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Agenda fo r
M eetin g of the Q uadriad
August 28, 1969

The economy continues to roll along at an inflationary pace.
Aggregate purchases of goods and services in the second quarter
were rising at a 7. 3 percent annual rate. Personal incomes in
July rose at a 10.4 percent per year pace, and the average rate
in 1969 has been 8. 8 percent. Both are in excess of the roughly
6 to 6-1/2 percent pace that would be consistent with minimal in­
flation.
The price level has continued to move upward rapidly. The
consumer price index has risen at the rate of 6. 3 percent per
year thus far in 1969, and this has shown little deceleration.
If, on the other hand, lags between policy actions and their
visible effects on the economy are no more than moderately on
the long side of average, we may not be far from the time when
economic policies should be relaxed. (The effects on the economy
of a change now would theoretically begin to show up about m id1970. ) We are obviously moving into a critical phase for economic
policy.
__ „It would be desirable for the Quadriad, therefore, to look
broadly at our "game plan" for economic policy to consider
possible adjustments that might be in order. We should also
ask ourselves what we should see before policies are relaxed.

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We might also discuss what the Administration's "case" should
be in public discussions. My own comments have been structured
around five points. (I sent two papers to you earlier this week. )




1.

We are dealing with a hardened lack of confidence
in the price level, baked into decision making by
four years of inflation. It is not the momentary problem
from a few months of casual ebullience. ■

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2-

2.

This inflation w ill not be cooled unless we deal firm ly
with the fundamentals that have caused the demand
for output to outrun our productive capacity. This
requires a strong budget, and it also requires a reduced
rate of monetary expansion. These did not finally
come into step until around the turn of the year.

3.

The visible effects on the economy from a change in
economic policies take 6 to 12 months to show up.
This time, because the inflation was allowed to run
for so long, the lags may be on the long side of average.

4.

We see no place in our strategy of economic policy
for wage and price controls.
a.
b.




A bureaucracy would be required to control
prices and to ration.

c.

5.

They would be less effective than expected.

Controls would cause progressive economic
arthritis by immobilizing the pricing system - the constantly changing adjustment of prices
to each other.

This Administration did not abandon guidelines. They
were dead when we arrived, having expired about 1966.
(We shall be pressed hard on this issue by, for example,
Senator Proxm ire and Congressman Reuss. )


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102