White House Blames and Praises Fed : Economy: The President’s chief economist, Michael Boskin, says tardiness in cutting interest rates helped bring on recession. But the central bank is doing better now, he adds.

The Bush Administration blamed the Federal Reserve Board Tuesday for helping to bring on the recession by not reducing interest rates more quickly last year but said that the central bank is now slashing rates more rapidly in line with White House objectives.

Michael J. Boskin, chairman of the President’s Council of Economic Advisers, said that “with the benefit of hindsight, I think the Fed should have moved sooner” to reduce interest rates.

But the Fed is now “moving aggressively” to lower interest rates and rates probably will continue to fall over the coming months, Boskin told a congressional Joint Economic Committee during testimony on the Economic Report of the President.

The report, released Tuesday, predicted that while inflation will fall by nearly 2 percentage points this year, unemployment will surge by about 1 percentage point from 1990 levels before beginning a gradual decline in 1992. Likewise, interest rates will fall perhaps by a full percentage point from the levels of late last year, which should lead to even greater declines in the value of the dollar but spur demand for American exports.

Over the longer term, the forecast is quite optimistic, calling for a 3.6% rate of economic growth in 1992. The nation’s gross national product, the output of goods and services, should rise by an average of about 2.6% a year over the next six years, the report said.

Boskin complained Tuesday that the Fed’s tight monetary policy is “one of the principal reasons for the slowing in the economy last year, just before it was shoved over into a recession by the oil shock last fall.”

But President Bush and his economic policy-makers have “been pleased by their recent steps,” Boskin added. “Certainly we are more satisfied than we were.”

In his State of the Union address in late January, President Bush made a thinly veiled attack on the Fed by declaring that interest rates should move lower. After that, the Fed moved quickly to cut key interest rates, and Boskin said the Fed’s apparent willingness to continue to push rates down has placated the Administration.

Boskin told reporters in a separate briefing on the economic report that he believes Fed Chairman Alan Greenspan agrees with the Administration’s forecast that the slump will be relatively brief.

“I think our forecast is in line with the consensus among economists, and I think Greenspan generally would be in the same range,” Boskin said.

Boskin observed that the White House still believes the recession will be relatively mild and will end in the middle of the year.

The official forecast, used as the basis for the Bush Administration’s federal budget estimates, predicts that the U.S. economy will grow a slight 0.9% in 1991, with virtually all of the increase coming in the second half of the year. Boskin’s forecast states that a recession began last September or October, after the start of the Persian Gulf crisis, and that the U.S. economy grew just 0.3% in all of 1990.

“The economy . . . entered a recession in the latter part of 1990,” the report states. “The downturn was caused in large part by the economic effects of the oil shock following Iraq’s invasion of Kuwait.”

In his forecast, Boskin predicts that the nation’s jobless rate will hit 6.7% in 1991, up from 5.8% last year. In January, the unemployment rate reached 6.2%; Boskin conceded that another 600,000 Americans will lose their jobs before the unemployment rate reaches its recessionary peak.

Still, Boskin remains optimistic that the economy will rebound sometime in the second quarter, in part because he is convinced that the oil shock will turn out to be less damaging to the economy than the two oil crises of the 1970s. And, after a brief surge following the oil shock last fall, inflation has actually declined over the last few months, giving policy-makers greater flexibility to deal with the slump, Boskin said.

Tight Federal Reserve policies over the last few years have led to sluggish growth in the nation’s money supply, which now gives the Fed greater leeway to cut interest rates without fearing that inflation will be worsened. The White House forecasts that consumer prices will rise 4.3% in 1991, down from 6.2% in 1990.

Lower inflation, Boskin added, will leave the Fed “well situated to reduce the extent of the downturn.”

Boskin cautioned, however, that the ongoing credit crunch that is now restricting bank lending could lead to a longer and more severe recession. Real GNP Growth ‘86: 1.9 ‘87: 5.0 ‘88: 3.5 ‘89: 1.8 ‘90: 0.3 ‘91*: 0.9 *projected Source: Commerce Department