The House Budget Committee yesterday joined its Senate counterpart in calling for a "reevaluation" of the Federal Reserve's monetary policy if Congress enacts the large tax increases and spending cuts included in its fiscal 1983 budget resolution.
The committee, in reporting the resolution to the floor yesterday, adopted "sense of Congress" language agreed to by the Senate Budget Committee last week that linked Fed policy with the current budget debate.
Criticizing the move, a Reagan administration official who requested anonymity said yesterday that "there is some concern" at the suggestion that Congress is trying to exact changes in Federal Reserve monetary policy in return for tighter fiscal policy.
However, many members of Congress are anxious to ensure that interest rates will fall substantially if they vote for large tax increases and spending cuts to reduce the budget deficit. While both House and Senate budget resolutions stop well short of instructing the Federal Reserve to ease its tight money policy, they reflect an implicit assumption in Congress that a tighter fiscal policy would allow the Fed to pursue a somewhat easier money policy, one House Budget Committee aide said.
Another House Budget Committee aide yesterday said that there would be "disappointment" if Congress votes for massive deficit reductions and the Fed keeps money so tight that interest rates stay unusually high. Sen. Paul R. Laxalt (R-Nev.) commented recently that if Congress agrees to a budget compromise that cuts the expected federal deficits substantially and interest rates stay high, "then we will lead a march on the Fed."
The House budget resolution originally said the Fed "shall adjust monetary policy as required to permit sustained economic recovery" consistent with the growth targets outlined in the economic forecast being used by both Budget committees. However, this was rejected by the House Budget Committee on a voice vote late Wednesday in favor of the weaker language of the Senate Budget Committee. That language says the Fed "shall reevaluate its monetary targets in order to ensure that they are fully complementary to a new and more restrained fiscal policy."
Fed Chairman Paul A. Volcker has so far refused to promise that the Fed will ease money policy in return for smaller budget deficits. He said recently that the Fed must continue to aim its policy primarily at fighting inflation, and that its current targets are consistent with an economic recovery later this year.
The Fed has not yet decided its targets for 1983 and later years and so there is room for considerable disagreement about what would represent an easing of policy. The joint economic forecast on which the budget resolutions are based assumes that money growth is at the top of the Fed's targets for this year, and then stays at this rate in 1983.
The administration has previously argued for a gradual deceleration in money growth, and the Fed's long-term objective has been to "get money policy down to a level where it's consistent with price stability," a Fed spokesman said yesterday.