Federal Reserve Board Chairman Arthur F. Burns, in his first comment on the Carter administration's economic stimulus program, told a House committee yesterday, that no stimulation is needed "because I feel the economy is improving on its own."
Burns said that a tax rebate is an "inefficient way of stimulating the economy: It would have a transitory effect on retail trade. A large sum of money will be spent on a very small result."
But Burns went out of his way to praise President Carter for having "put together a fiscal package smaller and more prudent than many had urged upon him."
He also made it clear that despite his preference for no extra stimulus to the economy at this time, the Federal Reserve, which regulates the nation's money supply will not try to frustrate or negate the effects of expansion by tightening up monetary policy.
Burns' upbeat assessment of the economy - "I feel reasonably confident that 1977 will be a good year for the nation's economy" - was almost exactly the same as the one he gave a year ago.
Recent improvement, he said, should be attributed "mainly" to the "normal workings of self-corrective forces within the private economy." He predicted that the adverse impact of the cold weather would be shortlived.
He said his main worry related to the possibility for a regenerated inflation and higher federal deficits, both of which he implied would be worsened by the Carter stimulus program.
But in his off-the-cuff answers to questions, Burns abandoned the harsher tones of prepared testimony before the House Banking Committee and seemed clearly anxious to send a signal to the Carter administration that he wanted to preserve and extend what he described as a friendly relationship.
He commented Carter for his "pronouncement" that he no longer supported the view that wage-price controls or standby controls would be useful.
"The fact that he'll have nothing to do with them did more for business confidence than tens of billions of dollars worth of spending," Burns told the committee.
Burns' main criticism of the Carter $31.2 billion stimulus program, which he admitted was crafted with "considerable care," related to the $11.4 billion tax rebate program for 1977.
He denounced the $50-per-person proposed payment by the Treasury as a "gift" that would be dissipiated in effect within two or three months without stimulating business investment.
"The Treasury doesn't have this money," Burns said. "It has to go out and borrow it. That's not a good habit for our country to get into . . . I shall believe people should earn the money they receive."
Burns said he had "no great quarrel" with the other components of the package. But if he had to construct an expansionary program he told the committee, he would substitute for the rebate a permanent cut in taxes for business and individuals in government expenditures could be lowered equally.
Burns reported to the committee that the Fed had adopted as a targetfor growth of the basic money supply, which consists of currency and checking accounts, a range of 4.5 to 6.5 per cent for calender 1977.
In his prepared statement, Burns said that the target "should be adequate to finance a faster rate of growth of physical production in 1977 than we experienced in 1976."
In testimony Wednesday before the same committee, Treasury Secretary W. Michael Blumenthal had said the administration would be satisfied with continuation of the 4.6 to 6.5 per cent money growth target.
But Burns reinforced the prepared statement under persistent questioning from Chairman Henry S. Reuss (D-Wis.), who wanted explicit assurance that the Fed would not "cancel" any stimulus legislated by Congress.
Burns volunteered that the money goal was more than enough to support even a faster rate of economic growth than planned by Carter, because the "velocity" (money turnover would be adequate.)
But when Reuss pressed him to say what Fed policy would be if velocity should decline, Burns said: "Then I would be inclined to look as a faster rate of growth in the money supply . . .?
If the rebate should become effective, Burns said that "for a short period" the money supply would expanded sharply, because the Government's $50 checks, when deposited in banks, automatically are counted in that compilation. Then the growth would taper off, and "for the year as a whole" there would be very little impact on money supply growth, Burns said.
Administration officials had been concerned that the Fed would look at the sudden expansion of the money supply this spring, and take counteractions that would in effect cancel the thrust of the stimulus. What Burns was saying yesterday was that even though he doesn't like the tax program, if Congress votes it, he won't interfere.