this year. According to the flow of funds accounts, funds raised by nonfina... | 374 |
fomc | 1,977 | Thank you, Mr. Axilrod. Any questions of Mr. Axilrod? Yes, Mr. Balles. | 25 |
fomc | 1,977 | Steve, as I am sure is the case with you, one of the most frequent questions that comes to me from directors and other interested parties is, what insights do we have in this peculiar behavior of M1 during this year, with the surges on a quarterly basis not being offset by subsequent declines. I know it's a terribly di... | 93 |
fomc | 1,977 | President Balles, I think I've said in the past that it's difficult to explain the exact timing--that is, why [did we have] a strong growth in April, a strong growth in July, and a strong [growth] in October. I think it is less difficult to explain why you had something like a 9 percent rate of growth over the past six... | 352 |
fomc | 1,977 | Thank you. | 3 |
fomc | 1,977 | Could I piggyback on that question a bit? Again, looking at this demand for money and trying to use what evidence we could--using the demand deposit survey data, it looks like consumers have been very stable in their holdings in this [unintelligible], with the very violent swings in the financial corporation area. And ... | 81 |
fomc | 1,977 | That's right, it is in the financial business area that there have been swings. We have not found anything in that survey to pinpoint any particular sector, and it's very difficult to find a strong, compelling reason why that particular sector did swing, is volatile. That survey has, of course, statistical problems, fl... | 79 |
fomc | 1,977 | That's quite right. | 4 |
fomc | 1,977 | Mr. Chairman, possibly linked to this, although I'm not sure, a conversation with some bankers, which I referred to earlier. They indicate that, as they've been waiting for the expected rise in business demand for funds, they have, in an effort to utilize funds, developed loans to financial institutions in substantial ... | 113 |
fomc | 1,977 | You would think, of all groups, financial institutions would be the most likely to utilize their cash balances promptly, putting them in overnight markets or something like that. | 32 |
fomc | 1,977 | Somewhat on the same theme, I see that the increases in velocity are projected to reach--in alternative B by third quarter '78--6.7 percent, and this is to come partly out of the normal growth of velocity and partly out of a rise in interest rates projected from 6-1/2 in the funds rate to 7-3/4. And this really assumes... | 121 |
fomc | 1,977 | It has two additional assumptions to those you made. One, that there is some further downward shift in the demand curve. And, in a sense, almost saying the same thing, at least my belief, that this 9 to 10 percent expansion over the past four months in M1 is in some sense going to prove unwanted. That is, it is simply ... | 125 |
fomc | 1,977 | I note that you've got a decline in velocity, an indicated decline in V1 in the third quarter; that's the first decline since the recession low in the first quarter of '75. It does seem like there would be some storing up in velocity. | 50 |
fomc | 1,977 | There could also be as we accelerate from the slack of the third quarter to the fourth quarter. But still, these numbers seem very high to me, and of course they are predicated on a 5-1/4 M1 target. | 49 |
fomc | 1,977 | Midpoint of the range. | 6 |
fomc | 1,977 | If we went to the upper edge of the band--6-1/2--all these velocity numbers would come down by a little more than 1 percentage point. | 34 |
fomc | 1,977 | That is correct. | 4 |
fomc | 1,977 | Steve, is not a possible factor that the money was pumped in to keep short-term interest rates from rising more than they have? We don't mention that; isn't that a factor that conceivably could have caused this bulge in M1? | 49 |
fomc | 1,977 | I was assuming, President Roos, that that money would be in large part unwanted over the long run. It may have had a temporary effect, moderating interest rate pressures. To the degree that it is unwanted over the longer run, it could be either invested in money market instruments or other assets, which would put downw... | 114 |
fomc | 1,977 | Gentlemen, I think we are ready for our discussion of monetary policy over the short run. Let me make just two observations. I hope that we will proceed--I would like to emphasize, I very much hope that we will proceed--in the normal fashion and that our thinking will not be distracted by the recent court decisions. Se... | 135 |
fomc | 1,977 | Mr. Chairman, what would be the figure for M2? | 13 |
fomc | 1,977 | Okay, I haven't given that. | 7 |
fomc | 1,977 | Yes. Corresponding change. | 6 |
fomc | 1,977 | You'd cut by a half. | 7 |
fomc | 1,977 | You'd cut 1 point on each end? | 10 |
fomc | 1,977 | Perhaps, or a half. | 6 |
fomc | 1,977 | Mr. Chairman, what was the M1 figure you suggest? | 13 |
fomc | 1,977 | Well, the figure as given under alternative B is acceptable to me. I would prefer a range of 1 to 7 [percent] or 1 to 6. Who'd like to be first? Mr. Volcker, please. | 49 |
fomc | 1,977 | I continue to be quite satisfied with the compromise we struck in recent meetings. And now, with projections, at least for the money supply, a little more conservative, I see no reason to make a change. And the suggestions you made are certainly along the lines of my own thinking. I do think we ought to not move off th... | 211 |
fomc | 1,977 | Thank you, Mr. Volcker. Mr. Eastburn next, please. | 16 |
fomc | 1,977 | Thank you, Mr. Chairman. I continue to worry about the growth rates we've had in the past for M1, because I think that we're going to find, looking back, that we have followed a procyclical policy. However, the recent performance has been more satisfactory, and furthermore, I think there are uncertainties now that we h... | 172 |
fomc | 1,977 | Thank you, Mr. Eastburn. Mr. Morris next, please. | 15 |
fomc | 1,977 | Mr. Chairman, last month I dissented because I thought we had no evidence that we had reached the level of the funds rate which would be consistent with beginning to attain control of the aggregates. And I think the evidence of the last two weeks shows that finally things are beginning to move our way. It's obviously n... | 126 |
fomc | 1,977 | Thank you. Mr. Kimbrel now. | 10 |
fomc | 1,977 | Mr. Chairman, I too think that the ranges suggested in alternative B are desirable. As earlier indicated, I have been, and am, disturbed about the uncertainties that continue to haunt the financial markets. I would think that the very best we could do would be to provide some small measure of stability, and I'd like to... | 129 |
fomc | 1,977 | Mr. Coldwell next, please. | 8 |
fomc | 1,977 | Mr. Chairman, it seems to me that today is the day for some stability--no change. I like Paul Volcker's 1 to 7 [percent] range [for M1]. It gives a little more outside movement, and it doesn't threaten having to go off of our 6-1/2--I don't want to go above it unless we're forced by some pretty high figures in the aggr... | 100 |
fomc | 1,977 | Thank you, Mr. Coldwell. Mr. Partee next, please. | 16 |
fomc | 1,977 | Well, that's agreeable to me too, Mr. Chairman. I don't quite understand how we've gotten this stability, but we do seem to have it, right at the moment, and it might be well to continue it for a while. | 47 |
fomc | 1,977 | Let's enjoy it. | 4 |
fomc | 1,977 | The aggregates are very difficult to interpret, as usual. And Frank, it could be telling us something, it could be telling us that it's under control, or it could be telling us that there's been a change. We may start worrying about a low number, believe it or not, if it continues for a period. Now, a 1 percent lower [... | 388 |
fomc | 1,977 | Thank you, Mr. Partee. Mr. Jackson. | 12 |
fomc | 1,977 | I would agree with alternative B as stated [in the Bluebook] and would prefer that we not go down to 1 percent. The primary reason is that, while I would recognize the uncertainty of December that Governor Partee outlined, the truth is that we will have limited information on December 20, when we next meet, as to what ... | 196 |
fomc | 1,977 | Thank you, Mr. Jackson. Mr. Lilly next. | 12 |
fomc | 1,977 | Well, tranquility having been achieved, I certainly am not one to want to change the pleasant state of affairs. However, I agree with Phil Jackson, [and] I'm guessing that in the longer run you are going to look at a funds rate that's going to fluctuate more. I would say I would like to see the 2 to 7 [percent for M1],... | 115 |
fomc | 1,977 | Thank you, Mr. Lilly. | 7 |
fomc | 1,977 | Mr. Chairman, I would support the Chairman's alternative B with a 1 to 6 [percent] M1 range. I would just remind the Committee that in spite of last night's football game, Mr. Chairman, we don't have the St. Louis football team in the Super Bowl. And [likewise] I'm not sure--recognizing that we had an 8.6 percent avera... | 163 |
fomc | 1,977 | Thank you. Mr. Mayo next, please. | 10 |
fomc | 1,977 | A 6-1/4 to 6-3/4 [percent range for the federal funds rate] is fine with me. I have a slight preference for the 1 to 7 [percent range for M1] and the M2 that goes with it. | 56 |
fomc | 1,977 | Thank you, Mr. Mayo. Mr. Guffey next, please. | 16 |
fomc | 1,977 | Thank you, Mr. Chairman. When coming to this table, [I was] prepared to support alternative B and thought that the only real question was what kind of a directive you liked, what to get to the Desk, and was prepared to push for a money market conditions directive to achieve the stability that everybody around the table... | 119 |
fomc | 1,977 | Thank you, Mr. Guffey. | 9 |
fomc | 1,977 | Well, I, like everyone else, fall into this B category. I think the question of ranges depends largely on whether you select a money market directive or an aggregates directive. If we go with a money market directive, in view of the shortfall we're expecting in November, and our staff thinks it may even be a negative n... | 251 |
fomc | 1,977 | Thank you, Mr. Black. Mr. Wallich next. | 13 |
fomc | 1,977 | I continue to be concerned about the shortfall that I anticipate in the achievement of the velocity that the staff expects, so I'm concerned with setting ranges that I think are on the low side. Now, since I can sense the ideas of the group, I don't want to argue very strongly; I do want to remind us that we really shi... | 216 |
fomc | 1,977 | Thank you, Mr. Wallich. Mr. Baughman. | 14 |
fomc | 1,977 | Mr. Chairman, my inclination when I came here was to move for just a slightly higher federal funds rate, in the interest of getting somewhat lower aggregates, but it's quite acceptable to me to use the other approach--lower the aggregates targets and use the existing funds rate. It seems to me you'd come out at about t... | 255 |
fomc | 1,977 | Thank you, Mr. Baughman. Mr. Gardner. | 13 |
fomc | 1,977 | Gentlemen, I have no problems. I would like to adopt alternative B and I won't dissent if you modestly adjust it. I don't think it's time, yet, Ernie, to proceed on [Regulation] Q. | 47 |
fomc | 1,977 | Thank you, Mr. Gardner. Mr. Willes, please. | 14 |
fomc | 1,977 | Thank you, Mr. Chairman. I'll be very brief. We have a little bit of a credibility problem in our District--I'm speaking now just for our District. When we publicly announced growth ranges that they have indicated to me they wanted to take seriously, they keep questioning why we can't [hit] them. | 62 |
fomc | 1,977 | "They" refers to whom? | 6 |
fomc | 1,977 | Businessmen. And I give the usual responses as to what happens and so on. What that suggests to me is that, while I would love to kind of relax and enjoy what's going on, I'd feel better if we took advantage of the opportunity to do whatever we can to get the numbers down to a more reasonable level. So I would have a s... | 117 |
fomc | 1,977 | Thank you, Mr. Willes. Mr. Balles, please. | 15 |
fomc | 1,977 | Mr. Chairman, I liked your modification to the ranges of both M1 and M2, 1 to 6 and 4 to 8. Because, as I look at the Board staff's projections of both M1 and M2 and then average those out over the usual 13-week moving average, as I'm in favor of, it's evident that, if those forecasts should come true, we'll be above t... | 156 |
fomc | 1,977 | Thank you, Mr. Balles. Mr. Winn. | 12 |
fomc | 1,977 | Mr. Chairman, I really have nothing to add. I would be in favor of widening the [M1] range a little bit, 1 to 7--use this as an opportunity to get it expanded a little bit and stay with the aggregates objective, not a money market. | 58 |
fomc | 1,977 | Gentlemen, on the basis of the views expressed by members of the Committee, I think it would be reasonable to suggest to the Committee that we vote on the following: a range for M1 of 1 to 7 [percent], a range for M2 of 5 to 9, a range for the federal funds rate of 6-1/4 to 6-3/4. I'm uncertain, however, about the lang... | 138 |
fomc | 1,977 | Against the 6-1/4 and 6-3/4? | 16 |
fomc | 1,977 | Right. | 2 |
fomc | 1,977 | Governor Wallich-- | 4 |
fomc | 1,977 | I want an aggregates directive. | 6 |
fomc | 1,977 | Four, Mr. Chairman. | 6 |
fomc | 1,977 | No, let's test that expression. Members of the committee who prefer a monetary aggregates directive will raise their hands. | 22 |
fomc | 1,977 | Four. Mr. [Gardner]? MR. [GARDNER]. Five. | 17 |
fomc | 1,977 | Now we'll try again with the first, the money market directive. | 13 |
fomc | 1,977 | What's this? | 3 |
fomc | 1,977 | The money market--those who prefer it. | 9 |
fomc | 1,977 | Four. | 2 |
fomc | 1,977 | Well, the vote is very close. Anyone who hasn't raised his hand would like to do so? | 20 |
fomc | 1,977 | I would take either. I can see some advantage--I think honesty really does indicate, as somebody said, that we are on a permanent money market directive, and perhaps we ought to take it for that reason. On the other hand, I think the ranges are wide enough to justify an aggregates [directive], so I would take either th... | 73 |
fomc | 1,977 | Well, we are somewhat divided on the issue, as you can see, but I could take either, and I don't want to produce a tie, certainly. | 32 |
fomc | 1,977 | I could take either, too, Mr. Chairman. The only thing I would say if we run an aggregates directive, I would like it interpreted as a rather sluggish aggregates directive--that we didn't move too fast. | 43 |
fomc | 1,977 | Do you see some advantage to a money market directive? Did I understand you to say that's the way you would go? | 24 |
fomc | 1,977 | I see a very, very tiny advantage, but you know, I don't believe in fine tuning, and taking these specifications altogether, one is just about equivalent to the other. | 35 |
fomc | 1,977 | Mr. Chairman, may I make an observation? If you have a money market directive and the staff is right, and you get a 1 percent expansion in M1 in November, then in order to trigger any action on that, you've got to get 15 percent in December before you begin moving the rate up. | 64 |
fomc | 1,977 | No, now we've begun moving before it gets to the top. | 13 |
fomc | 1,977 | Not too much before that. But to me, the decision [is], if you take a money market directive, you want narrower ranges; and if you take an aggregates directive, you want wider ranges. | 41 |
fomc | 1,977 | That is logically the thought of the money market directive, but in practice I don't think there is any significant difference or any difference that I can really define with any confidence. Could you define the difference with confidence, Mr. Holmes? | 46 |
fomc | 1,977 | I think, with the specification, either form of the directive is about the same. | 17 |
fomc | 1,977 | We've had a little discussion. Let's have a show of hands once again. The money market directive, those who would prefer it. | 26 |
fomc | 1,977 | Why don't you ask the question, Mr. Chairman, would anyone object to a money market, or to an aggregates-- | 24 |
fomc | 1,977 | Well, I would rather not. My business is not to invite dissents. | 16 |
fomc | 1,977 | Sorry about that. | 4 |
fomc | 1,977 | Those who would prefer a money market directive-- | 9 |
fomc | 1,977 | Five. | 2 |
fomc | 1,977 | Those who would prefer a monetary aggregates directive-- | 9 |
fomc | 1,977 | Five. | 2 |
fomc | 1,977 | Well, who has not voted. | 7 |
fomc | 1,977 | I haven't. I'll go for the money market. | 10 |
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