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fomc
1,978
Thank you, Mr. Partee. Mr. Morris.
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Well, Mr. Chairman, I=m torn. When I first came and sat at this table--not this one but the other one--we used to have directives that said "maintain prevailing money market conditions."
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That=s correct.
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I think you could make a case for doing that for the next three weeks. On the other hand, it seems to me that if we are going to establish a range, we could make a good case for having an asymmetrical range. If we get two months back to back of no M1 growth, this suggests to me that it would make just as much sense to ...
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Thank you, Mr. Morris. Mr. Baughman. This is turning out to be a very interesting meeting.
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Mr. Chairman, I agree with the observation that this is a time to stand where we are, and I construe that as meaning primarily staying at 6-3/4 percent. I can=t visualize a development in the next three weeks that would seem [to indicate] that we should go below 6-3/4 percent on the fed funds rate. However, it does see...
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Thank you, Mr. Baughman. Mr. Guffey now.
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Mr. Chairman, alternative B with a money market directive would be my choice but with one minor adjustment. Everybody seems to have their own adjustments this morning, but I think the risks of March coming in strong quite likely are greater than it coming in weak and, as a result, I would like to see the M1 range adjus...
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Mr. Willes, please.
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Mr. Chairman, I=m prepared to go along with alternative B, but I would just like to make a procedural comment or a theoretical comment or whatever kind of comment. While I understand the arguments for staying where we are, I have difficulty in my own mind knowing what it means to stay where we are. Chuck mentioned the ...
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Thank you, Mr. Willes. But I do want to remind the Committee, once again, that we are talking about an intermeeting period of just half the duration of the preceding one. Mr. Eastburn.
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Thank you, Mr. Chairman. As I listen to the discussion, I think this is an illustration of the danger of getting captive to our machinery here. It seems to me, given the short [intermeeting] period and the desire, as I hear it, of most people to stay where we are, that we need to tell the Desk to hold the rate where it...
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Thanks, Mr. Eastburn. Mr. Jackson.
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I think we ought to be aware that Mr. Holmes=s ego is probably highly inflated by the procedure with which we have endowed him the capacity to manage affairs.
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He does very well.
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I know he does, but at the same time it looks like every time he does well, we want to make him do better. So I think that our focus on such an issue is not appropriate and, in view of the intermeeting period being discussed, I think we ought to take alternative B. And to me, the aggregates directive will accomplish th...
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Thank you, Mr. Jackson. Mr. Mayo now, please.
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I prefer the 6-1/2 to 7 percent [fed funds range], although I agree with Paul and others that the likelihood of going below 6-3/4 percent is very, very remote. I just have a constitutional objection to that narrow a range on fed funds. I prefer a wider range in "normal" circumstances. I like the idea of shading downwar...
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I would go along with Mr. Mayo. Yes, I think Mr. Mayo=s right. Any objections to that?
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Mr. Broida wants to [comment].
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Yes, please.
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President Mayo, it is not the staff=s intention to suggest to the Committee that it not use the phrase "the current level." If you look at the second form of the directive, it shows the proposed changes from last time in terms of strike-throughs and caps.
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Well, if you agree with Mr. Mayo, that is sufficient.
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Mr. Mayo seems to have the notion that the staff is trying to push the Committee--
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No, no, no. There=s no such thing.
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I=m amused, not annoyed.
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We=ll move on.
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I might note, Mr. Chairman, that page 1 shows that over the last six weeks the Manager has deviated from plus 5 basis points to minus 3 basis points from a 6.75 percent average, so I think it=s safe enough to say about the current level.
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I guess I=m making the same point in a different way that Frank just made about prevailing [money market conditions] but in a 1978 environment instead of a 1968 one. Terribly minor, but I think it might have some significance.
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That used to be cast more often in terms of net borrowed reserves instead of the federal funds rate.
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That=s all right.
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Thank you, Mr. Mayo and Mr. Baughman. We move to Mr. Roos.
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Mr. Chairman, I am impressed with the logic of Governor Wallich=s point of view and would like to be recorded as subscribing to his proposal. But I certainly am also impressed with the short time frame and would support and vote for alternative B. I would, Mr. Chairman, if I might, take the opportunity to address one r...
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I can=t believe that myself. MR. [ROOS]. Well, what concerns me is the setting of a precedent. I fear that if [Chuck's] proposal had gone [through], next time there wouldn=t be any aggregates here.
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Well, the aggregates are fully alive and we move on. Mr. Balles now, please.
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Mr. Chairman, I can=t help observing that occasional backsliding is perhaps understandable, but to backslide ten years is a little far back to go.
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Well, that=s what bothers me. If you just went back 8 years--! MR. [BALLES]. Governor Partee is playing out one scenario in which you may get a very low growth in M1 in March if the coal strike isn=t settled. But I=d point out another possible scenario. As I look at page 4 of the Bluebook and see the way money growth--...
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Would anyone else like to speak?
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Mr. Chairman, I have no quarrel with alternative B. I=d just like to see something in the release indicating the coal strike as one of the economic uncertainties that we face. We have only the weather [mentioned] as a cause of our problems. And second, is there any change in the status of the Merrill suit?
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On the Merrill suit, the Solicitor General will be recommending to the Supreme Court that the Supreme Court take on the case. That is a favorable development. Now, we=re trying to move the two Banking Committees to give us legislative relief, on the assumption that down the road the Supreme Court will either be unwilli...
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[It depends on the] ranges.
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Yes, it does.
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It depends on the ranges.
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Let=s say that the range is 6-1/2 to 7. MR. MAYO/
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On the M1 range?
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I=m sorry. The M1 range that a majority favors is 1 to 6 percent as in alternative B. Let=s make that assumption. Of course, we could proceed another way but I think that=s the most reasonable assumption to make. The differences are not large, you know. The 0 to 6 is a difference on the midpoint of 1/2 percent; 0 to 5,...
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Five. There are ten [voting members] today.
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That means I have no way of helping the Committee.
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My interpretation of a money market directive in the context in which people have been talking is that people really are very reluctant to see [the funds rate] decline below 6-3/4 percent.
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Yes.
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That seems to me the substance of the thing. Is that correct?
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Or go above 7.
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I agree with that side, too.
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Well, actually, I would sum up the thinking of the Committee a little differently. If we had a range for the federal funds rate that is lower than 1/2 percentage point [in width], it wouldn=t be 6-3/4 to 7, it would be something like 6-5/8 to 6-7/8. I think that=s the thinking of the Committee at this time. A range of ...
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Four, Mr. Chairman.
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Now this time I=m going to proceed a little differently. How many who prefer a monetary aggregates directive would still not feel comfortable with a money market directive, whether or not you prefer it? Let=s have a show of hands. MR. BAUGHMAN(?). Whether we will lose sleep, Mr. Chairman?
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Seven.
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In fairness, I think I now have to ask the question: How many members of the Committee, whether or not you prefer a monetary aggregates directive, would feel reasonably comfortable with it?
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With the other specifications?
5
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With the other specifications.
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Four.
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I don=t think I understand the vote, do you?
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I didn=t vote.
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I didn=t either.
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I would like to suggest that a 0 to 5 percent [M1 range] with a money market conditions directive would be very acceptable and perhaps equal in my mind to 1 to 6 percent with an aggregates directive. MR. MAYO(?). I feel the same way.
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That=s a good statement, except I think your figure is a little too high. But it=s good thinking.
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Talking about the March growth--
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Well, maybe I should have been less fair. Maybe I should have stopped when I asked how many, whether or not you prefer a money market directive, could be reasonably comfortable for a three-week period with it. Perhaps I should have stopped there. Let me pursue this. Mr. Guffey didn=t understand the question. Let me sta...
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Money market directive?
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Aggregates, he said.
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With 1 to 6?
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With a 1 to 6 percent [M1] range.
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Six.
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Now, we have the narrowest margin on the most subtle point in favor of money market directive--not in favor of but willing to live with it for only a three-week period. Unless there is a desire for further discussion-- Yes, there is such a desire.
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Mr. Chairman, would it be fair for you to ask for a show of hands of those who prefer a money market directive with a 1 to 5 or 0 to 5 percent range as against those who prefer a monetary aggregates directive with the 1 to 6 range?
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The 0 to 5 range with a money market directive as against 1 to 6 with an aggregates directive?
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Yes.
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All right. Those who prefer the former would kindly indicate that.
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A 0 to 5 range with a money market directive?
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Three. MR. MAYO(?). I=ll resign!
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So it=s 1 to 6 with an aggregates directive. That=s the alternative.
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No, don=t resign. Apart from missing your cheerful countenance, we might be short of a quorum. I=d be a little worried about that. MR. MAYO(?). Sorry about that.
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Gentlemen, I think we=re ready for a vote. The vote is on a growth range for M1 of 1 to 6 percent; a range for M2 of 4-1/2 to 8-1/2 percent; a federal funds range of 6-1/2 to 7 percent; and a money market directive. Before we do that, on line 12 of the draft of the domestic policy directive, Mr. Broida suggests that we...
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In our directive, we advise the Desk to take into consideration emerging money market conditions including the "unsettled" conditions in foreign exchange markets. While I would be the first to agree that they had been unsettled, by continuing to use that word are we in turn continuing to remind the world just how unset...
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I would eliminate the word ["unsettled" and say] "including conditions in foreign exchange markets."
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That strikes me as more prudent.
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I think so. Any objection to dropping the word "unsettled"? I think it=s better form. Thank you. Are we ready for the vote now? Would you call the roll?
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Chairman Burns Yes Vice Chairman Volcker Yes Governor Coldwell Yes President Guffey Yes Governor Jackson Yes President Mayo Yes President Morris Yes Governor Partee Yes President Roos Yes Governor Wallich Yes Unanimous.
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Well, I want to thank all of you for a very interesting meeting. I didn=t want to say this but I can say it now. If there ever was a time for this Committee to be unanimous, it was today. Now, I got a note before--this came in about twenty minutes ago and I haven=t had one subsequently--which reads as follows: As of th...
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Dining room F, which has space for 20.
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Well, there are how many members?
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A total of 17 Board members and Reserve Bank Presidents.
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Well, if all of the Board members and Presidents come, we have room for our Secretary and for Mr. Axilrod. That makes 19 and I shall think about the 20th one.
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Mr. Chairman, how is Governor Gardner?
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I don=t know, but he=s been in the hospital since a week ago this Friday. He is continuing to undergo tests, which leaves us with a great deal of hope, but all of which does suggest that there are problems that require further explanation and may be serious. I hope not.
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Well, he can join us when he arrives. First, we can start on some of the procedural matters, if I can find my agenda. This is the [annual] organizational meeting, as I understand it. The first order of business, therefore, is the election of officers to serve until the election of our successors at the first meeting af...
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Well, I'll be glad to put in nominations for Chairman and Vice Chairman of the Committee. I would nominate you, William Miller, head of the Board, as Chairman and Paul Volcker, President of the New York Federal Reserve Bank, as Vice Chairman.
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Second.
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There's a motion and a second. Is there any dissent? That is approved. For the other officers, I would like to nominate Arthur L. Broida as Secretary and call upon Mr. Broida as Secretary to put before you the additional slate of officers.
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Deputy Secretary, Murray Altmann; Assistant Secretary, Normand Bernard; General Counsel, Thomas J. O'Connell; Deputy General Counsel, Edward G. Guy; Assistant General Counsel, Robert E. Mannion; Economist, Stephen H. Axilrod; Associate Economists from the Board: Edward C. Ettin, Peter M. Keir, James L. Kichline, John E...
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