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fomc | 1,977 | We are exploring these things, John. This was just a sudden assignment within the last 30 days. We are looking at the relationship within short-range, long-range targets. We're looking at the question of the different kind of [unintelligible], where I hope that we will explore the idea of going back to a money market d... | 82 |
fomc | 1,977 | At this point, it's meant quite literally, I think, to mean at the point we're ready... | 20 |
fomc | 1,977 | You are not exploring depth, breadth, and resiliency. | 12 |
fomc | 1,977 | No, we haven't done that as yet. | 9 |
fomc | 1,977 | I have one other concern on this. I want to state this carefully. I don't have any interest in this Merrill decision. I wish it would go away someplace. But if we are actually going to be subjected to this court interpretation, then I raise questions, counsel, as to whether we can be charged with evasion of the court's... | 87 |
fomc | 1,977 | May I suggest that is a question of law that I want to fight out with Mr. O'Connell, and I don't want to raise that question here and now because it would take a great deal of time. I've been troubled by that, and I suggest that, as far as today is concerned, that we not dig any more deeply into the matter until-- | 73 |
fomc | 1,977 | Moot until we hit the next long-range target discussion. | 12 |
fomc | 1,977 | Well, we'll have to-- | 6 |
fomc | 1,977 | That's next month. | 4 |
fomc | 1,977 | In the meantime, these discussions of the decision and of our directive will have taken place. | 18 |
fomc | 1,977 | Mr. Chairman, most of the points that I wanted to make have been made by various people. I started off with this point to which John Balles alluded a while ago, on page 2, where we don't think the court order ought to be, in and of itself, the reason for adopting basically a new approach. And I think that ought to be t... | 371 |
fomc | 1,977 | All right. Mr. Jackson. | 7 |
fomc | 1,977 | I think Governor Coldwell has expressed the concern that I have because the question was the degree to which we would have a meeting and discuss long-range objectives without coming to a final conclusion. Because I see us constrained in two ways--to the extent we get a general consensus, or sense, or whatever you want,... | 353 |
fomc | 1,977 | Well, I think the solution may be found outside the recommendation of the [sub]committee. But I am not going to enter into a legal debate with Mr. O'Connell with so many people listening. We will have to do that in private. Mr. Morris now, please. | 58 |
fomc | 1,977 | Mr. Chairman, my only concern about the report, which I thought was very good, was the interest rate spread recommendation. I think it will prove to be very advantageous to us to pick a spread and stay with it. Because from now on, if we are having instantaneous release, every time you change the spread, you are going ... | 257 |
fomc | 1,977 | May I ask you a question about that? To what extent would you weigh the relative merits of a 1 percent[age point] federal funds constraint, versus a 4 percent aggregates [unintelligible]. It strikes me that you have both alternatives. | 52 |
fomc | 1,977 | Yes, but we won't be publishing anything about a zone of indifference, I don't think. This will be again, a sort of thing that we don't vote on but-- | 35 |
fomc | 1,977 | No, but his point is, you can either widen the funds rate spread or you can narrow the aggregates. Precipitate action on either-- | 29 |
fomc | 1,977 | We have two tools and we have only focused on one; we have not discussed the other. | 19 |
fomc | 1,977 | This strikes me as the perfect example, Mr. Chairman, of [unintelligible], we may say we want to consider [unintelligible] substantive issues, but we can't avoid getting into the substantive issues. And I'm not prepared to sit here and say we always want a 1 percent[age point] spread. There may be times when I positive... | 138 |
fomc | 1,977 | We may want the announcement effect of a change in spread sometime--it's quite conceivable. | 17 |
fomc | 1,977 | In either direction. | 4 |
fomc | 1,977 | Mr. Willes now, please. | 8 |
fomc | 1,977 | Thank you, Mr. Chairman. I'll be very brief because I've heard most of the things I was going to say. I'd like to fall in line with Governor Wallich and those who expressed the concerns that they have and will just make two brief additional comments. [A point was] made in the discussion--if we follow this procedure, in... | 346 |
fomc | 1,977 | All right, thank you. Mr. Kimbrel now, please. | 15 |
fomc | 1,977 | Mr. Chairman, I find the paper to be rather helpful, and it's even approaching erudite, and I like the approach [and] share the suggested procedure. I think this discussion has been productive, and I think it certainly comes under the heading of advance planning is prudent. Having said that, I have a natural preference... | 115 |
fomc | 1,977 | Well, I think that's wise. I think that the objective of this meeting, as I see it, is not to arrive at any decision but to share our thinking, and I believe it would be fair to say that most of us think that the recommendation by the Partee committee for the months immediately ahead are a good starting point for our d... | 196 |
fomc | 1,977 | Mr. Chairman, I'd like to raise a possibly heretical question. But if it were to develop with, say, a 1/2 point interest rate spread, most of the time we were operating either at the floor or the ceiling, which seems to me a fair possibility. Now, really, a two-stage question. One, would the Committee be inclined to fe... | 223 |
fomc | 1,977 | Yes, but when we announce in our directive the quantitative specifications that we intend to live by during the coming weeks, we also indicate that there may be some inconsistencies among these specifications. We also indicate there may be some change in the Committee's thinking, and we always have a sentence in our di... | 93 |
fomc | 1,977 | Well, now the heretical part. Insofar as there might be problems of this type, might we avoid them by using our general phrase and a federal funds rate point, as compared with a range, so that we would not have committed ourselves [on] how acceptable to us [it would be] to have the results [be in terms of] a deviation ... | 179 |
fomc | 1,977 | I think that is a money market directive, and any time the aggregates are running strong or weak relative to expectations, it calls for a meeting or a wire to move off that rough point--you know, point plus or minus 1/8 or something like that. | 54 |
fomc | 1,977 | But assume that our performance indicated that the phrase might have a connotation at some points in time of a 1/4 percent deviation and other times might have a connotation of a 1/2 percent deviation. | 44 |
fomc | 1,977 | How would we tell the Manager that? If we told the manager that, we would be giving him an instruction. | 23 |
fomc | 1,977 | Not only that, but a movement of 50 basis points is not regarded as standing approximately still in the marketplace. Not by traders, and not by our Treasury, and not by most of us. | 40 |
fomc | 1,977 | I accept your observation, and yet I am not completely persuaded. | 13 |
fomc | 1,977 | Mr. Guffey, please. | 8 |
fomc | 1,977 | Mr. Chairman, I'd like again to make the point that the Committee did not address the advantages or disadvantages of making an announcement as to what the federal funds rate precisely would be in quantitative terms from the date following the day of the meeting. That's laid against the alternative of casting it as we d... | 132 |
fomc | 1,977 | Well, we did, Roger, address the question of qualitative expression. We decided that that was the step backward--to talk in terms of slightly higher, slightly lower--which used to be the way the directive was put. The other, I think you're distinguishing between a money market directive, which shows [unintelligible] [a... | 127 |
fomc | 1,977 | Well, it would seem to me that if we did not express the federal funds rate in that meeting at a particular, quantitative level, that it might give the Desk some flexibility to let the market seek a level in conjunction with the Desk action, much as we are doing today. [It] might have some advantage that you do not hav... | 96 |
fomc | 1,977 | Roger, could I ask you a clarifying question? On page 13 under the monetary aggregates directive, aren't you talking about the second sentence from the bottom in the Bluebook, where you say, "In the judgment of the Committee, such growth rates are likely to be associated with a weekly average federal funds rate of abou... | 68 |
fomc | 1,977 | Yes, that's right, and I'd rather not say "X percent," but I'd rather use the language that apparently the Committee considered and recommends against, that is to cast it in something less than a precise figure. | 42 |
fomc | 1,977 | If that's different from what you are now operating at, it would clearly have very quick market repercussions. | 20 |
fomc | 1,977 | What if we did exactly what we're doing now, except announce immediately, and if there were a temporary disruption [then see] if that disruption would not give us grounds to seek remedial action in the Congress. In other words, we are being driven to this by people beyond our control; in [our] complying with the law, M... | 171 |
fomc | 1,977 | Congress won't get that excited about it. | 8 |
fomc | 1,977 | It may not show for four months. | 8 |
fomc | 1,977 | If we are right in thinking that disruptive moves may occur, then I think it is our duty to try to prevent that rather than let the destructive movement take place and then go to the Congress and say, "See, a destructive movement has taken place, and therefore we seek legislative relief." | 58 |
fomc | 1,977 | Why, you are a gentleman, Mr. Chairman. | 11 |
fomc | 1,977 | [The Congress] might just say, you are a damn fool. You could have done something different-- | 21 |
fomc | 1,977 | Well, anything else to be said on this subject this afternoon? If not, I think we have had a good discussion. We will start tomorrow, on time, and with our regular--[End of executive session] December 20, 1977 | 51 |
fomc | 1,977 | Good morning, gentlemen. We'll get our deliberations under way. And as always, we need to act on the minutes of the last meeting. Is there a motion to approve? | 36 |
fomc | 1,977 | So moved. | 3 |
fomc | 1,977 | The motion has been made and, I take it, seconded, and I hear no objections. And we will move on, therefore, to the report on foreign currency operations by Mr. Pardee. | 41 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | Thank you, Mr. Pardee. Are there any questions or comments? Mr. Roos. | 20 |
fomc | 1,977 | Scott, is it the relative rate of inflation or the trend rate of inflation that affects the value of the dollar? In other words, isn't the effort expended by the various nations to control inflation and the success of that effort more of a factor than the rate of inflation in the various countries? | 59 |
fomc | 1,977 | Certainly, we have had a number of very interesting and useful studies, including the studies by the Board's staff recently, on the real rates of exchange. But at this moment, and under these conditions, the exchange market is not focusing on rates of inflation as such. There is concern, and the concern about potential... | 95 |
fomc | 1,977 | I get the impression that the Desk would prefer greater intervention. What's your concept of intervention? | 18 |
fomc | 1,977 | Well, I'd prefer to be more forceful at the moment and hope to save overall in the amounts that I use. The problem is, now, we lack credibility. And so to the extent that we do intervene, people say, well, they're not going to do very much, so we can rake them over the coals. If we could be more forceful when we do app... | 151 |
fomc | 1,977 | Which implies then, you'd just be throwing some money down the drain if you did too much with it daily. | 22 |
fomc | 1,977 | Well, we have to live up to our responsibilities, and this is a very disorderly market. So we should be there. It's a question of how to minimize the damage to us while we're also trying to contain the disorder. It's a very difficult situation. | 52 |
fomc | 1,977 | If intervention at the levels conducted by the foreign central banks in recent weeks has been unsuccessful, what leads us to believe that anything appropriate by us could be successful? | 32 |
fomc | 1,977 | One of the concerns of the marketplace is that the U.S. government wants exchange rates down--the dollar rates down. Many statements have been made by government officials, and ourselves when we have had the opportunity, to try to dispel this impression. But it remains in the market. The fact-- | 60 |
fomc | 1,977 | How much do you think we would need to commit in order to change that opinion, assuming that it really exists? | 23 |
fomc | 1,977 | I would not put a strict amount on it. I think we would have to be prepared ourselves to commit, on a given day, $100 million, $150 million. | 35 |
fomc | 1,977 | How much do you think we might need to commit over a month? | 14 |
fomc | 1,977 | The thing is, it's the preparedness, not the amount. I'd say $2 billion or $3 billion and it would be meaningless. If we started and [gave] the impression to the market that we were prepared to deal effectively with the market, then we wouldn't need the big numbers that I would put on the table. | 65 |
fomc | 1,977 | Mr. Volcker? | 5 |
fomc | 1,977 | I want to say a few words about the relevance of the foreign exchange situation for our general policy probably later, but it does seem to me this intervention has been something of a rear-guard action, necessary but still not very impressive in turning the market sentiment. I myself doubt that you're going to do that ... | 233 |
fomc | 1,977 | Well, it seems to me, Paul, that the evidence of recent months is that there's a very, very large amount of money available to be moved from border to border in a speculative way. And this $7 billion intervention by the three other countries--it's just an indication; it's been much more than that, sometimes. | 65 |
fomc | 1,977 | Since the beginning of the year, the figure would be $32 billion, $33 billion, and that amount with interest rates higher here than in most industrial countries now. And even our own modest intervention--and in spite of that, the dollar is down perhaps 6 percent now against the G-10 countries plus Switzerland. | 65 |
fomc | 1,977 | Well, I just think that, when you get a market move of size, with the kind of depth of trading behind it that is occurring, intervention is unlikely to do very much. | 37 |
fomc | 1,977 | Unless you have what Paul has indicated. | 8 |
fomc | 1,977 | I mean, well, what is the program? To have a smaller expansion domestically so that we can be like the rest of the world? | 29 |
fomc | 1,977 | No, I'll tell you what the program should be really. It isn't that. I don't think that would make much sense. | 25 |
fomc | 1,977 | Well, that would reduce the current account deficit. | 10 |
fomc | 1,977 | I realize that, but at a price that I would consider unacceptable, as you would. | 18 |
fomc | 1,977 | Well, I would, too. | 7 |
fomc | 1,977 | Nobody in the world that I know recommends that. Everybody tells us what to do, but not that. | 21 |
fomc | 1,977 | That might hurt their export markets. | 7 |
fomc | 1,977 | The course of action open to us, and I think Mr. Pardee mentioned some--I think once we get a creditable energy bill which will signify, first, a conservation policy in this country, and second, the encouragement for developing new sources of supply, I think that will be very constructive to the foreign exchange market... | 583 |
fomc | 1,977 | None. | 2 |
fomc | 1,977 | It couldn't be done. We couldn't carry it out. Now, then, I think central banks around the world have acquired so many dollars by now, they're not at all eager to add to their holdings of dollars. If we, therefore, wanted to borrow dollars on a large scale, we'd be frustrated. That's my opinion. Am I wrong on that, Mr.... | 76 |
fomc | 1,977 | You're right. Once they see the domestic market implications of our intervention in their currency, they would shrink from it. Even the Bundesbank is beginning to have second thoughts about how many marks have been created in recent weeks. | 44 |
fomc | 1,977 | Well, they have very serious second and third thoughts on that subject at the present time. | 18 |
fomc | 1,977 | Mr. Chairman, I would like to make a couple of points. One, I don't think one can compare our scale of intervention with what's going on abroad. It's precisely our low intervention as it's perceived abroad that generates the image of benign neglect. And intervention on a smaller scale conveying the impression that we a... | 464 |
fomc | 1,977 | You know, there's a lot of loose talk about oil conservation. And if we started conserving oil on a significant scale immediately, this would guarantee a business depression in this country and over the entire world. So on a moderate scale, you get it under way, build it up gradually, that's one thing. But to move in w... | 212 |
fomc | 1,977 | I think they would do it if they thought it was a step toward turning gold back into the monetary asset. I wouldn't recommend doing that. Neither would I recommend sales in the market, exactly for the reasons that you say. But it all adds up to this--that we find a good argument against any action we can take-- | 66 |
fomc | 1,977 | You know, selling perhaps a half a billion dollars of gold--all that I would say is, beyond a modest amount, would cause--well, we ought to think twice, three times before we begin to embark on it. | 46 |
fomc | 1,977 | Well, isn't it true, Henry, that the reduction in the price of the dollar should tend to narrow the trade deficit? | 25 |
fomc | 1,977 | It certainly does. | 4 |
fomc | 1,977 | That is, it's a corrective in itself. | 9 |
fomc | 1,977 | That is the corrective. The reason people are worried about the deficit is not the deficit per se, but precisely that it's going to be cured by this means that they do not like. | 37 |
fomc | 1,977 | Well, I think that's only a-- | 8 |
fomc | 1,977 | I don't think it's so bad. | 7 |
fomc | 1,977 | I think it is a--yes, I think it's very bad. And I'll tell you why. | 20 |
fomc | 1,977 | I don't think so. | 5 |
fomc | 1,977 | I think this is an analysis that applies in the abstract to individual countries around the world, and applies concretely, practically, to most countries of the world, but certainly not to the United States. First, because world trade is conducted preponderantly in terms of the dollar, and second, because the dollar is... | 353 |
fomc | 1,977 | Mr. Chairman, if I may, I agree fully with your statement about the effect of a dollar depreciation, that it is undesirable. I just wanted to make the analytical point that, if the dollar were to go down, this would have a favorable impact on the trade balance. | 56 |
fomc | 1,977 | Other things equal, which I've tried to argue will not remain equal. | 14 |
fomc | 1,977 | You have touched upon a number of the points, the most basic points, that I had in mind, Mr. Chairman. There was some reference made earlier to economic growth, and I think the feeling that this is a free ride for us or even positively helpful is not right in the current circumstances--given the level of the dollar--in... | 337 |
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