(10 of 10)
Even if he fulfills his goals, the prospects for the economy are touch and go. The standard forecast is that growth of real G.N.P. will slow to about 4% in the current quarter and 2% or 3% in the fourth—partly because the recent pace just cannot be sustained, partly because inflation will weaken the economy. Real G.N.P. is expected to be essentially flat in the first half of 1979. It is anyone's guess whether the slowdown will fulfill the definition of recession: two straight quarters of decline in real G.N.P. and mounting unemployment.
The bright side of the orthodox wisdom is that growth will resume, moderately, in the second half of next year and the economy will not suffer a credit crunch but only a squeeze late this year and early next. In the New York financial community, the betting is that interest rates will go up a bit more, but not much; that Miller will get the money supply under control; that loan demand will fall as the economy slows; that Government borrowing will be heavy, but enough money will be left to meet the reduced borrowing demands of most—not all —companies and individuals.
There are two catches. First, this unexciting prospect is a best-case vision. It would take only minor errors by the Federal Reserve, the Administration and/or Congress to produce recession, an accelerating inflation or both. Worse, even under the moderate-slowdown script, inflation will simmer down only very gradually because it has become so deeply embedded in the economy.
In these difficult times, the prime policy requisites are steadiness and sensible coordination of policies among the Federal Reserve, the White House and Congress. Miller has made a promising start at both, but the complexities facing him in keeping it up are formidable. Says William McChesney Martin, a revered former Fed chairman: "He is like a golfer who has made four birdies in a row, but there are some more holes to play. He has a tough job ahead." Fortunately, he is tackling it in a spirit of optimism. A pessimist would be whipped before he began.
*Proxmire also claimed that Miller was not expert enough in financial markets. In fact, Miller had been a director of the Boston Federal Reserve Bank for seven years, and FORTUNE judged him "a whiz" at managing Textron's pension funds. In early 1974 he took management of those funds away from banks and shifted most of their assets from stocks into bonds. The move was well timed and caused Textron's pension funds to prosper far more than funds generally from then on.