President Carter's chief economic adviser warned yesterday that pursuit of a tighter money policy by the Federal Reserve Board could threaten the nation's economic growth.
The warning, by Charles Schultze, chairman of the Council of Economic Advisers, came at a press briefing to release the annual mid-year review of the economy. As expected, the Administration told Congress it now forecasts a higher rate of inflation and a lower rate of economic growth for 1978 than it predicted in January.
Schultze defended the new growth rate projection as "desirable" given the current higher rate of inflation and lower rate of unemployment than earlier expected, and the lower Federal spending and lower budget deficits now estimated. A growth rate in the neighborhood if 4.1 percent, as opposed to the January prediction of 4.7 percent, will maintain economic recovery at an appropriately moderate pace" and will not be inflationary, he contended.
But he added: "Tighter monetary conditions in the future would call into question our ability to meet those objectives."
Schultze's warning followed sharp criticism Wednesday of recent Federal Reserve actions raising interest rates by Robert Strauss, who heads the White House anti-inflation program.
The Fed reported yesterday that the basic money supply in the most recent statement week increased by $700 million. This was considerably less than many analysts had expected and takes some immediate pressure off the Central bank to further tighten monetary policy. But most increase in interest rates within the next few weeks is probably inevitable. (See Tables Page C10.)
James McIntyre Jr., Director of the Office of Management and Budget, repeated Administration pledges to constrain Federal spending, and warned that he would recommend presidential vetos of bills that would push federal spending above a total of $496.6 billion for fiscal 1979 shown in the mid-session review. He named the highway and public works bills as two that cause him "serious concern."
In its review, the Administration forecast a 7.2 per cent increase in consumer prices in 1978, up from 6.1 per cent predicted in January, and a 6.5 per cent rise next year, compared with a 6 per cent inflation rate predicted last January.
The Administration now predicts that unemployment will fall to an average of 5.9 per cent in the last quarter of the year and to 5.6 per cent by the last three months of 1979.