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fomc | 1,978 | Does that reflect even their coupon holdings? | 8 |
fomc | 1,978 | I would say so. Those positions are quite modest at this time. | 14 |
fomc | 1,978 | And yet positive as opposed to negative a couple months ago? | 12 |
fomc | 1,978 | Slightly positive, but fairly close to even. | 11 |
fomc | 1,978 | Gentlemen, we have the question of action to ratify the transactions since the previous meeting. I believe [the Desk's reports] have been distributed. Is there a question? May I, in the absence of a dissent, record those as approved? At this point I call on Steve Axilrod for his comments. | 66 |
fomc | 1,978 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,978 | Comments or questions? Yes, Frank. | 8 |
fomc | 1,978 | Steve, I seem to recall that last July we began to get a weekly sample of deposits at non-member banks. I was hopeful that this would mean that in the future the benchmark revisions would be negligible. Is this evidence that the sample is not adequate? | 51 |
fomc | 1,978 | September will be the first benchmark date we can compare with the sample, so we want to make that comparison. We really prefer to make two comparisons before we incorporate the continuing sample into our regularly reported data. We have not done so. Also, one strata of the sample--and I don't remember exactly which on... | 141 |
fomc | 1,978 | You haven't actually been using the sample? | 8 |
fomc | 1,978 | No, no. We have it and we've been trying to get it straightened out but we have not been incorporating it. | 25 |
fomc | 1,978 | Why don't you tell him what was wrong with the benchmarks? The FDIC just made gross errors in their calculations. They did it on the weekly samples, too. | 33 |
fomc | 1,978 | For internal reasons they did not edit the benchmarks. They stopped editing in December of last year. The edit they performed was not an edit in any sense of the word. | 34 |
fomc | 1,978 | Steve, I see that the nonborrowed reserves and to a lesser extent the base rose very sharply in the last three months. Do you see any significance in that for future money growth? | 38 |
fomc | 1,978 | Well, I have never been able to see any significance of past behavior of the base in relation to future money growth. We have a lagged reserve requirements system; that is, reserves today relate to deposits yesterday so that in itself says the reserves are quite passive. Secondly, we control the federal funds rate; we ... | 190 |
fomc | 1,978 | Roger had his hand up. | 6 |
fomc | 1,978 | Question to Steve. You are projecting into April another blip as we experienced in 1976 and 1977. As you made your seasonal adjustments to the 1977 data, can I translate that to say that when you are looking at 9 to 10 percent growth projected for April of '78 that that would equate to another 6 percent, roughly, if yo... | 89 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | I'm just trying to lay experience against experience. | 9 |
fomc | 1,978 | Yes, we have reduced the seasonal factor. April's rate rose around 6-1/2 percentage points so the 2-month growth rate would be about 3 percentage points higher if we were on the old seasonal. On the other hand, we have raised January's and February's. | 59 |
fomc | 1,978 | Another somewhat related question: The assumption in the Bluebook has been for the last couple of months that Regulation Q [ceilings] will be increased and I think it's scheduled for May. Are there discussions now going on with the other agencies and if so, is that a reality, a possibility, or what? | 62 |
fomc | 1,978 | Governor Partee may wish to speak to the question of whether there are discussions with the other agencies. | 20 |
fomc | 1,978 | He can't hear you, but the answer is no. | 11 |
fomc | 1,978 | That's a pretty good answer. Chuck and I like the length of it! | 15 |
fomc | 1,978 | I should add, President Guffey, that the staff has been developing its own contingency plans so that discussions, when they are ready to go, can be undertaken very promptly. | 36 |
fomc | 1,978 | Well, we are running up on that May date, which is an assumption underlying all of your projections. | 21 |
fomc | 1,978 | Our staff projections are on a preliminary basis. | 9 |
fomc | 1,978 | Well, Roger, it's a little hard to do when market rates are drifting down. | 17 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | Mark, you had a question. | 7 |
fomc | 1,978 | He asked my question. | 5 |
fomc | 1,978 | Okay. | 2 |
fomc | 1,978 | Steve, one of the intriguing aspects of the disintermediation dilemma this time is that there are, of course, two parts to it. An investor is faced with a choice if he has new money to invest as to whether he goes into a thrift institution or into a government security. That's reasonably easy to figure out--at least th... | 145 |
fomc | 1,978 | We have been assuming that people do not withdraw--that is, that the penalty is so great. In fact, it was that assumption that really got us to assuming a somewhat stronger inflow into thrifts in the first quarter than actually developed, given the interest rates. | 54 |
fomc | 1,978 | That may be the wrong assumption, but I don't know just how to correct for it. I think there is a correcting factor that's necessary. | 28 |
fomc | 1,978 | I think that there has been more sensitivity on the part of investors to the interest rates. Greater sensitivity has developed as the years have progressed, and I think there has been a very prompt move into other securities and money market funds, at least with new money--money that would otherwise be invested. I don'... | 86 |
fomc | 1,978 | The penalty isn't all that large; so if the differential spreads a bit more, you could get quite a bit of follow-up. | 26 |
fomc | 1,978 | We've done a good deal of work on that and it's very expensive if you've been a holder for more than one year. | 24 |
fomc | 1,978 | Oh, yes. | 4 |
fomc | 1,978 | I think one of the catches this time around is that while a larger proportion of the thrift accounts are locked into what we perceive to be very expensive penalties, it's also the fourth year since they began to take on these certificates. So we have a very high volume of maturing certificates; I think it's something l... | 71 |
fomc | 1,978 | Yes, $28 billion with original maturities of one year or more matured this quarter; over half of those have original maturities of four years or more. | 32 |
fomc | 1,978 | One of the other elements in our thinking is that the past experience has been that the institutions seemed to get good rates of gross inflows but it's the withdrawal side that's very sensitive. So I think the maturing certificates are probably the most difficult area this year. | 52 |
fomc | 1,978 | That's what makes me a little leery in a sense about the next notch up because thus far there has been a reasonably competitive relationship between long-term certificates at thrifts and Treasury securities. If you got, say, 25 or 30 basis points more in the 4- to 7-year area, then it might trigger a very large movemen... | 91 |
fomc | 1,978 | Or there may be people who would say I'll take a 90-day certificate and see what happens which, in effect, is a way out of the same situation. | 33 |
fomc | 1,978 | Paul. | 2 |
fomc | 1,978 | I'd just like to make an observation and raise a question. The observation is about the size of these changes in seasonal factors alone in the revised money supply figures. It has been a long time since I've been in the business of calculating seasonal adjustments, but I don't ever remember year-to-year changes of this... | 158 |
fomc | 1,978 | I missed the Board meeting on that subject. | 9 |
fomc | 1,978 | President Volcker, the staff at the moment has been giving this considerable thought and we are planning around midyear or before--I hope in late May or early June--to have a memo for discussion purposes which would propose changes in M1, M2, M3, and M4. We'd like to have discussion, of course, within the System and pe... | 92 |
fomc | 1,978 | It's inevitable that we will have to make changes before we proceed with the policy directive. Let me mention a couple of points. First, I'll report on your own projections for the economy. Taking the members of the FOMC--ten are present--for the ranges of growth in GNP, five would fall in the 4 to 4-1/2 percent bracke... | 1,017 |
fomc | 1,978 | It seems to me, Mr. Chairman, it might be easier to build a fence against demands that individual members' figures be revealed--and thereby opening access of the [Congressional] Committee chairmen to individual members of the Committee--if the presentation is retained in terms of the Chairman's view without reference t... | 67 |
fomc | 1,978 | It could be that that's the solution. It could be that we'd do this without names and, therefore, have a blind view. Or it could be that this would merely be guidance to me to make my personal decision. It could be any combination of those. Yes, Mark. | 56 |
fomc | 1,978 | Personally I think it would be very desirable to have you use ranges of an expression of opinion on the part of the Committee because whether we like it or not various people look at what we do. They try to evaluate how well we do it and in the long run I think that's a good thing in terms of how we perform our job. Th... | 102 |
fomc | 1,978 | I would feel more comfortable if I at least had some input from the Committee, and I am willing to go as far as you all would like. I'm willing to play it any way. I don't like to be trying to represent the Federal Reserve with a very crystallized view that makes me feel that I'm overstepping a little. I don't personal... | 152 |
fomc | 1,978 | Yes, this is partly the difficulty you get into. Do we want to project publicly a high rate of inflation now? The Federal Reserve projecting an acceleration of inflation! Or at other times do you want to project a recession before-- | 46 |
fomc | 1,978 | You see, if I'm asked before the [Congressional] Committee on April 25 what my personal views on inflation are, they are going to be higher than the Administration's and that's going to be in the newspaper. Now whether we want to say we all have a view that's leaning a bit that way--is that better? Or should it be me? ... | 175 |
fomc | 1,978 | I think there is a subtle distinction between your expressing alarm, which is entirely appropriate and very helpful and encouraging, and the Federal Reserve at some time, in its august majesty, saying this is what [inflation] is going to be. | 49 |
fomc | 1,978 | Mark had his hand up first and then I think-- | 11 |
fomc | 1,978 | Just to respond to that point because I think that's one of the key points to the argument on the other side, which is that we ought to be making policy looking ahead as to what's going to happen six to nine months down the road. What happens now is that it all seems patently inconsistent to the public because we appea... | 114 |
fomc | 1,978 | Bob. | 2 |
fomc | 1,978 | Mr. Chairman, I think one of the things members of Congress are apt to do is to try to get us publicly at odds with one another. There are a lot of differences of opinion as to who ought to do the testifying. My feeling is that to the extent possible you ought to do it on this kind of matter. If [these Congressional Co... | 118 |
fomc | 1,978 | That's correct. If we ever move beyond [my] personal views, it should be unidentified--[and stated in terms of] consensus and ranges. | 30 |
fomc | 1,978 | That's very advisable. | 4 |
fomc | 1,978 | Henry. | 2 |
fomc | 1,978 | I'm really very concerned about the Federal Reserve predicting a rate of inflation because that works its way through immediately into interest rates, if anybody takes it seriously. I wonder whether there aren't ways of qualifying this. For instance, I found myself putting down three alternative scenarios here for thes... | 81 |
fomc | 1,978 | That's what the Congress wants--clarity. | 9 |
fomc | 1,978 | Likewise, I think probabilities can be mentioned [on] fears that inflation may rise significantly, but I would be very bothered by some numbers stated cold, whether [they represent] your view or the Committee's. | 43 |
fomc | 1,978 | That's really a very narrow range on inflation--[6.6] to 7 percent. | 19 |
fomc | 1,978 | Yes, it could be widened. | 7 |
fomc | 1,978 | I think we'd want a wider range than that. | 10 |
fomc | 1,978 | I took off the ends of it; it could be widened easily. Let's see. Bob Mayo wanted to speak. | 23 |
fomc | 1,978 | You're right, Mr. Chairman, that the Congress wants clarity but many in the Congress confuse clarity with simplicity. They would like to have a digit for everything and once they get into this game they can trap us by remembering figures that we would just as soon forget. [Laughter] No, I mean that seriously. | 64 |
fomc | 1,978 | What you're saying is that you'd like the Chairman to be on the spot. | 15 |
fomc | 1,978 | No, I want to keep the Chairman off the spot by not getting him to expose figures that we would rather all forget later on. It's not that we are irresponsible but we are human beings. I'd also suggest that one of the precedents set by setting up target ranges on the monetary aggregates in the first place was, I think, ... | 147 |
fomc | 1,978 | I think perhaps we've spent enough time with this today. I would appreciate your thinking about it and perhaps coming in with some suggestions at the next meeting. Ernie Baughman has written a letter, which you've all received, suggesting that we also take a look at a longer-range view of monetary policy and the aggreg... | 112 |
fomc | 1,978 | Certainly. | 2 |
fomc | 1,978 | Is that satisfactory? | 4 |
fomc | 1,978 | That's quite satisfactory. | 4 |
fomc | 1,978 | Now, I think we turn to the directive itself, unless there is some order of business I'm not familiar with. You have a draft before you, which has general paragraphs. I might ask if there are any comments on the general paragraphs before we come to the operational paragraph. I have one on line 8, page 1. I think when u... | 129 |
fomc | 1,978 | You're right. Absolutely. | 5 |
fomc | 1,978 | How about using "precipitous"? [Laughter] | 12 |
fomc | 1,978 | Yes, a precipitous drop in unemployment. I just think "decline" might be a better word. Are there any other comments on the general paragraphs? Then what is your pleasure on the operational paragraph? We have two choices, the formulation that is described as "monetary aggregates" and the one that is "money market." Any... | 72 |
fomc | 1,978 | I don't know whether I want to address myself to that limited question at this time. | 17 |
fomc | 1,978 | Fine, address yourself to a broader view. | 9 |
fomc | 1,978 | Let me just [address] myself to where I would like to see [the funds rate] go during this period. I feel very much the way I did last month in the sense that I think it would be wrong in the foreseeable [future] to give an easing signal, for a variety of reasons, maybe most importantly the concern we've expressed about... | 428 |
fomc | 1,978 | But a very much constrained one. | 7 |
fomc | 1,978 | Some question was raised about this last month. So I was forced to do some thinking about it this month, and I'm prepared to argue that the best way to use an aggregates directive is to constrain the federal funds rate in this particular period. That's because I wouldn't want to see an aggregates directive and have a w... | 278 |
fomc | 1,978 | Gentlemen, I don't know what your procedures are but maybe I can make a couple comments on how I see the situation and maybe I can be helpful. It seems to me that any lowering of the funds rate bracket would be inconsistent with the views that I've been expressing and would, therefore, not be in the direction I would w... | 353 |
fomc | 1,978 | If I may just add one further bit of clarification. You say don't put the rate below the 6-3/4 percent without consultation; that is certainly a point I would agree with. Suppose the aggregates come in high? Do you also feel we shouldn't move it above 6-3/4? | 62 |
fomc | 1,978 | Oh, no. I think I would allow it to go above. I just wouldn't allow it to go below because of the worry that I feel about the inflation situation. | 34 |
fomc | 1,978 | In practice you're precisely where I am. | 8 |
fomc | 1,978 | That's what I think. I think that if we could administer it that [way] we would have a better program. | 24 |
fomc | 1,978 | And you're recommending the alternative C ranges for the aggregates? | 11 |
fomc | 1,978 | Well, I'd like to hear a little discussion. I think the M1 in alternative C would be better. Whether it makes any difference in M2, I don't know. I probably would take alternative C on both M1 and M2 and alternative B on the federal funds rate. That's my viewpoint. Now, in the order people have indicated [a desire to c... | 82 |
fomc | 1,978 | Mr. Chairman, I'm not too far away from you and Vice Chairman Volcker on this, with perhaps a slightly different twist to it. I would take Paul's 6-3/4 percent lower limit on the federal funds rate and put the top end up to 7-1/4 percent. I would take your alternative C as a guide to M1 and M2, mainly because I think w... | 205 |
fomc | 1,978 | Phil Jackson. | 3 |
fomc | 1,978 | I differ in the judgments that have been expressed. It is my view that if we were to get the third month in a row of relatively slow growth in the aggregates this, first, would be a signal to the international exchange market about the consequences of Federal Reserve actions, which would produce a lessening pressure on... | 240 |
fomc | 1,978 | Around there. | 3 |
fomc | 1,978 | In that light, if we kept the 9 and if the 4.6 projection for March stays constant, this would mean that April could go to 13.4 percent before we'd see any change in the Desk's attitude. It strikes me that that's too high, particularly in light of the seasonal adjustment that we've already got. And while I realize brin... | 164 |
fomc | 1,978 | Henry Wallich. | 4 |
fomc | 1,978 | I feel that the good days of stable interest rates are approaching an end. We have a strong month, as far as prospects for M1 are concerned, ahead of us. Of course, this may turn out to be wrong, but I share Phil Jackson's thought that the seasonal adjustment which has already been applied in order to pull [April's gro... | 360 |
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