THE FEDERAL Reserve finds the current economy as hard to read as everyone else does. That's the only way to make sense of its decision the other day. It expressed concern but didn't do much -- tightened interest rates a token quarter-point but said it had "no predilection" about the direction in which it might head next.

The Fed takes fighting inflation to be its first responsibility. Given the instincts of the elected officials who share in the management of the economy, that's often a good thing. Normally, tight labor markets and a sky-high stock market such as now exist are worrisome signs to the Fed -- and Fed officials have in fact been worried for some time that the economy might be about to overheat. But the current expansion has defied traditional expectations; it has gone on now for more than eight years, and inflation still is mild.

The board must balance the risk of a revival of inflation against the risk of prematurely stepping on the brakes and cutting off the expansion to halt an inflation that refuses to appear. It said the other day that it remained "especially alert" to the possible "emergence . . . of inflationary forces," and was rescinding part of the interest cut it voted last year when it appeared the world economy was turning weak. That's all for now.

One factor in the board's decision has to be that fiscal policy currently is tight. The president and Congress have combined to produce a budget surplus. Reserve Board Chairman Alan Greenspan has urged that the money be used to pay down debt instead of to finance spending increases or tax cuts. Were it used instead for the kind of improvident tax cut House Republicans continued to advocate yesterday, it would have to affect the Fed's deliberations. The people who advocate a reckless tax cut -- or spending increase, for that matter -- have to understand that they likely are also voting for an interest rate increase at one remove. You can bet they don't want to put their names to that.