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fomc | 1,977 | Thank you, Mr. Holmes. Any questions? | 10 |
fomc | 1,977 | The Germans are still in surplus. [Otmar] Emminger [of the Bundesbank] said that they are willing to accept a deficit, as was stated in the press. And my question is, does the German intervention suggest that they are merely trying to iron out minor market fluctuations, or are they positively resisting a upward trend i... | 72 |
fomc | 1,977 | I can't answer that question with great certainty. I think two things were involved. They were disturbed when they were seeing the mark appreciate by nearly 1 percent a day. This, I think, was an effort to calm down the markets, and they recognize, too, that there have been several large orders coming out of individual... | 182 |
fomc | 1,977 | Anything else? | 3 |
fomc | 1,977 | We're increasing how often we intervene in marks. Do you think we need larger working balances, or is the swap an adequate substitute-- | 26 |
fomc | 1,977 | I would be delighted to build up our working balances. You know, many months ago the Committee suggested that $150 million might be a proper level. We built up close to $100 million in all foreign currency balances at one time, and then the market turned against us and we had to spend them to keep our market in New Yor... | 119 |
fomc | 1,977 | Any more? If not, a motion to confirm the transactions carried out by the Desk--the motion has been made and seconded. Any objections? There are none. Mr. Holmes, do you have any recommendation with respect to the operations of the Desk? | 52 |
fomc | 1,977 | Mr. Chairman, there is just one recommendation. Two drawings made last November by the Bank of Mexico, in the amount of $75 million each, come up for renewal on February 10 and February 17. The new Administration [in Mexico] has provided a boost to confidence. The peso has firmed a bit in the market, and the Bank of Me... | 137 |
fomc | 1,977 | Do we have any advice from the Bank of Mexico on the subject? | 14 |
fomc | 1,977 | Yes, I believe we have, Mr. Chairman. | 11 |
fomc | 1,977 | I talked to the Deputy Governor last Friday. | 9 |
fomc | 1,977 | All right, a recommendation by Mr. Holmes is before the Committee. | 14 |
fomc | 1,977 | Is this to be in any way tied to the Treasury action on our part? | 16 |
fomc | 1,977 | Well, they have a similar swap with the Treasury that they will be paying down pari passu, I assume, [with] the two. | 29 |
fomc | 1,977 | Any objection to the recommendation? I hear none. Thank you very much, Mr. Holmes. We will turn now to Mr. Gramley for his report on the economic outlook. | 36 |
fomc | 1,977 | [Secretary's note: This statement was not found in Committee records.] | 14 |
fomc | 1,977 | Thank you very much, Mr. Gramley. Your reports are always good technically, professionally, but today's report was not only excellent professionally but it also brought a little cheer to some of our hearts. We are ready now for Committee discussion. Who would like to be first? Mr. Lilly, please. | 61 |
fomc | 1,977 | Well, as you know, since last summer I have been the bear of the outfit. I have been quite concerned [about] the course the economy was taking, partly as a result of the actions of the Committee this last fall and other factors. I've now become very bullish, and I feel that we are about to see a marked improvement in t... | 122 |
fomc | 1,977 | Thank you, Mr. Lilly. Mr. Black, please. | 13 |
fomc | 1,977 | Lyle, do you have any inkling as to what other parts of GNP may show? How about real final purchases--do you have a feeling on that? | 34 |
fomc | 1,977 | Yes, I have the figures. I just got them a few minutes after I came down this morning. Real final sales are precisely the figures that we had projected--76.8, up 4.8 percent. | 44 |
fomc | 1,977 | 4.8 percent. Is that the highest for any quarter of this past year? | 17 |
fomc | 1,977 | Yes, it is, to the best of my recollection. | 13 |
fomc | 1,977 | That is a pretty significant margin, really--4.3 was the highest in the third quarter. | 20 |
fomc | 1,977 | All right, thank you, Mr. Black. Mr. Baughman, please. | 18 |
fomc | 1,977 | I would ask Lyle, would he care to express a view as to whether a larger increase in wage rates would likely be restrictive or expansionary as far as economic activity is concerned--regarding total employment and production? As to larger than what, well, larger than otherwise. Or if there was some way of reducing the i... | 92 |
fomc | 1,977 | I believe that in the short run, a larger increase in wage rates would tend to have a larger stimulative effect on consumption than an adverse effect on business fixed investment. But I think the longer-run implications would more likely be adverse. If you have in mind a time period of two years--a horizon that long--t... | 87 |
fomc | 1,977 | I assume that you have noted that the oil companies have apparently negotiated contracts with a 9 percent increase for the first year and apparently-- | 27 |
fomc | 1,977 | For the second year also; this is a two-year package. As I understand, it is roughly 9 percent in each of the two years and no cost of living adjustment. | 36 |
fomc | 1,977 | --and apparently this will be kind of a pattern for that industry. Whether it will extend into other industries, I wouldn't know. | 26 |
fomc | 1,977 | All right, thank you, Mr. Baughman. Mr. Winn, please. | 18 |
fomc | 1,977 | I'm sympathetic to Governor Lilly's view in terms of the turnaround, but just one word of caution on that score. To what extent are future capital expenditures related, as they have been in the past, to local and state government activities? We've put the financial position of these firms in better shape so that they c... | 113 |
fomc | 1,977 | We have a projection of a fairly moderate increase in real state and local expenditures for 1977. I think most forecasters anticipate that the state and local sector will not be showing much strength. Well, I think Governor Lilly is talking about business fixed capital, and that is independent in the way we look at the... | 233 |
fomc | 1,977 | Well, I don't want to get into a long argument about the future, because it is too unpredictable, but I do think, when you have a very strong retail sales stream here that we didn't have before--it goes back to Thanksgiving--that's my basis for my feeling on capital expenditures. | 58 |
fomc | 1,977 | You know, on that point, I wish I had the document before me, but perhaps Mr. Mayo can help me. I was reading last night a report of the Chicago businessmen--that is an excellent group, Bob. One of the men commented that the rather flat trend in retail sales that we had between March or April and September was due in p... | 81 |
fomc | 1,977 | Yes, I can find that. Well, "this firm" refers to one of the economists for one of the retail firms--"this firm" is in an excellent position to know. "This firms believes that the Department of Commerce sales data that show a flat trend in summer and early fall reflect an erratic seasonal adjustment and that sales did ... | 108 |
fomc | 1,977 | I don't have any feeling for that. Generally, though, my feeling would be that retailers were disappointed in the pace of sales during the late spring and the summer months. | 34 |
fomc | 1,977 | You know, some retailers [are] like the rest of us--we have our own feelings and attitudes, we look at some statistics, which may be faulty, and the statistics have an effect on our views and our judgments. | 46 |
fomc | 1,977 | That could be. | 4 |
fomc | 1,977 | They weren't looking at seasonally adjusted figures, they were looking at the year-over-year, as I recall, which narrowed very appreciably, and made them gloomy. | 33 |
fomc | 1,977 | Well, this is true of the retailer. I would like to think that their economists do both. I know, in one of the very large retail sales chains-- | 33 |
fomc | 1,977 | I know of one retail economist who looks at seasonally adjusted-- | 13 |
fomc | 1,977 | Federated. | 3 |
fomc | 1,977 | Yes. | 2 |
fomc | 1,977 | That's the one I was thinking of. This may merely mean that we know so little about what economists in other retailing firms do. Lyle, would you be good enough to get ahold of this economist--he'll be easy to locate--and find out what he thinks he knows? He may have some valuable insights in statistical practices. | 69 |
fomc | 1,977 | How did that information compare with inventory accumulation in nondurables at retail? | 15 |
fomc | 1,977 | Well, I think it is a question of whether or not the rate of accumulation was too high in the minds of retailers. And since their sales were not performing as they had thought--since they were gloomy about them--they took actions to try to get rid of those excess inventories. And the pattern fits in that respect, but i... | 77 |
fomc | 1,977 | Well, the pattern fits qualitatively, not necessarily quantitatively. | 13 |
fomc | 1,977 | Yes, by all means. | 6 |
fomc | 1,977 | All right, thank you very much. Mr. Eastburn, please. | 15 |
fomc | 1,977 | Mr. Chairman, my forecast agreed, for the most part, with the projection of the Board staff. One possible difference has to do with inventory. Once a month we survey manufacturers in our area, asking them their intentions [unintelligible]. And although they're not doing much right now with respect to either reducing or... | 107 |
fomc | 1,977 | I think there's some possibility of a downside risk in the first quarter. We had a little better inventory clean-up than we had anticipated, and as I look at both our figures and those of the Commerce Department today, their figures are not a lot different than ours. I really think that the revised GNP figures for the ... | 144 |
fomc | 1,977 | Yes, but my figures would be for the shorter run. | 12 |
fomc | 1,977 | Yes, I think that's a point well taken. | 10 |
fomc | 1,977 | Thank you, Mr. Eastburn. Mr. Partee, please. | 15 |
fomc | 1,977 | Well, Mr. Chairman, I agree with the first part of Governor Lilly's statement, but I don't think I really agree with the second part. | 30 |
fomc | 1,977 | What is the second part? | 6 |
fomc | 1,977 | The second part is that he is concerned with the possibility of overheating in the course of this year. And I would certainly agree that the best-guess projections appear to have changed markedly for the better in the last several months, not only the retail sales. Now, Dave, those retail sales could be a little bit ch... | 205 |
fomc | 1,977 | For what period, again? | 6 |
fomc | 1,977 | For the next four quarters. And so, even if that were, say, a point higher than what's projected, it would not be an extraordinary number. It could be a point higher if we get a little more capital spending, a little more inventory than suggested. But even with that, it seems to me that, as you reach the end of 1977, y... | 636 |
fomc | 1,977 | Full employment deficit will not have any psychological impact. | 10 |
fomc | 1,977 | But it has a real effect, Mr. Chairman, that's what I guess I want to imply to you. | 22 |
fomc | 1,977 | A psychological effect will come from the actual or prospective deficit, over time. | 15 |
fomc | 1,977 | Well, that would be $70 billion or so, and that's a very large number, too. But it also could have some effects that we can't fully anticipate. So I think, although I am not concerned about overheating things for the year immediately ahead, that the trend in these fiscal numbers does give me real pause. And I think it ... | 155 |
fomc | 1,977 | May I make one comment, Mr. Chairman. A fact which I think the Committee should keep in mind in thinking about Governor Partee's comments--and that is, this $26 billion includes a $10 billion rebate-type payment. If it would be your judgment that rebate-type payments don't have much effect on economic activity, then yo... | 112 |
fomc | 1,977 | I wouldn't subtract $10 billion. I've never felt that a refund didn't have any effect on the economy. | 21 |
fomc | 1,977 | No, I don't either. | 6 |
fomc | 1,977 | It does have a rather high spillover into the saving flows, but I wouldn't say it's a zero effect on the economy. And the other thing, the point that I would make, Lyle, is that this is just the opening gambit by the Administration. The Congress has not yet dealt with this, and the spending programs that are people's p... | 102 |
fomc | 1,977 | I would agree with Mr. Partee. I would also point out that what happened in the market for long-term interest rates last week, partly as a response to the new fiscal package announced by the incoming Administration, is a warning of what may be ahead. While I'm speaking, let me add one fact. At 2:00 or 2:30 there will b... | 117 |
fomc | 1,977 | Well, I share what Mr. Partee says about the full employment deficit. In addition to the financial consequences, it also shows the greater limitations in the way of capital expenditures that we face once the economy is operating at a high level again and the problem, therefore, of getting an adequate amount of capital ... | 230 |
fomc | 1,977 | Governor Wallich, I think that's a genuine concern. I think, in answering that question, one should start by noting that, while we're in a fairly advanced stage of the recovery, we still have an ample amount of underemployed resources, both on the labor side and on the industrial capacity side. I would note also that i... | 71 |
fomc | 1,977 | Is that true of skilled labor-- | 7 |
fomc | 1,977 | Well, it's less true of skilled labor, Mr. Chairman, but if you look at the unemployment rates for adult men, I've always tended to use the rule of thumb that, when the adult male unemployment rate gets down to about 3 percent or somewhere around there, we've got tight labor markets. It's now above 5, 5 to 5-1/2. I thi... | 377 |
fomc | 1,977 | How good has the model been in predicting inflation? | 10 |
fomc | 1,977 | Recently it's done quite well. But not over the longer term. | 13 |
fomc | 1,977 | How good was it in 1972, 1973, the first half of 1974? | 21 |
fomc | 1,977 | During those periods we had most unusual influences affecting the price-- | 12 |
fomc | 1,977 | No, that wasn't my question. | 7 |
fomc | 1,977 | It missed by an order of 2, I think. | 12 |
fomc | 1,977 | Pardon me? | 4 |
fomc | 1,977 | It missed by an order of 2, I think. | 12 |
fomc | 1,977 | Well, it's a very large factor, but I don't think one can evaluate a comment of that kind without recognizing that we went into 1972 with price controls. And the model was not running on its own. We were making adjustments to the model to try to take that into account. | 58 |
fomc | 1,977 | How good was it in 1970? | 9 |
fomc | 1,977 | I'd have to go back and look. The model's price performance has been one of its weaker elements. As I said in the beginning, I don't know how much credibility to assign to these comments that I'm making about the model's results. | 48 |
fomc | 1,977 | Of course, if you continue to make adjustments because the model has been weakened at the moment, it will finally get to the point where it overestimates the rate of the price inflation because of adjustments that are made [judgmentally]. But I don't know that we've reached that point. | 58 |
fomc | 1,977 | Are you satisfied, Mr. Wallich? Okay, Mr. Kimbrel now, please. | 20 |
fomc | 1,977 | Mr. Chairman, I don't know about the numbers, but I think the discussion with our own directors and the consensus [among] businessmen comes out pretty close to that expressed by Governor Lilly, and it's not optimistic. I think also that they have a concern that the cost may be indirectly associated with unusual weather... | 181 |
fomc | 1,977 | We have thought about that question, President Kimbrel, and our view would be that, based on what businesses have seen in the past when tax incentives have been put in place--and I mean by that the tendency for new bills to be retroactive to the first time big business was beginning to think about this, perhaps the fir... | 149 |
fomc | 1,977 | When was the Department of Commerce survey taken, the results of which were recently announced? | 17 |
fomc | 1,977 | November and early December. And that could be still, you see, quite a bit out of date in terms of where thinking has gone since then. | 30 |
fomc | 1,977 | All right, thank you. Mr. Coldwell now, please. | 14 |
fomc | 1,977 | Mr. Chairman, I've been listening. I think I agree with much of what I hear. To me, the tone of things has improved considerably; perhaps we've lost some of the threat of inventory change. I have a feeling that this year ahead isn't going to be quite as smooth as this staff forecast shows. I guess you could say that ab... | 254 |
fomc | 1,977 | Thank you, Mr. Coldwell. Mr. Morris now, please. | 15 |
fomc | 1,977 | Mr. Chairman, I'd like to follow up on Governor Partee's comment on the crowding out issue in '77. The staff has an estimate of corporate external financing in '77. How does that compare to '76? | 46 |
fomc | 1,977 | President Morris, we have not projected any greater net external need for funds on the part of corporations in '77 than in '76; they're virtually the same. And thus we have room for corporations to increase their [holdings of] government securities in somewhat the same fashion as they purchased them in '76. In fact, we... | 236 |
fomc | 1,977 | But to have a major problem you would have to have a substantial upgrading in the corporate investment numbers. | 20 |
fomc | 1,977 | Or diminishment in their profits. A reduced profit flow. | 12 |
fomc | 1,977 | You know, Mr. Partee commented on psychological reaction to one or another kind of deficit. I think that once the business community becomes aware of what is an emerging fact, namely, that the deficit this fiscal year will be substantially larger than during the preceding record-breaking year--once the business communi... | 93 |
fomc | 1,977 | Just a question to Lyle. Several months ago we heard quite a bit of discussion on the corporate side that tax liabilities were being piled up in '76, payments were low in '76 based on '75 profits, and the place where this would begin to pinch was in the spring of 1977. I haven't heard a word about that for a month or s... | 114 |
fomc | 1,977 | I think maybe Mr. Axilrod is better prepared to answer that. We've been thinking about that in terms of financial market projections. | 27 |
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