Bamboozled by the twists and turns of the longest U.S. economic peacetime expansion, forecasters are in disarray at the start of the new year.

Forty percent of respondents polled by the National Association of Business Economists predict a 1989 recession.Wrong, says the Reagan administration. Its forecasters say the economy will grow by 3.5 percent.

Only one thing seems certain as the Reagan era ends and the nation prepares for President-elect George Bush to take office on Jan. 20 on the crest of seven years of unbroken growth: No one knows what is going to happen to the world's biggest economy - the mightiest producer and hungriest consumer.

Predictions of a recession after the October 1987 stock market crash turned out to be hopelessly wrong. Despite the extra blow of a severe drought that ravaged farm output, 1988 growth has reached nearly three percent.

The secret of the economy's success and the reason some people are worried about 1989 are the same - a boom in exports triggered by the cheap dollar, which makes U.S. goods cheaper overseas.

Because domestic demand has remained vibrant, factories are having to operate flat out to produce the extra goods, resulting in a slow but sure increase in wages and prices.

The question dividing economists is how hard the Federal Reserve will clamp down on this inflation. Even within the central bank, policymakers disagree about how high interest rates need to go to slow the economy and ease price pressures.

"The rate of growth in the money supply . . . is keeping the rate of growth in the economy at a level which looks to be sustainable without significant increased inflationary pressure," said Fed governor John LaWare.

"The economy is still growing at a pace that cannot be sustained in the long run without higher inflation," countered Robert Parry, president of the San Francisco Fed.

Where the vast majority of economists do see eye to eye is the need for Congress and the Bush administration to agree on a significant reduction in the federal budget deficit, which totaled $155.1 billion in the latest fiscal year.

Closing the budget gap would free the resources needed to sustain export growth without fueling inflation. It would also reduce America's dependence on huge inflows of foreign savings, which makes the dollar and interest rates vulnerable to swings in the sentiment of European and Japanese investors.

Furthermore, by relieving inflationary pressures, lower government spending would enable the Federal Reserve to bring interest rates down, economists say.

"At some point in the next 12 months we need a new fiscal and monetary policy mix," said David Hale, chief economist of Kemper Financial Services Inc in Chicago.

Unfortunately that looks unlikely, said Professor Paul Krugman of Massachusetts Institute of Technology.