`Hawk' on inflation still sees need to keep a watchful eye on prices

ROBERT T. Parry has been called one of the inflation ``hawks'' in the Federal Reserve System. The president of the Federal Reserve Bank of San Francisco does admit: ``I have been consistently concerned about the problem of inflation.'' The modest rise in the consumer price index in November, 0.3 percent, hasn't changed his view: ``It shouldn't lull one into thinking the problem is over.'' Mr. Parry is a member of the Federal Open Market Committee (FOMC), the seven Fed governors and 12 Fed regional bank presidents who meet every five weeks to determine the nation's monetary policy. If the 12 voting members of that body (Parry currently has a vote) believe that the inflation threat is too great, they likely will reduce the supply of money to the economy, thus probably forcing up interest rates, perhaps slowing the economy.

Since the FOMC's meetings are conducted in secret, with its decisions announced only after some weeks, Parry wouldn't reveal precisely what the 12 decided at their session earlier this month. But he does say the Fed has been following a policy of steadily increasing monetary restrictiveness since early 1987 - with the exception of some five months after the October 1987 crash in world stock markets, which many economists feared would prompt a recession.

This FOMC policy, Parry says, is one of ``gradualism'' - that is, trying to put the economy gently into a sustainable, balanced, noninflationary growth path without a recession.

Last week the Commerce Department said total national output was increasing at a 2.5 percent real annual rate in the third quarter. That would seem just about right for Parry, who figures the economy can now grow only 2 to 2.5 percent each year without straining industrial capacity or causing a worker shortage that could encourage inflationary wage gains. However, that 2.5 percent rate would have been higher except for the drought's impact on farm output. Parry, an economist, expects the economy to bounce back in the first quarter of 1989 to a decidedly higher growth rate.

Indeed, Parry figures the possibility of a recession in 1989 is ``quite remote.'' Statistics indicate the economy is ``gathering strength rather than waning,'' and operating in the range of ``full employment.''

If all his voting colleagues on the FOMC agreed with that assessment, the Fed would surely drive interest rates higher. But most Fed watchers see a range of views among those on that policy-making body. Moreover, this particular committee under the chairmanship of Alan Greenspan appears to be a cautious group, not prone to sudden or rash changes in monetary policy.

Given the current state of uncertainty in economic forecasting, that carefulness is highly justified. Parry says he looks at a ``wide array'' of statistics, not just a few, in trying to determine the direction of the economy and thus his vote on monetary policy.

Parry sees no prospect for improvement in the inflation rate in 1989. He figures the federal budget deficit creates an inflationary bias in the economy over the longer term and would be ``extremely pleased'' to have the administration and Congress meet the Gramm-Rudman-Hollings targets for deficit reduction. His long-range goal would be much lower inflation than the current 4 or 5 percent. He won't specify a target, but tosses out zero and 1 percent in his discussion of the issue.

Now an inflation rate that low would be something.