Federal Reserve Board Chairman Arthur F. Burns yesterday described the Carter administration's economic policies as ineffective, and rejected White House criticism of the Fed's credit-tightening policies.
Burns said that the Federal Reserve has no intention "of letting the money supply grow at a rate that will add fuel to the fires of inflation," nor will it allow growth to be jeopardized by excessively high interest rates.
His remarks, which came in a speech prepared for delivery in Spokane, Wash., appeared to be a direct reply to White House suggestions that Federal Reserve Board policies could threaten to choke off the nation's economic recovery.
Instead, Burns implied that the administration was trying to gain short-term political points from its criticsm of the Fed.
The Federal Reserve Board Burns said, will conduct monetary policy "in ways that promote the long-run as well as the immediate interests of the nation."
The sluggishness of the economic recovery is due primarily to the low level of business profits after inflation and the lack of business confidence in the future, Burns said.
He said the administration's policies have not dealt with the low level of corporate profits and have contributed to the lack of business confidence by proposing one policy initiative after another that business is neither able to understand nor evaluate.
Without a spurt in business investiments in plant and equipment - which take a long time to build - job creation will slow and shortages could occur.
"Unless the willingness of businessmen to invest in new plant and equipment increases decisively, the expansion of economic activity now under way will continue to lack balance," Burns warned.
"And that, I need hardly add, will make it more uncertain whether the expansion is going to continue at a sufficient pace to bring unemployment down significantly, or - for that matter - whether the expansion itself will long continue," he said.
Burns called on the administration to devise a new policy that is "just as unambiguously positive in its implications for profitability" as was the investment tax credit proposed by President Kennedy in the early 1960s.
He also warned of the dangers of inflation, and said the government must be careful of programs that either give up tax revenues or entail big new expenditures.
That is a clear sign that Burns will oppose any big tax cuts that the President and other members of his administration have said may be necessary to stimulate the economy next year. The economy does not need more consumer spending, but more business investment, was Burns message.
Low business confidence perplexes the administration as well. Treasury Secretary W. Michael Blumenthal said last week that Carter's economic policies, which will be unveiled soon, will be prudent. Blumenthal said that the big rush of major policy proposals - which he admitted created uncertainties - is over.
The low level of business confidence has been reflected not only in sluggish spending on long-term investment but in a depressed stock market. After the Burns speech was reported stock prices climbed sharply.
In his speech, Burns said that businesses have had "great difficulty in evaluating the implications of the major policy initiatives that are being considered this year."
He said businesses cannot judge what kind of energy will be available in the future or at what cost nor what tax incentives or disincentives will apply to energy use.
They are worried about the implications of revamping the Social Security system and the welfare programs and that "still additional taxes on businesses will be imposed."
Rumors of tax changes "have contributed to a mood of unease in both corporate boardrooms and the stock exchanges" as has the prospect of a costly national health insurance program, he said.
"I strongly suspect that the ability of businessmen to assimilate new policy proposals into their planning framework has now been stretched pretty far. I seldom talk with a businessman these days who does not in one way or another, voice concern about his inability to make meaningful projections of corporate costs and earnings for the years immediately ahead," he said.
Burns said the profits that corporations report to their shareholders are seriously exaggerated because they do not take account of the effects of inflation. He said that after a complex series of adjustments are applied, businesses overstated their profits by $30 billion and overpaid their taxes by $10 billion to $12 billion last year.
While Burns has opposed Carter administration policies before - he criticized the $50-a-person tax rebate the President finally abandoned last spring - yesterday's was the broadest and sharpest attack he has launched on the administration's economic proposals.
Burn's term as chairman of the central bank expires at the end of January, and Carter has not said whether he will name a new chairman.