US dollar falls on forecast

Press, 18 February 1983, Page 13

US dollar falls on forecast

PA Washington The Federal Reserve Board, expecting only relatively weak recovery this year’ will try to keep just enough money flowing into the American economy to fuel that revival but not so much as to re-ignite inflation. the board’s chairman. Mr Paul Volcker, said yesterday. By the end of the year, he said, the economy would have grown, but only modestly, and unemployment would still be about id per cent of the United States labour force. However, inflation should continue to drop. Mr Volcker, whose agency controls the United States money supply, said the Federal Reserve would slightly expand its previously stated targets for monetary growth. However, since the money supply expanded more than targeted last year, hitting the target ranges this year could actually result in a slight slowing of such growth. "Our objective is easy to state in principle: to’ maintain progress toward price stability while providing the money and liquidity necessary to support economic growth." Mr Volcker said. Some Congressmen have contended that the Federal Reserve’s policy of relatively restrained money growth is a recipe for economic stagnation. But Mr Volcker said it

would be unwise, after successfully battling inflation for two years, to risk new price increases by trying to spur faster recovery with a flood of money. The United States dollar closed sharply lower on the London market yesterday after falling steeply in afternoon trading on the news of the testimony to the United States Congress by Mr Volcker, dealers said. They said that Mr Volcker’s statement, which forecast a slower rise in the money supply during 1983 than last year, appeared to pave the way for further declines in the United States interest rates. The United States currency was helped at midsession by uncertainty over the forthcoming West German federal elections, but closed at 2.3895 marks, down nearly two pfennigs from yesterday's close of 2.4070. United States industrial production figures for January. released yesterday, were lower than some analysts had forecast, showing a rise of only 0.9 per cent. This was taken as further evidence that the United States economic recovery would be slow, and added to the dollar's general weakness. Most other major currencies also gained against the United States dollar, with sterling rising more than one cent to close at 1.5525.