THE FED'S MEYER SAYS RELAX. HE OUGHT TO KNOW
Overextended consumers. Slowing corporate profits. Slumping home sales. Some economists suddenly see all sorts of threats to a six-year-old expansion that until recently was deemed rock-solid.
Not to worry, says one of the nation's premier economic forecasters, who now has the power to steer the economy. ''There's nothing that suggests to me the potential of a recession,'' Federal Reserve Governor Laurence H. Meyer told BUSINESS WEEK in a Nov. 22 interview, one of the few he has given since joining the central bank in July.
Meyer's views are worth noting. As a private forecaster in St. Louis, he earned a reputation as one of the nation's shrewdest readers of economic tea leaves. And given his record, some Fed watchers predict that the Clinton appointee could become a key player within the central bank's policymaking Federal Open Market Committee.
''A LOT OF CUSHION.'' For now, Meyer sees nothing on the economic horizon that requires a change in the Fed's stand-pat policy. With consumer confidence strong, long-term interest rates falling, and the economy showing few imbalances, the 52-year-old Bronx native with a PhD in economics from Massachusetts Institute of Technology seems content with the status quo. ''We're beginning to see signs that consumers are a little stretched out, but not enough to push us into a downturn,'' he says.
While some Fed officials have been nervous since spring about the frothy stock market, Meyer appears calm. A sharp correction would dampen consumer spending, he says, but it wouldn't be enough to push the economy into recession. And with growth at a robust 2% to 4% in recent quarters, he feels the economy has ''a lot of cushion'' to absorb any stock-market shock.
For 1997, Meyer figures the economy will cool to under 2% growth, down from about 2.7% this year. And he says such a slowdown isn't all bad: With the unemployment rate at a seven-year low of 5.2%, he worries that wage pressures are building enough to drive up prices--even if the economy cools next year.
GREENSPAN ALLY? A slowing economy could nullify the need for the Fed to raise rates. While Meyer won't discuss prospective Fed policy, former colleagues at his consulting firm--now called Macroeconomic Advisers--say Meyer's forecasting model shows no need to change Fed policy in 1997. ''It's hard to see the event that would cause the Fed to tighten,'' says ex-partner Joel Prakken.
Meyer seems unlikely to publicly challenge Fed Chairman Alan Greenspan--as had former Vice-Chairman Alan S. Blinder, another Clinton appointee, who quit the Fed earlier this year. Indeed, at a critical FOMC meeting on Sept. 24, Greenspan is believed to have counted on Meyer--whose model was predicting a slowdown--as an ally against FOMC hawks bucking for a rate
hike. In the past, Greenspan has privately joked that his favorite
Updated June 14, 1997 by bwwebmaster
Copyright 1996, Bloomberg L.P.