The Federal Reserve Board's top policy-making committee meets today to decide whether to lower short-term interest rates in an effort to aid a recovery many economists now believe may not really get going until next spring.
With the economy still sliding downhill, unemployment likely to approach 11 percent, and inflation greatly subdued, the Federal Open Market Committee is expected to decide to lower the discount rate -- the interest rate it charges on loans it makes to financial institutions -- from 9 1/2 percent to 9 percent or perhaps 8 1/2 percent.
Several other rates, such as the 12 percent prime lending rate at commercial banks, undoubtedly would follow the discount rate downward under present conditions, financial analysts said.
At the meeting today, the FOMC will receive a report from the Fed showing that industrial production fell in October another 0.5 percent to 1 percent. Another Fed report available to the committee is expected to show that the use of available production capacity in U.S. factories dropped to the lowest level of the postwar period. That report is scheduled to be released to the public tomorrow.
The debate within the FOMC at today's meeting is likely to center on the question of whether to reduce the discount rate slowly and wait each time to gauge the impact of the interest rate move or take a larger step quickly to ensure more of an impact on the economy, Fed sources said.
Meanwhile, private and government economists are lowering their forecasts for economic growth in 1983.
Alan Greenspan of Townsend-Greenspan & Co., for example, now believes the gross national product, adjusted for inflation, will decline slightly this quarter and rise only 1.9 percent in 1983 and a further 3.6 percent in 1984. The unemployment rate, now 10.4 percent, will average 10.8 percent in the first three months of next year, he said.
Sources said the internal forecast of the Federal Reserve staff is similar to Greenspan's.
In the same vein, Salomon Brothers' chief economist Henry Kaufman yesterday told a savings and loan association group in New Orleans that the recovery next year will be "at best half, or more likely, less than half the typical 5 to 6 percent real growth during the first year of previous postwar recoveries."
Kaufman said "the entire push in the private sector will have to come from households," whose ability to spend will be limited because of the effects of continued high unemployment, lack of overtime pay, feelings of economic insecurity and the lack of inflation-hedge spending.
Economists generally have been waiting since last July for consumers to lead the recovery as a result of the 10 percent cut in personal income tax withholding. So far they have not, and with business investment falling, government spending curtailed except for defense and markets for U.S. goods and services declining abroad, no other part of the economy seems in a position to do so.
But while the bad news on output and employment continues, so does the good news on prices.
Most analysts believe the October report on finished goods prices charged by producers, to be issued today by the Labor Department, will show prices little changed from the month before. And the price outlook remains bright, according to Greenspan, who said consumer prices as they are presently measured will go up only about 4.5 percent in 1983.
The FOMC, at its last meeting early in October, agreed that the central bank should temporarily disregard the rate of growth in the measure of the money supply known as M-1, which includes currency in circulation and checking deposits at financial institutions, as a guide to monetary policy.
The committee decided that M-1 would be artificially inflated by a number of developments, including the maturing of about $32 billion worth of All-Savers certificates during October. Some of the All-Savers money, which was part of a broader measure of money, M-2, but not of M-1, was expected to end up in checking accounts for a while boosting the level of M-1.
That seems to have happened, and M-1 is now far above the upper limits of the target range set for it by the FOMC. In the week ended Nov. 3, M-1 rose $2.7 billion to a level of $473 billion, the Fed reported yesterday. Its average for the latest four weeks was up at a 16 percent annual rate from its average level three months earlier.
Both the stock and bond markets rallied sharply at the time when the Fed announced the shift away from keeping close tabs on M-1 and interest rates fell. The Fed underscored its action by lowering the discount rate from 10 percent to 9 1/2 percent. In late July it had been at 12 percent.
In the last month, the Fed has rapidly increased the level of reserves available to the banking system in line with the climb in M-1. This has kept short-term interest rates from rising and long-term rates have generally continued to decline.
But unless the discount rate is lowered, other key rates are not apt to fall any further, and could bounce back up a bit, most financial analysts believe. This fact, coupled with the continued poor health of the economy and the good reports on inflation, has led the analysts to expect additional declines in the discount rate after today's meeting.