Volcker Defends Fed Discount Rate Reduction
Federal Reserve Chairman Paul A. Volcker said yesterday there was ÛÏno inconsistencyÛ in the Fed's concern about inflation and its recent decision to lower the discount rate.</br></br>In a speech to the Harvard Alumni Association, Volcker said the decision May 17 to lower the discount rate from 8 percent to I'h percent "took place under particular circumstances.Û</br></br>The circumstances included ÛÏa strong dollar, ample [unused production) capacity and slow growth,Û all of which tend to reduce inflationary pressures, he said.</br></br>Some economists who focus on the growth of the money supply as a cause of future inflation have complained that the Federal Reserve is allowing the most closely watched measure of money. Ml, to expand so fast that inflation will again accelerate. The Fed has reported that Ml rose sharply in each of the latest two weeks. [Details on page B9.)</br></br>Ml, which includes currency and travelerÛªs checks in circulation and checking deposits at financial institutions, has grown faster this year than the central bank had targeted. And, as one senior Fed official acknowledged yesterday, the discount