Treasury Secretary G. William Miller indicated this week that the United States will discuss with authorities in West Germany and Japan recent interest rate increases in those countries that have helped push up rates here.
Miller, in a reply to a letter sent to President Carter Aug. 2 by Rep. Henry Reuss (D-Wis.), chairman of the House Banking Committee, gave no hint whether the United States would take exception to what the other nations have done.
Reuss, who released the reply yesterday, had complained to Carter that Germany and Japan had chosen to raise interest rates to combat inflation, instead of raising taxes or cutting government spending. In response, to defend the dollar, the Federal Reserve raised interest rates in the United States, a move that "will throw additional thousands out of work and deepen the recession," Reuss complained in his letter.
"You aptly point out that domestic economic policies can no longer be applied in isolation in this increasingly interdependent world," said Miller's letter. "The actions of individual countries interact to create constraints with respect to their respective internal objectives."
That was an acknowledgement that in the present circumstances one nation's economic policy choices can force other nations to take offsetting policy steps that, from a domestic point of view alone, it would not take.
When Germany and Japan increased their interest rates recently, it raised the prospect of money flowing out of the United States to more attractive investments in those countries. Such a flow would increase demand for those nations' currencies relative to the dollar and therefore lower its value on foreign exchange markets.
With the dollar already under great pressure the Fed felt constrained to raise U.S. rates, too.
Continued Miller's letter, "To fight inflation, continued discipline is called for in both fiscal and monetary policies. In view of the variations in domestic and international economic conditions among major countries, the choice of proper policy mix to fight inflation while cushioning recession has become very difficult."
"Under these circumstances," he wrote, "it is certainly desirable, as you suggest, to make full use of established international channels for coordination of economic policies.
"There are continuing high-level consultations with authorities in Germany, Japan and other countries, and these will be used to address the issues you raise," Miller said.
The letter went on to suggest that Reuss himself could also raise these issues at this month's meeting of the International Monetary Fund in Belgrade, Yugoslavia. There, it said, "you will be able to assess personally the attitudes and viewpoints of other governments on these matters."
Last week Federal Reserve Chairman Paul Volcker, asked if he thought the German and Japanese actions were appropriate, said that they were "explicable" in terms of each country's own internal economic circumstances.
Reuss, in his letter, declared, ". . . our trading partners should fight inflation primarily by fiscal policy rather than by monetary policy. They are doing just the opposite. Germany and Japan, for example, still have in place expansionary taxing and spending policies adopted in 1978, well before the recent OPEC price increase."