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fomc | 1,978 | Right, a little over $100 million. | 9 |
fomc | 1,978 | You could go over that on a really bad day. | 11 |
fomc | 1,978 | Mr. Chairman, my reason is thoroughly defensible. We can hit an emergency and while we can get to the Subcommittee reasonably promptly-- | 28 |
fomc | 1,978 | You say reasonably promptly. I would say promptly. | 10 |
fomc | 1,978 | Sometimes, Mr. Chairman, we can=t find people; it sometimes takes time. I would like to have something authorized by the Committee that would protect us in case we do run into an emergency situation because getting to the full Committee is much more difficult than getting to the Subcommittee or to you. | 60 |
fomc | 1,978 | Well, the recommendation is certainly a reasonable one. What is the consensus of the Committee? | 18 |
fomc | 1,978 | It seems logical to me to go to the $2 billion, which is the size of the German swap. We might have to use that whole swap. | 31 |
fomc | 1,978 | Any objection? I hear none. That recommendation is accepted. Let=s move on to Mr. Kichline=s report on the economy. | 28 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | Thank you, Mr. Kichline. We=re now ready for a discussion of the economic outlook. Let us keep in mind that the economic discussion will bear critically on our consideration of the longer-term ranges for the monetary aggregates. Partly for that reason and partly also because of time constraints, I think it would be bes... | 159 |
fomc | 1,978 | Well, Mr. Chairman, I'll start today by saying that I agree with the staff projection. I think it presents a very reasonable configuration. I had felt earlier that the car sales and housing starts figures were a little high and I think now they're very much in accord with my expectations of the most probable [outcome] ... | 546 |
fomc | 1,978 | Thank you, Mr. Partee. Mr. Baughman, please. | 16 |
fomc | 1,978 | Mr. Chairman, I have no particular differences with the general forecast. I think it=s a reasonable one. I think there is a reason for being concerned about the prospect for accelerating inflation, which is recognized there, but I think it=s recognized appropriately. The main thing I wanted to comment on is that, as I ... | 254 |
fomc | 1,978 | Does this refer to municipals? | 7 |
fomc | 1,978 | Municipals were mentioned specifically in this connection, but I have the impression that it=s not exclusively municipals. In the Greenbook or the Bluebook it was noted specifically that this does not show up yet--whether or not it will eventually--in the yield spreads. But it=s something I wanted to mention in case ot... | 224 |
fomc | 1,978 | Mr. Eastburn. | 5 |
fomc | 1,978 | Thank you, Mr. Chairman. I=d like to take some issue with the snapback scenario that seems to be quite prevalent. We=ve been doing some research on the question of uncertainty and this research suggests that there is some connection between the level of uncertainty about inflation and the effect that that has on unempl... | 379 |
fomc | 1,978 | Thank you, Mr. Eastburn. Mr. Mayo now, please. | 15 |
fomc | 1,978 | Yes, Mr. Chairman, thank you. I find I am a little more in agreement with the forecast in the Greenbook than perhaps Dave is. Like Chuck, I=m glad to see the housing starts figure move down to what I think is now a completely reasonable estimate. I think it was high for several months. At our Board meeting last Thursda... | 556 |
fomc | 1,978 | Thank you, Mr. Mayo. Mr. Kimbrel now, please. | 16 |
fomc | 1,978 | Thank you, Mr. Chairman. I too think that the staff projections appear very reasonable this time. Like others, we too are happier with the projections for the automobile and housing numbers. As we had commented a couple of times previously, we thought they were a little ambitious; these appear more attuned to our own b... | 288 |
fomc | 1,978 | Thank you, Mr. Kimbrel. Mr. Morris. | 13 |
fomc | 1,978 | Mr. Chairman, we are somewhat more pessimistic than the staff forecast. Whereas the staff has a 4-1/2 percent real rate of growth from the fourth quarter of '77 to the fourth quarter of '78, we would be inclined to think more in terms of 4 percent. The housing sector is one area where we differ. We think that the proje... | 197 |
fomc | 1,978 | Thank you, Mr. Morris. Mr. Coldwell. | 12 |
fomc | 1,978 | Mr. Morris just made my speech, Mr. Chairman. I=m pleased that the staff is moving back down the pike a bit from where they were last time. They have a bit left to go to reach what I think is likely for the rest of this year. I still believe that we=re going to have a snapback from the cold weather and the coal situati... | 243 |
fomc | 1,978 | Thank you, Mr. Coldwell. Mr. Wallich, please. | 15 |
fomc | 1,978 | I=d like to look at the situation with a point of view that is perhaps a little more broadly [focused] than just the present forecast. Being where we are in the evolution of this cycle, I think we have to look for a soft landing--that is, phasing into a long-term rate of growth that is sustainable at somewhere around 3... | 558 |
fomc | 1,978 | Thank you, Mr. Wallich. Mr. Volcker now, please. | 16 |
fomc | 1,978 | I=ll be very brief, Mr. Chairman. I thought initially that Mr. Partee made four-fifths of my statement for me, and I think Mr. Wallich just made the other one-fifth. Maybe the proportions are wrong, but I generally do think that the forecast is very reasonable, with all the qualifications that Governor Partee mentioned... | 491 |
fomc | 1,978 | Thank you, Mr. Volcker. Mr. Winn now, please. | 15 |
fomc | 1,978 | Mr. Chairman, living in an environment in which it has been difficult to get one's feet on the ground for the last three months, it=s hard to get a perspective on the economic scene that is not influenced by the environment. I don=t have any really basic quarrel with the projection of the staff, but I would like to rai... | 416 |
fomc | 1,978 | Can you explain what that is? | 7 |
fomc | 1,978 | The banks are issuing bearer certificates from $25 up to $10,000 or $20,000 and [that's where] the honor bond comes in. [You are on] your honor to report it to the IRS. They are being sold as a way of avoiding income tax and I think this is a very bad kind of development on the part of banks. | 73 |
fomc | 1,978 | Mr. Kichline, have you been following this development? | 13 |
fomc | 1,978 | Honor bonds? I never heard of them before now. | 11 |
fomc | 1,978 | In Pennsylvania, the banking secretary has ruled against [the honor bond] as being unsound. | 19 |
fomc | 1,978 | It is featured thus far in Ohio; however, the interest [in it] is expanding nationwide at a rapid rate. | 24 |
fomc | 1,978 | I heard [about it] just yesterday, incidentally. I had an inquiry from the homebuilders. They want to object to the use of this thing because it is diverting funds from the thrifts to the banks, presumably on the presumption that people won=t pay the taxes. | 58 |
fomc | 1,978 | It=s a disintermediation reaction. | 9 |
fomc | 1,978 | This is purely at banks? | 6 |
fomc | 1,978 | Banks have gone into it. They call them freedom bonds--freedom from taxes--or honor bonds. I think it is a very unfortunate development, which is really a reaction to the disintermediation problem. Some of [the banks] said they are competing-- | 54 |
fomc | 1,978 | It may be a taxpayer's revolt, but it=s taking an unwholesome direction. I=m in favor of a taxpayer's revolt within the law. Well, Mr. Kichline, you ought to start following this. | 47 |
fomc | 1,978 | Are they sold at yields higher than [Regulation] Q ceilings? | 14 |
fomc | 1,978 | On the [ones with] longer terms, they are. And they=re advertising that you can use them as cash. It=s very bad advertising. | 30 |
fomc | 1,978 | You mean the bank is violating-- | 7 |
fomc | 1,978 | No, on their longer terms, I don=t think there is a violation. But the rates are what--7-1/2 percent? And they sell them up to-- | 36 |
fomc | 1,978 | It=s not a Q ceiling problem; it=s a different kind of problem. | 16 |
fomc | 1,978 | No, but it=s a reaction because of disintermediation. | 14 |
fomc | 1,978 | Why don=t the banks report the earnings--the interest they pay on these--to the IRS? | 20 |
fomc | 1,978 | They say [to customers]: "We don=t require your social security number." | 16 |
fomc | 1,978 | How do they get away with that? | 8 |
fomc | 1,978 | I thought this problem came up years ago and I thought they did have to report [unintelligible]. | 22 |
fomc | 1,978 | [Let me mention] three other quick items, Mr. Chairman. First, the price developments are troublesome, at least in our area, with the very rapid rise in utility rates both [because] of a very cold winter and the rapid increase in rates with changes in fuel sources--adding that [directly] to the fuel bill. And increases... | 171 |
fomc | 1,978 | What does that mean--school bonds are not selling or what? | 13 |
fomc | 1,978 | Because of tax limits and because of the inner city problem, practically all the major cities in Ohio are faced with school closings due to the finance limitations that have been placed on them. Local schools are $40 or $50 million in debt and they-- | 51 |
fomc | 1,978 | School closings rather than cutting down on expenditures? | 10 |
fomc | 1,978 | Well, some of them are going to have to close because of dates by which [the local entities] can get approval for increased taxes. They got in a mess with the local banks on short-term borrowings, and it=s a very, very messy situation, overlain in part by integration efforts mandated by the courts. It's the [total] sch... | 97 |
fomc | 1,978 | Is this essentially [because of] restrictive provisions in Ohio law? | 13 |
fomc | 1,978 | I think part of it is that, Bob. | 10 |
fomc | 1,978 | Thank you, Mr. Winn. Mr. Guffey now, please. | 16 |
fomc | 1,978 | Yes, Mr. Chairman, thank you. We join those who take some comfort in the staff=s projection this time. I have a couple of comments about particular sectors. With regard to housing starts, which have been revised downward somewhat, we think that [projection is] reasonable. There is a development that apparently is preva... | 281 |
fomc | 1,978 | Thank you, Mr. Guffey. Mr. Jackson. | 13 |
fomc | 1,978 | I generally concur with the thrust of the staff analysis. If it could be faulted, it would probably be on the inflation side. I would guess that as the year unfolds, the translation of certain changes in food prices, which have been good news for the Agricultural Belt, will become especially bad news to the consumer. L... | 515 |
fomc | 1,978 | Thank you, Mr. Jackson. Mr. Balles now, please. | 15 |
fomc | 1,978 | Turning back to the general business outlook, Mr. Chairman, I can be fairly brief. Messrs. Morris and Coldwell have pretty well expressed the view that we have. Even with this fairly recent somewhat lower [projection] the Board=s staff now sees, we still remain a little less optimistic about the second half of the year... | 518 |
fomc | 1,978 | Thank you, Mr. Balles. Mr. Roos, please. | 15 |
fomc | 1,978 | Mr. Chairman, I=ll be brief. We have just concluded an extensive series of meetings with businessmen throughout our District and there is nothing we heard that would lead us to question or to be more pessimistic than the staff [forecast]. There is moderate optimism, depending on the elimination of many of these uncerta... | 465 |
fomc | 1,978 | Thank you for your remarks, Mr. Roos. Mr.Willes now. | 16 |
fomc | 1,978 | Thank you, Mr. Chairman. It=s interesting to me in the meeting today to hear a number of people express feelings about inflation in stronger terms than I think they have in some recent meetings. That has been typical of my experience with people outside of this Committee. [Inflation] does seem to be a concern that more... | 334 |
fomc | 1,978 | Anyone else want to speak, or speak again? At this time, let me make a few comments. I have no quarrel with the staff forecast. I want to say only that if I had been giving the report, I would have emphasized the degree of uncertainty that attaches to the forecast somewhat more than Mr. Kichline did. I think uncertaint... | 468 |
fomc | 1,978 | We are turning now to consideration of the longer-term ranges for the monetary aggregates. There is an arithmetical point that Mr. Axilrod wishes to bring to the Committee=s attention before we [proceed]. | 44 |
fomc | 1,978 | Thank you, Mr. Chairman. We are almost finished with our revision of the money supply series, which this year includes not only the benchmark and seasonal [revisions], but we=re also considering some of the changes the Bach Committee has recommended with regard to certain techniques of measurement. [Those involve] rela... | 238 |
fomc | 1,978 | All right, thank you. I=d like to make just a few brief remarks to introduce the subject. Let me address in particular the M1 growth rate. In general, if we are to do what we can to reduce the rate of inflation over the longer run, I think we in this Committee will need to adjust downward our monetary growth rates. I t... | 537 |
fomc | 1,978 | Just a question, Mr. Chairman. That means you would leave M2 unchanged? | 17 |
fomc | 1,978 | I think I would leave M2, since the problem is clearly one of the thrift institutions rather than of the commercial banks. But some of the influences and thinking on thrift institutions with regard to savings deposits [and] time deposits will also influence commercial banks. | 51 |
fomc | 1,978 | Just to proceed. I followed you very carefully and [was] right with you all the way. I do think our credibility is involved. And I think it=s becoming maybe more important to hit the targets than it is to set them. I guess my only possible variation would be on M2. I might lean to reducing the upper end of that 1/2 poi... | 85 |
fomc | 1,978 | Thank you, Mr. Kimbrel. Mr. Roos now, please. | 17 |
fomc | 1,978 | Mr. Chairman, may I throw out a suggestion that I don=t think represents any significant departure from the philosophy you have just enunciated? It might enable us, however, to signal that we=re trying to do something about the problem of inflation and we=re also concerned about anything that might have a negative effe... | 261 |
fomc | 1,978 | Well, I think this could be a suggestion the Committee may wish to consider. In view of the uncertainty that now exists--and I think we all, in varying degrees, are aware of that--it strikes me as being questionable whether this is the right time to narrow the range. Also, once we narrow it, we may be stuck with a narr... | 132 |
fomc | 1,978 | Before I start, may I ask Mr. Axilrod a question? In your relative analysis of M2, do you consider the present definition, which includes non-negotiable large CDs, to be potentially subject to a substantial error because of the expansion of large non-negotiable CDs? | 59 |
fomc | 1,978 | Well, of course, the reason that we have not lowered [the range for] M2, whereas we lowered [that for] M3, is because the CDs have relatively more weight in M2; they=re in both M2 and M3, but they have relatively more weight in M2. The CDs are quite volatile, but I would hesitate to say that the estimate of that partic... | 116 |
fomc | 1,978 | I bring that up, Mr. Chairman, because as we talk about narrowing these ranges as we go through this exercise, I think the uncertainties of our present definitional imperfections, as I call them, is a subject we need to bear in mind significantly. I would endorse the proposal that we stick with the [current] 4 to 6-1/2... | 175 |
fomc | 1,978 | I should add that we have not assumed that the thrifts become active in that market. | 18 |
fomc | 1,978 | Are you thinking of large CDs? | 7 |
fomc | 1,978 | Over $100,000. | 6 |
fomc | 1,978 | Is there any clear sign of that developing? | 9 |
fomc | 1,978 | Not yet. But if we get pressures on rates of growth in the thrift industry, I can [conceive], particularly if the level of outstanding commitments stays large and the inflow [of funds] is restrained, that [thrifts] may turn to this as a way to raise funds as an alternative to borrowing from the Federal Home Loan Bank S... | 185 |
fomc | 1,978 | Thank you, Mr. Jackson. Mr. Mayo now, please. | 14 |
fomc | 1,978 | First a question to Steve. I think I=m correct in interpreting what you=ve been saying here and in the Bluebook that what the staff has set up for M2 and M3 does assume on the various dates an increase in Regulation Q ceilings. | 51 |
fomc | 1,978 | Yes, of 50 basis points on time deposits. | 11 |
fomc | 1,978 | I find that a difficult assumption to make right now in our consideration of the targets for M2 and M3. If it were completely in the hands of the Board of Governors, I wouldn=t make this point, but I have a very definite opinion that the Federal Home Loan Bank Board may have something to say about this and that there w... | 315 |
fomc | 1,978 | Thank you, Mr. Mayo. Mr. Wallich now, please. | 15 |
fomc | 1,978 | Well, on the previous occasion when we discussed the long-term ranges, I would have preferred raising the upper limit of M1 to 7 percent. I=ve changed my mind about that for two reasons. One, we=ve overshot that M1 ceiling anyway, and the Committee does not seem to be [of a mind] to get on a track that would substantia... | 437 |
fomc | 1,978 | Thank you, Mr. Wallich. Mr. Partee, please. | 15 |
fomc | 1,978 | Well, Mr. Chairman, I thought long and hard about this, too. I=m bothered by the same kinds of arithmetic that bothered Governor Wallich, and I really don=t know what to do about it because I think psychologically it would be a bad time to increase the upper limit of the M1 range. But the arithmetic is that we should a... | 657 |
fomc | 1,978 | You were doing beautifully up to this point. Stop worrying about those fellows! | 15 |
fomc | 1,978 | Well, there are a lot of them in the Street and among the monetarists and even in academic circles. On M3, I would be sympathetic with Bob Mayo=s point of view, except that I don=t really believe that the House Banking Committee is the group to tell that growth will be a lot less unless we can get an increase in Regula... | 342 |
fomc | 1,978 | Thank you, Mr. Partee. Mr. Coldwell now. | 14 |
fomc | 1,978 | Mr. Chairman, Mr. Partee gave [many] of the same reasons that I would to support your package. I think there are two or three other points. First, if I understand the ballgame here, and I am not sure I do, if we go back to our normal [schedule for] reconsideration [of our long-run ranges] we=ll be back to this subject ... | 392 |
fomc | 1,978 | Thank you, Mr. Coldwell. Mr. Morris now, please. | 15 |
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