An otherwise rapidly improving economy now faces a twin threat - uncertainty over "what to expect in the energy area," and a recent acceleration in the pace of inflation. Federal Reserve Chairman Arthur F. Burns told Congress yesterday.
In testimony before the Senate Banking Committee, Burns said consumers as well as businessmen may tend to hold off on their spending "to see what develops" from President Carter's energy proposals.
He said he fears that this could retard economic growth. White House officials have taken the stand that the energy programs, it fully enacted, would have no negative effect on the economy, and might even push it forward.
Coincidentally, Economic Council Chairman Charles L. Schultze said the Carter administration is committed to encouraging "an extraordinary expansion" in business investment, so as to ensure rapid economic growth in the future.
In a speech to the American Society of Newspaper Editors in Honolulu, Schultze promised tax reform and other measures designed to gain business confidence and reduce business uncertainty.
Burns praised Carter's energy proposals as an effort to clarify some of the uncertainty over the future cost and availability of various fuel resources.
But because the final shape of the program is unknown, "the situation at the moment is as uncertain as ever." He said in a question period that the program is complicated, "and it will be some time before I understand it." Nevertheless, he implored Congress to act promptly.
The Fed chairman, who met privately on economic issues on Monday with President Carter and other economic advisers, refused to guess what impact the energy program would have on inflation.
But Burns was positive that the existing and prespective rates of inflation, with or without the energy program, constitute the nation's main economic worry."Unless we bring down the rate of inflation," he said in a colioquoy with Sen. Edwin Brooke (R-Mass.) "we will not have good times in our country."
He announced that the members of the board of governors "fully support" the anti-inflation program announced last month by President Carter. But if the President's goal of cutting the rate of inflation by 2 percentage points by end of 1979 is to be achieved, he said that the trend of money supply growth will have to be reduced.
There was no further change in the Fed's targets for growth of the money supply - cash and money in checking accounts - from the decision last month that reduced the range by one-half point, to between 4.5 and 6.5 per cent.
But the current trend of money supply expansion "is still rapid, perhaps much too rapid," he said. Moreover, because of lack of adequate information, and the absence of controls over deposits in banks that do not belong to the Federal Reserve system, "no meaningful reduction has as yet occurred in actual (money) growth rates," Burns revealed.