March 10, 1986

The Economy The prospect of smaller deficits is changing the debate about future economic policies. Signs that $200 billion budget deficits are a thing of the past could reinforce President Reagan's opposition to cuts in spending for Social Security and the military and stiffen his opposition to a tax increase, economists note. But some are fearful that the forecasts of smaller deficits could divert attention from the deficit problem before it is really solved. [ Page A1. ] Weak economic statistics may push interest rates lower during the next few weeks, but the decline is not expected to be as sharp as during the past month. [ D1. ] A resurgence in fixed-rate mortgages is raising concern that savings institutions could be hurt as they were in the 1970's and early 1980's if interest rates climb again. [ D1. ] Companies Peoples Jewellers raised its bid for Zale, the nation's largest jewelry retailer, to $45 a share in cash and notes, from $40. Zale's board refused last Monday to consider the first bid. [ D1. ] Altman's has offered its president's job to a Dallas retailer, Jack Schultz of Sanger-Harris, industry sources say. [ D2. ] International Western Europe's economic prospects are at a 10-year peak, thanks to the sustained drop in oil prices and the value of the dollar. [ D1. ] A long-term decline in oil prices would hamper Mikhail S. Gorbachev's efforts to revitalize the Soviet economy. [ D10. ] OPEC oil production will average 800,000 barrels a day less in the first three months of this year than in the last quarter of 1985, dropping to 16.8 million, the International Energy Agency reported.

Buoyed by the sustained drop in both oil prices and the value of the United States dollar, Western Europe's economic prospects are brighter today than at any time in the past decade. Economists are scrapping the growth forecasts made only a few months ago and replacing them with ones that reflect the increasingly rosy outlook. Investors are pushing prices to record highs on major European stock exchanges. And forecasters are predicting improved living standards in the next several years and new jobs for some of the European Economic Community's 13 million unemployed. In an apparent sign of the times, European nations found themselves last week in the unusual role of pacesetters in international economic matters. West Germany, France and the Netherlands cut their interest rates in what promises to be the beginning of a worldwide round of rate reductions that should further stimulate global growth.

The Archdiocese of New York is threatening to drop its support of a medical college that it saved from financial failure eight years ago unless two city hospitals affiliated with the school stop performing abortions. John Cardinal O'Connor, the Archbishop of New York, said in an interview that if the hospitals, Lincoln and Metropolitan, did not stop performing abortions, the school, New York Medical College, would either have to give up its $24 million-a-year contract to supply them with medical services or drop its ties with the archdiocese. 'The Church or the Two Hospitals' ''The choice for the college is either the church or the two hospitals,'' Cardinal O'Connor said. ''If the choice is the two hospitals, that would be it,'' he said, adding he would be forced to sever the ties the archdiocese made with the college, which is in Valhalla in Westchester County, eight years ago. The Cardinal said that ''abortions violated Catholic principles and the sacredness of the human person'' and that they should not be performed by physicians or in any hospital affiliated with the archdiocese.

A spate of weak economic statistics expected during the next few weeks may help keep alive hopes that interest rates will continue to fall, though not so precipitously as during the past month. Following Friday's half-point reduction by the Federal Reserve in the discount rate, to 7 percent, many analysts agreed that the central bank is likely to hold monetary policy stable for the next several weeks. The discount rate is what the Fed charges on its loans to financial institutions. Victor Chang, president of the VC Management Company in New York, estimated that ''a steady Fed policy in the near future should result in an overnight Federal funds rate of around 7 3/8 percent.''

The rates at the Holland Hotel, used by the city to house homeless families, should be cut by a third, according to an internal city report that found the owners earn nearly a 50 percent profit. The report, which has not been released, confirmed an earlier news account that the hotel, which has been cited for almost 1,000 violations of housing, health and building codes, earns a profit of at least $3 million a year. The profit margin of the hotel, on West 42d Street, near Ninth Avenue, is double that of the hotel industry as a whole, the report stated. ''The city should not pay prices that lead to unconscionable profits for hotel operators,'' the report, prepared by the Holland Hotel Task Force, concluded.