President's Message: Economy Poised For Sustainable Growth

Last month the 12 Federal Reserve Bank presidents were called to testify before the Senate Committee on Banking, Housing and Urban Affairs. The Committee asked us to discuss the economic conditions in our districts, as well as our views on monetary policy. In preparing for the testimony, we took an extended look at both topics, and I thought I'd share a brief overview of the information with you.

As you know, each Federal Reserve Bank monitors the economies of both its district and the nation. Each economic research staff collects data from various official sources, analyzes it and publishes the findings in publications like The Regional Economist. The knowledge we gain from researching the economy helps us make informed decisions about monetary policy.

Official statistics can be a bit dated, however. To supplement them, we maintain a dialogue with the many constituencies that make up our District economy. The anecdotal information we collect through this contact enables us to learn firsthand about regional economic trends before they show up in published data. As an added benefit, we learn how the monetary policy formulated in Washington affects individuals in our District.

With this in mind, let me summarize what I told the Senate Banking Committee about economic conditions in the Eighth District. The good news is that during the recent recession and subsequent recovery, the District generally outperformed the nation. Although we did not enjoy the booms that other areas of the country did in the 1980s, we did not develop the associated busts, particularly in real estate.

Like other parts of the country, we have experienced some significant structural adjustments—primarily in the defense and auto industries.

The performance of District banks has been a bright spot. Banks here have posted strong returns on assets throughout the recession and recovery. Their capital ratios, which are generally more than adequate, put them in excellent position to meet the credit needs of our region.

In the monetary policy arena, the central bank's job, in essence, is to help achieve maximum sustainable economic growth by providing a stable price environment. Over the past decade, policy has been reasonably successful—a long period of moderate growth during which inflation was reduced significantly. Though set back by the recession and an unexpectedly slow recovery, our country's economic foundation today is strong enough for us to reasonably expect a sustainable, low-inflation expansion in the 1990s. No one can know for sure what the future holds, of course, but if accelerating inflation is behind us, the real economy will be on firm footing for genuine progress in the years ahead