Pressure grows to fetter the Fed

''A disaster,'' says a top official of the Federal Reserve Board. ''Absolutely unworkable,'' says another.

Thus two key Fed officials, expressing a widely held view within top echelons of the nation's central bank, describe congressional efforts to change the way the Federal Reserve does its work.

Those efforts spring from a Democratic conviction that the Fed's current policy has done much to plunge the United States into recession and boost unemployment to the highest level since 1941.

The way the Democrats would have the Federal Reserve shift course, however, meets stiff resistance within the marbled halls of the nation's central bank, on the grounds of unworkability.

This scenario began to unfold in the fall of 1979, when soaring inflation was threatening to slip out of control. The Fed, as guardian of US financial stability, shifted from trying to control interest rates to putting the brakes on the money supply.

The Fed's effort to fine-tune interest rates, concluded chairman Paul A. Volcker and his colleagues on the Federal Reserve Board, did little to curb inflation, so long as the economy was awash in a growing amount of money.

Tightening up on the money supply might do the trick. Target ranges were set within which various measurements of money would be allowed to grow.

The result, as time went on, was a sharp reduction in inflation - but at high cost in another way. With credit tight, interest rates shot up, business stagnated, and people lost their jobs.

By the summer of 1982, alarmed Democratic leaders in House and Senate introduced bills that would, if passed, force the Fed to concentrate again on interest rates and only secondarily on the supply of money.

Annual targets, under the Democratic bills, would be set for interest rates. The Federal Reserve Board's monetary policy would focus on keeping interest rates within a designated range. Growth of the money supply would become more elastic.

Democratic leaders had no quarrel with curbing inflation, but argued that the way the Fed was going about it had helped to create the worst recession since the 1930s.

''You can't control both interest rates and the growth of money,'' said a Fed official bluntly. ''If you concentrate on one, you lose control of the other.

''Beside that,'' he said, ''it is hard to determine what a 'real' interest rate should be, or will be, at some time in the future.''

''The real rate of interest,'' said another key official, ''the rate that matters, is the difference between the nominal rate and the expected rate of inflation over the term of a loan. We simply don't know what that would be.''

Right now the prime rate charged by banks to big corporate borrowers is 13 to 13.5 percent. The inflation rate, measured by the consumer price index, is about 5 percent. The ''real'' rate of interest, or the difference between the two, is 8 to 8.5 percent.

A lender tries to predict over the life of his loan what inflation is likely to be. If he thinks inflation will quicken, he may raise the rate of interest he charges, to guarantee a return on his money. If he expects inflation to subside, he may lower the interest rate.

Countless such decisions, made in the marketplace, according to Federal Reserve Board officials, would be impossible to predict or to fix in advance.

The Democratic-sponsored bills did not pass before Congress adjourned to take to the hustings for the November elections. The measures may or may not be revived.

The underlying issue, however, remains: should the Fed be more responsive, or accountable, to either the White House or Congress?

Created by Congress in 1913, the governing board of the central bank for more than two decades included the secretary of the Treasury, who chaired the board, and the comptroller of the currency. In 1935 both administration officials were removed and the Federal Reserve Board became what it remains today - seven governors appointed by the President and confirmed by the Senate for 14-year terms.

The President, with Senate consent, chooses one governor to become chairman for a four-year term. The terms of President and Fed chairman do not coincide. Mr. Volcker's term as chairman, for example, ends Aug. 6, 1983, though he could remain as a governor until 1992.

This system, in the Fed's view, insulates the governors from political manipulation, especially in election years.

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