Federal Open Market Committee ; Monetary policy

Philip E. Coldwell

English

Research Papers in Economics

FEDERAL RESERVE BANK OF ST. LOUIS REVIEW MARCH/APRIL, PART 2  2005 311
Personal Recollections
Philip E. Coldwell
business as usual. It almost seems that the
only thing that would impress them would
be a major recession.
6. Fiscal policy portrays an aura of restraint,
but I hope you will forgive me if I say I
don’t believe it.  The possibility of defense
expansion, the coming election, any weak-
ening in the economy, and the continual
pressure for welfare spending all lead
toward a higher rate of expenditures and
a lessening of the tax cut restraint.
7. Recent trends in international finance
point to some dollar strength, but this could
fade if the interest rate relation between
countries narrows and our inflation rate
stays high. The problems of export and
import trade balances are still with us.
8. Thus, my recommendation to the FOMC is
to err on the side of restraint. The long-run
costs of inflations are so disruptive that
even a recession is acceptable.
During the 1978 and 1979 meetings of the
FOMC, the policy discussions ran the gamut of
fiscal policy, monetary policy, foreign exchange
policy, and the uncertainties of rising inflation.
Even the monetary policy measuring sticks of
interest rates and monetary aggregates were under
considerable debate. My own policy preference
was to tighten availability of funds by raising
interest rates. I was not enamored with monetary
aggregates, because their interpretations and
measures of use were far from clear. Moreover,
the FOMC was split as to the degree of interest
rate change to be adopted.
Several of the Board members had become
increasingly irritated with the policy of small
A
s requested in the invitation to this
monetary policy conference, I have
reviewed my personal records and the
published documents of the Federal
Open Market Committee (FOMC) to refresh my
memory of the August policy discussions leading
up to the FOMC meeting of October 1979. My
personal recollections of the policy discussions in
the years leading up to August 1979 are colored
by my dissents from the majority opinion. In
almost all of those dissents, I wanted a tighter
policy, especially in the years 1978 through 1979.
Some of my unhappiness was fostered by pres-
sure from the Carter administration, which
seemed to be aimed at an easier policy.
I have presented below my personal record
of my recommendations to the FOMC, with com-
ments on economic and financial conditions.
1. Recession fears are fading as potential
defense build-up influences expectations
on jobs, materials, prices, inventories, and
credit.
2. The fundamental fact of high inflation is
the one certainty of the coming year, and,
unless dampened, the possibilities of rising
inflation will grow.
3. Gradualism in economic policy is a lovely
theory but a practical monstrosity. Gradual-
ism promises long-run improvement, but
short-run events always seem to interfere.
4. Credit availability is high, and, with expec-
tations of continued inflation, the interest
rate restraint is minimal.
5. Banker attitudes reflect no feeling of quan-
titative limits and, to the contrary, see
Philip E. Coldwell was a member of the Board of Governors of the Federal Reserve System from 1974 to 1980.
Federal Reserve Bank of St. Louis Review, March/April 2005, 87(2, Part 2), pp. 311-12.
© 2005, The Federal Reserve Bank of St. Louis.
 steps toward fighting inflation that the majority
of Board members supported. Thus, we supported
the change toward the use of monetary aggregates
as a means of more stringent and effective infla-
tion control. Because my term on the Board
expired in February 1980, I had less knowledge
of the FOMC actions after that date. However,
Congressional actions and Board policies cre-
ated definitional problems in the use of money
aggregates.
Given the 25 years since the 1979 period, I
must say that my memory has dimmed. Never-
theless, the positions presented above reflect my
recollections.
It should be remembered that part of the econ-
omic and financial chaos of the 1978-80 period
was the change to a new administration and the
turnover of governors on the Federal Reserve
Board. Only three of the same governors were on
the Board from January 1, 1978, to December 31,
1979. In 1978 there were four governors who
resigned or died. In 1979, four members of the
Board, including the Chairman and three gover-
nors, changed. The turnover in the administration
and in the Federal Reserve Board created a distinct
change in policy toward easier spending and
only weak step-by-step Board actions to reduce
inflation.
Coldwell
312 MARCH/APRIL, PART 2 2005 FEDERAL RESERVE BANK OF ST. LOUIS REVIEW

Personal recollections

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Personal recollections

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