Regional President Speech

SILAS KEEHN REMARKS MILWAUKEE CHAPTER OF THE PLANNING FORUM PARK EAST HOTEL MILWAUKEE, WISCONSIN APRIL 17, 1986 "ALL'S WELL THAT STARTS WELL - OR IS IT?" I. INTRODUCTION A. WORD ABOUT FEDERAL RESERVE SYSTEM - BANKS 1. 12 DISTRICTS - BANKS - GOVERNMENT CORPORATIONS B. 7TH - IOWA, ILLINOIS, INDIANA, MICHIGAN 1. WISCONSIN 2. BANK - BRANCH - DES MOINES, INDIANAPOLIS 3. MILWAUKEE - COMMITMENT TO SERVE FINANCIAL INSTITUTIONS IN STATE C. BOARDS OF DIRECTORS - 9/6 - 3 1. LEE KENDALL - CHAIRMAN OF MORTGAGE GUARANTY INSURANCE CORPORATION 2. CHARLIE MCNEER - CHAIRMAN/CEO OF WISCONSIN ELECTRIC POWER CO. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 2 3. INTERESTS OF WISCONSIN WELL REPRESENTED D. DON'T WANT TO BE OVERLY CAUGHT UP IN EUPHORIA OF THE MOMENT - BUT PARTICULARLY EXCITING TIME 1. ELABORATE IN A FEW MINUTES 2. UNIQUE OPPORTUNITY 3. IF EVERYTHING COMES TOGETHER JUST RIGHT - REWARDING ECONOMIC EXPERIENCE II. BEFORE LOOKING AHEAD - LOOK BACK A. SET STAGE FOR COMMENTS REGARDING THE OUTLOOK B. FINAL QUARTER OF LAST YEAR ENDED ON WEAKER NOTE THAN WOULD HAVE HOPED 1. EACH REVISION OF 4TH QUARTER GNP DOWNWARD A. LAST REVISION .7%- PUNDITS - DISAPPEAR ALTOGETHER 2. ANNUAL BASIS 1985 +2.2% AFTER MUCH STRONGER (+6.6%) 1984 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 3 3. 41 H QUARTER WEAKNESS HAS LED SOME TO CONCLUDE THAT WE'RE HEADED BACK INTO A RECESSION C. INDEED, SOME OF THE EARLY 1986 NUMBERS, PARTICULARLY FEBRUARY CONT I NU I NG INTO MARCH, LITTLE ON THE SOFT SIDE l. UNEMPLOYMENT RATE A. JANUARY/FEBRUARY - DOWN A BIT IN MARCH 2. RETAIL SALES - WEAK - ESSENTIALLY FLAT IN 1ST Q. - DOWN IN MARCH 3. INDUSTRIAL PRODUCTION - FELL IN MARCH - 2ND CONSECUTIVE MONTHLY DECLINE - 1ST SINCE LATE 1984 4. DURABLE GOODS - FELL IN FEBRUARY - REFLECTING A DROP IN DEFENSE ORDERS - STRONG INCREASE IN DECEMBER 5. BUT DESPITE THESE NUMBERS - PRELIMINARY GNP REPORT FOR 1ST Q. +3.2% Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 4 A. ARITHMETIC INVOLVED - STILL POSITIVE DIRECTION Ill. AND IMPORTANT TO KEEP THESE IN A BROADER PERSPECTIVE - ON A NATIONAL BASIS WE ARE OPERATING IN A VERY GOOD ECONOMIC ENVIRONMENT A. DESPITE WHAT SEEMS LIKE MODEST GROWTH IN 1985, THE NATIONAL ECONOMY HAS PERFORMED WELL 1. AT THE END OF LAST YEAR, MAJOR MEASURES OF PERFORMANCE WERE AT RECORD LEVELS A. GNP IN 1982 DOLLARS - 10% ABOVE 1981 PEAK B. INDUSTRIAL PRODUCTION - 11% ABOVE 1981 PEAK C. PAYROLL EMPLOYMENT - VERY STRONG - OVER 8 MILLION HIGHER THAN PREVIOUS PEAK - VERY SIGNIFICANT GAINS ( 1) TOT Al EMPLOYMENT WI LL GO THROUGH 100 MILLION LEVEL EARLY THIS YEAR - CURRENT QUARTER Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 5 (2) FOR VERY REAL AND HUMAN REASONS - FOCUS ON UNEMPLOYMENT ( 3) EMPLOYMENT PERSPECTIVE - EXPANSION NOT GIVEN FULL CREDIT D. WHILE INCREASE IN INFLATION SMALLEST SINCE 1967 2. NOW INTO THE 4TH YEAR OF ECONOMIC CYCLE - AND CLEARLY - EXPANSION A. ONLY 2 OTHERS SINCE WORLD WAR II HAVE LASTED THIS LONG 3. FURTHER, IN MANY RESPECTS THIS EXPANSION COMPARES VERY FAVORABLY WITH OTHER POST WORLD WAR II CYCLES A. IF YOU ANALYZE VARIOUS COMPONENTS OF ECONOMY B. FOR EXAMPLE, CAPITAL SPENDING ( 1} LARGEST INCREASE IN CAPITAL SPEND I NG FROM BOTTOM OF CYCLE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 6 {A) HAVE RANGED FROM 15 TO 25% IN PAST CYCLES {B) THIS TIME ALMOST A 40% INCREASE {C) PRODUCTIVITY NOT CAPACITY EXPANSION - BODES WELL FOR OUR FUTURE COMPETITIVENESS B. GOOD NATIONAL PERFORMANCE 1. MASKS THE UNEVENNESS A. AMONG GEOGRAPHIC AREAS/AMONG INDUSTRIES B. HAS BEEN A VERY UNEVEN EXPERIENCE 2. PROBABLY GREATEST UNEVENNESS THAT WE'VE SEEN IN PAST FOUR DECADES 3. CLEARLY THIS IS NOT SIMPLY A BUSINESS CYCLE PHENOMENON A. WE HAVE UNDERGONE SOME VERY FUNDAMENTAL CHANGES IN THE STRUCTURE OF THE WORLDWIDE ECONOMY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 7 (1) SECULAR NOT CYCLICAL B. VARIETY OF FORCES HAVE COME INTO PLAY (1) EARLIER INFLATION - UNWINDING A LONG AND DIFFICULT PROCESS (2) FEDERAL SPENDING AND TAXING DECISIONS (3) INTERNATIONALIZATION OF MARKETS - WE HAVE BECOME AN INTEGRAL PART OF A GLOBAL ECONOMY (4) EXCHANGE VALUE OF DOLLAR (A) ALMOST 90% 1980-1985 C. IT IS SAID A RISING TIDE LIFTS ALL BOATS - RISING TIDE OF ECONOMIC EXPANSION HAS NOT RAISED ALL BOATS C. ONE BOAT STRUGGLING TO GET OFF THE BOTTOM HERE IN THE MIDWEST - MANY SECTORS HAVE NOT RETURNED TO LEVELS OF ACTIVITY EXPERIENCED IN 1981 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE Ll/17/86 PAGE 8 1. MANY OF THE HEAVY MANUFACTURING INDUSTRIES SO IMPORTANT TO OUR AREA - RUGGED ADJUSTMENT A. SUCCESSFULLY SO - COST REDUCTIONS - IMPRESS I VE, HAVE BEEN MA I NTA I NED - REDUCED BREAKEVEN POINTS B. OUTLOOK MORE FAVORABLE D. AGRICULTURE - IMPORTANT TO THE DISTRICT - DIFFICULT ADJUSTMENT 1. AGRICULTURE SECTOR PROBLEMS PERVASIVE - SPREAD TO A WHOLE HOST OF OTHER RELATED AREAS A. MANUFACTURING, RETAIL SERVICE, FINANCIAL ACTIVITY B. FOR MANY RURAL COMMUNITIES THIS HAS A PERVASIVE, NEGATIVE INFLUENCE C. PARTICULARLY - CLOSED BANK E. FAIR COMMENT - MILWAUKEE AREA HAS FELT THE FULL EFFECT OF THE UNEVENNESS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 9 IV. SHIFTING BACK TO THE NATIONAL SCENE, LET ME LOOK AHEAD - DESPITE SOME UNCERTAINTY REGARD I NG THE I ND IV I DUAL 1ST QUARTER NUMBERS (AND STATISTICAL/SEASONAL ABERRATIONS MAY BE AT FAULT) - THE YEAR HAS STARTED OFF WELL - EVIDENCED BY STRONGER THAN EXPECTED 1ST Q. A. THE CONDITIONS FOR CONTINUED EXPANSION ARE IN PLACE AND SOME RECENT DEVELOPMENTS ONLY ENHANCE THE POSSIBILITIES - I'LL EXPAND ON SOME OF THESE DEVELOPMENTS IN A MOMENT - LET ME ENUMERATE A FEW 1. LOWER INTEREST RATES - TREMENDOUS DECLINE 2. LARGE DECLINE IN EXCHANGE VALUE OF DOLLAR 3. INFLATION CONTINUING LOW 4. EMPLOYMENT GROWTH MAINTAINED A. PAYROLL EMPLOYMENT INCREASED AGAIN LAST MONTH - EACH MONTH THIS YEAR - 31 CONSECUTIVE MONTHS B. INCREASES IN MANUF ACT UR I NG AREA - 4 MONTHS THROUGH JANUARY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 10 5. STOCK MARKET PERFORMANCE A. POSITIVE FROM STANDPOINT OF EQUITY-FINANCING B. ALSO FROM POINT OF VIEW OF CONSUMER "WEALTH" (1) SHOULD MEAN INCREASED POTENTIAL FOR CONSUMPTION 6. CAPITAL SPEND I NG PLANS BE I NG REVI SEO UPWARDS - EARLIER EXPECTATIONS FLAT TO DOWN - SAY 3/4% THIS YEAR A. PRETTY MUCH ACROSS THE BOARD, EXCEPT OIL INDUSTRY B. TAX LEGISLATION WILL BE KEY (1) ACCELERATED DEPRECIATION 1.T.C. (2) (3) INCENTIVES FOR PRODUCTIVITY V. GIVEN THE GOOD START AND THESE VERY RECENT DEVELOPMENTS - THE OUTLOOK FOR 1986 IS CERTAINLY POSITIVE A. THE EXPANSION WILL CONTINUE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 11 1. REAL GNP OF AT LEAST 3% - EXACT NUMBER NOT AS IMPORTANT AS TENDENCY A. ABOVE 2-1/4% FOR 1985 B. COULD BE SOMEWHAT HIGHER 2. HOUSING STARTS - WELL OVER l.7MM - 4TH YEAR 3. AUTOS - LESS THAN 1985 - OVER lOMM - THIRD YEAR 4. INFLATION EXPECTED TO RUN LESS THAN 3-1/2% OF LAST YEAR A. RECENT DEVELOPMENTS IN ENERGY SECTOR COULD MEAN INFLATION LESS THAN THAT - 3% OR EVEN LOWER (1) 1ST Q. PRICES - GNP DEFLATER: +2.5% (2) LOWEST SINCE 1967; ALMOST 20 YEARS 5. UNEMPLOYMENT RATE SHOULD BE A LITTLE LESS THAN 7% NATIONALLY VI. LEST YOU GET TOO COMFORTABLE - THERE ARE SOME SIGNIFICANT RISKS - IMBALANCES - THREATENING Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 12 A. WHETHER REALITY OF THE YEAR MATCHES EXPECTATIONS DEPENDS ON HOW WE DEAL WITH THESE IMBALANCES B. COMMON DENOMINATOR - INCREASE IN DEBT 1. ACROSS ALL SECTORS - PUBLIC AND PRIVATE 2. INCREASE IN DOMESTIC NONFINANCIAL DEBT HIGHEST IN OVER 30 YEARS C. LET ME START WITH THE KEY ELEMENT IN DEBT PICTURE - THE ONE THAT PERVADES VIRTUALLY EVERYTHING THAT I AM TALKING ABOUT - NAMELY, THE FEDERAL BUDGET DEFICIT 1. OBVIOUSLY A CURRENT AND TOPICAL ISSUE - LITTLE I CAN ADD 2. DEFICITS OF MAGNITUDES THAT HAVE BEEN EXPERIENCING AT THIS STAGE OF THE ECONOMIC EXPANSION ARE UNPRECEDENTED A. NOT AT ALL UNUSUAL TO RUN SIGNIFICANT DEFICITS AT THE TIME OF RECESSION OR OTHER ADVERSE EVENTS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 13 B. BUT WE ARE NOW WELL INTO THE 4TH YEAR OF AN ECONOMIC RECOVERY AND WE HAVE BEEN RUNNING DEFICITS AROUND 4-1/2 - 5% OF THE GNP FOR 4 YEARS NOW 3. IN THE LONG HISTORY OF OUR COUNTRY WE HAVE ALWAYS MANAGED TO BRING OUR BUDGETS IN BALANCE A. AFTER AN ADVERSE EVENT HAS PASSED THAT CAUSED THE DEFICIT - CONGRESS HAS TAKEN CORRECTIVE ACT I ON TO BR I NG THE BUDGET IN BALANCE - RECORD IS CLEAR B. INDEED, IN THE EARLY 183OS CONGRESS NOT ONLY FULLY REPAID THE THEN OUTSTANDING TREASURY DEBT - BUT RAN SURPLUSES WHICH WERE DISTRIBUTED BACK TO THE STATES 4. IN THE LATE 196OS WE UNDERWENT AN I MP ORT ANT CHANGE - FROM THIS POINT FORWARD WE APPARENTLY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 14 DECIDED TO ACCEPT DEFICITS AS PART OF THE NORMAL OPERATION OF OUR SOCIETY - NOT AS A WAY OF DEALING WITH AN ADVERSE EVENT A. ENORMOUS POLITICAL/SOCIAL CHANGE {l} NOT SURE WE FULLY APPRECIATED THE MAGNITUDE 5. FEDERAL DEFICITS RESULT IN TREASURY DEBT A. RISING AT AN ALARMING RATE B. DEBT LEVEL IN 1975 $500 BILLION - APPROACHED $2 TRILLION LAST YEAR - RISING INEXORABLY {1} APRIL 1 - APRIL FOOL'S DAY C. OVER $750 MI LL I ON EVERY WORK I NG DAY - SOME $3.9 BILLION PER WEEK 6. OF COURSE. INTEREST ON THE DEBT HAS TO BE PAID A. GROWINGLY WORRIED ABOUT COMPOUND INTEREST SYNDROME Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 15 (1) IS THIS AN ISSUE THAT HAS GOTTEN BEYOND OUR CONTROL? (2) INTEREST ON THE DEBT IS ASSUMING A MUCH LARGER POSITION IN THE ANNUAL BUDGET - 10% IN FISCAL 1975, ALMOST 20% IN FISCAL 1985 EVEN ON TH IS BASIS ALONE, THE NEED FOR ( 3) ACTION ON THE DEFICIT IS VERY COMPELLING B. BUT, IMPLICATIONS OF CONTINUED HIGH FEDERAL BUDGET DEFICITS GO FURTHER (1) AT STAKE - WHOLE ISSUE OF ALLOCATION OF SAVINGS AND INVESTMENT DOLLARS BETWEEN GOVERNMENT AND PRIVATE SECTORS (2) SAVINGS/GNP - 11% - 1/2 FINANCE DEFICIT (3) THERE IS ROOM FOR ARGUMENT - FINANCING THE DEFICIT HAS PUT PRESSURE ON THE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 16 MARKETS - INTEREST RATES ARE HIGHER AS A RESULT OF BUDGET DEFICIT D. TO SOME VERY LARGE EXTENT, THESE FISCAL DEFICITS ARE BEING SUPPORTED BY THE INTERNATIONAL MARKETS 1. OUR TRADE DEFICIT LAST YEAR - A RECORD OF ABOUT $150 BI LL I ON - GREAT MANY DOLLARS INTO THE INTERNATIONAL MARKETS 2. WE HAVE NOW BECOME A NET EXTERNAL DEBTOR 3. POSIT I ON NOT INHERENTLY WRONG IF THE FUNDS ARE BEING USED FOR PRODUCTIVE PURPOSES A. WHICH GENERATE THE REPAYMENT CAPACITY TO SERVICE THE DEBT B. WRONG TO USE FUNDS FOR CONSUMPTION PURPOSES - BASICALLY WHAT IS GOING ON 4. AS A RESULT OF LARGE PURCHASES OF U.S. DEBT BY INTERNATIONAL MARKETS (JAPAN) PRESSURE ON U.S. INTEREST RATES HAS TO SOME EXTENT BEEN RELIEVED Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 17 A. IF THERE IS A CHANGE IN SENTIMENT, WILL HAVE TO FINANCE DEFICIT FROM DOMESTIC SOURCES B. HIGHER RATES THAN OTHERWISE (1) ECONOMIC EXPERIENCE MAY WELL BE DIFFERENT E. SHIFTING FROM GOVERNMENT TO THE CONSUMER - CONSUMER INSTALLMENT DEBT HAS ALSO RI SEN TO RECORD LEVELS RELATIVE TO DISPOSABLE INCOME 1. SOME MITIGATING CIRCUMSTANCES WHICH MODERATE THE SHEER MAGNITUDE OF NUMBERS A. BUT PERSONAL DEBT LOADS HAVE BECOME VERY, VERY HEAVY B. RAISES THE QUESTION AS TO THE SUSTAINABILITY OF CONSUMPTION AND THEREFORE THE ECONOMIC EXPANSION C. WILL CONSUMERS BE ABLE TO HANDLE THIS DEBT IF PERSONAL INCOMES BEGIN TO FALL? Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 18 F. CORPORATE DEBT HAS ALSO INCREASED VERY RAPIDLY OVER THE PAST FEW YEARS 1. IN 1984 CONSOL I DATED CORPORATE DEBT ISSUED BY NONFINANCIAL CORPORATIONS INCREASED BY OVER $190 BILLION - A RECORD 2. THE 1985 NUMBER WAS SOMEWHAT LESS BUT SECOND ONLY TO 1984 ($157 BILLION) 3. EXACERBATED BY LEVERAGE BUYOUTS, MERGERS, TAKEOVERS, AND ACQUISITIONS 4. EVEN MORE DISTRESSING IS THE RAPID RETIREMENT OF EQUITY THAT HAS BEEN TAKING PLACE OVER THE PAST FEW YEARS 5. ON AN ABSOLUTE BASIS CORPORATE AMERICA HAS BEEN DECAPITALIZING ITSELF 6. AS A CONSEQUENCE, CORPORATE DEBT RELATED TO NET WORTH HAS INCREASED VERY SHARPLY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE Ll/17/86 PAGE 19 G. CAN'T LEAVE THE DEBT ISSUE WITHOUT COMMENTING ON THE VERY LARGE EXTERNAL DEBT POSITIONS OF SOME OF THE LESSER DEVELOPED COUNTRIES 1. VERY DIFFICULT, PARTICULARLY SO FOR COUNTRIES THAT ARE DEPENDENT ON THE EXPORT OF PETROLEUM PRODUCTS TO GENERATE DOLLAR RESERVES TO SERVICE THEIR DEBT 2. WORKING THROUGH THIS PROBLEM WILL BE VERY CHALLENGING H. AGAIN, THIS BUILDUP OF DEBT ACROSS ALL SECTORS OF OUR ECONOMY, NATIONALLY AS WELL AS INTERNATIONALLY, IS OF GREAT CONCERN 1. INTRODUCED A DE ST AB IL I ZING ELEMENT VULNERABILITY OF THE DEBTORS TO SERVICE THE DEBT - MAINTAINING AN ENVIRONMENT OF GOOD ECONOMIC GROWTH IS CRITICALLY IMPORTANT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 20 2. MARGIN FOR ERROR VERY NARROW VII. CLEARLY - ALL THIS HAS IMPLICATIONS FOR MONETARY POLICY A. THESE IMBALANCES HAVE CREATED A DIFFICULT ENVIRONMENT FOR MONETARY POLICY 1. DEALING WITH A COMBINATION OF IMBALANCES THAT WE HAVEN'T EXPERIENCED BEFORE 2. EITHER IN NUMBER OR IN MAGNITUDE 3. NET RESULT IS A VERY NARROW PASSAGE THROUGH WHICH TO NAVIGATE B. OBJECTIVE OF MONETARY POLICY REMAINS THE SAME 1. CONTINUE PROGRESS TOWARD PRICE STABILITY IN CONTEXT OF GROWING ECONOMY A. THOUGH RECENT INFLATIONARY RESULTS HAVE BEEN WELCOME - HARDLY PRICE STABILITY - NIXON 1971 - MORE WORK TO DO 2. OVERRIDING ASSIGNMENT AT THE FED - KEEP THE EXPANSION GOING Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 21 A. BUT IT CANNOT BE AN EXPANSION FUELED BY ESCALATING INFLATION EXCESSIVELY ACCOMMODATIVE MONETARY POLICY HISTORY CLEAR THAT SUSTAINABILITY OF A (1} GROWING ECONOMY IS IMPAIRED BY INFLATION - WE'VE BEEN THERE B. BUT IF WE WERE TO EXPERIENCE A RENEWED RECESSION - THE IMBALANCES I CITED WOULD BECOME VERY DIFFICULT C. CONSEQUENTLY, PRESSURES MAY WELL MOUNT 1. TO ENCOURAGE AN EVEN MORE RAPIDLY EXPAND I NG ECONOMY 2. WITHOUT DUE CONCERN ABOUT LONGER TERM INFLATION POTENTIAL 3. FED WI LL COME UNDER VERY HEAVY PRESSURE TO MONETIZE OUR WAY OUT OF SOME OF THESE PROBLEMS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 22 4. OUR INDEPENDENCE COULD BE THREATENED VIII. CONCLUSION A. SAID AT OUTSET - YEAR HAS STARTED WELL - WE ARE DEALING WITH A UNIQUE SET OF CIRCUMSTANCES - AND WE HAVE A GREAT OPPORTUNITY B. LET ME JUST REPEAT AND EMPHASIZE 3 ITEMS TO MAKE THE POINT FIRST 1. MASSIVE REDUCTION IN ENERGY PRICES - FELL OUT OF SKY A. GLASS MORE THAN 1/2 FULL B. VERY POSIT I VE AND PERVASIVE - NOT ONLY OUR ECONOMY, BUT WORLD ECONOMIES AS WELL C. VERY FAVORABLE IMPACT ON INFLATION D. GIVES FED MORE MANEUVERING ROOM - DECREASED INFLATIONARY CONCERNS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 23 SECOND 2. SIGNIFICANT REDUCTION IN INTEREST RATES - MEDIUM AND LONG TERM A. YIELDS ON 30 YEAR DOWN OVER 400 BASIS POINTS IN LAST YEAR - SOME 200 BASIS POINTS SINCE TURN OF THE YEAR B. 30 YEAR BOND YIELDING CLOSE TO 7% - YIELDS ON LONGER TERM MATURITIES LOWEST SINCE EARLY 1970S C. AGAIN, VERY PERVASIVE THROUGHOUT OUR ECONOMY - AND WORLD ECONOMIES (1) REDUCED RATES PUT EXTERNAL DEBTS OF LDCS IN MUCH DIFFERENT PERSPECTIVE ( 2} DOME ST I CALLY - MORTGAGE REF I NANCI NGS - POWERFUL EFFECT ON CONSUMER SPENDING - MONTHLY PAYMENTS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 24 THIRD 3. CHANGE IN VALUE OF DOLLAR AGAINST DM AND YEN - ALMOST 30% SINCE THIS TIME LAST YEAR - TREMENDOUS PRICE REDUCTION - 30% A. SIGNIFICANT AMOUNT HAS OCCURRED THIS YEAR B. ENORMOUS OPPORTUNITIES FOR OUR EXPORT SECTOR - WILL TAKE A WHILE TO SHOW UP IN NUMBERS - VERY, VERY HELPFUL FOR THE BELEAGUERED EXPORT ACTIVITIES C. BETTER OPPORTUNITIES FOR SUPPLIERS TO DOMESTIC MARKETS - IMPACTED BY IMPORTS C. THUS WHAT HAS STARTED WELL SHOULD END WELL 1. MOREOVER - IF WE CAN DEAL WITH THESE IMBALANCES l'VE ENUMERATED - AND THE STRONG ECONOMIC ENVIRONMENT GREATLY FACILITATES MANAGING OUR WAY THROUGH THESE TERRIBLY DIFFICULT ISSUES Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MILWAUKEE 4/17/86 PAGE 25 2. THE FUNDAMENTALS ARE AT HAND FOR A CONTINUATION OF THIS FAVORABLE ECONOMIC EXPERIENCE FOR QUITE SOME WHILE - AND THIS YEAR MAY WELL DEVELOP INTO THE TURNING POINT IN WHAT MIGHT JUST BE ONE OF THE MOST REWARDING ECONOMIC PERIODS OF THE PAST FEW DECADES D. ON THAT POSITIVE NOTE - CONCLUDE * * * * * Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1986, April 16). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19860417_silas_keehn

@misc{wtfs_regional_speeche_19860417_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1986},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19860417_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}