Federal Reserve Chairman Paul Volcker responded to criticism over his handling of monetary policy today by warning against any attempt to impose "artificial stability" on the nation's money supply.
"Looking for an unreasonable degree of stability is doing nobody a service," Bolcker said after a closed-door appearance before a group of the nation's top business leaders. "We cannot do the impossible nor is it even desirable to force a kind of artificial stability at the expense of other rigidities in the market."
Volcker's defense of Fed policy came as the economic advisers to the Business Council predicted at the group's spring meeting here that interest rates will remain high -- in the 14 percent to 16 percent range -- through 1982. That prediction was the only pessimistic note, however, in an otherwise optimistic forecast that generally tracked with the economic predictions of the Reagan administration.
Volcker, who would not comment on the interest-rate predictions, restated his position that "interest rates will come down and stay down as we make progress on inflation." But he insisted that the fight will not be easy. m"We have a restrained policy, and we intend to maintain a restrained policy," he said.
Concern over Fed policy has been voiced in some corners of the White House in recent days because of the policy's impact on the bond market. White House aides such as Office of Management and Budget Director David Stockman have publicly expressed concern that Reagan's long-range economic program may be doomed without the approval of the bond market.
This concern was best summed up here today by Citicorp Chairman Walter Wriston who acknowledged that although the Fed policy may be good for the long-run fight with inflation, its short-term impact on the bond market is bad. Wriston is chairman of the Business Council.
Despite the concern of some Reagan advisers over Fed policy, the White House went out of its way earlier this week to praise Volcker and the Fed for raising the discount rate a full percentage point in an effort to stabilize money growth. The move was seen by some as an attempt by the White House to avoid open warfare with the Fed.
Volcker appeared at the Business Council meeting here today with Murray Weidenbaum, chairman of the President's Council of Economic Advisers. Weidenbaum, who used the occasion to immediately start drumming up support for the president's tax-cut proposal, brought with him a message from Reagan congratulating the business leaders for their help in convincing the Democratic-controlled House to approve his budget proposal.
After delivering the president's message, Weidenbaum said he emphasized to the business leaders the importance of the tax cut to the administration's overall economic plan.
Publicly, the members of the Business Council expressed total support for the Reagan economic plan during a long briefing with reporters late Thursday night. Privately, however, several key executives expressed concern about the possible inflationary impact of Reagan's call for a 10-percent-a-year tax cut for the next three years.
But the business leaders seemed concerned that any wavering in their public support for the general tax cut might jeopardize chances of Congress enacting the proposed 10-5-3 accelerated-tax-depreciation plan for business, plant and equipment -- a plan they have watched for the nearly five years.