Washington — World markets reated on the whole favorably to President Carter's intensified anti-inflation program. And while wait-and-see comments predominated at home, there was evidence that Mr. Carter had won a domestic psychological skirmish with inflationary forces.
"Now is the time for discipline," President Carter told leaders of the National League of Cities meeting here. It is no time for "politics as usual," he added. He will consider tax cuts only after the 1981 budget is balanced as a key step in curbing inflation which "threatens to rate out of control."
There was an air of confusion as Washington, Wall Street, and the world tried to sort out the new situation. Sen. William Proxmire (D) of Wisconsin, chairman of the Banking Committee, said the Carter program did not go far enough. Sen. Edward M. Kennedy, Democratic presidential candidate, charged the program goes too far, referring to cuts in social programs.
European money markets were enthusiastic and the dollar rose against all currencies, indicating a belief abroad that the United States may be preparing to live within its means. The same circumstances, however, started the Wall Street stock and bond indexes downward as they reacted to the prospect of still higher austerity interest costs and a prime lending rate which some think will reach 20 percent. Its present plateau of 18 1/2 percent is already a record high.
Much of the Carter program remains to be negotiated with Congress. This process began as administration economic advisers testified here amid signs of a major battle among conflicting pressure groups. Most agreed with Alfred E. Kahn , chairman of the President's Council on Wage and Price STability, who said before the Senate Banking Committee March 17 that "the gravity and urgency of the economic situation" is increasing, with the rate of inflation "accelerating in the last few months."
Administration spokesmen before congressional committees hinted that something like panic had seized investors and parts of the public before the administration offered its new program of intensified budget restraint, tighter credit controls, and a national energy effort.
Chairman Kahn cited as near-hysteria events of "the last several weeks," in which long-term interest rates jumped 2 to 3 percentage points "apparently as a result largely of the information that the fiscal year 1980 deficit was going to turn out $10 billion to $15 billion higher than originally projected."
Charles L. Schultze, chairman of the Council of Economic Advisers, who also testified before Congress, and Secretary of the Treasury William Miller, on a weekend TV interview, noted the psychological factor. Mr. Miller sternly declared there will be no tax cut this year: "The first priority," he declared, "is to turn around this inflation pscychology."
Administration spokesmen met congressional criticism immediately, but there were signs of an important change of climate. For example, although committee chairman Proxmire called the program "weaker than I had hoped for," and "too optimistic," the committee's ranking Republican, conservative Sen. Jake Garn of Utah, endorsed the package with the exception of the petroleum import fee that will raise the price of gasoline 10 cents a gallon at filling stations this spring.
In addition, Speaker of the House Thomas P. O'Neill Jr. (D) of Massachusetts apparently has modified his position against balanced budget austerity.