How Carter plan will affect economy
What does President Carter's anti-inflation program portend for the US economy? Based on information available so far, the following looks likely: * Consumer Price Index (CPI): Little change immediately, with a modest drop later in 1980, if Congress balances the 1981 budget and families trim their own spending sails.
* Savings rate: If the CPI begins to dip, Americans may regain enough confidence in the future to salt away more money in savings accounts and certificates of deposit. This would raise the savings rate above today's extremely low 3 to 3.3 percent of disposable income.
* Recession prospects: If Congress balances the budget, and if the Federal Reserve Board crimps credit card use, very likely the US will fall into recession sometime this year. Lavish consumer spending, based on borrowing, has kept the economy out of recession so far.
* Interest rates: Little, if any, downward movement at first, until the Fed is satisfied that demand for loans has begun to ease. If banks charge their corporate and individual customers less to borrow money, presumably the Fed will lower its discount and other rates proportionately.
* Stock, bond, and gold prices: They will depend on public reaction to Carter program. Confidence that the government is serious about restraining inflation should steady stock and bond markets and depress the price of gold. If people judge the Carter proposal to be ineffective, or if Congress hesitates to balance the budget, gold prices may shoot up again and stock and bond prices fall.