MARTIN FELDSTEIN, President Reagan's top economic adviser from 1982 to 1984, hopes that the Federal Reserve's policymaking body didn't alter current monetary policy when it met earlier this week.
Dr. Feldstein's successor as chairman of the Council of Economic Advisors, Beryl Sprinkel, agrees. But, Dr. Sprinkel adds, if a broad measure of the nation's money supply, M-2, doesn't continue to grow at the 4.5-percent annual rate it has been running since late April, the Fed should lower interest rates again.
Paul McCracken, who was President Nixon's first CEA chairman, would prefer a more expansionary monetary policy. "I doubt if we can really make the kind of progress needed in terms of reasonably full employment with the kind of monetary policy we have," he says.
None of these three sees an immediate problem with inflation.
When serving at the White House, they would have been inhibited about speaking critically in public of Fed monetary policy. That is considered bad political form and it riles the bond market with its sensitivity to inflation. Laura Tyson, the present CEA chairwoman, hasn't said much in public about the Fed.
Yet monetary policy, with its impact on interest rates and the supply of money to the economy, usually affects the business cycle to a greater degree than fiscal policy, which involves changes in government taxation and spending. Thus the 12 voting members of the Federal Open Market Committee have more power to create economic recession or expansion than the president and all 535 members of Congress.
Paul Kasriel, an economist at Northern Trust Company in Chicago, has found that in the last few years a shift in the growth rate for real M-2 has produced a matching change in real national output within two or three months. M-2 includes currency, checkable deposits, and small savings and time deposits. After months of declining M-2, the economic recovery faltered last summer. Then M-2 picked up and gross domestic product grew nicely in the last quarter of 1992. But again about October 1992, M-2 slipped and the economy has had a slow winter and spring.
The recent upturn in M-2 growth gives Mr. Kasriel hope that the economy will show more vigor later this month or in August - if the Fed manages to keep M-2 growing more rapidly in the weeks ahead. From his perch in the banking business, Kasriel hears anecdotal evidence that banks, enjoying good profits and an improved capital position, are making more business loans.
Though Feldstein regards himself as "more interested" in money supply numbers than the average economist, he holds that these measures are "meaningless" at present. One reason is that many people have used savings to buy bond funds or other investments outside of M-2, he says.
Henry Kaufman, a famed Wall Street economist, similarly says that profound changes in the workings of the financial markets "have had the largely unpredicted side effect of severing what had been thought of as dependable linkages between the monetary aggregates and the behavior of the economy at large."
Noting that most economists anticipate a reasonable 3 percent growth in real output for the rest of this year, Feldstein concludes that the Fed should not change its policy. But Dr. Kaufman calls for a coordinated effort on the part of the central banks of the major industrial countries to bring down world interest rates. "With the credit creation process still moribund, coordinated monetary accommodation would make a valuable contribution to invigorating growth and would be an acceptable risk to take." He calls for the Fed to lower the so-called federal funds rate to the 2- to 2.5-percent range rather than its present 3-percent level.
Dr. McCracken, now a University of Michigan economist, says that university graduates this year have had the worst time finding jobs since the Great Depresssion. "I am getting a little tired of people with secure and high-paid jobs expressing comfort with the present economic situation," he says. He criticizes central bankers for a tendency to find one problem or another to argue that their hands are tied in dealing with slow economic growth and high unemployment. "It is odd," he says, "that the people w ith the least faith in monetary policy are those who have been entrusted to guide monetary policy."