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fomc | 1,978 | No. I was just saying that we would work this out in close consultation with the Board=s staff. Remember the day on which we did exceed the gross transactions limit? We had consulted; we had informed the members of the Subcommittee that an operation was under way that would lead to substantial operations. We just didn=... | 73 |
fomc | 1,978 | My only point, Scott, is that "substantial" means different things in different contexts. | 19 |
fomc | 1,978 | You have the other limits so you do know almost where you are. Any other comments? Is there any dissent from approving these recommendations? Hearing none, they are approved. We move from foreign currency to the economic and financial situation and outlook, and Jim Kichline has a report. | 57 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | May I ask a question? I=m confused about the interrelationship of some of the figures in the Bluebook and some of your Greenbook projections. It=s my understanding that your nominal GNP projections in the Greenbook, for example, are based on money and interest rate projections in the Bluebook. Just to use an example, y... | 223 |
fomc | 1,978 | Yes, we make a strenuous effort to have a relationship between the two. As I noted, the forecast of the GNP is based on the low interest rates that are in that range [shown in alternatives A and B]. It=s a 9 percent funds rate and in the first quarter of 1979 we have an 8-1/2 percent Treasury bill rate. So in terms of ... | 391 |
fomc | 1,978 | Jim, do you look at the output of your model or do you do a certain amount of subjective wishful thinking? | 24 |
fomc | 1,978 | Professional judgment we like to call it! We use two approaches. The forecast that you=re looking at is the staff projection; it=s what we refer to as a consensus forecast. It is heavily reliant upon judgment of individual sector experts as well as combining that [with other] inputs. One of the inputs is indeed a model... | 177 |
fomc | 1,978 | I just had in mind a question, Mr. Chairman. Jim, were there any significant revisions in the GNP figure or just minor ones? | 29 |
fomc | 1,978 | We had a number of minus 0.4 percent rate of growth and it=s now 1.0. The implicit deflator went from 7.1 to 7.0 and the fixed weight from 6.5 to 6.2. There are a number of small revisions throughout. This is normally a time in their revision process when they get final data, or virtually final data, on the foreign sec... | 135 |
fomc | 1,978 | I=d like to come back for just a minute to the little dialogue between Jim and Larry. One of the things that=s obviously going on now is that the econometric relationships in most of the models we have don=t work as well as maybe they have in past times. But one of the reasons for that is because it=s not possible to m... | 111 |
fomc | 1,978 | I didn=t give up. | 6 |
fomc | 1,978 | It seems to me that if in fact you had higher interest rates, there is a way in which that might be perceived in the world as reducing the expected rates of inflation, and that would have a rather substantial positive impact on investment and other forms of spending and, therefore, a rather positive impact on real grow... | 182 |
fomc | 1,978 | How do you handle housing on that? | 8 |
fomc | 1,978 | Well, housing is a very difficult sector; [its performance] depends a lot on what happens to Regulation Q ceilings and the impact that has on financial flows. I will readily admit, however, that if interest rates escalate significantly in a short period of time, housing will have a difficult time sustaining itself. It ... | 173 |
fomc | 1,978 | If you have to hold down money growth, though, to 2 to 2-1/2 percent in the last quarter of this year in order to give that reassurance that we=re doing something about inflation, doesn=t that have an effect on GNP growth early next year? In other words, there are two factors--interest rates and money growth. And if we... | 139 |
fomc | 1,978 | I guess all I=m saying is that I=m not really sure. That may well be the case. But I think one can make an argument that under the very special circumstances we face, we could get quite a different reaction than one would normally expect. | 51 |
fomc | 1,978 | May I suggest a procedure? I=d like to have this continue for a while but I=d like to cut it off at some point and do a round robin, as we did the last time, and get the comments from everybody, if you don=t mind. So I=ll run through a few more comments here and then I=d like to [move on]. Last time we went clockwise; ... | 100 |
fomc | 1,978 | Well, I just wanted to mention this: Mr. Roos indicated that [the figures he cited] were the projections in the Bluebook, but they are simply the results of arithmetic. That is, if the Committee is going to achieve a 5-1/4 percent growth [in M1] Q1-to-Q1, that=s the arithmetic of it. Next quarter, depending on the Comm... | 115 |
fomc | 1,978 | Jim, this gets down to your judgmental forecast. Where is your strongest level of confidence in this forecast--in the GNP or inflation? Or to put it the other way around, where is your weakest level of confidence? | 46 |
fomc | 1,978 | Well, I think it=s a fairly risky forecast in lots of ways. On real growth, my gut feeling would be that if this is an inappropriate forecast, given the conditions, the odds would weigh very heavily on the downside rather than the upside. On inflation, I think it=s the other way around with serious concern about going ... | 194 |
fomc | 1,978 | Second question. If I understand you correctly, this forecast is based on the 5-1/4 percent midpoint of the target range. If it were based instead on the 7-1/2 percent actual we=ve been achieving over the past period of--I forgot what it is but let=s say this last 18 months or whatever it is--where would you be coming ... | 87 |
fomc | 1,978 | I would tend to raise the real growth, I think, perhaps back into the area where we were months ago. I=d put the number surely over 4 in the short run. We=re talking about a time horizon here that is just to the second quarter of 1979 but for the short run I=d say it would have a more favorable impact on real growth. | 75 |
fomc | 1,978 | You call that short run. [Do you mean through] 1979 or are you talking about "short run" through the rest of 1978? | 32 |
fomc | 1,978 | No, I=d say our forecast is really short run. If we begin to talk about the impact on real [growth] and inflation, the problem here is the differential effect. On the fourth quarter impact, I think you can look forward to something like one half of a percent or more on real growth assuming what happens is that we get l... | 181 |
fomc | 1,978 | I just wanted to confirm, Jim, the figures for May that you cited. Although they are below the earlier figures in the year, they are still pretty high. The production index is an annual rate of increase of more than 7 percent. Nonfarm employment is growing at 175,000; that=s more than 2 million a year. I see the retail... | 131 |
fomc | 1,978 | Not much I don=t think. But you=re right, some further modification. | 16 |
fomc | 1,978 | You mean to say that a 4 percent GNP will be associated with more than 7 percent in production? | 23 |
fomc | 1,978 | No, you mixed up a couple of things there. One was a quote of the average sales ratio in May over the first quarter. Part of the problem here in Q1, Q2, Q3 on GNP is again arithmetic and not economics. You=re going to have a very high second-quarter average level of activity. So to get a large increase in real GNP in t... | 85 |
fomc | 1,978 | Well, perhaps I should have mentioned that, but what about production and employment? | 16 |
fomc | 1,978 | I would expect that production would edge down a bit further. But I think I phrased it--I know on production I did--that developments still involved large or healthy rates of increase but I said I would read into these numbers that we did indeed experience something that was transitory and we are now on a path toward s... | 68 |
fomc | 1,978 | Mr. Chairman, I would like to ask Jim what kind of reaction he would have to the proposition that rather than the current high level and rapid rate of growth in consumer installment debt setting the stage, as it has in earlier periods for a number of years now, for a slower rate of growth in debt and/or maybe an actual... | 236 |
fomc | 1,978 | I think you=ve raised an issue that is very important and one that=s difficult to sort out. Again, it hinges on consumer expectations and I think the evidence available in the short run from survey reports and what=s going on in the auto market, is suggestive of the substitution effect--the desire to acquire real or du... | 392 |
fomc | 1,978 | Mr. Chairman, I have great sympathy for the staff=s dilemma here. My interpretation of what you might call the wishful thinking department of it, however, relates not only to what Larry described as wishful [thinking] but rather to the assumption that has been forced on them by us of the 5-1/4 percent M1 growth central... | 323 |
fomc | 1,978 | Thank you. | 3 |
fomc | 1,978 | Do you need any more answer to that, Bob? | 11 |
fomc | 1,978 | Well, I guess not. | 6 |
fomc | 1,978 | Three more comments; then we=ll do a go-around. Henry Wallich. | 17 |
fomc | 1,978 | I=d like to make a suggestion, which really follows in the footsteps of what Bob and Larry have said. This is a very artificial performance where three different kinds of unlikely assumptions have to be made in order to get a halfway presentable result--namely, that the demand function for money shifts, that Regulation... | 249 |
fomc | 1,978 | Any reaction? | 3 |
fomc | 1,978 | I think it may cause some potential problems in looking at the Bluebook and trying to maintain and develop a consistent financial and real forecast. I think perhaps one of the ways to go about this is to discuss in greater detail the implications of the assumption. And for major variables, if there are significant prob... | 81 |
fomc | 1,978 | Yes, rather than do the whole thing. I think that=s right. | 15 |
fomc | 1,978 | Two comments, Mr. Chairman. First, one inconsistency that I have trouble identifying is that if you look at freight truck traffic it doesn=t really seem to relate to the other measures of economic activity that we have. Has something gone wrong in those measurements? | 52 |
fomc | 1,978 | The answer is, I don=t know. We have someone looking at this. This was called to our attention in the Redbook, in which transportation is discussed; freight cars, for example, are mentioned as in very short supply. So I don=t have an answer to that, but we will be checking into it. | 65 |
fomc | 1,978 | You=d think that inventory would pile up or something if you look at production figures and those other things. My second comment is that I think it=s important in terms of cyclical behavior in the future to look at the dissimilarities from what we=ve had in the past. For example, take the housing problem. As we look a... | 173 |
fomc | 1,978 | Is this the go-around, Mr. Chairman? | 10 |
fomc | 1,978 | No, you=re the last commenter before the go-around. | 12 |
fomc | 1,978 | In terms of the outlook, it=s terribly difficult, as I think we all recognize, to really judge what inflation expectations are going to do, especially to the consumer sector. We=re somewhat less optimistic, frankly, than the Board staff. We=ve done something like Larry=s people evidently have done; we've looked at the ... | 472 |
fomc | 1,978 | If I may comment, it is quite correct that it is borrowing in some sense and that can=t be done forever. The only other comment I would make is that the Board=s model --I can=t remember the quarters [exactly but] I think for something like the last 5 or 6 quarters has underestimated significantly the consumption spendi... | 125 |
fomc | 1,978 | Thank you all very much. Now we=ll have a go-around and I hope that each of you will comment on your own views and the views of your staff organization on the outlook for real GNP, prices, and unemployment. And note any other factors that you want to mention regarding the 1978 Q2 through 1979 Q2 period. Paul, we=ll sta... | 82 |
fomc | 1,978 | First, I would just observe, Mr. Chairman, that we see more optimism--a better feeling on the part of businessmen that have reported to us--than we=ve seen in a long time. I don=t have the sense that this is leading to great changes in spending plans, though there may be some acceleration of what they were doing. Certa... | 556 |
fomc | 1,978 | Any specific numbers, Paul? | 6 |
fomc | 1,978 | [For] the second quarter to the second quarter, I=d be closer to 3-1/2 percent or below in terms of GNP growth. For the GNP deflator, I think probably you=re talking 7-1/2 percent, anyway, and for unemployment around 6 percent. | 63 |
fomc | 1,978 | Thank you. Phil. | 5 |
fomc | 1,978 | I don=t guess my attitude has changed much over that I expressed last month. I=m perhaps more optimistic on the short run than the staff forecast would indicate, but I'm not as optimistic over the long run. I do feel that we=re in the usual situation [in terms of the attitude typical of] most North Americans. No matter... | 287 |
fomc | 1,978 | That=s the first time I=ve heard "only" $100 billion! | 16 |
fomc | 1,978 | Well, we=re talking about 5 percent of the total and we=re talking about a reduction of maybe 10 percent of the 5 percent. So you really have to wonder whether you=re getting excited about things that aren=t that significant in terms of the level of total activity and that=s more my concern. If I had to push some arbit... | 437 |
fomc | 1,978 | Like the labor unions. | 5 |
fomc | 1,978 | Absolutely. The point I=m making is that there is no difference between management and labor when it comes to "my ox is being gored." They all have the same attitude and for that reason I think-- | 42 |
fomc | 1,978 | Unlike the Federal Reserve family. | 6 |
fomc | 1,978 | Absolutely. We=re part of the problem, too. What I=m really saying is that I am not optimistic that we're going to be able to do anything. For that reason I think the instabilities that will result toward the end of the year are likely to [remain] with us and it could be costly. | 63 |
fomc | 1,978 | Phil, do you have a number on prices? | 10 |
fomc | 1,978 | If I had to guess, I=d say 7-1/2 percent. Unemployment probably would go up by the year-end. | 28 |
fomc | 1,978 | Over 6 percent? | 5 |
fomc | 1,978 | By the end of the year. If I had to guess, I=d say 6-1/2 because I think the participation rate will go up but it will be difficult to maintain employment levels at the end of the cycle. | 47 |
fomc | 1,978 | Thank you. Chuck. | 5 |
fomc | 1,978 | Well, if I had to present a standard forecast, my forecast would be very much like the staff's. I think it=s a safe forecast and a reasonable one. Not only that, it=s not much out of line with other forecasts. But I have to say that I think I=m much closer to Phil Jackson than I am to the staff forecast. And I do belie... | 236 |
fomc | 1,978 | Well, I sort of agree with Ernie that consumers are going to stay in there and buy for a longer period because they=ll figure that it=s their last opportunity to do so in what looks like an inflationary environment. I think housing demand is very strong. As for business--maybe I=m being misled by the Redbook--the Redbo... | 425 |
fomc | 1,978 | A standard 7-1/2? | 9 |
fomc | 1,978 | What it takes into account is the prospect that interest rates will rise moderately throughout the forecast [horizon] or at least until the second quarter, say, of next year and bring some problems. | 39 |
fomc | 1,978 | Chuck, do you have specific numbers for us on our three [measures]? | 16 |
fomc | 1,978 | Well, I=ll buy the ones that Phil Jackson mentioned. | 13 |
fomc | 1,978 | Okay. Bob. | 4 |
fomc | 1,978 | Mr. Chairman, I share some of the apprehensions that both Phil and Chuck have expressed about what I perceive to be some surge in speculation. If you look at the Redbook, you get a pretty clear indication there of accelerating inflation, increasing demands for credit of all types, pressure on interest rates, tightening... | 212 |
fomc | 1,978 | Thank you, Bob. Willis. | 7 |
fomc | 1,978 | That sounds like [my view] too. But those in the business community certainly have the bit in their teeth and are running hard with the feeling that this year is going to be better than most of the projections that have been given. And it seems to me that momentum is going to carry longer. Second, the unrest on the inf... | 257 |
fomc | 1,978 | Unemployment [unintelligible]? | 8 |
fomc | 1,978 | That is right. | 4 |
fomc | 1,978 | Thank you very much, Willis. Dave, we haven=t heard from you yet. | 17 |
fomc | 1,978 | Mr. Chairman, in our briefing discussion last week, we spent a good deal of time talking about what has already been discussed here. We discussed the difference between the forecast that would come from the model and the one that we have in the Greenbook and the kinds of judgmental decisions that are made to revise the... | 401 |
fomc | 1,978 | Thank you, David. Bones, we haven=t heard from you either. You are quiet down in that corner! | 23 |
fomc | 1,978 | I think our view, [based on reports] from directors and visits with businessmen, would very closely parallel Dave Eastburn's, which is something odd to have happen in our area. We would be slightly less optimistic than the Greenbook numbers. [There are exceptions in] a couple of instances, particularly employment. I re... | 476 |
fomc | 1,978 | And GNP? | 4 |
fomc | 1,978 | About 4 percent. | 5 |
fomc | 1,978 | Thank you. Larry. | 5 |
fomc | 1,978 | For the second quarter of '78 to the second quarter of '79, assuming growth in M1 is 6 percent, we would estimate inflation at 6-1/2 percent, which is somewhat less than others. This does not mean that we think [inflation in] late 1979 and 1980 is going to increase significantly, but to the second quarter of '79 we hav... | 179 |
fomc | 1,978 | Thank you, Larry. Roger. | 7 |
fomc | 1,978 | Thank you, Mr. Chairman. I think that my staff and I come out very close to where the Board staff comes out on all three of these numbers, providing we don=t screw it up by focusing in on the 5-1/4 percent. Rather, our staff would suggest that if we are at 6 to 6-1/2 percent money growth over the year ahead, we indeed ... | 465 |
fomc | 1,978 | Thank you, Roger. Bob Mayo. | 8 |
fomc | 1,978 | Mr. Chairman, I have a basic agreement with what Chuck Partee and Phil Jackson said with regard to perhaps a little more strength than the Greenbook forecast for the third and fourth quarters. The economy is still very strong in the Midwest. People are optimistic. But I see the ingredients here of a slowdown, which mak... | 689 |
fomc | 1,978 | Thank you, Bob. Mark. | 7 |
fomc | 1,978 | Thank you, Mr. Chairman. I will try to be brief. First, farmers are smiling. And if they scowl when their net worth is down to a million dollars, you can imagine how good it must be if they are smiling. We have a couple of the largest food processors in the country, General Mills and Pillsbury, and they confirm what Ch... | 181 |
fomc | 1,978 | Now, that is no excuse, Mark. None of the rest of us does either. | 18 |
fomc | 1,978 | My feeling is that it does depend on what we do. I don=t think that is cast in concrete. I find the scenario that Phil and Chuck outlined all too likely. I think we could do something about that. I doubt that we will--"we" meaning both the Fed and the Administration--but I think we could. I am somewhat encouraged by th... | 95 |
fomc | 1,978 | I thought that was a Federal Reserve action. | 9 |
fomc | 1,978 | Well, whatever it was, I thought that was good. If we had more of that, I could get fairly optimistic, but I don=t know how much more there is going to be. [On unemployment], for a number my guess is that by the second quarter of next year we will be at 6 percent or a little above. I think it is going to go down a litt... | 377 |
fomc | 1,978 | Thank you, Mark. John. | 7 |
fomc | 1,978 | Mr. Chairman, I think I already covered part of the story in my earlier remarks, but let me just go over a few figures quickly. As far as the last half of this year is concerned, our staff has very little difference with the Board=s staff in terms of real growth, inflation, and unemployment. The principal difference wi... | 393 |
fomc | 1,978 | What was it second quarter to second quarter, John? Could you summarize? | 15 |
fomc | 1,978 | No, I haven=t recapped this into Q2 '78 to Q2 '79, unfortunately. I=d have to go back to the drawing boards to do that. | 35 |
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