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Slow US Economic Gains Have Economists Dickering Over Best Course for the Fed

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THE United States economic recovery putters along like an antique car on a freeway.

With President Bush facing reelection, the merely modest expansion makes the White House nervous. Both Michael Boskin, chairman of the Council of Economic Advisers, and Treasury Secretary Nicholas Brady last week called for greater monetary easing by the Federal Reserve.

Their comments have renewed a debate among economists and in the bond markets as to the correctness of Fed policy.

Sam Nakagama, a Wall Street economist, holds that administration officials "have to be uncomfortable about the fact that the current situation shows a lot of similarity to what happened in the economy a year ago."

After the economy emerged from a recession last spring, the recovery nearly faded away in the fall. But output this year has been growing at an annual rate between 2 and 3 percent. Revised figures for gross domestic product will be released May 29.

Mr. Nakagama has been concerned that weak automobile and housing sales, plus slow growth in a broad measure of money (M2), will hold back the recovery again.

Other economists are less worried. "We are in wonderful shape," says Rudiger Dornbusch, an economics professor at the Massachusetts Institute of Technology. He predicts economic growth at about a 3 percent annual rate over the next year.

"The Fed can't do more," he says, because it takes as much as a year before any extra monetary stimulation boosts economic growth. Referring to rapid growth in bank reserves in recent months, he adds: "The bread is in the oven and you have to wait for it to bake."

Federal Reserve officials themselves apparently are satisfied with their present path. A report in the Wall Street Journal a week ago said the Fed's policymaking Open Market Committee May 19 had decided against any immediate cut in short-term interest rates. Nonetheless, Fed chairman Alan Greenspan still has the leeway to cut the Fed's federal funds' interest-rate target as much as 1/4 percentage point if economic data warrant, the Journal noted. Federal funds are money that commercial banks lend each ot her overnight.

Mr. Boskin himself said that the administration will revise upwards its January growth forecast of 2.2 percent for 1992.


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