Necessary Time of Transition

bv Philip Kuharski Executive Vice President Fidelity Mutual Savings Bank Spokane, Wa.

Ll OW do you use counter-cycli- I I cal government fiscal policy to moderate a probable recession when the government is already running a large budget deficit and inflation is high? That. in a nut shell, is the problem facing the administration and the country as we steer the ship of state into 1 979.

The answer, apparently, is that you address the deficit and inflation problems and risk the recession.

ln 1979 we may find that the Phillips Curve trade-off of inflation versus unemployment still works, albeit at higher levels for both numbers.

Story at a Glance

The first half of the year should be a period of relatively intense interest rate pressure and financial institutions' positive cash flow will not be re-established until the second half.

Because of the continued relatively high level of inflation and underlaying demographics, loan volume should hold up quite well. The majority of funds will be made available in the latter part of the year.

Mortgage rates will recede by the fall of 1979 but will probably not drop below 9t/20/o any time during the next twelve months. Singleunit housing starts will drop to 1.2 million (down about 150/o) and multi-unit starts may drop as low as 400,000 units (down 3006), primarily because of reduced available funds.

The basic, dnderlying demand for housing should improve these results in 1980.

Many would view this projection as dismal. If events occur as outlined it may be the kind of adjustment necessary to experience more solid growth over the next three or four years.