WASHINGTON - A year after his election, President Clinton finds himself in charge of an economy that is showing renewed spark while interest rates remain low. This is despite last week's bond market selloff.
Increasingly, administration officials find they are comfortable with the blend of low rates, low inflation, and mild growth. Alicia Munnell, the Treasury's assistant secretary for domestic finance, signaled the administration's satisfaction last week. While job growth remains too slow, "the recent readings on the economy suggest a much-improved pattern is beginning to emerge," she said.
Recognition by Treasury
But Ms. Munnell also acknowledged that administration officials do not want the economy to overheat. "It's also well to remember that an economy can grow too fast as well as too slow," she said.
The statement was acknowledgement by the Treasury that unbridled growth would only stir inflationary pressures and force the Federal Reserve to raise interest rates.
Last December, a month before President Clinton's inauguration, the yield on the 30-year Treasury bond hit 7.50%. The spectacular rally in the market since then took the long bond below 6% before the recent sell-off that pushed the yield back to 6.20%.
Economists do not give Clinton's deficit-reduction package much credit in all this, although they acknowledge that the President's program helps slow the rising tide of federal debt.
Lincoln Anderson, chief economist for Fidelity Investments, attributes the bond market's gains to reduced inflationary expectations and general satisfaction with the way Federal Reserve is conducting monetary policy.
Moreover, Fed Chairman Alan Greenspan and Mr. Clinton remain on amicable terms.
Mr. Clinton recently backed up Mr. Greenspan by sending a letter to House Banking Committee Chairman Henry Gonzalez, D-Tex., opposing any attempts to reform the central bank.
Mr. Clinton underscored the White House's support last week when he said he would not mind secing a small rise in rates as the economy picks up.
Late-year economic statistics are confirming a spurt that could push growth in fourth-quarter gross domestic product as high as 4%. a distinctly faster pace than the sluggish 1.3% gain posted during the first half of the year.
But many economists are convinced growth will slow to a more moderate pace next year. Corporate downsizing, defense cutbacks, sluggish real estate markets, and weak foreign economies are still part of the landscape. Additional drag is expected as the President's tax increases take hold.
Accordingly, the case for a marked acceleration in U.S. output with rising prices - and steadily rising interest rates - remains to be made.