Regional President Speech

Aberdeen, South Dakota March 21, 1974 IMPACT OF ENERGY ON ECONOMY Short-run: A. Domes ti c 1. Slowdown coming anyway. a. Econoniy expanding faster than sustainable in I 73. b. Reached capacity faster than expected. 1) employment 2) plant & equipment. c. Price increases - food & raw materials - outpacing wages. 1) reduced real income. 2) deteriorating consumer sentiment. 2. Embargo - two interpretations. Great uncertainty: Administration strategy: consumer saves, sustain production. a. Rise in unemployment due to shortage layoffs (direct/indirect). Price increases worsened. Policy implication: don't expand credit. b. Problem: compounded uncertainty will dampen consumer purchases - more like traditional recession. Policy - ease. c. Undeniable effect: increased inflation. 1) How can credit policy ease. Special factors that will disappear. 3. Lifting of Embargo - effects. a. Assumptions: M.E. price remains $10 bbl. Output not more than pre-Sept. ie., imports 2 mil. bbls/day increase, (not up to trend) Consumer pays more (average cost of petroleum +7%). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Good news/bad news. b. Results: Autos +1/2 mil. (10 mil. vs. 11% mil.) Housing +100,000 (1.7 vs. 2) Pit. & Equip. + Not much effect on real growth this year because: Prices pushed up faster w/ high cost imported oil. (Like excise tax - takes from high spenders & transfers to low spenders) c. Outlook Slow growth. Slowing price increases. Rising unemployment But stronger than a month ago. Ninth District insulted. B. International. Risk that international markets can't handle transfers of funds (50 billion) Not Great. Risk that each country reacts to save own skin - real but diminishing. Risk of starvation in LDC's - real. Long-run: Crisis real?: question in short-run; pretty clear in long run. 1. More government involvement in economic life - R&D, Allocation, Expropriation. 2. More potential for international strife - sectional strife - me first. 3. Slower growth in productivity. Frustration of expectation of rising standard of living. 4. Rest of world can't follow Western pattern of economic development. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bruce K. MacLaury (1974, March 20). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19740321_bruce_k_maclaury

@misc{wtfs_regional_speeche_19740321_bruce_k_maclaury,
  author = {Bruce K. MacLaury},
  title = {Regional President Speech},
  year = {1974},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19740321_bruce_k_maclaury},
  note = {Retrieved via When the Fed Speaks corpus}
}