Business Leaders Foresee Slowdown in ’90 - Economy: Turnabout is expected in 1991 if Federal Reserve lowers interest rates.

HOT SPRINGS, Va. — 

The nation’s top business leaders today forecast a significant U.S. economic slowdown for 1990 and warned that an outright recession is possible unless the Federal Reserve cuts interest rates.

The Business Council, composed of 100 chief executives of the country’s largest corporations, predicted that the economy will grow next year at the most sluggish rate since the end of the 1981-82 recession.

However, the expected slowdown will turn out to be the “pause that refreshes” and growth will rebound in 1991, giving the country an unprecedented nine consecutive years without a recession, the business leaders forecast.

This optimistic outlook came with a major caveat that the Federal Reserve must cooperate by moving soon to lower interest rates to spur economic activity.

“There are a variety of potential weaknesses in the economy that carry the risk of a recession,” said Lewis T. Preston, chairman of J. P. Morgan Inc., the giant New York bank. “If I were the Fed, I would be inclined to lean in the direction of an easier policy. My sense is that we will need a fair amount of insurance against trouble.”

The call by the business leaders for the Fed to relent in its inflation campaign and start nudging interest rates lower echoed comments being made by the Bush Administration, which is worried that a sluggish economy next year could harm Republican chances in the 1990 congressional races.

Federal Reserve Chairman Alan Greenspan has so far given no indication that the central bank is willing to push rates lower. The Fed and the Administration are locked in a dispute over the Administration’s call for lower interest rates to help push the dollar lower and bolster U.S. exports.

The Business Council released its semiannual economic forecast at the start of two days of meetings at this mountain resort.

The council is predicting that the economy, as measured by the gross national product, will expand by 2.9% this year but growth will slump to 1.8% in 1990, the weakest performance since the recession year of 1982. But it said growth will rebound to a 2.6% rate in 1991.