Federal Reserve Chairman G. William Miller said yesterday it will take "a minor miracle" to avoid a recession next year, but predicted "we are going to pull it off."
Speaking in New York, Miller said "there are no economic reasons for this nation to suffer" a recession. He warned, however, that the country may be talking itself into one. Chastising the doomsayers, Miller cautioned, "We could scare ourselves into a recession."
Numerous economists and business executives have predicted a recession for next year. And the Fed chairman's own predictions of a 2.5 to 3 percent real economic growth rate next year have been gloomier than the administration's forecast of a 3 to 3.5 percent growth rate.
Miller stressed that he still believes a recession can be averted by careful government planning aimed at "moderate growth." The current inflation has built up over 12 years, and the process of squeezing it out will be a slow one, lasting "five to seven years," he said.
In related remarks, David Rockefeller, chairman of Chase Manhatten Corp., told a press conference in London that the chances next year for an actual decline in real output for two quarters -- the formal definition of a recession -- are 40 percent. The chances of the economy performing worse than that are only 10 percent, Rockfeller said.
The bank chairman also said that fears of a credit crunch in the U.S. are misguided. Noting that higher interest rates brought about by recent Federal Reserve actions already have begun to slow the economy, Rockfeller said short-term rates may be near their peak.
"I would expect some further increase, but we are close to the top," Rockefeller said.
The recession fear also was echoed yesterday by AFL-CIO President George Meany, who denounced President Carter and his economic program, saying the wage-price guidelines and rising interest rates threaten to bring the country "face to face with recession and mass unemployment."
Taking note of reports that the administration may modify its wageprice standards in an attempt to win union support, Meany said no amount of "tinkering" would make the anti-inflation guidelines acceptable to the AFL-CIO.
"Mere tinkering with the rules and regulations will not make the program equitable, for it is the program itself that constitutes the inequity," said Meany, who advocates across-the-board controls on wages, prices, interest rates and profits as an alternative.
In other economic developments, the Federal Reserve Bank of New York released a report on its fall operations revealing that it had intervened massively on foreign exchange markets in an unsuccessful effort to prop up the American dollar.Federal authorities sold $2.2 billion in West German marks and $294.2 million in Swiss francs from August to the end of October.
But Scott E. Pardee, a New York Fed vice president, said "the market wasn't looking at us."
The markets' failure to respond set the stage for President Carter's dramatic currency-rescue operation that began Nov. 1.
Since then, currency markets have come "into better balance," the Fed report said. Last month, the dollar rose nearly 12 percent against the mark, 15.5 percent against the Swiss franc and 11.5 percent against the yen. But the dollar's value is still down by 25 percent against the yen and nearly 30 percent against the Swiss franc over the past two years.
On the domestic front, relations have soured between the White House and Illinois politicians who have voted themselves pay increases of as much as 60 percent. Members of Chicago's city council voiced indignation at the displeasure expressed by Carter and Alfred Kahn, the administration's chief inflation fighter, over their salary increases.
"If Carter doesn't like it, he can go to hell," said Alderman Vito Marzullo, a long-time stalwart of the late Mayor Richard J. Daley.
The round of salary increases in Illinois began last week when the Cook County board voted itself a 30 percent raise. State legislators promptly followed with a 40 percent increase. And the Chicago City Council is expected next week to approve a 60 percent boost -- from $17,500 to $28,000 annually -- recommended by its finance committee.
Kahn fired off a strongly worded telegram to all state leaders on Monday, urging them to roll back any pay boosts that exceed the administration's anti-inflation guidelines.
Kahn's letter drew a sharp rebuke from consumer advocate Ralph Nader, who yesterday charged the Carter administration with setting a poor example by not standing firmer against congressional pay raises enacted last year and for permitting substantial salary increases for the White House staff.