Treasury Secretary W. Michael Blumenthal indicated yesterday that the Carter administration may have to tighten its economic policies further to combat inflation, even at the risk of bringing on or heightening a recession.
In a speech before a trade group in Dallas, Blumenthal said the nation "must take the risks entailed in maintaining and, if necessary, intensifying our anti-inflation measures," even if they "run the risk of recession."
Blumenthal's comments were the first public wrarning by a top Carter administration policymaker that the White House may be about to tighten its economic policies again.
Administration advisers have reached the conclusion that the economy is overheating, a situation they say is intensifying excess demand and increasing the rate of inflation.
Blumenthal's speech came as, separately, Carter told a news conference that he views as unacceptable a "deliberate recession that would cause very high unemployment."
The president predicted on his own that "we will see a turn very shortly downward" in the inflation rate. He said, "We shouldn't give up just because we have a few weeks of adverse statistics."
Policymakers are considering two major options: asking the Federal Reserve Board to boost interest rates to help dampen business activity, and invoking selective credit controls to cool down consumer demand.
White House economists have been dismayed in recent weeks by a spate of statistics they say show a continuing boom in the industrial sector of the economy, a situation they fear is working to drive prices up still faster.
Yesterday, in the latest round of these figures, the Commerce Department reported that retail sales rose a substantial 1 percent in March, indicating that consumer buying is not tapering off as hoped. (See details on Page D1.).tThe White House had been waiting for the sales figures in hopes that they might provide some glimmer that the situation was easing. Insiders say Carter is expected to decide on any policy shift in two or three weeks.
Carter also pointed out that he does not have authority to impose mandatory wage and price controls, and said he would resist any effort by Congress to enact such legislation. No such efforts appear to be pending.
Key administration officials are expected to begin informal consultations soon with the independent Federal Reserve Board, both on the interest rate issue and the question of credit controls.
So far, Fed members appear to be reluctant to go ahead with either move, but, in the past, the central bank has agreed to become "accomodative" if the president asks for a shift in policy.
The administration took a similar step in its dramatic dollar-rescue plan in November, when Carter asked the Fed to raise interest rates to halt the decline in the dollar. The Fed responded by raising its discount rate 1 percent.
At a news conference after his speech yesterday, Blumenthal was quoted as saying, "No one sets out to either cause or risk a deep recession, but we have got to cool the economy down."
He also said the administration is seeking to slow the economy's growth later this year to a pace that "may well mean some increase in the rate of unemployment" from the current low 5.7 percent level.
The reason Carter policymakers are so concerned about the apparent overheating of the economy is that they fear it will boost the underlying rate of inflation and make it more difficult to slow prices later on.
Blumenthal has been pushing for several weeks for a tightening of current economic policies, but until recently has met with opposition. However sources said he now has the backing of virtually all Carter's key economic advisers.
Policymakers agree generally that, because of the lag time involved, a tightening now would prove too late to slow the economy soon, but they view the step as a symbol that will send a signal that they are serious about inflation.
White House officials say the current overheating is prompting many businesses to build up excess inventories to help beat inflation. They say a boost in interest rates now could discourage such overbuying.
In his speech yesterday, Blumenthal called for patience on the inflation issue, saying that "there is no viable alternative-encouraging inflationary forces or passively accepting them will assuredly lead to recession.
"We therefore must take the risks entailed in maintining and, if necessary, intensifying our anti-inflation measures," he said. "And we must demonstrate patience in waiting for these measure to yield results."
Blumenthal also was critical of what he called "myopic monetarists," who he said are complaining now that money and credit policies are too tight. He said other economic statistics show that despite such moves, "business activity is running apace."