WASHINGTON -- President Reagan today blamed the recession and other economic ills partly on the Federal Reserve and urged the agency to control the money supply more evenly.
In his annual economic message to Congress, Reagan urged the independent Fed to follow 'a policy of gradual and less volatile reduction in the growth of the money supply.'
Said Reagan:
Unfortunately, the high and volatile money growth of the past, and the high inflation and high interest rates which accompanied it, were instrumental in bringing about the poor and highly uneven economic performance of 1980 and 1981, culminating in a sharp fall in output and a rise in unemployment in the latter months of 1981.
Reagan's Council of Economic Advisers, in an accompanying report, suggested several ways to improve monetary policy, including setting money supply targets by law or constitutional amendment.
The president said deficits projected in 1983 budget he sent Congress this week are 'undesirably high' but that they 'will not jeopardize the economic recovery.'
He said his economic policies 'are the appropriate response to our current difficulties and will provide the basis for a vigorous economic recovery this year.'
Reagan's message came the same day Federal Reserve Chairman Paul Volcker was reporting to Congress what the Fed's money targets would be for this year. In contrast to Reagan, Volcker has said deficits approaching $100 billion could slow recovery. The administration projects a 1983 deficit of $91.5 billion.
The report made clear the administration supports the Fed's policy of slow money growth to fight inflation. In fact, this is a main part of Reagan's plan. But it criticized the Fed for allowing the money supply to fluctuate too much from the targets.
It called for more 'cooperation' between the administration, Congress and the Fed.
The report suggested a number of possible improvements the Fed could make -- some of which it already is considering -- including removing a two-week lag in bank reports on their deposits and a floating discount rate, the rate at which the Fed lends to banks.
The report considered the idea of trying to control money growth by tying it to gold. It said gold standards before World War I failed to end price fluctuations and were marked by longer recessions and higher unemployment.
Another long range possibility, the report said, would be to pass a law or constitutional amendment setting a rate for money growth or inflation and requiring the Fed to follow it.
Congress made the Fed independent on the theory neither the legislative nor executive branches could be trusted with the money supply.
Council chairman Murray Weidenbaum told reporters 1982 'will be the year of turnaround,' with recovery from the recession starting in late spring or early summer and the economy growing at a fairly brisk annual rate of 5 percent in the second half of the year.
He said inflation should be about 7 percent this year, compared to 13 percent two years ago. There will be more jobs. But the council said that, with a growing labor force, the unemployment rate, which began the year at 8.5 percent, will end it at 8.4 percent.
Weidenbaum said the administration opposes any congressional delay in scheduled 1983 tax cuts but 'might consider' speeding up the 10 percent cut in invdividual rates due July 1, 1982. However, he said, by the time this could be enacted and the tax tables changed, July would be just about here
