Economic Council Chairman Charles L. Schultze yesterday predicted "a strong and stable dollar in the period ahead," eliminating one of the most potent forces in last year's 9 percent climb in the consumer price index.
Depreciation of the dollar by nearly 1j percent against 10 major currencies last year added about 3/4 of 1 percent to the CPI, according to government officials.
At a press briefing on the Economic Report of the President, transmitted to Congress yesterday, Schultze said that the future course of the dollar woul relate less to "market uncertainty," and more to progress in combatting inflation and the massive U.S. trade deficit. On both scores, the Economic Report was optimistic.
But the report was rather grim on prospects for the world economy, even though it credited last summer's Bonn economic summit with having induced some shift toward more rapid economic growth.
"(Worldwide) GNP growth, while expected to maintain the 1978 rates," the report said, "Will remain low by the standards of the 1960s, and it will be hard to generate enough jobs to reduce unemployment." Almost with a sense of desperatio, the CEA noted that while expansionary policies would benefit most industrial countries, high inflation rates act as an ingibition.
The report reconized the charge by some that the "floating" exchange rate system -- in which international money relationships are determined in the market instead of eing fixed by governments -- is responsible both for jittery fluctations and poor economic prerformance.
The CEA members concluded that on the whole, the floating system had worked well. "If exchange rates are at present too volatile for some countries, steps to increase the co-ordination of macro-economic policies could be helpful," the report said.
In a separate economic message, President Carter reiterated athat one underlying premise of his entire economic policy this year is the need to bolster the strength of the dollar, and to maintain close ties with the international community of nations.
By implication, Carter took notice that one of the dollar's problems last year was a lack of confidence in American economic policy. "Developments last year reminded us once again of the interdependence of our economy and those of other nations around the world," Carter said.
"Our trading partners are looking at our ability to deal with our economic problems at home as an indicator of the strength and ladership that they can expect from the United States. We will not disappoint them."
The CEA report stated flatly athat the Nov. 1 dollar rescue program "appears to have achieved its basic purpose." Schultze added at the briefing that the U.S. had ample resources to sustain its intervention policy.
The report observed that "while the dollar's decline in the fall of 1978 was an instance of a maifunctioning of exchange markets, the overall history of exchange rates in recent years does not suggest such mulfunctions are cronic."
Carter paid tribute to the co-operative wpirit demonstrated at the Bonn Summit. But in a more detailed examination of international accounts, the CEA, while predicting some decline in the large German and Japanese current account (trade and services) surplus, had some bluntly critical comments on Japan.
Estimating the Japanese current account surplus in 1978 at about $20 billion, almost double the $10.9 billion of 1977, the CEA said that any declines would come from a further fall in the Japanese export volume, rather than increased imports.
The report estimated that the U.S. current account deficit would shrink from $17 billion in 1978 to an anual rate of only $2 to $8 billion by the end of 1979. The report claimed there would be "a steady and vigorous growth in export markets," in part attributable to increased competitiveness resulting from last year's dollar depreciation.
The report said that there already has been a strong "turnaround" in exports of U.S. manufacturd goods from the first quarter of last year, when the U.S. share of total manufactured exports of 1k industrial countries fell to 18.9 percent, the lowest since mid-1972. In the late 1950s, the U.S. share of such exports was approximately 30 percent.