provided by Research Papers in Economics
NATIONAL PERSPECTIVE
Sheldon Stahl
Fice President and Senior Economist
Federal Reserve Bank of Kansas City
I want to talk about where the economy is, and what the impli-
cations are for the outlook, given certain policy assumptions.
Then I want to talk about inflation within the macro-policy, the
broad monetary and fiscal policy, considerations. Also I think the
micro considerations are all too frequently overlooked or consid-
ered unimportant. I am really thinking in terms of the economic
structure and those policy determinations which relate to the
economic structure.
And finally, I want to talk about inflation and the need for
international cooperation if inflation is ever to be successfully re-
solved. Actions far beyond those which we can bring to bear
domestically will be required to purge the world of inflation so that
we can begin to plan with any semblance of logic for better living
conditions in the future.
In his economic address to the nation President Ford said with
rather simple eloquence that the state of the nation was good, but
the state of the economy was not so good. That statement sums up
a great deal.
Where are we right now? In the first quarter of this year the
economy declined at an annual rate of roughly 7 percent in real
terms. In the second quarter the rate of decline dropped to under 2
percent, at an annual rate, in terms of real output. Whether we call
it a recession or not, the economy is not in good shape. I think that
a recession will be at least as deep as the one we experienced in
1969 and 1970.
Any recovery in the durables sector, which is principally being
led now by a revival of automobile sales, is largely illusory. Real
purchasing power continues to suffer as a consequence of inflation.
Income growth, in nominal terms, still remains quite slow. Since
we are now anticipating an increase of at least $450 to $500 in
average per unit price of new automobiles in 1975, the recent im-
provement in durable goods sales, particularly automobiles, is at
the expense of the 1975 model year. I do not think that we can take
any great solace from the fact that Americans have concluded that
the 1974 automobiles represent a better buy. Belatedly the industry