Treasury Secretary Donald T. Regan yesterday blamed the recent upturn in interest rates on a spurt in money growth at the end of last year.
Regan, who has criticized the Federal Reserve for keeping money too tight, noted that interest rates have gone back up in the last month and said "this is a result of the money supply."
High interest rates last year generally are believed to have precipitated the present deep recession. Some analysts predict that rates will be relatively high again this year-- stalling or limiting the economic recovery--as the Federal Reserve again has promised to keep money very tight because the financial markets fear large federal budget deficits.
President Reagan and his chief economic officials have blamed last year's rates and today's recession on the economic policies of their predecessors and have predicted a strong economic recovery in the second half of this year. However, this recovery could be threatened if interest rates start back up.
Fed officials are puzzled about the burst in money growth in November and December, which came as the economy was falling sharply. Market analysts believe the Fed may have tightened credit conditions a little because of the apparent sharp growth. However, experts say the chief reason for stubbornly high interest rates is that markets fear a clash between tight money, which Reagan supports, and huge budget deficits.
Senate Republicans who also worry about prospective budget deficits will meet with the president today to discuss the fiscal 1983 budget that Reagan is due to unveil on Feb. 8. Finance Committee Chairman Robert Dole (R-Kan.) said yesterday that the senators again will advocate raising some taxes, and also will push for scaling back the president's planned defense buildup.
Reagan so far has been very reluctant to propose any tax increases to narrow the budget deficit despite unanimous agreement among his advisers that some new taxes are needed for 1983 and 1984. The president yesterday signaled his unwillingness again, telling business and civic leaders in New York, "I receive a few letters in this job," but "there's one letter I still haven't received," the one that says "will you please raise my taxes so we can get our economy moving again."
Dole stressed that no one was in favor of higher taxes, but added that an additional $15 billion in 1983 and $30 billion in 1984 would not undo the tax cut enacted last summer. Senate Republicans are against big deficits, not in favor of taxes, he said.
Although Reagan's public reluctance to propose increased taxes may be popular, Republicans in Congress say that they will be able to win tax increases only if the president throws his weight fully behind them. Without new taxes, the budget deficit could be above $100 billion in 1983 and 1984, experts say. Dole indicated that some Republican senators may be willing to look for cutbacks in the defense budget, even without the president's backing. He said there is "very little room" for further cuts in some social programs, such as food stamps.
Reagan and his economic adviser, Murray L. Weidenbaum, both blamed fast money growth under President Carter for last year's high interest rates, which led to recession. "Our administration is a cleanup crew for those who went on a non-stop binge and left the tab for us to pick up," the president said.
Although some New York economists have predicted rising interest rates this year, those at Citibank believe that rates will decline further this year as a result of a significant improvement in the inflation outlook and poor economic growth throughout the world. There has been a watershed change in world economics and prospects for inflation that is not yet well understood by capital markets, Citibank economist Leif Olsen said yesterday.