Federal Reserve Chairman Paul Volcker said yesterday it is far too soon to be considering tax reductions to combat the current recession, adding that he has not seen evidence that the economy is on a "persistent downhill slide."
Volcker's view ran somewhat contrary to some of the pessimism heard here at the semi-annual meeting of the Business Council, whose members include chairmen and presidents of more than 200 major corporations.
The Fed chairman also drew encouragement from the recent drop in interest rates from the peaks of last month. "The relaxation of tensions in the credit market and the decline in interest rates has been constructive," he told reporters here.
The move by the Fed this week to begin easing back on its emergency credit restraints is appropriate, Volcker said, now that consumer borrowing has slowed down. It is not a sign that Fed policy has flip-flopped to encourage borrowing, he added.
Volcker had no sympathy for the tax cut campaign being waged by leaders of the Business Council.
Reginald H. Jones, chairman of General Electric Co., predicted the economy will be in such bad straits by the end of summer that the chances are good for a tax cut in the $25 billion range, effective next January if not earlier.
He and other business leaders want one-third to one-half of such a cut directed to business, to reward increased investment in plant modernization and equipment purchases and to avoid scheduled increases in Social Security taxes.
The consensus of the economists advising the Business Council is that the current recession will be less severe than the 1974-75 slump, the worst of the post-war period.
It will be an "average" recession, the economists said, with a decline in the nation's output of 2.3 percent between the first and fourth quarters of 1980, after adjusting for inflation.
But the "average" recession will be followed by a sluggish recovery, slower than any other in the post-war period, the economists predicted.
Clinton C. Garvin Jr., chairman of Exxon Corp., noted that most of the economists now take a gloomier view than they did in April when they made their forecasts for the Business Council. Many now predict a decline of 2-1/2 to 3 percent drop in the gross national product, after accounting for inflation.
They predicted the unemployment rate will peak at nearly 8 percent early next year. A sharp drop in price inflation, from 16-1/2 percent in the first quarter of 1980 to just below 10 percent at year's end is expected. But beyond that, progress will be slow.
Lane Kirkland, president of the AFL-CIO, said the business economists' unemployment forecasts were too low. "I think it's going to be worse than 8 percent," said Kirkland.
Asked whether he would support a tax cut, Kirkland said that would depend on whether it is targeted to solve specific economic problems and not just spread broadly among business.
This was Kirkland's first appearance at the Business Council, which meets in the palatial Homestead, staffed by nonunion employes. Kirkland said his visit was "missionary work."
Trade union leaders should not talk only to themselves, he said. "It's a little boring and it's too easy to reach agreement." Missionaries "have to go into the jungle 'cause that's where the heathen are."