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Not to be released until after 7:00 P. M. February 27 1969 PRESS RELEASE Talk by Mr. Darryl R. Francis, President, Federal Reserve Bank of St. Louis to the Mortgage Bankers Association of St. Louis at the Chase Park Plaza Hotel on February 27, 1969 The chief domestic economic problem of the country is in flation. Over-all prices which were rising at just over 1 per cent per year in the early 196O’s are now rising at about a 4 per cent annual rate. Inflation creates inefficiencies, increases speculation, and reduces our ability to compete with foreign producers. In addition, inflation redistri butes the real income of the country. It bears heavily on holders of money, saving accounts, bonds, and other fixed dollar claims. It hurts those on pensions and relatively fixed incomes. Inflation causes higher interest rates which bear heaviest on the real estate mortgage market and other areas where interest cost is a large percentage of total cost. Many times workers feel that they are better off with inflation because it seems easier to find jobs and because wages tend to rise faster; however, when wages are adjusted for the rise in the cost of living, these apparent benefits usually vanish. In the period of relative price stability from 1958 to 1964, average weekly earnings of contract construction workers rose at a 4. 1 per cent annual rate. Adjusted for the rise in the consumer price index, this amounted to an increase in •’real” wages at a 2.9 per cent rate. In the period of inflation since 1964, average weekly earnings have risen at a 5.5 per cent annual rate, but in real terms the gain has been at a 2.5 per cent rate. The inflation has been caused by an excessive amount of spending relative to the country’s ability to produce. The stimulation to spending has come in great part from a very rapid growth in the money supply. Since the early 1960’s federal spending and taxing programs have also been expansionary, but since these actions were reversed in mid-1968, there has not yet been much, affect on growth of spending. Charts for Current Economic Conditions by Darryl R. Francis, President Federal Reserve Bank of St. Louis to Mortgage Bankers Association of St. Louis at Chase-Park Plaza Hotel St. Louis, Missouri February 27, 1969 -20 -15 -10 210 200 190 180 1000 950 900 850 800 750 700 130 125 120 115 110 105 100 developments with post "trends." All data are seasonally adjusted. Prepared by Federal Reserve Bank of St. Louis Comparison of Construction Costs and Consumer Prices Ratio Scale Ratio Scale Latest data plotted: Construction Costs-4th quarter estimated Consumer Price?-4th quarter Prepared by Federal Reserve Bank ofSt. Louis Yields on Highest-Grade Corporate Bonds in the implicitGNP price deflator in the preceding twenty-four months from the market rate on corporate Aaa bonds. The price deflator for the first and third months of each quarter was estimated by linear interpolation. Implicit price deflator for first quarter 1969 is estimated. While this is an important phenomenon, there is no perfect agreed upon way of calculating and presenting it, and the series may be considered an illustration or approximation of what has been going on. Latestdata plotted: February estimated Prepared by Federal Reserve Bank of St. Louis
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