A top Carter administration official said yesterday there is "at least a 50-50 chance" that the economy's growth rate will slow to near 3 percent in the first half of next year - almost a full percentage point below the pace the White House has predicted.
Anthony M. Solomon, under secretary of the Treasury for monetary affairs, said the extra slowing may occur despite the Administration's hopes for a 4 percent growth rate. Still, he asserted, the economy is unlikely to slide into a recession.
Solomon also discounted suggestions that the nation may be headed for a credit crunch as a result of the recent tightening by the Federal Reserve Board. Despite the sharp rise in interest rates, he said, "there's still a hell of a lot of liquidity around."
He also disclosed that despite the recent rise of the Japanese yen, improvements in the dollar's value on European exchange markets over the past few months have enabled the U.S. to sell back two-thirds of the several billion dollars it borrowed to intervene in the markets last winter.
Solomon predicted that once the latest plunge against the Japanese yen had ended, the dollar would not decline further in the next few months, but he refused to predict at what level the U.S. currency would settle. The dollar has stabilized recently in European markets, but still is declining against the yen.
Solomon's remarks about the U.S. economic outlook, delivered at a breakfast meeting with reporters, were slightly less optimistic than those of other administration officials. The White House now is predicting a growth rate of close to 4 percent next year.
On Tuesday, the Paris-based Organization for Economic Cooperation and Development, a group of 24 industrial nations, predicted the administration's projections would prove overly optimistic and that real growth in the U.S. would be "falling back to an unnual rate of 3 percent" early in 1979.
Treasury Secretary W. Michael Blumenthal has predicted the economy's growth next year would be "around 4 percent, possibly a little bit less at various times." But yesterday, Solomon said there is "at least a 50-50 chance that without planning it, we will be close to the OECD level."
It's not certain what impact that slow a growth rate would have on the nation's unemployment rate. Economists traditionally have believed the economy must grow at a 3.8 percent pace or better to prevent the jobless rate from rising. However, some say because productivity now is so low a slower rate would not force an increase in unemployment.
Solomon's relatively buoyant assessment of the feds recent actions also was something of a departure from other administration pronouncements. Other high officials have been criticizing the federal reserve for raising interest rates, warning a further rise might hurt the domestic economy.
The under secretary's disclosure that the U.S. has been able to sell back so many of the deutschmarks it bought last winter was intended as a measure of the dollar's comeback in European exchange markets. The U.S. spent billions at the start of the year intervening to rescue the dollar.
Solomon also said he now expects the nation's foreign trade deficit to decline steadily over the next several months in the wake of Wednesday's announcement that the red ink figure had shrunk to $1.x billion in June.
He also forecast that Japan soon may "turn the corner" in reducing its burgeoning trade surplus. Solomon said the Japanese surplus has remained steady after adjustment for inflation, but that this has "been masked" because the figure always is expressed in dollars and is distorted by exchange rate fluctuation.
Solomon also reported a sharp drop in penetration of the U.S. steel market by foreign producers following imposition of the administration's new "trigger price plan" to prevent price cutting. He said after an initial surge in May, import pentration of the U.S. steel market has fallen to a 12 to 14 percent annual rate down from as high as 24 percent before the plan was put into effect.