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ECONOMISTS LOOK TO FED TO PROLONG BUSINESS EXPANSION

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The beginning of the past two decades, 1970 and 1980, were recession years, and it is not only the superstitious who wonder whether 1990 will make it three in a row.

The consensus among economists is that the economy will manage to skirt recession in 1990, prolonging the business expansion for an eighth year, but they say that everything depends - not for the first time - on the Federal Reserve."The Fed has the capacity to turn a slowdown into a recession if it keeps monetary policy tight for the next quarter or so," said Jerry Jasinowski, chief economist and president-elect of the National Association of Manufacturers.

By its judicious juggling of interest rates the Fed has kept growth going while holding inflation reasonably low.

But with many economists forecasting near-recessionary 1 percent growth this quarter, pressure is mounting on Fed Chairman Alan Greenspan to put his caution aside and accelerate the gradual credit-easing he began in June.

"I'm not bashing the Fed, but I think the goal of keeping (the economic expansion) going, which would argue in a time of slowdown for lower interest rates, makes a good deal of sense," President Bush told U.S. News and World Report magazine.

Allan Leslie, chief economist at Discount Corp. in New York, said he expected a quarter of negative growth in the first half of 1990 and chided the Fed for dragging its feet.

"People are more and more worried that the Fed will not react quickly enough," he said.

Chemical Bank Managing Director Jeffrey Leeds, who puts the risk of recession at 40 percent, also thinks the Fed should now be worrying about growth more than inflation.

"It's justifiable to delay the achievement of zero inflation to retain a viable goods-producing sector," he said.

The expansion has been in danger before. Growth was feeble in 1984, and output actually contracted at a 0.8 percent rate in the second quarter of 1986.

But the weakness was confined to specific sectors and never overwhelmed the whole economy, in part because of the growing importance of the less cyclical service sector.

The "rolling recession" is now flattening the car market, commercial real estate and, to a lesser extent, computers.

David Hale, chief economist at Kemper Financial Services Inc. in Chicago, said there was no evidence yet that weakness in output would become widespread this time either.

But, he warned in a recent newsletter, "In contrast to the two-tier growth mix which characterized the mid-1980s, there is greater danger that the current manufacturing pause could evolve into a recession."

The economy pulled out of its 1984 and 1986 weak spells on the back of robust gains in defense spending, construction and personal consumption, Hale noted.

Today, however, no single sector is booming. "The cyclical weakness of the U.S. economy continues to argue for further Fed easing," said Hale, who estimates that the underlying growth rate of output and demand is only 2 percent.

"There is no engine of growth on the horizon that is likely to push up growth over the next couple of years," WEFA Group economists agreed in their latest economic outlook. They are forecasting 2 percent growth in 1990.

Geoffrey Moore, director of international business cycle research at New York's Columbia University, said slowing export growth was another reason why the economy was unlikely suddenly to shake off its torpor.

Moore said weakness is spreading among the leading indices for the 11 countries that Columbia tracks, with six - France, Britain, Italy, Japan and Australia as well as the United States - now showing growth rates of 1 percent or less.

"That could mean a further slowdown in our exports," said Moore. He is nevertheless forecasting 2.6 percent U.S. growth in 1990 - the same as the Bush administration.

David Levine and Giulio Martini of New York stockbrokers Sanford C. Bernstein and Co. Inc. are even more bullish, predicting that the drop in interest rates in recent months is setting the stage for a strong rebound in the economy.

"In ALL prior cyclical slowdowns during which the Fed eased, the economy eventually reaccelerated to 5 percent-plus gross national product growth in its next phase," they wrote in a recent report.

And the bad news? The Fed is likely to respond to the surge in growth by jacking up money-market rates, now around 8.5 percent, by two or three percentage points, the Bernstein analysts predict.