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The Critical Question. Wall Street seemed to read such signals with a mildly bearish eye. The Dow-Jones industrial average went down 5.84 points last week to 807.18, thus erasing a quarter of the promising rally of the week before. Neither businessmen nor investors found cause to cheer last week's announcement by Commerce Secretary John Connor, calling on U.S. business to keep more dollars at home next year to help ease the nation's worrisome balance of payments deficit and resulting gold drain. Though many executives complain that such "voluntary" restrictions not only sacrifice profits but, for the long run, worsen the nation's trade balance, Connor asked corporations to tighten their belts at least $2 billion worth in 1967. He left them a choice of how to do it—by expanding exports, borrowing abroad or repatriating more money invested overseas. The Federal Reserve at the same time asked banks to clamp down further on foreign loans, to the annoyance of most bankers.
Cooling off the economy, of course, is precisely what the Federal Reserve Board has been trying to do with its tight-money policy, the only tool it has. Now, many businessmen, bankers and economists are at odds over interpreting the results. "We don't see anything drastic by way of cutbacks," says Allied Chemical President Chester M. Brown. "In our case, a little slackening would be healthy." President Richard Hill of Boston's First National Bank calls the downturn so far "just a lessening of pressure." Chicago Economist John Langum, however, insists that the private economy, at least, "already is moving down into a major recession" while "the only thing going ahead is national defense."
The point on which these men differ is one that the nation's money managers must consider carefully. Without doubt, the U.S. economy became overheated in 1966, and a certain cooling off was required. But at what point does the cooling-off process lead to a harmful chill? So far, there are no definitive answers to this critical question.