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fomc
1,978
Dave.
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You and Governor Jackson have expressed my opinion. I think the federal funds range should be 6-1/2 to 7, with the arrangements you have explained on consultation. And I've felt for some time that our ranges are too large. We moved to 6 percentage points and we're now down to 5, and I think we could take another cut. I...
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4-1/2 to 8?
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I meant 4-1/2 to 9 percent and 6 to 9-1/2 percent. I'd cut 1/2 point off now and maybe take another cut later on.
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Thank you. Willis.
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Well, I think I'd be a little stronger in my cutback on the [ranges for the] Ms in view of the adjustment factor we put in [which] makes comparison very difficult over time. I would go to 2 to 7 on the M1 range and 5 to 9 on the M2 range. We certainly don't move against forecasts, but I'd surely move if the evidence ca...
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Bones.
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I, too, am very much concerned about the inflation and inflationary expectations that we've encountered, and I think we ought to take advantage of this opportunity to move--maybe not aggressively, but certainly there's the opportunity for some modest move. Playing with the numbers I guess I, too, would like to close th...
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Larry.
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Mr. Chairman, I would recommend an M1 range of 4-1/2 to 8 percent, an M2 range up to 8-1/2, a federal funds range of 6-1/2 to 7-1/4, and an aggregates directive. I might just say that this is the sweetest music I've heard as far as the aggregates are concerned in some time, Mr. Chairman. I think that it's vital that we...
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Thank you. Ernie.
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Mr. Chairman, my preference is for the aggregates specified in alternative C and for a federal funds range of 6-3/4 to 7-1/4 percent and an aggregates directive. I could be persuaded, however, along the line of Paul's comments, to go 6-3/4 to 7 on the federal funds range if it looks like going as far as 7-1/4 would dis...
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Frank
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Mr. Chairman, I like your specifications--I think they're very suitable for the situation--with a money market directive. I say that because I am uncertain as to just how strong the economy is. Therefore, I think we ought to essentially have a stand pat philosophy until we can get a better fix on it. On the other hand,...
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Bob Black.
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Mr. Chairman, my statement is distinguished only in that I've got slightly different figures.
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That's the purpose of having big spread sheets.
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I can find all the figures I have in mind, but not in exactly this combination. I would lean toward an aggregates directive and I would prefer a funds range of 6-1/2 to 7-1/4. And if we do that, then I think M1 might appropriately be set at a range of 4 to 8 and M2 at a range of 5 to 9. If we settle on a money market d...
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John.
2
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Well, I share the view that all the specifications of the aggregates are too high. In fact, by coincidence, I had put down the same numbers as Willis Winn. I'll join him in suggesting M1 in a 2 to 7 percent range and M2 in a 5 to 9 percent range. And for reasons that have been set forth in detail, and that I agree with...
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Chuck.
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Well, I don't take great exception to the figures that are being cited, but I certainly do to some of the language that's being used. I don't think this is a good time to take advantage and move. What have we learned? We've learned that this morning the fourth-quarter GNP has been revised downward for the second time a...
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Thank you, Chuck. Mark.
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Thank you, Mr. Chairman. I came to this meeting prepared to be an outlier, and I find that I am very comfortably in tune with a large number of my colleagues.
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Oh, this is a good group.
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I would make just one comment. I agree with everything that has been said. I think Governor Wallich gave my speech much better than I was prepared to give it. And I find great comfort in the fact that Chuck just gave almost the same speech. And that's a rather unusual occurrence.
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We have a lot of discipline around here.
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I think 8 is the top number that I'd like to see on M1. I'm really not too concerned what we make the bottom; 4 is fine with me. Frankly, I really don't care much about M2 because I'm not sure in the current environment that it means very much--or at least I don't understand what it means. I would have a preference for...
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We haven't heard from Bob Mayo. Would you like to comment?
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Yes, Mr. Chairman, thank you. I thought up until this meeting that I was perhaps the greatest cynic around the table on seasonal adjustment. I think Chuck has challenged my self-established description. But I do feel that on the monetary aggregates we have a lot to learn yet on how we make seasonal adjustments when yea...
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Thank you. Roger, would you like to add any comments?
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Just briefly, Mr. Chairman. Thank you. I would prefer to have the alternative C aggregates--that's the 4 to 9 [for M1]--particularly if we have an aggregates directive. If I understand how that is viewed by the Desk, that would trigger an upward or a downward movement someplace within a percentage point of the outside ...
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Thank you. Alan would you like to make any comments?
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No, I don't think so, Mr. Chairman.
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Steve?
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No, I have no comment, Mr. Chairman.
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Do you have something else?
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You have no comment or none you would like to make?
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I didn't know whether you were asking for an opinion on the policy.
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I'll take an opinion.
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Well, Mr. Chairman, my view would be that it would be desirable to lower the top end of the M1 range just to guard against excessive growth beginning without any response on the part of the Committee. I would not in any way really want to lower the bottom of the range because I would be somewhat fearful that if we had ...
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Mr. Chairman, may I make one comment? It's not quite clear to me what funds range the Committee is going to pick but I gather with 6-1/2 to 7 that we don't go below 6-3/4 percent without consultation. I'm not quite so sure with 6-3/4 to 7-1/4 whether we don't go above 7 without consultation. I ask because some members ...
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What is the midpoint of that higher range, Alan? What do you interpret to be the midpoint of that higher range--7 percent?
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No, I'd say we'd [view it as] 6-3/4 percent unless the aggregates tell us to move up. That's for the Committee to decide but that's the way I would interpret what I've heard today.
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May I just [review] the bidding? Did I hear any FOMC voting member ask for a money market directive? There were several who didn't speak [to that]. Phil, did you have any preference?
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No, I think I would stay with the monetary aggregates directive this time, Mr. Chairman.
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Dave could you--
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I would agree with that.
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Mark?
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I agree with you.
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Willis?
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I agree.
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That looks like one thing we've decided; there's a very large groundswell for the aggregates language. The next thing one might observe, looking this over, is that everybody uses [different] numbers and words and they all seem to come out to 6-3/4 percent on the federal funds rate. On the other hand, there seems to be ...
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I had in mind 4-1/2 but the difference is very small, so it's not a matter of much importance.
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All right, let me see. On M1, it seems to me that if one were talking 4 to 8, one would catch almost everybody's view on this. It almost looks like the 5-1/2 to 9-1/2 or 5-1/2 to 9 would catch most people on M2. But some would like to start it at 6 and there was only one person who would go up to 10. Almost everybody h...
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Mr. Chairman, if we follow the formulation you've laid down at 6-1/2 to 7, 6-3/4 is the midpoint and you would stay at the midpoint unless--
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We would not go below the midpoint unless there was prior consultation because of conditions.
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In other words, we would not be taking the flexibility down below to 6-1/2 percent.
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No.
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How about the upside for the 7?
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The 7 the Desk would have [available] at its discretion.
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If the aggregates came in on the upside.
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Sure, and with the regular directive.
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I'd buy that, Mr. Chairman, because we are in an environment in which we may have a similar posture to what we had a few weeks ago, where our aggregates may tell us one thing but circumstances beyond the aggregates may dictate a different response. I would say that this is a very responsible way to handle it.
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So we put in 4 to 8 for M1 and 5-1/2 to 9 for M2.
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Mr. Chairman, we're now constraining the funds rate more than we've ever done, I think, by giving it essentially a 1/4 percentage point range to move in. We've come a long way from saying that the funds rate ought to be reasonably flexible. Reasonably flexible shouldn't be too much in the means of determining market ra...
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You mean 6-1/2 to 7-1/4?
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Well, really 6-3/4 but I could live with 6-1/2, subject to not going there without consulting.
29
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I wouldn't be prepared to do that without talking in order to take it above 7 percent. I think we really ought to consult before we go above 7. We may need to do so. [We] biased our specs on these aggregates so that we have a greater chance of being quite high on them, and it gives us an opportunity--
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I think there was a preponderance of members who wanted to keep a 7 percent lid on the funds rate. We still have the range; it only takes a phone call to decide that we've got to have the rates higher. I hope we could agree to do that. May we vote on that basis? Mr. Secretary.
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Chairman Miller I vote for my proposal. Vice Chairman Volcker I vote for that proposal, too. Mr. Baughman Yes Mr. Coldwell Yes Mr. Eastburn Yes Mr. Jackson Yes Mr. Partee Yes Mr. Wallich Yes Mr. Willes Yes Mr. Winn Yes It's unanimous.
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There are a few other items of business in this meeting and we may even soon [get] to lunch. I hope you all will join us. Item 9 is the review of the authority for lending securities and there has been a memorandum on the subject both from the System Account Manager and from the General Counsel. Peter is prepared to co...
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Second.
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[Hearing no objection,] we will record that as approved. [Next is a] review of the Authorization for Domestic Open Market Operations. There is a copy [in the memo you received and] no changes have been proposed. However, I think Steve had a comment he wanted to call to our attention.
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Yes, at the last meeting there was a discussion of operations in Federal agency issues, particularly with regard to their relationship to their required coverage behind currency and the possibility of developing a two-way market including sales of agency issues. Mr. Sternlight and I are planning to have a joint memo to...
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Is a vote required on this subject?
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No.
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Well, yes, on the reaffirmation of the authorization.
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It is required. There is a motion, second. Is there any discussion? Any dissents? We will approve that. Next is the review of the agreement to warehouse currencies for the Exchange Stabilization Fund. We have a memo and Ted Truman is prepared to comment. I'm please to say that after consultation, I find that we do not ...
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I do not.
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We've never done it, though.
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We haven't done it and I don't like the idea in our exact current environment, where we're questioning whether the Treasury is going to fulfill its responsibilities in this action, that we have a warehousing arrangement which they can push off on us.
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Even if you have a legal opinion that they're liable for the risk?
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Yes, even if I have a legal opinion. [We're] not only asking for a future payback to us but also going to warehouse their foreign currencies.
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The Treasury doesn't hold any foreign currency; it would be hard to warehouse any.
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No, but if they bought something, warehousing puts them over here and they'd be made whole, wouldn't they?
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Not under risk.
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Not under risk, no.
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But we would be holding their foreign currencies.
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Let me say, Mr. Chairman, this is quite the opposite operation from what we're talking about. This is one where the Treasury is a lender, not a borrower. Second, I really don't see any reason to believe that the Treasury will renege on an arrangement that it has made with you, even though verbally, and that we're now g...
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Is this [like] the British deal, Henry? Was this done for the British?
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Mexico.
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Could be on [unintelligible] it was also on the British.
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It was reinstituted the same time we were discussing this German balance agreement. There has been a warehousing provision in the foreign currency authorization since 1963. When we cleaned up the authorization, although the power to warehouse remains in the authorization, the explicit numbers associated with the wareho...
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I would think the typical contingency--there could be all sorts of [cases] where you might want to use this--is where we wanted the Treasury to join with us in some lending. And they say we can't do it because we haven't got the money. And we would want the facility to say we can provide the money; you take the risk, w...
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Mr. Chairman, I feel very strongly about wanting the Treasury to share the burdens of operations on our part abroad. And I have been outspoken in that view. However, I don't see this proposal as being destructive of that objective. On the contrary, it strikes me that in the event the Treasury were to make a loan itself...
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Is there a motion to approve? Is there a second? Would all those in favor raise their hands please? Opposed? One vote opposed?
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Yes. Governor Coldwell.
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Item 12 is the review of the Authorization for Foreign Currency Operations, the Foreign Currency Directive, and the [Procedural Instructions]. No changes are proposed. Is this a required vote? This is moved. Is there a second? Any discussion?
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There was a change made in the Procedural [Instructions].
12