Economists Urge Fed to Ignore Calls for Easing
WASHINGTON - The Shadow, Open Market Committee, a group of economists that critiques Federal Reserve policies, called on the central bank Monday to resist pressure to lower interest rates.
The economists contended that the U.S. economy is on course for a slow, sustainable recovery with declining inflation - which does not require further easing of monetary policy.
The group said the recent slow growth in the M2 money supply is misleading because many people are moving small deposits out of thrifts and banks and into the bond market, where yields are higher.
Credit Crunch Dismissed
The shadow group also said it does not believe the so-called credit crunch, which has become the focus of White House concerns about the economy, is a problem.
"The recent drop in business loans indicates neither a shortage of credit nor a refusal by bankers to lend," the group said. "To the contrary, banks are cutting loan rates in an effort to drump up business."
The economists said not all sectors of the economy will enjoy the same rate of recovery. They said they believe the Midwest and the industrial sector will do well in the recovery while the West and East coasts lag.
Lending Is Off the Pace
Defending the administration's view that a recovery is well under way, Treasury Secretary Nicholas Brady acknowledged that availability of credit is not keeping pace.
In a speech prepared for the Atlanta Rotary Club, Mr. Brady said the recession, overbuilding of commercial real estate, and "regulatory overkill" were responsible for the credit problem.
"Banks do have the liquidity to make loans," he said. "But they aren't making them."
"The essential fact is that banks are not performing their traditional function as |shock absorbers,' lending to businesses and individuals to help pull them through the tough times," Mr. Brady said.