The White House yesterday predicted that any rise in interest rates will be only short-lived, but at the same time Wall Street economist Albert Wojnilower warned of higher rates by the end of the year.
Fears of a further climb in interest rates have unsettled stock and bond markets this week and both markets fell again yesterday after Wojnilower's forecast of 13 percent rates on long bonds and a 10 1/2 percent to 11 percent federal funds rate by year-end.
White House spokesman Larry Speakes said the administration is "always concerned when interest rates go up." But he added that "we have no quarrel" with the Federal Reserve Board's slight tightening of monetary policy and "we are generally satisfied with the actions being taken by the Federal Reserve Board."
The strength and speed of the nation's recovery from the recession has taken policymakers somewhat by surprise and is a major factor in market uncertainty, analysts said. Federal Reserve Board Chairman Paul Volcker has said recently that it is important that a swift recovery not be accompanied by too rapid money growth and other factors that could lead to faster inflation in the future.
The strengthening of the economy leads to greater private sector demands for credit and creates competition with federal borrowing needs, pushing up interest rates. In addition, the Fed has tightened credit rather than accommodate the additional credit demands.
"The economy is now moving at a very substantial pace" with third quarter growth likely to match or even outpace the 8.7 percent annual rate of the second quarter, economist Alan Greenspan said yesterday. "This suggests a degree of instability that is giving the markets a difficult base against which to judge" rate movements and Fed policy actions, he said.
A further sign of the recovery came yesterday with a government report that new claims for state unemployment insurance dropped in the week of July 23 by 7,000 from the previous week, to 387,000.