In yesterday's Business & Finance section, Federal Reserve Board governor J. Charles Partee was misquoted as saying interest rate could dip to between 5 and 7 percent in a year or two. The reference was to inflation rates.
Federal Reserve Board Governor J. Charles Partee warned the financial community yesterday to expect one or two more years of "soggy, deteriorating economic conditions," high and variable interest rates, and vigorous competition for tight funds.
Speaking to the National Bankers Association, Partee advised members to devise innovative ways to replace declining core deposits, minimize their risks by better matching rates on assets and liabilities, price their services to cover costs, and be "extremely careful" about credit risks. He said inefficient institutions will have difficulty surviving.
Despite his professed inability to forecast interest rates, Partee said his most optimistic scenario calls for interest rates to be in the range of 5 percent to 7 percent in a year or two. Faced with audience skepticism, he waxed poetic about one brief period between 1961 and 1964 (the Kennedy, pre-Vietnam years) when wage and price expectations abated and the system was stable and robust.
C.F. Muckenfuss III, senior deputy comptroller in the Office of the Comptroller of the Currency, said his policy is to deregulate the industry as quickly as possible, starting with ceilings on interest rates. As for interstate banking, he declared, "I hope you don't spend the rest of the decade discussing this while [nonbanks] sweep around you the way the Germans swept around the Maginot Line."
In a further reference to the war between depository institutions and nonbank financial conglomerates such as Merrill Lynch & Co., Muchenfuss told the bankers the most important issue for the future is what types of products each will offer.