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fomc | 1,978 | Thank you, Peter. Any questions? Phil. | 10 |
fomc | 1,978 | How does the market currently view the disparity between the level of the federal funds rate and the 90-day bill rate? What is the market conversation about that disparity in rates? | 35 |
fomc | 1,978 | Well, bills, particularly short bills, are widely regarded and accurately regarded as just being in very short supply. Our Desk was a big buyer of bills for foreign accounts from late last year to the first few months of this year. That has lessened--turned around a little bit--but that type of buying has been replaced... | 145 |
fomc | 1,978 | You all have received a report on the transactions of the Desk and we need action to ratify those. Are there any questions or comments? Are there any dissents from approval? Then we will consider those approved and turn to Steve Axilrod for his comments. | 53 |
fomc | 1,978 | Well, Mr. Chairman, I would just like to make a few comments with regard to the evaluation of M1 and M2 [and] its implications for current policy. We had some time past looked at variability of M1 and M2 in the short run and in the long run. I think as background some of that may be interesting to Committee members. I ... | 1,484 |
fomc | 1,978 | If I may inquire of Steve: If we have these continuing problems of jumping back and forth in the emphasis we give M1 and M2--perhaps the answer to this question is obvious because it dates back prior to my involvement in this process--why don't we target on the monetary base, for example? Isn't that much more controlla... | 68 |
fomc | 1,978 | Well, President Roos, the monetary base is certainly controllable and in my view is probably more controllable than M1. You have member bank borrowing [in] it, which is not exactly a controllable item. But [it's] more controllable than M1 or M2. We simply can't be certain at what rate of growth you should control the m... | 160 |
fomc | 1,978 | But we don't have any fewer problems than the way we're going now, right? | 16 |
fomc | 1,978 | Well, we don't have to worry about currency right now. | 12 |
fomc | 1,978 | That would get me into a long essay. I don't think that anyone could take that much time. | 20 |
fomc | 1,978 | We have a question from Frank Morris. | 8 |
fomc | 1,978 | Steve, could you elaborate a bit more than you did in the Bluebook on the reasons for the big bulge in the last published data and [give us] whatever information you have as to how permanent that bulge is likely to be? | 49 |
fomc | 1,978 | The one factor that we could see that is different this year was that the amount of nonwithheld tax payments paid by individuals in April was $6 billion higher than it had been in the previous three years on average. Now that $6 billion--if you make the assumption that people sold other securities and transferred time ... | 584 |
fomc | 1,978 | May I ask a further question, Mr. Chairman? | 11 |
fomc | 1,978 | I think we have a couple ahead [of you]. We'll put your name on the list. Paul you had [a question]. | 26 |
fomc | 1,978 | I'm just curious, after listening to Mr. Axilrod's [description] of the dilemma between M1 and M2, which is readily understandable in recent data. My question is if you look ahead [at] the projections that the staff gave us, somehow they both fall nicely within their ranges. I would think the implication at this time i... | 103 |
fomc | 1,978 | The projection assumes a further increase in Q ceilings. That's the first thing the projection assumes, which we now do not have. And secondly, the projection is in some sense a maximum likelihood, but I don't think it means that the probability is over 50 percent. I think that if you order the probabilities, the proje... | 99 |
fomc | 1,978 | All the other chances are on the other side? | 10 |
fomc | 1,978 | Well, it can be on either side. | 9 |
fomc | 1,978 | The mode. | 3 |
fomc | 1,978 | Henry, you had a question, I think. | 10 |
fomc | 1,978 | Given the prospects for a reduced federal deficit and reduced federal borrowing, can you make any quantitative guess as to what impact that might have on interest rates if nothing else changes? Would it be at all significant? | 41 |
fomc | 1,978 | I can't really give you a guess. I think you have to go through the GNP projection because if you have higher taxes than you would otherwise have or reduced spending, you clearly have to go to the GNP projections and through that assess money demand. So offhand I really couldn't give you an estimate, Governor Wallich, ... | 79 |
fomc | 1,978 | We have run a couple of simulations. For what it's worth, if you use the new package, which is deferral for one quarter and 1/5 smaller in size, the bill rate as compared with that in the forecast now would be about 1/4 percentage point lower than we had assumed in both the first and the fourth quarter and no change in... | 87 |
fomc | 1,978 | Chuck. | 2 |
fomc | 1,978 | Well, I think Steve answered this, but I just wanted to clarify. The precise figures you gave on M1, Steve, fourth quarter-to-April and April-to-April suggested something like an unchanged trend rate of growth of 7-1/4 percent. Now, that just happened to be that way because the last period that you were using was a qui... | 103 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | Into the 8 to 9 percent range. | 10 |
fomc | 1,978 | That's right. To hold 7-1/4 we think you'd have that interest rate rise, but of course not at the levels we had in the Bluebook. | 34 |
fomc | 1,978 | Yes, so that without action to over time impact on the growth of M1, it would be more than 7-1/4. | 29 |
fomc | 1,978 | That's our thought, yes--given recent trends in velocity. | 12 |
fomc | 1,978 | Ernie. | 3 |
fomc | 1,978 | On the large amount of nonwithheld taxes, Steve, do you have any impression as to how that's split between personal and business? Is it predominantly one of them? | 34 |
fomc | 1,978 | I'm talking about individuals. | 5 |
fomc | 1,978 | About individuals. So you would not relate this development to the strong surge in business loans and-- | 19 |
fomc | 1,978 | No, that was individuals only on the nonwithheld [taxes]. I would relate the strong surge in business loans to the strength of the economy; and the strong demands for cash in the economy had an effect on M1. I think they are related facts, but through the effect on the economy. | 62 |
fomc | 1,978 | We used to hear, on a quarterly basis, quite a lot of conversation in banking circles about loan demand for tax payments in the business sector. I just hadn't encountered any such conversations [recently]. | 40 |
fomc | 1,978 | No, no, that was not it. | 9 |
fomc | 1,978 | I would like to suggest a procedure now that you've asked your questions of Steve. I would like to give you some personal comments about the question of the directive and then perhaps call on the voting members of the FOMC in order to get your personal viewpoints and then call on the other Presidents to give us their i... | 410 |
fomc | 1,978 | I have the figure right here--9.8 percent. | 12 |
fomc | 1,978 | It was 9.8. But in the last twelve months it's down to 8.2 and in the last six months it's down to 6.9. And even with 3 months and April the way it is, it's 7.0. So my first conclusion is that perhaps we should not begin to exercise policy too quickly over a month that may have strange features about it. My second conc... | 1,213 |
fomc | 1,978 | Mr. Chairman, I guess I assess the probabilities of making an error at the present time, judged in the perspective of looking back twelve months [and] down the road, as being somewhat different. My major reason for this is our historical experience. Granted, every experience is a different one, but my impression is tha... | 319 |
fomc | 1,978 | Thank you, Ernie. Phil Coldwell. | 10 |
fomc | 1,978 | Mr. Chairman, I'll be brief. I think the point of view that Ernie has expressed fairly well encompasses my position. I think we run a greater risk of a bigger inflationary blow-up by not taking a small judicious action in tightening further now. The change in fiscal stance, I think, will be helpful but I don't think it... | 318 |
fomc | 1,978 | Dave. | 2 |
fomc | 1,978 | Well, let me say first, Mr. Chairman, that I found your opening comments very provocative. However, I think I am following in the same trend direction as Ernie and Phil. On the April bulge, I think there are two risks. One is that it is essentially temporary and that to respond too promptly to something like that prese... | 275 |
fomc | 1,978 | What would you do? | 5 |
fomc | 1,978 | Not to be picky about it but I'd say 7-3/8 or something like that. I wouldn't object to 7-1/2. In any case, it shouldn't go down. I think we are agreed on that. On the aggregates, I would prefer something like 3 to 7 percent for M1 and whatever is appropriate for M2 to conform with that. | 78 |
fomc | 1,978 | Thank you. Steve. | 5 |
fomc | 1,978 | Well, you've heard me speak before about the danger of organized meetings of groups who will then feel that they are pressed to do something. I would be supportive of your view. I think we have had good luck and good fortune and the Federal Reserve's role has been somewhat spotlighted. And I am not sure enough about a ... | 218 |
fomc | 1,978 | Thank you, Steve. Philip Jackson. | 8 |
fomc | 1,978 | I think as we talk about ranges of growth--and focusing on M1 for purposes of discussion--we need to recall that we did make a 5.6 percent change in the seasonal adjustment so that if we compare 1978 against 1977 we are talking about roughly 24 percent for April, which strikes me as being in the range of growth hard to... | 359 |
fomc | 1,978 | Is that right? | 4 |
fomc | 1,978 | It was 19 in April. | 7 |
fomc | 1,978 | For May and June, what are your growth figures? | 11 |
fomc | 1,978 | 6-1/2 for M1. | 9 |
fomc | 1,978 | For May and June. What would it average for the quarter then? | 14 |
fomc | 1,978 | For the quarter it would be 9.2. | 11 |
fomc | 1,978 | As I say, if it was zero, we'd still end up with a 6. So it's my judgment that particularly on M1, the [low] side of the projected 2-month range we ought to drop to 2. I'd say zero but I think that's foolishness; here again 2 is more realistic. In other words, what I am really saying is that I think our chances of redu... | 400 |
fomc | 1,978 | Thank you. Chuck. | 5 |
fomc | 1,978 | Well, I'm not really far away from you for a very short-term strategy. But I think I probably am considerably away from you in terms of what the ultimate result may be. As many people around this table have probably long suspected--and I shall now admit--I'm not much of a monetarist. | 62 |
fomc | 1,978 | Surprise, surprise! | 5 |
fomc | 1,978 | I've always looked at [money growth] as an index, as a guide of what we're doing rather than a quantity that is of any significance to control in and of itself. But I think at a stage like this in the business cycle, with these differences that have come to light here this morning on what may develop after we get throu... | 580 |
fomc | 1,978 | Thank you. Henry. | 5 |
fomc | 1,978 | Let me look at the economy first. Inflation looks worse than it did some time ago. Growth looks a little worse, too, but I think that's not inappropriate because we are, in my opinion, close to full employment. I think our main need now is to go out against accelerating inflation. If [a pickup in inflation] were to hap... | 419 |
fomc | 1,978 | Thank you, Henry. Mark, I think is our next member. Is that right? | 18 |
fomc | 1,978 | As I listened to most of the discussion, I seemed to follow it well right until we got to the policy prescription and then I wonder what--. | 30 |
fomc | 1,978 | That's the trouble with listening! | 6 |
fomc | 1,978 | I'm going to make a different recommendation, so I guess I'd better explain briefly why. First of all with regard to the inflation outlook, I thought that we all pretty much agreed earlier in the day that it is very serious and most of the risks are on [the high] side. While it's perfectly true that we can't do anythin... | 820 |
fomc | 1,978 | Thank you, Mark. Willis. | 7 |
fomc | 1,978 | I'm puzzled as to what happened to V in our alphabet. | 12 |
fomc | 1,978 | V? | 2 |
fomc | 1,978 | Paul Volcker. | 4 |
fomc | 1,978 | Oh, the Chairman and the Vice Chairman will speak last. We want all your wisdom--all that we can get--first. | 26 |
fomc | 1,978 | I'm afraid I'm not contributing much wisdom but I do have a sense of experience at having been burned for being a little foot-dragging in our efforts to broach some of these problems. I guess my tendency is to average out to perfection by erring on the other side. | 56 |
fomc | 1,978 | Be wrong? | 3 |
fomc | 1,978 | Two wrongs don't make a right. | 8 |
fomc | 1,978 | I understand, but I can do two wrongs as well as a right sometimes. My tendency would be to be concerned about the image of the Fed and its actions as they are perceived by others. The problems are very real in terms of the inflation front and activity. While I realize what we do has impacts down the road and not immed... | 176 |
fomc | 1,978 | Why don't I quickly get the views of the other Presidents and I'll come back to you, Paul. John. | 22 |
fomc | 1,978 | All things considered, I think I would join those [who would] snug up a bit, doing it very cautiously and for not the same reason that you mentioned. Looking down the road a bit I am quite concerned about the further inflation risks from the cost-push side. I'm concerned about the rejection [by] the AFL-CIO of the Pres... | 363 |
fomc | 1,978 | Thank you, John. Bob Black. | 8 |
fomc | 1,978 | Mr. Chairman, I again end up closer to Mark Willes than anyone else, although I'm not exactly at the same point. I do think there are a couple reasons why we might not get as much growth in M1 as we may have been assuming. Our work with the aggregates, for what it may be worth, suggested that there may be more of a rev... | 309 |
fomc | 1,978 | You are specifying an 8 percent funds rate, in other words. Why bother with the aggregates? | 20 |
fomc | 1,978 | No, not necessarily. | 5 |
fomc | 1,978 | Yes it is. Almost certainly. | 7 |
fomc | 1,978 | Your predictions are-- | 4 |
fomc | 1,978 | Thank you very much, Bob. Roger. | 9 |
fomc | 1,978 | Mr. Chairman, I'd like to come out on the side of that we have moved a considerable extent since the last meeting and it seems to me that the risk now may be on the side of going a little too far and in early 1979 our actions maybe accounting for this possible recession. It also seems to me that right now, whatever we ... | 295 |
fomc | 1,978 | Thank you very much. Bones. | 7 |
fomc | 1,978 | Mr. Chairman, from our vantage point, I think we'd want to associate with those who want to snug cautiously. Maybe we do not contribute to the inflationary restraint at the moment but I think the market psychology can be very helpful and I am encouraged by the responses we've been able to obtain in that area recently, ... | 143 |
fomc | 1,978 | Thank you. Bob Mayo. | 6 |
fomc | 1,978 | Well, I guess I'll join Chuck in confessing. Nobody ever thought it--and I wouldn't want to repeat it--but I am a monetarist over a period of a year or more. I think money does matter in that period of time but again I hope it isn't a monthly speech that we are committing, if I may use the term, "idolatry" in worshipin... | 590 |
fomc | 1,978 | Thank you, Bob. Frank Morris. | 8 |
fomc | 1,978 | Mr. Chairman, I support your position for a reason that you didn't mention. | 16 |
fomc | 1,978 | Give some reasons out. | 5 |
fomc | 1,978 | Well, I think that this is a reasonably important one. We did get a jump on the problem last month and it's the first time that I have sat around this table that this Committee has ever acted in anticipation of a bulge in the money supply and I think that's a great step forward. But we also know from a study of history... | 182 |
fomc | 1,978 | Yes, but still it is significant nonetheless. On the other hand, Mr. Chairman, while I can accept Steve's projection of 9 percent for M1 for the second quarter, since I can average that [with] the first quarter and come out with 6-1/2, I do think that we've got to structure ourselves so that we don't exceed that number... | 321 |
fomc | 1,978 | Just one comment, Frank: On M2, you ought to recognize that those new certificates go in on June 1 and there could be some stock adjustments [unintelligible]. It's more likely at the thrifts than at the banks, but there might be some at the banks. | 58 |
fomc | 1,978 | Citibank just announced its offering of it already. | 11 |
fomc | 1,978 | That's true. | 3 |
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