Newspaper article The Christian Science Monitor

Stagnating Money Supply Causes Renewed Concern Surprising Slowdown in Growth Could Hinder Economy in the Future

Newspaper article The Christian Science Monitor

Stagnating Money Supply Causes Renewed Concern Surprising Slowdown in Growth Could Hinder Economy in the Future

Article excerpt

THE Clinton administration wants monetary action - not just words - from the Federal Reserve System.

In testimony before the Senate Finance Committee Friday Fed chairman Alan Greenspan described President Clinton's economic program as "serious" and "credible." The White House undoubtedly welcomed the words as it prepares to push for its $500 billion program of tax changes and spending cuts, aimed at both stimulating the economy and reducing the budget deficit.

However, the administration is concerned about a 3 1/2-month pause in the growth of the nation's money supply.

"Would we like to see money supply growth a little higher? Yes," said Roger Altman, deputy secretary of the Treasury. There is "a clear relationship," he held, between growth of the money supply and growth of the nation's output in nominal dollars.

Interviewed by Monitor editors Thursday, Mr. Altman spoke of his concern about the "sub-par recovery." The increase in the gross domestic product (GDP), he noted, is less than half that normal for a postwar recovery. "The 3 million job shortfall reflects that underperformance. We need more than 2.5 percent growth to create jobs."

Last year, GDP grew only 2.1 percent. However, the rate of growth picked up in the final quarter. Indeed there is some speculation that the fourth quarter's annual rate of growth may be revised from the 3.8 percent estimated last month to near 5 percent when fresh numbers are released Friday. Further, the Fed last week said production of the nation's factories, mines, and utilities rose 0.4 percent in January. Higher car and truck output led the way. Initial claims for unemployment benefits fell by 19,000, to 321,000, in the week ending Feb. 6. That usually indicates that employers are hiring.

Nonetheless, many economists say that slower money growth means a weaker economy some months ahead. If the economy were to slow down again decidedly, it would make it impossible for the Clinton administration to achieve its goals of sizable job growth and debt reduction. …

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