    [Weekly Compilation of Presidential Documents Volume 30, Number 16 (Monday, April 25, 1994)]
    [Pages 833-834]
    [Online from the Government Publishing Office, www.gpo.gov]

    <R04>
    Exchange With Reporters in Milwaukee

    April 18, 1994

    Interest Rates

        Q. What about the Fed and the interest rates?
        The President. Well, I have two reactions. First of all, there is
    still no evidence of troubling inflation in this economy, but there is a
    lot of evidence of growth. And in the last couple of weeks we've seen
    even more evidence of growth in the economy, for example, big backlogs
    on automobile orders.
        When you have growth in the economy, normally short-term interest
    rates go up. The estimates are that inflation will be around 3 percent.
    Historically, short-term interest rates have been about three-quarters
    to one percent above the rate of inflation. So, this is still within the
    range of interest rates that should not do anything to harm the economic
    recovery. And I can only guess that that had something to do with--the
    signs of economic growth have been very strong in the last couple of
    weeks, and that the interest rates at 3.5 percent were still only a half
    a point above the inflation rate, so that's the real interest rate. So I
    don't think it's cause for real alarm; I wouldn't say that.
        But on the other hand, what normally triggers interest rates going
    up is some evidence of inflation. We don't have that. So we'll just have
    to watch this. But I think it would be a real mistake to overreact. This
    is a very strong economy; it's very healthy. We've got good growth.
        Q. But this is not overreaction?
        Q. By the Fed?
        The President. All I can tell you is what I said. I don't make a
    practice of commenting on what they do. There is no evidence of
    inflation, but there is evidence that economic growth is stronger even
    than we thought, say 2 months ago. And historically, in times of real
    growth, short-term interest rates have been somewhere between three-
    quarters of a percent and one percent above the projected rate of
    inflation, which is 3 percent. So in larger historical terms, this
    should not be any cause for alarm. We've still got good strong growth,
    and everybody, including Mr. Greenspan, says that the conditions of
    economic growth are better than they've been in two or three decades. So
    I still feel very good about that.
        Q. So you have no beef with the Fed? You have no beef with the Fed
    for raising rates again?
        The President. I don't comment on what they do one way or the other,
    except to try to explain it to people in terms that I think are
    relevant. I understand what happened if the objective is to have a real
    rate of return on short-term interest rates. That is, the short-term
    interest rates ought to be something above the rate of inflation.
        But even Mr. Greenspan has said repeatedly that this should not lead
    to an increase in long-term interest rates. He has said long-term
    interest rates are, if anything, too high while short-term interest
    rates might have been too low. So if the market is going to rationally
    react to this, long-term interest rates should say, well, there's not
    going to be any inflation in the economy, and we've got good growth so
    interest rates ought to stay down, not go up. That's what I hope will
    happen over the long run.

    Bosnia

        Q. Any new actions for Bosnia, Mr. President?
        The President. Well, I'm going back now to find out what happened
    today.

    [[Page 834]]

        Thank you.

    Note: The exchange began at 4:05 p.m. at Leon's Frozen Custard Stand. A
    tape was not available for verification of the content of this exchange.