Advertisement
YOU ARE HERE: LAT HomeCollections

Head of S.F. Fed Expects Push to Curb Inflation : Says Stronger Economy May Force Policy Change

June 25, 1986|BILL SING | Times Staff Writer

The likelihood of stronger economic growth in the second half of this year should force the Federal Reserve Board to focus on curbing inflation rather than stimulating economic growth, the president of the Federal Reserve Bank of San Francisco said Tuesday.

"As the economy begins to accelerate later this year, the balance (in Fed policy) will need to shift toward more emphasis on the risk of re-emerging inflation," Robert T. Parry told a luncheon of local community leaders at the downtown Hilton. It was his first Los Angeles speech since becoming president of the San Francisco Fed last February.

He said inflation will pick up in part because the lower value of the dollar will result in higher prices for imported goods. The dollar has been declining relative to major foreign currencies since last September, when the United States, Britain, France, West Germany and Japan agreed to drive down its value.

Sees 4% Growth in 2nd Half

Parry's remarks came amid speculation that the Fed may have to cut the discount rate that it charges to member banks or take other actions to stimulate a U.S. economy that some experts say has been showing increasing signs of sluggishness.

However, Parry suggested that in the second half of the year, the inflation-adjusted gross national product could grow at a 4% annual clip, compared to the estimated 2% to 2.5% rate in the first half--thanks in part to the benefit of lower interest rates, lower oil prices and the weaker dollar.

But Parry refused to forecast whether the Fed will actually tighten credit in the next months, nor would he forecast the direction of interest rates or of the dollar.

"How economic statistics shape up in the next month is going to be key" in determining the Fed's policy, he said, adding that if the Fed believes that economic growth will remain sluggish, it will ease credit conditions to drive down interest rates.

Parry, former chief economist at Security Pacific National Bank, attends meetings of the Fed's powerful Federal Open Market Committee, which sets monetary policy. However, he currently has no vote on the committee.

Advertisement
Los Angeles Times Articles
|
|
|