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fomc | 1,977 | Even temporarily? On the way to recovery or to some full employment goal? | 15 |
fomc | 1,977 | I think that's the implication. I think so. But he also argues that this path, which would get us to about 5-1/2 percent unemployment in 1980--that, at that time, we are likely to [have] approximately the same degree of strain on capacity [for] basic materials that we encountered in 1973. Now, I don't know how, I'm cur... | 90 |
fomc | 1,977 | Let me just sharpen this question a bit, if I may. I have seen calculations which suggest, I think on an economic outlook very similar to the one you have projected--about the same rate of growth--but by the second half of 1978, also given projections of this sort for plant and equipment, we will be back at the 1973 op... | 94 |
fomc | 1,977 | Well, as I recall it, our calculations for capacity use in manufacturing bring us to about 85 or 86 [percent] by the middle of next year. And that is beginning to move-- | 40 |
fomc | 1,977 | It was about 87-1/2. | 10 |
fomc | 1,977 | It was about 88, I think, so that would probably bring it to 88 or beyond by the end of next year. | 27 |
fomc | 1,977 | About, by the end of next year. I think one can view this in several ways. One, of course, is to argue that one ought to have some sort of steady-state pattern throughout the period toward an objective. One can operate reasonably with a slightly more rapid rate of increase in the early period, moderating down as you ap... | 113 |
fomc | 1,977 | Any further questions along these lines? | 7 |
fomc | 1,977 | Mr. Chairman, I will just say that all of this assumes that we will have had a relatively strong sustained rate of growth for three full years after the trough. And that may or may not occur. Well, I begin to question the validity of that strong a rate of growth for that long a period. | 62 |
fomc | 1,977 | The dichotomy we have here is that maybe we have not much excess capacity on the physical side and we've got lots on the employment side. In a way, it's getting worse, but that depends on what the labor force is going to be doing, too. I don't know what kind of projection you have on the labor force. | 66 |
fomc | 1,977 | Our projections on the labor force are [for a] less rapid pace than we had last year. We're figuring on about a 2 million rate of growth in numbers for 1977 versus about 3 million in 1976. That is larger than the average and larger than the growth in population [and it] assumed continued increase in participation of wo... | 73 |
fomc | 1,977 | It would depend on how it is distributed, too. If you remember '73, it was rather a surprise that we had that much inflationary pressure with that level of capacity utilization. It was, of course, reported lower than it is now. It's been revised. But nevertheless, it seemed as if there were lots of pressure points. And... | 100 |
fomc | 1,977 | I agree it depends on the precise character of the forecasting of the distribution, but do you have any reason to think ex ante that it's going to be better distributed this time? | 35 |
fomc | 1,977 | Well, I wouldn't expect any 20 percent devaluation. And I think that had a major effect on that rate of inflation in 1973. | 30 |
fomc | 1,977 | Well, I see things somewhat as Mr. Volcker does. I note all sorts of arguments as to why capacity pressures are not likely and why the experience in '73 and '66, when it went to 89, is not relevant. But nevertheless, I think we have the fact that we've greatly changed our data and that these do show that we have a good... | 140 |
fomc | 1,977 | I would agree with that. The overall figure, I think, has always been historically deceptive because of variations among industries in rate of utilization and variations among firms within individual industries. And an overall figure of even 85 percent is consistent with developments as they have been historically, and... | 101 |
fomc | 1,977 | Mr. Chairman, on prices, a comment and a question. Our projections, Jerry, would have a little bit more price effect as a result of the cold weather that we have been having. You might want to comment on that. And second, I have seen some scenarios--we have a chart here, for example, from DRI, which projects the deflat... | 123 |
fomc | 1,977 | Well, let me break it down into three broad components--food, energy, and other. As far as food is concerned, we have situations for the immediate future deteriorating to the extent that the cold weather has had some effect on prices of fruits and vegetables. But, as I indicated, we expect that to be a fairly short-ter... | 815 |
fomc | 1,977 | I hope you're right, Mr. Zeisel. Mr. Wallich. | 15 |
fomc | 1,977 | Well, I listened to a discussion of business economists the other day in which even more micro and nonmonetary approaches to prices all led to an impression of downward price pressures, which seemed very gratifying. But my own look at these numbers always is a little bit above what yours is: Wage increases--I think we ... | 250 |
fomc | 1,977 | I wish I could answer that question. I really don't know. I think one has to speculate about it. Certainly the past half year has been instructive in a sense. In a period when we had not only excess capacity but also a rather sluggish economy, [and] one looks at industrial prices abstractly from special consideration s... | 167 |
fomc | 1,977 | You know, they're also old dimensions. One is, raw materials prices have been advancing; they started rising at the very beginning of 1975 once again. And historically, wholesale prices have moved upward starting at the very beginning of an economic recovery--a few months before, at the time, [and] one or two or three ... | 125 |
fomc | 1,977 | Since Mr. Zeisel mentioned the drought in the West, I thought I might pass on a few calculations that I had my own staff make in terms of what impact they see this year. There will no doubt be disaster for a number of California farmers, but we have tried to figure out what this will result in, in terms of costs. In vi... | 222 |
fomc | 1,977 | That's very much in line with our assumption. We figured a rise in fruit and vegetable [prices] of about 25 to 27 percent. We built that into a higher level for prices for the year. | 42 |
fomc | 1,977 | John, what [effect does] the development of much more modern farm techniques in all of Mexico begin to have on that projection and on our relationship with that country? | 33 |
fomc | 1,977 | I don't know the answer to that question, Phil. | 11 |
fomc | 1,977 | Recent newspaper reports would indicate that the substantial improvement in modern farming techniques [in Mexico] could have some moderating effect on that influence of California. | 29 |
fomc | 1,977 | I hope that's right. | 5 |
fomc | 1,977 | Maybe they just recently had a drought, too; I don't know. | 14 |
fomc | 1,977 | Thank you, Mr. Balles. Mr. Partee, please. | 15 |
fomc | 1,977 | Well, Mr. Chairman, I just thought that I might say, since I think we need so many views on this, the economic outlook seems to me to be quite good and strengthened over the last month or two. We did have Henry refer, I think, to this group of business economists we had in last week, and they were also, it seemed to me... | 386 |
fomc | 1,977 | I agree in substance with what our staff has indicated and [with] Mr. Partee's pronouncement on the general outlook of the economy. I think the outlook is good, but I think I should report to the Committee that my own conversations with businessmen and business economists recently [have] suggested to me that there is a... | 182 |
fomc | 1,977 | Mr. Chairman, you and Governor Partee in effect have stolen exactly what I'd planned to say, except that I've got a little bit different scenario to it, and I think Chuck is right that we're headed upward. I have a sneaking suspicion that we may find ourselves in a kind of a peaking situation in the latter part of the ... | 189 |
fomc | 1,977 | Thank you, Mr. Coldwell. Mr. Winn now, please. | 15 |
fomc | 1,977 | Mr. Chairman, in their uneasiness, did they express any concern over the stock market behavior? | 21 |
fomc | 1,977 | Yes. And partly as an expression of their uneasiness, and partly as a cause of it. Any other question or comment? | 27 |
fomc | 1,977 | Mr. Chairman, could I ask Governor Coldwell if he could elaborate just a little on what he thinks it is? I think margin, in terms of the usual cyclical aspects, in which there is a little pressure on capacity, a little pressure on inventory. | 53 |
fomc | 1,977 | No, I'm thinking in terms of a fairly low first quarter, with a growing boom in the second and third tapering off largely because of the impacts of business caution, reflected by the comments of the Chairman. We might have a consumer boom from the first to the third quarter quarters, [but] not supported by a capital sp... | 68 |
fomc | 1,977 | You think that inventory explains what's causing it? | 9 |
fomc | 1,977 | Yes, the inventories are playing a considerable part. | 10 |
fomc | 1,977 | Mr. Balles, please. | 7 |
fomc | 1,977 | I'd like to ask Mr. Zeisel one more question in connection with the $50 dollar rebate program or, as the Chairman has more appropriately called it, a gift, by the government to its citizens. Do you have any estimates as to how much you expect that sum to be spent as opposed to saved? | 62 |
fomc | 1,977 | Roughly-- | 4 |
fomc | 1,977 | What are you going to do with yours? | 9 |
fomc | 1,977 | I'm going to spend it. Seriously, I'm not sure yet. I'll wait until I see it. We may not get it. | 26 |
fomc | 1,977 | I think it's a little hard--as far as I'm concerned, I don't know what I will do, period. | 23 |
fomc | 1,977 | Historically, this kind of--quote--windfall, which is what I think it's generally called, has involved something in the neighborhood of 25 percent spent in the current period, and then drifting up to 40 or 50 percent total of it spent, possibly, and the remainder saved. And we built in about this kind of pattern; howev... | 154 |
fomc | 1,977 | Yes, but assume they would pay their gas bill anyway. | 12 |
fomc | 1,977 | Well, they have to pay their gas bill anyway. | 11 |
fomc | 1,977 | You've got about a $40 billion increase in savings in the second quarter. | 15 |
fomc | 1,977 | Well, the payments out of these rebates, which are at $46 billion annual rate, come very late in the second quarter--May and into June--so that most of the-- | 37 |
fomc | 1,977 | You add it. | 4 |
fomc | 1,977 | There's a lagged spending response to them. | 9 |
fomc | 1,977 | Any other questions or comments on the economic outlook? | 10 |
fomc | 1,977 | May I make an observation, Mr. Chairman? | 10 |
fomc | 1,977 | Please do, Mr. Gardner. | 7 |
fomc | 1,977 | Listening to this concern about uncertainty, I have to reflect back to the beginning of last year. The midpoint of last year. What were the points of uncertainty? What prevented business from moving forward with capital goods planning or expansion? Well, the pause was on our minds almost all of the year. The pause as t... | 346 |
fomc | 1,977 | God help us then. | 5 |
fomc | 1,977 | Pardon? | 3 |
fomc | 1,977 | God help us then. | 5 |
fomc | 1,977 | Now wait a minute. We haven't had any significant capital investments. We've had a recovery without that leading the way. And this has always appealed to me as a fact of future strength. At some point, we may indeed get some additional thrust from the longer-delayed capital expansion developments. I'm a little bit from... | 72 |
fomc | 1,977 | If I may interject, I do see things somewhat that way, but late in the cycle, everybody will realize that [they don't] have enough capacity, that they should have invested earlier, there [will] come a great rush in this--bottlenecks in capital goods industries. And that's exactly how I negatively interpret the belief t... | 80 |
fomc | 1,977 | I want to ask one question, Mr. Chairman. Jerry, steel capacity worldwide, aluminum capacity worldwide--I don't know anything about pulp and paper capacity--do we have the same set of conditions today that we had in '73 on capacity? We are worried about our 85 percent rate or our movement toward an 85 percent rate [of ... | 107 |
fomc | 1,977 | Well, I can comment a bit. I would ask Mr. Reynolds to supplement my comment, since I am not as familiar with the worldwide situation, obviously, as he is. My impression is that we are not in a situation where the pressures in capacity worldwide [are] what they were then. And, in fact, the other day there was a comment... | 132 |
fomc | 1,977 | Yes, I think there is very little pressure on capacity abroad. That's been the reason that investment spending there has lagged, too. Steel is certainly in ample supply. Most chemicals, I think, are in ample supply. Figures that Wharton School gathers on industrial capacity, while perhaps not very good, show capacity p... | 73 |
fomc | 1,977 | Yes, Mr. Mayo, please. | 8 |
fomc | 1,977 | Just one observation following up on what Steve was saying. I think there is another phenomenon that's added to uncertainty that we tend to forget in-between time. We have almost a semiannual regularity of the August doldrums and February depression, in terms of attitudes, and I think this has been accentuated this yea... | 85 |
fomc | 1,977 | Well, I have to hasten to get in on the statement about businessmen's worries. I think that what you describe has become a kind of a way of life. And they're used to this; at this point, I think they're just going ahead. My own view is the economy is going at a very fine rate, as Chuck says. I am concerned that perhaps... | 181 |
fomc | 1,977 | Any other question or comment? Well, if not, let us move quickly to Mr. Sternlight's report on operations at the domestic Desk. | 29 |
fomc | 1,977 | [Statement--see Appendix.] | 6 |
fomc | 1,977 | Thank you, Mr. Sternlight. Any questions or comments? Yes, Mr. Wallich. | 20 |
fomc | 1,977 | There seem to have been significant shifts in interest rate relationships, with the principal rise in rates [being] in the medium-term Treasuries. What does that imply for the market's expectations of future rate movements? [Is it] an indication of sharper rate increases in the area immediately below that in maturity? | 62 |
fomc | 1,977 | I think there has been some expectation of rising rates as this year goes along. Just taking the period of the past month, this trend that you point out is not so very pronounced, but I think it would be pronounced if we go back to the beginning of the year. There has been a steepening of the upward sloping yield curve... | 106 |
fomc | 1,977 | I think Mr. Wallich's question does raise a question for the Treasury as to debt management policy in the months ahead, and this is something that our financial staff should pay very careful attention to. | 40 |
fomc | 1,977 | Mr. Chairman, I was going to add, if I might, supplementing Mr. Sternlight's comment--I think that if it also had to do, not simply with expectations--expectations change--but that was the area where there was a very large supply of securities. The Treasury had been hitting that area rather consistently, and you saw a ... | 126 |
fomc | 1,977 | Mr. Chairman, may I comment. Once a month, in the preparation for these meetings, one of the things that we do is to take the yield curve and try to make projections of the rates on the basis of what the market seems to be expecting and reflected in the yield period. In recent months the market projections have not bee... | 148 |
fomc | 1,977 | Thank you, Mr. Eastburn. Any other questions or comments? Yes, Mr. Black. | 20 |
fomc | 1,977 | Steve's observation occasioned me to wonder about something. Steve, what maturities do you feel really compete most effectively with thrift institution obligations? I'm wondering about disintermediation here. | 37 |
fomc | 1,977 | Well, with thrift institutions, I would say that you really have to go through the whole maturity spectrum up to around four years. That is, the savings accounts are sensitive to the bills, and that may be more particularly true for commercial banks now with business and state and local governments. | 57 |
fomc | 1,977 | I think Mr. Black was directing his question to the assets, is that correct? | 17 |
fomc | 1,977 | Yes sir. | 3 |
fomc | 1,977 | Oh, I'm sorry, I thought you were asking about the liability side. | 15 |
fomc | 1,977 | Maybe I misunderstand the Chairman on it. I was really wondering-- | 13 |
fomc | 1,977 | About mortgage interest rates, is that what you had in mind? | 13 |
fomc | 1,977 | No sir. I was thinking about disintermediation on the liability side of the thrift institutions and what this might mean, you know, for debt management with this bulge-- | 36 |
fomc | 1,977 | I would say on that, that it's up to the four-year Treasuries and maybe a little bit longer, that is when those issues have very attractive coupons. And, of course, those yields are low now, or relatively low. Then you tend to get funds that would otherwise be going perhaps into four-year certificates going into Treasu... | 105 |
fomc | 1,977 | Any other question or comments? Very well, we'll break for coffee now and we will be back in about 15 minutes. | 25 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | Have you noticed any change in the source of CDs for banks in domestic versus foreign? | 17 |
fomc | 1,977 | No, I have not. But I have not investigated that. | 13 |
fomc | 1,977 | --material shift in the sources of them? | 9 |
fomc | 1,977 | I'd have to investigate that more carefully to give you an answer, but I have not--none has come to my attention. | 25 |
fomc | 1,977 | Would you think it material if there was? | 9 |
fomc | 1,977 | Not from the point of view of our domestic finance. It might be material from the point of view of the balance of payments and pressures on exchange rates. | 31 |
fomc | 1,977 | I've had some impression of banks drawing more from foreign sources. | 12 |
fomc | 1,977 | That's the impression I'm getting. That's the reason I was asking the question. But I frankly don't know whether it's material or immaterial. | 27 |
fomc | 1,977 | You mean the CDs--not Eurodollars? Issuing domestic CDs to foreigners? | 17 |
fomc | 1,977 | It's not apt to be in the form of CDs; it would be in the form of Eurodollars. | 22 |
fomc | 1,977 | Excuse me. I used the wrong expression. I'm talking about purchased funds as a whole. | 19 |
fomc | 1,977 | I'm not so sure. At least in the south Florida area, the CD related to foreign is significant. And so much so that some of the larger banks have put a $150,000 limit on what they will accept from foreign sources. | 48 |
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