White House chief of staff Donald T. Regan was concerned about the impact of turmoil at the Federal Reserve on financial markets when he publicly extended an olive branch this week to Fed Chairman Paul A. Volcker, according to a senior White House official.
The official, who is intimately familiar with Regan's views but spoke to reporters here on condition that he not be identified, said the powerful White House chief was trying to dampen speculation that he was seeking Volcker's ouster.
In an interview with The Washington Post published Thursday, Regan said he saw "no reason" Volcker should quit before his current term as chairman expires in August 1987, and left open the possibility Volcker would be a candidate for a third term.
Regan said in the interview that unless Volcker is "unhappy or in ill health, or gets an offer he can't refuse, I see no reason why he should step aside."
Speculation that Volcker might quit sooner intensified after he was outvoted by four Reagan appointees to the seven-member board. Then Vice Chairman Preston Martin, one of the Reagan appointees, announced that he was resigning. Martin failed to win assurances from Regan he would be named to succeed Volcker next year.
The senior White House official said Regan wanted to "pour some water on this little fire that was raging, turmoil within the Federal Reserve and so forth."
The official said Regan, "as an old money-market man," was displeased with reports of a revolt at the central bank because "that causes nerviousness in the market." Regan was previously the chief of Merrill Lynch and still retains strong ties to Wall Street.
"Whenever you cause nervousness in the market you pay for it with higher prices, higher interest rates," said the official. The chief of staff "was trying to cool it," he added. The official said Regan did not like reading stories indicating that he was manipulating appointments to the Fed.