SOME years ago, a Federal Reserve move to tighten monetary policy when inflation was low and unemployment high would have surfaced outrage among the nation's populists. There would have been a grand ruckus. The populists would have charged the Fed with enriching the well-to-do - the holders of bonds and other paper investments - at the expense of the poor working man with his debts.
But when the Fed shoved up interest rates starting in February, nothing much happened politically. The differing impact of tighter credit on the various classes of society got relatively little attention. One reason is that the traditional political allies of low-income groups, the Democrats, largely kept their mouths shut.
To political scientist Thomas Ferguson, the Clinton administration made an early mistake in deciding not to ``jawbone'' the Fed. The University of Massachusetts, Boston, professor argues that the Fed has no incentive to stimulate high growth rates in the economy. So it will follow the normal inclination of central bankers to trim the inflation rate with insufficient regard for unemployment and weak business conditions.
Indeed, Mr. Ferguson figures that the current tighter monetary policy will lead to a ``growth recession,'' with the economy not actually shrinking but also not producing enough jobs to prevent a rise in unemployment. He suspects that today's jobless rate for blacks - more than 11 percent - will double as a result.
The latest statistics do indicate some slowdown in the economy. It was reported this week that in May, production of United States factories, mines, and utilities barely rose; industry was using slightly less of its total capacity; and retail sales actually fell 0.2 percent. Moreover, consumer prices edged up a modest 0.2 percent last month. So far this year, inflation has been rising at an annual rate of just 2.3 percent, less than the 2.7 percent gain posted for all of 1993.
Nonetheless, the consensus of 50 economic forecasters surveyed by Blue Chip Economic Indicators earlier this month puts inflation-adjusted growth this year at 3.7 percent, up from a prediction of 3.6 percent in early May. If that happens, it would make 1994 the best year of the current three-year-old recovery.
This week's economic news makes it unlikely that the Fed will shove up interest rates again any time soon, economists say. But if growth slips further, the probability increases that the administration will unseal its lips on the Fed.
Ferguson maintains that Laura D'Andrea Tyson, chairwoman of the Council of Economic Advisers, and Alan Blinder, who is moving from the council to vice chairmanship of the Fed, believe ``in their heart of hearts'' that unemployment could be reduced from the 6 percent level recorded last month to 5 percent or even lower without stimulating higher inflation. ``They will never say it, though,'' Ferguson says. As a graduate student at Princeton University, Ferguson took economics from Professor Blinder.
President Clinton and his economic advisers have apparently decided that attacking Fed monetary policy is a political mistake. For one thing, nowadays much of the press ``dumps'' on critics of the Fed, Ferguson notes.
It also has become something of a taboo among economists - especially those with ambitions to serve the financial community or the Fed itself (one of the biggest job markets for economists) - to say anything with a populist ring on monetary policy. Ferguson is something of an exception. He calls the Fed's concept of a ``natural rate of unemployment'' of about 6.5 percent as ``probably a hoax.'' He describes as ``pure fraud'' a recent Fed study indicating that pushing inflation even lower would increase the productivity of the nation's people and factories. He charges the Fed with ``complete paranoia'' in its concern with inflation. ``It is hard to see any case for inflation,'' he says, discounting the significance of price rises in ``one or two funny commodities.''
Ferguson also talks of an internal Fed memorandum admitting that the central bank ``blew it'' when long-term interest rates jumped higher after the Fed raised short-term interest rates. The action was ``stupid and unnecessary,'' he says. Fed analysis of factors affecting long-term rates is ``all garbage.''
Now that's the sort of strong language that was more often heard after the start of a Fed monetary squeeze.