Federal Reserve Bank of San Francisco and Parry, Robert T. "A Perspective on the Economic Slowdown." San Francisco Rotary Club, September 11, 1990, https://fraser.stlouisfed.org/title/1270/item/3787, accessed on April 16, 2025.

Title: A Perspective on the Economic Slowdown : San Francisco Rotary Club

Date: September 11, 1990
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image-container-0 Robert T. Parry, President Federal Reserve Bank of San Francisco San Francisco Rotary Club for delivery Septemb~r 11, 1990 A Perspective on the Economic Slowdown I. As we all know, news on the economic front hasn't exactly been encouraging. A. For example, 1. the growth of output has slowed significantly; 2. the stock market has dropped sharply; 3. interest rates have risen; 4. oil prices have soared in response to developments in the Middle East; 5. and inflation remains a thorny problem. B. What I'd 1 ike to do today is give you a perspective on recent developments in the national economy and our region. I'll conclude with comments on the broad implications for monetary policy. II. Turning first to the national economy, it's useful to begin by looking back a few years to get a better perspective. A. We've enjoyed a remarkable peacetime expansion. 1. Since the end of 19S2, when this expansion began, 22 million jobs have been created. 2. And the unemployment rate· has dropped from close to 10% (in 1982) to around Sl%. 3. The growth in output has been nothing short of vigorous, averaging 3i% a year for the last 7l years. B. Such rapid growth pushed the economy to the limits of its capacity and maybe beyond. C. As a result, we've had a problem with rising inflation since 1986. D. To get inflation under control, what was needed was a slowdown in the pace of activity so that it didn't strain our economy's capacity to produce goods and services. 1. Beginning in 1988 and continuing through early 1989, monetary policy aimed at producing such a gradual moderation in economic activity.
image-container-1 E. And starting in early 1989, that's exactly what we got. 1. Si nee then, the economy has grown at a H% annua 1 rate, on average. 2. This is in sharp contrast to the economy's 3i% growth rate in 1988 (Q4-Q4) and the 5% growth rate in '87. 3. The slowdown is broadly-based: It has shown up in slower growth in spending on consumer goods, housing, and business investment in plant and equipment. 4. It's also broadly-based geographically. a. In all but five states, employment has grown more slowly in the last fifteen months than it did in the preceding fifteen months. F. Given numbers like these, several recent developments have taken on a more ominous cast. 1. I'm referring to the alleged "credit crunch," the situation in the Middle East, and the serious downturns that certain parts of the country are experiencing. 2. I'll say a few words about each of these concerns. G. First, the so-called credit crunch. 1. "So-called" because I don't think there is one. 2. It's true that lenders -- and borrowers cautious. have become more 3. But caution is a normal and healthy response to a business environment that has become more uncertain. 4. In the long-run, more prudent lending practices will make our economy more stable. 5. The Fed recognizes, however, that the transition to more prudent standards has the potential to temporarily slow the economy. 6. To account for this possibility, monetary policy was eased slightly in July. H. A more thorny problem is the situation in the Middle East and its impact on oil prices. 1. The price of West Texas crude has jumped from under $17 a barrel in June to over $30. 2
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Date: September 11, 1990
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