Federal Reserve Board Chairman Paul A. Volcker said yesterday the Fed will stick with its tight money policies for the foreseeable future, even if the nation's jobless rate begins to rise significantly.
In a speech at the National Press Club, Volcker said he could not imagine any new evidence that would prompt the central bank to back off present policies. He said tight money would be a "prerequisite" for some time.
At the same time, the central bank chief criticized what he called the "uncoordinated stockpiling" of oil by some consuming nations, and called for renewed efforts by the major powers to act jointly to hold oil prices down. f
He also praised the Carter administration for its apparent decision not to seek an anti-recession tax cut in the upcoming January budget, and said the expected $15 billion deficit Carter is proposing "will not throw us off course."
And he warned that the latest surge in the gold market -- which saw gold prices soar yesterday to a record $575.50 an ounce -- "has all the potential characteristics . . . of a classic speculative boom and bust kind of situation."
Volcker's remarks on the Fed's resolve to continue its tight money policies were in line with his previous pronouncements, but his call for concerted action on oil stockiling marked a stepup both in tone and urgency.
The United States and other major industrial nations are scheduled to meet in March to discuss the possibility of joint action. Washington is expected to seek a general agreement to limit oil imports by consuming nations. e
U.S. officials have been upset over actions by West Germany and Japan to build up their domestic oil inventories in the face of the current turmoil in the Middle East. Japan's stocks are so high it now is seeking storage space elsewhere.
Volcker complained yesterday that the panic buying by consuming nations, combined with further price boosts by the oil-exporting countries, "has . . . set back the timetable" for easing inflation here by "at best a quarter or two."
What has made that stockpiling even worse, Volcker said, is that the inventory-building stems not from "any current shortage, but . . . out of fear and uncertainty." He said oil production now far outstrips consumption levels.
Volcker also reiterated yesterday his warning to the markets not to interpret any future drop in interest rates as a sign that the Fed is easing up on its money and credit policies.
Under the actions it took last October 6, the Fed shifted its procedures to make the growth in the nation's money supply the prime measure of monetary tightness, moving away from traditional interest-rate indicators.
As a result, Volcker said, interest rates now are free to fluctuate without affecting basic money and credit policy. "I don't think a fluctuation in interest rates should be interpreted as backing off," he said.
Volcker's assertion that the Fed would continue its tight money policies came in response to a question on how high the central bank would allow the nation's unemployment rate to rise before it began easing credit again.
If by easing, you mean backing off . . . from the basic policy of restraint . . . I can't imagine the evidence that causes one to back off," Volcker said. He said fight inflation "is the fundamental problem."
Earlier, in a prepared speech, Volcker himself raised the question, "Will the Fed stick with it? My short and simple answer to that question is yes," he said, "and I don't intend to qualify my answer."
While praising Carter's decision to avert a tax cut in his January budget proposal, Volcker also warned policymakers against succumbing to "temptations . . . to pump fresh purchasing power into the economy at the first sign of recession."
Reflecting on the now-famous Oct. 6 money-tighting action, Volcker said that "the overall results have been remarkably on line with intentions." He said he was "encouraged by what has happened."
He also reiterated that the central bank soon will publish new definitions of the various measures of the money supply in an effort to realign its statistics in light of recent changes in credit practices.