Administration Sends Fed Mixed Signals

WASHINGTON _ The Clinton administration is denying it is trying to "jawbone" the Federal Reserve into lowering interest rates to boost the economy despite a senior official's remark.

Private analysts said Monday the mixed signals may not be an accident. The administration is becoming increasingly worried that the economy could be headed for a slump before next year's presidential election, they said.

White House Chief of Staff Leon Panetta was asked Sunday on NBC's "Meet the Press" whether the Fed should cut interest rates. He replied, "It would be nice to get whatever kind of cooperation we can get to get this economy going."

When it was suggested that Panetta was engaging in jawboning to put pressure on the central bank, he said with a laugh, "Is that what it's called?"

But officials said Monday the remarks do not mean the administration is abandoning its policy of carefully avoiding anything that looks like an effort to influence Federal Reserve Chairman Alan Greenspan and his colleagues.

"There has been no change in administration policy toward the Fed," said a spokesman for Treasury Secretary Robert Rubin, confirming earlier comments Rubin made in an interview with The Washington Post.

White House Press Secretary Michael McCurry told reporters, "I don't know that Mr. Panetta said anything that wasn't fairly self-evident, just what the impact of interest rates are on the economy. Everybody knows that. What's new there?"

Private analysts said they doubt that Panetta had made a slip in calling attention to the Fed.

"Any administration would want interest rates down, especially a year and a half before the election. They're getting nervous," said economist David Wyss of DRI-McGraw Hill, a forecasting firm in Lexington, Mass. "It's an opinion shared by the administration: It's time to get the economy moving again."

In a pre-emptive strike against inflation, the Fed doubled a key short-term interest rate from 3 percent to 6 percent over a 12-month period ending in February. Since then, the central bank has left rates unchanged as evidence of a slowdown has mounted.

Economic growth slowed from 5.1 percent at an annual rate in the last three months of 1994 to 2.7 percent in the first quarter this year. Analysts expect it to be much weaker in the current quarter but are split over the future.

Many expect a rebound later this year, helped by lower long-term interest rates that could reignite home-buying and raise consumer confidence.

Some commentators said they expect the Federal Reserve will cut interest rates this summer, reassuring financial markets that inflation is under control.

Over the last few days, Greenspan has raised the possibility of a recession but said any slump likely will be mild and not last into next year.

Analysts noted that a public administration campaign for lower rates could backfire, prompting the Fed to exhibit independence. Putting pressure on the Fed also could unsettle financial markets, they added, raising inflation fears if investors believe the central bank might put political concerns above economic ones.

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