Economic Strangler?

ONE economist calls the Federal Reserve System the "Washington strangler," accusing it of not easing monetary policy in the United States enough and endangering the economic recovery. Another economist, after noting that total bank reserves (the raw material for the nation's money supply) grew at a compound annual rate of 57 percent in February, says the Fed's "easy-money policy is out of control."

Such contrasting views possibly indicate that the Fed has monetary policy about right. Economics is far from an exact science.

The latest statistics offer hope that the recovery could become more vigorous. Large retail chains reported a spurt in sales in February. The Commerce Department's leading indicators rose nicely in January. A February survey of purchasing executives revealed a surge in new orders.

However, as is typical at a turning point in the economy, the numbers are mixed. For example, the nation's unemployment rate reached its highest point in six years in February - 7.3 percent. Yet the economy created 164,000 new jobs in that month. And the length of the average workweek rose as well.

Congress has been considering various tax plans aimed at stimulating the economy - and pleasing voters. The Senate Finance Committee last week approved a $300-per-child, middle-income tax credit that would be paid for by raising taxes on the wealthy. The measure also includes a capital-gains tax reduction, liberalized individual retirement accounts, and investment incentives, all asked for in some form by President Bush.

Congress could well pass legislation by the March 20 deadline set by Mr. Bush. That bill will likely be vetoed, since it will raise taxes on upper-income individuals. Most economists aren't counting on fiscal action to rescue the economy, anyway. They believe any likely tax measure will be too small to have much of an impact on a $6 trillion economy. The massive budget deficit sharply restrains any tax relief plan. The federal government is already borrowing more than one in every four dollars it will sp end this year. Further, economists expect passage of any tax bill to come after the economy has already stepped up its pace.

That means the Fed offers the only immediate economic game in Washington. Last week's decline in the broader money measures weren't reassuring. Money fuels economic expansion. But money statistics bounce around week by week. Fed policymakers will just have to make sure that new fuel for the economy is adequate in coming weeks. They wouldn't want that "strangler" label sticking.