The major economic policy issue facing the White House and Congress is whether to stimulate the economy with a significant new cut in personal and business taxes. The advocates of such a tax cut point to the economic slowdown that was already happening before September 11, and to the sharp decline in consumer spending and share prices since then. It is natural to want to do something to boost the economy, and a tax cut is a politically popular option.

In my judgment, it would be a mistake to rush into such a policy. There is already a substantial monetary and fiscal stimulus in the pipeline. Even before September 11, the Federal Reserve had moved to stimulate the economy by cutting the federal funds interest rate from 6.5% to just 3.5%. Congress had enacted President Bushs tax reform, adding more than $1.3 trillion to households spendable incomes over the next decade. And since September 11 the Fed has cut its interest rate another 50 basis points, while Congress has agreed to large spending measures. Private industry will also spend tens of billions of dollars to rebuild lower Manhattan, much of it financed by insurance industry reserves.

That magnitude of stimulus would be more than enough to turn around an ordinary economic downturn. Its positive effect is now being reinforced by the favorable effects of lower energy costs and a weaker dollar. The overwhelming majority of business forecasters are expecting the U.S. economy to grow at more than 3% in the second half of next year and then to continue expanding at a healthy pace in 2003.

This, of course, is not an ordinary downturn and the forecasters may be wrong. The specter of terrorism creates unprecedented economic uncertainty. But uncertainty is a reason for caution rather than rash action. If the forecasters are correct and the economy is going to rebound by next summer without further stimulus, a tax cut now would cause the economy to overheat, putting pressure on labor and product markets that would cause inflation to rise and further worsen our balance of trade with the rest of the world. Such an overheating would push up interest rates and cause a new downturn.

It would be wiser to wait two months before deciding whether to enact new tax measures. By mid-November people will have moved beyond the immediate shock of September 11 and we will have a much better idea of how consumers are adjusting.

If it turns out that a fiscal stimulus would be appropriate, little would be lost by waiting two months. But trying to reverse an unwarranted tax cut would be hard. If the capital gains rate is cut from 20% to 15%, or the corporate income tax is cut from 35% to 30%, it would be very difficult to return to current levels. Moreover, enacting any one tax cut is only likely to generate demands for others.

The record in past slowdowns shows that attempts at fiscal fine-tuning have failed. The stimulus came too late to avoid the downturn and the delayed effect caused a destabilizing overheating of economic activity. Downturns are traditionally too short -- averaging just 11 months from the cyclical peak until the upturn begins -- for slow-acting fiscal policy to make its impact at the right time.

In contrast, monetary policy is a flexible tool that can be changed quickly when conditions change. The Fed is clearly watching the economic developments and is likely to bring the current 3% fed funds rate down to 2% or even lower if the economy weakens. But it can easily reverse those cuts if new evidence points to greater economic strength.

Although fiscal stimulus may not be appropriate either now or in a few months time, there may be good reasons for further increases in spending on defense and national security. The economic pressures that such spending would create should not be a deterrent to doing what is necessary for our security. To the extent that it might overheat the economy, monetary policy or even a temporary tax increase should provide an appropriate countervailing force. The likelihood of increased defense spending is a further reason for restraint on current tax cuts.

Let me be clear that although I oppose using new tax cuts now to stimulate the economy, I strongly support fundamental tax reform that would reduce or eliminate taxes on capital gains and corporate profits. But such changes need to be made in a deliberate way with an eye to long-term budget consequences.

If two months from now the evidence points to the need for fiscal stimulus, the best way to respond would be by accelerating the personal income tax cuts that are already in place. Doing so would increase spendable incomes and stimulate the economy, but would do so without altering the long-term fiscal outlook.

Sometimes the hardest thing to do is to watch and wait. But this is likely to be one of those times when that is the best policy.

Mr. Feldstein, chairman of the Council of the Economic Advisers under President Reagan, is an economics professor at Harvard. He is a member of the Journal's Board of Contributors.