Fed Leaves Rates Alone; ‘Good Clip’ of Economy Cited

Federal Reserve Board Chairman Alan Greenspan said Tuesday that the U.S. economy is running at a “reasonably good clip” and hinted that the central bank has no plans to lower interest rates in the immediate future.

Greenspan’s statement came after the Fed’s policy-making committee, as expected, adjourned its meeting after deciding to leave interest rates alone.

The economy appears to be “on track for at least the period ahead, as best as we can see,” Greenspan said later during a Senate Banking, Housing and Urban Affairs Committee confirmation hearing for his appointment to a third four-year term as Fed chairman.

Addressing another subject, Greenspan criticized findings by the government’s General Accounting Office, which issued a draft report Monday accusing the Federal Reserve System of wasteful spending.

The GAO study had “a number of useful things in it,” Greenspan said. But he added that “the general thrust of the report--that somehow the Federal Reserve has been profligate in the use of taxpayer funds--I find wholly contrary to the facts.”

The report, requested by Democratic senators, found that the Fed’s own expenses have risen at twice the rate of inflation and also questioned the need for the central bank to hold on to $3.7 billion in contingency funds instead of returning them to the U.S. Treasury.

Although Democrats have long chided the Fed for promoting stable prices over job growth and operating with undue secrecy, Greenspan enjoys overwhelming support in the Republican Senate and his confirmation appears certain.

The Fed’s decision to stand pat on interest rates leaves the so-called federal funds rate on overnight bank loans at 5.25%. The discount rate--a more symbolic index used for loans to banks within the Fed system--remains at 5%.

Financial markets took the news in stride, with the Dow Jones industrial average finishing the day up 26.74 points at 5,670.60.

Yet if the Fed’s decision to hold steady on rates came as no surprise, it was a pointed reminder of how sharply views about the economy have changed in two months.

While fears were mounting early in the year that the nation’s 5-year-old expansion was critically ill, a raft of more recent evidence has suggested something quite different. The most striking hint was an extraordinary surge in new jobs last month, which sent the unemployment rate plunging to 5.5% from 5.8%.

More evidence arrived Tuesday, with a report on retail sales for earlier this month, which documented further growth. Also Tuesday, the Conference Board said its index of consumer confidence remained near the same level in March as in February.

A few economists argued Tuesday that the U.S. economy is much more frail than it appears because such underlying problems as heavy burdens of household debt and piles of unsold inventories have been obscured by weather-related distortions in the statistics.

Jerry Jasinowski, president of the National Assn. of Manufacturers, said the Fed should have lowered rates by at least a quarter of a percentage point. “In fact, there is evidence that the economy is currently rather weak,” he said.

But most analysts, including one of President Clinton’s nominees to serve on the Fed’s Board of Governors, endorsed Tuesday’s decision to hold steady on short-term rates.

“My views are very consistent with what happened at the meeting,” said Laurence H. Meyer, an economic forecaster in St. Louis who is one of two other White House nominees under review by the committee.

In addition to Greenspan and Meyer, the Senate is expected to confirm White House Budget Director Alice Rivlin to serve at the Fed. Action on all three nominations could come this week.

Greenspan’s “wisdom and experience have helped avert several global financial crises,” committee Chairman Alfonse D’Amato (R-N.Y.) said. “In fact, Alan Greenspan is properly known as the world’s preeminent central banker.”

* STATE REBOUNDS

UCLA forecasters see the California recovery gaining momentum. D2

* CONFIDENCE HOLDS

Reports indicate stable consumer confidence and lower import prices. D2