IT'S A PERPLEXING MOMENT for the people who make economic policy. The statistical indicators are supposed to set the direction for policy, but currently they all point in different directions like a pile of jackstraws. This week the government published the collection of numbers that it calls the leading indicators, and they suggest a powerful expansion of business in the months ahead. That's very heartening -- if you believe it. From the beginning of the year, the signals have consistently pointed to stronger growth. But it hasn't happened yet. No one is quite sure why.
Perhaps the pickup is just ahead. If you think so, you are against any change in policy to make the economy grow faster, since it would risk spilling over into higher inflation next year. But perhaps the indicators are misleading and the acceleration is a statistical mirage that keeps drifting through the calendar always just beyond reach. If that's your view, you will conclude that it's time to change policy and open up the throttle a bit wider.
That would mean a vote by the Federal Reserve Board to reduce interest rates again, since the Federal Reserve is the only part of the government that has any freedom of action this year. Traditionally the budget, steered jointly by the president and Congress, has been the other great instrument for regulating the economy. But the budget is being determined by the struggle to get the deficit down to the Gramm-Rudman-Hollings targets, and that leaves all of the hard decisions of economic strategy to the Federal Reserve.
Why might the indicators be less reliable now than in the past? Several profoundly influential prices have recently been moving with an erratic speed and force beyond anything in the country's recent history. The price of the dollar, in foreign exchange, has dropped nearly one-third over the past 15 months. In the first three months of this year, the price of oil dropped two-thirds and since then has jumped part of the way back up. The extraordinary rise of the stock market that began four years ago is continuing. Meanwhile the tax reform bill is rewriting the basic rules of the business and financial world more radically than at any time since World War II. Economists can try to forecast the consequences, but their work is necessarily based on experience with much smaller and more gradual changes.
So what to do about economic policy? As time passes without the expected resumption of more rapid growth, the case for another reduction in interest rates will get steadily stronger. But the signals are mixed, and the case is not yet quite persuasive. For the present, the wisest thing to do is to sit tight and do nothing.