Federal Reserve annals, 1977

From the transcripts of FOMC meetings, September 20, 1977. The Fed had been setting money growth targets that implied a slow ratcheting down of long-term money growth, but then repeatedly exceeding those targets. The result was a steady rise in inflation since mid 1976. The conversation is between Lawrence Roos, President of the Federal Reserve Bank of St. Louis, Arthur Burns, Chairman of the Federal Reserve Board, and Chuck Partee, member of the Federal Reserve Board of Governors.

Roos: … Aren’t we in conducting monetary policy, and I ask this sincerely, I’m new and I really am mixed up on this, aren’t we supposed to really exert some control on these events or do we in effect react after the fact to things that have happened that we’re sorry happened. In other words, is it not possible by the adroit conduct of monetary policy for this Committee really to have a very real effect on the trend of M1 and M2, instead of explaining afterwards why they did expand beyond what we wanted – what were our targets. I don’t know if I’m making my question clear, but I find myself frustrated sometimes in this regard.

Burns: … Let me rephrase your question… We set, let us say a certain goal for ourselves for rate of growth in M1. And if we were determined to achieve that rate of growth without regard to other factors or consequences, I think we could come very close to that… But I don’t think that we have that degree of determination with regard to a given targeted figure. And I would question whether we should. Our job is not to worship at the shrine of a specific number that we agree upon at a given time. To the extent that we are going to worship at any shrine, our shrine is the performance of the economy. And we’re doing our very best, you see, by tolerating some excesses, tolerating shortcomings, using our best judgment, which may be mistaken.

Roos: Mr. Chairman, I’m not – if our stated, and I assume understood objective is to gradually inch down the rate of inflation, and this has been often repeated, don’t we have some commitment to that goal even if it means some temporary dislocations of interest rate levels and things like that. I mean, in other words, isn’t that part of our mission too?

Burns: I’d say it is, but there is a question as to how much dislocation which you’d be willing to cause and at what time.

Partee: Well, it’s just not interest rate levels either. It’s output and demand and employment and profits and the whole fabric of the economy, that has to be taken into account.

Roos: And inflation.

Partee: Yes, in dealing with the inflation problem which was your question.

I think I have sympathy for President Roos because I've sat in on so many meetings just like this.