Federal Reserve Chairman G. William Miller yesterday refused to commit himself to a restrictive monetary policy next year, if confronted with a recession.
"My view is that a recession at this time is not only likely, but not good policy, because I don't see recession as contributing to eradicating inflation," he told the Joint Economic subcommittee on international affairs.
Miller was asked by Sen. William Proxmire (D-Wis) whether the Fed, now following a tight money policy as part of the Nov. 1 dollar-rescue program, would "blink," and ease up, if a recession occurred.
"I am not sure I can answer you, senator," Miller said. But he added that the only commitment the central bank has made is to follow a monetary policy that has a realistic relationship to changes in the economy.
In the past, he told Proxmire, too much restraint had proved to be as bad a policy as excessive ease, "and therefore, I think the real way to run monetary policy is to be more prompt to adjust to realities, up or down."
Recently the admistration has been stressing the need to follow a single-minded, anti-inflation policy, and high officials have let it be known privately that President Carter is determined to "ride out" a mild recession to help restore international faith in the dollar.
Testifying Thursday before the same committee, Treasury Secretary W. Michael Blumenthal stressed that monetary and fiscal policy must be kept tight to reduce inflation and protect the dollar.
Miller agreed yesterday that institution of the tough dollar-rescue program, employing high interest rates, a tighter fiscal policy and massive dollar intervention, was crucially needed.
"We can't show weakness," he said, "but [the Federal Reserve] doesn't intend to create a recession."
Like Blumenthal, Miller said the risk of recession would have been greater if the administration had failed to take "forceful" action to protect the dollar.
Miller reiterated his belief that it may take up to seven years to reduce inflation. "The best pattern of wringing it out is to develop a posture of moderation which will allow us to consolidate our problems, and whip them all, rather that [accept] recession, which would immediately lead to a very high federal deficit, and get us back into more inflation, Miller said.
Miller also revealed that:
Actual intervention to support the dollar from the $30 billion package amassed beginning Nov. 1 "has been much less than rumored, which shows a real change in basic attitudes toward the dollar." Reports from financial markets have estimated that anywhere from $6 billion to $10 billion out of the $30 billion had already been used up. Miller's point was that the dollar's recovery cannot be attributed merely to dollar-propping activities.
European awareness that President Carter now "cares about the dollar," and that both the president and Congress have so far backed a restraining monetary policy have been important factors in restoring confidence in the money markets.
His own feeling about the Fed's ability to control the growth of money is one of "slight encouragement," leading to the hope that "pressures" on monetary policy will be reduced next year. The implication of his statement was that interest rates might not hit the peaks predicted by some private analysts, such as a 13 percent bank prime interest rate.
Panels of academic experts called in by the committee yesterday and Thursday gave mixed reviews on the president's measures to stem the dollar's decline. University of California professor of economics James L. Pierce predicted a mild recession, and added that the Nov. 1 program created "a great deal of uncertainly in the private sector."
The strongest denunciation came from Leon H. Keyserling, economic council chairman under President Truman, who said that the program would have "adverse . . . maybe even devastating effects on the economy."
But support came from former Council of Economic Advisers member Hendrik S. Houthakker, Brookings fellow Robert Solomon, Chicago banker and former treasury official Edward H. Yeo III, and Claremont graduate school professor Thomas D. Willett, all of whom, however, had various reservations.
Houthakker, for example, doubted the wisdom of borrowing up to $10 billion in foreign currencies-a part of the program that Miller yesterday said was a crucial element creating new confidence in the dollar.
In his prepared testimony, Miller defined Fed policy as one encouraging "a moderate expansion of overall activity, thus also facilitating the achievement of the nation's longer run goals of growth and full employment." But he added that "monetary policy should not be expected to shoulder the burden alone, and to be effective, it must also be accompanied by prudent restraint of fiscal policy."