Keep interest rates low, White House subtly urges Fed Inflationary pressures weak, aide says

June 11, 1993|By New York Times News Service

WASHINGTON -- A day before the release of a closely watched report on inflation, the White House subtly turned up the pressure yesterday on the Federal Reserve not to raise short-term interest rates, suggesting that inflationary pressures remain weak.

After announcing that President Clinton met Wednesday night with the Federal Reserve's chairman, the White House press secretary, Dee Dee Myers, sent the central bank a clear message, saying that administration officials "believe there is no real inflationary pressure in the economy."

Ms. Myers also said she believed that the Fed chairman, Alan Greenspan, had said Mr. Clinton's deficit reduction program "would help keep interest rates down."

Hours later, however, Ms. Myers issued a clarification, at the central bank's request, saying her comments did not mean that Mr. Greenspan had endorsed the plan.

Interest in the Fed's stance remains particularly high as economists try to get a better fix on how fast inflation is actually rising while the economy continues its slow growth.

This morning, the Labor Department will issue its report on wholesale prices in May, and many economists say that if the report shows a sharp increase, coming after a surprising jump in inflation in April, the Federal Reserve might raise short-term interest rates immediately.

In recent days, Mr. Clinton, in what is widely seen as a signal to the Federal Reserve, has said several times that it is critical for interest rates to remain low.

On the defensive over the economy's lackluster performance, the administration has repeatedly underlined the importance of low interest rates for lifting the economy out of its slump.

A rate increase would also upset the White House because President Clinton has often boasted that his $500 billion deficit-reduction package has set the stage for a period of low interest rates.

Administration officials said that when Mr. Clinton and Mr. Greenspan met Wednesday night in the Oval Office, they discussed the president's budget package and the state of the economy, including inflation and interest rates.

At her daily news briefing, Ms. Myers apparently made a faux pas that upset the Federal Reserve chairman by saying, "I believe Chairman Greenspan thought that the deficit reduction"

of the president "would help keep interest rates down."

Fed seeks clarification

Administration officials said the Federal Reserve had asked for a clarification of Ms. Myers' statement. Although Mr. Greenspan had told Congress that the president's deficit reduction plan would help push down interest rates, the Fed chief was worried that her statement might be construed as saying he endorsed the president's embattled plan.

Since many conservatives tore into Mr. Greenspan for initially praising the president's plan, the central banker has appeared to be straining to show that he is not in Mr. Clinton's pocket.

Within hours, Ms. Myers issued a statement saying that she "did not mean to imply" that Mr. Greenspan "in any way endorsed the president's economic package now before Congress."

Her statement added that Mr. Greenspan said the president's economic initiative had set into motion a process that he feels reasonably assured will in the end lead to significant deficit reductions.

One administration official said the White House produced its clarifying statement so quickly because it was eager not to offend the Federal Reserve at such a sensitive time.

Administration officials said that Mr. Clinton had asked for the hourlong meeting and that it was something the two men planned to do periodically.

Among the other officials attending the meeting were Robert E. Rubin, coordinator of the National Economic Council, Laura D'Andrea Tyson, chairwoman of the Council of Economic Advisers, and David Gergen, the White House counselor.

Even as Ms. Myers sent subtle signals to the Fed, she tried to show that the White House was not trying to push around the proud central bankers. "The Fed is an independent agency, and we don't presume to control their decisions," she said.

"However, I think most of the people here, the economic advisers, believe that there is no real inflationary pressure in the economy, although there's been some uptick," she added. "We remain optimistic."

A shift toward higher rates

Federal Reserve officials are tilting toward raising rates because they are concerned that inflation has jumped to a 4 percent rate in recent months. But many central bank officials believe that the wholesale prices report today and the consumer prices report on Tuesday will show lower inflation.

The Clinton administration's gentle nudging of the Fed has been far different from the Bush administration's muscular jawboning. Fed officials say in private that relations with the new administration have been far better than with the Bush administration even though all the current Fed governors were appointed by Republicans.

Treasury Secretary Lloyd Bentsen said yesterday that short-term interest rates were the province of the Federal Reserve. He added that his main concern was preserving low long-term interest rates, which help spur home building and business investment.

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