WASHINGTON -- The Bush administration plans to push ahead with a budget package to get the economy moving again despite the latest moves by the Federal Reserve to push down short-term interest rates, senior officials said Friday.
Commerce Secretary Robert Mosbacher and White House Chief of Staff Samuel Skinner, in a briefing for White House reporters, made clear that President Bush is not abandoning plans to put tax cuts or other economic stimulus measures before Congress early next year. "He is looking at all options," Mr. Skinner said.
Their comments came after the Federal Reserve Board voted 6 to 1 to slash the discount rate to 3.5%, from 4.5%. The early morning decision, with board governor Wayne Angell dissenting, brought the rate down to its lowest level since November 1964 and was the fifth cut in the discount rate during 1991.
Fed officials followed up in open-market operations by making a large addition to bank reserves through six-day system repurchase agreements when federal funds were trading at around 4 1/8%. Bond market analysts said they are convinced the Fed's action market a cut in the federal funds rate to 4%, from 4.5%.
"It is clear that the economy in the last quarter has been flat and sluggish," said President Bush in a statement. "Too many people are out of work. Lower interest rates are important to spurring economic growth and creating jobs and investments."
Inflation, Mr. Bush added, is "low and under control."
Mr. Skinner acknowledged that the White House had been pressuring Federal Reserve Board Chairman Alan Greenspan and his colleagues to take bolder action to help out with the economy, despite the Fed's repeated moves earlier to cut short-term rates. "The President has been urging that the Fed take this kind of dramatic action for some time," Mr. Skinner said.
At the same time, Mr. Mosbacher said, the President remains set on finding some way during the election year to speed up growth despite assertions by some economists that technically the economy is out of recession.
"The point is, let's get away from all this technical jargon," Mr. Mosbacher said. "The country needs to get rolling, and the President is very aware of that."
Bond market participants have worried at times that a combination of tax cuts by Congress and monetary stimulus by the Fed could combine to push rates higher during 1992 as the economy regains its footing. There are also fears about rising federal borrowing. The Congressional Budget Office is projecting a budget deficit this year of some $365 billion, and some budget proposals could push the total to $400 billion.
As a result, some analysts said, Fed officials seemed to be determined not only to help give the economy a lift but to preclude any big tax cuts in Congress that damage the bond market and jeopardize the recovery by driving rates higher.
"I think Congress and the administration will have a fiscal stimulus package, so the issue is not whether we can stop it but whether we can minimize it," said L. Douglas Lee, chief economist of County NatWest USA.
Still, the mood of the bond market shifted last week on renewed expectations that the economy is not going anywhere fast while inflation remains subdued, and some economists warned that the economy is in increased danger of contracting once again.
"I have to unhappily conclude that 1991 is ending on a very uncertain and downbeat note," said Norman Robertson, chief economist for Mellon Bank Pittsburgh.
Mr. Greenspan himself acknowledged in testimony to the House Ways and Mean Committee last week that the recovery that began earlier in the year "has faltered" and that "the economy is struggling."
In an extraordinary admission for a Fed chairman, he also said his predictions of a recovery were wrong.
Analysts said Fed officials seemed to be anxious to move boldly to try to restore some kind of consumer confidence and to coax banks into more generous lending practices. In fact, Mr. Greenspan has been criticized on Wall Street and by the Bush administration for moving too timidly on monetary policy.
"I think the Fed is the last one to get with the program and figure it out on their own," said Stephen Slifer, senior vice president for Lehman Brothers. "If you asked anybody on Wall Street or in middle America, they would have told you the economy is dead in the water."
The last time the discount rate was cut by a full percentage point was on Dec. 4, 1981, from 13% to 12% by Chairman Paul A. Volcker. Mr. Greenspan has preferred to cut the discount rate in increments of half a percentage point. Most of the cuts in the federal funds rate under Mr. Greenspan have been in increments of a quarter of a percentage point.
"This is a total depature," said William Hummer, president of the investment firm of Wayne Hummer & Co. in Chicago. "This is more of a Volcker-style move. He liked to make policy moves which were decisive and dramatic."
Several commercial banks on Friday responded immediately to the Fed's moves and cut their prime lending rates to 7%, from 7.5%. Later in the afternoon, most of the major money center banks went further and dropped their rates a full percentage point to 6.5%.
"The banks are finally getting the message and easing up on credit conditions," said Samuel Kahan, chief economist for Fuji Securities Inc. "Even interest rates on credit cards may finally come down."
But other analysts said widespread job layoffs by major corporations and low consumer confidence will keep a damper on demand for credit even though rates are coming down.
"There's plenty of liquidity out there," said Alan Lerner, managing director of Bankers Trust Co. "Banks would love to make loans to high-quality businesses, but high-quality businesses can get their money, elsewhere, like in the commercial paper market, or they are not interested in borrowing."