Amid new signs that the recession deepened last month, the Commerce Department's chief economist, Robert Ortner, yesterday became the first Reagan administration official to urge the Federal Reserve Board to raise its money growth targets to give the economy a boost.
Ortner said the Fed's monetary policy is too tight, keeping interest rates so high that President Reagan's economic policies are not reviving the economy.
"Given the present situation, with production down the way it is, it would not be damaging or inappropriate if the Fed sped up money growth and brought down interest rates consciously," Ortner said.
The current monetary targets, which have been endorsed explicitly by the president and top administration officials, are keeping the economy "from getting off dead center," he said. "How do you break the logjam? One way would be if the Fed loosened up for the next 12 months. If they did that, the economy could begin to grow without re-igniting inflation."
Ortner made his comments in an interview after the Federal Reserve reported yesterday that output of the nation's factories, mines and utilities fell 0.7 percent in June. In addition, the Fed revised downward the production figures for April and May, which now show drops of 1.1 percent and 0.6 percent, respectively.
The downward revisions in the production estimates probably mean that estimates of the gross national product in the second quarter, due to be reported next week, will show a decline rather than the 0.6 percent increase his department calculated in its most preliminary pass at the numbers late in June, Ortner acknowledged.
Reagan and other officials, including Treasury Secretary Donald T. Regan, have criticized the Fed sharply on numerous occasions in the past 18 months for following procedures that have produced erratic growth of the money supply and unnecessarily high interest rates. But they have endorsed the Fed's general approach and its specific targets.
On the other hand, Ortner also said he doesn't think volatility of the money supply growth has been a contributing factor to the level of interest rates. "It's the general level of the money supply," he said.
Ortner stressed that he believes strongly in the president's program and its emphasis on encouraging business investment, noting that capital spending and production of business equipment are falling.
"Capital spending is not going to turn around in the near future with the operating rates for factories and these interest rates. . . . With tight money and high interest rates, the depressed economy is feeding upon itself," he said.
A number of private economists also say faster growth of the money supply would lead to lower interest rates and a healthy economic recovery. But the administration and many monetarist economists, who want a slow but steady growth of money, say the Fed should not ease its tight grip lest the progress against inflation be reversed.
Ortner said the Fed should increase the upper range of its target for this year's growth in the measure of money known as M-2 (currency in circulation, checking, savings and small time deposits, most money market mutual fund shares and some other items) from 9 percent to 10 or 11 percent. This would probably reduce short-term and long-term interest rates about 2 percentage points, which would be Ortner's goal.
Expansion of the gross national product, including increases in real output and increases because of inflation, usually proceeds more or less in line with the growth of M-2. If the Fed allows M-2 growth of no more than 9 percent, and inflation runs 6 percent or 6 1/2 percent--as even the administration expects--that leaves room for real growth of only 2 1/2 to 3 percent in the year ahead, a number of analysts argue.
That would be a far weaker recovery than has usually been the case following recessions in the postwar period, and unemployment would be reduced very slowly.
Ortner, who was an economist at the Bank of New York before going to Commerce, discounted claims that faster money growth would mean a resurgence of inflation.
"I'm not talking about no more targets and no more restrictions," he said. "But I don't agree that current monetary policy is appropriate. I think it's too tight."
Federal Reserve Chairman Paul A. Volcker is to testify Tuesday before the Senate Banking Committee to say whether the central bank's policy-making group, the Federal Open Market Committee, made any changes in the money growth targets when it met earlier this month.
There were some indications that the FOMC may not have made all of its decisions, including those setting tentative targets for 1983, that must be reported to Congress. If so, a telephone consultation among the committee members would be necessary, perhaps today or Monday.
In its report on industrial production, the Fed said the output of consumer durable goods rose 1.7 percent in June, reflecting a sizable gain in automotive products and a large advance in home goods, such as appliances, air conditioners and TVs.
However, those advances were more than offset by a 2.7 percent drop in production of business equipment and 0.7 percent declines in products such as construction supplies and basic materials.
The June decline left the overall production index 10.1 percent below its peak in July, 1981.
Ortner said the continued fall in production means that the current quarter began at a lower level than the average for the second quarter, a fact that will make it difficult for much of an advance in GNP to occur this quarter.