Likening the position of the Federal Reserve to the Joint Chiefs of Staff -- "generals do not make wars, they fight them" -- a leading economist yesterday urged the commander-in-chief to issue a "clear, simple and unequivocal political commitment to a sustained reduction in monetary expansion."
But as much as H. Erich Heinemann, vice president of investment bankers Morgan Stanley, wanted President-elect Reagan to yell charge, other witnesses at a Senate Banking Committee hearing clearly preferred to hear retreat sounded on the monetary front.
On the day following Fed Chairman Paul Volcker's testimony on the economy before the panel headed by Sen. Jake Garn (R-Utah), Volcker's critics took him to task fro the Fed's policies of restraint over the past 15 months.
"Plainly, [his] record offers little comfort to those who are hoping for a stabilizing of monetary policy under the new administration," Heinemann said. It is inconsistent to maintain that the Fed is a creature of Congress but is at the same time apolitical, he added.
Along with a presidential directive, Heinemann suggested several technical reforms such as the end of lagged reserve accounting and a floating discount rate. He also urged the Federal Open Market Committee to make prompt disclsure of growth targets for the monetary base. (The lag between the time such decisions are made and announced is now about a month.)
On the legislative side, Heinemann uged the senators to bring transfer programs, which make up a huge proportion of the budget, back into the appropration process.
Even sharper criticism came from Lacy H. Hunt, senior vice president of Fidelity Bank in Philadelphia. He accused the Fed of "leaning over to accommodate" the Carter administration's spending policies by holding down interest rates during the third quarter of last year.
Meanwhile three more major banks -- Chase Manhattan in New York, Continental Illinois in Chicago and the First Nationa Bank of Chicago -- yesterday reduced their prime rate by a half point to 20 percent. The lowest current rate of any big bank is 19 1/2 percent offered by New York's Chemical Bank.
Witnesses representing particularly-har-hit sectors of the economy asked for relief from high interest rates.