Arthur Burns counsels lower interest rates, standing pat on yen

Arthur F. Burns, the venerable former chairman of the Federal Reserve Board, says the Fed should bring interest rates down. ``I would like to see interest rates come down a little further,'' he said in an interview in his office at the American Enterprise Institute here. ``And my guess is that the Federal Reserve will actually take steps to bring that about.''

Dr. Burns resigned as the United States ambassador to West Germany about a year ago, after four years in the post. Since then he has been lecturing and writing as a ``distinguished scholar'' at the Washington conservative think tank.

The slow-spoken former economics professor gives the present chairman of the Federal Reserve Board, Paul A. Volcker, and his colleagues ``high marks'' for their handling of the nation's monetary affairs.

But the press got a failing grade for its handling of the episode in Febuary when Mr. Volcker was on the losing side of a 4-to-3 board vote in favor of lowering the discount rate, the interest rate the Fed charges on loans to commercial banks. Volcker managed to get a postponement of the change until he was able to coordinate similar discount rate cuts by the central banks in Germany and Japan. He argued that this was necessary to prevent a further plunge in the value of the dollar on foreign-exchange markets, which he feared would have inflationary consequences.

Some of the press, figuring Volcker had lost control of the board, suggested he should resign.

Dr. Burns commented: ``The fact the vote went against Mr. Volcker is of trivial importance in my judgment.''

Like most Fed chairmen, Burns took measures that landed him in controversy during his years on the board from 1970 to 1978. One charge was that prior to the 1972 presidential election he eased monetary policy to give President Nixon, who had appointed him to the board, a political boost.

Burns's reaction to the charge was strong. ``There is not a grain of truth in that. Anyone who will examine the record objectively is bound to reach that conclusion. If he still has any doubts, those doubts will be removed when my private papers are made available to the public.''

``Partisanship,'' he continued, ``did not enter into any step of mine in the Federal Reserve. Nor did it enter into the thinking or action, as far as I know, of any of my colleagues.''

Asked what he considered his leading accomplishment at the Fed, Burns replied that it was ``warding off successfully each and every effort by politicians to limit the independence of the Federal Reserve System.''

Looking at international economic affairs, Burns argues that the upward revaluation of the Japanese yen against the US dollar of some 30 to 35 percent has gone far enough. Some West European finance ministers have been pushing for a further strengthening of the yen to reduce the Japanese trade surplus.

``We have had a considerable appreciation [in the yen's value],'' he says. ``Let's wait a while to see what the effects are. . . . It takes time for the effects of a major swing like that to take effect. We shouldn't expect any significant results until later in the year.''

He worries that the yen revaluation could hurt the Japanese economy and damage the political prospects of Prime Minister Yasuhiro Nakasone.

``The Japanese now have a good government under Nakasone, and I would hate to see him in trouble,'' he said.

Burns praises Treasury Secretary James A. Baker III for his actions on the international monetary scene, including his initiative to deal with developing country debt and his willingness to consider a system for reducing the volatility of exchange rates.

``After several years of neglect of international finance, we are now resuming the role of leadership once again,'' he says. ``It is a promising development.''

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