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fomc | 1,978 | Well, Mr. Chairman, there is for once not much in the way of swap drawings maturing before the next meeting of the Committee. We have one swap drawing of $35 million equivalent of German marks maturing in early October. This will be the second renewal. We have two Swiss franc drawings totaling about $13 million equival... | 130 |
fomc | 1,978 | Fine. You've heard the recommendation. Is there any discussion? Henry. | 14 |
fomc | 1,978 | Mr. Chairman, I continue to think that we ought to have a program of gradually but steadily buying [foreign] exchange as we go. We're working on how to devise this so it doesn't lead to adverse consequences but I'd like to urge the Desk again, whenever there is a reasonable chance to pick up some exchange in the market... | 95 |
fomc | 1,978 | Governor Wallich, at the moment we have almost enough marks to pay off this swap drawing. But goodness knows what is going to happen tomorrow or the next day. | 33 |
fomc | 1,978 | We may have to use them. | 7 |
fomc | 1,978 | That's precisely the point. | 5 |
fomc | 1,978 | Is there a motion to approve the recommendation? | 9 |
fomc | 1,978 | So moved. | 3 |
fomc | 1,978 | Any further discussion? All in favor say "aye." SEVERAL. Aye. | 18 |
fomc | 1,978 | Opposed? So voted. Thank you very much. We'll move from the international to the-- | 19 |
fomc | 1,978 | Mr. Chairman, I have a couple of other recommendations. | 12 |
fomc | 1,978 | You have a couple of other things, excuse me. | 11 |
fomc | 1,978 | As of October 5th our swap line with the Bundesbank will have been in continuous use for twelve months although specific drawings under the swap lines have been repaid well before [they had been outstanding for] a 12-month period. While paragraph 1C of the Authorization for Foreign Currency Operations in my mind is not... | 109 |
fomc | 1,978 | Otherwise, we could be in default? | 8 |
fomc | 1,978 | Otherwise, we'd be in a little problem, except I believe that that [paragraph] can be interpreted somewhat differently. | 23 |
fomc | 1,978 | Any discussion? | 3 |
fomc | 1,978 | So moved. | 3 |
fomc | 1,978 | Second. | 2 |
fomc | 1,978 | All in favor say "aye." SEVERAL. Aye. | 14 |
fomc | 1,978 | Opposed? So voted. Alan, you also are going to discuss the possible terms of renewal? | 20 |
fomc | 1,978 | Mr. Chairman, I'd like to do that quite briefly. At the last meeting, Scott Pardee referred to the proposals that Dr. Gleske of the Bundesbank had made to alter the terms of our basic swap agreement. We will be presenting the Committee with a memorandum containing detailed suggestions within the next few days but at th... | 749 |
fomc | 1,978 | Thank you. Paul, you have a particular comment on-- | 12 |
fomc | 1,978 | Well, I happen to agree with the logic of what Alan said on the 50-50 business. I think it's always been something of an anomaly. I have the feeling that it was a lot easier to sell, particularly to the U.S. Congress, that way and that's a pretty persuasive reason. But if that reason has relaxed in any way, I would sup... | 152 |
fomc | 1,978 | Henry, do you have any comments? | 8 |
fomc | 1,978 | I think, Paul, this is reasonable. There's a relationship of the interest rate and the expected change in the exchange rate, which in equilibrium offset each other. That is, the German interest rate is 3 percentage points lower than ours, there's an expectation in the market that the D-mark will appreciate by 3 percent... | 373 |
fomc | 1,978 | Thank you, Henry. You all will receive a copy of the memorandum and at the next meeting we'll have an opportunity to consider this. I hope, because the next meeting is the meeting for setting ranges, that we will use the interim time [to look carefully at] the memo so that we'll be prepared to respond to this. I think ... | 114 |
fomc | 1,978 | I think it depends partly, Mr. Chairman, on what you think the intervention is for. | 19 |
fomc | 1,978 | To counter disorderly markets. | 6 |
fomc | 1,978 | Yes, and I think there's an advantage to the counterpart currency as much as there is to the dollar. I think that's the basis of the principle for the sharing. I see no reason to back away from it. | 43 |
fomc | 1,978 | No, I don't think so, Chuck, because you're just saying split it in two. [When] they intervene in the market and we don't share with their intervention, we don't take half of their risk. It isn't that this is the only intervention. If this were the only intervention, your argument would be sound. The Japanese intervene... | 75 |
fomc | 1,978 | It was in March alone. | 6 |
fomc | 1,978 | We don't share that. We intervene for $3 billion and we go around and ask like beggars that somebody share with us and it's not the sole intervention. | 32 |
fomc | 1,978 | Yes, but I think that there's quite a different attitude regarding the effect of the exchange rate from the standpoint of the foreign partners as against the United States. And I think the basis for the 50-50 split is perfectly reasonable. Now, I rather agree in principle with the second point that Alan made. It seems ... | 105 |
fomc | 1,978 | That is our report on the international situation. Now we'll move to the staff's comments on the economic and financial situation and outlook. Jim Kichline. | 31 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | I would like to suggest [a change in our] procedures this morning. Nancy, in the past we've not only had an opportunity to question and comment on the staff's report, but we've then had a round robin and asked each participant to give his own estimate of real GNP growth over the next four quarters, what price [developm... | 189 |
fomc | 1,978 | Jim, I have a question--or really two questions. One has to do with the Greenbook forecast compared with what I understand to be most of the other forecasts around. As near as I can determine, the Greenbook is more optimistic than any other projection, and I wonder if you would speak to that a little bit. Second, it's ... | 107 |
fomc | 1,978 | On the second one, I feel comfortable in talking about it but Steve has developed some material on that and perhaps he might wish to comment on your second question. With regard to the first question--that is, the Greenbook forecast relative to various outside forecasts--of the ones I've seen I think it's quite correct... | 424 |
fomc | 1,978 | Well, Dave, I think I wouldn't describe it as substantial because I've assumed all along that the Committee is aiming at the top of the 4 to 6-1/2 percent range, following the discussion the Committee had when it set the target. If the Committee were aiming at the middle of the range, I believe that you'd have to say t... | 325 |
fomc | 1,978 | Other questions of the staff? Roger. | 8 |
fomc | 1,978 | Yes, a question, Jim. We're still puzzled as to how you get the kind of kick in the first quarter of 1979 from the tax cut that is proposed. I assume it's from personal expenditures as a result of lesser withholding, but the figures don't seem to add up. | 57 |
fomc | 1,978 | We didn't do the arithmetic right? | 7 |
fomc | 1,978 | No, I guess I'm really asking a question. Isn't it true that the tax cut will be spread more throughout the course of the year rather than getting the kick-up in the first quarter as suggested here? | 41 |
fomc | 1,978 | There are really three elements I'd like to mention there. One is that our assumption is you do get the equivalent in our case of a $19 billion tax cut at an annual rate becoming effective right in the first quarter. Now, there are offsets. And I think the question really arises with the offsets. With regard to one of ... | 302 |
fomc | 1,978 | Willis. | 3 |
fomc | 1,978 | Mr. Chairman, a question and comment. The question, Jim, involves the problems of the seasonality of the adjustments on the new orders of durable goods. The fiscal year shift, you take unadjusted figures and you get a different picture. Yet that's one of the puzzling developments here on the current scene. My comment, ... | 161 |
fomc | 1,978 | On seasonal [adjustments], I'm not familiar with any particular problems that have come up. We do look at the not seasonally adjusted data, but quite candidly I don't feel comfortable discussing it in detail now. We can certainly provide a brief memo that would look at those figures more carefully. | 59 |
fomc | 1,978 | I just wondered if there is something in that that accounts for some of this behavior. | 17 |
fomc | 1,978 | I'm just not aware of anything. One of the major things you may be aware of deals with transportation equipment. Commercial aircraft orders, for example, have been bouncing all over and have been a major factor in the volatility of that particular series. | 48 |
fomc | 1,978 | Well, ladies and gentlemen, the staff projections would indicate that from second quarter of 1978 to second quarter of 1979, looking at four quarters, real GNP will grow at 3-1/2 percent and prices on the gross business product fixed-weighted price index will be up 7.1 percent. For the unemployment rate--I believe I'm ... | 100 |
fomc | 1,978 | Right. | 2 |
fomc | 1,978 | So those are the kinds of figures the staff is looking at. [For] the fourth quarter of '77 to the fourth quarter of '78, they're looking at 3-1/2 percent real growth, 8 percent prices, and unemployment at 5.9 percent. So, those are for the calendar year 1978 and for the four quarters--second quarter to second quarter. ... | 187 |
fomc | 1,978 | I'll break your track record and only say that we did not disagree with the staff's projection other than in the area of price inflation. We think it will be somewhat larger, at or near 8 percent for the year ahead. | 46 |
fomc | 1,978 | You're talking about to the second quarter of 1979. | 12 |
fomc | 1,978 | That's correct. | 3 |
fomc | 1,978 | Thank you. Bob. | 5 |
fomc | 1,978 | I would join Dave's comments that the staff projection is a little on the optimistic side. I look for a little more inflation than the staff does and a little less GNP production. | 37 |
fomc | 1,978 | Thank you. Mark. | 5 |
fomc | 1,978 | I'd just say ditto to what Roger said. | 10 |
fomc | 1,978 | Okay, thanks Mark. John. | 7 |
fomc | 1,978 | Well, as has been the case for some months, we expect less real growth and also less inflation than the staff does. We don't expect a stimulative effect on consumption from the tax cut because of the social security offset, the effect of inflation pushing people into higher income brackets, and that sort of thing. That... | 69 |
fomc | 1,978 | You expect less inflation? | 5 |
fomc | 1,978 | Yes, because we expect less real growth. | 9 |
fomc | 1,978 | Thank you. Ernie. | 6 |
fomc | 1,978 | I think the staff projection is quite a reasonable one. Having said that, I think the odds are about 50-50 that they will come out low as high. I think that's where we should try to be. As to potential problems, the main thing that I've encountered is skepticism as to whether we will avoid increasing numbers of bottlen... | 106 |
fomc | 1,978 | Thank you. Frank. | 5 |
fomc | 1,978 | Well, Mr. Chairman we're still much more pessimistic than the staff and we think that [is supported by] some of the numbers that have come in over the past month. [I'd note] the surprising weakness in new orders for durable goods, which was broadly diffused across all types of orders--it was not a phenomenon of transpo... | 147 |
fomc | 1,978 | Frank, the ticker tape this morning says chief executive officers of U.S. companies turned more pessimistic about the economy according to the Conference Board's latest survey. Its measure of business confidence fell to 49 percent in this year's third quarter, down from 58 percent in quarter two. Phil. | 59 |
fomc | 1,978 | Mr. Chairman, I don't have any problems with the staff forecast in the aggregate. I don't happen to agree with the pattern they're showing. I think they're overly optimistic on the degree of impact of the tax cut in the first quarter. I think we're likely to have more inflation than the staff shows and probably a littl... | 131 |
fomc | 1,978 | Seasonally adjusted. | 4 |
fomc | 1,978 | Also, I'm a little curious about your description of industrial production slowing when we're still getting more than 1/2 percent a month, having come off [unintelligible]. I thought it was doing very well. The consumer goods weakening I thought was something that needed to come along, and if we're going to maintain 1/... | 103 |
fomc | 1,978 | May I comment briefly? | 5 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | I would agree with you on industrial production. My point there was slowing from what we had seen earlier in the year. But I think I did use the phrase "but still quite good." So I would concur with you that it was a matter of describing movements within the year. | 56 |
fomc | 1,978 | May I just interject a supplementary question for Mr. Kichline to comment on? I had a vague feeling that the industrial production figure is looking good relative to other figures and that they don't seem quite consistent. Is that vague impression accurate or not? | 51 |
fomc | 1,978 | Well, I think, yes. There is a good deal of activity going on in the construction business equipment area in terms of production. And we do expect an increase, for example, in shipments, in the area of capital goods. If not, we're going to get an inventory backup there. But there's a good deal of activity in this heavy... | 137 |
fomc | 1,978 | Henry. | 2 |
fomc | 1,978 | Well, I think the odds favor continued expansion, though one can not discount the possibility of a downturn. I think what we have going in our favor is the absence of major imbalances of the usual cyclical kind. We have some new ones. We have the very high rate of inflation, and I think that is our main threat to a sta... | 157 |
fomc | 1,978 | Thank you, Henry. Steve. | 7 |
fomc | 1,978 | Well, I can agree with the staff's forecast. I've felt in the last month or so that we've had lots of points of strength and an implicit desire to be pessimistic. I just can't do that when we've had as much strength as we've had. I'll go along with the staff's forecast. | 60 |
fomc | 1,978 | Thank you, Steve. Paul. | 7 |
fomc | 1,978 | Well, the staff forecast seems reasonable to me. It's probably a trifle higher than I would come up with on real growth and a trifle lower for inflation but it doesn't seem at all unreasonable to me. As time passes here our recovery is looking a little more tired, as I suppose in some sense it should. It's getting olde... | 220 |
fomc | 1,978 | Thank you, Paul. Phil. | 7 |
fomc | 1,978 | I don't have any basic disagreements [with the staff forecast], although I'm inclined to think that the real growth is probably a little on the optimistic side. I'm inclined to think that personal consumption expenditures may not grow as expected because of the flattening of real incomes. I'm also concerned that while ... | 146 |
fomc | 1,978 | Phil, do you have any particular reaction to the housing outlook in the forecast? | 16 |
fomc | 1,978 | No, that's right on stream, in my judgment. Again, it depends on what the rest of the people around this table do to a certain extent. At this time I think in this neighborhood is about where it belongs; 1.8 or 1.9 million wouldn't be bad news at all. | 62 |
fomc | 1,978 | Thank you. Chuck. | 5 |
fomc | 1,978 | I think Frank Morris put his finger on something we have to look at very carefully in the next several months. I'm troubled by the sharp drop in durable goods new orders for business equipment, although it's just one month and I think we need to see the pattern over two or three months. But I certainly find the amount ... | 369 |
fomc | 1,978 | Chuck, that comment you mentioned is in here--that they're not only pessimistic for the general economy but are now becoming more so for their own [businesses]. | 33 |
fomc | 1,978 | That's the first time. This is a rather new survey and it's the first time they've ever found that. | 21 |
fomc | 1,978 | Thank you. Nancy. | 5 |
fomc | 1,978 | Well, the staff forecast is remarkably similar to the one I've been using all summer. | 17 |
fomc | 1,978 | Aha! So there's been a leak. | 9 |
fomc | 1,978 | One way or another there's been a leak. I would call attention to the swing in the full employment surplus, which is shown on page I-7. Fiscal policy is taking a rather large swing toward restriction at the present time. Looking at those numbers, I think I would be coming down off of my forecast that I had made to the ... | 194 |
fomc | 1,978 | Thank you, Nancy. Bob. | 7 |
fomc | 1,978 | Given the recent behavior of the aggregates, the social security and minimum wage increases scheduled for the first of the year, the likelihood of strikes that Phil Jackson mentioned, the bottlenecks that Ernie mentioned, and wage/price pressures, I think the staff may be a little low on inflation. I think 8 percent wo... | 125 |
fomc | 1,978 | Thank you, Bob. Willis. | 7 |
fomc | 1,978 | I'd remind the group that for the last couple of years we've been making funeral arrangements for the economy after the strong starts at the first of the year and then worries [later]. My own feeling is that it still may be a bit premature for this event. The durable goods [figure is a] question--what prompted my quest... | 345 |
fomc | 1,978 | Thank you, Willis. Dave. | 7 |
fomc | 1,978 | Well, as my question indicated, I'm a little less optimistic this month than I was a month ago. And I'm a little less optimistic than the Greenbook forecast, probably tracing down to the consumer sector where I think there is going to be more weakness than [in the staff projection]. Housing I suspect may hold up fairly... | 142 |
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