FED'S JOHNSON STRESSES PRICE STABILITY

  Federal Reserve Board Vice Chairman
  Manuel Johnson said that maintaining price stability was
  critical to achieving non-inflationary economic growth in the
  world and said that progress was being made.
      "It is worth reiterating that the Federal Reserve's
  promotion of price stability is critical to the successful
  implementation of virtually all of the important ingredients
  for growth," he told the Eastern Economic Association.
      Johnson said initial progress has been made on a variety of
  fronts. "Federal Reserve monetary policy, the
  Gramm-Rudman-Hollings legislation, the G-6 agreement, and the
  Baker debt initiative for example all have moved us in the
  right direction," he said. G-6 is comprised of U.S., Britain,
  France, Japan, West Germany and Canada.
      On the budget deficit, Johnson said meeting precise
  numerical goals was less important than a continuing commitment
  toward slowing the growth of federal spending.
      There was evidence deficits as a pct of Gross National
  Product were declining and would continue to drop, he said.
      But Johnson warned against reliance on inflow of foreign
  capital to finance investment and the budget deficit and keep
  interest rates stable.
      "This situation, however, cannot continue indefinitely.
  Sooner or later progress must be made in controlling excessive
  federal spending," he said.
      A disinflationary monetary policy should continue to be the
  main objective of the Fed, Johnson said.
      He also said a more stable and sustainable alignment of
  exchange rates was needed for long-term growth.
      On the trade deficit, Johnson warned against "quick fix"
  solutions, which he identified as excessive dollar depreciation
  or protectionist trade legislation.
      "What is important is that we attempt to maintain healthy
  returns to capital and adopt policies encouraging genuine
  economic growth," he said.
      Such an approach would finance the trade deficit but allow
  for its gradual resolution over time.
  

