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fomc | 1,978 | These are the others. | 5 |
fomc | 1,978 | How about the authorization that we have raised from-- | 10 |
fomc | 1,978 | Oh, I see. | 5 |
fomc | 1,978 | So, is there any dissent from approval? Then we'll record it as approved. Next is confirmation of [the date of] the next meeting, which is April 18. Unless there is other business, I would suggest that we adjourn for lunch. Thank you for your patience. | 57 |
fomc | 1,978 | I do welcome all of our visitors again and we have a busy agenda. If we move along diligently, I think we can get through it in an appropriate time. I hope that the word has been passed that I would like, if it is convenient for each of you, to have the Presidents and the Governors and a few of the staff joining in for... | 264 |
fomc | 1,978 | Yes, that is correct. | 6 |
fomc | 1,978 | So that was a pending item. Another item that was pending was to report to you on possible methods of settling our swap arrangement with the Bundesbank. Again, I don't think that we have made adequate progress from the recent visits of Alan Holmes and Henry Wallich, too. We may comment on this a little but I don't thin... | 352 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | Any questions or comments? Phil. | 7 |
fomc | 1,978 | Our policy, as I understand it, is to counter disorder. It would appear that when the mark-dollar relationship goes adverse to the dollar, we buy $100 million. When it goes favorably to the dollar, we buy 5 or 10 million [marks]. Why the difference? | 58 |
fomc | 1,978 | Well, I haven't seen-- We had one day or two days on which the dollar rose. We do consider the disorder in the context of time. We have been discussing at the Desk--and I have discussed with members of the Committee--the possibility of our initiating a program of mark purchases. And this would be done in the context of... | 96 |
fomc | 1,978 | Did you buy any in the last two days? | 10 |
fomc | 1,978 | We have been buying for correspondents and in fact one of the big orders that we had where there is a question of diversification was 250 [million] marks. We put half of that into the market and kept [half of] it. There is a judgment that we can make as far as correspondent businesses are concerned whether we put it in... | 141 |
fomc | 1,978 | Is there something fundamental that makes it disorderly when the dollar goes down but makes it orderly when the dollar goes up? | 24 |
fomc | 1,978 | Not in theory, but in the world that we are in right now there is a basic judgment on the part of the U.S. and German authorities that the dollar is oversold and undervalued--each individual country uses a different term--or that there has been a movement of the rate too far in one particular direction. So to the exten... | 143 |
fomc | 1,978 | Scott, it is not only that. You have $2 billion in debt to pay off. | 19 |
fomc | 1,978 | Well, I think we want to reverse these transactions when the opportunity presents itself. We have thin markets and we have to be careful and not get a little ahead of ourselves. | 35 |
fomc | 1,978 | Mr. Chairman, the paper characterized the market yesterday and on Friday as being broad. Now, perhaps the paper was incorrect. The foreign exchange market was strong and broad; there was active trading. | 39 |
fomc | 1,978 | Well, that is not disorderly. | 8 |
fomc | 1,978 | Well, I don't think we have to be very-- | 11 |
fomc | 1,978 | Narrowness or an absence of trading sometimes is orderly. | 12 |
fomc | 1,978 | [Given] the period that we have gone through and the amount of treasure and sweat we have expended in trying to get a more stable tone in the market, I would be very cautious about giving the market the impression that we were ready to sit on any increases in rates of the very small magnitude that have so far occurred.... | 125 |
fomc | 1,978 | I thought these were secret. | 6 |
fomc | 1,978 | Well, they can't be completely secret when you are going into the market openly. That is why [the Desk] bought some [marks] from correspondents. | 32 |
fomc | 1,978 | I think Henry had something to say. | 8 |
fomc | 1,978 | Well, it is an old joke that disorder at the New York Desk occurs only on the way down, but I think Scott had a good point here. A broader definition of disorder means that once a currency has been going down and down, then the presumption when it jumps by some points if certain conditions occur is [unintelligible] whe... | 184 |
fomc | 1,978 | Bones, I think you had a-- | 8 |
fomc | 1,978 | Just simply a question: What is our potential for loss in this kind of operation in the current situation? | 21 |
fomc | 1,978 | We're still in losses. Our average rate on our swap drawings is 2.125 and the current rate in the exchange market is 2.05. That is one of the reasons why I am reluctant to buy heavily at this stage. | 48 |
fomc | 1,978 | Our aggregate paper losses now amount to how much, Ted? | 12 |
fomc | 1,978 | Well, let's see--about $90 million. | 10 |
fomc | 1,978 | About $90 million of which half is ours, right? So you have potential losses now, Bones, of around $50 million for the Fed. Bob Mayo, you had a-- | 37 |
fomc | 1,978 | Yes, I just wanted to make [a comment that is] another way of saying Paul's point. The way I interpreted it, we are dealing with a market that has been going down, and disorder there I think has a different weighting in our purchases and sales as against a market that is going in the other direction. Once a real trend ... | 167 |
fomc | 1,978 | We have a situation where I think you are saying, Scott, that the dollar has behaved better because of perception rather than reality. And I think that is a very tenuous market in which to expect you to do major reversals. We hope that that perception will be clarified by performance and if so, we will be able to rever... | 94 |
fomc | 1,978 | Well, I do think it is important to contemplate this market euphoria [in the context of] what the Greenbook says. The staff is very pessimistic on the outlook for the dollar, and I find it very hard to square the behavior of the market [with] that. [That] the market has thought so far ahead that it is even discounting ... | 102 |
fomc | 1,978 | I didn't say euphoria; I said that they are just less pessimistic than they were before. The exchange traders are still very bearish toward the dollar. They have the same kinds of analyses that are in the Greenbook. I feel rather surprised that this demand for dollars keeps coming out of the woodwork. And as I say, it ... | 106 |
fomc | 1,978 | Phil. | 2 |
fomc | 1,978 | Well, I think both groups have a clear point. We would like to have some improvement to pay off [our debt]. But I think there is a fundamental policy understanding here that if we are going to counter disorder on the downside, we ought to counter disorder on the upside too. I would be a bit reluctant if we are going to... | 77 |
fomc | 1,978 | But the upside really hasn't started yet, Phil. | 10 |
fomc | 1,978 | I didn't say it had. I am merely saying that the policy of countering disorder ought to be uniformly applied. | 23 |
fomc | 1,978 | And judicially and prudently. We all agree with that. We might move on now and ask Henry Wallich if he would give us some comments. It says on my agenda "brief comments." | 40 |
fomc | 1,978 | Briefly, two things. In discussing the swap repayment with the Germans, we focused on what can be done to implement early repayment. We did not talk about the funding option because that exposes us to greater risk. It seems to be what they prefer. We discovered that they are quite willing to let us buy back in the mark... | 145 |
fomc | 1,978 | How much comes due in May? | 7 |
fomc | 1,978 | It is a relatively small amount. | 7 |
fomc | 1,978 | $304 million. | 4 |
fomc | 1,978 | I think we were talking about the whole $1.6 billion that was outstanding at the time of the March announcements. | 24 |
fomc | 1,978 | We have rolled over through June-- | 7 |
fomc | 1,978 | That's right. | 3 |
fomc | 1,978 | The second renewals. But I have a list of first renewals that I still have to ask for here before we-- | 25 |
fomc | 1,978 | One other thing, if I may. I found really a depressing degree of anti-Americanism as I have read the European press. They are very angry at us. I did not find this with the people I dealt with. And I had a number of public appearances with Emminger and Lambsdorff to show that there was no bad feeling and that we loved ... | 109 |
fomc | 1,978 | Phil. | 2 |
fomc | 1,978 | Scott, has the Treasury yet bought or sold any SDRs? | 13 |
fomc | 1,978 | Not yet. As I say, they came to the point where the next generation would have had to be SDRs. They began to buy some of the marks that we were picking up. So they have a cushion of $60 million worth of marks. They are not interested in making repayments at this stage but are rather eager also to start buying marks in ... | 83 |
fomc | 1,978 | Any other comments or questions of Henry? If not, the next order of business is an action to ratify the transactions since the previous meeting. I think we have had a report of those circulated. Is there any further question or is there any dissent from ratifying the transactions? Hearing [none], that is approved. The ... | 83 |
fomc | 1,978 | As Henry mentioned, we are awaiting specific proposals from the Bundesbank on the swap repayments, so I won't go into that. During the month of May, the System has nine maturing swap drawings on the Bundesbank totaling $304 million and four on the Swiss National Bank totaling $50 million. These are all first renewals. ... | 78 |
fomc | 1,978 | Any discussion, questions? Is there any dissent? Then we will authorize the rollover. The next item is the proposal for 3-year target ranges for the monetary aggregates. We have had Ernie Baughman's letter in the past and we mentioned it at the last meeting. Since that time this has been considered by our [Subcommittee... | 107 |
fomc | 1,978 | All right, Mr. Chairman. We have a brief report here. | 14 |
fomc | 1,978 | Members of that subcommittee are you, Dave, and Paul. | 13 |
fomc | 1,978 | That is right. We have a brief report here and I'm sure everybody has read it, so I won't go into it in any detail except to say that, after meeting and giving a good deal of attention to the proposal from Ernie and also to the letter of endorsement from President Roos, the subcommittee still felt that it could not sup... | 766 |
fomc | 1,978 | Well, I have very little to add, Mr. Chairman. I agree with what the report said. I would only add that in thinking about this, I ran through the exercise in my own mind as to what kind of number you would put down if you wanted a 3-year target, and I found myself in the midst of a dilemma. If you make it too high, you... | 200 |
fomc | 1,978 | Dave. | 2 |
fomc | 1,978 | Well, I would agree with that. It seems to me that if we lived in a different kind of world, maybe this would be a good way to go. If we lived in a world where we had been able to hold to our intentions and had the kind of credibility that we would like to have and had more knowledge of the future, I think this would b... | 93 |
fomc | 1,978 | Ernie, would you like to comment on this? | 11 |
fomc | 1,978 | Yes, Mr. Chairman. | 6 |
fomc | 1,978 | I think you ought to have a chance to defend your proposal. | 13 |
fomc | 1,978 | Equal time, at least, Ernie. | 9 |
fomc | 1,978 | [I'd note] a couple of things, I guess. First, I had not contemplated that the Committee would unilaterally drop this on an unsuspecting world, but rather if the Committee saw some desirable feature of this approach to the problem--which I see largely as reestablishing credibility, and it seems to me that should be a v... | 771 |
fomc | 1,978 | Ernie, if this kind of approach were taken, it seems inevitable that it would become repetitive. I don't think one can do it one time with the expectation that it would [not] be repeated; that would be my guess. How often would you see the revision? Would this be revised once a year? | 63 |
fomc | 1,978 | I would see it revised on the occasion of some substantial external development. | 14 |
fomc | 1,978 | So, it would be on an irregular basis? | 10 |
fomc | 1,978 | Yes. If, for example, the Arabs were to double the price of oil, then it seems to me the thing has to be opened up and reconsidered. | 33 |
fomc | 1,978 | But one of the elements of long-range planning of most kinds is the ability to revise, based upon circumstances. So one of the problems in terms of credibility is that if you put something out for three years, the probability of being at the right place three years from now is very low. That's unlikely for most long-ra... | 151 |
fomc | 1,978 | Well, this raises a further question. I probably should have made a fourth point that needs exploration, and that would be the tone of the language in which the announcement is made--just how specific and unequivocal it should be and whether or not there would be any allusion to the circumstances under which we would c... | 73 |
fomc | 1,978 | Larry had his hand up first; then we will move to Henry Wallich, Phil Jackson, Phil Coldwell, and Frank Morris. | 27 |
fomc | 1,978 | Mr. Chairman, I would like briefly to support Ernie's point of view just as strongly as I can. I am terribly distressed at the thought that if something is worth considering we summarily reject it because we don't have confidence in our own credibility. If our credibility is that bad, it is of our own doing, I believe.... | 344 |
fomc | 1,978 | Henry. | 2 |
fomc | 1,978 | Well, Ernie has made much of the point I wanted to make. I think we can say something in qualitative terms. It would be difficult to marry ourselves to a 3-year--even a variable 3-year--quantitative target. I am trying to put together some thoughts on how this Committee operates and targets things and I'll be in St. Lo... | 171 |
fomc | 1,978 | Phil Jackson. | 3 |
fomc | 1,978 | Thank you, Mr. Chairman. I think the first thing we ought to recognize is that we have already done what you have proposed, [Ernie], and we have done it repeatedly. We have not done it in the way that you propose it, but we made the fundamental step and have repeatedly announced to the Congress and to the public that t... | 287 |
fomc | 1,978 | I would think that would be another circumstance in which to reconsider-- | 13 |
fomc | 1,978 | It strikes me that [there is a great deal of] unfolding financial technology in the present environment--whether it be interest on demand deposits, electronic funds transfers, or changed financial powers between one type of financial institution or another. It strikes me that the only concept of liquidity in the econom... | 80 |
fomc | 1,978 | Phil Coldwell. | 4 |
fomc | 1,978 | Mr. Chairman, I think the effort has been worthwhile, and I think Ernie has raised something [important] with us. But I happen to agree with the Subcommittee on the Directive that it would not be advisable to do this in a public setting at the moment. My personal preference would be that we do this on a semi-annual bas... | 202 |
fomc | 1,978 | On a one-year basis that is tough. | 9 |
fomc | 1,978 | Yes, it is tough on a one-year basis. So I think the effort here is worthwhile. I agree with the idea of going ahead and having repetitive reports. I hope we do so on a semi-annual basis because I don't think there is any point in revising a 3-year goal on a quarterly or monthly basis. | 67 |
fomc | 1,978 | Frank Morris. | 3 |
fomc | 1,978 | Mr. Chairman, I support the subcommittee's view of this. I think it is just not a workable proposition. Let us say that we try to establish some ranges this morning for three years. If we assume that the economy is going to continue to expand for three years, with the present rate of wage trends, I don't think we can c... | 185 |
fomc | 1,978 | Bob Black has asked to be heard and Bob Mayo is next. | 13 |
fomc | 1,978 | Mr. Chairman, I have a good deal of sympathy for what Ernie has proposed and yet at the present time, I would have to side with the Subcommittee on the Directive on this. I think what comes through on both sides is that we haven't done very well in hitting our 1-year targets. And I think that is the thing we really oug... | 210 |
fomc | 1,978 | Bob. | 2 |
fomc | 1,978 | Very simply, I would support wholeheartedly the view of the Subcommittee on the Directive. In fact, in a sense I think they have been overly polite towards Ernie's proposal as such. I have a basic agreement with Ernie on the desirability of what we are doing internally, but I find myself terribly resistant to the idea ... | 337 |
fomc | 1,978 | Well, Ernie, it sounds like there is a consensus in favor of not moving along these lines at this time. So, since this is a democratic process, your job is to continue to revive it when you think you have more sales points to make. At this point I would suggest that-- | 60 |
fomc | 1,978 | Mr. Chairman, may I add one more thing? I think the Humphrey-Hawkins issue is very relevant to this. Maybe the Subcommittee on the Directive could simply monitor developments in that field, and if it appears that we are going to be back in that business because of Humphrey-Hawkins, bring it back up. | 68 |
fomc | 1,978 | I think at this point we can accept the subcommittee report and thank them and thank everyone for the discussion. No doubt we will hear again on the subject at least of establishing a philosophical base on where we all think we are going--whether it is quantitative or qualitative. | 54 |
fomc | 1,978 | Mr. Chairman, does that mean we are accepting the final page of that report indicating a quarterly setting of targets in the 3-year period? | 29 |
fomc | 1,978 | Well, I think that we are planning to have the staff do more or less what has been done at this meeting--to continue to give us a longer horizon for us to look at. | 38 |
fomc | 1,978 | I think the scenario kind of thing that I was talking about, Phil, you wouldn't want to do every quarter. | 23 |
fomc | 1,978 | No I think semi-annually. But I do think more could be done in the way of developing alternative possibilities over the longer run through scenario writing than the staff has done at this time. But that shouldn't be every quarter. Would you-- | 48 |
fomc | 1,978 | Mr. Chairman, would you be receptive to a report stressing the other side of this? | 18 |
fomc | 1,978 | Certainly. | 2 |
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