An economic recovery that will begin to reduce unemployment is imminent, Council of Economic Advisers Chairman Martin S. Feldstein said yesterday, although he conceded that he was "concerned" about the continued weakness in the economy.
Feldstein acknowledged that private forecasters now predict growth of only 3 percent between 1982 and 1983, in place of the 3.5 percent average forecast three months ago, which Feldstein had cited at his Senate confirmation hearings. However, once recovery actually gets under way, the economy will grow by more than 3 percent, Feldstein said. He would not predict when that would be, or what would happen to the jobless rate by the end of next year.
Congress should not enact "jobs programs" now, as these would likely prove "counterproductive," Feldstein told the JEC. Such spending programs would probably not begin to work for some time, and by then the economy should already be picking up, he said. Moreover, increasing the federal budget deficit would "suggest to people that Congress was not aware" of the danger of large projected deficits, he said.
Feldstein praised the highway program and gas tax increase now under consideration by Congress. He had argued last month in a memorandum to the president that this would not increase the number of jobs on a net basis in the economy. Yesterday he said the plan was a highway program, not a jobs bill.
President Reagan's chief economic adviser also endorsed the Federal Reserve Board's recent monetary policy, saying that recent rapid growth in the narrow M1 measure of the money supply did not represent a shift in the Fed's anti-inflation stance. "I am not disturbed at all" by monetary policy, Feldstein said.
Other administration economists have indicated concern that the Fed is allowing the money supply to grow too fast. However, Feldstein said that financial innovations, coupled with the effect on people's banking habits of lower inflation and interest rates, justified the Fed's temporary abandonment of targets for M1. The M1 measure includes currency in circulation and checking accounts at financial institutions.
Retiring JEC Chairman Rep. Henry Reuss (D-Wis.) prodded Feldstein to agree that the Fed should also abandon M1 targets for 1983, currently set tentatively at 2 1/2 percent to 5 1/2 percent. Feldstein eventually said that it was "appropriate" to consider the changed relationship between M1 and the economy--which has prompted the Fed to ignore the current M1 targets -- in the context of next year.
Democrats on the committee repeatedly pushed the economist to say what actions he would recommend if unemployment continues to rise and the economy fails to recover. Feldstein said he did not expect this to happen.
While the CEA chairman refused to discuss specific budget proposals, he stressed that the administration would propose significant deficit reductions in its budget next month, and said that military spending, as all federal spending, "should be carefully examined."
Feldstein said he did not embrace the controversial proposal to tax unemployment benefits, which Reagan has rejected.