Volcker Denies He’s Signaling for a Tighter Monetary Policy

Federal Reserve Board Chairman Paul A. Volcker told Congress on Thursday that the end of the oil price decline might spark a new round of inflation but denied he was trying to signal a tighter monetary policy.

“As a central banker, I always see potential problems down the road,” Volcker told a House Banking subcommittee.

Volcker’s reported comments on rekindling inflation a day earlier had sent stock and bond prices down and short-term interest rates up. But the Fed chairman told legislators that too much had been read into his remarks.

Asked by Rep. Bill McCollum (R-Fla.) whether he had sought to hint that the Fed might be moving toward a tighter credit policy, Volcker said: “I have not given any signals in my mind on that particular question.” But the Fed chairman reiterated that the current good statistics on inflation are due largely to the slide in world oil prices.

The main gauge of inflation, the consumer price index, declined 0.3% in April after dropping 0.4% in both February and March--giving the steepest three-month decline in prices in 37 years.

“The oil prices are not going to go down forever,” Volcker said.

He noted that while prices of industrial goods had been exhibiting low rates of inflation, “you’ve had a less good record in the service areas of the economy,” which have seen steady price increases of from 3% to 4% over the past 12 months.

Volcker, who has made fighting inflation his No. 1 priority, told the subcommittee that there are many economic problems facing the United States and other industrialized nations and that the possible return of inflation is just one of them.

Rumors of tighter Fed credit policies circulated Wednesday after Volcker spoke at a private conference of international bankers in Boston. Although his remarks to them were not disclosed, reports circulated that he expressed opposition to lower interest rates because of fears that could incite inflation.

Volcker also told the subcommittee that another cut in the U.S. discount rate--the rate that the Fed charges its member banks for short-term loans--is not dependent on action first by West Germany.

Deciding to lower the discount rate “depends upon a variety of factors. Those are continuing judgments that we . . . and other central banks have to make,” Volcker said.

Would the United States move first on a further discount rate cut?

“I don’t want to create any expectations one way or the other,” Volcker told the panel.