The Carter administration yesterday reiterated in blunt language its determination to stick with an austere economic policy "as long as necessary" to control inflation and protect the dollar.
In congressional testimony, Treasury Secretary W. Michael Blumenthal and Charles L. Schultze, chairman of the Council of Economic Advisers, rejected private forecasts of an actual recession next year, but the thrust of their remarks was that current policy is designed to reduce inflation, not to guarantee against recession.
"We have committed the major tools of economic policy to the task of unwinding inflation," Blumenthal said. "Let there be no mistaking our determination: there will be no waffling and no wavering."
Blumenthal and Schultze said the economy in 1979 would enter a period of slow economic growth, with gross national product increasing by only 2 to 3 percent, a level that usually results in higher unemployment. But they flatly denied that there would be two consecutive quarters of negative economic growth, the generally accepted definition of a recession.
"We cannot at this stage in the economy opt for growth at the expense of inflation," Blumenthal said. "Restraint on the monetary and fiscal fronts now must be pursued to assure real growth later. Fortunately, the economy is strong and able to withstand the discipline that is required."
His testimony was a pointed burial of the policy of "benign neglect" of the dollar - Europe's phrase for earlier U.S. refusal to stop the steep decline of the dollar.
He denied that the United State is attempting to "peg," of fix, an exact rate for the dollar, and carefully side-stepped questions about the right rate for the international value of the dollar.
"There is strength in the U.S. economy, and I am confident the markets will reflect that," Blumenthal said.
The dollar changed little in quiet markets yesterday. Traders said currency operators are waiting for the results of Saturday's meeting in Abu Dhabi of the oil cartel, which is expected to approve a small increase in crude oil prices.
In response to one question by Rep. Henry S. Reuss (D-Wis.) suggesting that dollar intervention might actually be pushing the dollar too high, thus making U.S. exports less competitive, Blumenthal snapped:
?Thare are those who feel that continuing decline in the dollar is good for trade. This is a dangerous misconception. The United State does not need to pursue dollar depreciation to buy market position . . . The daministration firmly rejects such tactics."
The irony of Blumenthal's firm stance is that his earlier public acceptance of the dollar's decline was often cited as a major cause of protracted weakness. And many in Europe still believe, rightly or wrongly, that one motivation was to gain a competitive export edge for American products.
Reuss, chairman of the Joint Economic subcommittee on international affairs, had suggested a "substitution account" in the International Monetary Fund, where those holding unwanted dollars could exchange them for Special Drawing Rights. But Blumenthal was cool to the idea, rejecting the underlying justification that a huge "dollar overhang" weskens the U.S. currency.
"It's not the overhang that causes the pressure, but expectations [of economic weakness]. If they see us acting responsibly, then a free international capital market is not a deterrent [to the value of the dollar]" Blumenthal said.
He agreed that eventually the role of the dollar in the international system might change, but he came back-as many of his European counter-parts have been doing for te past year-to the underlying economic situation in the United States.
"The United States is going to be in difficulty if it continues to run an inflationary economy," Blumenthal told Reuss, "regardless of the reserve role of the dollar, and no reform of the [international monetary] system can obviate the need for us to pursue policies of restraint to counter inflation, or to maintain a reasonably strong external position."
A crumb of comfort for Reuss was Blumenthal's assurance that the administration does not object to "an orderly evolution" of the international monetary system. "We are not stone-walling," he said, "but for a long time the dollar will have to play a central role."
Blumenthal recounted yesterday that in the 13 months before Nov. 1, when the rescue plan was announced, the dollar had fallen 38 percent against the Swiss franc, 34 percent against the yen, and 26 percent against the German mark. Since Nov. 1, the dollar has recovered about one-third of its losses against these three key currencies.
Without the Nov. 1 program, Blumenthal said, doubts here and abroad about the "the determination of this administration to stop inflation" would have increased, plunging the world into an economic crisis of unmanageable proportions.
Reuss recalled to Schultze an April interview in which the CEA chairman warned that interest rates-then two full percentage points lower than now-could not move up without bringing the danger of recession.
Schultze responded that last spring, the administration was still forecasting a 6.0 to 6.5 percent underlying rate of inflation."In terms of what has happened [to inflation] since then," the CEA chairman said, "what has happened [to interest rates] is appropriate." CAPTION: Picture, Presidential advisers Schultze, left, and Blumenthal testify on economy. By James K. W. Atherton-The Washington Post