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fomc | 1,978 | Well, just to finish up what I started with in answer to Frank's question, for the reasons I gave I don't expect business fixed investment to spurt in the next year. So we are back where we've been right along and that's dependent on the consumer. I think I agree with the general comments I've heard here that the next ... | 147 |
fomc | 1,978 | I think you've paid a very high compliment to this Committee and the degree of influence that we can have. Well, thank you, Mr. Lilly. Mr. Baughman next, please. | 39 |
fomc | 1,978 | Mr. Chairman, just a couple of comments. I'm reasonably comfortable with the staff projections in general terms. I thought I might report that on the plane coming in from Dallas yesterday there were a number of Texas farmers, presumably coming to Washington to demonstrate. We have had a fair amount of demonstrations go... | 299 |
fomc | 1,978 | Thank you, Mr. Baughman. Mr. Guffey. | 15 |
fomc | 1,978 | Yes, Mr. Chairman. With respect to the staff's forecast, I think we have been marginally higher for the last couple of quarters than the staff in its forecast so this time maybe they have come closer to what we had believed in the past and still believe may occur in the future. One thing that does trouble us with respe... | 293 |
fomc | 1,978 | Thank you, Mr. Guffey. Mr. Black, would you like to add any comments? | 21 |
fomc | 1,978 | Mr. Chairman, every point I wanted to make has been made. I would say simply that all of us recognize that the uncertainties are greater now than at almost any time in the forecast. I wouldn't have a lot of confidence in any particular forecast now for the next six months. I wouldn't quarrel a lot with the staff's fore... | 228 |
fomc | 1,978 | And do you have a judgment as to the reasons for the change? | 14 |
fomc | 1,978 | Well, I think it's partly your failure to be reappointed and the absence of any definitive action on taxes or inflation. Over-regulation on the part of government, all these uncertainties, and the decline in the dollar I think played a big part. All of these things that we have all been concerned about I think are just... | 74 |
fomc | 1,978 | Thank you, Mr. Black. Would anyone else like to comment on the state of the economy? If not, let me just say a few words. First, it is useful to remember that over many years now those of us who have been involved in economic forecasting have almost invariably expressed doubts about the second half of the year relative... | 1,175 |
fomc | 1,978 | Mr. Chairman, the staff proposes that the Committee authorize the release of the 1972 memoranda this month, which would be on the usual schedule, with the few deletions indicated in the second of the two memoranda distributed. [The deletions] were requested by the Bank of Japan. | 60 |
fomc | 1,978 | Any questions about that recommendation? The motion has been made and seconded and I take it, approved. Let's move to item 8. And Mr. Volcker, when you try you can be not only fairly lucid, but even remarkably brief, and this is the time to try for it. | 60 |
fomc | 1,978 | Well, I will be assisted by the fact that it has been long enough since some of this technical stuff came up that some of the details will recede into my unconscious instead of the conscious. I think the issues are simple enough here. We have discussed the role of the Federal Reserve and these RP agreements at some len... | 1,183 |
fomc | 1,978 | Just to the effect, Mr. Chairman and Mr. Volcker, that I agree with the analysis that Mr. Volcker has given us as to the placement of priorities or emphasis on the alternatives. I recommended, as reflected in attachment D, the amendment to both the functional aspects and the outstanding authorization only in the judgme... | 154 |
fomc | 1,978 | I might just add one further point, Mr. Chairman. We had some discussion earlier when this came out about the appropriateness of charging for this service. From my point of view, we would intend to charge in the future a 2 basis point charge. The market practice--where private investment companies might do this for for... | 279 |
fomc | 1,978 | You would do 2 basis points on [transactions by] both SOMA and the New York Fed? | 21 |
fomc | 1,978 | Either way. | 3 |
fomc | 1,978 | Gentlemen, I want to put a question to the Committee, and I may or may not have a suggestion depending on the answer to the question. I'd like to have a show of hands--and this time [not] only including members of the Committee but also the Bank Presidents who are not technically members of the Committee--indicating wh... | 145 |
fomc | 1,978 | Really qualified? | 3 |
fomc | 1,978 | I'll modify it. How many of you feel reasonably qualified to reach that judgment? Well, all right, most of you feel reasonably qualified; therefore, I will not make my suggestion. What is the sentiment of the members? | 45 |
fomc | 1,978 | Could I ask a question? What is the criterion for whether the System Open Market Account is operating? Is this a question of that day or that minute? | 31 |
fomc | 1,978 | Essentially that day, as [the Desk's management] plans their operations. If they're going to be withdrawing reserves, this is a way of withdrawing them anyway. This gives them an option. If they're going to be supplying reserves, they might as well supply a few more to take care of this. | 61 |
fomc | 1,978 | So a great majority of operations, then, would go through the SOMA. | 16 |
fomc | 1,978 | I think the earlier experience--if I remember correctly, Peter--was that about two-thirds went through the System account and one-third through the Bank. Now, that is partly because of the tax and loan accounts; the Treasury accounts at the Federal Reserve have been moving up and down so much. If that were steadied, th... | 74 |
fomc | 1,978 | Mr. Chairman, I would feel comfortable with either 3 or 4. I happen to have a preference for 4 because it states [the authority] more clearly. | 35 |
fomc | 1,978 | I would agree with that. I think it's very [important] to avoid [options] 1 or 2, not because of the operations that are engaged in here, but I just don't like having a precedent of using the open market account to support an activity. Because once you support this activity, you can support other activities and I think... | 93 |
fomc | 1,978 | All right, any other view? | 7 |
fomc | 1,978 | Mr. Chairman, I was not clear on one point and I asked Peter Sternlight to clarify it for me earlier. It might be helpful to some in the group. In the event the New York Bank is acting as principal in matched-sale purchase agreements, it would make an equal amount of repurchase agreements in the market. I thought that'... | 87 |
fomc | 1,978 | We're just a pass-through except that we act as principal for tax purposes this way. | 17 |
fomc | 1,978 | Gentlemen, so far I've heard a slight preference for option 4. Is that generally agreeable? I hear nothing to the contrary and that's the Committee's decision. Looking at the clock, would 2:15 be a reasonable time to reconvene or would 2:30 be better? | 60 |
fomc | 1,978 | 2:15. | 4 |
fomc | 1,978 | [The time we will reconvene] is officially 2:15. [Lunch recess] | 19 |
fomc | 1,978 | Mr. Sternlight, we are ready for your report now, please. | 15 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | Thank you, Mr. Sternlight. Are there any questions? Mr. Baughman. | 19 |
fomc | 1,978 | What would be your impression, Peter, as to the market's impression of your funds rate target or objective at the present time? | 26 |
fomc | 1,978 | I'd say the predominant view now is that we're aiming at 6-3/4 percent, although there's a little bit of lingering uncertainty that maybe we're going to be heading toward 7 percent within a short time. | 43 |
fomc | 1,978 | Thank you. | 3 |
fomc | 1,978 | Peter, it seems to me that that was an awfully large market adjustment to the news over that weekend--one of the largest I can ever recall, as a matter of fact. Do you think it was because quite a few people thought that 7 percent would be the target? And as they focus in on 6-3/4 percent, is there a chance of more of ... | 84 |
fomc | 1,978 | I think that's possible, Governor. I think one reason it was large was that people were very much taken by surprise by the move and there was a lot of lightening of inventories that went on right away--very immediately, the first thing Monday morning. I don't know how much further improvement there might be as the idea... | 88 |
fomc | 1,978 | It has backed down some. | 6 |
fomc | 1,978 | It has backed down some. | 6 |
fomc | 1,978 | I guess every bill and even the intermediates have backed down a little. | 15 |
fomc | 1,978 | The bills have come down about 10 or 15 basis points from where they went initially and there has been maybe 6 or 8 basis points of improvement in other sectors. There is perhaps room for somewhat more but I wouldn't think a whole lot. | 51 |
fomc | 1,978 | Peter, if we are anticipating a Treasury financing we attempt to accommodate that. If we were to move to, say, 7 percent, how much time [would that give us]? When would the Treasury be announcing? | 44 |
fomc | 1,978 | They will be announcing a week from tomorrow on their quarterly refunding operations. | 15 |
fomc | 1,978 | Presumably then we have a week. | 8 |
fomc | 1,978 | I would think so. Then again it depends on what sort of financing they do. If they follow the recent pattern and have auctions, then there is a little more flexibility as to the timing of anything the Committee would consider. There's been some talk in the market of coming with a fixed price issue on this occasion, whi... | 79 |
fomc | 1,978 | Mr. Kimbrel, please. | 8 |
fomc | 1,978 | That was my question. | 5 |
fomc | 1,978 | All right, any other question? If not, is there a motion to approve the operations of the domestic Desk? | 23 |
fomc | 1,978 | So moved. | 3 |
fomc | 1,978 | Seconded. | 3 |
fomc | 1,978 | A motion has been made and seconded and [hearing no objections we have] a vote to approve. Mr. Axilrod, we're ready for your comments. | 34 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | Thank you Mr. Axilrod. Are there any questions? Very well, we're ready to turn to our deliberations on monetary policy. I have only one word to say in the way of a suggestion to the Committee and that is in view of the serious foreign exchange problem that we continue to face, it would be a serious mistake to entertain... | 131 |
fomc | 1,978 | Mr. Chairman, perhaps in January it's worth a sentence or two in looking back at the previous year. Governor Gardner referred to the ghosts that we saw. Maybe some of them were more than ghosts, but I know I found myself thinking that we had produced the right compromise here repeatedly. I guess I've expressed that vie... | 807 |
fomc | 1,978 | 6.625 to 7.125. | 9 |
fomc | 1,978 | If that's the correct arithmetic. I'm not sure I know how to do that! | 16 |
fomc | 1,978 | I just wanted to be sure we had the third decimal point correct! | 14 |
fomc | 1,978 | It takes three decimal points to go in eighths; I know that. | 15 |
fomc | 1,978 | Well, now that we've converted a fraction into a decimal--and if you're comfortable about that--we can proceed. Thank you, Mr. Volcker. Mr. Eastburn next. | 37 |
fomc | 1,978 | I think Steve [Axilrod] is right that we are going to have to be in the process of raising money rates as we move forward. However, having taken the action earlier this month that was taken, I would prefer to stay about where we are at this time with respect to the funds rate. Like last time, however, I feel that the s... | 187 |
fomc | 1,978 | Thank you, Mr. Eastburn. Mr. Morris now, please. | 15 |
fomc | 1,978 | Mr. Chairman, while I did not support the increase in the funds rate range, I agree with you that [given] the situation [in the foreign exchange markets] we cannot permit rates, in the short term, to decline. So I would support alternative B with the money market directive. | 59 |
fomc | 1,978 | Thank you, Mr. Morris. Mr. Kimbrel, please. | 15 |
fomc | 1,978 | Mr. Chairman, I guess I would prefer alternative C. Although Mr. Volcker has fine-tuned it, I would hate to see the funds rate moved down any, so rather than that, I think I prefer to see [a funds range of ] 6-3/4 to 7-1/4 percent, particularly after Mr. Axilrod's statement and the Bluebook's [indication] that we may v... | 109 |
fomc | 1,978 | Thank you, Mr. Kimbrel. Mr. Coldwell now. | 15 |
fomc | 1,978 | Mr. Chairman I would like to stay where we are at 6-3/4 percent. I would put a caveat on that only [if] the aggregates appear to be growing very strongly--by that I mean even the 8-1/2 percent specification in "B" would be acceptable to me. I'd prefer the 6-3/4 percent midpoint and be willing to go with a 6-1/2 to 7 pe... | 122 |
fomc | 1,978 | Thank you, Mr. Coldwell. Mr. Mayo now, please. | 15 |
fomc | 1,978 | Thank you Mr. Chairman, I guess I have less confidence in the January seasonal adjustment factor again than some of my associates around the table. Given that, I have some difficulty in going back to an aggregates directive. I still feel that in this environment a money market directive is quite appropriate. I would no... | 512 |
fomc | 1,978 | Thank you, Mr. Mayo. Mr. Wallich now, please. | 15 |
fomc | 1,978 | Well, I share Bob Mayo's thought that we ought to tighten the M1 range. We've moved to a 6-point spread under conditions of always fearing an explosion. That fear for the month of January seems to have diminished considerably. So I think we could go back to a narrower range. I share the feeling that we should not allow... | 298 |
fomc | 1,978 | Thank you, Mr. Wallich. Mr. Black now, please. | 15 |
fomc | 1,978 | Mr. Chairman, our best guess is that with current money market conditions, we'll get a growth in M1 of something like 6 to 6-1/2 percent in January and February and a rate of growth in M2 of maybe 7 to 7-1/2 percent. As Steve Axilrod suggested, we too are becoming increasingly concerned over what we perceive to be the ... | 307 |
fomc | 1,978 | .25000. | 4 |
fomc | 1,978 | That's right. And I would interpret this asymmetrically, as Governor Wallich suggested, in that I would move up to 7 percent if it appears that the aggregates are moving beyond the midpoints. But from the standpoint of the international situation and also the past overshoots in M1 in particular, I would not want to mov... | 101 |
fomc | 1,978 | Thank you, Mr. Black. Mr. Partee now, please. | 15 |
fomc | 1,978 | Well, Mr. Chairman, with a sigh, I would admit that this is no time to back the money market down--it having made this very difficult transition to a somewhat tighter condition. I think we have set in stage forces that may weaken [economic activity in] the second half of the year, particularly in the housing and mortga... | 254 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | You might expect that we would get M1 growth of as much as 10 percent in the quarter. It may be less than that but the odds will be in the direction of a high number. On M2, although Paul was talking about overshooting, I find that in the fourth quarter--that is, from September to December--the annual rate of increase ... | 410 |
fomc | 1,978 | Mr. Chairman, I too share your views about not letting interest rates drift down at this time in view of the international situation. I also share Paul Volcker's view that the uptick that we've had may not have been inappropriate in view of previous overshoots. Based on the discussion of the economy this morning and as... | 197 |
fomc | 1,978 | Thank you, Mr. Balles. Mr. Roos, please. | 15 |
fomc | 1,978 | Mr. Chairman, in my judgment the prospect of inflation remains as serious as it has ever been. M1, as we know, has grown more than 7 percent for the last 12 months. Since March of last year it has grown at an 8.4 percent rate. The problem remains that we have repeatedly said publicly that [our M1 target is lower than t... | 565 |
fomc | 1,978 | Thank you, Mr. Roos. Mr. Winn now, please. | 15 |
fomc | 1,978 | Mr. Chairman, in attempting to follow what's going on, I got lost over the year-end. Was there any change in the way we calculate these numbers? | 32 |
fomc | 1,978 | You mean the way we calculate the money supply? | 10 |
fomc | 1,978 | You mean the base? | 5 |
fomc | 1,978 | Yes, the money supply. | 6 |
fomc | 1,978 | No, there's been no change. | 7 |
fomc | 1,978 | I didn't know whether we lost part of the year-end in January or it came back to December or what. I wondered what happened there. This was probably my ignorance, Mr. Chairman. | 38 |
fomc | 1,978 | We have not received any benchmark numbers, if that's what you're asking. | 14 |
fomc | 1,978 | Yes, maybe. I am concerned about the disintermediation as an adjustment factor here ahead, so I think I'd be inclined to go with "B,"--3 to 8 and 5 to 9 percent [for the aggregates ranges ] and 6-1/2 to 7 percent [for the funds rate] this month, with an aggregates emphasis. | 75 |
fomc | 1,978 | Thank you, Mr. Winn. Mr. Guffey now, please. | 16 |
fomc | 1,978 | Let me say first of all that I am delighted with what occurred in moving to this 6-3/4 percent [funds rate], maybe for different reasons. I think domestically we're at the point where we should be at the moment. Because of the events that are ahead of us, I think that's probably where we should be. That is to say, I wo... | 199 |
fomc | 1,978 | Thank you, Mr. Guffey. Mr. Lilly next, please. | 16 |
fomc | 1,978 | Well, as one of the troika who voted not to increase the [funds] rate last time, I thoroughly agree that the last thing we should do is try to retreat to that old rate. I would say, however, that I am very much concerned about the state of all of these markets. The money market has certainly been going through some rea... | 204 |
fomc | 1,978 | Thank you, Mr. Lilly. Mr. Baughman next, please. | 16 |
fomc | 1,978 | Oh, I left a zero out on that! | 10 |
fomc | 1,978 | We can add zeros all over. | 7 |
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