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.