The White House pointedly stepped up pressure on the Federal Reserve Board yesterday to stop its credit tightening of recent months, warning that any further substanial rise in interest rate could damage the economic recovery.
In an unusual action, the White House press office posted a "notice" to reporters that, while it did not name the central bankd directly, criticized the board's contention that the growth of the nation's money supply needed to the trimmed back further.
The step was the latest and most dramatic in a series of signals to the Federal Reserve sent by administration officials in recent weeks. Charles 1., Schultze, chairman of the President's Council of Economic Advisers, has been urging the board in speeches to ease the reins.
Almost immediately after news of the warning was carried on the major wise service. While House officials denied their intention was to spur the Fed any further. Officials insisted that the notice was designed only as a continue answer in a reporter's question the previous day, and "said nothing we haven't already laid out before."
Nevertheless, the action clearly intensified the growing dispute between the Fed and the administration. The postal of a formal policy statement on monetary matters in yesterday's fashion is virtually unprecedented. In past years, administration officials have been reluctant even to discuss monetary policy publicly.
The notice came as "President Carter met privately with Schultze and Secretary of the Treasury W. Michael Blumential. The White House said later the three discussed the coming tax revision package, but the interesting question reportedly came up as well. Officials said there were no formal decisions on the tax proposal.
There was no immediate reaction from the Federal Reserve. The term of the board's chairman. Arthur F. Burns, is scheduled to expire in January, and Carter is mulling whether to reappoint him. Earlier speculation was that the President would extend Burns' terms as a gesture to the business community, but in the midst of the recent dispute that has changed.
The board has contended its tightening is necessary to offset a recent surge in the nation's money supply - a sport it argues could prove inflationary if allowed to continue. As a result of the Fed's tightening interest rates have shot up sharply in the past few weeks.
In recent for week reporting periods, the basic money supply - comprising cash and checking-account balances - has grown at an annual rate of about 11.1 per cent, well in excess of the 4-to-6 1/2 per cent range the board set as a target.
New figures published by the board yesterday showed the money supply was unchanged in the latest reporting week - a surprise to some economists, who had expected to see a decline (Details page B6.)
As a result, short-term interest rates have risen sharply. The key "federal funds" rate - the interest on overnight loans to banks - has soared from 5.8 per cent in early August to 6.4 per cent in mid-October. Three-month Treasury bills, another sensitive indicator, have soared from 5.35 per cent in August to 6.32 per cent last week.
The notice posted by the White House conceded that while "the speed with which interest rates have been increasing has unsettled the stock market . . . the recovery has not been seriously damaged" yet.
However, it warned that "if short-term interest rates were to increase substantially further . . . a diversion of savings flows from mortgage lending institutions could begin to occur, and this would reduce the supply of funds for housing. Long-term interest rates might also be drive up."
The notice rejected the Fed's contention that the recent money supply spurt might be inflationary. "Rapid growth of the money supply is a matter of concern when it ocurrs in the context of very rapid economic expansion, high employment, and a worsening outlook for inflation," it noted.
"Those are not," the document concluded, "the circumstances we face presently."
The notice reiterated Schultze's recent assertions that a faster of growth in the money supply may be needed because the rate at which money changes hands in the economy may be slowing.