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W. Germany May Join U.S. in Rate Cuts

August 13, 1986|From Reuters

WASHINGTON — West Germany, after months of rebuffing U.S. pleas to lower its interest rates, has signaled that it is prepared to consider coordinating future cuts with the United States, Reagan Administration and monetary sources said Tuesday.

The sources suggested that the change of heart came gradually and was not reached solely as a result of last weekend's visit by U.S. Federal Reserve Board Chairman Paul A. Volcker to Frankfurt, headquarters of the politically independent German central bank, the Bundesbank.

"It's well known we've actively been pushing them to join us (in coordinating interest rate cuts)," said one source.

Another source said West Germany seemed ready to consider action when the next occasion for coordination arose.

Volcker and Treasury Secretary James A. Baker III for months urged faster economic growth, through monetary and fiscal stimulation, in West Germany and Japan. They argued that both countries relied too much on export growth, at vast U.S. expense, and balked at fueling domestic demand. They also said such extra growth was necessary to supplement the U.S. economy and maintain reasonable global growth.

The Administration expected to hit a record $170-billion trade deficit this year and signaled that it was prepared to tolerate a further dollar fall until West Germany and Japan stimulate domestic demand. The United States sought expanded markets for its exports.

"Sooner or later there'll be a major policy change by some major governments," one monetary source said of future coordination measures.

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