Sprinkel Sees Sustained Growth, Low Inflation
Beryl W. Sprinkel, President Reagan’s chief economic adviser, Thursday predicted continued economic growth in the United States and said the financial markets were wrong to be so afraid of inflation.
“Sustained economic growth with low inflation lies ahead. Expansions don’t die of old age but of inappropriate economic policies,” Sprinkel told the U.S. Chamber of Commerce.
The current expansion, now in its 67th month, is the longest in peacetime. Booming exports have sustained the recovery in recent months, raising worries that falling unemployment and rising capacity use rates could fuel inflation.
But Sprinkel strongly disputed this assumption. “It isn’t inevitable and it won’t happen,” he said.
Price pressures would be contained because the rate of growth in total spending is slowing, he explained.
“The inflation threat is overblown, and we expect confirming evidence in the months ahead as economic growth continues, but at a slower and more sustainable pace,” Sprinkel said.
As financial markets realized that the inflation scare was exaggerated, interest rates would head back down, he predicted.
Responding later to a reporter’s question whether he was worried that the Federal Reserve was exerting too tight a grip on credit, Sprinkel said he had been very pleased with the thrust of monetary policy.
He also lavished praise on Japan for contributing to the correction of global trade imbalances by boosting its demand for imports.
“I don’t see how you can be unhappy,” he said when asked whether he was satisfied with the growth in Japan’s domestic demand. “Everybody has been very pleasantly surprised.”
West Germany’s economy also was starting to grow more quickly than expected, but Sprinkel said Bonn could do more without igniting inflation by boosting the supply side of its economy through structural reforms. Labor market rigidities, for instance, were keeping West German unemployment high, he said.
Sprinkel expressed confidence that the U.S. trade deficit would continue to decline, although he warned against reading too much into one set of monthly merchandise trade figures.
Data for March, released last month, showed a sharp fall in the deficit to $9.75 billion from $13.83 billion in February.
Sprinkel said he was not worried that the recent rise in the dollar might choke off the improvement in the U.S. trade balance, because the “J-curve” phenomenon dictates that it takes a very long time before import and export volumes react to changes in exchange rates.
