Regional President Speech

SILAS KEEHN REMARKS UNIVERSITY CLUB NASHVILLE, TENNESSEE MARCH 12, 1986 I. INTRODUCTION - 5TH YEAR - NEWS GETS BETTER II. REVIEW OF LAST YEAR A. EXCELLENT YEAR - IN SO MANY RESPECTS SIGNIFICANT GAINS 2. I NF LAT I ON - CONT I NUED TO MODERATE - 3-1/21 - LOWER THAN 1984 A. FAVORABLE - 3RD YEAR B. COMPARATIVELY - STRONG CYCLE 1. CAPITAL SPENDING - STRONGEST OF POST WWII A. MODERNIZATION/PRODUCTIVITY 2. CORPORATE PROFITS - NEW HIGHS 3. HOUSING STARTS - 3RD YEAR OF OVER l.7MM 4. AUTO SALES - OVER llMM UNITS AFTER 10-l/2MM IN 1984 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VANDERBILT U. 3/12/86 PAGE 2 C. UNEVENNESS CONTINUES 1. DISTRICT - AGRICULTURE ~~ 2. HIGH VALUE OF DOLLAR A. MANUFACTURING SECTOR B. IMPORTS - VULNERABILITY OF DOMESTIC MARKETS Ill. LOOKING AHEAD A. YEAR OFF TO VERY STRONG START 1. LOWER INTEREST RATES - LONG TERM SECTOR A. YIELD CURVE 2. LOWER EXCHANGE VALUE OF DOLLAR A. ENERGY - POSITIVE ON INFLATION AND ECONOMIC ACTIVITY 4. HIGHER STOCK MARKET - PERSONAL WEALTH 5. EMPLOYMENT GROWTH A. MANUFACTURING SECTOR Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VANDERBILT U. 3/12/86 PAGE 3 6. FEDERAL DEFICIT r-~ ¼r ~ ✓ ~~.;~ ~ A. OUTLOOK IMPROVED ~Vt~ ~c,~~ nr il~ f- ~7L..1 IV. THE OUTLOOK - FORECAST A. CONTINUATION OF EXPANSION 1. GNP: +3% - STRONGER THAN LAST YEAR 2. INFLATION EXPECTATION GOOD: SAY. 3-1/21 - SIMILAR TO 1985 A. OIL OFFSET BY DECLINE IN VALUE OF DOLLAR 3. EMPLOYMENT GROWTH - WILL GO OVER lOOMM - UNEMPLOYMENT DECLINED (6.7ft} 4. HOUSING STARTS - 1.7 - 1.75; 4TH YEAR 5. AUTOS - OVER 10MM/10.3MM 6. CAPITAL SPENDING A. LOWER THAN 1985 B. PERHAPS +3/4% REAL TERMS t,o..JJWl-/-elLt - '{_~ ~ - ~ 2 ~ V. RISKS - IMBALANCES - ENUMERATED THEM BEFORE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VANDERBILT U. 3/12/86 PAGE 4 A. COMMON DENOMINATOR - INCREASE IN DEBT 1. ACROSS ALL SECTORS OF ECONOMY 2. TOTAL DOMESTIC NONFINANCIAL DEBT INCREASED AT ANNUAL RATE: ALMOST 151 IN BOTH 1984 AND 1985 3. HIGHEST ANNUAL INCREASES IN OVER 30 YEARS 4. FOURTH YEAR OF RECOVERY B. FEDERAL DEFICIT 1. CONTINUING 4-1/2--51 GNP 2. SO FAR INTO RECOVERY UNPRECEDENTED --r~ 3. DEBT SOME S200B HIGHER SINCE LAST YEAR - AND 1~~ RISING - .,~i.X~ /1,,x,. 4. INTEREST ABOUT 201 OF BUDGET 5. FINANCING TAKES ALMOST HALF OF NET AVAILABLE SAVINGS A. ALLOCATION OF RESOURCES - PUBLIC/PRIVATE C. INTERNATIONAL AREA - DEBT PROBLEMS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VANDERBILT U. 3/12/86 PAGE 5 1. EXTERNAL DEBTS - LDCS A. PARTICULARLY COUNTRIES DEPENDENT ON PETROLEUM EXPORTS 2. TOTAL DEBT OF NATIONS EXPERIENCING REPAYMENT PROBLEMS - OVER SSOOB 3. BANKS - SIGNIFICANT EXPOSURES A. DIFFICULT YEAR OR TWO D. CONSUMER DEBT - HISTORICALLY HIGH LEVELS 1. MITIGATING CIRCUMSTANCES 2. QUESTIONS AS TO SERVICING CAPACITY E. CORPORATE DEBT 1. 1984: +S180B/1985 2. EQUITY DECLINING 3. DEBT/WORTH RATIOS 4. VULNERABILITY - INSTABILITY F. FINANCIAL SYSTEM FRAGILITY/STRESS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VANDERBILT U. 3/12/86 PAGE 6 1. BANK CLOSURES 1985/1986 A. NOT SYSTEMIC 8. BUT DE-STABILIZING 2. THRIFTS A. ASSET QUALITY PROBLEMS 3. AGRICULTURAL LENDERS 4. ENERGY LENDERS A. MORE PROVISIONS/CHARGE-OFFS 5. REAL ESTATE LENDERS A. EXPLOSION - COMMERCIAL BUILDING (1) CHICAGO - GREAT FIRE 8. VACANCY RATES VI. HAVE BEEN DEALING FOR SOME WHILE A. DISCOURAGING YET POSITIVE SIGNS 1. O GRAMM-~UDMAN: DEFICIT L Ii ~ _ -A _ ~ • _ ~ ~ I\~\., - ~~t'&/-( ~ ~/~ 2. DECLINE IN VALUE OF DOLLAR Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VANDERBILT U. 3/12/86 PAGE 7 A. FEBRUARY-SEPTEMBER: -15% B. SEPTEMBER MARCH: -15% C. THE WORRY: FREEFALL D. COORDINATED REDUCT I ON IN DISCOUNT RATES - SUCCESSFUL E. WILL IMPROVE BALANCE OF TRADE F. IMPROVE ECONOMIC PERFORMANCE G. INFLATION ~~~~~ H. FINANCING OF DEFICIT BY INTERNATIONAL MARKETS A. CHANGE IN SENTIMENT B. INTEREST RATES - ECONOMIC RESULTS • /-J~ p~'lr P-~ -~~ ~ B. MONETARY POLICY - KEEP ECONOMIC EXPANSION GOING , ~ , , ~ , - ~ ~ ... 'IV~ l-:- MANEUVERING ROOM NAR~OW 2. IMPROVEMENT IN INFLATIONARY OUTLOOK - BIG BREAK 3. CAN TOLERATE A MORE EXPANSIVE POLICY - WITHOUT RISK CENTRAL BANKERS FEAR THE MOST °'{ .·~ ~ .tt. P..J, - ~ ti~ e,&_j,. ·~ h~ Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VANDERBILT U. 3/12/86 PAGE 8 C. THEREFORE NOT ONLY OUTLOOK FOR 1986 POSITIVE 1. PUTTING ENVIRONMENT IN PLACE - CONTINUED EXPANSION QUITE SOME WHILE A. IF WE CAN CONT I NUE TO WORK THROUGH THE PROBLEMS B. RECORD PRETTY GOOD D. ON THAT OPTIMISTIC NOTE * * * * * Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1986, March 11). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19860312_silas_keehn

@misc{wtfs_regional_speeche_19860312_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1986},
  month = {Mar},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19860312_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}