Arthur Burns, who rightfully can be considered an expert at this sort of thing, broadly hinted yesterday that the Federal Reserve Board - which he used to head soon might raise the discount rate.
In his first appearance as a staff scholar of the American Enterprise Institute, Burns pointed out in response to a question at a press conference that "discount rate increases are often forced on the Fed if the banks are borrowing heavily at the discount window."
The discount rate is the rate at which member banks can borrow from the Fed. A boost in the rate is one way in which the Fed signals a tighter money policy.
The Federal Reserve, under Burns' successor, G. William Miller, recently has been tightening credit a notch ot two by forcing up the federal funds rate - the rate at which member banks borrow from each other.
In turn, the federal funds rate - now about 7 1/4 percent -sets the pace for other short-term rates. But the Fed's discount rate has been at 6.5 percent since Jan 9, meaning that banks can make a profit by borrowing from the Fed. In the past, a three-quarter-point gap between the discount rate and the federal funds rate has often triggered a half-point boost in the discount rate.
Should the Fed move the discount rate to 7 percent, it would be interpreted as another move in Miller's general posture of fighting inflation by tightening up money policy.
On international issues, Burns - just back from a lecture tour of Japan and Australia - warned that both West Germany and Japan might face a recession in the next year or two if their currencies continue to appreciate against the U.S. dollar.
That "would do us no good," he added. He conceded that "there is no scientific way" of determining a precisely correct exchange rate, but suggested he would like to see "stability of the dollar for a while."
Burns had some words of praise for Miller, saying he has "nothing but commendation" for the restrictive course of action that the Federal Reserve has been following recently.
Miller also has been urging a strong anti-inflation approach on the Carter administration, and has called on both the president and Congress to shave the prospective federal deficit. Asked by a reporter if he thinks Miller "is out-Burnsing Burns," the 73-year-old business cycle expert smiled and said, "If he is, he's not making me unhappy."
Burns also had some mixed praise for President Carter. He indicated he was pleased with a stronger defense of the dollar, including a sale of gold - which followed in principle, if not in volume, a recommendation he had made on his last day in office March 31.
He also said the president should be commended for his new anti inflation policy, although Burns said he would have preferred a stronger approach, including actual cuts in executive salaries, including the president's. But before doing anything else, "Let's wait and see if it (the Carter program) works, but let's not wait too long to judge," he said. Later he said he'd hold off at least three months before moving to a stronger program.
Burns said he thinks the recent reduction in the overall unemployment rate for April to 6.0 percent shows that "the economy is not far from full employment at the present time." He cited the 2.8 percent unemployment rate for married men to show that the major part of the jobless problem is "structural" and therefore not susceptible to attack by overall fiscal and monetary policy.