Level of Interest Rates Too High, Clinton Says : Economy: He sees solid stock market and believes rates will ‘come back down.’ He contradicts Fed on the possibility of renewed inflation.

President Clinton, expressing confidence in the economy in the face of another day’s plunge in stock and bond prices, said Monday that rising interest rates, which triggered the latest stock selloff, are “too high.”

“I think they’ll come back down,” Clinton said in a television interview after throwing out the first ball at the Cleveland Indians’ baseball season opener.

Clinton’s comments appeared to reflect a concerted Administration effort to put pressure on the Federal Reserve to keep interest rates in check.

The Fed, signaling its concern that the economy is growing so quickly that it might generate a new round of inflation, has raised short-term interest rates twice in the last two months. Those moves triggered the recent fall in stock and bond prices because they fueled investors’ fears of slower economic growth ahead.

Clinton, contradicting the Federal Reserve’s prognosis, insisted: “There is no inflation in this economy. I don’t think there is anything to worry about in terms of the long-term health of the economy.”

Clinton said that the recent plunge in the stock market reflected investors’ judgment that the market, after rising steadily for almost four years, was “somewhat overvalued.” He urged small investors not to panic.

“Fundamentally, it’s a solid stock market and a very solid economy,” Clinton told reporters as he left Cleveland for the college basketball championship game in Charlotte, N.C. “We’ll get through this if everybody will just remain calm and let the market work itself out.”

The Dow Jones industrial average, which had shed about 350 points since the Fed’s first move to drive interest rates higher in early February, slid another 42 points Monday.

The bond market also tumbled. Interest rates on 30-year Treasury bonds, which had been below 6% last October, rose to 7.42% Monday. Economists said that Clinton seemed to be properly trying to reassure wary investors, not putting improper pressure on the independent Federal Reserve.

“I don’t think the fears of rising inflation are well-founded,” said Barry Rogstad, president of the American Business Conference, which consists of 100 high-growth corporations. “I think what the President is doing is a valid and appropriate role for a leader--to stand up and give a sense of what is going on here.”

Marko A. Budgyk, managing partner of the Los Angeles investment management firm of Houlihan Lokey Howard & Zukin, said: “If you just look based on the inflation numbers out there, it would appear the bond market overreacted.”

He said that some of the plunge in bond prices could be caused by the unwinding of speculative positions by big investors rather than by any fundamental weakness in the economy.

Budgyk said Clinton’s statement that interest rates are too high was the natural response of a politician.

The President used the decline in interest rates over the last year “to justify his entire program, saying it was evidence his program worked,” said Budgyk. “Now the opposite is happening and he can’t say it’s because of his program. He has to say investors are crazy.” Clinton’s line echoed that of his top economic advisers. Labor Secretary Robert B. Reich said Monday on ABC-TV’s “Good Morning America” that the U.S. economy should convince investors that there is no reason to panic.

“What we’re seeing is--again--good, solid, sustainable growth on all fronts,” Reich said.