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fomc | 1,978 | Oh yes, because you have, of course, substantial holdings of foreigners, of OPEC countries-- | 20 |
fomc | 1,978 | Well, of course, you have all the Americans with their holdings of dollars that they could move into foreign currencies. | 23 |
fomc | 1,978 | You have a bottomless pit--in some sense--of panic. In the international field, I don't think we have mechanisms to avoid a panic. | 30 |
fomc | 1,978 | Was yesterday a disorderly market? | 7 |
fomc | 1,978 | By all [means], when the Swiss franc moves by 5 percent. | 15 |
fomc | 1,978 | By all the standards we developed before, Bob, it was disorderly. | 15 |
fomc | 1,978 | What has the market done this morning? | 8 |
fomc | 1,978 | Well, the dollar was lower and now there has been a technical rebound in the last half hour. The Swiss government is having a cabinet meeting tomorrow and, as I say, people worry about their Draconian measures. The Swiss have taken several Draconian measures and people worry about them before they are taken and after t... | 180 |
fomc | 1,978 | So we need your action to ratify the transactions since the previous meeting. I believe they have been reported to you. Is there such a motion? | 30 |
fomc | 1,978 | So moved. | 3 |
fomc | 1,978 | And seconded. Any discussion? All those in favor, say "aye." SEVERAL. Aye. | 23 |
fomc | 1,978 | It is so voted. Scott, I think you also have some recommendations with respect to renewals of swap drawings, and perhaps you can go on to report on the Bundesbank's proposals. | 38 |
fomc | 1,978 | Right. On the renewals of German mark swaps, we have four drawings, totaling $246 million, coming due in September. These are second renewals and the Bundesbank has agreed to renew them. And I recommend that the Committee approve their renewal. | 51 |
fomc | 1,978 | Any discussion? Then we may have a motion for a renewal. | 13 |
fomc | 1,978 | So moved. | 3 |
fomc | 1,978 | [ None] opposed, so voted. | 8 |
fomc | 1,978 | I'd like to add that Mr. Gleske of the Bundesbank has written to Alan Holmes with some points that the Germans would like to reconsider in the basic swap agreement with the Bundesbank, which would be up for renewal in December. They are raising these points now so that we can consider and discuss them in due time. Firs... | 300 |
fomc | 1,978 | The recognition of profits and losses quarterly is also quite fundamental. We've never done anything like that before. | 20 |
fomc | 1,978 | No. | 2 |
fomc | 1,978 | But isn't the Treasury doing that now? | 8 |
fomc | 1,978 | Well, that's internal accounting. | 6 |
fomc | 1,978 | No, not on the Bundesbank swaps. They are doing it for their own account. | 18 |
fomc | 1,978 | The Treasury is doing it for their own purposes. | 10 |
fomc | 1,978 | This would be a rewriting of the swap [arrangements]. | 12 |
fomc | 1,978 | This would change the relationship for repayment purposes. Any questions? I think we will have much to consider in that field as this develops further. You'll be coming back to us with something further? | 38 |
fomc | 1,978 | Right. | 2 |
fomc | 1,978 | I believe that completes the [subject of] foreign currency operations unless there are still questions. We will go on to the economic and financial situation and outlook. This month Jerry Zeisel will report. Jim Kichline is on vacation despite the terrible international outlook. | 52 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | Thank you, Jerry. I would suggest that we now take a period of time first for questions of the staff and then, as we've been doing recently, that we do the go-around and get your own views on the outlook for the next four quarters on real GNP, inflation, and unemployment. Are there any questions now of the staff before... | 72 |
fomc | 1,978 | I take it the revised GNP figures are going to come out fairly shortly. Do you have any strong feelings that they're going to be revised upward or revised in either direction? | 35 |
fomc | 1,978 | The major revision is likely to be in the net export figures and that's substantially upward. That could be as large as, what-- | 26 |
fomc | 1,978 | We think it could be as much as 3.8. | 13 |
fomc | 1,978 | Which would be possibly 3/4 of a percent or in that range. | 16 |
fomc | 1,978 | That's the second quarter you're talking about? | 8 |
fomc | 1,978 | It's the second quarter, right, so [GNP growth] could well be above 8 percent for the second quarter. | 25 |
fomc | 1,978 | Other questions? | 3 |
fomc | 1,978 | One of the particularly striking aspects of the forecast, Jerry, is the continued relatively low personal saving rate that is projected. That is relatively low by historical comparison, and I wonder if you could talk a little bit about the justification for that. | 48 |
fomc | 1,978 | Obviously, that's rather a key element in the forecast. We maintain the saving rate in the upper 5 percent range--somewhere around 5.7 percent toward the end of the projection period. If the saving rate were to be significantly higher, obviously, the implications for consumption and overall activity would be on the dow... | 137 |
fomc | 1,978 | Could I follow that with one question in the same area? Jerry, what's your opinion regarding debt burdens as far as consumer spending? | 26 |
fomc | 1,978 | Debt burdens are high in historical terms. They are particularly high when one incorporates mortgage debt burdens along with the others. However, there has been no indication as yet of a deterioration in the quality of debt, and defaults don't show any significant deterioration. Our feeling is that as long as income gr... | 112 |
fomc | 1,978 | Your banking contacts don't indicate deterioration? | 7 |
fomc | 1,978 | On the contrary, the delinquency rates declined in the most recent months. I might also add, Governor Coldwell, that there are demographic reasons that would suggest that the amount of consumer borrowing should be rising. The baby boomers are between 25 and 35 years of age and this is the sector that tends to accumulat... | 79 |
fomc | 1,978 | Bob. | 2 |
fomc | 1,978 | Just to support the staff's response to Phil, one of the nation's largest retailers reported to us just three days ago that their delinquency rate is lower than at any time in the past six or seven years. They're amazed themselves, but they're having no problems whatsoever. | 53 |
fomc | 1,978 | Henry Wallich, you have a question, do you? | 12 |
fomc | 1,978 | I see we are now counting on a full employment surplus in the second quarter of $12 billion. We still have a very large actual unified budget deficit. How do we get from a large deficit at about 6 percent unemployment to a full employment surplus at, I would assume, 4.9 percent? | 62 |
fomc | 1,978 | This is a leading question, so be careful how you answer it. | 14 |
fomc | 1,978 | No longer is there basis-- | 6 |
fomc | 1,978 | You can't even find the tax cut there. | 9 |
fomc | 1,978 | The answer is what you assume to be full employment. | 11 |
fomc | 1,978 | Well, I thought it was 4.9 but if you tell me it's otherwise, then you've resolved my perplexity. | 25 |
fomc | 1,978 | I don't know the explicit number in the calculations but there has been increasing criticism of that concept--not only because of how one determines what is full employment but also because the effect of any given surplus or deficit depends so importantly on the composition of tax revenues and expenditures. The staff h... | 94 |
fomc | 1,978 | Well, gentlemen, I would suggest that since we went around this way last time, as I recall, we'll go around the other way this time. Let me start off, as usually I end up. I would call your attention to Part 1 of the Greenbook, page 6. Under changes, it shows the projected changes; it says '78 II to '79 II, and that's ... | 424 |
fomc | 1,978 | I've changed your figures by about 1/4 point--3 to 3-1/2 percent on the growth, 7-1/2 to 7-3/4 on the inflation factor, and unemployment somewhere around 6 or a little below. The growth outlook doesn't look entirely unsatisfactory to me; the inflation outlook does. | 70 |
fomc | 1,978 | Phil. | 2 |
fomc | 1,978 | I don't think I've changed my mind significantly. I still think we are likely to have better growth than the projection for the balance of '78 and probably worse than the projection for the first half of '79, but on balance the growth would probably be about the same. I would say that if there's any news since the last... | 240 |
fomc | 1,978 | Phil, I was particularly waiting for your remarks because anyone who spent two weeks in the wilds of Canada has the most balanced view of what the outlook might be--not contaminated by being too-- | 39 |
fomc | 1,978 | I would say that for the last two days--having been completely without news of any sort for seventeen days--the labor question is the one thing that hit me since coming back. It looks like the environment in labor is worse than it was when I left. | 52 |
fomc | 1,978 | Chuck. | 2 |
fomc | 1,978 | I'm disappointed, Phil. I thought you were going to say that you could hear the roar of Nancy all the way up there! I think Phil is exactly right to feel that the signs of serious labor difficulty are the most important developments of the last month. I would be inclined to feel that would mean both that wage rate incr... | 370 |
fomc | 1,978 | Thank you, Chuck. George. | 7 |
fomc | 1,978 | Mr. Chairman, in general we think the profile of the staff's forecasts pertaining to inflation and moderate real growth is probably correct. We're not quite as optimistic on real GNP over the forthcoming period; we'd guess it may go as low as 2-1/2 percent. The fixed-weight deflator we'd guess at 8 percent and the unem... | 78 |
fomc | 1,978 | Mr. Winn. | 4 |
fomc | 1,978 | I am concerned about the inflation developments and I'm not sure that they're all attributable to organized labor. As you know, we suggested to our Chairman that he not send a letter to the [banks] on inflation issues and the Secretary of the Treasury did. And I noticed that a large number of banks were having very sub... | 497 |
fomc | 1,978 | So competitiveness makes no difference, even with slack? | 10 |
fomc | 1,978 | I was just mentioning that the banks are now raising their wages in view of the letter they received from Mr. Blumenthal. They've had very fine earnings this first half, as you know, and instead of waiting until the end of the year they're making the adjustments now and saying they'll be more in line at the end of the ... | 94 |
fomc | 1,978 | Thank you. Dave. | 5 |
fomc | 1,978 | My figures are quite similar to the Board [staff projections] and are quite similar to last time: real growth 3-1/2 or a little under; the deflator at 7-1/2 percent; the unemployment rate 6 percent plus a little bit. I think it's quite clear that the economy is running out of steam. The only question that I was trying ... | 309 |
fomc | 1,978 | Thank you, Dave. Bones. | 7 |
fomc | 1,978 | Mr. Chairman, we have observed pockets of weakness, but on balance our people are still very optimistic. They're concerned more than [anything else] I guess about prices, for the reasons pointed out [by others]. Labor and energy--the availability and the cost--are very [much in the forefront] in their considerations pr... | 192 |
fomc | 1,978 | Thank you for the report, not the information. Don. | 12 |
fomc | 1,978 | Thank you, Mr. Chairman. Our figures come out to be very similar to those we've heard already and for many of the same reasons. We believe the economy is slowing but pretty balanced. Our particular figures would reflect an inflation rate of 7 percent to slightly higher, real output at about 3 percent, and the unemploym... | 73 |
fomc | 1,978 | Thank you. Let's pop over [to the other side of the table] to Henry. | 18 |
fomc | 1,978 | Thank you, Mr. Chairman. Our view is a little less optimistic than the Board's staff. We would estimate real GNP at about 3 percent, inflation close to 8, and unemployment at about 6. | 45 |
fomc | 1,978 | Okay, thank you. Bob. | 7 |
fomc | 1,978 | We share the point of view that has been circulating around the table here that the economy is slowing perhaps, but is in pretty good balance. We don't see any serious problems, nor do the people that we have direct contact with. I would say again 3 to 3-1/4 percent for real GNP and I consider that a quite reasonable s... | 154 |
fomc | 1,978 | Thank you, Bob. Mark. | 7 |
fomc | 1,978 | Thank you, Mr. Chairman. Real GNP 3.52, down from 3.53. | 22 |
fomc | 1,978 | I like someone who'll stick his neck out! Remember we're keeping the record, Mark. | 18 |
fomc | 1,978 | Is this the second adjustment or the first adjustment? | 10 |
fomc | 1,978 | That's the first. Inflation of 7-1/2 to 8 percent and unemployment around 6 percent. The only comment I would make--I guess we've all been going through the same kind of exercises trying to see where the imbalances are and whether we really see a recession coming. I don't. Things do seem remarkably well balanced for th... | 212 |
fomc | 1,978 | Thank you, Mark. John. | 7 |
fomc | 1,978 | Well, I guess up to this point, I'm the great bear in the crowd. That may be only incidentally related to having been chased by a brown bear in Alaska, which made me a little more cautious than ever! We've shaded our forecast down a bit from last month and are among the least optimistic now in that our real GNP is 2.4 ... | 206 |
fomc | 1,978 | Do you [expect the economy to] weaken over the period, John, or is it pretty much even? | 22 |
fomc | 1,978 | The real weakness is in next year, when every quarter of real growth is under 2 percent. | 20 |
fomc | 1,978 | What kind of monetary policy do you assume? | 9 |
fomc | 1,978 | Prudent. | 3 |
fomc | 1,978 | Measured by interest rates. | 5 |
fomc | 1,978 | Well, my general point would be that there is such a lag in the impact of policy that even if we move now we probably couldn't head this off, and it would merely exacerbate the inflation situation. I'm presuming that monetary policy will be about in the range we've set for our 12-month ranges. And even if we ease up be... | 125 |
fomc | 1,978 | Thank you, John. Ernie. | 8 |
fomc | 1,978 | Mr. Chairman, our numbers have come down somewhat from what we had last time. On real GNP, we would now think that the staff's projection is a very reasonable one. With respect to prices, also essentially [we agree with] the staff projection of about 7-1/2 percent and we have on unemployment about 6 percent. I would li... | 181 |
fomc | 1,978 | I'm curious about those feelings, which I'm sure are accurately reported. In a sense it's hard to believe that this Congress could be motivated between now and their election to put in wage and price controls. It's hard to see the circumstances where that could be. You can't get them to do sensible legislation, let alo... | 180 |
fomc | 1,978 | I believe public opinion surveys are beginning to show a preponderance of a willingness to accept price controls. It's a saleable view. | 27 |
fomc | 1,978 | Yes, that's the people who are tired of inflation and wouldn't have to deal with whether it would work or not. Everybody is in favor of stopping price increases, I think; that's what public opinion polls are showing. I can't translate that easily--in the next six months--into legislation myself, unless there's a much b... | 177 |
fomc | 1,978 | You see increasing indications of it in businessmen's administration of prices also. For example, I believe, one of the Chevrolet products has had about eight price increases since it was introduced. | 36 |
fomc | 1,978 | Very, very discouraging. And there's little hope that you could keep a system together if people have such little willingness to show restraint. And there's so little competitiveness taking place. I would think some businessmen would want more share of market--apparently not. | 51 |
fomc | 1,978 | Mr. Chairman, there's another aspect of this, which I'm not sure has been fully covered. I hear increasing complaints from directors in a wide range of industries in our District that it's just getting awfully tough to hire skilled labor. Another outstanding example is the case of Boeing, which is undergoing a big expa... | 173 |
fomc | 1,978 | They always do talk about shortages in skilled labor during the late stages of a boom. I've never known it not to happen. | 25 |
fomc | 1,978 | We've got a developing shortage of labor in Connecticut to make the engines for those airplanes. | 17 |
fomc | 1,978 | Well, let us move to you, Frank. | 10 |
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