Treasury Secretary Donald T. Regan yesterday applauded what he described as the Federal Reserve Board's "accommodative position" and repeated a call for the central bank to aim for money growth between 5 1/2 and 6 percent this year to allow economic recovery.
At a news conference, Regan described Tuesday's stock market rally and the decline in interest rates that prompted it as "encouraging economic reports."
The Fed's willingness to ease credit conditions, together with congressional action on tax and spending bills, will set the stage for long-term economic growth, he said.
Regan said the money supply should grow at an annual rate of between 7 and 7 1/2 percent for the rest of the year to achieve his annual growth target.
Fed Chairman Paul Volcker said last month that the Fed would aim for the rest of the year toward the upper limit of its 2 1/2 percent to 5 1/2 percent target range for money growth during 1982, and would be willing to "tolerate" temporary growth just above this if, "during a period of economic uncertainty," people decided to hold more cash.
Meanwhile, the government yesterday released a report showing that personal income rose by 1 percent last month -- fueled by higher Social Security payments -- while after-tax incomes were boosted by 2.1 percent, largely because of the July 1 cut in the federal income tax.
Despite the tax cut and the gain in personal income last month, private analysts believe that the economy remains very weak. Consumer spending, which has been billed as likely to lead the economy out of recession, was up 1.1 percent last month from a low level in June. However, after taking out the effects of inflation, the July spending level probably remained below the average for the second quarter, Commerce Department economist Theodore Torda said yesterday.
This means that there will have to be sizable further spending gains in both August and September if the third-quarter spending gain is to match that of the second quarter.
According to yesterday's report, this second-quarter spending growth was only 2 percent in real, inflation-adjusted terms, rather than the 3.1 percent first estimated. A revised estimate for gross national product in the April-to-June period is due to be published this morning. The preliminary figure showed a slight rise in GNP.
Despite administration optimism, most experts attribute the market turnaround more to economic weakness than economic strength.
Regan yesterday attributed the lower rates to a change in stance by the Fed, which he said had eased credit conditions in response to administration and congressional action to narrow the deficit, better inflation figures and the weakness of the economy. Analysts agree that the Fed's actions have encouraged rates to fall in the last few weeks, but many believe that this has been in response to the softer money-supply numbers rather than reflecting a shift in overall policy.
The Commerce Department report also showed a sharp rise in personal saving during July. The savings rate "appeared to rise to 8.1 percent" of take-home pay, the Commerce Department said. Such an increase is a typical reaction to a tax cut, or sudden rise in income, and will be reversed if and when people start to spend more.
The tax cut itself was considerably smaller than the administration predicted, the Commerce Department report said. Instead of giving an annual rate boost of $33 billion to the economy, as Commerce officials first estimated, the tax cut was worth $25 billion at an annual rate.
The overall rise in pretax income in July totalled $25.1 billion, at a seasonally adjusted annual rate, the Commerce report said.