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Volcker's new challenge

In reappointing Federal Reserve Board Chairman Paul Volcker to a second four-year term, President Reagan has reaffirmed his administration's tough stand against inflation, while sending a clear signal to Wall Street that he regards international financial stability as essential for steady economic recovery. Moreover, Mr. Reagan has again shown - as he did with such earlier appointments as that of George Shultz as secretary of state and Martin Feldstein as chief economic adviser - that when especially sensitive posts are involved, the President prefers to select persons of proven experience who command broad bipartisan support.

Indeed, Mr. Volcker has substantial backing on Wall Street, in Congress, and throughout the international financial community. In the eyes of this community it is Mr. Volcker who, more than anyone, is responsible for the no-nonsense approach with which the Federal Reserve Board has sought to bring down inflation during the last several years, even at the expense of contributing to the severity of the recession.

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Critics of Mr. Volcker regard this preoccupation with inflation as indicating indifference to the high unemployment rate. Yet the United States - if it is to remain a preeminent industrial nation - could not have gone on with the double-digit inflation levels of the late '70s.

The spiral has been broken, at least for the moment. The task now is ensuring that the recovery is gradual and restrained so as to avoid a reigniting of inflation, as has tended to happen after prior recoveries. That means that the Fed will have to avoid two extremes during the next few months - between too generously expanding the money supply (which has been growing at a high rate recently) and too sharply constricting money growth and thus aborting recovery.

Mr. Volcker, moreover, has been instrumental in helping to arrange various debt restructuring arrangments for third-world nations. Debtor nations, as he has repeatedly stressed, will need not only additional refinancing packages to avoid future defaults but a continuing infusion of new loans from private and governmental sources.

Finally, it should not be overlooked that by accepting another term as Fed chairman, Mr. Volcker has in effect cut himself off from far more lucrative financial remuneration that he might have obtained in private industry. By indicating his willingness to stay on with his job - perhaps the second most important post in Washington involving US financial matters, next to that of the presidency itself - Mr. Volcker has shown a regard for public service that deserves appreciation from all Americans. Congress should speedily approve his nomination.

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