Fed Chief Praises Clinton Program : Economy: If Congress enacts deficit-cutting plan, the central bank will get behind it and push, Greenspan tells Senate banking panel. But GOP warns of inflation.

Federal Reserve Board Chairman Alan Greenspan gave a vote of confidence to President Clinton’s economic program Friday, saying the central bank will tailor policies for “maximum sustainable economic growth” if Congress enacts a credible deficit-reduction plan.

“It is a serious proposal,” Greenspan said in an unusually optimistic report. He called the economic assumptions underlying Clinton’s plan “plausible” and praised the President’s effort as “a detailed program-by-program set of recommendations, as distinct from general goals.”

“It is not vague,” Greenspan said, abandoning his usually oblique style. “But, I think, having not yet looked at the extreme details, this is a credible endeavor. Whether it succeeds or fails will depend substantially on the Congress.”

Greenspan declined, however, to express opinions about any specific cuts in federal programs or about the tax increases sought by Clinton--despite being pressed repeatedly to do so by senators during more than three hours of testimony before the Senate Banking, Housing and Urban Affairs Committee. As chairman of the independent central bank, which controls the nation’s monetary policy, Greenspan has no direct hand in either the construction or passage of the Administration’s economic policies. But his independent role, as well as the bank’s ability to influence the economy through its control of short-term interest rates, give his assessment particular weight.

In recent weeks he had indicated approval of Clinton’s statements in favor of deficit reduction, but before Friday he had not addressed the overall plan.

His comments gave the Administration’s package a helpful push, even as Republicans on the committee sought to undercut the Administration’s massive campaign to build public support. Sen. Phil Gramm (R-Tex.) said Friday that “if the Clinton economic plan is adopted, we are going to have double-digit inflation in the next four years.”

But Greenspan said he was not unduly worried about Fed policies igniting inflation and was prepared to let the economy run at full speed for a time to catch up from the recession. He said last year’s increase of 3.25% in consumer prices, excluding the volatile food and energy sectors, is “quite close” to the Federal Reserve’s goal of price stability.

“The contributions that monetary policy can make to maximum sustainable economic growth would be complemented by a fiscal policy focused on long-term deficit reduction,” he said in his semiannual appearance before the committee to report on the state of the economy and monetary policy.

The potential influence Greenspan has on the success of Clinton’s plan was recognized by the White House on Wednesday night, when the President unveiled his proposal to boost taxes by $274 billion over four years and cut federal spending by $223 billion. The Fed chairman was seated between Hillary Rodham Clinton and Mary Elizabeth (Tipper) Gore, the wife of Vice President Al Gore, in the House gallery.

The support he offered Friday came one day after the bond market presented its own vote of confidence that the plan would help bring down the federal budget deficit in the long run. Thirty-year Treasury bonds fell to a record low rate of 7.02%.

The lowered rate suggested investors have some confidence the deficit will be brought down, a development that should in turn lead to lower interest rates because the federal government will be required to sell fewer bonds to finance the federal budget.

One of Clinton’s goals is to force down long-term interest rates, which have remained stubbornly high and have halted hopes for strong long-term growth. The Federal Reserve has time and again cut the short-term rates it charges banks to borrow federal funds, but banks in turn have been slow to adjust rates charged to consumers and businesses because of market anxieties about the long-term health of the economy.

Some economists have expressed concern that the higher taxes Clinton has sought may slow the recovery. They say interest rates must fall markedly and economic growth must surge in order to prevent the taxes from dragging down the economy.

The Fed chairman, appointed by former President Ronald Reagan and reappointed by former President George Bush, has apparently set out to establish a smoother relationship with the White House than he had at the end of the Bush Administration, when senior officials complained that his policies kept the reins on the money supply and thus limited the prospects for a pre-election recovery. His current term expires in March, 1996.

On Friday, he took issue with critics, among them business leaders and Republicans, who have expressed fears that by taking too large a bite out of the federal deficit, the economic plan could do more harm than good because the new limits on government spending could choke off the struggling recovery now under way.

“In our current political environment,” Greenspan said, “to presume that the Congress and the President would jointly cut too much from the deficit too soon is . . . nothing I would lose sleep over.”

Greenspan has been among the leading government proponents of taking bold action to cut the deficit, which has grown to $300 billion--six times as large as it was 12 years ago.

Overall, he offered a subdued, but not pessimistic, assessment of the state of the economy and its likely performance in coming months. The factors that have hobbled the economy are beginning to diminish, he said, even if there are few signs that banks are willing to ease the strict standards and terms they have applied to business loans in the wake of the savings and loan crisis.

“The economy appears to have entered the year with noticeable momentum to spending,” he said.

And, he said, a 3% to 3.25% increase in the gross domestic product--the measurement of the value of the output of the nation’s goods and services--should result in a decline in the unemployment rate, which would be expected to finish 1993 at a level of 6.75% to 7%, a shade below the current level of 7.1%. The gross domestic product grew at a rate of 2.9% last year.