Federal Reserve Board Chairman G. William Miller said yesterday he made no promise of any sort to the administration to ease up on the monetary policy in return for the Presedent Carter's decision to reduce the size of a proposed tax cut.
Miller told the National Press Club that he was pleased the President trimmed the size of the tax cut - from $25 billion to $25 billion in the spending year starting Oct. 1 - because it will help fight inflation and made the central bank's job easier.
But Miller said there was no agreement, "formal, implicit or explicit," that the Fed would stop raising interest rates in return for the change in tax policy.
The former Textron executive, who took over the central bank three months ago, had been [WORD ILLEGIBLE] urging a smaller, $25 billion tax cut days before Carter bowed to his own advisers' worries about inflation as well as the refusal of Congress to give him as big cut as he wanted.
In an interview Tuesday, House Budget Committee Chairman Robert N. Giamo (D-Conn) said he is also concerned about increasing inflation that he may push for even smaller cut than $25 billion when he brings the House version of the federal budget to the floor next fall.
Miller, in speech, said it would be impossible to say whether the Fed will be able to ease up on interest rates because it is impossible to determine what will happen to inflation between now and the final months of the year.
When the Fed flights inflation it boosts interest rates by slowing the amount of funds provisded to the banking system. That makes money more expensive and, theoretically, should reduce the desire of business and individuals to borrow and spend.
Miller said that inflation creates higher rates and not the other way around. He noted that when the Fed acts to raise short-term interest rates - such as boosting its key interest charge, the federal funds rate - long-term interest rates like corporate bonds and mortgages often stablize or decline slightly slightly because borrowers and lenders realize that the central bank is fighting inflation.
Since last April the federal Reserve has raised the federal funds rate - the interest banks charge each other for overnight loans of excess reserves - from about 6.75 percent to 7.5 percent.
The Fed chairman said that economic policy makers should stop worrying about short-term goals and begin to think about long-range plans. He proposed a five-year, among other things:
Shift the focus of economic policy from worrying about consumption to increasing investment.
Move resources from the public to private sector, although he said there can be no bigger tax cuts this year or next because of inflation concerns.
Boost the amount of new home bulding by about 75,000 to 100,000 units a year.
Start a year "Vigorous" export program that would raise the amount of goods exported by United States companies from 7 percent of a total production to 10 percent.
Require the government to make a firm commitment to reduce the inflation rate by between 1/2 and 3/4 of a percentage point each year.
Miller said controls on wages or prices do not work, and, in any event, the administration has no authority to put them into effect and could not convince Congress to give it that authority even if it wanted to : "My advice is that controls are possible, not legal and won't happen."