Wallich Rejects Call for Strict Supply Targets
' Federal Reserve Board Governor Henry C. Wallich yesterday rejected t he view held by the monetarist school that strict adherence by the Fed to pre-announced money supply targets ?would lead to stabler and ultimately jower interest rates.Û</br></br>' Federal Reserve Board Governor Henry C. Wallich yesterday rejected t he view held by the monetarist school that strict adherence by the Fed to pre-announced money supply targets ?would lead to stabler and ultimately jower interest rates.Û ' In a speech in Bethesda to the Robert Morris Associates, Wallich said that it 'may seem plausible that interest rates in the long run would be lower under such tight control of monetary aggregates ÛÏthan a procedure that accepts temporary over- and under-shoots.Û</br></br>But in the short run, ÛÏMonetary restraint, however steady, cannot quickly bringdown inflation nor interest rates,Û the Fed governor asserted. ÛÏThe most plausible view is that the main impact of monetary restraint on prices occurs ivith a two-year lag.Û 'Û¢ The Federal Reserve has been widely criticized this year for permitting exceedingly wide fluctuations in both interest rates and in the monetary aggregates. Influential advisers to the incoming Reagan administration, including economists Milton Friedman and Murray Weidenhaum, have joined in the policy critique.</br></br>* In addition, there have been background comments implying that pressure would l>e brought to bear on the Fed to adhere more strictly to its announced monetary targets. The Fed has not commented directly on such suggestions, hut WallichÛªs comments clearly constituted his own rebuttal of that line of thinking.</br></br>He conceded that the ups and downs of both interest rates and the supply aggregates had been wide this year, but blamed ÛÏthe sad record of the monetary aggregatesÛ on rapidly shifting demand for money and credit, combined with the imposition and then the removal of credit controls.