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fomc | 1,978 | If any name has been omitted, it would be an embarrassment later. Are there any additions or corrections? May we consider this slate approved? Hearing no objection, it is approved. The next item of business is the selection of a Federal Reserve Bank to execute transactions for the System Open Market Account, and the Ne... | 75 |
fomc | 1,978 | Was that with or without duress? | 8 |
fomc | 1,978 | Well, hearing no dissent we will approve that. The third item is the selection of the Manager of the System Open Market Account, the Deputy Manager for Domestic Operations and the Deputy Manager for Foreign Operations. The incumbents in the respective positions, as you know, are Alan Holmes, Peter Sternlight, and Scott... | 194 |
fomc | 1,978 | Thank you Mr. Chairman. [Statement--see Appendix.] | 12 |
fomc | 1,978 | Thank you very much, Scott. Are there any questions or comments? Henry. | 16 |
fomc | 1,978 | Scott, could you give us an opinion as to what the Treasury's views are on the scale of operations? You receive some guidance from them, don't you? | 32 |
fomc | 1,978 | During this period they have been in full agreement with what we've done. I have not had any pressure from them to do any more or any less. Their view has changed with the atmosphere, too. But currently I've had no difficulty. | 47 |
fomc | 1,978 | Does the initiation, Scott, come essentially from the Desk rather than the Treasury? | 16 |
fomc | 1,978 | Oh, yes. | 4 |
fomc | 1,978 | Chuck. | 2 |
fomc | 1,978 | Scott, you didn't buy anything at anytime during this period? | 12 |
fomc | 1,978 | We bought marks from correspondents rather than-- | 9 |
fomc | 1,978 | Would you anticipate, on a rising market, buying some marks? | 13 |
fomc | 1,978 | Oh, yes. If I have a rising market, I would like some marks. | 17 |
fomc | 1,978 | You said there was one period in which [the dollar] went up 5 percent. | 18 |
fomc | 1,978 | If I had walked into the market on those days, I would have given the market an indication of a policy. | 23 |
fomc | 1,978 | The market was very thin, I take it. | 10 |
fomc | 1,978 | It was thin. But there were policy discussions going on and [activity by the Desk] might have given a misleading statement to the market. I wanted to stay on the sideline because if I had been either a buyer or seller I would have added to the market confusion as to what official intentions were. | 61 |
fomc | 1,978 | Paul, you had strategically placed yourself in Basle for this announcement. Would you like to make any comment? | 22 |
fomc | 1,978 | Yes, just in terms of the reaction there. Some of the governors were briefed just before the announcement and the rest of them at the time of the announcement. I would say that in general they welcomed the initiative. They didn't know what the market reaction was at that point. I think it's too much to say that they we... | 407 |
fomc | 1,978 | With less intervention overall? | 5 |
fomc | 1,978 | On the part of the Germans. | 7 |
fomc | 1,978 | I don't know about less intervention. | 7 |
fomc | 1,978 | It has been sporadic intervention. | 7 |
fomc | 1,978 | It has been less in a period of time. | 10 |
fomc | 1,978 | In a quantitative sense. | 5 |
fomc | 1,978 | More by us--double by the United States. | 10 |
fomc | 1,978 | In the previous 2-1/2 months. | 11 |
fomc | 1,978 | I might make a few comments. I would just observe that from my point of view, or from the Federal Reserve's point of view, the handling of this particular package was not ideal, and that teaches us a lesson. Premature disclosure of discussions did take the edge off the ability to present a package that could have been ... | 685 |
fomc | 1,978 | Could I ask Paul a question? When you got these responses in Basle that they would have wished for more multilateralism to the action, do you think they were, among other things, referring to the use of swap facility drawings on others than the Germans--maybe the Swiss? | 57 |
fomc | 1,978 | The comments were pretty general and it was the kind of reaction you would expect in a multilateral group where some of them were left out. I think in some specific cases--yes, the Swiss in particular--they would like us to be a little more active in their currency. Some of the others referred very vaguely to the point... | 99 |
fomc | 1,978 | We have viewed all these things as temporary or bridging actions and fundamental issues need to be addressed. That's why you probably read in the press some of our comments about inflation and the necessity to do something that would show more decisiveness in that area and to do something about energy. The problem with... | 234 |
fomc | 1,978 | Let me just report one other impression at Basle that just struck me personally, Mr. Chairman. It's not directly related to this package but it is related to the fundamentals. One European country after another is making progress now on the inflation side. They are not doing very well on the growth side but their rates... | 131 |
fomc | 1,978 | Was there any comment about the fact that their oil now costs them less as a result of our dollar exchange rate? | 23 |
fomc | 1,978 | They don't comment on it very frequently but it is clearly recognized--though maybe not enough. But that's part of the reason the Swiss talk about possibly having an actual decline in prices this year internally. | 39 |
fomc | 1,978 | Gee, if they could just export some of their deflation! | 13 |
fomc | 1,978 | It's their domestic tax level. That [and the fact that their] exports are much less expensive. | 20 |
fomc | 1,978 | That may mean that real wages will rise significantly. | 10 |
fomc | 1,978 | Mr. Chairman. | 4 |
fomc | 1,978 | Yes, Ernie. | 5 |
fomc | 1,978 | May I ask a question either of you or Paul? Have there been any suggestions emanating from other countries that we consider selling gold in this situation? | 30 |
fomc | 1,978 | Yes, from other countries. Paul can speak to that. | 12 |
fomc | 1,978 | Well, I was just talking about the setting of that meeting. I don't think anybody really pressed that point. There was a little discussion that it might be in the background and some would welcome that, I am sure, in coming weeks. There was more suggestion of the foreign currency bond idea, although that was not presse... | 76 |
fomc | 1,978 | Was it more than mentioned, Paul, or was it embraced with any degree of enthusiasm? | 18 |
fomc | 1,978 | Well, I'm sure that several of them would embrace it with great enthusiasm if you gave them the chance. I didn't encourage this avenue and they had the statement in front of them, in effect. They knew the statement was coming out and knew it wasn't included. They didn't want to queer the atmosphere by pressing and they... | 81 |
fomc | 1,978 | John. | 2 |
fomc | 1,978 | Mr. Chairman, since we are on this matter of the foreign currency bond, where does the Treasury now stand on that? | 25 |
fomc | 1,978 | The Treasury has severe reservations about it. Originally, two weeks ago, they were taking the position that they would not be in favor of it--that it raised too many problems for them. Since then I think they have become a little more open minded about it. However, I think the first avenue is apt to be the sale of gol... | 201 |
fomc | 1,978 | That would be a very moderate amount--something like less than 60 million. And bear in mind that unless they can develop a means of selling the gold for foreign currency in a way that doesn't cause holders of dollars to buy that foreign currency in order to buy the gold, it could be completely counterproductive. Then t... | 138 |
fomc | 1,978 | The nice thing about this problem is that it's surrounded by dilemmas! Everything you do has an adverse effect on something else. Nothing is ideal. I might add that we live in a situation where the market is very realistic, very factual. That's why the possibility that gold would be sold caused the gold price to drop b... | 89 |
fomc | 1,978 | A question to Scott, please. One of the factors expressed in the disappointment of the market was that there was no element of exchange controls in the package. How hip is the market on this question and is it likely that nothing very constructive will be done absent some action on exchange controls? | 57 |
fomc | 1,978 | It's one reason why people were so disappointed. Nobody really wants exchange controls; it's just that people felt that this would be the next move on the German side. And the Germans have rejected controls very forcefully both publicly and with our counterparts in Basle. So, as I say, people were watching what the Swi... | 214 |
fomc | 1,978 | Henry. | 2 |
fomc | 1,978 | I spoke to of the Bundesbank and he said that, sure, they'd love to sell these bonds just as you say, but I don't think he thought it would be a very helpful operation for you. That's because people with dollars would go and buy the D-mark bonds and in the end there wouldn't be much effect other than that there would b... | 90 |
fomc | 1,978 | Phil. | 2 |
fomc | 1,978 | Scott, if my arithmetic is correct, there's $50 million of Treasury money left. What happens if you hit a big day? | 26 |
fomc | 1,978 | Well, Alan was going to cover this question. | 10 |
fomc | 1,978 | Phil, do you have a question? | 8 |
fomc | 1,978 | That was exactly my question. | 6 |
fomc | 1,978 | Yes. We have all these policy dilemmas we are speaking about. Relative growth rates are such that we are going to continue to have these large current account deficits. Then our choices are going to narrow down to whether we'll take a lower growth rate in our economy, because it doesn't look like we are getting the rel... | 167 |
fomc | 1,978 | [Accept a] lower growth rate in the domestic economy in order to keep the dollar up? Is that what you are saying? | 26 |
fomc | 1,978 | No, in order to hold down imports and to improve the-- | 13 |
fomc | 1,978 | I'm amazed that that would be a view in the Administration. | 12 |
fomc | 1,978 | It is. | 3 |
fomc | 1,978 | I've heard this and it's influenced, of course, by the rapid decline of the unemployment rate. | 19 |
fomc | 1,978 | What if it goes up again? | 7 |
fomc | 1,978 | This is the current situation. Now, unless there are more questions on that, we have to ratify the transactions of the Desk since the previous meeting. I assume this [report] has been circulated. Is that correct? Any comments or questions? [I take it] then that we approve and ratify the transactions of the Desk. The ne... | 98 |
fomc | 1,978 | I'm reporting now and Alan Holmes will have something more to say that takes off from the report of our subcommittee. I would like to remind you that this ad hoc subcommittee--which will go out of business today--must be distinguished from the Foreign Currency Subcommittee, which is a continuing body. We had three char... | 691 |
fomc | 1,978 | Perhaps there will be questions or discussion. Frank. | 10 |
fomc | 1,978 | Henry, it's not clear to me why the daily limits should be established on a gross basis in the first place. | 23 |
fomc | 1,978 | Well, there is an explanation of this here in the paper. There are essentially two reasons and not everybody considers them equally important. One is that, given the nature of the definition of the net exposure, it is possible for the Manager to perform a very large operation which completely reverses the existing situ... | 386 |
fomc | 1,978 | Well, it just occurred to me that perhaps we might be limiting the discretionary action of the Manager. If we had this kind of limit on domestic open market operations, it would have to be enormous. Is this $200 million satisfactory to the Manager? | 50 |
fomc | 1,978 | Well, President Morris, I guess I'd say we could live with it. I, too, feel that maybe a redefinition of the open position is a proper solution. Gross transactions to me are not important, although I must say that the Desk would never consider a huge move from a short position to a long position staying within a net, l... | 201 |
fomc | 1,978 | I must say, Mr. Chairman, that I don't find the argument for a gross limit very persuasive. | 21 |
fomc | 1,978 | Chuck. | 2 |
fomc | 1,978 | Well, I think I feel the same way. I understand, Alan, that to the extent $200 million is twice $100 million it will be less limiting than before. But it doesn't seem a very satisfactory solution to just say that the limit has stopped us so we will raise the limit. I can't understand--but I don't know all of the detail... | 122 |
fomc | 1,978 | Well, we are trying to find a way of accomplishing that. It means that you then say to the Manager you can reduce the exposure from $100 million to, let's say, zero exposure and that's the limit of what we allow you to do. That's not a meaningful guideline. | 56 |
fomc | 1,978 | Why? | 2 |
fomc | 1,978 | What you want to do is to limit the additional exposure that the Manager can create. So it's fine if the constraint limits him from going from $100 million to $200 million or above $200 million. But it seems to me that something that increases the protection of the System account ought not be constrained. | 61 |
fomc | 1,978 | Bob, you had a question. | 7 |
fomc | 1,978 | I wondered if I might ask Alan: Do you have in mind a particular change in the net open position that would do the trick, Alan? I believe we've talked about this at length and I know a lot of people have worked on a definition and encountered the difficulty that Henry described. | 57 |
fomc | 1,978 | We would have come up at the Desk with a higher number than that [proposed] but, as I say, I think for the time being we can live with the proposal and perhaps we can get around to a better definition of the net position. | 51 |
fomc | 1,978 | Well, I think it's fair to say that the Desk came up with a proposal of $300 million per day and $1 billion for the intermeeting period. | 32 |
fomc | 1,978 | That's right. | 3 |
fomc | 1,978 | That seems to me too large, but it's something that perhaps should be discussed. | 16 |
fomc | 1,978 | Mr. Chairman, I think it should not be called a net limit. Everybody is using "limit" as shorthand. It is not a net limit; it is a limit on the change in the open position. It's a measurement of the open position done exactly the way banks do it to measure their exposure. One should not, I think, confuse the gross limi... | 169 |
fomc | 1,978 | May I make a suggestion? I think we are in an area we could probably discuss all day and have different opinions. If we can live with this for a month, can we come back with another suggestion? Would that be all right with the Desk? If we can find a better way to express this in net terms and so forth, let's do it. | 72 |
fomc | 1,978 | What is the difficulty of living with our present limits--we've been living with them for a year--if we are going to come back to this question? | 32 |
fomc | 1,978 | It's taking a lot of time. | 7 |
fomc | 1,978 | Why not live with our present ones before we change them? | 12 |
fomc | 1,978 | On days in which we are active in the exchange market we may spend up to an hour or more discussing where we stand under these various limits and it's taking up the time of the people who actually have to make the decisions and evaluate the movements in the market. And to the extent we are discussing matters with peopl... | 86 |
fomc | 1,978 | My experience the last few times would verify that. I think the Desk has acted responsibly and I think the more time spent on substantive issues and the less on mechanics helps make the Desk work better. So I would certainly support the idea of giving them a little running room and then looking at the situation. | 60 |
fomc | 1,978 | May I make two points there? One is that it raises the question of whether the ad hoc subcommittee should be continued to work on this. Second, I'd like to emphasize that any increase we might allow now or subsequently in this particular limit shouldn't be understood as a suggestion that the scale of operations should ... | 86 |
fomc | 1,978 | I think that message has been [given]. | 9 |
fomc | 1,978 | That's what concerned me about the proposal; the inference was that we should become much more active. | 19 |
fomc | 1,978 | Well, the net position limits are not being changed. | 11 |
fomc | 1,978 | That's correct. That's why it turned out just to be practical. Well, if we're going to re-examine this, should the ad hoc committee stay in being until next meeting just for this purpose? | 40 |
fomc | 1,978 | For this purpose and there's also a minor issue in that we may wish to define the nature of "disorder." There's work going on in the subcommittee on that. | 34 |
fomc | 1,978 | Why don't we do that then? Let's continue it for a month. Now, what is the pleasure of the Committee as to the proposed changes in the gross transactions in the daily limit and the limit between meetings? The proposal is to change them from $100 to $200 million and from $300 to 500 million. Is that correct? | 68 |
fomc | 1,978 | That's correct. | 3 |
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