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fomc | 1,978 | Jerry, if I may, it seems to me that you're being very optimistic with 5-1/2 percent. You focus on the quantitative phenomena--changes in the structure of the labor force and so forth. I think we have to take into account also changes in attitudes. One factor you mentioned goes in the other direction--the phasing out o... | 126 |
fomc | 1,978 | I would like to suggest that we get your specific questions and then do a round robin and see how everyone feels about real GNP, prices, and unemployment either in relation to the staff or in relation to their own work or experiences. Ernie, do you have a question? I think [you're] next. Oh, Frank, I'm sorry, did we co... | 75 |
fomc | 1,978 | [Unintelligible] right. | 8 |
fomc | 1,978 | I would just raise a question as to whether there is a significant possibility that we may see stronger capital expenditures coming on than is now currently indicated in the surveys or from other sources. I guess I would make a further comment that I see indications in the Southwest that capital expenditures are moving... | 100 |
fomc | 1,978 | Well, there is always the possibility, of course, that investment plans will be scaled up even more. It's difficult to judge the dynamics involved in this whole process but if firms now, for example, experience much higher ordering rates than they thought, that could surely be an encouraging factor. And I would presume... | 263 |
fomc | 1,978 | Jim, wouldn't you say, though, that if they would scale up their plans, we'd still have a lag time because of [unintelligible] problems? These kinds of problems are worse today than they were five years ago. | 47 |
fomc | 1,978 | Oh, sure. | 4 |
fomc | 1,978 | So even if plans get built up, it's hard to get the spending in very quickly. Bob Black. | 21 |
fomc | 1,978 | Jim, I was impressed that right after the first-quarter GNP figures appeared there was an unusually strong statistic for March. I was just wondering what odds you would put on an upward revision of that [Q1 GNP] from an actual decline to a positive figure. | 54 |
fomc | 1,978 | Well, early on, I suggested that my guess was that it would be revised up perhaps to at worst no change but [probably] to a small positive number. I've been changing my view, however. That is, some of those March data that I was looking at have been revised down. In particular, retail sales have been revised down and s... | 157 |
fomc | 1,978 | Chuck, you had a question. | 7 |
fomc | 1,978 | Well, I was just going to comment that I would be inclined to say that I don't quite know what the natural rate of unemployment means. "Natural" in what sense? I presume it means the unemployment rate that would be associated with no acceleration in inflation, in which case we must already be below the natural rate of ... | 154 |
fomc | 1,978 | Dave. No rebuttals. You can discuss it at lunch. | 14 |
fomc | 1,978 | My question is on consumer spending in anticipation of higher prices. I have the impression that studies somewhere--perhaps earlier in the Katona studies and others--have indicated that consumers have reacted adversely to expected price increases. (A) Is that wrong? and (B) have things changed? | 57 |
fomc | 1,978 | (A) It's right. That is, the studies in the past--the Katona studies, which I think are the most important in that area--have pointed to an irrational response, if you will: As prices rose, consumers deferred purchasing. But interestingly, the Michigan surveys--and that's the source of the Katona studies--have been pic... | 165 |
fomc | 1,978 | Phil Coldwell. | 4 |
fomc | 1,978 | Jim, you've got a fairly strong durable goods personal consumption estimate in here and yet you're also commenting on the very high level of consumer debt. How do you [reconcile] those two? | 38 |
fomc | 1,978 | Well, I think the high level of consumer debt is driven by essentially two things. As you know, one is consumer installment debt--for autos particularly. But that's not the most important factor driving up the total; it's housing. And for housing the debt is longer [term] so perhaps the repayment burden in the view of ... | 341 |
fomc | 1,978 | Willis, you had a question. | 8 |
fomc | 1,978 | On the housing figure, shouldn't we put back in manufactured homes or mobile homes? It fell out of bed but it's really coming back very strong. I wonder if we shouldn't look at that. | 38 |
fomc | 1,978 | Well, it's in on the expenditure side but we don't refer to it. | 15 |
fomc | 1,978 | Second, the inventory behavior is the thing I'm beginning to be puzzled about in terms of what lies ahead. [That] is occasioned by a couple of factors. One is steel, which is talking about operating at 90 percent capacity, and that introduces the capacity argument. But the question is: How much of that is for inventory... | 163 |
fomc | 1,978 | Well, I think that's one of the risks. I did not refer to it explicitly but to the extent that concerns about rising prices prompt speculative behavior or hedging attempts, you could get into that situation. We're not aware of any significant problems right now and we have been attempting to be alert to those sorts of ... | 144 |
fomc | 1,978 | The third point I'd make has to do with the capacity problem. Part of this is in steel and part of it is in transportation equipment where you just can't get rail cars for anything. If you try to get on a plane, you feel like the same thing [is going on] there. Delivery time on machine tools has been extended and that'... | 107 |
fomc | 1,978 | Well, I think you pointed to the key areas. I am not sure about airlines, but steel and other transportation would certainly be pressing [capacity constraints]. There are many other areas, of course, in manufacturing where that's not the case. So I'm not sure that we're not talking about spot problems perhaps for now t... | 140 |
fomc | 1,978 | Ford shut down in the Cleveland area because of no engines. | 12 |
fomc | 1,978 | Because of what? | 4 |
fomc | 1,978 | No engines, which they have been importing through Canada. | 11 |
fomc | 1,978 | And there's the Mexican box car situation. They were buying from Mexico and had trouble with customers, and that has created a real shortage. | 27 |
fomc | 1,978 | We have a big shortage in the Midwest, too, Bill. They can't find box cars. They are accusing ConRail of taking them to New England and losing them somewhere. | 35 |
fomc | 1,978 | [Unintelligible] you go down that rail and you'll go into the ocean; you can't expect to come back. | 25 |
fomc | 1,978 | Well, these are hopper cars, too. They're not moving the export grain the way it's supposed to [be done]. In fact, they've even gotten unitrains, going all the way to Los Angeles, because that's the simplest way of getting some of the grain out of Iowa. | 57 |
fomc | 1,978 | John Balles, you had a question. | 9 |
fomc | 1,978 | Yes sir, I have two quick ones here--one a question and one a comment. The question: Jim, you stated that you marked down your housing forecast somewhat because the recent change in the Q ceiling wasn't as big as you had assumed earlier, which I think was 50 basis points across the board and in all the categories. | 67 |
fomc | 1,978 | All except passbook accounts. | 6 |
fomc | 1,978 | All except passbooks. Why is it that you think the recent changes will not be as effective in keeping savings in the thrift institutions and the banks as what would have occurred under your assumption? | 38 |
fomc | 1,978 | I'd like to give that question to Ed Ettin, who is the concocter of the numbers. | 20 |
fomc | 1,978 | First of all, the 8-year certificate clearly is a certificate with a lower rate ceiling than we had been anticipating and for a longer-term [instrument]. We don't think that would pick up as much money as, say, raising the ceiling for the existing 4- and 6-year certificates. On the 6-month certificate, we have to admit... | 240 |
fomc | 1,978 | I appreciate the difficulty, Ed, of making that forecast here. All I can say is that in sounding out the banks in our area, we expect a lot of action in the 6-month money market certificate. The other thing, Mr. Chairman, just quickly, is that Frank raised an interesting question, I thought a crucial question, about wh... | 256 |
fomc | 1,978 | I was just interviewed yesterday. I hope we get the right answer here that's consistent with what I said. I always try to answer and get the facts later! | 32 |
fomc | 1,978 | We haven't done any work along those lines but I'd be very interested in having the opportunity to see that [work by your staff]. | 26 |
fomc | 1,978 | We're going to send it out to everybody around the table, as a matter of fact, for information and possible comments if they have any. | 28 |
fomc | 1,978 | I think there is no question that we're going to hit the pressure sooner. We have some high cost capacity that's counted in capacity. It's obsolete, [given] high energy costs. | 36 |
fomc | 1,978 | In this connection, Mr. Chairman, could I follow up on this? [Jim], have you taken a look at this study by Wachter that just came out recently? I haven't had a chance to read it myself but I understand it suggests that we are much closer to capacity than most of the numbers generated earlier have suggested. | 66 |
fomc | 1,978 | No, I have not personally looked at it. | 10 |
fomc | 1,978 | Well, why don't we do a round robin on how you all see the economy? Do we want to start with volunteers or should I just start here with Steve and go around? Why don't we ask you, Steve, to give us your views? Do you agree with the staff or do you have-- | 61 |
fomc | 1,978 | Yes, I'm reasonably in agreement with the staff. I've been thinking that this very old and aging recovery would eventually get a thrust from business investment spending and you seem to feel that that's coming on now. That can only not be a factor for a certain period of time; it must come on [eventually]. Technologies... | 153 |
fomc | 1,978 | Henry. | 2 |
fomc | 1,978 | I'm less optimistic on the price outlook than the staff. We've now had three months where the [increase in the] CPI, computed at an annual rate, would be at 9 percent. We are likely to get another bad month in April because we've had a bad wholesale price index. That would give us four bad months to live down, as it we... | 431 |
fomc | 1,978 | But you want that to be a soft landing. | 10 |
fomc | 1,978 | Right, a soft landing. | 6 |
fomc | 1,978 | Phil. | 2 |
fomc | 1,978 | Mr. Chairman, I find myself in agreement with Governor Wallich's comments. I think our effective labor supply is narrowing and I think our capacity availability is less than shown. I am especially worried about price pressures, which I view as very strong; and if fed by the availability of credit, they will intensify. ... | 303 |
fomc | 1,978 | Frank. | 2 |
fomc | 1,978 | Well, in a sense, Mr. Chairman, my view is a little opposite from Phil's as far as the third quarter is concerned. I hope that the pattern that [the staff] set out in the Bluebook happens, because I think it is pretty close to an optimum development over the next year or so. But what I'm concerned about now is the poss... | 87 |
fomc | 1,978 | Frank, would you think the second quarter is along the lines that Phil talked about? | 17 |
fomc | 1,978 | I think the second quarter is going along very strong. | 11 |
fomc | 1,978 | Would you go up to 10 percent? | 9 |
fomc | 1,978 | Well, I think the Board's staff's 9 percent is about right. What I'm concerned about is the stronger third quarter and there are two pieces of evidence that led me to wonder about this. I don't have a conviction, but if we do get a much stronger third quarter than we're projecting, I think we'll have real problems this... | 156 |
fomc | 1,978 | The block buying is going to pick up. | 9 |
fomc | 1,978 | Well, it suggests to me that capital spending may well pick up much more strongly than perhaps even the staff is projecting. Certainly, the stock market--I think you'd agree with me, Bill--does influence the behavior of businessmen and it reflects the thinking of businessmen. And it has a wealth effect on consumer spen... | 127 |
fomc | 1,978 | Ernie. | 3 |
fomc | 1,978 | Mr. Chairman, in terms of a specific forecast, I would not quarrel with what the staff has presented. It seems to me to be a reasonable representation as to what may happen. In terms of problem situations, however, I see increasing indications now that we may see over the next nine months to a year that confluence of e... | 274 |
fomc | 1,978 | John. | 2 |
fomc | 1,978 | Mr. Chairman, our staff forecast is broadly consistent with that of the Board staff going, say, to about the third quarter of the year. But from about the fourth quarter on and running into early '79, we are not as optimistic and for several reasons. One is the capacity bottleneck factor that I have already mentioned. ... | 310 |
fomc | 1,978 | Thanks, John. Mark. | 6 |
fomc | 1,978 | I agree basically with what the staff has [forecast], with two fairly significant differences, I think. One is that I agree very much with Henry's statement on the outlook for inflation. Last week I had a meeting with 170 primarily middle level businessmen--chief financial officers and that sort of person. I took a lit... | 465 |
fomc | 1,978 | Bob. | 2 |
fomc | 1,978 | I have no quarrel, Bill, with the staff projection on real GNP; a range of 4 to 4-1/2 percent certainly covers my personal feelings and those of my staff as logical for this year. I think we will be very lucky in this country, however, if we keep the inflation rate under 7-1/2 percent for this year. I think the outlook... | 288 |
fomc | 1,978 | Our views are consistent with the staff's with respect to growth in real GNP, with maybe some variation of how that occurs. We're expecting somewhat stronger growth perhaps in the third quarter, as Frank also may have mentioned, and somewhat less as we move into 1979. As to prices, we believe the staff may be a little ... | 290 |
fomc | 1,978 | We will skip across and pick up Larry. | 9 |
fomc | 1,978 | Mr. Chairman, as you know, where I work we feel that there is a direct relationship between the decisions made by monetary policymakers on the rate of growth of money and these various elements we are taking about. So, assuming a 6 percent annual rate of money growth this year--though we have no way of knowing whether ... | 311 |
fomc | 1,978 | Thank you. Bones. | 5 |
fomc | 1,978 | Mr. Chairman, we too are becoming increasingly concerned about the burst of activity. [We thought] first that maybe it was a rebound from the winter induced difficulties, but that does not seem to continue now. We think it's a matter of genuine concern. Housing for instance, [we were] thinking the availability of mortg... | 273 |
fomc | 1,978 | Not to mention the control boats for oil people too--right, Ernie? | 16 |
fomc | 1,978 | They're moving just as rapidly as they can find the labor to move. | 14 |
fomc | 1,978 | Dave. | 2 |
fomc | 1,978 | Well, I already agree essentially with the staff forecast and I would also agree with what [seems] to be the sentiment around the table so far that if the forecast is wrong, it underestimates the [rate of] price increase. I have also listened with considerable interest to the groping around for [answers to] the questio... | 307 |
fomc | 1,978 | Willis. | 3 |
fomc | 1,978 | I guess I have a little stronger feeling about the economy than the staff. And I see a more normal cyclical kind of development out of that than Dave does in terms of the setup. The price phenomenon bothers all of us and I think we are picking up the fact that [inflation] is suddenly accelerating in the service area. S... | 96 |
fomc | 1,978 | Are they still your friends? | 6 |
fomc | 1,978 | Yes, they are not charging me. With the prospect for what seems to me a typical inventory cycle in the setup coinciding with the bottleneck problem in the construction [area], I get worried about '79 and not about '78. The '78 pressure seems to me much bigger than we have anticipated. It creates challenges to us in ter... | 248 |
fomc | 1,978 | Mr. Chairman, if I could just [add a] footnote on that. I agree with the observation of higher equity in real estate development, but that equity in our part of the country is largely foreign money rather than domestic. | 47 |
fomc | 1,978 | I don't care where the money comes from, as long as it's in there. | 16 |
fomc | 1,978 | That's true. You're right. | 6 |
fomc | 1,978 | Bob. | 2 |
fomc | 1,978 | Mr. Chairman, I think one can make a reasonable case for any of these scenarios that have been painted around this table. I think the crucial issue is what happens to inflation and inflationary expectations. We are riding a crest now [where it] seems that everybody thinks that the Administration, Congress, and the Fede... | 172 |
fomc | 1,978 | Chuck. | 2 |
fomc | 1,978 | Well, I'm sorry to say that I don't think the economy is developing very well. I agree with Frank that the third quarter is a very strategic quarter from the standpoint of what's going to happen in the cycle. I don't think it makes too much difference whether [GNP growth in] the second quarter is 9 or 10. It's going to... | 653 |
fomc | 1,978 | Phil. | 2 |
fomc | 1,978 | I would say that, given the constraint put on the staff forecast by this Committee's projections of monetary growth, the staff forecast is certainly a rational one. I personally doubt when the time really comes that the Committee is going to exercise the severe constraints that we presently have imposed upon them. And ... | 630 |
fomc | 1,978 | I have two 14-foot canoes! | 9 |
fomc | 1,978 | I just used that for illustration; people are buying recreation and residences already. We are all speculating on real estate to a substantial degree and I think when we get that behind us someday we will see the possibilities. I would on balance think that the prospects for '78 are probably better than the staff forec... | 105 |
fomc | 1,978 | Paul. | 2 |
fomc | 1,978 | Governor Jackson reminds me that we in New York are living in a completely different world. We worry about the City going bankrupt and whether the price of the cooperative apartments will go down. And the debate on wage increases is whether they should be 3 or 4 percent a year. I hear of all this over-exuberance in the... | 585 |
fomc | 1,978 | Well, thank you all. May I just say that what I hear is a universal opinion of a strong second quarter, not terribly different from the real growth that the staff has [forecast]. I hear differences of opinion as to the outlook for growth in the second half of the year and almost a universal feeling that the risk is for... | 143 |
fomc | 1,978 | You reflected it correctly, and I don't know of any change--certainly not on my part. | 20 |
fomc | 1,978 | I thought that the Committee might [want to] know that. You all see some things, but the staff was questioned on this yesterday and I think they would probably feel that prices are the most vulnerable part of their forecast--that they see pressures--but for the discussion on actual real activity, [they thought] it migh... | 136 |
fomc | 1,978 | Ladies and gentlemen, may we reconvene to come to the part we are paid for? For now it's going to [unintelligible]. Opinions are very valuable, but votes separating the folks [unintelligible]. Let's see now; [the next agenda item is] domestic open market operations. Peter Sternlight will give us a report on operations ... | 76 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
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