The outlook for the national economy is precarious. Leading economic indicators have been on a downward trend. The Federal Reserve and Congress are doing a balancing act with monetary and fiscal policy. An overzealous tightening of credit conditions or failure to address the country's budgetary problems would probably be sufficient to push the economy over the edge and into a recession.

     However, with some luck and if the aforementioned institutions act in a responsible manner, the inevitable recession may be postponed into the indefinite future. Accelerating inflation and higher interest rates pose the most immediate danger to the national economy. The stated position of the Federal Reserve is to keep inflation under control by slowing the economy through higher interest rates. However, the linkage between monetary aggregates and economic activity is not well enough understood to allow a precise fine tuning of the economy. Therefore, the possibility of error is quite real. A distinct minority of economists believe that the economy has already been pushed into a downward mode. However, economic data does not as of yet support this position.

     If higher interest rates are needed to cool the economy and thwart the ravages of inflation, what will be the effects? Consumer spending will be reduced because big ticket items will become more expensive to finance. Business investment in machinery and inventory will also be reduced as the cost of borrowing increases. Government debt will rise because of reduced revenue and higher interest rates. This will put more pressure than ever on Congress to cut expenses and programs.

     Finally, it appears that the end of the Iraq-Iran war has allowed OPEC to close ranks and agree to fix prices and production levels. Unless other energy sources offset this, inflation could have a real jump start later this year.