WASHINGTON — Democrats are returning to power on Capitol Hill just as two powerful wings of the party, labor and Wall Street, are colliding over economic issues.

The dispute over trade and budget policies prompted a high- level private meeting this month between AFL-CIO President John Sweeney and former Treasury Secretary Robert Rubin, who is now chairman of the executive committee at New York-based Citigroup Inc.

AFL-CIO leaders, contending Democrats won the midterm elections because of voter concern about job security and stagnant wages, say it's time to set aside the free-trade policies touted by Rubin.

"We need to review the Rubin agenda that's led to millions of lost jobs and declining standard of living for the middle class," said United Steelworkers President Leo Girard. "It's an agenda that has been very good for Citigroup and the financial community because they've been able to finance the relocation of jobs and refinance the trade deficits."

Organized labor has long been at odds with "Rubinomics," the phrase coined to describe President Clinton's economic policy, masterminded by Rubin, to promote free trade and reduce the budget deficit. Now, with Democrats regaining control of Congress, such issues may take on new urgency as labor sees a chance to wield greater influence over policy.

A dispute between these two wings may cause Democratic lawmakers to avoid action on trade and other thorny economic issues that could divide the party.

"Do Democrats in this new Congress want to go out on a limb and shake things up, or rather hold their fire and keep their powder dry in anticipation of 2008?" said Robert Reich, labor secretary under Clinton. "How much can really be done is a big question mark."

Peter Orzag, who co-founded with Rubin a domestic policy group called the Hamilton Project, said the group believes "market competition and globalization generate significant economic benefits." While he agrees that attention must be paid to those displaced by globalization, he disagrees "on principle" with labor's call to put new trade deals on hold.

Another participant in the Hamilton Project, Robert Reischauer, disputed the notion that the voters who turned Congress over to the Democrats want the kinds of changes in economic policy called for by labor.

"The Democratic Party by and large will reflect the views and policies of those who invited them to the dance, which is in the middle of the political spectrum," said Reischauer, president of the Urban Institute, a Washington research group. "There will be movement toward the center by all groups."

In an airing of differences, Sweeney and AFL-CIO Treasurer Richard Trumka met this month with Rubin and Roger Altman, chairman of New York-based merger advisory firm Evercore Partners Inc. Altman, 60, a deputy Treasury secretary under Clinton, is a participant in the Hamilton Project.

Sweeney, 72, described the meeting as "cordial" while adding it's "easy to be tough and nice" at the same time. While declining to discuss specifics, he said the meeting involved discussions on "trade policy, budget deficits and wage and wealth-gap issues."

Rubin, 68, has called for a new economic direction by balancing the federal government's budget through spending cuts and tax increases, more free-trade agreements, wage insurance for workers dislocated by globalization and restraining personal-injury lawsuits.

"The strategy you propose offers little, in my view, to either bolster economic growth or address the stagnating wages and living standards of American working families," Trumka wrote in a Feb. 7 letter to Rubin. "I am simply astonished you would suggest such a politically toxic agenda for the Democratic Party."

Steven Rattner, co-founder of New York investment firm Quadrangle Group LLC and a member of the Hamilton Project's advisory council, gave voice to those differences in a July Wall Street Journal guest editorial.

Rattner criticized "more extreme factions" of the party that "argue that the centrism of the Clinton administration doesn't adequately address 21st-century fears." He said they "offer in its place statist visions of organizing economic policy around belittling American capitalism" while trumpeting "unionization and protection."

The AFL-CIO, the nation's largest labor federation, says it plans to push forward with an agenda that calls for a full review of U.S. trade policy. The group, which spent a record $40 million to oust Republicans in this year's elections, says it expects to be taken seriously by a Democratic majority that owes its existence at least in part to union members' efforts to mobilize voters.