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fomc
1,978
Thank you, Bob. Frank Morris.
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Mr. Chairman, at least on the surface it would appear that our decision this month is more difficult than last month because on the one hand we have more evidence that the economy is moving into a period of slower growth but this evidence is accompanied by another bulge in the growth rates of the monetary aggregates. A...
633
fomc
1,978
Thanks, Frank. Larry, you not only drew the clean-up position on the circle this morning, but alphabetically you do too. It would not be inappropriate, nonetheless, to stay within the time limit.
42
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Mr. Chairman, there is an advantage to being at the end of the batting order because you can sense a certain consensus of the points of view that emerge from the opinions that were stated. First of all, as far as this short-term scenario is concerned, I think the die is pretty well cast. I would be for alternative B or...
540
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Larry, before I respond to that, I'm not sure we understood your federal funds rate range. Did you intend--
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Alternative B is fine. I'd like to see aggregates growth tightened even more and the fed funds rate as stated in alternative B.
25
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1,978
Let me say that I certainly welcome inputs at the next meeting, from those who care to do so, on how you see the strategy for reducing aggregates growth without bringing on a recession. I wonder if we really want the rigidity of written papers. I can see that that might become a situation where when we're in a collegia...
208
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I didn't mean, Mr. Chairman, to eliminate the numbers but to build up--
17
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I understand. I regret that we have to deal with this great matrix. Now I have to make sense of this complicated matrix and see if we can strike a consensus. But at the next meeting we're going to be setting long-term ranges and I certainly would welcome inputs on how we can restrain the growth of the aggregates withou...
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I would move to 8-1/2.
11
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And Dave Eastburn?
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I would, too.
5
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And Steve, the same for you? I don't think you expressed--
14
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Yes.
2
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1,978
In that case, let me see if I can recite [a summary]. On M1 I'll take the bottom number first. Will you keep score? One bottom number is 3; three bottom numbers are 4; three bottom numbers are 5; and four bottom numbers are 6. Does that add up to the [number of] voting members?
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Nancy didn't give us one so that would be twelve. On the other side we have one 7; four 8s; five 9s; and one 10. Does that add to eleven?
42
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So the brackets go in that range. If you stuck with the largest number, you would have 6 to 9. Is that correct? Yes, the 6 to 9 would be the most prevalent one. On M2, I see one 5-1/2; five 6s; one 7; two 7-1/2s; and an 8. And I didn't give one; I just didn't get around to it. Let's see. On the up side we have two 9-1/...
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8-1/2.
6
fomc
1,978
Okay. Well, that makes nine at 8-1/2. So, one could say that this looks like an M1 range of 5 or 6 on the low side and more like 9 on the up side. And it looks like M2 is kind of at 6 to 10. And we have 8-1/4 to 8-3/4, with a move to 8-1/2 as a fairly broad consensus. What is your pleasure? Let me first see if we can h...
216
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I'd want to go somewhat lower on M1.
10
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1,978
On the top side or the bottom side?
9
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1,978
Well, I'd like to go lower on both, but particularly I don't like the 6 percent bottom.
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5 to 9.
5
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5 to 9.
5
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Ten is awfully tight on the top of M2.
12
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I agree with that, too.
7
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I think 7 to 11 would be better.
11
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If you'll go lower on M1, I'll go with that.
13
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1,978
It would be very helpful if the Manager would be explicit about how he would operate as a consequence of unfolding events. For example, if the Committee were to adopt 6 to 9 for M1, it would appear to me that the midpoint that the Manager would look at would be 7-1/2. Therefore, if the results were higher than 7-1/2 on...
255
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What do you do if you go to 5 to 9? You increase the probability that there will be an 8-3/4 percent funds rate.
33
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1,978
Let's ask the Manager to give us some perception in his own mind of how he might operate under a 6 to 9 percent [M1] component.
32
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1,978
6 to 9?
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A 7-1/2 midpoint.
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fomc
1,978
Well, I think it's quite clear that the instruction as tentatively arranged here is an immediate move to 8-1/2. By immediate, I mean over a few days. We'll see more aggregates on Friday, again a week from Wednesday, and then again a week from Friday. As you know, I don't believe in precipitous movement to the upper end...
238
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Mr. Chairman, would it be appropriate to take a consensus on what I think is essentially Paul Volcker's suggestion of 4 to 8 on the M1 range and the others as you [suggested]?
43
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4 to 8? I thought Paul said 5 to 9.
15
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No, 4 to 8 is what I originally said.
13
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And [your Bank] has an 8 percent projection and staff here has 8-1/2. So you'd move immediately to the upper end of the range.
34
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I would move immediately to the midpoint and [then] move to the upper end and remain that way.
21
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1,978
Well, I'll take any series of straw votes you want. You want to strike M1 at 4 to 8? How many want to support that?
32
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I would support it.
5
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You have to hold your hands higher.
8
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1,978
What was the number?
5
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1,978
4 to 8.
5
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1,978
Four.
2
fomc
1,978
Try 5 to 9.
7
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1,978
I was wondering about 4 to 9--approach it by steps. Say 4 to 9 and 6-1/2 to 10-1/2.
37
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1,978
Let me run the meeting, if you don't mind. How many would be willing to accept 5 to 9? I count one, two, three, four, five, six. Is that right? And apparently there is a very large consensus on the funds rate, as I gather. I may be kidding myself. It's funny. We add up the numbers, and people go for numbers that are di...
136
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1,978
Why not split the difference here and make it 5 to 9 on M1 and 6-1/2 to 10-1/2 on M2?
35
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1,978
All right, let's try 5 to 9 and 6-1/2 to 10-1/2. How many are able to support that? I need hands held high. One, two, three, four, five, six, seven. All right. Let's run a vote then on a directive that would have an M1 range of 5 to 9, an M2 range of 6-1/2 to 10-1/2, and a fed funds range of 8-1/4 to 8-3/4 with a move ...
152
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Mr. Chairman, I have an opinion in regard to policy, if you are asking me that. But I started [with] a somewhat different premise than many members of the Committee because I believe the longer-run range of 4 to 6-1/2 for M1 is unrealistically low and, therefore, I would not push as hard on the funds rate. Although I d...
128
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1,978
Anybody else? Alan?
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I have no comments. I think the market will take an 8-1/2 percent funds rate without much difficulty; I think if we got to 8-3/4 very quickly, we'd get a bit of a reaction.
48
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Let's read the proposal. Does everyone understand it? The proposal is 5 to 9 for M1; 6-1/2 to 10-1/2 for M2; a fed funds range of 8-1/4 to 8-3/4 with a midpoint of 8-1/2, and an aggregates directive. Let us call the roll.
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Chairman Miller Yes Vice Chairman Volcker Yes President Baughman Yes Governor Coldwell Yes President Eastburn Yes Governor Gardner Yes Governor Jackson Yes Governor Partee Yes Governor Teeters Yes Governor Wallich No President Willes No President Winn Yes
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1,978
It's a vote of 10 to 2. Our next meeting, ladies and gentlemen, is on October 17. Through arrangements of the management it will be here. There are two important events that are about to take place. One is luncheon, during which we hope to discuss a number of things, particularly the members with so-called equity and t...
124
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Good morning, ladies and gentlemen. We have a busy agenda today, so I will ask your indulgence to take care of those matters we can expeditiously in order to leave as much time as we can for the weightier subject. I'll remind everyone that we do have a luncheon planned after the FOMC meeting. As usual, we have a number...
161
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[Statement--see Appendix.]
6
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Normally I would say thank you, but I'm not sure I will. I appreciated your report. Any questions? Henry.
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If the dollar has been the vehicle for going long on marks and Swiss francs, would that suggest that there's some unwinding of positions ahead--to buy back those dollars or to repay them?
38
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1,978
Yes, I think there is a very substantial oversold position against the dollar that could be unwound at some stage. But it's one of these problems that we have in economics where you have a curve and you can slide down the curve but you may not be able to slide back on the same curve. And my fear is that people are now ...
158
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Scott, what is the market telling you that it thinks we ought to do about this?
18
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1,978
Well, as I say the main concern is inflation. People are now focusing on the anti-inflation program which has been indicated by President Carter and other advisers. Every time there's a new announcement that it's going to be delayed, that tends to lead to a new bout of selling pressure on the dollar. But there is a pro...
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Chuck.
2
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Scott, I have the impression, though it's sort of a vague one, that our interest rates relative to those abroad have a larger margin than the difference in the inflation rate. Why would that then be a concern? I would think that the prospects are for an increase in the inflation rate abroad and that everybody would rec...
65
fomc
1,978
They do recognize the absolute differential but you're talking about day-to-day speculation in the market. If you can make 1 percent overnight, that's a differential of 360 percent per annum.
37
fomc
1,978
Yes, but that's just a run in the market. I mean that has to reverse.
18
fomc
1,978
Yes, it has to, but it hasn't; and we've been going several months with the same problem. As I say, the Dutch took the trick of raising interest rates very sharply on call money--that is a technique of forcing shorts to cover--and then bringing the rates down.
57
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But it's a satellite country of Germany, of course.
11
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That's right.
3
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It isn't quite clear, I think, [whether] the interest rates are fully offset.
18
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1,978
Pretty much.
3
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Larry Roos.
4
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Yes sir. I'd just like to pursue one aspect of what you said. Initially, as I heard your statement, you pointed to the lack of credibility toward our determination to deal with inflation effectively. And then a few [moments] ago you said that the fundamental factors were improving. It seems to me that we've had those f...
129
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I'm saying that is what the market is saying right now.
12
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1,978
Hasn't it been saying that for the last six months?
12
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1,978
It's been saying that, but the moment it comes through if at the same moment an OPEC seller is selling $100 million against marks, then everyone is going to shrug it off. This is the problem. The market forces have taken over and they're driving the dollar lower. And market forces somehow have to be stopped, whether by...
83
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Dave.
2
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1,978
Scott, how would the market view a recession?
10
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Oh, they don't want a recession. They're not dealing next year; they're dealing with today and tomorrow, the next week, and the next few weeks. And we have this cumulative process under way. No, I've argued with people. And I spend more of my time arguing these days than intervening and they're both equally frustrating...
83
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1,978
Phil.
2
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1,978
Do you see any evidence of foreign official institutions changing their reserve holdings in enough quantities to be of concern?
21
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1,978
It's hard to see directly. We have seen some transactions. It's in what is called the second tier central banks outside of the OECD. The smaller central banks in OPEC, Latin American central banks, central banks in Asia, and so forth we know have been diversifying to some degree. The central bankers themselves--we've h...
216
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1,978
Is our withholding tax problem exacerbating this situation?
10
fomc
1,978
Not as far as the central banks are concerned.
10
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I was thinking about the other institutions.
8
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I don't think they're worrying so much about a technicality of that sort.
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Ladies and gentlemen, we need to ratify the transactions since the previous meeting; [a report] has been circulated. Is there any dissent or objection to ratification? Hearing none, that is approved and we move to consideration of the Manager's recommendation on foreign currency operations. Alan Holmes.
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[Statement--see Appendix.]
6
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You'd like approval on the renewals?
9
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Yes.
2
fomc
1,978
Is there any objection? Hearing [none], that is approved. And, Alan, while you have the floor let us move on. I believe you and Scott have written us a memo regarding those discussions to amend the swaps, and I believe you'll report to us on the recommendations. Excuse me, Phil.
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I wonder if the Manager has a recommendation concerning the volume of operations. It seems to me that the last time we raised the limit on operations. Do you want a continuation of that increase?
38
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1,978
Governor Coldwell, I think we'll wait until we get close to using up the intermeeting limit before we come to the Committee for that. Are you talking about the overall limit or--
37
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1,978
You're talking about domestic, aren't you?
8
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1,978
Yes, I'm talking domestic.
6
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I think we increased it from $4 billion to $5 billion on the domestic. You're thinking of the intermeeting limit on activity in foreign exchange.
30
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Yes, on the foreign. I'm sorry, I got confused.
13
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We are approaching the [limit in the] authorization on the net open position. But Alan and I have decided that we're going to try to hold as well we can within the current authorization over the next month. And if we have to, then we'll come to the Committee.
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How far away are you?
6