Bush to Press for Rapid Growth, Doubts Slump : Economy: Congress gets President’s annual message. Its goals may signal continuing clashes with the Fed.

President Bush said Tuesday that his “primary economic goal” over the next 2 1/2 years will be to keep the economy growing as rapidly as possible without rekindling inflation so the nation can grow out of its budget deficit and improve its living standard.

In his annual economic message to Congress, Bush dismissed suggestions that America is due for a recession soon simply because economic expansion has continued for so long. He asserted that the economy’s performance during 1989 has “set the stage for healthy growth” in the 1990s.

“Growth is the key to raising living standards, to leaving a legacy of prosperity for our children, to uplifting those most in need and to maintaining America’s leadership in the world,” Bush said. He predicted that the economy, now sluggish, will pick up later this year.

The President’s commitment to more rapid growth appeared to signal a continuation of the conflict between the Administration and the independent Federal Reserve Board over how fast the economy should be growing.

The Fed has indicated that it wants the economy to grow relatively slowly, both to ease inflation pressures and to dampen demand for imports. Some Fed governors have contended that living standards must grow more slowly for the United States to solve its economic problems.

But the President’s remarks--backed by a 419-page report written by his three-member Council of Economic Advisers--suggest that the Administration is more convinced than ever that the economy should be growing more rapidly than the Fed wants it to.

Bush’s report said that the Administration’s economic goal should be “not simply to avoid recessions and extend the expansion” but to keep economic output growing rapidly enough so that incomes keep rising faster than inflation.

The Administration’s differences with the Fed have cropped up periodically during Bush’s first year in office--mostly in disputes over whether the central bank ought to actively push interest rates lower or keep them relatively high to help combat inflation.

The most recent clash occurred last month, when White House Press Secretary Marlin Fitzwater criticized the Fed publicly for not nudging down interest rates. When asked about the Fed’s reluctance, Fitzwater asserted that lower interest rates would be “justified.”

Treasury Secretary Nicholas F. Brady conceded in testimony before Congress last week that there are “differences of point of view” between the central bank and the Administration, acknowledging that “the Administration probably has a bias toward (faster) growth.”

Michael J. Boskin, chairman of the Council of Economic Advisers, sought to minimize any disagreement, telling a news conference Tuesday that “what differences there may be are rather minor” in context. “If you want to make a mountain out of less than a molehill, that’s your decision,” he said.

The Fed’s policy-setting Federal Open Market Committee on Tuesday began a two-day policy review. Although the White House is hoping the panel will vote to nudge interest rates lower, the committee is expected to continue its current policies.

Indeed, the presidents of four regional Federal Reserve Banks formally urged Congress Tuesday to adopt a resolution directing the Fed to make cutting the inflation rate to zero its primary goal over the next five years.

The four are Gerald E. Corrigan, president of the Federal Reserve Bank of New York, Robert T. Parry of San Francisco, W. Lee Hoskins of Cleveland and Robert P. Black of Richmond. All are on the 12-member Open Market Committee.

Neither Bush nor the economic advisers’ report attacked the Fed directly. The President said he “strongly” supports “the Fed’s goal of non-inflationary growth and share(s) with them the conviction that inflation must be controlled and reduced in a predictable fashion.”

The council’s report praised the Fed for its inflation-fighting efforts, saying the central bank “appears to have achieved a high degree of credibility” by “consistently following a forward-looking policy directed at this goal.”

However, Bush noted pointedly in his message to Congress that the economic pick-up he is forecasting for later this year depends at least partly on whether the Fed “maintains a credible policy program to support strong non-inflationary growth.”

The Administration’s contention that the United States can “grow its way out of” the budget and trade deficits--by spurring more tax revenues while the government slows the growth of spending--is sure to spark controversy.

Several key Democrats in Congress already have expressed skepticism about the President’s assertions that he can accomplish his aims without either raising taxes or cutting spending more drastically. But Bush insists that he is on track.

Tuesday’s report dismissed the conventional wisdom that the economic expansion, now in its eighth year, soon must begin to wane. It said historical evidence shows that recession “does not automatically become more likely” just because an expansion has continued several years.

The document noted that, in contrast to previous lengthy economic expansions, inflation “has remained moderate and has not accelerated” during the current growth streak, and the economy’s shift from manufacturing toward services makes it less susceptible to slumps.

The council’s report cited a standard list of U.S. economic shortcomings--the United States must save and invest more of its resources, upgrade its educational system and provide more jobs and housing for the poor, it said.

However, the central theme of the council document was that the government must hammer out a clear and systematic long-term plan for resolving these problems that will be “credible” to a majority of Americans.

“Without commitment to a clear plan,” it said, “strong incentives exist to change policies in an attempt to achieve short-term gain.”

The report suggested some modest procedural improvements in the Gramm-Rudman budget law to make it more difficult for Congress and the Administration to circumvent deficit-reduction targets late in the fiscal year.

And it reiterated the Administration’s opposition to so-called industrial policies, which provide government subsidies to industries, and to allocating shares of the international trade market under the guise of “managed trade.”

In contrast to previous years, when the council used its report to announce new concepts, Tuesday’s document was bland--amounting essentially to an economic textbook designed to provide the intellectual background to explain the Administration’s economic philosophy.

But there were some surprises:

Departing from its earlier reluctance to discuss the issue, the Administration conceded that the four-year improvement in the nation’s trade deficit is likely to be “smaller and more gradual over the near term” and could grind to a halt in several more months.

Distancing itself further than before from the Ronald Reagan Administration, the Council of Economic Advisers conceded that Reagan economic policies “contributed to” the run-up in the value of the dollar--and the dramatic widening of the U.S. trade deficit--in the 1980s.