WASHINGTON — President Reagan declared Tuesday that he does not want the slumping dollar to fall further, a comment that helped brake the dollar's slide in currency markets but only briefly interrupted a day of falling stock prices on Wall Street.
"We're not doing anything to bring it down," Reagan told reporters at the start of a meeting with visiting Israeli President Chaim Herzog. "I don't look for a further decline, don't want a further decline from where it is right now."
Earlier, the White House moved to disavow a report in the New York Times that quoted unnamed officials as saying the Reagan Administration welcomed a continued weakening in the dollar.
Officials have made it clear since the Wall Street crash last month that they are opposed for now to propping up the dollar with higher interest rates out of fear that any such move runs the risk of causing a serious recession. The conflicting positions on the dollar reflect internal feuding within the Administration over what should happen next.
Treasury Secretary James A. Baker III, the Administration's chief economic policy-maker, still appears interested in attempting to stabilize the dollar at some future point.
Baker hopes that a package of measures to reduce the U.S. budget deficit, now being negotiated with Congress, will persuade West Germany to relax its tight fiscal and monetary policies, which would allow faster economic growth in Europe. That, in turn, would help alleviate the U.S. trade deficit by taking the pressure off the United States to buy the lion's share of the world's exports.
But some U.S. trade officials favor a lower dollar to reduce the U.S. trade deficit, by making U.S. goods relatively cheaper in world trade. And several free-market economists within the White House advocate no government interference in setting exchange rates because they are convinced that markets should set the value of currencies.
White House statements on Tuesday may have only added to the confusion, however. "We do want to avoid any significant downturn in the economy," said Reagan's spokesman Marlin Fitzwater, pointing to the current policy that any move to defend the dollar runs the risk of a recession. But he quickly added that "we are not seeking a lower level of the dollar."
Fitzwater acknowledged that he was skittish about making any comments on the dollar because "reporting of it always tends to be stronger than the purpose of policy in action. I would hope there has not been anxiety caused by any statements that have been made."
Fed's Actions Crucial
Over the longer run, though, what the White House says about the dollar is less important than the actual conduct of monetary policy by the Federal Reserve.
Analysts generally agree that the Fed has not gone overboard in actively trying to devalue the currency by flooding the world with too many dollars. They cited the relative stability of the dollar against gold and other sensitive commodities as evidence that the central bank so far has not been excessive in its efforts since Oct. 20, the day after the stock market crash, to supply enough cash to money markets to prevent a financial collapse.
"The Fed has not been pumping as much liquidity into the system as many believe," said Larry Kudlow, chief economist at Bear Stearns, a New York investment firm. "I don't expect the dollar to crash because the Fed has supplied only a small degree of stimulus."
Many economists are convinced the dollar must continue to fall against other major currencies anyway as a means of narrowing the nation's chronically high trade deficit.
Others argue that the dollar is already low enough to allow U.S.-based producers to compete successfully in the years ahead. Driving the dollar down further, they contend, would require the Fed to print so much money that it would produce sharply higher inflation down the road.
For the moment, the dollar is likely to continue to weaken because policy-makers have no choice in the wake of the Wall Street debacle but to concentrate on fighting the danger of a recession. That means easing the reins of monetary policy, which severely restricts the ability of the government to defend the dollar.
'Delighted' at Fall
"There is no question that the Administration is delighted to see the dollar down, even if they don't want to drive it sharply down a lot more," said Stephen Axilrod, vice chairman of Nikko Securities in New York and the former top Fed staff member for monetary policy.
"What the Fed has done is fairly astute: It has signaled that it is not going to tighten up to prevent the dollar from falling, but they also have tried not to fuel the decline further by lowering the discount rate," he said. The discount rate is the interest rate, now 6%, that the Fed charges financial institutions.
Currency traders are nervously waiting for the release of September's trade figures, which will be disclosed by the Commerce Department on Thursday.