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fomc | 1,978 | Thank you, Dave. Bones. | 7 |
fomc | 1,978 | Mr. Chairman, we think that there's considerable [momentum] for another 15 to 18 months. Against that, though, we are somewhat concerned that the growth may be slower than the staff has projected and yet the inflation rate may be faster. We, too, may have a biased look at the moment, prejudiced by housing because of th... | 152 |
fomc | 1,978 | Thank you, Bones. Our clean-up hitter, Larry. | 12 |
fomc | 1,978 | Mr. Chairman, I still have not lost my belief that what happens in the near future in terms of output growth and what happens in the long pull in terms of price level movements depends to some extent on what our monetary policy is. We agree with the projections of the staff, although for different reasons, that we shou... | 328 |
fomc | 1,978 | The [responses to the] Conference Board's survey are confidential, so it has no effect on the stock market. When the executive speaks publicly he must say his company is going to do well. Thank you, Larry. I must say that I appreciate everyone's cooperation. This has been the most cogent set of comments in the briefest... | 166 |
fomc | 1,978 | I have another question that I should have brought up earlier. We keep hearing rumors but no facts yet that the housing boom may be nipped because the savings and loans are getting cold feet now on the 6-month T-bill certificate. I was wondering if staff had any input on this question--whether they consider this to be ... | 76 |
fomc | 1,978 | I think in large part it is talk. It depends on the institution. We've heard some of those comments but I think the bulk of the qualitative comments that we have come across have been quite positive. And the major reason for that is the spread, which is very favorable for picking up mortgages: You pay 8 to 8-1/8 to 8-1... | 108 |
fomc | 1,978 | And the portfolio is rolling over from other sources of funds. | 12 |
fomc | 1,978 | That's right. So I think it's a mixed picture. I might say that we did not choose to put all of the additional funds that we have in the projection, given the performance of that certificate, into mortgages. That's because later on we do have a concern about the liquidity of those institutions and just the balance shee... | 96 |
fomc | 1,978 | President Mayo, I might add just a fact. We've been erroneously predicting that the rate of growth of inflows to S&Ls would slow because there is some sort of stock adjustment at work. We now have the data for the first ten days of September and we're projecting a 17-1/2 percent rate of growth at the S&Ls in September.... | 94 |
fomc | 1,978 | We may have to knock off those certificates. Larry, you had a question? | 16 |
fomc | 1,978 | I have a question, Mr. Chairman, and it's not asked in a cantankerous vein. But I'm concerned. As we went around the table, we all seemed to recognize that we do face a 7-1/2 to 8 percent rate of inflation now. Do we as a group feel that this is preordained because of circumstances that we can't control? I'm concerned ... | 193 |
fomc | 1,978 | I take the fifth. | 5 |
fomc | 1,978 | I don't want to comment. | 6 |
fomc | 1,978 | Yes, there is a relevant observation that may be made, which is that the Administration has said that they are going to bring forth a new anti-inflation proposal. If that should appear to be a program of substance with some possibility of having a significant impact, it could provide a basis for a wave of optimism thro... | 131 |
fomc | 1,978 | Let me make a couple of brief comments, but I really think this belongs in our monetary discussion because we could spend the whole meeting on this. But let me just observe a couple of things. One, when I came here six months ago the outlook for the growth of the economy in real terms for the current calendar year was ... | 413 |
fomc | 1,978 | One final comment but I'm afraid it's not a very optimistic one. I'm not sure quite what to read into George Meany's blast yesterday of wage-price guidelines, but it doesn't sound very promising-- | 39 |
fomc | 1,978 | Vintage mania, I would say. | 7 |
fomc | 1,978 | It doesn't sound very promising in terms of getting the cooperation of labor. | 14 |
fomc | 1,978 | It was a little milder than I had anticipated. | 11 |
fomc | 1,978 | Actually, this was reported as being milder than expected. | 12 |
fomc | 1,978 | I thought it was. | 5 |
fomc | 1,978 | What I heard on TV didn't sound mild. | 9 |
fomc | 1,978 | Let's [cover that] perhaps in the general discussion. And before the break, let's cover the domestic open market operations. We have a report on operations, I see, from Paul Meek. | 39 |
fomc | 1,978 | [Statement--see Appendix.] | 6 |
fomc | 1,978 | [Secretary's note: This question was asked during the statement.] You said 14 to what? | 20 |
fomc | 1,978 | I said 14 to 17 billion. There are even some that are lower than that, but that's the consensus at the moment. [Statement continued.] | 31 |
fomc | 1,978 | Thank you, Paul. Let me first get the routine business out of the way and then move on to the secondary. Routine is just to ratify the transactions of the Desk since the last meeting. Paul made a voluminous report, I believe, available to you. Are there any questions or comments or may we have a motion for approval? | 69 |
fomc | 1,978 | So moved. | 3 |
fomc | 1,978 | Second. | 2 |
fomc | 1,978 | It has been moved and seconded. Discussion? All in favor, say "aye." Opposed? So voted. The second point you made, Paul, was the temporary increase in the authorization--to raise [the limit] on the change in the open position over the period stated. | 58 |
fomc | 1,978 | To $4 billion. | 5 |
fomc | 1,978 | You said temporary. I understand temporary to mean what in terms of time? | 15 |
fomc | 1,978 | In the period between now and the next meeting of the Committee. | 13 |
fomc | 1,978 | [Until] the next meeting. All right. Steve, do you have any comment on that particular question? | 22 |
fomc | 1,978 | No, Mr. Chairman. For technical reasons, there appears to be a sizable need to provide reserves and I believe that increase would be justified for this [upcoming intermeeting] period. | 38 |
fomc | 1,978 | On that particular question, does any member have a question or comment or concern? | 16 |
fomc | 1,978 | Well, only that I hope it does not encourage the Desk to do more in the way of increased activity in the market. | 25 |
fomc | 1,978 | I don't know that they've ever been constrained. | 9 |
fomc | 1,978 | I don't think they have. | 6 |
fomc | 1,978 | Well, we need a motion to approve that increase, which will run to the next meeting. | 19 |
fomc | 1,978 | I so move. | 4 |
fomc | 1,978 | Second. | 2 |
fomc | 1,978 | Any further discussion? All in favor, "aye." Opposed? So voted. Now, are there any questions or comments on the report that Paul has given? Yes, John. | 37 |
fomc | 1,978 | I'd like to read a more optimistic interpretation, Paul, into that decline of long-term bond yields. The wish may be the father of the thought here. But I'm convinced, as are a lot of people, that inflationary expectations in fact have a great deal to do with the level of long-term bond yields. My interpretation, perha... | 163 |
fomc | 1,978 | Well, I think that is certainly one factor on the part of some investors. The technical explanation that you alluded to is that in fact money management has attempted in the wake of the '73-'74 experience to be more sophisticated and to pile up more money in the short end, awaiting the peak in interest rates. Everyone ... | 122 |
fomc | 1,978 | There's still quite a bit of liquidity waiting for that time, isn't there? So it may take a considerable time-- | 23 |
fomc | 1,978 | In the forecasts of interest rates that market people make, the peak ranges from Lee Prussia from the Bank of America, who is expecting a fairly considerable decline in short-term rates by the second quarter of next year, to some others who don't see that happening even in 1979. I think the market prognosticators are a... | 130 |
fomc | 1,978 | Henry. | 2 |
fomc | 1,978 | For both domestic and international reasons, I think it would be desirable to get even more of a downward sloping yield curve. The Treasury bill rate is still well below other short-term rates. The coupon area could come down a little. I'm wondering whether the Desk is doing all it can to move rates in that direction. ... | 118 |
fomc | 1,978 | Well, the reserve need that we are now confronting, which is a rise of $5 billion in the Treasury balance from the current statement week to the next statement week, will be such as to require us to be buying in all sectors of the market. So we'll certainly be in the coupon market once or possibly twice over the next t... | 73 |
fomc | 1,978 | Chuck. | 2 |
fomc | 1,978 | I, too, had thought that there was a possibility for perhaps a little help in the international area on operation twist. But I must say, as I look at this yield curve, that it is about as twisted as it can get, in my view. That is, as Paul indicated, the peak is before two years and it declines progressively as one goe... | 140 |
fomc | 1,978 | Well, thank you for your report. We will now take a break for coffee and rest and come back and finish off the meeting. | 27 |
fomc | 1,978 | All right now, Larry, I expect you to make prudent monetary policy since you raised the subject. Let's hear from Steve Axilrod. | 28 |
fomc | 1,978 | Thank you, Mr. Chairman. [Statement--see Appendix.] | 13 |
fomc | 1,978 | Thank you very much. Let me call your attention to a couple of figures on pages 6 and 7 in the Bluebook. On page 7 you see the September estimate for M1 is in the 10-1/2 range--10.8 or 10.4 depending on the alternative. And it's in the 6 percent range in October, according to the Board staff's estimate. That means abou... | 597 |
fomc | 1,978 | Well, I approach it from exactly the opposite order you approached it, Mr. Chairman--from the aggregates to the federal funds rate rather than the reverse. I must confess to some bias toward keeping the short-term targets in some relationship with the longer-term targets. Obviously in the past year or more we have been... | 158 |
fomc | 1,978 | Please, we need to clean up our language. | 10 |
fomc | 1,978 | On M2, I think we have a little better argument for going above the long-term range because we are getting--for reasons we know--the reaction to the 6-month certificates. So I could see raising [the range we had] last month and going higher than the long-term range there. I think I'd be happier with something like 6 to... | 238 |
fomc | 1,978 | Thank you, Paul. Ernie Baughman. | 11 |
fomc | 1,978 | Mr. Chairman, it seems to me that the objective of the policy posture should be that of trying to keep enough constraint on the economy so that any capacity that it has to moderate inflation it will undertake to do that. And I find myself, in trying to develop some monetary specifics, leaping back to that. I'm coming o... | 285 |
fomc | 1,978 | Thank you, Ernie. Phil Coldwell. | 10 |
fomc | 1,978 | Mr. Chairman, I approached this on the basis that we have not yet obtained the credit restraint necessary to slow inflation. The inflation [expected] even by the most optimistic of those I have heard around the table is by my standard excessive. I don't believe we can permit the aggregates to continue to grow at this p... | 412 |
fomc | 1,978 | Thank you, Phil. Dave Eastburn. | 9 |
fomc | 1,978 | I am influenced by two countervailing forces, as I guess many other people are. On the one hand are rates of growth of money that I think are excessive. Take the September increase plus the revisions; it gets us up to rates that are higher than we really would like to see. That consideration would lead me to something ... | 182 |
fomc | 1,978 | Thank you, Dave. Steve Gardner. | 8 |
fomc | 1,978 | I have difficulty in hearing my colleagues, which means I've missed great wisdom. I'm sorry. | 18 |
fomc | 1,978 | Well, the acoustics aren't that good and I am having difficulty too. So if all of you get up and speak into your mike we'd all hear you. So now reciprocate. | 37 |
fomc | 1,978 | I have no problems with alternative B and the intermeeting range for the federal funds rate with 8-3/4 as the midpoint on whatever range we set. We do have to slow the aggregates; we often immediately reach for the red telephone when the aggregates show higher numbers than they should or than we want. But that doesn't ... | 139 |
fomc | 1,978 | Yes. | 2 |
fomc | 1,978 | That's going to create some havoc with our systematic collection of figures. | 13 |
fomc | 1,978 | If we have a massive outflow into savings, we will be right for the wrong reasons for the first time. | 23 |
fomc | 1,978 | Right. In any event, that's the way I would feel, Mr. Chairman. | 17 |
fomc | 1,978 | Thank you, Steve. Phil Jackson. | 8 |
fomc | 1,978 | Mr. Chairman, I don't share the judgment of those who have felt that money was exploding all over the place and that we are irresponsible and so forth. I think the study that the staff did on the so-called M1+, or M1 prime or whatever the label is, shown on table B-9 is very interesting. In fact, if you look at that ta... | 305 |
fomc | 1,978 | Thank you, Phil. Now Chuck. | 8 |
fomc | 1,978 | Well, my problem is that I don't consider the 2-month average M1 growth that's being projected extraordinarily high relative to the economy. It may be a trifle high, but not very. If we have what we were talking about--roughly an 11 percent increase in nominal GNP--I would expect an increase in narrow M1 of 7-1/2 to 8 ... | 668 |
fomc | 1,978 | Thank you, Chuck. Nancy. | 7 |
fomc | 1,978 | I would counsel to stay put at the present time. There have been a lot of moves going on in the market, a lot of activity. The economy is slowing down; that third quarter projection is for a 2.9 percent rate of real growth and one of the things that bothers me the most about the economic forecast--although I agree with... | 242 |
fomc | 1,978 | Thank you, Nancy. That's what I call a very tactful cop out, Nancy. You are not going to get off the hook. You are going to have to give your aggregates. | 38 |
fomc | 1,978 | Well, I go with Phil Jackson in looking at the M1+ numbers but I draw somewhat different conclusions from them. I think this is a very interesting study. It shows that we once more underestimated the rate of money growth both because of the benchmark adjustment and because of the cash items bias. Now I have two or thre... | 402 |
fomc | 1,978 | Okay, Henry. Mark Willes. | 8 |
fomc | 1,978 | Since I have been accused of being a maverick, may I quote a statement that you made, Mr. Chairman, with which I'd like to agree to show that I am in the mainstream. | 40 |
fomc | 1,978 | I probably have made two or three you could agree with! | 12 |
fomc | 1,978 | At least. But this one was particularly interesting to me. This was in a letter that you sent to Congressman Reuss and it says "theoretical and empirical work by economists indicates that the trends in monetary expansion over the longer run have little impact on the behavior of real output and employment, the primary i... | 826 |
fomc | 1,978 | And what midpoint, Mark? What would you do immediately? | 12 |
fomc | 1,978 | I'd go immediately to 8-1/2. | 11 |
fomc | 1,978 | All right, thank you. Willis. | 8 |
fomc | 1,978 | Mr. Chairman, I guess I've come full circle. It's a circle we have been around here in our discussion. I associate myself with the Volcker position in the sense that I think we do have to continue signaling our concern about the aggregates growth, whatever those aggregates are, with the periodic adjustments we make to ... | 166 |
fomc | 1,978 | All right. John Balles. | 7 |
fomc | 1,978 | This Committee continues to search for how to reach a soft landing because I think that is our continued problem. We obviously have a real dilemma. A good many of us have seen a slowdown in the rate of economic growth following several years of extraordinary growth. But also many of us are concerned about the implicati... | 310 |
fomc | 1,978 | Thank you, John. Bob Black. | 8 |
fomc | 1,978 | Mr. Chairman, I find the recent behavior of the aggregates very disturbing. It seems to me that we are repeating experiences we had back in '76 and '77 when, despite our vowed intention of bringing about a gradual deceleration in the aggregates, we acquiesced--inadvertently to be sure--in letting the aggregates acceler... | 356 |
fomc | 1,978 | Thank you, Bob. Roger. | 7 |
fomc | 1,978 | Thank you, Mr. Chairman. Just an observation first of all: What has happened over the past month seems rather incredible to me--that is, that the markets have absorbed with very little pain or very little anguish the 1/2 percentage point increase that we have fostered. And it seems to me that the markets are now in a p... | 322 |
fomc | 1,978 | Thank you, Roger. Bones. | 7 |
fomc | 1,978 | Mr. Chairman, I associate myself with those who have suggested that monetary policy may indeed have some influence at this juncture. And I liked Steve Axilrod's comment that we could minimize any risk of undue increases in the aggregates. So for both domestic and international reasons, I'd like to see us move the M1 ra... | 112 |
fomc | 1,978 | Thank you. Bob Mayo. | 6 |
fomc | 1,978 | Mr. Chairman, I think I'm probably as concerned about inflation in this country as anybody around this table. I also feel very strongly that monetary policy has an important role to play. I recognize that the lags in the effect of monetary policy are substantial--and substantive in amount, not just in time. And I must ... | 793 |
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