Federal Reserve Board chairman G. William Miller held out the hope yesterday that spiraling interest rates may be near an end.
Carter administration officials have sharply criticized the central bank in recent days for its actions that have raised short-term interest rates by a full percentage point since late April.
Presidential inflation counselor Robert Strauss has warned that the higher rates not only make it more difficult to fight inflation but threaten to choke off the economic expansion.
Miller was cautious in his statement that interest rates will rise little, if at all, for the rest of the year, both in his testimony to the House Budget Committee as well as in later comments to reporters.
"I'm not making a prediction," he told reporters. But he said the pressures that force the Federal Reserve to raise short-term interest rates in four separate moves over the last three months appear to be easing.
Furthermore, Miller said, even though rates may not rise much more, there is little possibility that they will decline before next January.
Charles Schultze, chairman of the Council of Economic Advisers, told the committee Wednesday that the current level of interest rates does not threaten the economic expansion, but said that if the Fed should raise rates any more an economic slowdown could occur.
The Federal Reserve raises interest rates to make borrowing more expensive and slow the growth of the money supply thereby holding the line against inflation.
Miller, who was outvoted two weeks ago when the Federal Reserve raised the interest it charges member banks that borrow money defended his agency's actions and said that higher interest rates do not cause inflation. Inflation causes higher interest rates, he said.
He said the Federal Reserve "reacted rather promptly" to spurts of growth in the money supply "in order to avoid" the necessity of taking more drastic measures later.
Although he was President Carter's pick last winter to head the Federal Reserve, Miller's tough talk on inflation and his defense of the Fed's interest-raising actions - despite his vote two weeks ago - have disappointed many liberals who though he would push the central bank toward an easier monetary policy.
Miller, under questioning from Rep. Butler Derrick (D-S.C.), said that while he worries about the possibility of a credit crunch, he sees no conditions "in the immediate future, in the foreseeable future, where the unavailability of capital needed to keep our economy growing" will occur. He said the slower growth rate of between 3.5 and 4.5 percent projected for the rest of the year will take the pressure off interest rates and demand for credit.
Miller told Rep. John Rousselots (R-Calif.) that Congress, in writing its final 1979 budget (for the fiscal year starting Oct.1) should try to reduce the deficit from $51 billion to $45 billion. That would take further pressure off the Fed's monetary policy, he said.
Miller, like Treasury Secretary W. Michael Blumenthal and Schultze, criticized both the tax-cutting Kemp-Roth bill and measures pending before the House Ways and Means Committee to cut taxes on capital gains - profits earned from the sales of assets like houses or stocks.
Miller said the huge tax cuts proposed by Rep. Jack Kemp (R-N.Y.) and Sen. William Roth (R-Del.) would be inflationary.
The Kemp-Roth bill would cut taxes by about $30 billion next year (compared to the $20 billion proposed by President Carter in the lastest version of his tax package), but the cuts would rise to $110 billion by 1981.
Miller said a reduction in capital gains taxes would do little to stimulate the investment that is needed from business.