ECONOMISTS are already talking about the next slump.
``Recession risks for later this year and in 1995, although low, must be deemed higher now because of the higher interest rates and equity market corrections,'' Allen Sinai, an economist at Lehman Brothers, a New York investment banking firm, notes in a report for institutional investors.
The Federal Reserve has increased short-term interest rates one-half of a percentage point since early February, prompting a jump in long-term rates and a drop in stock prices. Many market analysts wonder if the Fed's policymaking Open Market Committee will tighten monetary policy further at its next meeting on May 17.
``The next two years represents a particularly vulnerable period as the Federal Reserve and the Clinton administration try to achieve a tricky downshifting through the growth gears,'' write Roger Brinner and David Wyss, economists with DRI/McGraw-Hill, a Lexington, Mass., consulting firm. ``We accelerated to fifth gear -
5 percent plus real GDP [gross domestic product] gains - unexpectedly and unintentionally, and now must work down toward a sustainable second or third gear without accidentally shifting into reverse.''
Leonard Lempert, director of Statistical Indicator Associates, in North Egremont, Mass., after listing economic indicators that usually decline before a recession, maintains that there is still time for a downturn ``before year-end 1994.''
Most economists do not anticipate a recession this year. The April survey of 50 forecasters by Blue Chip Economic Indicators finds them on average predicting 3.7 percent real growth this year, up from 3.3 percent two months ago.
Tighter monetary policy, with its risks for the economy at a time when unemployment stands at 6.5 percent of the labor force, has AFL-CIO economist Markley Roberts steaming. ``The concerns, interest, and welfare of ordinary people are not the primary concerns of Fed policymakers,'' he says. ``They are much more concerned with bank profits. I wish I had enough demagogic words to express my feelings about the Fed.''
Fed officials maintain that their policy shift is intended to preempt any rise in inflation. There was no sign of that in the price data for March, released this week. Producer prices rose a moderate 0.2 percent and the consumer price index 0.3 percent. The cost of living in the first quarter of this year increased at a 2.5 percent annual rate, less than the rise of 2.7 percent in 1993, 2.9 percent in 1992, and 3.1 percent in 1991.
But the Fed suspects that the economy is close to falling below a ``natural'' rate of unemployment of about 6.2 percent where inflation would start to accelerate.
Such a concept is ``sophisticated nonsense,'' Markley says. ``It is clear from past history that rapid growth does not automatically mean higher inflation.'' He calls for government programs to build better highways, bridges, and other means of transportation that would improve productivity and thus restrain inflation. He suggests improvements in education and training that make workers more suitable for jobs requiring greater skills.
The AFL-CIO Executive Council, at its last meeting in February, urged a monetary policy ``as geared to full employment as to curbing inflation,'' and asked the Fed, without effect, to restrain from further hiking interest rates.
To John Hotson, a Toronto economist and founder of the Committee for Economic and Monetary Reform, if non-inflationary growth in the economy requires 6 percent or more unemployment, this is ``an indictment of laissez-faire capitalism.'' He's a supporter of ``The Concord Resolution'' that calls for $90 billion in federal interest-free loans to states and municipalities to be used for infrastructure, repaying high-cost debt, and stimulating job creation. The resolution has the support of 1,700 communities, the United States Conference of Mayors, and the Michigan state legislature, Mr. Hotson says. It will be promoted at a public meeting Monday in Minuteman National Park, Concord, Mass.
Such loans would add new money to the economy through these governments, rather than through private banks. During periods of war, the US has made similar loans. ``It would restore the people's sovereignty over the money supply,'' Hotson says. But such an unorthodox plan is not likely to fly in Washington.