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fomc | 1,978 | 7-1/4 or 7-1/2? | 13 |
fomc | 1,978 | Well, there is 6-1/2 to 7-1/2 and 6-3/4 to 7-1/2. There are more that would be 6-3/4 to 7-1/2. I think everyone was for an aggregates directive, as I read it. If that is right, the biggest debate is whether we should have a wider range on M1. Chuck. | 88 |
fomc | 1,978 | I think that is somewhat tied with the funds rate range selection. If you have a 4 to 8, Paul, that means--if that 10 percent [M1 growth estimate] holds up for April--that 5 or 6 percent in May would touch off the full use of the range to 7-1/2 percent on fed funds. And I really think that is pretty precipitous. So my ... | 150 |
fomc | 1,978 | Excuse me. May I respond to that? I have more or less the same feeling that Chuck does, but what bothers me is that I think 7-1/2 percent would be a big move. And I am not at all sure the Committee is ready for that move. You can tell me. I myself don't feel that we ought to make that move from 7-1/4 to 7-1/2 on the ba... | 184 |
fomc | 1,978 | Of the members of the Committee, how many would prefer an 8 top on M1 with a 4 bottom, considering all this discussion? | 29 |
fomc | 1,978 | Just members, Mr. Chairman, or everybody? | 10 |
fomc | 1,978 | This is just an indication. Assuming a 4 bottom, how many of you prefer 8 on the top side? Members only. | 27 |
fomc | 1,978 | It seems to me, Mr. Chairman, that a key part of the consideration is what funds rate range you hitch with it. | 26 |
fomc | 1,978 | All right. Let's go backwards then. Let's settle the funds rate first. There seems to be more sympathy for a 6-3/4 to 7-1/2 percent funds range. Would any voting member of the Committee find himself unable to vote for that? | 55 |
fomc | 1,978 | Close. [I'd be] unable to vote for it, depending upon the interpretation. If the Committee would go casually--is really ready to go to the 7-1/2--I find that very difficult. You are really saying that you're putting it down for form. If you put down 7-1/2 [and say as] last time that there is going to be great resistanc... | 112 |
fomc | 1,978 | Paul, one way to resolve that would be to ask for a wire vote or something like that. | 20 |
fomc | 1,978 | If we want to go beyond 7-1/4. | 13 |
fomc | 1,978 | Mr. Chairman, I happen to share that judgment, primarily because so much of the final action would be based on a projection rather than actual experience. That is what makes me nervous--going 75 basis points between meetings as a consequence of only very little additional knowledge than we have today. That is what conc... | 82 |
fomc | 1,978 | Mr. Chairman, could I suggest an interpretation? I suggest that we move to the 7 percent and accept 7-1/4 but go beyond 7-1/4 only on consultation. | 41 |
fomc | 1,978 | Well, if it were stated that way--6-3/4 to 7-1/2, with no movement above 7-1/4 without consultation--how would that sit with the voting members? Okay, that is what it would be there. Now we can move to M2. There seems to be a kind of consensus around 5-1/2 to 9-1/2. There are some 6 to 10s and some 4-1/2 to 8s, but mos... | 143 |
fomc | 1,978 | All right, that's 5-1/2 to 9-1/2. Then we have the M1 question left. Let us put it in terms of having that range as our objective on federal funds, what do we think of a 4 to 9 percent M1 range? Would that be satisfactory to everyone? Mark. | 69 |
fomc | 1,978 | If we have in effect made 7-1/4 the operational top, it seems to me that the 8 percent top would be satisfactory. | 30 |
fomc | 1,978 | We could take 4 to 8-1/2 for a split. | 16 |
fomc | 1,978 | Yes, we could split it. I am afraid of getting caught [in terms of] what really happens in aggregates. I don't know. I am a little nervous that if we get it down to 4 and find ourselves-- | 46 |
fomc | 1,978 | We have protected ourselves by that consultation at 7-1/4. | 15 |
fomc | 1,978 | Yes. Well, how about 4 to 8-1/2? Is that all right? SEVERAL. Sure | 26 |
fomc | 1,978 | All right. We have, therefore, 7 as the midpoint and consultation above 7-1/4. On the directive itself we have a few suggestions. I would like to review them and see if we are all in agreement. One suggestion is that we actually cut out lines 20-24. I did not read them carefully. Does that do anything of detriment to t... | 80 |
fomc | 1,978 | Yes. Then there would be no M1 reference. | 11 |
fomc | 1,978 | There is no M2 reference either; it is a very balanced paragraph. | 15 |
fomc | 1,978 | Well, I just don't think, I can't ever recall a directive that didn't refer to M1. | 20 |
fomc | 1,978 | There are all sorts of [references to] M1 below that. This is just the historic past now. | 22 |
fomc | 1,978 | But I still don't-- | 5 |
fomc | 1,978 | Yes, M2 is the second sentence, isn't it? What is the sentiment? | 17 |
fomc | 1,978 | I would be very much opposed to taking it out. | 11 |
fomc | 1,978 | Does anybody else want to take it out besides Phil? Then we will leave it in. Then on the lines beginning at 20--the footnote--we will do the switching around of the language that I think Chuck Partee [suggested]. Did everyone note that? | 55 |
fomc | 1,978 | May I make a comment on that, please? As I heard it, Mr. Chairman, "gradual" to my ear just sounded very slow. | 31 |
fomc | 1,978 | Why don't we just strike the word "gradual" and say "while encouraging continued economic expansion"? | 20 |
fomc | 1,978 | Well, I thought of the word "moderate" in there. It doesn't sound quite so slow as "gradual" to me. | 28 |
fomc | 1,978 | Is "moderate" acceptable? Then the figures we all discussed, and the other thing is to take the footnote on page 3. That one line, "the associated range for bank credit is 7-1/2 to 10-1/2 percent" we put up in the text. And we have line 43 saying "a federal funds rate close to or slightly above the current level." Do w... | 90 |
fomc | 1,978 | Could I have one point of clarification? Is it understood that we would go promptly to 7 percent? | 21 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | I am not sure that is consistent with that sentence. | 11 |
fomc | 1,978 | You could say "slightly above the [current level]." | 13 |
fomc | 1,978 | Especially if you hit the 7-1/4. | 12 |
fomc | 1,978 | Well, all right. On the federal funds rate sentence strike out "close to or." So it says "with the federal funds rate slightly above the current level." How is that? And on page 2 somebody wanted one word in. What was it? | 52 |
fomc | 1,978 | That was my suggestion, Mr. Chairman, but-- | 11 |
fomc | 1,978 | Nobody minds one word. Well, you were marvelous today. You got through on time and everything. You are all invited to lunch and the next meeting is [May 16]. We had a vote, didn't we? Is there any dissent? Hearing no dissent, we have voted on all those wonderful things unanimously. So that is confirmed. Thank you all. ... | 81 |
fomc | 1,978 | Well, ladies and gentlemen, the time has arrived for our May meeting of the Federal Open Market Committee. I'd like to welcome all of our travelers from far away and thank the Governors for coming out of their offices so early to be with us. It's getting to be a habit to be on time! I read in the newspapers that you us... | 104 |
fomc | 1,978 | Because you're from Oklahoma? | 5 |
fomc | 1,978 | The Federal Reserve will do anything to get its EEO [objectives]. The first order of business is to approve the minutes of the Committee meeting on April 18 and the phone meeting on May 5. Are there any corrections or comments on the minutes? I hear no objections, so we shall consider those approved and move to item 2,... | 85 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | How much of that, Scott, is for the System? Just to remind everyone, that's for the Treasury and the System I think. Is it 60 percent? | 33 |
fomc | 1,978 | It's 60-40. [Statement continued.] | 10 |
fomc | 1,978 | Thank you, Scott. Any questions? Frank. | 10 |
fomc | 1,978 | Could you elaborate, Scott, on your reluctance to buy marks in the open market? Most of the foreign exchange traders I've talked to about this have complained about the lack of symmetry in Federal Reserve operations. I hear that if we're going to be concerned about disorderly markets on the downside that we shouldn't b... | 77 |
fomc | 1,978 | Well, we haven't had too many days on which the dollar was rising in what we would technically call a disorderly market. Last Friday we did have almost a 1 percent rise and that was the day on which I bought marks--almost $40 million worth of marks. | 55 |
fomc | 1,978 | But not in the market. | 6 |
fomc | 1,978 | In the market. We went in the market and we used some techniques similar to those we had used on the downside. That was our first occasion. Now, my sensitivity is that we've gone through a period since last June in which many people in the market were persuaded, from all of the things that had been said, that the Unite... | 315 |
fomc | 1,978 | Henry. | 2 |
fomc | 1,978 | I'd like to add to what Scott said. I think our ability to repay the Bundesbank is now reasonably assured. They seem to be willing to [offer] us D-marks if we can't get them through one of the other operations. As Scott has laid out, we can get them through their capital export conversions, we can buy them in the marke... | 411 |
fomc | 1,978 | I'd like to endorse what Governor Wallich said because I do think we may have a slight windfall now that we need to take advantage of; otherwise we may wish later that we had. | 38 |
fomc | 1,978 | Dave. | 2 |
fomc | 1,978 | May I ask Henry a question? In your view of the attitude of the German central bank, would you assume that some repayment would stand us in good stead for further drawings in the future--if the fundamentals start to reassert themselves, in other words? | 51 |
fomc | 1,978 | Well, as we pay off [the drawings] we are closing out the old line of $2 billion, but the new line of $2 billion we haven't even drawn upon. So we would always find ourselves with at least a $2 billion line. I think the fact that we're repaying they regard as normal. There was an issue at one time of whether we wanted ... | 148 |
fomc | 1,978 | I don't know whether we intended to wait for our normal reports to disclose that we had repaid. But whether we did or not, Dr. Emminger has made a public statement that we have repaid, so that's now in the marketplace. And there was no particular reaction to it, as I gather, Scott. | 65 |
fomc | 1,978 | Not yet. They're wondering where we got the marks. | 11 |
fomc | 1,978 | I think that a certain amount of confusion in the marketplace is healthy sometimes. Now we must act to ratify the transactions since the previous meeting. Are there any questions or comments? May we have your approval of such ratification? Hearing no dissent, we shall so approve. I regret to say that Alan Holmes is not... | 105 |
fomc | 1,978 | Actually, Governor Wallich has just reviewed the three major points, so I won't go into them unless people have questions on this. The only action needed by the Committee in this procedure would be to [vote] on the renewals of the swap drawings as they come due through the three renewals out to 12 months. But so far wi... | 149 |
fomc | 1,978 | Henry, you might just comment a moment on one source of D-marks that has been worked out, and that's the Canadian borrowing in D-marks. When they convert that, it allows us to have a source of D-marks, which is very helpful to us. | 55 |
fomc | 1,978 | Yes, this is part of the capital export conversion program. The Germans have an agreement with their banks that--well, for customers [who] put on D-mark issues and when these customers are foreigners, they want dollars and instead of buying the dollars in the market, they buy them from the Bundesbank. That means that t... | 251 |
fomc | 1,978 | I'm prepared to take all of it now. | 9 |
fomc | 1,978 | The Canadians have been a little sensitive about these operations. If we got any sales in the market it would mean that they were getting less for their D-mark than they might, so we had to take that into account also. | 45 |
fomc | 1,978 | I see. The point is that it wouldn't make any difference ordinarily whether you got them indirectly or directly from the market. But in this case the Germans would use the dollars for sterilization purposes. | 39 |
fomc | 1,978 | Speaking of sterilization really as a-- | 8 |
fomc | 1,978 | Domestic monetary matter. | 4 |
fomc | 1,978 | No, as the exchange rate effect. They sterilize the exchange rate effect that would occur if a foreign borrower sells the D-marks he's borrowed, gets the dollars that he needs, and thereby drives up the dollar. That effect doesn't take place; they sterilize it. That's what I had in mind. | 62 |
fomc | 1,978 | It retires some of the debt. | 8 |
fomc | 1,978 | It does have a domestic monetary effect. | 8 |
fomc | 1,978 | And there's a net depressing effect on the dollar from these operations because most of the issues are bought for dollars in the first place. D-marks have to be purchased by the buyer of the issue in the first place. | 44 |
fomc | 1,978 | But you're right, the market for D-marks would drive them up so it's a-- | 18 |
fomc | 1,978 | But there is a domestic monetary effect. They are trying to absorb domestic liquidity through this mechanism. Governor Partee is correct. And they did exceed their monetary target early this year; it was 8 percent and they were running 12 to 15 percent. Now, they pulled it down to 7 percent in April, largely as a resul... | 90 |
fomc | 1,978 | You said the Canadians are concerned that they might not be getting the equivalent dollar effect of their conversions. | 20 |
fomc | 1,978 | If part of the D-marks they borrowed were sold in the market, thereby driving down the price of the D-mark, they fare a little worse than if the same D-marks are sold to the Bundesbank at what they hope would be a slightly better price. We're always talking about very small differences, of course. I just wanted to add-... | 71 |
fomc | 1,978 | But in billions of dollars, they add up. | 10 |
fomc | 1,978 | Chuck is right that what the Bundesbank does is also a domestic sterilization operation. They absorb D-marks from the market and get rid of dollars. | 31 |
fomc | 1,978 | Scott, you have a recommendation on the open position between meetings, is that correct? | 17 |
fomc | 1,978 | As I noted, we reduced our net open position in the last period by over $300 million. It's just under $1.5 billion. And indeed, last Friday we even had the satisfaction of having to request the Subcommittee to approve, pursuant to the procedural instructions, our continuing to buy marks as we approached the $300 millio... | 83 |
fomc | 1,978 | This is a change down instead of up, which wasn't contemplated when people set these rules. | 18 |
fomc | 1,978 | Oh no, that's fine. No, they were. But it's a pleasure on this side. Now, late last year and early this year, as we moved more deeply into debt, the Committee approved additional leeway for operations under the authorization. The net open position had been raised to $2.25 billion, I think back in March. And now $2.25 b... | 108 |
fomc | 1,978 | You've heard the recommendation. Is there any discussion or dissent? Hearing none, we will consider that recommendation approved. There were those here who were skeptical that we would be at that point at this time, but it's working fairly well. | 46 |
fomc | 1,978 | But I certainly-- | 4 |
fomc | 1,978 | We have problems ahead no doubt. | 7 |
fomc | 1,978 | I do want to subscribe to [the view expressed by] I think it was Dave, or maybe Henry, that we ought to move right ahead while we've got the chance. MR. PARDEE(?). That's music to my ears. MR. PARTEE(?). And reduce that debt. | 58 |
fomc | 1,978 | We ought to move ahead but cautiously. | 8 |
fomc | 1,978 | Well, I don't know how cautiously. | 8 |
fomc | 1,978 | Prudently. | 4 |
fomc | 1,978 | There's a difference in emphasis that I particularly subscribe to. | 11 |
fomc | 1,978 | Well, it will be done well. Don't worry. | 11 |
fomc | 1,978 | That's right. | 3 |
fomc | 1,978 | Unless there are further questions, I would propose that we go ahead with the economic and financial situation and I call on Jim to give us his staff's comments. | 32 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | I welcome any comments and discussion. Frank do you want to-- | 13 |
fomc | 1,978 | Yes, let me ask the staff whether you have any consensus on the natural rate of unemployment, given the current structure of the labor force. | 28 |
fomc | 1,978 | We have a project under way assessing that and I must say that there is a good deal of work yet to be done. It's a very difficult problem to assess. Our judgment today I think is something in the 5-1/2 percent area. There are many people in Washington I understand who would now judge--and some work is going on in other... | 206 |
fomc | 1,978 | Yes, there are just a couple of points I'd like to make. It's recognized that there has been an upward bias in the unemployment rate from various sources. The age/sex structure of the labor force, for example, has over the last couple of decades tended to move the unemployment rate that is the minimum rate of unemploym... | 234 |
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