Word: volckerism
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More than President Reagan or anyone else, Federal Reserve Chairman Paul Volcker caught the blame for the 1981-82 economic downturn. Now he is in danger of becoming the villain of Volcker Recession II. To prevent that unsavory sequel from materializing, the Federal Reserve Board has softened the tight-money stance it adopted earlier in the year and is letting interest rates fall. As a result, by last week a bidding contest was under way as banks rushed to drop the prime rate that they charge corporate borrowers. First New York's Citibank led a group of institutions that...
...question still haunts businesses and consumers: Has Volcker's rescue mission come too late to save the recovery? Growth in the gross national product, after adjustment for inflation, plummeted from an annual rate of 8.6% in the first half of the year to only 1.9% in the July-September quarter. And bleaker news may lie ahead. The Commerce Department announced last week that the index of leading economic indicators, a barometer of future growth, fell .7% in October. It was the index's third decline in the past five months...
Federal Reserve officials brush aside such doomsaying. Says Volcker: "The current pause in economic growth need be no more than that." Agrees Anthony Solomon, president of the New York Federal Reserve Bank: "These signs of outright weakness are likely to prove temporary...
...Federal Reserve is in a much better position to ward off a recession than it was in 1980. At that time, inflation was 12%, and Volcker had little choice but to give the economy a cold shower. This year price rises have been so modest that Treasury Secretary Donald Regan has taken to asking in the manner of Clara ("Where's the beef?") Peller, "Where's the inflation?" Since January the consumer price index has risen at an annual rate of 4.5%. Producer prices, which often foreshadow trends in consumer costs, have gone up at a mild...
...caught the Federal Reserve by surprise. In the spring, growth was going like a greyhound, and an acceleration of inflation seemed a real possibility. As demand for loans surged, the Reserve Board let the prime rate creep up from 11% in March to 13% by the end of June. Volcker kept the prime at that lofty level all summer in hopes of easing the economy onto a slower, more sustainable growth path...