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I t ir-"'•AYO , IfJ,y
t\t.·sID'r-.i'll
FEDH":AL RESERVE i3Ar~K OF CHICAGO
TO TI-IE
(J\Ll1. 1ET (}t,.\PTER, ~'L\TIONAL ./.\SSOCIJ\TION
OF
,~ccour ff.L\NTS
Sc1-1ERERV r LLE,
JAiiUARY Zi,
I AM
EVENING, l
PLEASBJ TO ~¥\VE THE 0PP0RTUNI1Y TO MEET vHTH YOU nns
FEEL VERY MUCH AT HJME WITH i\CCOLJi,ffNffS SINCE
AN ACC0iJNTING fv1AJOf\
I
IMD IA~~
1976
rn
COLLEGE,
I
l
\"/AS
H'.\STEN TO ADD" H0\'!EVER, Tl-V\T
DIDN / T GO 11-!HOUGH THE RI GOHS OF THE
CP,~
EXA/'·i
I
INSTEAD, I
ENDED
UP AS Af~ ECOf ~(] 'i I ST I
Hrn-I
INTRIGUED BY
SOM[: B.\CKGf~OLJi'[D
I
ACCOUNTING j\i'hl Ii'·~ ECOi··-D •-iICS,
it<, OuI GGLE' S MENTI Oi H NG
FOR THIS MEETH-K3 l·J.!\S
;~S
w
11
U\ST
/\pr~IL THAT
I
WAS
THE ·n·ffNE
T'r-rJUGrff ful UUT IT, IT OCCUf~R[~ TO ME Trl/\T THE J\CC0UNTNff l<NO-/S
A GREAT DEAL 1'.f)RE /\BOUT ECOi'-JOMICS TI -lAN OTHERS GIVt HIM CREDIT FOR.
IN FACT, HE PR0Bl-\BLY Kr;O.-fS A LOT MORE ABOUT EC0N(J,HCS THAN HE GIVES
HI MS ELF CREDIT FOR.
THERE ARE "Th-JO VEHY SIMPLE I DEAS IN ACCOUNT I hG THAT ALSO LIE
AT THE HEART OF EC0NU'-HCS--ESPECIALLY ECONOMIC POL.ICY DECISIONS,
THE FIRST IS THt\T 't1/E USE A OOlJBLE-ErffiN SYSTEM Hl /\CC0UNTING AND
11-IE SECOND IS TI--IAT THE BALANCE SHEET IDENTIFIES i/STOCK.S" AT A POINT
IN TIME WHILE TI-IE EARNWGS AND EXPENSE STATEMEfff IDENTIFIES "FLO'rJSu
OVER A GIVEN PERIOD OF TIME.
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Federal Reserve Bank of St. Louis
11
\-!H.l\T THE :;ccour-ff,:\f'-lT S, -iOi.JLl) '. -.\ :0\'l J\B()UT Ec0tJO'·lICS
•
THESE lr.'0 i'-l0TIONS CAN BE PUT TO ~.ORK IN AN ECONOMIC POLICY
CONTD<T VERY EASILY,
(000 EC0NC11IC POLICIES ARE TI-iOSE. TI-lAT
CLEARLY RECOGNI ZE 11-IAT ,\CTIONS /\FFECT BOTH SIDES OF THE BALANCE
SHEET,
THE DEEP RECr-ss I ON FROM Wrl I CH ~1E ARE NOW 8'1ERG I NG AND lHE
I-ORR IBLE I NFLJ\T ION \~/HI CH Is ra~ GRADUALLV SUBS I DI NG ARE UNCOMFORTABLE
•EXAMPLES TI·iAT v1E HINE GI VEN LESS ~·IE I GHT 11-IAN VIE S} 10ULD HAYE TO
lHE ESSENCE OF OOu'BLE ENTRY ACCOUNTING, 0R--HHAT IS TifE SAi~E 11-HNG-T0 11-fE OLD PHRASE DESCRIBING T.a--iE BASIS Fm{ ECONOMICS, ulHERE IS
NO SUCH THING AS A FREE LUHCH,
11
T11E EXPERIE;·.:CE OF THE RECENT PAST HAS ALSO CLEAF~LY
nm I CATED
17-v\T W TrN I ;~G TO REACH OUR Bi\l.J.\1'~C:t SHEET GOALS FOR THE
NATION W TERMS OF Url8'.-1PL0YMENT \:IE 1-f/\VE
· ATTENTiON TO TrlE t1FLO\'!S
0
;
THAT IS,
'r'-'[
nor
A'J'/AYS PAID f:N0UGH
HAVE.f/T FULLY ;\PPRECIATED
TI-IAT CURRENT ACTI m~s TO R!~CH OUR GOALS CA:··~ SET I:! TRf\l N DEVEL0F)i·1ENTS
THAT f'tl\KE IT DIFFICULT TO REACH OUR G0/\LS LATER.
lN ASSESSI:··JG ANY SET OF ECDrJ0MIC POLICIES 1/!E HUST /\U'!AYS
KEEP IN MIND TI-ll\T EVE;ffS IN THE PAST CONTINUE TO t'\FFECT THE
PRESENT AND \'JILL INFLUENCE TIIE FLITURE AS \•/ELL, THE SLATE CJ\N:·IDT
BE ~JI PED CLEAN ,
~-./E MUST START \-H TH \\7HERE h'E t\f<E AND DE VERY
AWAf~E OF HOW WE ARRIVED TdERE,
3ECAJSE THE
l1.S,
ECOf,;Q'·W RESPONDS
ONLY GRADUALLY OVER TI ME TO ·n1L: H"-\,J0RITY OF FOf~CES LEADVlG TO
O~NGE, WE MUST T:\KE INTO ACC0LJr·ff FORCES AL~Ei\DY SCT IN MOTION
E.VEN IF lHE IR EFFECTS ARE ~'JOT FULLY APPN~S-ff,
THIS, lHEN, IS A f1AJ0R REASON FOR ARGUING THAT 1l!EHE IS A
NEED TO LB JGTI !Ei l OUR EC0NCX1 IC HOR I Z0NS ,
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Federal Reserve Bank of St. Louis
"DlJT TI-!EF~E IS ALSO AN0TdER
REASON FOR LENGTI-1EN ING OUR HOR I ZONS AND, 11-IAT IS, WE /\RE LIV I NG
IN A CHANGED BNIRO,·f·1ENT--AN ENVIROH'1ENT WHERE SUPPLY FACTORS
MAKE ECONOMIC POLICY F0R"'1Ul.J\TI0NS AND IMPLB-1Eff/\TION AN EVEN
MORE DIFFICULT 01AUEiiGE,
I ~·IOULD
LI KE TO Si-i/\RE \·II""Pr-i YOU SOME OF
THE KINDS OF CONSIDERATIONS lHAT GO Hff0 M/\Kfi"'JG PUBLIC POLICIES--
IDEAS ™AT ARE FREOUEfffLY ~nT HIDELY DISCUSSED BECAUSE TiiEY ARE
SO BROAD MD ABSTRACT,
!HE IMPLICATI0HS OF SCARCITIES OR
SHORTAGES FOR EC0NO'11IC ST/3ILIZATION P0LICIES--Ai'JD HERE
l
MEAN TI--lE
USE OF BOTI-t M0METl\RY Ai'ID FISCAL POLICIES TO ACHIEVE AND M/\INTAIN
STN3LE PRICES /\NJ f~EU\TIVELY FULL 8·1PLOYViENT--AHE i\JOT SIMPLY 1-\BSTHACT,
THEORETICAL EXERCISES OF CONCE~1N TO ECOrlOi.,1ISTS N-1.0 THE OCCASIONAL
Ir
POLICY i' 1L\KER,
1
SEf~ ~s CLEAR TO ME ·n-!AT S: Offf/\C:::s OF SUPPLY SERVE
TO COt-iSTFV\ I N 0Ur< /\CH I EV:\BLE EC0N0f lI C G0i\LS AT Lc/\ST Ii~ THE SHJRT
RUN AND THE PUI:;LI C MUST BE AV/ARE OF THOSE C0NS1T-U\ I ;.:TS . IF THEY, TI-IE
PUBLIC, Ar<E TO GIVE REf.\LISTIC DIRECTIOf~ TO P0LI C{ EFFORTS, TO
PAVE REALISTIC EXPECTJ\T!ONS OF ll·lE HESULTS THAT C/.\r-J fa: ACHIEVED
AND TO M~KE RE;\LISTI C ASSESSMENTS OF EC0:s ;cw,uc P0LICitS AND
ECONOMIC POLICY MAKERS,
lJNFOFffUNATELY, PUBLIC EXPECT,l\TI0NS OF THE PERF0RM,-'\NCE OF
ECONO~IC POLICIES EVE:J.l HJ ·n-1E ABSENCE OF SCi\RCITI ES HAS BEG-~
GRE/\TER TrlAN TI10SE POLICIES COULD BE R8\SOi'-!tJ.3LY L<PECTED TO ACHIEVE,
4f
ATTR IBlffABLE
l
AM AFR/.\I .J TO POLICY MAV£RS /\Nu ECONOMISTS WHO
PR0MISP) MORE THAN THEY \>l0ULl) DELIVEH.
SINCE THE- J.J30' S TrlE
GOVERtJ·-1ENT KA.S BEEN r-3R0UGHT ACTIVELY TO THE SUPPORT OF ECONOMIC
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Federal Reserve Bank of St. Louis
-3-
WELL-BEING, ECONOMIC ST1\B ILI1Y AND ECONG'-iIC GRO'tffii.
IT
HAS BEEN
BELIEVED TI-iAT THE " r--.i s ~J ECOhOMi cs'' h'OUW SOLVE OUR PROBLEMS--ALL
THAT WAS REOUmfJ) \~!AS"GOOD M/-\i·-l,'\GEMENT''.
BUT ALSO SCX"lE FAILURES OVER
nns
PERIOD.
AND WE'VE HJ\D SQ\'1E ~UCCESS,
To
A SUBSTANTIAL DEGREE,
THE DI FF I CUL1Y H/.\S BEEr J WAT OUH EXPE:CT/\T IONS FOR 11--iE ECONOl'·W AND
FOR ECONOMIC POLICY HAVE BEEN GREATER THAN THE CAPABILITY TO
DELIVER,
THE BASIC 8 iPHASIS OF/ POLICY OVER THE PAST FB•/ DECADES
11
H'\S BEEN ON lHE Ml\NAGB·1ENT OF THE D81l\ND FOR COODS ANI) SERVICES,
SUPPLY CONSIDERATIONS f-LWE f~OT BEEN IGt-.!CJRED, HOt/EVER WE Ht\VE, FOR
EXAMPLE, AFFECTED SUPPLY TI1ROUGH AGRICULTURAL SUPPORT PROGRAMS
AND MINIMlf-1 WAGE LEGISU\TION EVEN 11-0UGH SUPPLY EFFECTS Mi.\Y NOT
HAVE BEEN 111E PRIM1-\RY OR SOLE OBJECTIVE OF ·n-1ESE PROGRJ\J,1S,
WE HAVE ALSO TAKEN TI-{E EXISTING LIMITS OF Ct\PACI T{ GRCJi~ll-1 INTO
ACCOUNT IN OUf-< PL.l\i~NI NG.
BEEN
or~
Jiff 11-iE DAS IC TI~RUST AND H'1PH/\S IS HAS
I NFLUEi·JCING .0J~0 AFFECTii~G PRIV/\TE AND PU~:~LIC DEML'.\f-iJS FOR
GOODS AND SERVICES,
As
EVERYONE
rn
TH I S RCOf-·1 IS A\t!ARE, EFFrn~TS Hl\VE BEEN fv1ADE
TO STIMULATE DEMAND WdENEVER V·JE HI-\VE HAD AN UNDERUTILIZATION OF
OUR HU·'1J\f .f RESOURCES--LESS TiiAN FULL a.-1PLOYMEi'f f .
OF THE CYCLE, IN ORDER TO REDUCE
THE
Oi'l THE TOP SIDE
PRESSURES Of.J PRICES, POLICIES
HAVE BEEN DIRECTED TO REDUCI NG DB·1ANu h'HE!JEVER OUH RESOURCES ARE
FULLy lITI LI ZED I
IN TI-HS DIRECT IF SI MPLISTIC VIH~ OF STABILIZ~TION POLICY,
IT IS ASSLMED 11iAT FULl. EMPLQY:-A.Efff IS POSSIBLE WilliOJT UNACCEPTABLE
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Federal Reserve Bank of St. Louis
PRICE INCREl\SES,
THIS IS SO BECAUSE THE FACTORS OF PRODUCTION
OTHER TH\N 1/-\B0R ARE IDLE OR /\SSll1ED 1D BE CAPABLE OF BEING
PROVIDED QUI Cl<'LY.
T~ 1IS
MEANS THi\T NO SUPPLY C0MSTRA I NT OR ONLY
A LIMITED SUPPLY COliSTRAiiff IS PRESLMED TO EXIST.
l'\S LONG AS
lHIS IS TRUE, WE C/\N HAVE SCT1E SUCCESS TI1ROUGH DEf-\--'\ND Ml\NAGfJ'iENT
POLICIES Ii-J AO-HEYING FULL 5"-'lPL0YMENT AND STABLE PRICES,
THE REASONS FOR OUR LACK OF COMPLETE SUCCESS IN FOLUJ/IING
.TIH S lYPE OF SCEW\R IO, HIGHLIGHT SOME OF
TI➔ E
DI FF I CULTI ES THAT
EC0N0,1IC POLICY WILL FACE IN A CHANGED ElWIROfJMENT hHERE SUPPLY
CO:-·lSTRAINTS MAY EXIST.
CLEARLY n -!ERE H.l\VE BEE!,l A NlJ;lBER OF PERIODS
IN OUR HISTORY W \'/HICH i·IE i~ERE UN't!ILLING OR UNABLE TO RESTRAIN
DEM!\NDS ON OUR PRODUCTI VE POTENTIAL AND HlFLJ\Ti mJ RESULTED,
•
You
r, r~<' I
1
WILL RECALL ll!AT I n T: '. E EARLY ..L'JUJ S THE EC0NCJW \'!;\S CH;Rt,.CTEHIZED
1
BY STf'i.BLE PRICES BUT Ar-I un[MPL0YMENT RATE OF />BOUT
DEM/\ND WAS STi MUU\TED I
11-➔E
PERCEiff.
LAT[}·{ IN THE DECADE, T,-{E Jfl/v-'\i~D OF THE
VIETNC\M t._/AR, '.'HTrl ITS PRESSUl~ES
RESOURCES, AND
5 l/2
Of'{
MAfJPO\/lER
J-\f·ff)
0THE.:R PRODUCTIVE
H lITIATION OF f,iE\:J G0VERNMEi ;T SOC I AL PROGRAMS
REDUCED THE UN8' 1PLOYMENT Rl\TE TO
st
:J 1/2
PERCENT BY
J.9C9.
AT THE
SAf1E TIME ., HO'r1EVER, I f·JFU\TION1W<Y PRESSURES M0UfffED AND ll1ESE
EXPANSION/\RY POLICIES SO't/ED
TI ➔E
SEEDS OF /\N I:,~r:-U\TI0NARY CYCLE,
DUR I NG TIH S PERIOD, \:fE SIMPLY ASKED TOO MUCH FROM TH IS EC0NO-W
I N TERMS OF B0TI I PUBLIC AND PR IVI\TE C-O0DS,
O'dN ESTIMl'\TES OF C"P;\CilY,
t·fE DID NOT HEED OUR
TOTAL SUPPLY COULD ;. .!OT /\'11).JUST AS
RAPIDLY AS DEJv'IANDS INCREASED AND PRICE PRESSURES RESULTED,
ALTERNATIVELY WE MI GHT SAY THI\T PUBLIC EXPECTATIGr~S FC,{ THE
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-5-
EC0NO1Y EXCEEDED ITS f.iJ3ILITY TO DELIVER,
PUBLIC EXPECTATIONS FOR ECONOMIC POLICY HAVE ALSO EXCEEDED
11-IE CAPACITY TO DELIVER AS OUR MQRE RECENT INFL.i\TIONARY EXPERIENCES
INDICATE,
THE UPSURGE IN PKICES IN
VARIElY OF SPECV\L INFLUENCES,
1973, '7L{
AND
'75
REFLECTED A
SOME WERE DEJ",V\ND ORIENTED AND
AFFECTED TO S0""1E EXTEfff BY POLICY SUCH AS TI-IE h'ORL.D-\~IDE ECONOMIC
EO0M SUPERIMPOSED ON lllE DOOM IN TI~E LJNI-P:a...D STATES1 AND TI-IE
DEPRECIATION OF lltE OOLLJ\R IN FOREIGN E)(CHN·JGE MARKETS TI-~\T
BOOSTED PRICES OF I MPORTED GOODS Arm ADDED TO THE DEMANDS ON OUR
Or'1N PRODUCTIVE RESOURCES,
\JE ENC0Ul'·JTE.~ED
ORIENTED,
SINCE
TI➔E
Bur
0TI-!ER INFLUENCES \>JERE SUPrt.Y
CRITICAL SHORTAGES _
OF E,\SIC MATERIALS
EXPANSION HJ INDUSTRIAL C/\PACilY TC PRODUCE THESE
CROP FAILURES I (i MAf•N COUNTRIES
MATERIALS HAD rJ0T T/\t(EN PLACE,
RESTRICTFJ) SUPPLIES HESULTING HJ 11-IE RAPID ESC/\LATIO,.,l OF FARM
PRODUCT PRICES AND SH)RTAGES IN "TI1E ENEHGY FIEW C/\US~:D FUEL PRICES
1D SPURT UP'11AP.D ,
t VEN
IN THE ~ ,SEMCE OF LJ!,JREALI ST IC PUBLIC
EXPECTATIONS, TI-IESE SPECU\L FACTOf~S },JQULD HAVE i·'L!'.\DE THE FORMULATION
AND IMPL8·1ENTATION OF ECONOMIC STABILIZATION POLICI ES DIFFICULT.
WHILE DIFFICULT, ·n-tE PROBLEM IS N0N-INS0LVA:SLE,
:\ MA.Rl<ET
ECONOMY SUCH AS OURS CAN RESPOND TO SHI Frs Ir-: THE P/\TTERNS OF
RESOURCE SCARC I l Y I
TH IS
OOES NOT MEJ\N Tri/\T i\ SH0HT-RtJN /\DJUSTf ·\ENT PROBLB•'1 M/W
f-K)T OR OOES NOT f..XI ST.
Ha. :EV!::R,
MECHANISM CAN Arm OOES hOHK,
LVEN IN TI-IE SHORT Ru;,: lHE PR I CE
Hin1
LIMITED SUPPLIES, PRICE SIGNALS
\'JILL. ACTIVATE TI-IE ADJUSTI,·FNT f·1ECHANISt-'1,
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-C-
3EING CONFIDENT mAT h'E CAN ADJUST TO SUPPLY CONSTRAINTS
OOESN'T ELIMINATE TI-1E DIFFICULTIES FOR ECOr-.iOMIC POLICY OR THE
EXPECTATIONS OF VJHAT THESE POLICIES CAN DELIVER,
AUJUSll'lEfff TAKES TIME,
IT
IS NOT INSTANTANEOUS,
FIRST, TI-IE
THUS, ~{E CAN
ARGUE 11-tAT IN l llE PRESEt-.:CE OF SHORTAGES OF SUPPLY, POLICIES DESIGnED
TO EXPAND TOTAL OUTPUT /-\ND PERH/\PS I NCR8\SE EMPLOYMEr'tT 11--fROUGH
DB-11-\ND MANAG8-·1ENT FiAY ~JORK MJRE SLO'tJLY THAN ll lEY ~JOULJ) WITHOUT
SUPPLY CONSTRAINTS,
SECOND, THE PROCESS OF ADJUSTI~ENT SUPPLIES
UPWARD WILL, I N A M/\r<l<ET ECOr-iaw, REQUIRE n :cREASES IN PRICES.
IT
IS TiiE PRICE MECHANISM Trll-'\T COM'·1UiJI CATES l}!E D8'1J\NDS FOR
INCREASED CAPACITY, R/\H t1ti\TERI/\LS OR Nt.-W TECH;.lOLOGIES,
THEr~E IS AN IMPLICATION IN TI-11S lH,\T ECO:-DM IC POLICIES IN
lHE COM I NG YEARS MIGHT PROF I -;A.jLY FOCUS O! ! STEPS TO Ir ': PROVE TiiE
ADAPTIVE MECHAi·~ISM--ST[PS TO sr·icxrn1 OUT OR SPEED UP THE SHORT-RUN
ADJUS'TiviEfIT AND REDUCE 1HE PRI CE PR1:SSURES rJECCSSNN TO ACTIVATE
OLD POLICIES /\ND PROGRNlS SHOUW BE
REV HJ,✓ED
COSTLy SUPPLY RESTR I CTI Of ·lS /\ ND NS'/ PROGR. 'f iS
1
STIMULATING SUPPLY DIRECTLY.
FOF< H~DICATIOf·~S OF
cu~s IDER ED
FOR
f··JOR SHOULi") \·!E I G;JOF~E OTiiP "< NEW
PROGP./\MS DES I GNED FOR OTHER PURPOSES.
THE COSTS rn TERMS OF 11-IE
EFFECTS ON SUPPLIES SHOUW BE D(PLI CI 11.Y CONSIDEf\EJ I N OUR COSTBENEFIT CALCULATIONS,
[VEN WI 11~ IMPROVEMENTS IN TI-IE SPEED OF ADJUSlMENT, IT WI LL,
J FEAR,
BE DIFFICULT TO ACHI EVE BOTI~ OF OUR GOALS OF FULL EMPLOYMENT
Ai·ID PRICE STABILilY SIMULTANEOUSLY,
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Federal Reserve Bank of St. Louis
I N THE PRESENCE Gr ~,.ON-Hll¾N
,L\u\ 1AYS
RES-'JLJHCE SCARCITIES, v:.E M/1.Y NOT
BE ABLE TO ACHIEVE FULL
EMPLOYMENT BEFORE GENEMTING f)RICE PRESSURES ON OUR 01r-lER
RESOURCES,
/\DAPTATIOf~ MAY SIMPLY NOT BE THAT RAPID,
THIS PUTS Hf.AV'( PRESSURE ON ECONOi'1IC POLICY FORi1ULATION
AND IMPLEMENTATIOi,J,
THE PRDCE:SS OF ACHIEVING ONE OF lliE GOALS,
FOR EXN1PLE, UMEMPLOYi'·1ENT, CAN PUT US t \l A FlJf'JRE POSITION ~\'}-JERE
NOT ONLY IS 111E 011-lER CJOAL (PRICE STABILITY) OUTSI DE ITS RANGE OF
TOLERANCE BUT AL.SO WHERE IT ;' rs IMPOSSIBL£
TI-lE FIRST GOAL.
To
CONTINUE TO ACHIEVE
THE CDJECTIVE OF ECOi'DMIC POLICY C0i-ffl10LS CANNOT
BE SIMPLY TO GET US FRC;1 WHEW: HE ARE TO WHERE \·'It \ !0UL_T) LI KE TO
1
BE,
THE OPTI n\L POLI CY IS ONE ll-!AT $I NGS THE [CONOl--'lY TO A
DESIRED POINT IN THE ''r:r sT i~AV' .
THE Ecrn-ioMY 1s DYN/\HIC AND
POLICIES SET HJ MOTIOH A \·/HOLE TRL\IN OF EVENTS T: 11\T IF NOT
CAREFULLY \·!ATCHED Cl\i-i ::-;rn NG US TO A ST/\TE
B:=YOf'✓D
Trif: T/\RGETED
PO I NT TI·tt\T I S UNTE:f--1,1\.r::;L~= t
ALL THIS MEN:S su:\PLY, AS
I 'VE
S/\ID DEFOR[ , THlff OUH POLICIES
MUST :SE CONCEIVED t1ITHW /\ F;°\OADER Tii-1[: FFV\ME Tr !/\f! II-~ THE PAST.
I
Ni CONCERNED, AS
PUBLIC EXPECTATIONS
TH Is
I
H-iDICATED EARLIER, i·1rn-1 TrlE TD.JDE[·:CY FOR
TC)
OUTRUN REALITIES IN TI1E ECGr-~Q\1IC SPHERE,
Is n(UE r·'l'O T ONLy FROM n tE STANDPOINT OF SHORTAGES BUT ALSO
FRC/1 11-iE STANDPOINT OF TI-lE i'JEAR-TERM ATTA Ii ~i\B I LI lY OF OUR GOALS,
THERE IS NO INSTN.ff CORRECTI Oi-l TO OUR INFLJ.\TIOf'-! PR03LEM i\'OR TO
OUH UNEMPLOYMENT DIFFICULTIES,
IT
~/ILL Ti-\1-<E TIME Fu~ OUR
ECONOi'W m ~KE THE NECESSARY CORRECTION.
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Federal Reserve Bank of St. Louis
()
~c.r
HE
I I
ARE MAKING COOD PROGRESS NOW,
~-i E
HAVE WEATHERED 11-IE
SW-\RPEST DECLI N!:: IN REAL ECON0' 1HC ACTIVI1Y, THE HIGHEST UN8-1PLOYr'lENT,
TI-tE LARGEST FEDERAL DEFICIT AND TitE HIGHEST RATE OF INFLATION IN
1
THE POST-\'JoRLD dAH
II
PERIOD.
RECENT EVIDENCE IS BEGINNING TO PUT
A MUCH ~!DRE FAVOPA.BLE CAST ON TI-IE FUTIJRE,
f
EMPLOYMErff HAS INCREt'\se:D
J/2 MIU.ION Si r:CE 1H :~ L014 INTEREST RATES HAVE FALLEN DPJ>J',tl\TICALLY,
INDUSTRIAL PRODUCTIOf~ IS REGAINING LOST GROUND,
RETAIL SALES HAVE
SPURTED AHEAD Af'm SEEH TO BE SUSTAiiHNG TI-lcm UP\'//\RD PATrl,
THE RECOVERY I s CLEARLy f'-K)T ONLy UNDER\·J,.t\Y BUT sou DI
UPTREND \·JILL CONTWUE THROUGHOUT THE YEi\R,
THE
PROGf<ESS HI LL BE f·ftADE
IN GETTING THE Ui lf:MPLOYMEl'-ff RATE D)\.-JN /\f JJ TdE RATE OF PRICE
INCREASES SHOULD COfffI NUE TO DECLINE,
!dE Ht\VE ,'\LRE/\DY SEEN Pf~ESSURES FOR A MORE STI f 1ULl\TI VE
EffiNOM IC POLI CY.
~3UT
THE t·ORE MODERATE COURSL
r-or-~
F:OTH FISCAL f\f-lD
MJNETARY POLICY WILL BETTER SERVE TO PROf-10TE SUST,~.HU\BLE ECONOMIC
GROVITH Ar-JD AT 111E s.rr,1[ TH1[ B/\NK THE FIRES OF H-lFL\TI(f,[,
l
r~EAUZE TI4J\T THIS KIND OF POLICY OOES t-lOT F\t:DUCE THE
INFLJ.\TION PATE AS F.l\ST AS HE ALL 1,-K)ULD PREFER,
1LJ-<ur
1:'•1I 111' .1I
UN8~PLOYMENT USUPv\01CE, FOOi) ST/'->J'-'iPS, MEDICAID, A~'JIJ OTHER TYPES
OF INCOME MAINTENANCE P:·1CGi-~'\i'lS , TI1E MISERY SUFFEf~[j) r_.y TilE
l lNEJ-1PLOYED HAS BEEf~ m:JUCED,
/\~rJ i~,E N ~E /\ 1 L ALSO JEGHJt-.lrnG TO
REALIZE ll-!AT INFLATIO/,~ IS VERY COSTLY I
Poucr r::s
U:ADrnG TO
I NFL/\TI ONARY PR~SSURES RESULT If,l TI1E LONG RUi"~ TO Tl ·IE vESTRUCTI ON
.,...
OF JOBS, NOT IN TI,E!K Cf<8\TION,
HELPED t'\RE HURT "TI i[ nosT,
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Federal Reserve Bank of St. Louis
I HE VERY GROUPS ~\tJ·H CH ARE TO BE
THE OPERATIO!'·l OF OUR 1REM[:EXI JSLY
@FedFRASER