Speech

C.fc- -{* «*—»—- ? - C TIGHT MONEY, ITS CAUSE, AND ITS CURE At The Moment Major Areas of Weakness Being Pointed to by Some Official and Non-official Spokesmen: Unemployment - about 4% Wholesale price index - unchanged in Sept., down in Oct. Housing construction - down 22% rate since Dec. Industrial production index - off slightly in Sept. Retail sales - little change since March Counter Areas of Strength GNP - up 8% rate since end of 1965 Disposable income - up 6% rate since end of 1965 Federal budget Prices - Inflation Wholesale - steady 1958 - 1964 Starting rise from mid-1964 (1964 to 1965 at 2%) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -2- Rises have accelerated (so far 1966 about 3.5% rate to Sept.) Industrial component since last year 2.3% - 1965 year 1.5%. (No change since July) Cost of Living 1958 to 1964 - 1.2% annual rate Feb. to Aug. 1965 - 2% Aug. 1965 to Feb. 1966 - 3% Feb. to Sept. 1966 - 4% The Build-up to Excessive Demand Over-taxation of our ability to produce Plant capacity - 93% (over optimum level) W Labor capacity - 1966 Emp. up 1.5% Half of 1965 Unemployment of 4% Why excessive demand Government's Concern with Optimum Utilization of Resources Production Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -3- Plant - labor A necessary influence to long-run stability Accepted doctrine among economic thinkers The doctrine in action - from 1961 Public programs The tax cut - a series over the period The Vietnam War The resulting fiscal pressure The high employment budget Reinforcement by monetary policy Normal counteraction absent Rates of growth of money, 6% from Apr. to Apr. Supply fell since Apr. -1.5% rate The Fiscal-Monetary Mix Dual expansionary forces (until recently) Money Market Reactions - Supply and Demand Tremendous demand for credit Government Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -4- Business to meet demand Past 12 months -17% Jan. to July - 22% Some tapering off recently - 7% since July Others The resulting tightness in money markets Despite record growth of money supply Demand forces rates upward Policy tight only in sense - didn't provide all What do we do? of economic intoxication may lead to National economic frustration Everybody has it so good Close our eyes to threatening clouds of further inflation Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -5- We^are slow to take chances with Our present eomfort to do ed >ng-run well- How It Can be Solved - With a Lag Fiscal adjustment Reduce spending Increase taxes - while holding spending Restore the Fiscal-Monetary Mix Likely continued upward pressure on prices Total demand continues 8% growth rate Productive capacity only 4% rate Price lags Can Monetary Policy Do the Trick? Perhaps - If — But If - economic forces only concern But - social and political issues involved Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -6- Restrictive monetary - expansive fiscal Non-selective in impact Somebody gets hurt - housing Social to political issues Then comes talk of legal control - and the great debate goes on Prices continue to move - they don't roll back Inflation continues to take its toll The Solution Restoration of Fiscal-Monetary Mix Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 7- Impact of Higher Rates on Agriculture Will push current expenses higher Little effect on current production Will tend to reduce purchases of operating capital items Slow down the rate of increase in farm land values. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Darryl R. Francis (1966, September 25). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19660926_francis

@misc{wtfs_speech_19660926_francis,
  author = {Darryl R. Francis},
  title = {Speech},
  year = {1966},
  month = {Sep},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19660926_francis},
  note = {Retrieved via When the Fed Speaks corpus}
}