clarinews@clarinet.com (01/19/90)
NEW YORK (UPI) -- Signs of disagreement between the Federal Reserve Board and the Bush administration surfaced Thursday as a White House spokesman urged the Fed to continue lowering interest rates while two influential Fed governors reportedly are inclined to put easing on hold. Bush spokesman Marlin Fitzwater told reporters that U.S. consumer price data showed inflation ``has remained very steady'' and suggested the Fed should conclude ``lower interest rates are justified.'' Bush himself has been saying he wants interest rates to keep moving down. But Fed Vice Chairman Manuel Johnson told the Wall Street Journal inflation fears are haunting the U.S. bond market and indicators suggest the economy is not so bad off. Johnson would not comment on monetary policy, but the daily newspaper concluded he ``won't support moves to ease short-term rates.'' This could mean a policy dispute, or at least debate, said economist David Jones of the Aubrey G. Lanston & Co. securities firm. ``The battle lines are drawn, really, and I think we'll see a lot of pressure from the administration to ease,'' said Jones, who noted interest rates could become an issue in this year's congressional elections. Insisting, ``We aren't telling the Fed what to do,'' Fitzwater welcomed the 4.6 percent inflation rate announced earlier by the Labor Department for 1989 as below the administration's forecast of 4.9 percent. Last year's consumer price figure marked the largest advance since 1981, but Fitzwater asserted inflation remains ``under control.'' ``We're hopeful that (the Fed) will take a look at this morning's indicators and understand'' it can bring interest rates lower, he said. Fitzwater said an easing would stimulate the slowing housing industry. The Journal said Fed Governor Wayne Angell also seems opposed to lowering the federal funds interest rate from its current level of 8.25 percent. The rate is what banks charge on overnight loans to each other. Angell voiced concern about inflation and told the paper ``the credibility of the zero-inflation language many of us are using is on the line.'' Fed monetary policy has set a high priority on controlling inflation. Atlanta Federal Reserve Bank President Robert Forrestal also voiced concern about inflation in a speech this week. He acknowledged economic ``soft spots'' but called inflation ``the chief dark cloud'' on the horizon. Fears of inflation have driven down bond prices and sent up yields in recent days, Johnson and others noted. Ironically bond markets are also nervous Fed easing, which can boost prices, will be halted.