The economy near term: An imperiled recovery

Overview the present economic recovery is now about nine months old and is likely to continue for the remainder of 1983 and into 1984, although the rate of recovery will slow considerably from recent months. Thus, despite the sharp growth rate during the second quarter of 1983, the recovery is likely to be relatively moderate. The outlook for 1984 and beyond depends principally on interest rates—any significant rebound in rates above present levels would likely slow or stop the recovery within six months despite the fact that most of the other underlying forces remain favorable for continued recovery. In my judgment, preventing higher interest rates, and in fact, encouraging somewhat lower rates, will require further adjustments in the administration's policy mix. This should include additional expenditure cuts and tax increases designed to reduce future deficits as well as a continued accommodative monetary policy.