Rate Cut Apparently Not on Fed’s List of Things to Do

Federal Reserve Board Chairman Alan S. Greenspan hinted Tuesday that the Fed probably will not lower interest rates any time soon, despite some signs that the economy may be weakening.

Greenspan told the Bretton Woods Committee, a private lobbying group, that “at the moment, the relationship among all the financial variables”--including interest rates--in the United States and other industrial countries “seems to be in relative balance.” At another point he added: “I suspect we’ll stay there.”

In formal remarks to the group, the Fed chairman also cautioned that the industrial countries “must be vigilant not to forfeit” the gains they have made in combatting inflation. He warned that increases in expectations of future inflation “could initiate an inflationary spiral that would be difficult and costly to unwind.”

The Fed’s policy-making Federal Open Market Committee was scheduled to vote at a meeting last week on whether to ease interest rates, but the results of that session will not be made public for 45 days.

Greenspan conceded Tuesday that despite the recent economic rebound in Japan and West Germany, prospects for economic growth in the major industrial countries “are patently not great. At best, . . . we will see on balance only moderate economic growth in the near term in the major foreign industrial economies.”

Separately, Treasury Secretary James A. Baker III told the group that the Administration stands by its previous “case-by-case” approach in dealing with the global debt problem and that it rejects broad-scale debt-forgiveness schemes such as those being advocated in Congress.

He said the alternatives that have been proposed so far would be likely to politicize the debt problem and distract debtor countries from making badly needed changes in the structure of their economies.

Baker also toned down the Treasury’s earlier enthusiasm about the Morgan Guaranty Trust plan by which U.S. banks would swap Mexico’s debt for U.S.-backed bonds as a way of reducing that country’s debt burden. His comments apparently reflected an expectation of disappointing participation in the scheme by U.S. banks.

While still endorsing the Morgan plan, he said it now appears “most likely to operate as an exit-bond”--that is, it will provide a vehicle for regional banks to divest themselves of their loans to Mexico without the wholesale disruption that might occur if the major banks moved simultaneously to get rid of their Mexican loans.

Earlier, Treasury officials had indicated that they expected banks to rush to sign up for the plan, but response has been spotty. Last week, the Mexican government announced that it would delay the deadline a week, to Feb. 26.

Baker accompanied his remarks with a plea to U.S. banks to increase their lending to debtor countries. U.S. banks had pledged to do so as part of a debt plan unveiled by Baker in 1985, but so far, few new loans have been made.