Reappraising the Economic Outlook for 1980

A rapid chain of events since late January has added uncertainties to an already uncertain economic outlook for 1980. Among these developments are the stronger than expected pace of economic activity at the beginning of the year, the acceleration in consumer and producer prices, and the administration’s proposed budget that originally showed sizable deficits for fiscal years 1980 and 1981. The perception in domestic financial markets that fiscal policies are incompatible with an anti-inflation objective has crippled equity and bond markets, and has helped boost short-term interest rates 200 to 400 basis points between mid-February and mid-March. The effects of the rapid run up in interest rates on spending decisions are unknown, as are the effects of the latest set of anti-inflation measures announced in mid- March.