President Carter yesterday attacked the policies of the Federal Reserve Board as "ill-advised" and warned of the adverse consequences they were having on the nation's economy. The president's highly unusual attack on the Federal Reserve Board came during a campaign stop in the backyard of a Philadelphia home. Carter accused the Fed of putting "too much of their eggs in the money supply basket" without looking at the impact the policies were having on other economic factors, such as the current high interest rates.
Citibank yesterday raised its prime interest rate a full percentage point to 14 percent, leapfrogging most of the nation's other major banks which just the day before had raised the prime to 13.5 percent.
The President's remarks about the Fed came at almost the same time Treasury Secretary G. William Miller expressed similar concern about the role of the Fed in triggering the recent rise in interest rates. He warned the rate increases might abort the nation's economic recovery.
At a briefing for reporters covering the World Bank and International Monetary Fund meetings, Miller said "I'm surprised a little that rates have moved back up as rapidly as they have." He added that "it is necessaray to have a more predictable regime in which economic activity can take place."
A spokesman for the Fed had no comment yesterday on the President's remarks.
Ironically, the White House attack comes as the Fed is being accused by some monetarist economists, troubled by the recent surge in the nation's money supply, of trying to help Carter's re-election. Fed officials themselves say they are "puzzled" by the explosive growth of the money supply.
Fed officials dismiss such accusations by the monetarists as nonsensicial.
Interest rates have spiraled in the last week, since the Fed raised its discount rate from 10 percent to 11 percent. This move was itself just a follow to earlier rises in short-term money rates.
Miller said there was nothing he could see in the nature of the economic recovery so far that could explain the "volatility" of the interest rate movement.
"Capacity utilization is still below 80 percent, so I would be concerned if it [the interest rate increase] continues for long, because it would tend to discourage the recovery."
Miller -- who was Chairman of The Federal Reserve Board prior to taking the Treasury post last year -- theorized that the new volatility in interest rates may result "from the new way in which the Fed operates." His reference was to the Fed's policy decision to concentrate its policy targets more on the money supply totals than on interest rates.
He said the theory was that if the money supply were more closely controlled, the economy could be less concerned if interest rates moved sharply up or down."But we're getting volatility in both interest rates and the money supply," Miller said. He suggested that "we are in a learning period -- we must be patient."
Asked if he blamed the Fed for soaring interest rates, Miller responded: "I'm not blaming anyone. What I'm saying is that I don't have a good handle on what's happening, and I don't think the Fed has a good handle on what's happening. I'm not here to blame. But I'm puzzled."
After the Fed boosted the discount rate to 11 percent, major banks moved to 13 percent last Friday. Chase Manhattan then raised the ante on Wednesday to 13 1/2 percent. Citibank stayed at 13 percent until yesterday morning, when it decided to go to 14 percent.
Most banks across the country, including those in the Washington area, are now charging 13 1/2 percent for short-term loans to their best risk customers. However, many are likely to follow Citibank upward in the next few days.
Three factors are behind the recent rate rises, according to a spokesman for Chemical Bank. The first is the Federal Reserve Board tightening of credit after the "very swift increase in the money supply that we have seen in the last few months." The increase in the cost of funds which banks borrow in the money markets means that they in turn put up their rates.
The second was the unexpected speed of the economy's recovery after the recession this year, and the third was the disappointing inflation performance in recent weeks, he said. They all point in one direction, "and that's up," he added.