Federal Reserve Board chairman Arthur F. Burns told Congress yesterday that the government has intervened in foreign exchange markets to support the dollar "on a minimal scale only" and does not plan to try to support the price of the dollar unless the situation changes dramatically.
Burns, testifying before the House Banking Committee, told chariman Henry S. Reuss (D-Wis) that the soundness of the American dollar is important to the Federal Reserve. He said, however, that the central bank has neither conducted domestic monetary policy nor intervened in foreign exchange markets with a view to pushing up the international price of the dollar.
Burns that the Fed does intervene in foreign exchange markets - buying dollars with foreign currencies to boost the demand for dollars - without consulting with the Tresury Department.
He said government has no intention of changing its policy on intervention. "Our broad policy is to intervene only in disorderly markets," Burns said. "But no two of us may perhaps agrees as to the precise definition of an orderly market. When I see the dollar depreciating against currencies of economies demonstrably weaker than ours. I sometimes ask myself whether the market is an orderly one." Burns said.
In recent months the dollar has depreciated in value against most major currencies, meaning that imports become more expensive and exports less expensive. Part of the dollar's slide is due to big balance of trade deficits the nation has chalked up un recent months.
The nation may run a trade deficit of $23 to $25 billion this year, nearly three times the 1976 deficit, according to estimate by the Treasury Department.
Burns was testifying on the Federal Reserve's latest targers for monetary growth, an appearance he makes every three months, alternating between the HOuse and Senate Banking Committee.
Burns told Rep. Gladys Spellman (D-Md.) that the policies the Fed is following are consistent with the economic goals enunciated by the Carter administration.
Asked if he would guarantee that would always be the case, Burns replied, "I'm not going to talk about the future. There may be a discrepancy and there is you'll hear about it.
Last May Carter officials such as Office of Management and Budget director Bert Lance were critical of the Fed for tigtening monetary policy to choke off a big jump in the money supply during April.
He said the central bank has made basically no chance in its targets. The target for the basic money supply (M-1) - checking accounts plus currency in circulation - was chnaged from a range of 4.5 per cent to 6.5 per cent to 4 per5 per cent.
Since the money supply has been growing at a rate near the top of the range for the last year, dropping a half point from the lower range of the target means little to the agency's operating stance.
For M-2, which adds savings deposits at commercial banks to M-1, the Fed's goal its unchanged: a range from 7 to 9.5 per cent annual growth.
Under questioning, Burns said he was not happy that the money supply has been growing at the upper end of the target over the last 12 months. Over the last three months it has been growing at an annual rate faster than 8 per cent.
Burns said that at the rate the Federal Reserve has been able to reduce monetary growth rates, "it would require perhaps a decade to reach rates of growth consistent with price stablity."