Regional President Speech

SILAS KEEHN REMARKS IOWA BANKlRS ASSN. GROUP 4 CEDAR RAPIDS, IOWA MA.Y 5, 1987 I. lN1RODUC1 ION - DELIGHTED TO HAVE THIS OPPORTUNITY TO BE WITH YOU A. HAVE TRIED TO SPEND AS MUCH TIME IN IOWA AS MY SCHEDULE WOULD PERMIT 1. PARTICULARLY IN LIGHT OF THE DIFFICULT ADJUSTMENT PROBLEMS THAT T,HE BANKS. HAVE BEEN EXPERIENCING 1 :J, 4,,(Y~r,,-'.J>., "'f~ /~, Lo.LiJ, / ~,-JAi( ~~r,,,d- / O,cfc ~ IN LIGHT OF THE FACT THAT 1 BILL BERNAU AND BILL TAYLOR ARE ALSO ON THIS AGENDA 1. YOU WILL BE HEARING ABOUT BANKING CONDITIONS FROM THE REAL EXPERTS 2. THOUGHT I MIGHT COMMENT ON OUR ECONOMY - PUT DEVELOPMENTS IN A BROADER PERSPECTIVE C. WE HAVE AND ARE EXPERIENCING SOME VERY FUNDAMENTAL CHANGES IN OUR ECONOMY l. THE ADJUSTMENT PROCESS FOR MANY SECTORS HAS BEEN, AND CONTINUES TO BE, VERY DIFFICULT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP~ MAY 5, 1987 PAGE. 2 2. lHE. MONETARY POLICY IMPLICATIONS OF ALL THIS ARE ALSO SIGNIFICANT - AS IS EVIDENT FROM PAST FEW DAYS 11. lH[ DECADE. OF THE 'BOS HAS BEEN A UNIQUE PERIOD - SOME. 2-1/7- YE.ARS 10 GO THAT I AM SURE WILL BE "INTERESTING" - BUl HOPE.FULLY NOT IN THE CHINESE SENSE OF THE WORD A. I_ET ME. GO BACK TO 1980 - A MILD RECESSIONARY ENVIRONMENT 1. INFLATION - 13% AND HIGHER - EVERY EXPECTATION CALLED FOR EVEN HIGHER LEVELS 2. INTEREST RATES WERE EXTRAORDINARILY HIGH AND WOULD INCREASE EVEN MORE AS THE YEAR PROGRESSED B. RISING INTEREST RATES HAD THEIR EFFECT - THE RECESSION FOLLOWED 1. MANY WOULD DESCRIBE IT AS THE WORST SINCE THE 1930S 2. PARTICULARLY TRUE IN THE HEAVILY INDUSTRIALIZED MIDWESTERN AREA Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY S, 1981 PAGF.. 3 3. WE FINALLY REACHED THE TURNING POINT IN THE 4TH QUARTER OF 1982, THE START OF CURRENT CYCLE C. HAD l BE.EN HERE IN LATE 1982 OR EARLY 1983 1. HOPF.. THAT l WOULD HAVE CALLED THE TURN IN THE. ECONOMY RIGHT - THE SIGNS OF RECOVERY WERE BECOMING QUITE CLEAR 2. BUT HAD I FORECASTED SOME OF THE OTHER DEVELOPMF..NTS THAT HAVE OCCURRED DURING THIS INTERVENING PERIOD, YOU MIGHT HAVE BEEN QUITE INCREDULOUS A. FEDERAL BUDGET DEFICITS - PERSISTENT - RISING TO $220 BILLION (1) AN ABSOLUTELY UNPRECEDENTED EXPERIENCE B. THE MODEST TRADE SURPLUS OF 1981 WOULD TURN INTO A MASSIVE TRADE DEFICIT, RUNNING AS HIGH AS $170 BILLION ON AN ANNUAL BASIS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 4 (1) SHIFT FROM BEING A NET EXTERNAL CREDITOR TO BECOMING THE LARGEST EXTERNAL DEBTOR C. CONSUMER INSTALLMENT DEBT WOULD REACH RECORD LEVELS (1) CONSUMER SAVINGS RATES - RECORD LOWS D. CORPORATE DEBT WOULD MUSHROOM E. DESPITE THESE MASSIVE CREDIT DEMANDS BY ALL SECTORS OF OUR ECONOMY, INTEREST RATES WOULD DECLINE RATHER THAN INCREASING F. INFLATION RATE WOULD ALSO COME DOWN EVEN AS WE GOT FURTHER INTO THE CYCLE (1) ANOTHER UNIQUE FEATURE OF THIS ECONOMIC PERIOD G. FOUR YEARS AGO YOU WOULD HAVE FOUND THESE PROGNOSTICATIONS INDIVIDUALLY UNBELIEVABLE AND COLLECTIVELY EVEN MORE STARTLING (1) BUT THAT IS EXACTLY WHAT'S HAPPENED Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 5 (2) AND WE HAVE HAD A VERY POSITIVE EXPERIENCE DESPITE THESE ABNORMALITIES I I I. PAUSING TO CONSIDER OUR CURRENT SITUATION, SOME 2/3RDS THROUGH THE DECADE, I'M REMINDED - BEST OF TIMES/WORST OF ~6 s~~ °'l',½-,IZ-?, TIMES - A. EXPANSION HAS CONTINUED - 17 CONSECUTIVE QUARTERS 1. SECOND LONGEST - A LITTLE OVER A YEAR AWAY FROM BEING THE LONGEST IN THE POST-WWII PERIOD B. WON'T SPEND TIME ON FORECAST FOR 1987 1. LITTLE I CAN ADD TO WHAT YOU ALREADY KNOW A. BROADLY, 1987 - REPLAY OF 1986 B. SOME IMPORTANT SHIFTS UNDERLYING BROAD EXPECTATION (1) CONSUMPTION/TRADE C. EXPANSION WILL CONTINUE D. CLEARLY WE ARE IN A LONG PERIOD OF ECONOMIC GROWTH Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 6 Q~,l'~t,·v~ C. CHARACTER~ THIS HAS BEEN, AND CONTINUES TO BE, A STRONG CYCLE 1. EMPLOYMENT - 13 MILLION - 102 MILLION A. JAPAN/WESTERN EUROPE - 3 MILLION 2. INDUSTRIAL PRODUCTION AT RECORD LEVELS A. DESPITE THE DECLINE IN MANUFACTURING EMPLOYMENT INDICATING A SHIFT TO A SERVICE ECONOMY B. THE MANUFACTURING SECTOR OPERATING AT RECORD LEVELS 3. GNP - IN REAL TERMS AT RECORD LEVELS 4. INFLATION RATE DOWN A. A LITTLE UNDER 2% LAST YEAR - ENERGY RELATED B. WILL BE HIGHER THIS YEAR, SAY, 3-1/2 TO 4% - THE UNWINDING OF THE POSITIVE EFFECTS FROM OIL AND FOOD PRICES THAT WE EXPERIENCED LAST YEAR Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 7 PAGE S. AUTOM01IVE SALES - EXPECT SALES OF, SAY, 10.3 MILLION THIS YEAR A. THE 4TH CONSECUTIVE YEAR OF SALES OVER 10 MILLION 6. HOME STARTS - ANTICIPATE STARTS OF 1.6 MILLION OR 1.7 MILLION THIS YEAR A. THE 5TH YEAR OF HOME STARTS IN EXCESS OF 1-1/2 MILLION UNITS 7. ANY TIME THESE 2 SECTORS DOING THIS WELL - INDICATIVE OF A STRONG ECONOMY 8. lHESE ARE VERY POWERFUL NUMBERS - IN THIS PERSPECTIVE THE FUNDAMENTALS ARE GOOD - THIS /' Ji~ REALLY IS THE BEST OF TIMES ~ A. BUT UNDERNEATH THESE VERY POSITIVE NUMBERS, --- IT HAS TO BE EMPHASIZED THAT THIS HAS BEEN A VERY UNEVEN EXPERIENCE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 8 B. THE MIDWEST HAS HAD MORE THAN ITS SHARE OF UNEVENNESS - HEAVY INDUSTRY - AND, OF COURSE, THE AGRICULTURAL SECTOR WHICH HAS GONE, AND CONTINUES TO GO, THROUGH AN ABSOLUTELY WRENCHING ADJUSTMENT, AND YOU UNDERSTAND THE ·. .. REAL I~LIC~I~N,,S OF THIS FAR BETTER THAN I u~r ~ V7J 'ft:, <ff/..Ptt ~ °t_ (Jv.c?-". v~ IV. BUT IN A COMPARATIVE SENSE, TH,S MAY WELL BE THE WORST OF TIMES - THf:. er~ER SI~E OF OUs-+-E. A. WITH THE PASSAGE OF TIME - BUILDUP OF IMBALANCES IN THE SYSTEM - VERY WORRYING - DEBT RELATED 1. l VE COMMENTED ON THE CONTINUING FISCAL DEFICIT 1 A. AS A CONSEQUENCE, THE TREASURY DEBT, NOW 2-1/4 TRILLION, MORE THAN DOUBLED IN THE LAST FIVE YEARS - THE COMPOUNDING EFFECT HAS BEEN SIGNIFICANT 2. THE REVERSAL IN THE TRADE ACCOUNTS RESULTING IN THE TRADE DEFICIT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 9 A. HAS PUT US IN THE POSITION OF BEING THE LARGEST EXTERNAL DEBTOR TO THE TUNE OF SOME $250 BILLION - LARGER THAN BRAZIL AND MEXICO COMBINED B. WE HAVE BECOME HIGHLY RELIANT ON THE INTERNATIONAL MARKETS C. C.i EARU' WE ARE LIVING BEYOND OUR MEANS - CONSUMPTION HAS OUTPACED DOMESTIC PRODUCTION (1) OUR HIGH STANDARD OF LIVING HAS BEEN SUPPORTED BY THE INTERNATIONAL MARKETS (2) CLEARLY WE WILL HAVE TO UNWIND THIS IMBALANCE (3) WILL HAVE SIGNIFICANT IMPLICATIONS FOR OUR STANDARD OF LIVING -A-f".Sct,-t P~. . ~ Cl+U-- f'11~ rl) ~ TU p~ ([:; ~. 3. CORPORATE DEBT HAS RISEN TO A VERY HIGH LEVEL - HAS RISEN IN RECORD AMOUNTS OVER THE PAST THREE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAYS, 1987 PAGE 10 YEARS (1984 ALMOST $200 BILLION - 85/ 86 ONLY 1 1 SLIGHlLY u_ss) A. FUELED BY MERGERS AND TAKEOVERS B. CORPORATE AMERICA HAS DECAPllALIZED ITSELF 4. CONSUMER INSTALLMENT DEBT RELATED TO DISPOSABLE INCOME - RECORD LEVEL S. WE HAVE BECOME A DEBT-DRIVEN SOCIETY - SURPRISING IN LIGHT OF LOWER RATE OF INFLATION A. HIGHLY SUSCEPTIBLE TO ADVERSITY IN THE EVENT OF A RECESSION 6. ADD 10 THIS RISK LIST THE EXTERNAL DEBTS OF LESSER DEVELOPED COUNTRIES A. lHE REFINANCING PROBLEMS DIFFICULT ENOUGH (1) BUT CONTINUED ECONOMIC EXPANSION IN THE MARKETS INTO WHICH THESE COUNTRIES EXPORT PRODUCTS AND MATERIALS IS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 11 ESSEN1 IAL IN ORDER TO GENERA1E FOREIGN CURRENCY TO SERVICE THEIR DEB1S 7. CONSIDERING THESE IMBALANCES - WORS1 OF TIMES V. GIVEN THE SHARP DICHOTOMY - EXCELLEN1 ECONOMIC RE SUL 1S YE f THE BUILDUP OF VERY THREATENING IMBALANCES - SOMElHING IS VERY DIFFERENT HERE - CLEARLY NOT A TYPICAL ECONOMIC CYCLE - WE HAVE EXPERIENCED SOME MAJOR CHANGES ~O SUGGESTIONS AS 10 WHY THINGS SEEM SO DIFFERENT - THE TWO FUNDAMENTAL ELEMEN1S - NOTHING NEW/HARDLY A SURPRISE - YET IMPORTANT 1. GLOBALIZATION OF THE ECONOMIES OF THE WORLD 2. COMPLETE REVERSAL IN PRICE TRENDS FOR MAJOR RAW MA1ERIALS, PARTICULARLY OIL AND AGRICULTURAL PRODUCTS .- ~ ~~ 9-tr~•v~ - ~ 1-L,,\.. - ~ B. OF THE TWO, THE GLOBALIZATION OF THE ECONOMY PERHAPS THE MOST SIGNIFICANT 1. DIFFICULT TO PINPOINT WHEN THIS CHANGE STARTED Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis !A.BANKERS GROUP 4 MAY 5, 1987 PAGE 12 2. 1HE EURODOLLAR EMERGED AS AN EXCHANGE MEDIUM IN THE 1960S - THE MARKET FULLY DEVELOPED IN THE 70S 1 a: tt..J- ( ~ ~~~-ef A. CAT AL YST L~URl{J,{:f-- S-V:,-,-.,(,/ l) $...,,,G.,f. 3. ON A COMPARATIVE BASIS AT THE TIME - 1960S - WE STILL HAO STRONG ECONOMIC ANO MANUFACTURING MOMENTUM REMAINING FROM THE POST-WAR PERIOD - WE CONTINUED TO BE A MAJOR EXPORTER - OUR AGRICULTURAL SECTOR ALSO HAO EXPORT STRENGTH µ ~ T~. O'<f .,;J tztf's l6 .r~ o~c../ 4. ALL THAT HAS CHANGED/\ OUR EXPORT SECTORS FULLY EXPOSED TO THE CRUCIBLE OF THE INTERNATIONAL MARKETPLACE 5. AS A CONSEQUENCE, NET INFLOWS OF FOREIGN CAPITAL HAVE BECOME AN ABSOLUTELY ESSENTIAL ELEMENT OF OUR ECONOMIC GROWTH L__S_OME 50% OF OUR ~ET SAVINGS Ag[ REQUIR~D TO fINANIT71lE FISCAL DEFICIT SHI-f-1 OF....£UNDS w FRO~ THE PRIVAlE SECTOR TO THE PUBLIC SECTOR~ Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 13 Dul, MY POINl SOME ONE HORD oi; THESE NEI I SA.IJIN63 ARE COMING FROM INIERNAIIONAL MARl(lH; C. TO SAY THE OBVIOUS, THE CONTINUATION OF OUR ECONOMIC EXPERIENCE IS HIGHLY DEPENDENT ON THE WILLINGNESS OF THE INTERNATIONAL MARKETS TO INCREASING THEIR INVESTMENTS IN DOLLAR DENOMINATED ASSETS 5. lXTENSIVE OUT-SOURCING IN THE PRODUClION PROCESS HAS BROUGHT FOREIGN GOODS INTO ALL PHASES OF OUR DOMESTIC PRODUCTION A. SO-CALLED "DOMESlIC" PRODUCTS SUBSTANTIAL FOREIGN COMPONENTS - AUTOS FOR EXAMPLE 6. THE CREDIT MARKETS AROUND THE WORLD HAVE BECOME TOTALLY INTEGRATED AND THE FINANCIAL MARKETS ARE NOW OPERATING ON A 24 HOUR CLOCK - BOARD OF TRADE INITIATED EVENING TRADING LAST WEEK Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 14 ~~~-/ _w_~ ~~~!!:::::.:-¥-t6_· HAS BEEN A MAJOR ECONOMIC EVENT - WE ARE ONLY BEGINNING TO DEAL WITH THE FULL RAMIFICATIONS ---- • c-{ ~J}._,"\J~' B. INCREASES IN DOMESTIC CREDIT DEMAND HAVE HAD THEIR PRIMARY EFFECT ON THE VALUE OF THE DOLLAR RATHER THAN ON INTEREST RATES 80 - 85: +90% 1 1 (1.) VALUE OF TIIE DOLLAR l=rlAS RISEN IN ltt-5-PQf>JSF IQ CREDIT DEMANDS S) ~~ ptl~iccl, (2) INTEREST RATES HAVE COME DOWN C. CASE CAN BE MADE. THAT FOREIGN CAPITAL AND FOREIGN GOODS HAVE KEPT INTEREST RATES AND PRICES LOWER THAN WOULD OTHERWISE HAVE BEEN THE CASE ~~t~3~ 7 WE AeE fl!Ollil AN l~lFGR.Oib PARf eF A ll½&MLY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis tT·,-- JJiv._ ~ c1/\... ~ A:YBt~Kt~~7GROUP 4 i--, ~ ---)(J,1v( Th ,-;;x;Ja J/AdAGE 16 0~ TH[ DlCADl - lHE. HUGE SHIF 1 IN PRICES FOR RAW MATERIALS AND MANY OTHER COMMODITIES A. R[ALLY A COMPLETE REVERSAL OF EXPEC1A1IONS THAT WERE FIRMLY IN PLACE AT THE BEGINNING OF THE DECADE 1. WHILE OIL HAS BEEN THE OBVIOUS EXAMPLE - THE CHANGE IS MORE PERVASIVE THAN THAT 2. IN THE LATE 70S AND EARLY 1980S PRICES WERE 1 ESCALATING AND BASED ON STUDIES (CLUB OF ROME FOR EXAMPLE) SUGGESTING IMMINENT SHORTAGES THE EXPECTATION WAS THAT THESE PRICES WOULD ONLY CONTINUE TO INCREASE 3. BUT NOW WE ARE DEALING WITH A WORLDWIDE OVER SUPPLY OF MOST OF THESE ITEMS 4. AGRICULIJJ.RALPRODIICT-S- PERIIAPS ONE OF TIIE -.MORE w R r nrn-nrG-·t:xAM.PL-E &-, p AR T-+CUl-ARL¥--l-N--OO-R-D.J.S..lR I CT ~,·~u~..l-k"--11x-. 5. MANY STUDIES, INCLUDING THOSE BY OUR OWN Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP~ MAYS, 1987 PAGE 17 DE.PARTMF..Nl OF AGRICULTURE, FORECASTED SHORTAGES OF AGRICULTURAL PRODUCTS - THE MALTHUSIAN DOOMSDAY WAS APPROACHING A. Now WE ARE BUSILY TAKING LAND OUT OF PRODUCTION IN ENORMOUS QUANTITIES TO TRY AND DEAL WITH VAST OVERSUPPLIES B. NOl ONLY HAVE WE EXPERIENCED THIS REVERSAL WITH REGARD 10 THE SUPPLY OF RAW MATERIALS BUT ON THE DEMAND SIDE OF THE EQUATION CHANGES AS WELL l. MAJOR TECHNOLOGICAL IMPROVEMENTS HAVE REDUCED THE REQUIREMENTS FOR MANY RAW MATERIALS A. CARS USE LESS STEEL AND LESS GAS B. FIBRE-OPTIC LINKS USE POUNDS OF SAND TO REPLACE TONS OF COPPER C. NUMEROUS OTHER DRAMATIC EXAMPLES C. IN NO WAY DO l WANT TO SUGGEST THAT BECAUSE OF THIS CHANGE IN COMMODITY PRICES THE INFLATION PROBLEM IS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP~ MAY 5, 1987 zt-~~ ___Q ~•u_ PAGE 18 B[HIND U~RTAINLY INFLAllON LURKS IN lHE BACKGROUND - THE MAJOR THREAT TO OUR LONG RUN ECONOMIC WELL-BEING 1. BUl IMPACT OF COMMODITY PRICES ON INFLATION QUITE DIFFERENl NOW lHAN WAS THE CASE AT THE SlARl OF THE DECADE VII. ALL OF THIS FACES THE FEDERAL RESERVE WITH SIGNIFICANT CHALLENGES IN DE.ALING WITH MONElARY POLICY - JUSl HOW DO WE RESPOND 10 lHESE VERY FUNDAMENlAL CHANGES AND CONCURRENlLY DEAL WITH OUR OVERRIDING RESPONSIBILITIES A. MONElARY POLICY GOALS 1. ECONOMIC GROWTH, HIGH EMPLOYMENT, PRICE STABILITY, REASONABLE BALANCE IN OUR TRADE ACCOUNTS 2. 1HE MONEfARY POLICY PROCESS HAS BECOME INFINllELY MORE COMPLICATED Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 198/ PAGE 19 B. lHlR[ ARE CONFLICTING PRESSURES THAT LEAD TO DIFF[RENl MONETARY POLICY CONCLUSIONS ? , 1. lHE FINANCIAL SYSTEM CONTINUES TO BE FACED WITH ~, ft~~~\ CONDITIONS OF SIGNIFICANT STRESS A. CERTAINLY IOWA UNDERSTANDS THIS ISSUE ALL TOO WELL B. THIS MIGHT SUGGEST EASING OR LIQUEFYING THE . SYSTEM TO DEAL WITH THESE STRAINS Jt~~~ ~ 2. lHERF ARE SOME INDICATIONS THAT THE INFLATIONARY PRESSURES ARE BUILDING A. NOT PERVASIVE B. YET CLEARLY THE TENDENCY IS UP, NOT DOWN - THE GOOD NEWS IS BEHIND US C. THIS WOULD SUGGEST TIGHTENING TO PREVENT AN ESCALATION IN THE RATE OF INFLATION {~I 3. iH"T THE UNDERLYING ECONOMIC SITUATION, WHILE CONSISTENT WITH MOST FORECASTS AND CERTAINLY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE. 20 RE.ASONABLE GIVEN lHE. POTENTIAL GROWlH RAlE. IN THE ECONOMY AS WELL AS THE FACl THAl WE'RE WE.LL INTO lHE FIFTH YE.AR OF THE CYCLE A. WOULD N01 SUGGE.S1 THAT POLICY SHOULD BE 1IGHTE.NED 4. BU1 BEYOND DOMESTIC CONSIDERATIONS, GOING BACK TO THE INTERNATIONAL SITUATION, THE EXCHANGE MARKETS BECOME VERY KEY TO OUR THINKING A. AGAIN, SUPPORT OF THE DOLLAR SUGGE.STS UPWARD PRESSURE ON RATES 8. HERE., AGAIN, A CONSIDERATION THA1 WOULD LEAD TOWARD A TIGHTENING OF MONETARY POLICY,. Tf_r;p~ c, ~~ ~ ~~~ d~~ ~ 5. A LONG WAY OF SAYING THAT WE ARE AT ONE OF THOSE POINTS WHERE OUR POLICY DELIBERATIONS ARE EXCEPTIONALLY DIFFICULT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP~ MAY 5, 1987 PAGE 21 A. JUDGMENTS RELATING TO A VARIETY OF ECONOMIC CONSIDERATIONS, WHILE ALWAYS CRI1ICAL, ARE MUCH MORE SO NOW 6. IT S IMPORTANT TO REMEMBER THAT WE CAN T PUSH THE 1 1 ECONOMY BEYOND ITS NORMAL POTENTIAL GROWTH RATE WITHOUT FALLING BACK INTO AN INFLATIONARY ENVIRONMENT A. WHILE THE EXACT QUANTIFICATION OF OUR ~ POTENTIAL GROWTH RATE IS A DIFFICULT ISSUE, ~.~~~ } THIS ALSO HA~BEEN'- (()~-~-~D BY THE GLOBALIZATION THAT I HAVE TRIED TO HIGHLIGHT tt;:~·~ TODAY ~~' ~"ti"~~ r--- ,~ P-,<~~J B. RUNNING THE RISK OF RENEWED INFLATION IS ~ SIMPLY NOT ACCEPTABLE (1) THE CORRECTIVE PROCESS, A REPEAT OF THE 1982 EXPERIENCE WHICH ALL OF YOU FEEL SO DEEPLY, BECOMES INCREASINGLY DIFFICULT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 22 VI I I. CONCLUSION - LET ME LEAVE YOU WITH PERHAPS THE MOST DIFFICULT ISSUE OF ALL - THE POLITICAL CONSIDERATIONS OF ALL THIS A. I HOPE I'VE ADEQUATELY MADE THE CASE THAT THE ECONOMIES OF THE WORLD HAVE BECOME INTEGRALLY GLOBAL I ZED 1. PRODUCTS AND MONEY MOVE RELATIVELY FREELY ACROSS BORDERS 2. BUT ECONOMIC/FISCAL AND MONETARY POLICIES DO NOT - THEY HAVE N.Q.l BEEN GLOBALIZED IN THE COOPERATIVE SENSE OF THE WORD 3. WE ARE TALKING ABOUT VERY, VERY DEEP POLITICAL ISSUES HERE 4. THE PERIODIC MEETINGS OF THE LEADERS OF THE FREE WORLD ARE A POSITIVE EFFORT TO DEAL WITH THESE MAJOR ISSUES BUT IT WILL BE IMPORTANT TO ACHIEVE TANGIBLE RESULTS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis IA.BANKERS GROUP 4 MAY 5, 1987 PAGE 23 5. INDEED, THE RISK OF PROTECTIONISM GROWS AND I DON T THINK I NEED SPEND TIME DEALING WITH THE I CONSEQUENCES OF PROTECTIONIST LEGISLATION 6. I VIEW COORDINATION AND COOPERATION AMONG THE MAJOR COUNTRIES IN DEALING WITH THESE POLICY DETERMINATIONS AS PERHAPS THE MOST PRESSING ISSUE IN OUR CURRENT SITUATION B. IF THE MAJOR NATIONS ARE ABLE TO FIND A WAY OF RESOLVING THESE POLITICAL DIFFERENCES AND COOPERATING AMONGST THEMSELVES 1. THIS WILL BEGIN TO PUT SOME OF THE IMBALANCES THAT I HAVE TOUCHED UPON (MOST PARTICULARLY THE DEBT PROBLEM) IN A MORE REALISTIC PERSPECTIVE 2. AND PROVIDE A BASIS FOR A LONG, CONTINUING AND HIGHLY REWARDING ECONOMIC EXPERIENCE THANK YOU * * * * * Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1987, May 4). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19870505_silas_keehn

@misc{wtfs_regional_speeche_19870505_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1987},
  month = {May},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19870505_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}