Second District Directors and other business leaders who were recently contacted generally foresaw some moderation of inflation, particularly among basic commodities. However, some expected prices of finished goods to continue under strong upward pressure as earlier increases in raw material costs are passed on. It was generally agreed, moreover, that increased militancy on the part of labor will intensify cost-push pressures on prices. The respondents observed no evidence of a lessening of pressure on productive capacity during the past month. Some concern was expressed over the mood of uneasiness pervading the business community concerning the liquidity of both financial and nonfinancial firms. It was generally agreed that the overall liquidity situation had not reached crisis proportions, but some observers felt that serious trouble may lie ahead.

While most respondents expected inflation to moderate somewhat, the degree of relief which was expected varied. A number of directors reported they did not anticipate further excessive price boosts and looked for some decline in food prices. Moreover, the respondents in general expected the recent softening in some commodity prices to continue. The chairman of a large textile concern thus reported that prices of cellulose fiber had stopped rising and that he expected some decline in these prices. A senior official of a large multinational concern based upstate expressed the opinion that prices in international markets of certain raw materials and agricultural products would continue to decline with the tapering off of demand in many countries. Similar sentiments were expressed by other respondents.

On the other hand, there were no reports of any easing of pressures on productive capacity. Indeed, among the comments obtained, the chairman of a large chemical firm felt there would be no such easing in the chemical industry for four or five years. Similarly, the chairman of another large chemical corporation stated that chemical companies must continue expanding to keep up with demand. Both of these respondents commented on the high cost of construction; one reported his firm was paying 50 percent more for plant construction than three years ago and the other characterized such costs as "unbelievable."

The respondents in general expected increased militancy on the part of labor to secure "catch-up" wage increases. Some of the respondents, notably the two chemical officials mentioned above, looked for wages to go up at a "considerable rate." Similarly, the upstate industrialist felt labor pressure would be intense, and that wage-push pressure on prices would prevent the rate of inflation from declining significantly for several years. Most Buffalo Branch Directors, on the other hand, felt that while wage-push pressures are to be expected, they might not cause prices to rise sharply.

Regarding liquidity positions, the Buffalo Branch Directors expressed concern over the strains on the liquidity of both financial and nonfinancial firms. The present situation is felt to be especially difficult for banks in view of the publicity surrounding the financial troubles of Franklin National Bank. The president of a large Buffalo bank expressed concern over the emergence of two-tier markets for Eurodollars and large CD's, where the money center banks could still raise funds but where regional banks had more difficulties in doing so and had to pay higher rates. The chairman of a New Jersey bank pointed to the fairly serious problems confronting many real estate investment trusts, while the chairman of a textile firm stated he feared that the smaller companies in his industry were also experiencing serious liquidity problems. It was generally agreed that the liquidity situation had not yet reached the crisis state, although some observers felt somewhat apprehensive about the future.