Monetary Policy Options and the Economic Outlook

There are no good monetary policy options. Since policymakers must choose between alternative policies with undesirable consequences, there is no reason to assume that a single option will be selected and adhered to. Rather, policies will continue to alternate between "spurts" of monetary growth for six to twelve months, followed by restrained monetary growth for another six months or more. Such a pattern has been observed since late 1978, and is a "best guess" about what the future will be like. Some observers have concluded that sustained monetary expansion, lasting for two years or more, is now underway. Previous periods of sustained rapid monetary growth were 1963-65, 1967-68, 1971-72 and 1977-78. Each of those periods ended in a major "credit crunch" and a recession, and I would assume that continued rapid monetary growth in 1983 and through 1984 would result in another severe credit crunch and recession in 1985. Some sectors and industries would be prudent to incorporate such an assumption into their strategic plans, but I do not believe it is the most likely course of policy actions