Senate Majority Leader Robert J. Dole (R-Kan.) yesterday urged the Federal Reserve to reduce interest rates to boost economic growth, even if doing so means running some risk of generating higher inflation.
In a statement on the Senate floor, Dole said, "The economy is not growing as fast as we had hoped. . . . The real question is what happens in the second half of the year, and there the economists remain sharply divided.
"Some say the pace will pick up smartly for the rest of 1986, while others see the economy chugging along at a 2-to-3 percent growth rate."
Last week, a senior administration official, who asked not to be named, also said the Fed should move to cut interest rates, preferably after Japanese and West German central banks had reduced their rates to minimize any impact on the value of the U.S. dollar on foreign exchange markets.
Fed Chairman Paul A. Volcker and several other Fed officials, anticipating faster economy growth in coming months as a result of past interest rate cuts, have been reluctant to reduce rates again, partly because of fears that an overly easy money policy could spark inflation.
However, if growth does not pick up, rates likely would be lowered, several officials have indicated.
Dole said that he is uncertain what the second half of the year will bring, adding, "Wherever there is a degree of uncertainty, some risks have to be taken in shaping public policy. . . . I think encouraging the move toward lower interest rates is the lesser risk at this time . . . ."
Lower rates would provide "a healthy economic boost" for both industrial and developing nations, "dampen the demand for knee-jerk protectionist backsliding" in terms of restricting world trade and improve the chances of adoption of a variety of "productivity-enhancing initiatives," such as tax reform and reduced federal regulation of business.
Volcker would agree with these objectives, Dole said.
The chairman, he continued, also "understands the risks. We all know that inflation is never put to rest for good . . . .
"But we no longer have the option of not taking any risks," Dole concluded.
"We must be sure the risks we do take are carefully calculated, and are grounded in common sense. To this senator, at this time, that means taking steps to move to the lower-interest rate environment the world economy seems to demand."