Regional President Speech

RISK SELECTORS NOVEMBER 1, 1989 1. APPRECIATE OPPORTUNITY TO ADDRESS RISK SE~~RS ANNUAL PRESIDENTS' DINNER A) FEDERAL RESERVE INTERESTED IN DISCUSSING /J1.u .I;;.A~ MATTERS OF ~N1CONCERN WITH GROUP SUCH SUCH AS THIS B) FEDERAL RESERVE, AS THE CENTRAL BANK, PLAYS AN IMPORTANT ROLE IN DETERMINING THE ECONOMIC PERFORMANCE OF -OUR ECONOMY AND . GOif-J 0. ~r~} FINANCIAL MARKETS. (jJ)V ~ ~~ , U<~3.-t!----~ 11-<.-4 C.r~~-r t 61~ · 'Z~- '0 v j 2. I WILL THE PAST PERFORMANCE OF THE COMMEN~ON ECONOMY AND THE OUTLOOK FOR THE PERIOD AHEAD AS WELL AS WHAT I BELIEVE TO .B E THE APPROPRIATE ROLE FOR MONETARY POLICY ~ ~ f1?-4'~~ ~ TOD.'W--A NOTm.1ORTHY DATE--THE STA.RT OF THE J. 8TH YEAR OF CONTINUOUS ECONOHIC EXPANSIO~ ") •• ~1"... THE LONGEST PEACE TIME EXPANSION IN OURAHISTORY I tr;t:i 1t» ~~ ,~y.. . REAL GROWTH AVERAGE 4.1 PERCENT "0 tJy~ 1~i A) ADDED 20.4 MILLION NEW JOBS +23 PERCENT DIGITS~ ~ B) INFLATION DECLINED FROM DOUBLE LEVEL BELOW THE CURRENT LEVEL OF 4 TO 5 PERCENT. - 2 ­ C) NET EXPORTS, AND AS A RESULT THE BALANCE OF OF TRADE, HAS IMPROVED SINCE THE DOLLAR REACHED ITS PEAK AND BEGAN TO DECLINE IN EARLY 1985. D) UNEMPLOYMENT HAS DECLINED TO JUST OVER 5 PERCENT AND HAS HELD STEADY FOR SEVERAL QUARTERS. J E)~SOME MODEST IMPROVEMENT IN REDUCING THE BUDGET DEFICIT 4. ALL ANCIENT HISTORY--WHAT HAS HAPPENED RECENTLY? A) ECONOMY HAS CONTINUED TO GROW AT A PACE OF 2 TO 3 PERCENT DURING FIRST 3 QUARTERS OF A 1989 SOMEWHAT SLOWER THAN IN 1988 ( B) UNEMPLOYMENT CONTINUES AT THE 5.2/5.3 PERCENT LEVEL C) THE CORE INFLATION RATE IE:, -PR1CES LESS FOOD AND ENERGY, HAS HELD STEADY AT THE 4 TO 5 PERCENT LEVEL (IMPLICIT OR FI XED WEIGHT DEFLATOR) D) DOLLAR REMAINS STEADY AT THE 140/45 YEN AND 190/95 DM SOME ACCUMULATING EVIDENCE OF SLOWING IN THE .MANUFACTURING SECTOR AS WELL AS IN THE INTEREST SENSITIVE SECTORS SUCH AS HOUSING AND CONSUMER DURABLES INCLUDING FURNITURE AND AUTOS - 3 ­ 5. WHAT DOES ALL THIS IMPLY FOR THE PERIOD AHEAD? DOES THE SLOWING SUGGEST THAT WE ARE HEADING FOR 11 RECESSION? A) IN MY VIEW, ABSENT SOME UNFORESEEABLE SHOCK TO THE ECONOMY, WE SHOULD SEE SOMEWHAT SLOWER GROWTH IN THE 4TH QUARTER AND PERHAPS IN THE 1ST QUARTER OF 1990 FOLLOWED BY A PICKUP IN ACTIVITY LATER IN YEAR B) THE POSSIBILITY OF A RECESSION IN THE NEXT 5 QUARTERS APPEARS TO BE REMOTE ALTHOUGH I WOULD EXPECT GROWTH TO SLOW TO THE 1 TO 2 PERCENT RANGE OVER THIS PERIOD C) GIVEN THIS FORECAST, I WOULD EXPECT THE INFLATION RATE TO SHOW SOME .MODEST IMPROVE­ MENT WITH INTEREST RATES DECLINING VERY LITTLE, PERHAPS 1/4 TO 1/2 PERCENT OVER THE FORECAST PERIOD ~~~ / 6. WHAT IS THE ROLE OF MONETARY POLICY GIVEN THE LACK OF MEANINGFUL PROGRESS TmvARD THE REDUCTION OF THE FEDERAL BUDGET DEFICIT? <# • - 4 -­ STATED~B~~F A) THE THE FEDERAL RESERVE IS TO ADOPT THOSE POLICIES WHICH WILL, OVER TIME, .' ACHIEVE PRICE STABILITY B) PRICE STABILITY HAS BEEN DEFINED, FOR THIS PURPOSE, AS HAVING BEEN ACHIEVED WHEN THE EXPECTED LEVEL OF FUTURE PRICES CEASES TO BE A FACTOR IN INDIVIDUAL AND BUSINESS DECISION MAKING C) THE FEDERAL RESERVE HAS A RATHER LIMITED ARSENAL OF WEAPONS TO ACHIEVE ITS OBJECTIVES STABILIT~ OF PRICE THE ABILITY TO CONTROL THE SUPPLY OF BANK RESERVES WHICH IMPACTS THE GROWTH RATE OF THE MONEY SUPPLY AND ULTIMATELY DETERMINES THE LEVEL AND MAKEUP OF NOMINAL GNP TO WIT: HOW MUCH OF NOMINAL GNP IS REPRESENTED BY REAL GRmvTH AND HOW MUCH REPRESENTS INFLATION D) FROM NY PERSPEC'I'IVE, WE ARE ON COURSE TO ATTAINING A SOFT LANDING. IT WILL REQUIRE A SLOWING OF ECONOMIC GROWTH BELOl.oJ OUR NONINFLATIONARY GROWTH POTENTIAL (2 1/2 PERCENT) _~~ FOR A SUFFICIENT PERIOD TO DAMP) PRICE INCREASF;';> AND INFLATIONARY EXPECTATIONS AND THUS ESTABLISH A TREND TOWARD PRICE STABILITY - 5 ­ E) OUR TASK WOULD BE MEASURABLY EASIER AND HAVE A HIGHER PROBABILITY OF SUCCESS IF SOME MEANINGFUL STEPS WERE TO BE TAKEN TO REDUCE THE FEDERAL BUDGET DEFICIT F) CENTRAL BANK CREDIBILITY IS AN IMPORTANT FACTOR IN ACHIEVING PRICE STABILITY. I HOPE WE DO NOT HAVE TO USE THAT CREDIBILITY TO ... RESCUE OUR ECONOMY BECAUSE OF SOME INACTION BY THE FISCAL AUTHORITIES. CREDIBILITY IS A TERRIBLE THING TO WASTE

J. Roger Guffey (1989, October 31). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19891101_j_roger_guffey

@misc{wtfs_regional_speeche_19891101_j_roger_guffey,
  author = {J. Roger Guffey},
  title = {Regional President Speech},
  year = {1989},
  month = {Oct},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19891101_j_roger_guffey},
  note = {Retrieved via When the Fed Speaks corpus}
}