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Rf:J\1ARKS OF MR, RoBERT P. f16.yo PRESIDENT FEDERAL RESERVE BANK OF CH ICAGO To THE EcoNavtic STUDENT AssocIATION UNIVERSITY OF WISCONSIN f16.RCH 6, 1979 I I AM PLEASED TO HAVE BEEN INVITED TO MEET WITH THE UNIVERSITY OF WISCONSIN ECONOMIC STUDENT AsSOClATION, IT ISILWAYS EXCITING TO BE WITH STUDENTS, PARTICULARLY ECONOMICS STUDENTS, YourAVE MJRE THAN THE USUC\L PUBLIC INTEREST IN ECONOMIC POLICY AND ARE LIKELY TO BE FULL OF QUESTIONS --TOUGH BUT IMPORTANT QUESTIONS, l FEEL VERY MUCH AT HOME WITH ECONOMISTS, I WORKED AS AN ECOf'OMIST AT THE WASHINGTON STATE TAX CorvvvlISSION IN THE LATE 3J's AND IN THE U,S, TREASURY FOR 20 YEARS AS WELL. AND NOW, OF COURSE, I AM AN ECONCT-lIC PRACTITIONER--AN ECONOMIC POLICYMAKER, GIVEN MY BACKGROUND AND MY CURRENT POSITION, l AM MINDFUL OF GEORGE STIGLER' S DlCTLM, "ECONOMISTS POSSESS 11-IEIR FULL SHARE OF COf'1VON ABILITY TO INVENT AND CDr-'MIT ERRORS, PERHAPS 11-IEIR t'OST CWMJN ERROR IS TO BELIEVE OTHER ECONOMISTS," rb-/, OF COURSE, I OON' T WANT YOU TO DISBELIEVE ME, So l AM GO ING TO STAY AWAY FRQ\1 A RIGOROUS THEORETICAL fvODEL BUILDING EXERCISE WHICH WOULD BE CERTAIN TO CONTAIN ERRORS, AFTER ALL, EVEN THE lOP THEORISTS RARELY CAN GET AGREEMENT FROM A MA.JORITY OF THEIR COLLEAGUES, A POLICYf\1AKER'S POSTURE AND TALK AS MR, INSTEAD, l WANT TO TAKE GRAN SUGGESTED ABOUT THE ECONOMY'S PROBLEMS AND THE ROLE FOR MONETARY POLICY IN THE CURRENT SITUC\TION, AND 1 WOULD LIKE TO IX) THIS PRir-¥.RILY FROM MY PERSPECTIVE AS A POLICY~AKER, I HAVE BEEN AT THE FEDERAL RESERVE BANK OF CHICAGO FOR 11,E PAST 81/2 YEARS, I HAVE PARTICIPATED IN tv10RE THAN 100 MEETINGS OF THE FEDERAL OPEN MARKET CottMITTEE--hHICH, AS YOU KNOW, IS THE PRlfY1ARY fv'ONETARY POLICYfV1AKING https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 2 - GROUP IN THE FEDERAL RESERVE SYSTEM, THAT IS A LARGE ENOUGH SAMPLE, l THINK, TO BE ABLE TO DRAW SOfY1E RELIABLE CONCLUSIONS, THE MEETINGS ARE NOT INDEPENDENT EVENTS, BUT AT TIMES EVEN l WONDER IF THE SAMPLE IS BEING DRAWN FROM THE SAME UNIVERSE, IN THE TIME I HAVE SPENT IN THE t'ONETARY POLICYfv1AKING ARENA, I HAVE SEEN: THE DEMISE OF THE FREE RESERVES CONCEPT; THE RISE AND DEMISE OF RPD's (RESERVES AGAINST PRIVATE DEPOSITS); THE RISE OF EMPHASIS ON THE fv'ONETARY AGGREGATES; THE INTRODUCTION OF EXPLICIT TARGET PATHS FOR M-1, M-2 AND M--3; THE INCREASING CONCERN ABOUT THE RELIABILITY OF OUR MJNETARY AGGREGATE MEASURES AND WHAT NOW fvlAY BE A COMPLETION OF THE CIRCLE, SLGGESTIONS THAT A BA.NK RESERVE MEASURE fvlAY BE THE BEST GUIDE FOR MONETARY ACTIONS, THESE 1WISTS AND TURNS IN EMPHASIS HAVE FREQUENTLY BEEN INTERPRETED BY THOSE OUTSIDE THE SYSTEM-ACADEMICS AND FED WATCHERS ALIKE--AS EXAMPLES OF ELEGAl'IT SOLUTIONS BE ING FRUSTRATED BY SfUP ID POLI CYf'11\KERS, THAT IS HARDLY THE CASE, c.ACH CHANGE IN EMPHASIS HAS BEEN LED AND ACCOMPANIED BY VOLLMINOUS INPUT FROM ECONOMISTS, ALWAYS AGREE, AGREE, Bur ECONOMISTS IDN'T IN FACT, IN THE POLICY ARENA ONE MIGHT SAY THAT THEY SELOOM FURTHER, THE EFFECTIVENESS OF ELEGANT SOLUTIONS ARE INFLUENCED BY FEASIBILITY AND ACCEPTABILITY, Is IT, FOR EXAMPLE, FEASIBLE TO ARGUE FOR A RAPID DECELERATION IN THE RATE OF GROWTH IN THE t'ONETARY AGGREGATES IGt\lQRING THE IMPLICATIONS FOR SHARP, SHORT-RUN OUTPUT AND EMPLOYMENT DECLINES? I THINK NOT, ESPECIALLY WHEN WE MOW THAT CoNGRESSIONAL STIMULATIVE ACTION WILL INEVITABLY FOLLOW, POLICYMI\KERS MUST CONDITION THEIR RESPONSES TO THE REALITIES OF THE WORLD AROUND us--TO THE KNO'dN IMPEDIMENTS TO ADJUSTMEf\ff OF OUR ECONOMY--TO THE LIKELY REACTIONS OF OTHERS, Bur I AM GETTING AHEAD OF MY PLANNED APPROACH TODL\Y, I roN'T INTEND TO Mil.KE A FORMAL REVIEW OF THE ISSUES RELATING TOlHE M:lNEY STOCK VERSUS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 3 - INTEREST RATES AS POLICY TARGETS, THE CHOICE AMONG ttONETARY AGGREGATES, THE COST OF MISSING t--DNETARY TARGETS OR THE USE OF RESERVES, THE MJNETARY BASE OR FED FUNDS AS OPERATING TARGETS, fibST OF YOU KNOW THE ARGUMENT, EACH OF YOU MC\Y HAVE A POSITION, INDEED, RATHER, I WANT TO PROVIDE A LITTLE OF THE SffiING IN WHICH RECENT MJNETARY POLICY DECISIONS HAVE BEEN MADE AND SOME PERSPECTIVE FOR THE PERIOD AHEAD, WE WILL VERY SOON--NEXT IVDNTH--BE ENTERING OUR FIFTH YEAR OF ECOf\OMIC GROWTH SINCE THE RECESSION OF 1974. THIS EXPANSION OUTRANKS IN LONGEVITY EVERY PRIOR CYCLICAL UPSWING OF THE POST-WAR ERA WITH THE EXCEPTION OF THAT IN THE 19fDs. lT WILL BE DIFFICULT TO SUSTAIN A CONTINUED PACE OF EXPANSION. SLOtJER GROWTl-f IN HOUSING, PERSONAL CONSLMPTION EXPENDITURES AND BUSINESS CAPITAL SPENDING--AND EVEN tDVERNMENT SPENDING--ALL APPEAR TO BE LIKELY AND WJULD BE EXPECTED TO LEAD TO A SUBSTANTIAL IVDDERATION OF THE PACE OF ECONOt'1IC EXPANSION AS THE YEAR PROGRESSES, NEVERTHELESS, MY OWN VIEW IS THAT WE WILL SEE POSITIVE, BUT NONETHELESS, SLOW GROWTI-i THIS YEAR, COULD TIP US INTO THE NEGATIVE COLL.MN BUT KECENT EVENTS IN IRAN l AM ENCOURAGED BY RECENT EFFORTS TO RESTORE IRANIAN OIL PRODUCTION EVEN THOUGH AT LESS THAN PRIOR PRODOCTION LEVELS (AND AT INCREASED PRICES), WE ENDED 1978 ON A VIGOROUS NOTE, EMPLOYMENT, OUTPUT, NEW ORDERS, INCOME AND RETAIL SALES WERE ALL RISING SOLIDLY, SoME OBSERVERS ARE CONCERNED THAT THE IVDRE THAN SIX AND A HALF PERCENT RATE OF REAL ECONavlIC GROWTH IN THE FOURTH QIJC\RTER tv"AY BE SIGNALING THE START OF A BOOM-AND-BUST BUBBLE, I DOUBT THAT THIS IS THE CASE, l EXPECT TO SEE THE FIGURES COt'1ING THROUGH IN A LESS VIGOROUS FASHION AS THE YEAR PROGRESSES, rbUSING HAS STARTED TO FEEL THE IMPACT OF RESTRICTIVE MONETARY POLICY, BUT IT IS THE ONLY SECTOR SO FAR SHOWING SIGNS OF WEAKNESS--AND EVEN THERE WITH NO SIGNS OF A DECLINE ANYWHERE NEAR AS STEEP AS IN 1974, CoNSLMER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 4 - SPENDING, A MAJOR SOURCE OF STRENGTH THROUGI-OLJT THIS EXPANSION, IS LIKELY TO TAPER OFF A LITTLE BIT, THE RISING BURDEN OF C0NSLMER DEBT HAS BEEN FREQUENTLY CITED AS A LIKELY REASON FOR MJDERATION IN CONSLMER OLJTLAYS, WHILE CERTAINLY A FACTOR, I OON'T SEE THIS ASLEADING TO ANY SHARP CLJTBACK IN PERSONAL SPENDING, BUSINESS INVENTORIES HAVE BEEN MJDERATE, EVEN LOW, IN RELATION TO As A RESULT OF CALJTIOUS SALES, INVENTORY POLICIES, THE REDUCTION OF IN- VENTORIES ACCOMPANYING LOWER OVERALL GROWTH IS NOT LIKELY TO BE AS SERIOUS AS IT WAS FIVE YEARS AGO I INDICATORS OF TI-IE PROBABLE PACE OF CAPITAL INVES1MENT ARE MIXED, CUR- RENTLY, ORDER BACKLOGS FOR NONRESIDENTIAL CONSTRUCTION AND EQUIPMENT INDICATE A FURTHER RISE IN CAPITAL SPENDING, BUT BUSINESS INVES1MENT INTENTIONS SURVEYS INDICATE A SLOWER GROWTH IN SPENDING, HIGHER INTEREST RATES AND EXPECTATIONS OF SLOWOOWN IN ECONOMIC ACTIVITY ARE LIKELY TO RESULT IN SOME HOLDING BACK OF INVES1MENT PLANS, PURCHASES OF GOODS AND SERVICES BY BOTH fEDERAL, STATE AND LOCAL GOVERNMENTS WILL BE RISING THIS YEAR BUT THE RISE SHOULD BE VERY M)DEST IN REAL TERMS, FURTHER, TI-IEY ARE NOT LIKELY TO OFFSET REDOCTIONS IN HOUSING AND BUSINESS FIXED INVES1MENT, OUR ECONO''iY REMA INS REMARKABLY WELL mLANCED, THERE ARE STILL NO SIGNIFICANT EXCESSES AFTER AOOST FIVE YEARS OF EXPANSION, THAT'S AN AMAZING RECORD, IT ALSO STRIKES A VERY POSITIVE NOTE, SINCE ECON()vlIC BALAi'\JCE REDUCES THE CHANCES FOR SHARP DECLINES IN ACTIVITY, BUT NEITHER OOES 11-JE ECONOMY HAVE MUCH ROOM FOR RAPID EXPANSION, W: ARE OPERATING AT OR CLOSE TO CAPACITY IN SUCH VITAL SECTORS AS TRANSPORTATION FACILITIES, STEEL, CEMENT, OIL REFINING, AND VARIOUS TYPES OF EQUIPMENT MANUFACTURING, WE HAVE A LARGER PERCENTAGE ·of OUR v-ORKING AGE POPULATION EMPL0YEDlODAY THAN AT ANY PREVIOUS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 5 - TIME IN OUR HISTORY, ADDITIONAL ECONOMIC STIMULUS y.,OLJLD ONLY EXACERBATE INFLATION, EVEN WITH SLOWER GROWTH IN THE ECONOMY THIS YEAR, I MUST CONFESS I 00 NOT EXPECT TO SEE ANY SWEEPING STRIDES IN WINDING OOWN INFLATION, THE LIKELY SUCCESS OF THE PRESIDENT'S WAGE AND PRICE STANDARDS PROGRAM IS STILL A QUESTION MARK, I.ABOR CONTRACT BARGAINING IS SURE TO BE VIGOROUS THIS YEAR, WITH CONTINUED RAPID ESCALATION OF FOOD PRICES, THE NEWLY EFFECTIVE INCREASES IN MINIMLM WAGE AND SOCIAL SECURITY TAXES, THE UNFORTUNATE RISE IN OPEC OIL PRICES, AND THE CONTINUED PASS-THROUGH OF HIGHER PRICES FOR IMPORTS, THE CHANCES OF ANY SIGNIFICANT r1JDERATION IN PRICE RISES IS SMALL. CLEARLY, THE CENTRAL ISSUE IS TO AVOID STRONG AGGREGATE DEMAND PRESSURES THAT WOULD AGGRAVATE OUR ALREADY SERIOUS INFLATION PROBLEM, BUT AT THE SAfviE TIME WE MUST HOLD IN PLACE SUFFICIENT FISCAL AND r1JNETARY POLICY RESTRAINT TO RELIEVE INFLATIONARY PRESSURES OVER THE LONG PULL WI11-IOUT TRIGGERING A RECESSION, LiNIDUBTEDLY, ONLY MODEST IMPROVEMENT IN REDUCING THE RATE OF INFLATION ALONG WITH SLOWER ECONOMIC GROWTH CAN WEAKEN THE RESOLVE OF CoNGRESS TO FIGHT INFLATION, AND IF r1JDEST IMPROVEMENT IS ACCOMPANIED BY SIGNIFICANT DECLINES IN OUTPUT AND EMPLOYMENT THE RESOLVE OF CONGRESS 't-OULD PROBABLY BE DESTROYED, As 0-iAIRM!\N MILLER HAS INDICATED IN HIS RECENT REPORT TO CoNGRESS, THE FEDERAL RESERVE SYSTEM BELIEVES THAT WE CAN vlALK THAT NARROW LINE, IF FISCAL POLICY MAINTAINS THE STANCE OUTLINED IN THE PRESIDENT'S BUDGET MESSAGE, THERE IS A PATH WHICH f/ONETARY POLICY CAN TAKE THAT HAS A REASONABLE CHANCE OF ACHIEVING OUR GOAL OF fv"ODERATING PRICE PRESSURES WITHOUT TRIGGERING A RECESSION, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 6 To TH/ff END, THE FEDERAL OPEN f'llc..RKET CottMITTEE HAS SELECTED GROWTH RANGES FOR THE M)NETARY AGGREGATES WAT IT BELIEVES WILL BRING AN APPROPRIATE DEGREE OF RESTRAINT IN LIGHT OF THE CURRENT OUTLOOK FOR FISCAL POLICY AND THE lJ'JDERLYING STRENGTH OF PRIVATE DEMAND IN THE ECONOMY, 0vER THE YEAR ENDING WITH THE FOURTH QUARTER OF 1979, M-1 IS EXPECTED TO GROW BE1WEEN 11/2 AND 4 ]/2 PERCENT AND M-2, 5 TO 8 PERCENT, IHAT GROWTH RATE FOR M-1 IMPLIES A MARKED DECELERATION FR0'-1 THE PACE OF RECENT YEARS--7,9 PERCENT IN 1977 AND 7,3 PERCENT IN 1978, Bur LEST YOU GET ~RRIED ABOUT TOO RAPID A DECELERATION, LET ME REMIND YOU lHAl PART OF THE LOWERING OF THE RANGE REFLECTS AN EXPECTATION THAT THE SHIFTING OF FUNDS TO SAVINGS ACCOUNTS WITH AUTQ\1ATIC BANK TRANSFER FACILITIES AND THE RECENTLY AUTHORIZED f\DW ACCOUNTS IN NEW YORK STATE WILL CONTINUE TO DEPRESS THE GROrffif OF DEMAND DEPOSITS THROUGHOUT 1979, GROWTH THIS YEAR BY AS MUCH AS 3 PERCENTAGE THAT SHIFT COULD DAMPEN M-1 POINTS, rbWEVER, WE HAVE ONLY HAD A BRIEF EXPERIENCE ON WHICH TO BASE THIS PROJECTION AND, THEREFORE, THERE IS A BROAD RANGE OF UNCERTAINTY, Au_ OF YOU ARE AWARE, MJNTHS, l ASSUME, THAT IN FACT, THE LEVEL OF M-1 M-1 HAS BEEN FLAT IN RECENT FOR PUBLISHED FEBRUARY DATA IS BELOW THAT FOR SEPTEMBER, FRANKLY, WE HAVE HAD DIFFICULTY IN EXPLAINING THIS FLATNESS EVEN IN THE LIGHT OF THE ATS AND NOW As A RESULT, THE F0'1C DELIBERATIONS, ACCOUNT DEVELOPMENTS, PERFORi'v\t\NCE HAS ADDED AN OBVIOUS UNCERTAINTY"[) M-1 IT IS IMPOSSIBLE TO TELL \A/HETHER THE WEAKNESS OF M-1 RELATIVE TO \A/HAT WOULD HAVE BEEN EXPECTED ON THE BASIS OF HISTORICAL RELATIONSHIPS AMJNG t'ONEY, INCOME AND INTEREST RATES IS A TRANSITORY PHENOMENON OR ONE THAT IS LIKELY TO PERSIST FOR SQ"'E TIME, IF THE RECENT WEAKNESS OOES REFLECT A CHANGE IN THE PUBLIC'S ALLOCATION OF FUNDS AfvDNG VARIOUS FINANCIAL ASSETS THAT WILL PERSIST https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 7FOR SOME PERIOD OF TIME, THEN THE CORRECT POLICY RESPONSE v/OULD BE t\lQT TO REACT BY REDt.X:ING RESTRAINT ON THE ECOf'.K.)MY, !F, HOWEVER, IT IS TEMPORARY, ONLY ONE OF THESE FREQUENT FLUCTUATIONS IN THE NUMBERS, THEN THE CORRECT RESPONSE WOULD BE TO EASE RESTRAINT, THUS, INTERPRETATION OF THE Nl.JviBERS IS CRITICAL FOR POLICY. BUT YET M-1 SEEMS TO BE A SavlEWHAT AMBIGLOUS INDICATOR OF POLICY. THUS, IT BECOMES ESPECIALLY IMPORTANT TO M)NITOR CAREFULLY THE BEHAVIOR OF OTHER FINANCIAL VARIABLES, THE FEDERAL RESERVE IS TRYING TO CORRECT THE PROBLEM OF MEASUREMENT OF THE AGGREGATES, PROPOSALS FOR REDEFINITION OF THE M)NETARY AGGREGATES ARE LNDER. STUDY, JlttoNG THE PROPOSALS MADE IN A STAFF PAPER PUBLISHED FOR PUBLIC C~NT IN THE JANUARY fE.DERAL RESERVE BUU.ETIN IS THAT M-1 BE REDEFINED TO ENCOMPASS ATS, f'OW AND OTHER SIMILAR TRANSACTION ACCOUNTS, SUCH A REDEFINITION WON'T ELIMINATE THE NEED TO UNDERSTAND THE BEHAVIOR OF VARIOUS FINANCIAL ASSETS, BUT IT MIGHT PRODt.X:E AN AGGREGATE fv'ORE REFLECTIVE OF THE PUBLIC'S NEED FOR TRANSACTION BALANCES IN LIGHT OF ONGOING INSTITUTIONAL CHANGES, f+1 IS NOT THE ONLY PUZZLING AGGREGATE, THERE ARE QUESTIONS AS VIELL REGARDING THE l"OVEMENTS OF THE INTEREST-BEARING COMPONENTS OF THE BROADER AGGREGATES-ESPECIALLY THE TIME AND SAVINGS DEPOSITS AT COVMERCIAL BANKS IN M-2, BANK SAVINGS DEPOSITS HAVE DECLINED APPRECIABLY IN THE PAST FEW t'ON11-lS, DESPITE AN INFLOW TO ATS ACCOUNTS, SAVINGS DEPOSITS MIGHT BE EXPECTED TO BE WEAK WHEN MARKET RATES ARE HIGH, BUT A LARGE GAP HAS EXISTED FOR SOME TIME SO YOU WOULD HAVE EXPECTED f"'OST OF THE INTEREST SENSITIVE FUNDS TO HAVE ALREADY SHIFTED, PERHAPS WITH RECENT HIGH NOMINAL INTEREST RATES, PEOPLE HAVE BEEN fVDRE AGGRESSIVE IN SEEKING OUT MARKET YIELDS, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 8THESE DIFFICULTIES Sf-OULD NOT BE TAKEN TO IMPLY THAT rtONETARY POLICY HAS NO BASIS FOR MAKING A DEClSION OR THAT THE MONETARY AGGREGATES SI-OULD BE DISCARDED, THE LATTER hOULD BE EQUIVALENT TO THE OLD LINE ABOUT THROWING THE BA.BY OUT ~~ITH THE BATH WATER, lT OOES, HOWEVER, SUGGEST THE NECESSITY OF SOMETHING OTHER THAN A PURELY MECHANISTIC RESPONSE FUNCTION TO t'ONETARY AGGREGATE DEVELOPMENTS, Ch-HER FINANCIAL VARIABLES MUST ALSO BE SEARCHED FOR CLUES AND SO MUST DEVELOPMENTS IN TI,E REAL ECONQ\1Y, fiL.L OF US ON TI,E ConvlITTEE KNOW THAT r1:lNETARY POLICY ACTIONS AFFECT 11,E ECOl'OMY WITH A LAG, WHAT IS HAPPENING TODAY IS NOT TI,E RESULT OF TODAY'S ACTIONS--OR.LAST WEEK'S, OR LAST r1:lNTH 1 S, IF WE WAIT UNTIL WE SEE THE UNDESIRED EVENTS OCCURRING IN TI,E ECONOMY, IT WILL BE TOO LATE, BUT EVEN SO, TRENDS IN TI,E REAL ECOt-OMY, WHETI,ER IN ORDERS, INVENTORIES, CAPITAL EXPENDITURES OR OTHER SIGNS OF PLANS FOR THE FUTURE GIVE US SOME FEELING ON THE POSITION WE ARE IN, AND SO 00 RELATED FINANCIAL AND CREDIT MARKET DEVELOPMENTS, THE POLICY DECISION TO BE MADE CURRENTLY IS NOT AN ISSUE OF r-DNETARIST VERSUS NON-r-DNETARIST APPROACHES TO MONETARY POLICY, BoTH HAVE A GREAT DEAL OF UNCERTAINTY AT THE MJv!ENT, BoTH ARE KEENLY AWARE THAT ONE OF THE MAJOR l"ONETARY POLICY FAULTS IN THE PAST HAS BEEN TO HOLD TO A POSITION OF RESTRAINT TOO LONG, Bur BOTH ARE ALSO CONCERNED AS WELL ABOUT THE INFLATIONARY PRES- SURES IN THE SOCIETY AND BOTI-1 RECOGNIZE THE CRITICAL ROLE OF rv'DNETARY POLICY, IN HIS INVITATION TO ME, MR, GRAN SAID "As YOU KNOW, OUR ECONOMY IS IN A PRECARIOUS SITUi\TION, 11 IT lS. IN TERMS OF UNCERTAINTY, BlIT NOT IN TERMS OF ITS DEPENDENCE ON CIRCUMSTANCES BEYOND OUR CONTROL, IN SPITE OF THE CURRENT DIFFICULTIES, THERE IS A POSSIBILITY THAT THIS YEAR WILL USHER IN A NEW ATTITUDE ABOlIT ECONav!IC POLICY--A NEW POSTURE BASED ON LONGER TERM SOLUTIONS TO OUR ECONOMIC PROBLEMS RATHER THAN "QUICK FIXES" THAT CAN'T AND OON'T \~ORK, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 9 - THERE IS A SURPRISING PERVASIVENESS OF AN ATTITUDE OF ACCEPTANCE OF A REDUCED PACE OF ECONOMIC ACTIVITY, WE MAY NOT BE SO QUICK TO REVERSE FEDERAL POLICY GEARS, f1A.YBE WE WILL BE r,'ORE WILLING AS A NATION TO ACCEPT A SOMEWHAT SLOWER SPEED FOR THE ENGINE, CERTAINLY WE HAVE SEEN THIS IN THE EC01'nMIC REPORT OF THE PRESIDENT, WE HAVE SEEN IT TOO IN THE FACT OF LESS --QR NONEXISTE~IT--PRESSURE TO REVERSE fv'ONETARY POLICY PREMATURELY, l AM HOPEFUL THAT WE WILL BE ABLE TO MODERATE r,'ONETARY POLICY RESTRAINT AT THE APPROPRIATE TIME THIS TIME AROUND 11-IE CYCLE, AND I AM HOPEFll. WE WILL BE ABLE TO MAINTAIN A REASONABLE FISCAL AND fvONETARY POLICY POSTURE IN ORDER TO MAKE SUBSTANTIAL PROGRESS TOWARD A MORE STABLE LESS INFLATIONARY ECOf'OMY, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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