Stability at the Fed

FEDERAL Reserve Board chairman Paul Volcker's announcement that he will stay on at his post -- at least through August 1987, when his current term expires -- provides a vital element of stability to a US and world economy currently marked by uncertainties. Mr. Volcker has been one of the major players in the US economic setting since his appointment by former President Carter. Given the independent power of the Fed in controlling the nation's money supply, Mr. Volcker has had as much -- and some economists would say even more -- influence over the day-to-day workings of the economy than either President Carter or President Reagan.

Because of Volcker's highly regarded personal stature as well as his preoccupation with fighting inflation, many ``supply siders'' within the administration, eager to stimulate national economic growth, have wanted Volcker out. Whether those concerns figured in reports that the administration had offered Volcker the position of head of the World Bank, when bank chairman A. W. Clausen steps down next year, is not yet fully known.

Volcker would have brought a strong voice to the World Bank, which the administration would like to take a more active role in dealing with world debt.

Indeed, Vocker has been identified in financial circles not just for his efforts to rein inflation, but also for spearheading orderly arrangements for the third-world debt issue and for urging a reduction of federal deficits. He has frequently criticized Congress and the White House for their inability to work out a meaningful deficit-reduction agreement. On each of these issues -- inflation, US deficits, and third-world debt -- Mr. Volcker has been out front, calling for vigorous action. And regarding

inflation, the Federal Reserve Board deserves particular credit for its role in helping to bring the rate down to below 4 percent from the double-digit rates that prevailed in the late 1970s.

Critics argue with some validity that the Fed acted too quickly and single-mindedly in its ``war on inflation'' in the early 1980s, thus helping to push the nation into recession. Still, the US could not have continued to tolerate the terrible toll that inflation was taking on the savings accounts of American families, as well as all persons with fixed or modest incomes.

In opting to stay in his present post, Mr. Volcker will be facing a somewhat different Federal Reserve Board during the next two years. Mr. Reagan has just appointed two new nominees to the seven-member board. There are already two Reagan appointees on that panel. Assuming the Republican-controlled Senate approves the two new appointees, the White House will have a majority.

That does not necessarily mean that Volcker will lose control to ``supply siders'' eager for faster money growth. For one thing, the money supply is already growing faster than Fed targets. So the Fed's ability to open up the credit spigots to additional money growth is considerably limited. Further, most Fed chairmen have historically been able to set the tone of the board. Given Mr. Volcker's personal prestige as well as his close links to the individual presidents of the district Federal Reserve ban ks, that is not expected to change in the months ahead at the Fed.

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